[Federal Register Volume 74, Number 140 (Thursday, July 23, 2009)]
[Proposed Rules]
[Pages 36556-36602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16952]



[[Page 36555]]

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Part II





Department of Education





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34 CFR Parts 674, 682, and 685



Federal Perkins Loan Program, Federal Family Education Loan Program, 
and William D. Ford Federal Direct Loan Program; Proposed Rule

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

[[Page 36556]]


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DEPARTMENT OF EDUCATION

[Docket ID ED-2009-OPE-0004]

34 CFR Parts 674, 682, and 685

RIN 1840-AC98


Federal Perkins Loan Program, Federal Family Education Loan 
Program, and William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the Federal Perkins Loan 
(Perkins Loan) Program, Federal Family Education Loan (FFEL) Program, 
and William D. Ford Federal Direct Loan (Direct Loan) Program 
regulations. These proposed regulations are needed to implement 
provisions of the Higher Education Act of 1965 (HEA), as amended by the 
Higher Education Opportunity Act of 2008 (HEOA).

DATES: We must receive your comments on or before August 24, 2009.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by e-mail. Please submit your comments only 
one time, in order to ensure that we do not receive duplicate copies. 
In addition, please include the Docket ID at the top of your comments.
    <bullet> 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.''
    <bullet> Postal Mail, Commercial Delivery, or Hand Delivery.
    If you mail or deliver your comments about these proposed 
regulations, address them to Pamela Moran, U.S. Department of 
Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502.

    Privacy Note: The Department's policy for comments received from 
members of the public (including those comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing in their entirety on the Federal 
eRulemaking Portal at http://www.regulations.gov. Therefore, 
commenters should be careful to include in their comments only 
information that they wish to make publicly available on the 
Internet.


FOR FURTHER INFORMATION CONTACT: Pamela Moran, U.S. Department of 
Education, 1990 K Street, NW., Room 8033, Washington, DC 20006-8502. 
Telephone: (202) 502-7732 or via the Internet at: <a href="/cdn-cgi/l/email-protection#780819151d14195615170a1916381d1c561f170e"><span class="__cf_email__" data-cfemail="2151404c444d400f4c4e53404f6144450f464e57">[email protected]</span></a>.
    If you use a telecommunications device for the deaf, call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation to Comment

    As outlined in the section of this notice entitled ``Negotiated 
Rulemaking,'' significant public participation, through six public 
hearings and three negotiated rulemaking sessions, has occurred in 
developing this notice of proposed rulemaking (NPRM). In accordance 
with the requirements of the Administrative Procedure Act, the 
Department invites you to submit comments regarding these proposed 
regulations on or before August 24, 2009. To ensure that your comments 
have maximum effect in developing the final regulations, we urge you to 
identify clearly the specific section or sections of the proposed 
regulations that each of your comments addresses and to arrange your 
comments in the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866, including its overall 
requirements to assess both the costs and the benefits of the proposed 
regulations and feasible alternatives, and to make a reasoned 
determination that the benefits of these proposed regulations justify 
their costs. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    As noted elsewhere in this NPRM, two of the Department's negotiated 
rulemaking committees considered proposed revisions to 34 CFR 674.51, 
Special Definitions, in Subpart D of the Federal Perkins Loan Program 
regulations. Team I--Loans-Lender General Loan Issues, the negotiating 
committee responsible for regulations involving issues related to 
lender and general loan issues, negotiated the proposed definitions of 
``substantial gainful activity'' and ``permanent and total 
disability.'' Team II--Loans-School-based Loans Issues negotiated all 
other changes in this section.
    We have included all proposed changes to 34 CFR 674.51 in this NPRM 
as well as in the NPRM that we are publishing as a result of the 
negotiations of Team II--School-based Loans Issues. However, we ask 
that when submitting your comments on the proposed changes to 34 CFR 
674.51, you submit any comments on the proposed definitions of 
``substantial gainful activity'' and ``total and permanent disability'' 
in the docket (Docket ID ED-2009-OPE-0004) for this NPRM. Comments on 
all other provisions in this section should be submitted in the docket 
(Docket ID ED-2009-OPE-0003) for the Team II--School-based Loans Issues 
NPRM.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments in person in Room 8033, 1990 K 
Street, NW., Washington, DC between the hours of 8:30 a.m. and 4:00 
p.m. Eastern Time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, please contact the person 
listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary, before publishing 
any proposed regulations for programs authorized by title IV of the 
HEA, to obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations from the 
public, including individuals and representatives of groups involved in 
the Federal student assistance programs, the Secretary must subject the 
proposed regulations to a negotiated rulemaking process. All proposed 
regulations that the Department publishes on which the negotiators 
reached consensus must conform to final agreements resulting from that 
process unless the Secretary reopens the process or provides a written 
explanation to the participants stating why the Secretary has decided 
to depart from the agreements. Further

[[Page 36557]]

information on the negotiated rulemaking process can be found at: 
http://www.ed.gov/policy/highered/leg/hea08/index.html.
    On September 8, 2008, the Department published a notice in the 
Federal Register (73 FR 51990) announcing our intent to establish 
negotiated rulemaking committees to develop proposed regulations to (1) 
implement the changes made to the HEA by the Higher Education 
Opportunity Act of 2008 (HEOA, Pub. L. 110-315) that affected programs 
authorized under title IV of the HEA, and (2) possibly address the 
provision added to section 207(c) of the HEA by the HEOA regarding the 
prohibition on a teacher preparation program from which the State has 
withdrawn approval or terminated financial support from accepting or 
enrolling any student who received title IV aid.
    On December 31, 2008, the Department published a notice in the 
Federal Register (73 FR 80314) announcing our intent to establish up to 
five negotiated rulemaking committees to prepare proposed regulations. 
The notice indicated that no requests from the public were received to 
negotiate the provision added to section 207(c) of the HEA. The 
Secretary determined it was not necessary to issue regulations in that 
area and therefore did not submit that issue to a negotiated rulemaking 
committee. The five committees that were established were: (1) A 
committee on lender and general loan issues (Loans Team I); (2) a 
committee on school-based loan issues (Loans Team II); (3) a committee 
on accreditation; (4) a committee on discretionary grant programs; and 
(5) a committee on general and non-loan programmatic issues. The notice 
informed the public that, due to the large volume of changes made by 
the HEOA that needed to be implemented through negotiated rulemaking, 
not all provisions would be addressed during this round of committee 
meetings. The notice requested nominations of individuals for 
membership on the committees who could represent the interests 
significantly affected by the proposed regulations and had demonstrated 
expertise or experience in the relevant subjects under negotiation.
    Loans Team I met in three sessions to develop proposed regulations: 
Session 1, February 23-25, 2009; session 2, March 30-April 1, 2009; and 
session 3, May 4-6, 2009. These proposed regulations relate to the 
administration of the Federal student loan programs. This NPRM resulted 
primarily from the work of Loans Team I and, in a couple of instances 
where the subject matter of the proposed regulations overlapped, the 
work of Loans Team II.\1\
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    \1\ As discussed elsewhere in this preamble, Loans Team II was 
responsible for negotiating the following provisions, which appear 
in this NPRM: 34 CFR 674.51, definitions of the terms child with a 
disability, community defender organizations, educational service 
agency, faculty member at a Tribal College or University, Federal 
public defender organization, firefighter, infant or toddler with a 
disability, librarian with a master's degree, speech language 
pathologist with a master's degree, and Tribal College or 
University.
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    The Department developed a list of proposed regulatory provisions 
from advice and recommendations submitted by individuals and 
organizations as testimony to the Department in a series of six public 
hearings held on:
    <bullet> September 19, 2008, at the Texas Christian University, in 
Fort Worth, Texas.
    <bullet> September 29, 2008, at the University of Rhode Island, in 
Providence, Rhode Island.
    <bullet> October 2, 2008, at the Pepperdine University, in Malibu, 
California.
    <bullet> October 6, 2008, at Johnson C. Smith University, in 
Charlotte, North Carolina.
    <bullet> October 8, 2008, at the U.S. Department of Education, in 
Washington, DC.
    <bullet> October 15, 2008, at Cuyahoga Community College, in 
Warrensville Heights, Ohio.
    In addition, the Department accepted written comments on possible 
regulations submitted directly to the Department by interested parties 
and organizations. A summary of all comments received orally and in 
writing is posted as background material in the docket for this NPRM. 
Transcripts of the regional meetings can be accessed at: http://www.ed.gov/policy/highered/leg/hea08/index.html. The Department also 
identified issues for discussion and negotiation.
    At its first meeting, the Loans Team I Committee reached agreement 
on its protocols and proposed agenda. The agenda included the statutory 
changes identified for the Committee's consideration. In addition, at 
the second meeting of the Committee, the negotiators agreed by 
consensus to add two additional agenda items affecting the 
determination of eligibility and calculation of borrower payment 
amounts under the income-based repayment plan in the FFEL and Direct 
Loan programs that becomes available to borrowers on July 1, 2009.
    The Loans Team I Committee members (and the organizations they 
represented) included the following:
    <bullet> Representing students: Jonathan S. Sachs, primary, and 
Adam Briones, alternate (U.S. Public Interest Research Group; United 
States Student Association; University of Maryland Student Government 
Association; The Greenlining Institute);
    <bullet> Representing legal assistance organizations that represent 
students and borrowers: Deanne Loonin, primary, and Lauren Saunders, 
alternate (National Consumer Law Center);
    <bullet> Representing 2-year public institutions: George Chin, 
primary (American Association of State Colleges and Universities);
    <bullet> Representing 4-year public institutions: Carrie Steere-
Salazar, primary, and Kris Wright, alternate (Association of American 
Medical Colleges; National Direct Loan Coalition);
    <bullet> Representing private, nonprofit institutions of higher 
education: Heather McDonnell, primary, and Bonnie Lee Behm, alternate 
(National Association of Student Financial Aid Administrators; 
Pennsylvania Association of Student Financial Aid Administrators);
    <bullet> Representing private, for-profit institutions of higher 
education: Thomas A. Babel, primary, and William Leach, alternate 
(DeVry University; Career College Association);
    <bullet> Representing guaranty agencies: Mary Mowdy, primary, and 
Dick George, alternate (Oklahoma State Regents for Higher Education; 
National Council of Higher Education Loan Programs (NCHELP));
    <bullet> Representing for-profit lenders: Brenda Dillon, primary, 
and Tom Levandowski, alternate (NCHELP; Consumer Bankers Association);
    <bullet> Representing not-for-profit lenders: Cheryl Hughes, 
primary, and Scott Giles, alternate (NCHELP; Education Finance Council 
(EFC));
    <bullet> Representing credit unions: Michael Kim, primary, and 
Rhonda Summerbell, alternate (Coalition of the following credit unions: 
University Federal Credit Union, USC Credit Union, UW Credit Union, 
Navy Federal Credit Union, Notre Dame Federal Credit Union);
    <bullet> Representing lender servicers: Diane Freundel, primary, 
and Wanda Hall, alternate (EFC; NCHELP; Student Loan Servicing 
Alliance); and
    <bullet> Representing the U.S. Department of Education: Pam Moran.
    The Committee's protocols provided that the committee would operate 
by consensus, meaning there must be no dissent by any member in order 
for the committee to be considered to have reached agreement. Under the 
protocols, if the Committee reaches final consensus on all issues, the 
Department will use the consensus-based language in the proposed 
regulations and committee members and the

[[Page 36558]]

organizations whom they represent will refrain from commenting 
negatively on the package, except where provided for in the agreed upon 
protocols.
    During its meetings, the Loans Team I Committee reviewed and 
discussed drafts of the proposed regulations. At the final meeting in 
May 2009, the Committee reached consensus on the proposed regulations 
in this document, with the exception of those definitions included in 
34 CFR 674.51 that were negotiated by Loans Team II, as discussed 
elsewhere in this notice.
    In addition to the proposed regulations considered by Loans Team I, 
this NPRM also includes some additional definitions that appear in 34 
CFR 674.51 (Special Definitions). Only the definitions of ``substantial 
gainful activity'' and ``total and permanent disability'' were included 
in the proposed regulations agreed to by Loans Team I. The remaining 
definitions in this section were added or amended as part of the 
negotiations of Loans Team II, but are being included here to provide 
context for the changes to this section.
    Team I and Team II were advised that, to ensure transparency and 
ease of use for public commenters, the Department would propose the 
entirety of 34 CFR part 601 in a single NPRM. Given Team I's consensus, 
which included consensus on the definitions of the terms lender and 
private education loan in proposed Sec.  601.2 as well as the 
requirements in Sec.  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 Sec.  601.40.
    With regard to the proposed changes to Sec.  674.51, the Department 
determined that it would be helpful for the public to be able to view 
all proposed changes to this special definitions section for the 
Perkins Program in both Team I's NPRM and Team II's NPRM. Team I and 
Team II were advised that the proposed changes to Sec.  674.51 would 
appear in their entirety in both documents to provide context and 
enhance understanding of both committees' proposed changes to this 
section. Each team was advised by its respective Federal negotiator 
that its consensus agreement did not apply to the definitions 
negotiated by the other team and that any comments they may have on the 
definitions negotiated by the other team should be submitted in 
response to the NPRM published as a result of the other team's 
negotiations.
    More information on the work of Team I can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-lender.html and 
more information on the work of Team II can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-school-based.

Summary of Proposed Changes

    These proposed regulations would implement general and lender-based 
loan provisions of the HEA, as amended by the HEOA, that include:
    <bullet> A revised definition of ``totally and permanently 
disabled'' for purposes of discharging a borrower's title IV loans and 
a revised disability discharge process;
    <bullet> Expansion of the conditions under which a borrower with 
only FFEL loans may consolidate those loans into a Direct Consolidation 
Loan;
    <bullet> Additional disclosures for FFEL and Direct consolidation 
loan applicants, and a new requirement for FFEL Consolidation loan 
lenders to notify borrowers who have applied for a Consolidation loan 
that they may cancel the loan within a specified time period;
    <bullet> An additional method for granting in-school deferments on 
FFEL or Direct Loan program loans, and a new notification requirement 
for FFEL lenders when granting a borrower a deferment on an 
unsubsidized loan;
    <bullet> New in-school deferment provisions for PLUS loan borrowers 
and related changes to administrative forbearance provisions;
    <bullet> Clarification of PLUS loan interest capitalization 
provisions;
    <bullet> A revised definition of ``partial financial hardship'' for 
purposes of determining eligibility for the income-based repayment 
(IBR) plan in the FFEL and Direct Loan programs, and revised 
regulations for determining the IBR payment amount;
    <bullet> An expansion of the eligibility requirements for teacher 
loan forgiveness in the FFEL and Direct Loan programs to allow 
borrowers who perform qualifying teaching service at an eligible 
educational service agency to receive forgiveness;
    <bullet> A revision of the regulations related to loan 
rehabilitation to provide that a FFEL or Direct Loan borrower may 
rehabilitate a defaulted loan only once;
    <bullet> Revisions to the regulations governing prohibited 
inducements by guaranty agencies and lenders in the FFEL Program;
    <bullet> Revised and expanded disclosure requirements for FFEL 
Program lenders at the time of or prior to loan disbursement and during 
the loan repayment period;
    <bullet> An expansion of the information that must be provided to a 
FFEL borrower when the transfer, sale, or assignment of the borrower's 
loan results in a change in the identity of the party to whom payments 
and communications must be sent;
    <bullet> Revised forbearance disclosure requirements related to 
interest capitalization for FFEL lenders;
    <bullet> Revised regulations related to the audit requirements for 
a FFEL school lender or an eligible lender trustee that originates FFEL 
loans for a school or school-affiliated organization;
    <bullet> A new requirement for guaranty agencies to work with the 
schools that they serve to develop and make available to students and 
their families consumer education materials related to budgeting and 
financial management;
    <bullet> A new requirement for guaranty agencies to make available 
certain financial and economic education materials to borrowers who 
have rehabilitated defaulted loans;
    <bullet> Revised consumer credit reporting requirements for 
guaranty agencies and prior loan holders after a borrower has 
rehabilitated a defaulted loan; and
    <bullet> Revised requirements related to the notifications that 
guaranty agencies must send to borrowers with defaulted loans.

Significant Proposed Regulations

    We group major issues according to subject, with appropriate 
sections of the proposed regulations referenced in parentheses, 
beginning with issues that apply to all three title IV loan programs, 
followed by issues that apply to the FFEL and Direct Loan programs, and 
then issues that apply only to the FFEL Program. We discuss substantive 
issues under the sections of the proposed regulations to which they 
pertain. Generally, we do not address proposed regulatory provisions 
that are technical or otherwise minor in effect.

Total and Permanent Disability Loan Discharges

Definitions (Sec. Sec.  674.51 and 682.200(b))

    Statute: Prior to the enactment of the HEOA, the HEA provided that 
a Perkins Loan, FFEL, or Direct Loan could be discharged if the 
borrower had a total and permanent disability as determined in 
accordance with the regulations of the Secretary. The HEOA amended

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sections 437(a) and 464(c)(1)(F) of the HEA to provide for the 
discharge of a borrower's title IV loans if the borrower becomes 
totally and permanently disabled in accordance with the Secretary's 
regulations, or if the borrower is unable to engage in any substantial 
gainful activity by reason of any medically determinable physical or 
mental impairment that can be expected to result in death, has lasted 
for a continuous period of not less than 60 months, or can be expected 
to last for a continuous period of not less than 60 months.
    The HEOA further amended sections 437(a) and 464(c)(1)(F) of the 
HEA by establishing a separate total and permanent disability standard 
for certain veterans. Specifically, the HEA now provides that a 
borrower who is a military veteran is considered totally and 
permanently disabled for title IV loan discharge purposes if the 
borrower provides documentation showing that he or she has been 
determined by the Secretary of Veterans Affairs to be unemployable due 
to a service-connected disability. A borrower who provides such 
documentation is not required to present additional documentation for 
purposes of establishing eligibility for loan discharge based on total 
and permanent disability.
    Current Regulations: The current regulations governing the Perkins, 
FFEL, and Direct Loan programs define ``total and permanent 
disability'' as the condition of an individual who is unable to work 
and earn money because of an injury or illness that is expected to 
continue indefinitely or result in death. Current regulations do not 
define ``substantial gainful activity.''
    Proposed Regulations: Proposed Sec. Sec.  674.51(aa) and 682.200(b) 
would define total and permanent disability as the condition of an 
individual who: (1) Is unable to engage in any substantial gainful 
activity by reason of any medically determinable physical or mental 
impairment that can be expected to result in death, has lasted for a 
continuous period of not less than 60 months, or can be expected to 
last for a continuous period of not less than 60 months; or (2) is a 
veteran and who has been determined by the Secretary of Veterans 
Affairs to be unemployable due to a service-connected disability.
    The proposed regulations would also add a definition of substantial 
gainful activity in Sec. Sec.  674.51(x) and 682.200(b). The proposed 
definition would specify that substantial gainful activity means a 
level of work performed for pay or profit that involves doing 
significant physical or mental activities, or both.
    Reasons: The proposed regulations reflect the new statutory 
definition of totally and permanently disabled. Although the HEA 
provides that a borrower may be considered totally and permanently 
disabled either in accordance with the Secretary's regulations or under 
the standards specified in sections 437(a) and 464(c)(1)(F) of the HEA 
as described above, the Department has decided to use only the new 
specific statutory substantial gainful activity standard. The 
Department has decided not to add any additional regulatory standards. 
Therefore, the proposed revised definition of total and permanent 
disability reflects only the statutory total and permanent disability 
standards that were added to the HEA by the HEOA.
    The proposed definition of substantial gainful activity is based, 
in part, on the definition of substantial gainful activity that the 
Social Security Administration (SSA) uses in connection with 
determining an individual's eligibility for Social Security disability 
benefits. However, the Department's proposed definition relies solely 
on a medical determination and, unlike SSA's definition, does not 
require a physician to consider whether a borrower can earn more than a 
specified amount. The Department does not believe that, for purposes of 
the discharge, it is necessary for a physician to evaluate whether a 
borrower is able to earn more than a specified amount each year.
    Some of the non-Federal negotiators asked for clarification of the 
reference to work performed ``for profit'' in the proposed definition 
of substantial gainful activity. They expressed concerns that the term 
``profit'' would include income from sources other than employment. The 
Department explained that the reference to work performed for profit 
was borrowed from the SSA's definition of substantial gainful activity 
and is intended to cover self-employed individuals who are not paid by 
an employer. The Department further noted that the proposed definition 
of substantial gainful activity refers to ``work'' performed for pay or 
profit. The term ``work performed for profit'' does not refer to income 
from sources other than employment (including self employment) and non-
employment income will not be considered when determining whether a 
borrower is capable of substantial gainful activity.

Discharge Process for Borrowers Other Than Certain Veterans (Sec. Sec.  
674.61(b), 682.402(c)(2) Through (c)(7), and 685.213(b))

    Statute: Sections 437(a)(1) and 464(k) of the HEA, as amended by 
the HEOA, provide for the discharge of a borrower's title IV loans if 
the borrower becomes totally and permanently disabled. Those provisions 
also authorize the Secretary to promulgate regulations to reinstate a 
borrower's obligation to repay a loan that was discharged due to 
disability if, after the discharge, the borrower receives another title 
IV loan or has earned income in excess of the poverty line, or under 
other circumstances that the Secretary determines to be necessary.
    Current Regulations: Under current regulations, a borrower applies 
for a total and permanent disability discharge of a title IV loan by 
submitting a completed loan discharge application that has been 
certified by a physician to the borrower's loan holder. For Perkins 
Loans, the loan holder is the Perkins school lender. For FFEL loans, 
the holder is the lender or, if a default claim has been paid on the 
loan, the guaranty agency. For Direct Loans and for Perkins or FFEL 
loans that have been assigned to the Secretary, the loan holder is the 
Department.
    For a Perkins loan held by a school, if the loan holder determines 
that the information provided on the discharge application supports the 
conclusion that the borrower is totally and permanently disabled in 
accordance with the current regulatory definition, the loan holder 
assigns the loan to the Secretary.
    For a FFEL loan that is held by a lender, if the lender determines 
that the discharge application supports the conclusion that the 
borrower is totally and permanently disabled, the lender files a 
disability discharge claim with the guaranty agency. The guaranty 
agency reviews the borrower's application, and if the guaranty agency 
concurs with the lender's preliminary determination of discharge 
eligibility, it pays the lender's discharge claim and assigns the loan 
to the Secretary.
    Once the loan has been assigned, the Secretary reviews the loan 
discharge application and makes an initial determination of the 
borrower's eligibility for discharge. For Direct Loans or for Perkins 
or FFEL loans that were already held by the Secretary, the Secretary's 
review is the initial review of the borrower's loan discharge 
application.
    If the Secretary concludes that the information on the discharge 
application does not support the conclusion that the borrower is 
eligible for a total and permanent disability discharge, the Secretary 
notifies the borrower that the discharge request has been denied and 
that the loan is due and payable to the Secretary under the

[[Page 36560]]

terms and conditions of the promissory note.
    If the Secretary determines that the borrower appears to meet the 
eligibility requirements for a total and permanent disability 
discharge, the Secretary grants the borrower a conditional discharge 
for a period of up to three years, beginning on the date the physician 
certified the borrower's discharge application. During the conditional 
discharge period, the borrower is not required to make any payments on 
the loan and no interest accrues on the loan. The Secretary grants a 
final discharge if, during and at the end of the conditional discharge 
period, the borrower: (1) Does not receive a new title IV loan or a 
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant; (2) does not have earnings from employment that exceed the 
poverty line amount for a family of two; and (3) ensures that the full 
amount of any title IV loan disbursement made after the physician's 
certification date for a loan the borrower received prior to the 
physician's certification date is returned to the holder within 120 
days of the disbursement date. After granting a final discharge of a 
loan, the Secretary returns to the sender any payments on the loan that 
were received after the physician's certification date.
    If at any time during or at the end of the conditional discharge 
period the borrower fails to meet one of the requirements for a final 
discharge, the Secretary ends the conditional discharge period and 
resumes collection activity on the loan. The borrower is not charged 
interest for the period during which the loan was conditionally 
discharged.
    Proposed Regulations: The proposed regulations would establish two 
separate loan discharge processes, one for veterans who have been 
determined by the Secretary of Veterans Affairs to be unemployable due 
to a service-connected disability, and a different process (the general 
discharge process) for borrowers who have been determined (as certified 
by a physician) to be unable to engage in substantial gainful activity 
due to a physical or mental impairment that can be expected to result 
in death or that has lasted for a continuous period of not less than 60 
months, or that can be expected to last for a continuous period of not 
less than 60 months. The discharge process for veterans who have been 
determined to be unemployable due to a service-connected disability is 
discussed below under the heading ``Discharge Process for Veterans Who 
Have Been Determined to be Unemployable Due to a Service-Connected 
Disability.'' This section covers the general discharge process for 
other borrowers.
    The general discharge process included in these proposed 
regulations is similar in some respects to the discharge process under 
the current regulations. However, instead of using the current 
conditional discharge process, the Secretary would discharge a 
borrower's obligation to repay a loan after determining that the 
borrower meets the discharge eligibility requirements. The Secretary 
would then reinstate the borrower's obligation to repay the loan if the 
borrower fails to meet certain requirements during a post-discharge 
monitoring period.
    Under the proposed regulations, a borrower who wishes to apply for 
a total and permanent disability loan discharge would submit to his or 
her loan holders a completed loan discharge application that has been 
certified by a physician. The loan holder review process would be the 
same as under the current regulations. If the loan holder and, if 
applicable, the guaranty agency determine that the information provided 
on the discharge application supports the conclusion that the borrower 
is totally and permanently disabled in accordance with the regulatory 
definition, the loan would be assigned to the Secretary, as under the 
current regulations. The Secretary would then review the loan discharge 
application and make a determination of the borrower's eligibility for 
discharge. As under the current regulations, the Secretary's review 
would be the initial review of the borrower's discharge application in 
the case of a Direct Loan or a Perkins or FFEL loan that is already 
held by the Secretary.
    If the Secretary concludes that the information on the discharge 
application does not support the conclusion that the borrower is 
eligible for a total and permanent disability loan discharge, the 
Secretary would notify the borrower that the discharge request has been 
denied and that the loan is due and payable to the Secretary under the 
terms and conditions of the promissory note.
    Under the proposed regulations, if the Secretary determines that 
the borrower meets the eligibility requirements for a total and 
permanent disability discharge, the Secretary would grant a final 
discharge and return to the sender any payments on the loan that were 
received after the physician's certification date. At the same time, 
the Secretary would notify the borrower that the borrower's obligation 
to repay the loan will be reinstated if, within three years from the 
discharge date, the borrower: (1) Receives a new title IV loan or TEACH 
Grant; (2) has earnings from employment that exceed the poverty line 
amount for a family of two; or (3) fails to ensure that the full amount 
of any title IV loan or TEACH Grant disbursement made after the 
discharge date for a loan or TEACH Grant the borrower received prior to 
the discharge date is returned to the holder or to the Secretary, as 
applicable, within 120 days of the disbursement date. If a borrower's 
obligation to repay a loan is reinstated, the borrower is not charged 
interest for the period from the discharge date to the date of the 
reinstatement.
    The proposed regulations would also provide that, if a borrower 
received a title IV loan or TEACH Grant before the date the physician 
certified the loan discharge application and a disbursement of that 
loan or grant is made after the date of the physician's certification 
but before the date the Secretary grants the discharge, the processing 
of the borrower's loan discharge request will be suspended until the 
borrower ensures that the full amount of the disbursement has been 
returned to the loan holder or to the Secretary, as applicable.
    Finally, the proposed regulations would provide that if a 
borrower's obligation to repay a loan is reinstated after a total and 
permanent disability discharge, the Secretary will notify the borrower 
of the reinstatement. The notification will provide the borrower with 
the reason or reasons for the reinstatement, an explanation that the 
first loan payment following reinstatement will be due no earlier than 
60 days after the date of the notification, and information on how the 
borrower may contact the Department if the borrower has questions about 
the reinstatement or believes that the obligation to repay the loan was 
reinstated based on incorrect information.
    Reasons: The proposed regulations reflect the statutory provisions 
that authorize the Secretary to reinstate a borrower's obligation to 
repay a previously discharged loan under certain conditions. Under the 
proposed regulations, the general discharge process would, in many 
respects, be similar to the discharge process under the current 
regulations. The non-Federal negotiators were generally supportive of 
this approach. The most significant difference between the proposed and 
current regulations is that the current conditional discharge process 
will be replaced by a process in which the Secretary discharges the 
borrower's obligation to repay the loan after determining that the 
borrower is totally

[[Page 36561]]

and permanently disabled, but reinstates the borrower's repayment 
obligation if the borrower fails to meet certain requirements during a 
3-year post-discharge monitoring period. The proposed 3-year post-
discharge monitoring period is consistent with the current 3-year 
conditional discharge period, and the conditions that would result in 
the reinstatement of a borrower's obligation to repay a previously 
discharged loan are essentially the same as the conditions that, under 
the current regulations, result in a conditionally discharged loan 
being returned to repayment status.
    The Department initially proposed a 5-year post-discharge 
monitoring period and also proposed that upon the reinstatement of a 
borrower's obligation to repay a previously discharged loan for failure 
to meet one of the post-discharge requirements, the borrower would be 
charged interest for the period from the date of discharge to the 
reinstatement date. The non-Federal negotiators did not support these 
proposals. Some negotiators questioned the basis for having a 5-year 
post-discharge monitoring period, since under current regulations the 
conditional discharge period is only three years. With regard to the 
Department's initial proposal to charge interest from the discharge 
date if a borrower's obligation to repay a discharged loan is 
reinstated, the non-Federal negotiators noted that, under current 
regulations, a borrower is not charged interest from the conditional 
discharge date if a conditionally discharged loan is returned to 
repayment status before the end of the conditional discharge period. 
After further consideration of the non-Federal negotiators' concerns, 
the Department revised the proposed regulations by changing the post-
discharge monitoring period from five years to three years, and by 
removing the provision that would have required a borrower to pay 
interest from the date of discharge if the borrower's repayment 
obligation is reinstated.
    The Department also initially proposed that one of the conditions 
for reinstatement of a borrower's obligation to repay a previously 
discharged loan would be if the borrower had annual earnings from 
employment during the post-discharge monitoring period that exceeded 
the poverty guideline amount for the borrower's family size. Current 
regulations provide that a conditionally discharged loan is returned to 
repayment status if the borrower has employment earnings during the 
conditional discharge period that exceed the poverty guideline amount 
for a family of two, regardless of the borrower's actual family size. 
The Department believed that the proposed change to a standard based on 
the borrower's actual family size would be more equitable, as it would 
allow a borrower with a family size greater than two to have a higher 
level of employment earnings during the post-discharge monitoring 
period without being subject to reinstatement of the borrower's 
repayment obligation on the discharged loan. However, some non-Federal 
negotiators expressed concerns that the proposed change to an 
employment earnings standard based on actual family size would be 
confusing to borrowers, since a borrower's family size could change 
during the post-discharge monitoring period. These non-Federal 
negotiators believed that it would be preferable to maintain the 
current standard based on a family size of two, so that a borrower 
would not need to monitor changes in the employment earnings limit if 
the borrower's family size increased or decreased during the post-
discharge monitoring period. The Department agreed.
    The Department's initial proposed regulations did not include a 
provision comparable to the provision in current regulations that 
addresses the treatment of a title IV loan disbursement made during the 
conditional discharge period for a loan the borrower received prior to 
the physician's certification date. Under the current regulations, a 
borrower is ineligible for a final discharge unless the borrower 
ensures that such a disbursement is returned to the loan holder within 
120 days of the disbursement date. The Department initially did not 
include a similar provision in the proposed regulations because the 
current regulatory provision is tied to the conditional discharge 
period, which would be eliminated under the proposed regulations. Under 
the proposed regulations, the post-discharge monitoring period begins 
on a later date than the current conditional discharge period, and a 
disbursement of a title IV loan received prior to the physician's 
certification date is less likely to occur. However, some non-Federal 
negotiators noted that this situation could still arise under the 
proposed regulations and recommended that the proposed regulations be 
revised to include a provision comparable to the provision in the 
current regulations. The Department agreed. The proposed regulations 
would provide that a borrower's obligation to repay a discharged loan 
will not be reinstated if the borrower ensures that a title IV loan or 
TEACH Grant disbursement made during the post-discharge monitoring 
period for a loan or TEACH Grant received prior to the discharge date 
is returned to the loan holder within 120 days of the disbursement 
date. The proposed regulations would include TEACH Grant disbursements 
in this provision because a condition for receiving a TEACH Grant is 
that the student must agree to complete a teaching service obligation. 
A student who accepts a TEACH Grant presumably would not be totally and 
permanently disabled, as this condition would preclude the student from 
completing the TEACH Grant service obligation.
    The Committee also discussed the possible effect on a borrower's 
discharge request of a disbursement being made during the period 
between the physician's certification date and the discharge date for a 
loan or TEACH Grant received prior to the physician's certification 
date. This issue does not arise under the current regulations because 
of the structure of the conditional discharge period. Based on these 
discussions, the Department revised the proposed regulations to provide 
that if a disbursement of a title IV loan or TEACH Grant is made during 
the period between the physician's certification date and the discharge 
date, the processing of the borrower's loan discharge request will be 
suspended until the borrower ensures that the disbursement is returned 
to the loan holder or the Secretary, as applicable.
    Finally, some of the non-Federal negotiators expressed concern that 
the Department's initial proposal did not explicitly provide that the 
Secretary would notify a borrower who fails to meet one of the 
eligibility requirements during the post-discharge monitoring period 
that the borrower's obligation to repay the discharged loan has been 
reinstated. The Department's regulations generally do not specifically 
address the actions of the Department, but the non-Federal negotiators 
strongly urged the Department to include such a provision in the 
proposed regulations. These negotiators also requested that the 
proposed regulations specify that the Secretary's notification of 
reinstatement will tell borrowers the reason for the reinstatement and 
provide the borrower with information on how to contact an appropriate 
office or official if they have questions or believe that the 
reinstatement was based on incorrect information. The Department agreed 
to add to the proposed regulations a provision stating that the 
Secretary will notify a borrower that his or her obligation to repay a 
previously

[[Page 36562]]

discharged loan has been reinstated. The proposed regulations also 
provide that the notification of reinstatement will include the reason 
or reasons for the reinstatement, an explanation that the first payment 
due date on the loan following reinstatement will be no earlier than 60 
days after the date of the notification of reinstatement, and 
information on how the borrower may contact the Department if he or she 
has questions about the reinstatement or believes that the obligation 
to repay the loan was reinstated based on incorrect information.
    The Department also agreed to take steps to further improve its 
notices to borrowers who have applied for or received disability 
discharges under the proposed regulations to more clearly explain the 
discharge process and the borrower's rights and responsibilities with 
respect to that process. In particular, the Department intends to take 
steps to develop a process to acknowledge receipt of a borrower's 
submission of a request that the Department reconsider its 
determination and to provide borrowers with information on the 
Secretary's process for considering such requests and how the borrower 
will be made aware of the Secretary's decision.

Discharge Process for Veterans Who Have Been Determined To Be 
Unemployable Due to a Service-Connected Disability (Sec. Sec.  
674.61(c), 682.402(c)(8), and 685.213(c))

    Statute: The HEOA added sections 437(a)(2) and 464(c)(1)(F)(iv) to 
the HEA to provide that a borrower who has been determined by the 
Secretary of Veterans Affairs (VA) to be unemployable due to a service-
connected disability and who provides documentation of that 
determination to the Secretary is to be considered totally and 
permanently disabled for the purpose of discharging the borrower's 
title IV loans. Section 437(a)(2) of the HEA further specifies that a 
borrower who provides such documentation may not be required to present 
additional documentation for the purpose of determining eligibility for 
a total and permanent disability loan discharge.
    Proposed Regulations: The proposed regulations would establish a 
separate discharge application process for borrowers who provide 
documentation showing that they have been determined by the VA to be 
unemployable due to a service-connected disability. Under the proposed 
regulations, the borrower would submit to the loan holder a loan 
discharge application accompanied by documentation from the VA showing 
that the borrower has been determined to be unemployable due to a 
service-connected disability. The borrower would not be required to 
have a physician certify the loan discharge application, and would not 
be required to provide any additional documentation related to the 
borrower's service-connected disability.
    If the documentation from the VA does not indicate that the 
borrower has been determined to be unemployable due to a service-
connected disability, the loan holder would deny the borrower's 
discharge request. However, if the documentation indicates that the 
borrower may be totally and permanently disabled under the general 
definition of a total and permanent disability, the loan holder would 
inform the borrower that he or she may reapply for a loan discharge 
under the general procedures for a disability discharge.
    If the documentation indicates that the VA has determined that a 
Perkins Loan borrower is unemployable due to a service-connected 
disability, the Perkins school loan holder would submit a copy of the 
borrower's discharge application and supporting documentation to the 
Secretary, and would notify the borrower that the discharge request has 
been referred to the Secretary for a determination of eligibility. In 
the case of a FFEL loan that is held by a lender, the lender would 
refer the borrower's application to the guaranty agency and file a 
disability discharge claim with the agency. If the guaranty agency 
agrees that the VA documentation shows the borrower has been determined 
to be unemployable due to a service-connected disability, the guaranty 
agency would refer the borrower's application to the Secretary. In 
contrast to the general discharge procedures, the borrower's loan would 
not be assigned to the Secretary.
    Under the proposed regulations, if the Secretary determines that 
the borrower meets the total and permanent disability standard based on 
a determination by the VA that the borrower is unemployable due to a 
service-connected disability, the Secretary would notify the Perkins 
Loan school or guaranty agency that the borrower is eligible for a 
total and permanent disability loan discharge. The Perkins Loan school 
would then discharge the borrower's loan and return to the sender any 
payments on the loan that were received on or after the effective date 
of the VA's determination that the borrower is unemployable due to a 
service-connected disability. The guaranty agency would pay the 
lender's disability discharge claim and notify the borrower that the 
borrower's obligation to make any further payments on the loan has been 
discharged. Upon receipt of the claim payment from the guaranty agency, 
the lender would return any payments on the loan received on or after 
the effective date of the VA's determination to the person who made the 
payments. There would be no post-discharge monitoring period for a 
borrower who receives a total and permanent disability discharge 
through this process, and the borrower would not be subject to 
reinstatement of his or her obligation to repay the discharged loan 
based on post-discharge employment earnings or receipt of a new title 
IV loan or TEACH Grant. The same discharge process would apply to 
borrowers with Direct Loans or Perkins or FFEL loans that are held by 
the Department.
    If the Secretary determines, based on a review of the documentation 
from the VA, that the borrower does not meet the standard for a 
disability discharge, the Secretary would notify the Perkins Loan 
school or guaranty agency of that decision, and collection on the loan 
would resume.
    Reasons: The proposed regulations are necessary to implement the 
statutory total and permanent disability discharge standard for certain 
veterans.

Borrower Eligibility for New Title IV Loans After a Prior Total and 
Permanent Disability Discharge (Sec. Sec.  674.9(g), 682.201(a), and 
685.200(a))

    Statute: The HEA does not specify eligibility requirements for 
borrowers who apply for a new title IV loan after a prior loan has been 
discharged due to a total and permanent disability.
    Current Regulations: Under the current regulations in the Perkins, 
FFEL, and Direct Loan programs, a borrower whose prior title IV loan 
was discharged due to a total and permanent disability must meet 
certain requirements before receiving a new loan. Specifically, the 
borrower must: (1) Provide a certification from a physician that the 
borrower is able to engage in substantial gainful activity; and (2) 
sign a statement acknowledging that any new loan the borrower receives 
cannot be discharged in the future based on any present condition, 
unless that condition substantially deteriorates. In addition, if a 
borrower's prior loan is in a conditional discharge status, the 
conditionally discharged loan must be returned to repayment status 
before the borrower may receive a new loan.
    Proposed Regulations: The proposed regulations would retain the 
current requirement that, to receive a new title IV loan after a 
disability discharge, a borrower would have to obtain a

[[Page 36563]]

certification from a physician that the borrower is able to engage in 
substantial gainful activity, and acknowledge that the new loan may not 
be discharged in the future based on any present condition unless the 
condition substantially deteriorates. The proposed regulations would 
also provide that if a borrower receives a new title IV loan within 
three years of the date that a prior title IV loan or TEACH Grant 
service obligation was discharged on the basis of the borrower's 
disability, the borrower would be required to resume repayment on the 
previously discharged loan or acknowledge that he or she is again 
subject to the terms of the TEACH Grant agreement to serve before 
receiving the new loan.
    The current total and permanent disability discharge regulations 
will continue to apply to any borrower whose loan discharge application 
is received prior to the effective date of any final regulations 
published as a result of this NPRM. Therefore, the proposed regulations 
would retain the current provision that requires a loan in a 
conditional discharge status to be returned to repayment status before 
a borrower who received a conditional discharge may receive a new loan.
    Reasons: The changes to the borrower eligibility regulations are 
conforming changes that are needed to effectively implement the new 
total and permanent disability loan discharge process.

Consolidation Loans (Sec. Sec.  682.201(e), 682.206(f) and 685.220(d))

    Statute: The HEOA amended sections 428C(a)(3)(B)(i)(V) and 
428C(b)(5) of the HEA to provide that FFEL loan borrowers may 
consolidate their loans into a Direct Consolidation Loan for the 
purpose of using the no interest accrual benefit for active duty 
service members, which is only available in the Direct Loan Program. 
This benefit provides that interest will not accrue on the Direct Loan 
of an eligible military borrower for a period of not more than 60 
months while the borrower is serving on active duty during a war or 
other military operation or national emergency, or performing 
qualifying National Guard duty during a war or other military operation 
or national emergency, and is serving in an area of hostilities in 
which service qualifies for special pay under section 310 of title 37 
of the United States Code.
    The HEOA also amended section 433 of the HEA by adding a separate 
set of disclosures for Consolidation loan borrowers. At the time a 
lender provides a Consolidation loan application to a prospective 
borrower, it must provide specific information about Consolidation 
loans. In particular, a lender must inform the borrower that by 
applying for a Consolidation loan, the borrower is not obligated to 
take the loan.
    Current regulations: Section 682.201 of the regulations establishes 
the eligibility requirements for borrowers seeking a FFEL Consolidation 
loan. Section 685.220 of the current regulations establishes the 
eligibility requirements for a borrower seeking a Direct Consolidation 
Loan. Current regulations permit borrowers who have only FFEL loans to 
consolidate those loans into a Direct Consolidation Loan to obtain an 
income contingent repayment plan or to qualify for the Public Service 
Loan Forgiveness Program. In addition, FFEL borrowers whose loans have 
been submitted to the guaranty agency for default aversion assistance 
may apply for a Direct Consolidation Loan.
    Section 682.206(f) of the current regulations includes requirements 
for lenders in the making of FFEL Consolidation loans. Those 
requirements include the requirement that the lender obtain lender 
verification certifications from the holders of the loans to be repaid 
by the Consolidation loan.
    Proposed regulations: The proposed regulations would amend 
Sec. Sec.  682.201(e) and 685.220(d) to include an additional condition 
under which a borrower with only FFEL loans may consolidate those loans 
into a Direct Consolidation Loan. The proposed regulations would 
provide that a borrower with only FFEL loans may consolidate into the 
Direct Loan Program to use the no accrual of interest benefit for 
active duty military service personnel.
    The proposed regulations would also incorporate into the 
regulations a statutory change made by the College Cost Reduction and 
Access Act of 2007 (CCRAA) that is not currently reflected in the 
Department's regulations. Specifically, the proposed regulations would 
provide that a borrower may consolidate a FFEL Consolidation loan into 
the Direct Loan Program without including another eligible loan in the 
consolidation if the FFEL Consolidation loan is in default, or if the 
borrower wishes to obtain an income-based repayment plan.
    The proposed regulations would also modify section 682.206(f) to 
incorporate a new requirement that is needed to fully implement Sec.  
682.205(i)(7), which requires lenders to inform borrowers that, by 
applying for the Consolidation loan, the borrower is not obligated to 
agree to take the loan. Section 682.206(f) would be amended to include 
a requirement that the lender provide a Consolidation loan borrower a 
period of not less than 10 days, from the date the borrower is notified 
by the lender that it is ready to make the Consolidation loan, to 
cancel the loan. The proposed regulations would require the lender to 
send the notice of the option to cancel the loan to the borrower before 
making any payments to pay off a loan with the proceeds of a 
Consolidation loan.
    Reasons: The proposed changes to Sec. Sec.  682.201(e) and 
685.220(d) are being made to implement statutory requirements. The 
proposed change to Sec.  682.206(f) is being made to ensure that 
borrowers are given an appropriate opportunity to cancel a 
Consolidation loan for which they may have applied.
    The HEOA instituted several new disclosure requirements for lenders 
and established very specific disclosures requirements for lenders 
making a Consolidation loan. In particular, the HEOA requires a lender 
to inform a Consolidation loan applicant that applying for the loan 
does not obligate the borrower to agree to take the loan. The 
Department determined that it was important to ensure that borrowers 
are given both a clear explanation of the process for canceling a 
Consolidation loan and the time frame within which they may exercise 
their right to cancel the loan. Therefore, the Department is proposing 
language in Sec.  682.206(f) providing borrowers with a 10-day period, 
before a Consolidation loan is made, during which the borrower could 
reconsider the Consolidation loan and cancel the loan if appropriate.
    There were a number of issues raised by the negotiators regarding 
this provision. Some non-Federal negotiators expressed concern about 
the Department's original proposal to provide a five-day period for a 
borrower to cancel the loan with the lender. These non-Federal 
negotiators did not think the initial proposal provided enough clarity 
as to the date on which the five-day period would begin. One non-
Federal negotiator indicated that the consolidation process is highly 
automated and if the servicer of the loans to be consolidated is also 
the servicer or lender for the Consolidation loan, the loan process 
could be completed in as little as 24-48 hours. The Department was 
asked to provide an opportunity for a borrower to waive his or her 
right to cancel the loan to allow the process to occur more quickly if 
the borrower chose to do so.
    During the negotiations, the Department described how the Direct 
Loan Program currently provides borrowers an opportunity to affirm 
their decision to take a Consolidation loan.

[[Page 36564]]

Based on the practice in the Direct Loan Program, the Department 
proposed revised language establishing a timeframe for a borrower to 
cancel a Consolidation loan that would be similar to the timeframe in 
the Direct Loan Program, and that would be clear and understandable to 
all participants. The language in proposed Sec.  682.206(f)(ii) 
reflects the revised proposal.
    The Department strongly believes that the HEA clearly intends that 
a standard process should be established to provide a Consolidation 
loan applicant with the opportunity to cancel the application for the 
loan. The Department believes the proposed regulatory language reflects 
an appropriate balance between allowing the borrower sufficient time to 
make an informed determination about moving forward with the process 
for a Consolidation loan while not unnecessarily delaying its 
completion. The Department does not agree with the recommendation that 
the regulations provide an opportunity for a borrower to waive the 
right to cancel a Consolidation loan if the borrower wants the 
consolidation process to occur more quickly. The Department believes 
that the 10-day cancellation period provides appropriate protection to 
the borrower. Accordingly, under the proposed regulations, the 10-day 
cancellation period may not be waived by the borrower.
    One non-Federal negotiator asked if the proposed cancellation 
notification requirement would apply to a request by a borrower to add 
loans to an existing Consolidation loan during a 180-day period as 
permitted by the HEA. The negotiator was concerned that if the 
requirement applied to requests to add loans to an existing 
Consolidation loan, it could have a negative consequence to a borrower 
if a loan was inadvertently left out of the consolidation process and 
simply needed to be added. The Department agreed that once the loan is 
made, the 10-day waiting period does not apply if the borrower adds 
additional loans during the permitted 180-day period.

In-School Deferments, Interest Capitalization, and Administrative 
Forbearance for PLUS Loans (Sec. Sec.  682.202(b), 682.210(v), 
682.211(f), 685.202(b), 685.204(g), and 685.205(b))

    Statute: Section 428B(d) of the HEA, as amended by the HEOA, adds 
new in-school deferment provisions for PLUS loans first disbursed on or 
after July 1, 2008. Specifically, the HEA provides that a parent PLUS 
borrower may defer repayment of a PLUS loan first disbursed on or after 
July 1, 2008 during the period while the student on whose behalf the 
loan was obtained is enrolled at an eligible institution on at least a 
half-time basis, and during the 6-month period that begins on the later 
of the day after the student ceases to be enrolled on at least a half-
time basis or, if the parent borrower is also a student, the day after 
the parent ceases to be enrolled on at least a half-time basis. A 
graduate or professional student PLUS borrower may defer repayment of a 
PLUS loan first disbursed on or after July 1, 2008 during the 6-month 
period that begins on the day after the student ceases to be enrolled 
at an eligible institution on at least a half-time basis.
    The HEA does not address the capitalization of interest on a PLUS 
loan that accrues during the period from the date of the first 
disbursement until the date the repayment period begins.
    Current Regulations: Current regulations do not address the 
capitalization of interest on a PLUS loan that accrues from the date of 
the first disbursement until the date the repayment period begins.
    Proposed Regulations: The proposed regulations would revise 
Sec. Sec.  682.210 and 685.204 to provide that, upon the request of the 
borrower, a parent PLUS borrower must be granted a deferment on a PLUS 
loan first disbursed on or after July 1, 2008, during the period when 
the student on whose behalf the loan was obtained is enrolled on at 
least a half-time basis at an eligible institution, and during the 6-
month period that begins on the later of the day after the student 
ceases to be enrolled on at least a half-time basis or, if the parent 
borrower is also a student, the day after the parent ceases to be 
enrolled on at least a half-time basis.
    For graduate and professional student PLUS borrowers, the proposed 
regulations would provide that a borrower may be granted a deferment on 
a PLUS loan first disbursed on or after July 1, 2008 during the 6-month 
period that begins on the day after the student ceases to be enrolled 
on at least a half-time basis at an eligible institution. If a lender 
or the Secretary grants an in-school deferment on a student PLUS loan 
based on information from the borrower's school about the borrower's 
eligibility for a new loan, student status information from the school 
or information from the National Student Loan Data System (NSLDS) 
confirming the borrower's half-time enrollment status, the in-school 
deferment period for a student PLUS loan first disbursed on or after 
July 1, 2008 would include the 6-month period that begins on the day 
after the student PLUS borrower ceases to be enrolled on at least a 
half-time basis.
    The proposed regulations would revise the interest capitalization 
provisions in Sec.  682.202(b) to provide that a lender may capitalize 
interest on a PLUS loan that has accrued from the date of the first 
disbursement until the date the repayment period begins, and would make 
a corresponding change in the Direct Loan Program regulations by 
revising Sec.  685.202(b) to provide that the Secretary may capitalize 
unpaid interest on a PLUS loan when the loan enters repayment.
    Finally, the proposed regulations would add a new administrative 
forbearance provision to Sec.  682.211(f) allowing a lender to grant a 
forbearance, upon notice to the borrower, on a borrower's PLUS loans 
first disbursed before July 1, 2008 to align repayment with a 
borrower's PLUS loans first disbursed on or after July 1, 2008, or with 
a borrower's Stafford Loans that are subject to a grace period. The 
lender would be required to notify the borrower that he or she has the 
option to cancel the forbearance and to continue paying on the loan. A 
corresponding administrative forbearance provision would be added to 
Sec.  685.205(b) in the Direct Loan Program regulations.
    Reasons: The proposed PLUS loan deferment regulations implement 
statutory provisions that were added to the HEA by the HEOA.
    The Department is proposing to amend the current interest 
capitalization provisions for PLUS loans to reflect current practice 
with regard to capitalization of unpaid loan interest that accrues from 
the date of the first disbursement until the date the loan enters 
repayment.
    The proposed new administrative forbearance provision reflects a 
recommendation from one of the non-Federal negotiators. This negotiator 
was concerned that PLUS loan borrowers, particularly student PLUS loan 
borrowers, who have both PLUS loans first disbursed before July 1, 2008 
and PLUS loans first disbursed on or after July 1, 2008 may believe 
that all of their PLUS loans are eligible for the new 6-month post-
enrollment deferment period. However, this deferment is only available 
on PLUS loans first disbursed on or after July 1, 2008. Because the 6-
month post-enrollment deferment for student PLUS loans first disbursed 
on or after July 1, 2008 may be granted automatically as an extension 
of the borrower's in-school deferment period, a student PLUS borrower 
who also has pre-July 1, 2008 PLUS loans may not understand that the 
loans first disbursed

[[Page 36565]]

before July 1, 2008 do not qualify for the post-enrollment deferment, 
and the in-school deferment period on such loans will end when the 
student ceases to be enrolled on at least a half-time basis. The non-
Federal negotiator asked the Department to consider amending the 
regulations to provide for the alignment of repayment of a borrower's 
PLUS loans first disbursed before July 1, 2008 with a borrower's PLUS 
loans first disbursed on or after July 1, 2008, and with a borrower's 
Stafford Loans that have a grace period, so that the borrower would 
begin making payments on all of the loans at the same time. The 
Department agreed.

Applicability of the Servicemembers Civil Relief Act (SCRA) to FFEL and 
Direct Loan Program Loans (Sec. Sec.  682.202, 682.302, and 685.202)

    Statute: The HEOA amended section 428(d) of the HEA to provide that 
FFEL and Direct Loan program loans are subject to the provision in 
section 207 of the Servicemembers Civil Relief Act (50 U.S.C. 527) 
(SCRA) that limits the interest rate on a borrower's loan to six 
percent during periods of active duty military service. The limitation 
applies to loans incurred by the servicemember, or by the servicemember 
and the servicemember's spouse jointly, before the servicemember 
entered military service. Section 438 of the HEA was also amended to 
specify that, for any FFEL program loan first disbursed on or after 
July 1, 2008 that is subject to the six percent interest rate limit of 
the SCRA, the interest rate used to calculate the lender's special 
allowance payment is the rate that is determined in accordance with the 
SCRA.
    Proposed Regulations: The proposed regulations would revise 
Sec. Sec.  682.202 and 685.202 to provide that, effective August 14, 
2008, upon a loan holder's receipt of a written request from a borrower 
and a copy of the borrower's military orders, the maximum interest rate 
(as defined in 50 U.S.C. 527, App, section 207(d)) that may be charged 
on FFEL or Direct Loan program loans made prior to the borrower 
entering active duty status is six percent while the borrower is on 
active duty status. The proposed regulations would also revise Sec.  
682.302 of the FFEL regulations by adding a new paragraph (h) that 
specifies that for FFEL loans first disbursed on or after July 1, 2008, 
that are subject to the SCRA interest rate cap, a FFEL lender's special 
allowance payment is calculated as it otherwise would be under program 
requirements, except that the applicable interest rate used is six 
percent.
    Reasons: The proposed regulations are necessary to reflect 
statutory requirements.
    During the negotiations, the Department clarified that for 
determining compliance with this provision, interest under the SCRA 
includes service charges, renewal charges, fees, or any other charges 
(except bona fide insurance) with respect to an obligation or 
liability. The Department also noted that a lender is prohibited from 
assessing a borrower who is subject to the SCRA interest rate cap an 
additional charge after the borrower's period of active duty military 
service that is equal to the difference between the otherwise 
applicable interest rate on the FFEL loan and the six percent cap.
    In response to questions from the negotiators, the Department also 
clarified that the SCRA interest rate cap applies to the loan, not to 
the borrower. As long as the debt was incurred before the borrower's 
military service began, the interest rate cap applies to any joint 
consolidation loan or other co-borrowed loan, and applies to a PLUS 
loan made to a borrower with an endorser even if only one of the 
individuals is performing active duty military service. For purposes of 
this restriction, a loan is considered incurred by an endorser when the 
Endorser Addendum to the PLUS Loan Master Promissory Note is signed, 
and the requirement that the debt be incurred before military service 
is based on that date. The debt-before-service date on a consolidation 
loan is the date the consolidation loan was made as a new debt, not the 
disbursement date of the loans repaid by the consolidation loan.

In-School Deferment (Sec. Sec.  682.210(a), 682.210(c)(1), and 
685.204(b)(1))

    Statute: Section 428(b)(1)(Y) of the HEA was amended by the HEOA to 
include an additional method for granting an in-school deferment on a 
FFEL or Direct Loan. A loan holder may grant an in-school deferment 
based on the lender's confirmation of the borrower's half-time 
enrollment status through the use of NSLDS, if the confirmation is 
requested by the institution of higher education. A new provision was 
also added to the HEA to require a lender, at the time the lender 
grants a deferment to a borrower with an unsubsidized Stafford Loan, to 
provide the borrower with information to assist the borrower in 
understanding the impact of capitalization of interest on the 
borrower's loan principal and on the total amount of interest to be 
paid during the life of the loan.
    Current Regulations: Section 682.210(c)(1) of the current FFEL 
regulations specifies that a lender must grant an in-school deferment 
when a borrower requests and submits supporting documentation for the 
deferment or when the lender receives information from the school on a 
borrower's eligibility for an in-school deferment in connection with 
the borrower's receipt of a new loan, or when the lender receives 
student status information, directly or indirectly, from the borrower's 
school indicating the borrower's eligibility for the deferment. Section 
685.204(b)(1) of the Direct Loan program regulations contains 
comparable provisions.
    Section 682.210(c)(2) of the FFEL regulations requires the lender, 
when granting an in-school deferment on a FFEL program loan based on 
information provided by the school, to notify the borrower that the 
deferment has been granted and that the borrower has the option to pay 
the accruing interest on an unsubsidized loan or to cancel the 
deferment and continue paying on the loan. The lender is also required 
to include in the notice an explanation of the consequences of those 
options. Under Sec.  685.204(b)(1)(iii)(B) of the Direct Loan 
regulations, the Secretary notifies the borrower after granting an in-
school deferment based on information provided by the school that the 
borrower has the option to continue paying on the loan, and that if the 
borrower elects to cancel the deferment, the borrower may pay the 
principal and interest payments that were deferred. If the borrower 
fails to do so, the Secretary applies a deferment and capitalizes the 
interest that accrued during the period in which payments were not 
made.
    Proposed Regulations: The proposed regulations would revise 
Sec. Sec.  682.210(c)(1) and 685.204(b)(1)(iii)(A) to reflect the 
additional statutory method a lender or the Secretary may use to grant 
an in-school deferment, based on confirmation of the borrower's half-
time enrollment status through the use of NSLDS if requested by the 
borrower's school. The proposed regulations would also revise Sec.  
682.210(a)(3) of the FFEL regulations to provide that if a borrower is 
responsible for the interest on a loan during a deferment period, the 
lender, at or before the time the deferment is granted, must notify the 
borrower that he or she has the option to pay the accruing interest or 
cancel the deferment and continue paying on the loan. The lender would 
also be required to provide information, including an example, on the 
impact on a borrower's

[[Page 36566]]

loan debt of capitalization of accrued unpaid interest and on the total 
amount of interest to be paid over the life of the loan. A similar 
notification provision that applied only to the granting of in-school 
deferments would be removed from Sec.  682.210(c)(2) of the FFEL 
regulations. A comparable change would be made in Sec.  
685.204(b)(1)(iii)(B) of the Direct Loan regulations to provide that 
borrowers will be notified of their option to cancel a deferment and 
continue paying on the loan and will be provided with information on 
the impact of capitalization, including an example.
    Reasons: The proposed changes are necessary to reflect the 
statutory changes made by the HEOA that affect the process for granting 
in-school deferments in the FFEL and Direct Loan programs and that 
require that additional information be provided so that borrowers 
better understand the impact of the capitalization of interest on the 
total cost of the loan. At the request of the negotiators, the 
Department clarified that the use of NSLDS, at the request of a 
borrower's school, to confirm a borrower's enrollment status is an 
additional method for granting in-school deferments and does not 
replace other pre-existing methods. In-school deferments may continue 
to be granted by a lender consistent with the requirements of Sec.  
682.210(s)(1)(iii) and based on student status information provided 
directly or indirectly by a school, including status information 
reported to NSLDS, without a specific request from the school.
    The Department also clarified that the information provided to 
borrowers on the impact of capitalization of accruing unpaid interest 
during deferment periods, including the example, may be general in 
nature rather than borrower-specific. The Department also agreed with a 
proposal from some non-Federal negotiators that it would be helpful to 
borrowers to provide the required information on capitalization when 
the borrower applies for the deferment, by including it in standardized 
deferment forms, rather than only providing the information when the 
borrower is granted the deferment.

Income-Based Repayment (IBR) Plan (Sec. Sec.  682.215 and 685.221)

Definition of Partial Financial Hardship (Sec. Sec.  682.215(a)(4) and 
685.221(a)(4))

    Statute: Section 493C(a)(3) of the HEA provides that a borrower has 
a partial financial hardship, for the purpose of establishing 
eligibility for the income-based repayment (IBR) plan, if the amount 
due on all of the borrower's eligible FFEL and Direct Loans (as 
calculated under a standard repayment plan based on a 10-year repayment 
period) exceeds 15 percent of the difference between the borrower's 
(and, if applicable, the borrower's spouse's) adjusted gross income 
(AGI) and 150 percent of the poverty guideline for the borrower's 
family size. If a married borrower files a separate Federal income tax 
return, section 493C(d) of the HEA provides that only the borrower's 
income and eligible student loan debt are used in determining the 
amount of the borrower's payment under the IBR plan. An eligible loan 
under section 493C(a)(3) is any loan made, insured, or guaranteed under 
the FFEL and Direct Loan programs other than parent PLUS loans made 
under the FFEL and Direct Loan programs and consolidation loans under 
both programs that repaid parent PLUS loans.
    Current Regulations: The current regulations reflect the statutory 
definition of the term partial financial hardship and define the terms 
``AGI,'' ``family size,'' and ``poverty guideline'' consistent with the 
use of those terms in Sec.  682.210 for purposes of determining a 
borrower's eligibility for an economic hardship deferment. AGI means 
the income reported by the borrower to the Internal Revenue Service 
(IRS). For a married borrower filing jointly, AGI includes both the 
borrower's and spouse's income. If a married borrower files a separate 
Federal tax return, AGI includes only the borrower's income. A 
borrower's family size includes the borrower, the borrower's spouse and 
the borrower's children (including unborn children who will be born 
during the year the borrower certifies family size), if the children 
receive more than half their support from the borrower for the year the 
borrower certifies family size. Other individuals are included in 
family size if, at the time the borrower certifies family size, those 
other individuals live with the borrower and receive more than half 
their support for the year the borrower certifies family size. Support 
includes money, gifts, loans, housing, food, clothes, car, medical and 
dental care, and payment of college costs. The poverty guideline is the 
income categorized by State and family size in the poverty guidelines 
published annually by the United States Department of Health and Human 
Services pursuant to 42 U.S.C. 9902(2). If the borrower is not a 
resident of a State identified in the poverty guidelines, the poverty 
guideline to be used for the borrower is the poverty guideline (for the 
relevant family size) used for the 48 contiguous States. The term 
eligible loan reflects the statutory definition.
    Proposed Regulations: The proposed regulations would specify that 
the annual amount due on a borrower's eligible loans for purposes of 
determining whether the borrower has a partial financial hardship is 
the greater of the amount due on the eligible loans as calculated under 
a standard repayment plan with a 10-year repayment period when the 
borrower initially entered repayment on those loans, or the annual 
amount due on those loans as calculated under a standard repayment plan 
with a 10-year repayment period when the borrower elects the IBR plan. 
The proposed regulations would also provide that when a married 
borrower and his or her spouse file a joint tax return with the IRS and 
both the borrower and the spouse have eligible loans, the joint AGI and 
the total amount of the borrower's and spouse's eligible loans will be 
used in determining whether each borrower has a partial financial 
hardship.
    Reasons: In the regulations governing the IBR Plan, the Department 
provided that, when determining a borrower's partial financial hardship 
for purposes of IBR, the loan holder should compare the annual amount 
the borrower would pay on the borrower's eligible loans at the time the 
borrower initially entered repayment on the total outstanding balance 
of those loans, based on a standard repayment over a 10-year repayment 
period, to the annual amount a borrower would pay under the provisions 
of the IBR plan. During the negotiations, a non-Federal negotiator 
pointed out that always using the annual amount the borrower would pay 
based on the outstanding balance of the loans when the borrower 
initially entered repayment disadvantages those borrowers whose 
outstanding balance has increased from the date the borrower initially 
entered repayment until the date the borrower requests IBR. This is 
particularly true for borrowers who have experienced significant 
difficulty repaying the loans, particularly unsubsidized loans, and who 
have used deferments and forbearances to avoid delinquency, with the 
result that their outstanding loan principal balance has increased due 
to capitalized interest. The Department and the other negotiators 
agreed that a borrower whose outstanding balance has increased rather 
than decreased during the repayment period prior to the borrower's 
request for IBR should be given the benefit of having partial financial 
hardship determined based on the annual amount due, as calculated

[[Page 36567]]

under a standard repayment plan with a 10-year repayment period, on the 
borrower's increased outstanding loan principal balance.
    The Department also proposed a change related to how eligibility 
for partial financial hardship is determined for married borrowers who 
file a joint Federal tax return and who both have eligible loans. The 
proposed change would ensure that if both borrowers qualify for IBR, 
their combined payment amounts will not exceed the 15 percent threshold 
under the IBR plan. The Department initially proposed the use of each 
individual borrower's portion of the joint AGI and eligible loan amount 
to determine eligibility for IBR. After additional discussion, however, 
the Department and the negotiators agreed that this approach would 
impose a significant burden on borrowers, who would be required to 
submit additional documentation to identify their individual portion of 
any joint income, and would also require the loan holder to determine 
each borrower's eligibility using a manual (instead of an automated) 
process. The Department and the negotiators agreed to adopt a 
suggestion by one of the non-Federal negotiators to use the joint AGI 
and the annual amount due on both the borrower's and the spouse's 
eligible loans to determine eligibility for IBR and the partial 
financial hardship payment amount. That payment amount would then be 
adjusted based on the percentage of the combined total eligible loan 
debt attributable to each individual borrower, with a further 
adjustment if the borrower has multiple loan holders.

Income-Based Payment Amount (Sec. Sec.  682.215(b)(1) and 
685.221(b)(2))

    Statute: Under section 493C(b)(1) of the HEA, the monthly payment 
amount for a borrower who has a partial financial hardship is 
determined by calculating 15 percent of the amount obtained by 
subtracting 150 percent of the poverty guideline amount for the 
borrower's family size from the borrower's AGI, and then dividing this 
amount by 12.
    Current Regulations: Sections 682.215(b) and 685.221(b) provide 
that if a borrower's eligible loans are held by more than one holder, 
the loan holder must adjust the amount of a borrower's calculated 
monthly payment. The borrower's adjusted monthly payment is determined 
by multiplying the calculated monthly payment amount by the percentage 
of the total outstanding principal amount of eligible loans that are 
held by that holder.
    Proposed Regulations: Under the proposed regulations, if a borrower 
and a borrower's spouse both have eligible loans and filed a joint 
Federal tax return, each borrower's percentage of the couple's total 
eligible loan debt would be determined, and the calculated partial 
financial hardship payment amount for each borrower would be adjusted 
by multiplying the payment by the applicable borrower's percentage. As 
with other borrowers, each borrower's adjusted payment amount would be 
further adjusted if the borrower's loans are held by multiple holders. 
In this case, the adjusted payment amount would be multiplied by the 
percentage of the borrower's total outstanding principal amount of 
eligible loans that are held by the loan holder.
    Reasons: Without the proposed payment adjustment based on the 
borrower's percentage of the combined eligible loan debt of the 
borrower and his or her spouse that is used to calculate the partial 
financial hardship of both borrowers, the borrower's monthly payment 
amount could exceed the statutory maximum amount the borrower can be 
required to pay.

FFEL and Direct Loan Program Teacher Loan Forgiveness (Sec. Sec.  
682.216 and 685.217)

    Statute: The HEOA amended the FFEL and Direct Loan teacher loan 
forgiveness provisions in sections 428J and 460 of the HEA to specify 
that an otherwise eligible borrower may qualify for teacher loan 
forgiveness based on teaching service performed at a location operated 
by an educational service agency if the educational service agency 
meets the eligibility criteria that apply to elementary or secondary 
schools for teacher loan forgiveness purposes. In the case of a teacher 
who is employed by an educational service agency, the HEA provides that 
the chief administrative officer of the educational service agency must 
certify the borrower's qualifying teaching service.
    The HEOA also amended the teacher loan forgiveness provisions to 
prohibit a borrower from receiving double benefits for the same 
teaching service. The HEA now prohibits a borrower from receiving loan 
forgiveness under both the FFEL and Direct Loan teacher loan 
forgiveness programs for the same qualifying teaching service. In 
addition, a borrower may not receive loan forgiveness benefits for the 
same teaching service under either the FFEL or Direct Loan teacher loan 
forgiveness programs and the Direct Loan public service loan 
forgiveness program (Sec.  685.219), subtitle D of title I of the 
National and Community Service Act of 1990 (the AmeriCorps program), or 
the Loan Forgiveness for Service in Areas of National Need program 
authorized by section 428K of the HEA.
    Current Regulations: Under current regulations, an otherwise 
eligible FFEL or Direct Loan borrower may qualify for teacher loan 
forgiveness only by performing qualifying teaching service in an 
eligible elementary or secondary school that serves low-income 
families. Borrowers who teach at a location operated by an educational 
service agency are not eligible for loan forgiveness.
    Current regulations prohibit a borrower from receiving loan 
forgiveness for the same teaching service under either the FFEL or 
Direct Loan teacher loan forgiveness programs and under subtitle D of 
title I of the National and Community Service Act of 1990. A borrower 
who has both FFEL and Direct Loan program loans may not receive more 
than the maximum loan forgiveness amount on the borrower's combined 
outstanding FFEL and Direct Loan balance, but is not otherwise 
prohibited from receiving forgiveness under both the FFEL and Direct 
Loan teacher loan forgiveness programs for the same qualifying teaching 
service.
    Proposed Regulations: The proposed regulations would allow a 
borrower who otherwise meets the eligibility requirements for teacher 
loan forgiveness to receive forgiveness based on teaching service 
performed at one or more locations of an eligible educational service 
agency that serves low-income families. A borrower could also qualify 
based on teaching service performed at a combination of eligible 
elementary or secondary schools and eligible educational service 
agencies. To be considered eligible service for teacher loan 
forgiveness purposes, an educational service agency would have to meet 
the same eligibility requirements that apply to elementary and 
secondary schools under current regulations. For a borrower employed at 
an eligible educational service agency, the borrower's qualifying 
teaching service would have to be certified by the chief administrative 
officer of the educational service agency.
    Under the proposed regulations, qualifying teaching service 
performed at an eligible educational service agency could be counted 
toward the required five consecutive complete years of full-time 
teaching only if the consecutive five-year period includes qualifying 
teaching service performed at an eligible educational service agency 
after the 2007-2008 academic year.
    The proposed regulations would define the term ``educational 
service agency'' as a regional multiservice agency authorized by State 
law to

[[Page 36568]]

develop, manage, and provide services or programs to local educational 
agencies, as defined in section 9101 of the Elementary and Secondary 
Education Act of 1965, as amended.
    Finally, the proposed regulations would prohibit a borrower from 
receiving loan forgiveness under both the FFEL and Direct Loan teacher 
loan forgiveness programs for the same teaching service, or from 
receiving loan forgiveness for the same teaching service under either 
the FFEL or Direct Loan teacher loan forgiveness programs and: (1) The 
Direct Loan public service loan forgiveness program in Sec.  685.219; 
(2) subtitle D of title I of the National and Community Service Act of 
1990; or (3) the Loan Forgiveness for Service in Areas of National Need 
program authorized by section 428K of the HEA.
    Reasons: The proposed changes reflect statutory requirements.
    One of the non-Federal negotiators noted that some teachers do not 
have a fixed location of employment but instead perform qualifying 
teaching service at multiple eligible elementary or secondary schools, 
or at multiple eligible educational service agencies. This negotiator 
requested clarification that such ``traveling'' teachers, if otherwise 
eligible, would qualify for loan forgiveness if they are not actually 
employed by the individual schools or educational service agencies 
where they teach. The Department agreed that such teachers, if 
otherwise eligible, would qualify for teacher loan forgiveness. The 
current and proposed regulations provide that a borrower's qualifying 
teaching service must be performed ``in'' or ``at'' an eligible 
elementary or secondary school or eligible educational service agency 
and do not rely on the identity of the employer.
    The Department's initial proposed regulations allowed qualifying 
teaching service performed at an eligible educational service agency to 
be counted toward a borrower's required five complete consecutive years 
of teaching service only if the service was performed after August 14, 
2008, the date of enactment of the HEOA. One of the non-Federal 
negotiators argued that the amendments to the teacher loan forgiveness 
provisions of the HEA were intended to apply retroactively to October 
1, 1998, the date of enactment of the FFEL and Direct Loan teacher loan 
forgiveness provisions. However, the Department does not agree with 
this interpretation of the law. The Department noted that Congress has 
specifically made other changes to the HEA retroactive, but chose not 
to do so in this case. However, the Department agreed to revise the 
proposed regulations to provide that the required five complete 
consecutive years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or at an 
eligible educational service agency, but teaching at an educational 
service agency may be counted toward the five years only if the 
consecutive five-year period includes qualifying teaching at an 
eligible educational service agency performed after the 2007-2008 
academic year.

Eligibility for Rehabilitation of Defaulted FFEL and Direct Loans 
(Sec. Sec.  682.405(a) and (b)(1)(iii) and 685.211(f))

    Statute: Section 428F(a) of the HEA was amended by the HEOA to 
prohibit a borrower from rehabilitating a defaulted loan more than 
once.
    Current Regulations: The regulations in Sec. Sec.  682.405 and 
685.211 provide for the rehabilitation of defaulted FFEL and Direct 
Loan program loans after a borrower makes nine voluntary, reasonable 
and affordable payments to the guaranty agency holding the defaulted 
loan, or to the Secretary in the case of a defaulted Direct Loan. After 
the borrower meets the payment requirements to reestablish a successful 
repayment pattern, a defaulted FFEL loan is rehabilitated upon resale 
of the loan to an eligible FFEL lender, at which time the borrower 
returns to normal repayment servicing. In the Direct Loan Program, 
after the borrower meets the payment requirements, the loan is 
transferred from a default collection status to a normal repayment 
servicing status. Current regulations do not include a limit on the 
number of times a borrower may rehabilitate a defaulted loan.
    Proposed Regulations: The proposed regulations would amend 
Sec. Sec.  682.405(a)(3) and 685.211(f)(3) to provide that for any loan 
that is rehabilitated on or after August 14, 2008, the borrower may not 
rehabilitate the loan again if the loan returns to a default status 
following the rehabilitation.
    The proposed regulations would also amend Sec.  682.405(b)(1)(iii) 
to clarify that the guaranty agency and its agents must comply with the 
requirements of that section when determining a borrower's ``reasonable 
and affordable'' payment amount for loan rehabilitation purposes.
    Reasons: The proposed regulations are necessary to reflect the 
change in section 428F(a) of the HEA that prohibits a borrower from 
rehabilitating a defaulted loan more than once, and to clarify that 
guaranty agencies and their agents must comply with current regulatory 
requirements for determining reasonable and affordable payments.
    The Department's original proposed regulations specified only that 
a borrower is prohibited from rehabilitating a defaulted loan more than 
once. Several non-Federal negotiators expressed the view that the 
Department's interpretation of the statutory effective date of August 
14, 2008 for this provision should be included in the regulations or 
discussed in the preamble to the proposed regulations. The non-Federal 
negotiators also requested that the Department identify in the 
regulations the triggering event that results in a borrower's inability 
to rehabilitate the loan again. The Department agreed and revised the 
proposed regulations to specify that the one-time limit on 
rehabilitation applies only to a defaulted loan that was rehabilitated 
on or after August 14, 2008. A borrower who rehabilitated a defaulted 
loan before that date, and later defaults again on the loan, could 
rehabilitate that loan again. However, if the borrower rehabilitates 
the loan a second time, the loan would become subject to the limit. The 
Department also revised the proposed regulations to specify that the 
triggering event for the application of the one-time rehabilitation 
limit on a loan is the borrower's return to a default status on that 
previously rehabilitated loan.
    Another non-Federal negotiator expressed concern about the process 
for determining payment amounts for rehabilitation. The negotiator 
stated that there was no consistent, standardized approach to 
determining ``reasonable and affordable'' borrower payments for 
purposes of loan rehabilitation across the guaranty agencies and their 
agents. The negotiator stated that some agencies and agents demanded a 
specified percentage or payment amount without apparent regard to the 
borrower's financial circumstances, in violation of the HEA, and 
expressed the view that this perhaps represented a program compliance 
issue. The Department stated its belief that the requirements for 
determining reasonable and affordable borrower payments were already 
sufficiently detailed and explicit in Sec.  682.405(b)(1)(iii). 
However, the Department agreed to revise the lead-in language to this 
regulation to make it clear that a guaranty agency and all of its 
agents are subject to the requirements of Sec.  682.405(b)(1)(iii) when 
determining a borrower's reasonable and affordable payment amount for 
purposes of loan rehabilitation. This clarifying change is intended to 
ensure compliance with this requirement by a guaranty agency and all of 
the agency's agents, particularly

[[Page 36569]]

collection agents that may be working with defaulted borrowers.

Guaranty Agency and Lender Prohibited Inducements (Sec. Sec.  
682.200(b) and 682.401(e))

    Statute: Section 435(d)(5) of the HEA provides that, after notice 
and an opportunity for a hearing, the Secretary may disqualify a FFEL 
lender from participation in the FFEL Program if it is determined that 
the lender engaged in certain prohibited activities to secure 
applicants for FFEL loans. These prohibited activities include 
offering, directly or indirectly, points, premiums, payments, prizes, 
stock or other securities, travel, entertainment expenses, tuition 
payment or reimbursement, providing information technology at below-
market value, and providing additional financial aid funds to any 
institution of higher education or its employees. Lenders are 
prohibited from entering into any type of consulting arrangement or 
other type of contract to provide services to a lender with an employee 
who is employed in an institution's financial aid office or who 
otherwise has responsibility over student loans or other student aid. 
The HEA also prohibits lenders from performing any function for an 
institution of higher education that is a required function for that 
institution under title IV of the HEA, other than exit counseling.
    Similarly, section 428(b)(3) of the HEA restricts guaranty agencies 
from offering inducements or engaging in certain prohibited activities 
to secure applicants for FFEL loans or to secure the designation as the 
insurer of loans. Guaranty agencies are prohibited from offering, 
directly or indirectly, premiums, payments, stock or other securities, 
prizes, travel, entertainment expenses, tuition payments or 
reimbursements to any institution of higher education or to any 
employee of the institution to secure FFEL loan applications; or to 
lenders or their agents or employees, or to an independent contractor 
of any lender or guaranty agency to administer or market FFEL loans for 
the purpose of securing the designation of insurer of the loans. In 
addition, a guaranty agency may not conduct fraudulent or misleading 
advertising concerning loan availability, terms or conditions and, like 
lenders, guaranty agencies may not perform for an institution of higher 
education any function the institution is required to perform under 
title IV, other than exit counseling. The statute allows both lenders 
and guarantors to provide technical assistance to an institution of 
higher education comparable to the technical assistance provided by the 
Department to schools participating in the Direct Loan Program.
    Current Regulations: Prohibited activities by lenders and guaranty 
agencies are specified in current regulations in Sec. Sec.  682.200(b) 
and 682.401(e), respectively. These regulations were amended in 2007 
and provide lists of prohibited and permissible activities by lenders 
and guaranty agencies. The regulations governing the activities of 
lenders and guaranty agencies are different, most specifically in the 
area of training for schools (a guaranty agency may pay for travel and 
lodging for school personnel to attend training programs). The current 
regulations also permit guaranty agencies to pay school officials to 
participate on governing boards or advisory committees.
    Proposed Regulations: The proposed regulations would incorporate 
all of the new prohibited and permitted activities for lenders and 
guaranty agencies as specified in the HEA. Section 682.200(b)(5) of the 
proposed regulations specifically addresses the prohibition on lenders 
providing processing, referral or finder fees and expands the 
prohibition of such payments to institutions, employees of the 
institutions or to any other party, including a school-affiliated 
organization or its employees, to secure FFEL loans. The payment of 
stock, securities or tuition reimbursements is also a prohibited 
inducement. The proposed regulations prohibit a lender from providing 
compensation for service on a lender advisory board, commission or 
other group to an employee who is employed in an institution's 
financial aid office or to an institutional employee with 
responsibility for student loans or other financial aid, but would 
permit the lender to reimburse the employee for reasonable expenses 
related to service on the board, commission or group. The proposed 
regulations also specifically prohibit a lender from performing any 
function for a school that is a requirement of the school except for 
exit counseling.
    Section 682.401(e) of the proposed regulations, which governs 
guaranty agency prohibited inducements, generally mirrors the proposed 
regulations for lenders. The proposed regulations would prohibit 
guaranty agencies from performing any function required by a school 
under title IV except for exit counseling. Guaranty agencies would be 
prohibited from providing any payments of stock, securities or tuition 
reimbursement to any institution of higher education or its employees 
to secure applicants for FFEL loans, or to any lender, agent, or 
independent contractor of any lender or guaranty agency to administer 
or market FFEL loans for the purpose of securing designation as the 
insurer of the loans. A guaranty agency would not be permitted to pay 
travel and lodging costs of school employees to attend training 
conducted by the agency. The proposed regulations would allow for the 
reimbursement of reasonable expenses incurred by school employees to 
participate in an agency's advisory committee or governing board 
activity.
    The proposed regulations would prohibit lenders or guaranty 
agencies from providing staffing services to schools under any 
conditions. Finally, the proposed regulations would revise the 
provision that allows a lender or guaranty agency to provide assistance 
to schools comparable to the assistance that the Secretary provides to 
schools under the Direct Loan Program by clarifying that the assistance 
to schools that may be provided is ``technical'' assistance comparable 
to the technical assistance that the Secretary provides to Direct Loan 
schools.
    Reasons: The proposed changes to the prohibited inducement 
regulations for both lenders and guaranty agencies reflect statutory 
changes made by the HEOA.
    During the negotiated rulemaking discussions, non-Federal 
negotiators raised a concern about the prohibition on lenders and 
guaranty agencies paying processing fees. Some negotiators asked the 
Department to clarify the term ``processing fees.'' The negotiators 
were concerned that a broad definition could include permissible 
borrower benefits on FFEL loans. The Department clarified that, in this 
context, processing fees do not include permissible borrower benefit 
programs for student and parent borrowers that may be provided by 
lenders and guarantors to reduce the cost of borrowing for students and 
parents.
    Another non-Federal negotiator raised a concern that standard 
commercial practices may be affected by the prohibition on inducements 
with regard to the payment of processing fees. The Department made it 
clear that these regulations are not intended to thwart standard 
business practices unless there is a quid-pro-quo under which a lender 
pays the processing fees to secure loan applications or volume. The 
Department believes that these proposed regulations appropriately 
implement the statute and will not interfere with standard commercial 
business practices.
    Another negotiator raised a concern about what would be deemed

[[Page 36570]]

``reasonable'' with regard to the payment of reasonable costs in 
association with lenders and guaranty agencies paying for items such as 
meals or refreshments. The Department believes that the regulations are 
clear in their intent and that the determination of reasonable costs 
should be considered carefully by FFEL participants and viewed in light 
of what was deemed by the negotiators the ``prudent person test.''

Disclosure Requirements for Lenders (Sec.  682.205)

    Statute: Section 433 of the HEA requires lenders to provide 
borrowers a series of informational disclosures throughout the life of 
a loan. Specific types of disclosures are required based on the 
borrower's status within the borrowing process, i.e., at or before 
disbursement, at or before repayment, during repayment, during 
delinquency, at a time the borrower may be having difficulty making 
payments, and when the borrower considers taking out a Consolidation 
loan. Lenders are required to make these required disclosures simple 
and understandable for the borrower.
    The information the lender must disclose to the borrower at or 
before disbursement of the loan includes: Contact information for the 
lender; the amount of any charges on the loan, including origination 
fees and the Federal default fee; the interest rate on the loan; the 
annual and aggregate maximum amount that may be borrowed, when 
repayment is required and when interest must be paid, as well as the 
borrower's right to prepay all or part of the loan at any time without 
penalty; a statement summarizing the circumstances in which a borrower 
may obtain a deferment or forbearance; and the options for and 
requirements for forgiveness of the loan. For borrowers of unsubsidized 
Stafford loans or borrowers of student PLUS loans, the lender must also 
provide information about the borrower's right to pay the interest on 
the loan while the borrower is in school and, if interest is not paid, 
when and how often the lender will capitalize the interest. For parent 
PLUS loan borrowers, the lender must provide information about how the 
parent may defer payment on the loan while the student on whose behalf 
the parent borrowed is in school at least half-time.
    The disclosure information that the lender must provide to the 
borrower at or before the borrower begins repayment includes: The 
scheduled date repayment is to begin; the estimated balance, including 
the amount of interest to be capitalized as of the date on which 
repayment is to begin; the borrower's repayment schedule; special loan 
repayment benefits offered on the loan, including those contingent on 
repayment behavior; any limitations on a repayment benefit provided by 
the lender; information on how a borrower may lose eligibility for the 
repayment benefit and whether and how the borrower can regain 
eligibility for the benefit; a description of how the borrower can 
avoid or be removed from default; and any additional resources 
available to the borrower to assist in loan repayment.
    While the borrower is in repayment on the loan, the lender must 
periodically provide additional disclosure information to the borrower. 
The lender must provide the borrower with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due. That bill or statement must also include: The borrower's 
original principal loan amount; the borrower's current balance, as of 
the time of the bill or statement; the interest rate on the loan; the 
aggregate amount the borrower has paid on the loan, including the 
amount of interest and fees and the amount paid against the balance; a 
description of any fees charged on the loan; the date by which the 
borrower must make a payment to avoid additional fees; and a reminder 
that the borrower has the option to change repayment plans as well as a 
list of available repayment plans.
    The HEA also requires lenders to make certain disclosures to 
borrowers who are having difficulty making payments, including: A 
description of the repayment plans available to the borrower and 
information as to how the borrower may request a change in his or her 
repayment plan; the requirements for obtaining forbearance including 
any cost or fees associated with forbearance; and a description of the 
options for the borrower to avoid default and any fees or costs 
associated with each option.
    If a borrower is 60 or more days delinquent in making payments, the 
lender must provide the borrower with information including: The date 
on which the loan will default if no payments are made; the minimum 
payment the borrower must make to avoid default; a description of the 
options available to the borrower to avoid default and any fees or 
costs associated with each option; discharge options to which the 
borrower may be entitled; and information about any additional 
resources available to the borrower, including the Department's 
Ombudsman's Office, to assist the borrower in loan repayment.
    Finally, the HEA requires lenders to provide a separate disclosure 
for borrowers applying for Consolidation loans. When a lender provides 
a borrower with an application for a Consolidation loan, the lender 
must disclose information about the loan including: Whether or not 
consolidation will result in a loss of loan benefits for the borrower, 
including loan forgiveness, cancellation, deferment or a reduced 
interest rate; and if the borrower is consolidating a Perkins Loan, 
that the borrower will lose interest free periods available on the 
Perkins Loan while the borrower is enrolled in school at least half-
time, in the grace period or in deferment, and that the borrower will 
lose cancellation benefits available in the Perkins Loan Program. The 
lender must also provide the borrower with: A list of the Perkins Loan 
cancellation benefits that would no longer, upon consolidation, be 
available to the borrower; information about repayment plans available; 
information about the borrower's option to prepay the Consolidation 
loan or pay on a shorter repayment schedule; and a notice that applying 
for the Consolidation loan does not obligate the borrower to agree to 
take the loan.
    Current Regulations: Section 682.205 of the current regulations 
reflects the pre-HEOA requirements for lender disclosures. Lenders are 
required to provide information to borrowers at or before the time of 
loan disbursement, and at or prior to the beginning of repayment. 
Information that must be disclosed at or prior to disbursement 
includes: The lender's name and contact information; the principal 
amount of the loan; the amount of charges to be collected by the 
lender, including the origination fee and if those charges will be 
deducted from the loan; the minimum and maximum number of years for 
repayment; deferment options; collection costs; and the possible 
effects of accepting the loan on the borrower's eligibility for other 
aid. The regulations also require borrowers to be made aware that 
information concerning the loan, including the date of disbursement and 
the amount of the loan, will be reported to a national credit bureau.
    Information that must be disclosed at or prior to repayment 
includes: The scheduled date repayment is to begin; the estimated 
balance on the loan, including estimated interest to be capitalized; 
the interest rate on the loan; an explanation of fees that may accrue 
or be charged during the repayment period; and an explanation of 
special options the borrower may have for consolidating or refinancing 
the loans and the terms of those options.

[[Page 36571]]

    Proposed Regulations: Section 682.205 of the proposed regulations 
would retain the current regulatory language as to required 
disclosures, but would reorganize this section to accommodate the new 
disclosure requirements added by the HEOA. The HEOA added additional 
disclosures by lenders before disbursement and provided for new 
requirements at differing points in the repayment cycle of the 
borrower. The HEOA also added a separate set of disclosures 
specifically for Consolidation loan borrowers.
    The proposed regulations would incorporate the requirement for new 
disclosures by the lender at or prior to disbursement of the loan. In 
regard to unsubsidized loans, these disclosures must include: An 
explanation that the borrower may pay accruing interest while in school 
and, if the interest is not paid, when and how often it will be 
capitalized; for parent PLUS borrowers, an explanation that the payment 
may be deferred while the student on whose behalf the parent borrowed 
is in school as well as, if the interest is capitalized, when and how 
often it will be capitalized; information on forbearances; and a 
description of loan forgiveness options and the requirements to receive 
forgiveness.
    The HEOA also changed the numerous references to ``credit bureaus'' 
to refer to ``consumer reporting agencies'' and the proposed 
regulations reflect that change.
    To incorporate the many new disclosures required during the 
repayment period of a loan for a borrower, the proposed regulations 
reorganize Sec.  682.205(c) to better separate and distinguish the 
different disclosures.
    Under proposed Sec.  682.205(c)(2), the lender must disclose to the 
borrower: Information on any special loan repayment benefits available, 
the requirements to maintain the benefit, and the impact on the 
borrower's overall repayment; and any limitations associated with the 
benefit and the circumstances that would cause the borrower to lose the 
benefit, as well as how the borrower may be able to regain the benefit. 
The lender must also provide a borrower with the list of repayment 
plans available and remind the borrower that he or she may change plans 
at least once a year. The borrower must be informed about how to avoid 
default and, if the borrower is in default, how to get out of default. 
The lender must also provide the borrower with information about 
additional resources available to assist in loan repayment, including 
nonprofit organizations, advocates and counselors, and the Department's 
Ombudsman.
    Proposed Sec.  682.205(c)(3) requires lenders to provide specific 
repayment information to the borrower with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due. That information must include: The original principal amount of 
the borrower's loan; the current balance as of the time of the bill or 
statement; the interest rate on the loan; the interest paid by the 
borrower since the last statement or bill; aggregate totals paid; and a 
description of each fee the borrower has been charged for the most 
recent period. The borrower must be told the date by which payments 
must be made to avoid additional fees and the amount of that payment 
and the fees. Finally, the lender must remind the borrower of the 
option to change repayment plans and what plans are available with a 
link to the Department's Web site for that repayment plan information.
    Proposed Sec.  682.205(c)(4) adds a new section of required 
disclosures for borrowers who contact the lender and inform the lender 
that they are having difficulty making their required payments. Lenders 
must inform these borrowers of the repayment plans available, the 
requirements for forbearance and the options available to avoid default 
as well as any fees or costs associated with those options.
    Proposed Sec.  682.205(c)(5) adds a new section on the required 
disclosures for borrowers who are 60-days delinquent on repayment of 
their loans. Lenders must provide borrowers who are 60-days delinquent 
with information regarding the date on which the loan will default if 
no payment is made, the minimum payment to avoid default, and the 
payment amount that would bring the loan to a current status or pay the 
loan in full. Lenders must inform borrowers about: The options for 
avoiding default, including deferments and forbearance; any costs 
associated with those options; and any opportunity for loan discharge 
the borrower may have. The notice required by Sec.  682.205(c)(5) must 
be sent to the borrower within five days of the borrower becoming 60-
days delinquent, unless the lender has sent the notice within the 
previous 120 days.
    Reasons: The proposed regulations implement statutory requirements.
    Negotiators discussed how these disclosures could best be managed 
in a way that will be most beneficial to borrowers. Negotiators asked 
if the information required under Sec.  682.205(c)(2)(xiii) needed to 
be specific to the individual borrower's circumstances, or if the 
information could be general and outline the options for any borrower 
to avoid default or to bring a loan out of default. In discussions with 
the negotiators, the Department agreed it would be permissible for this 
information, i.e., how a borrower can avoid or remove a default status, 
to be general, since other required disclosures will provide the 
borrower with specific information pertaining to their individual 
circumstances and account information.
    Negotiators raised questions about the disclosures required in 
Sec.  682.205(c)(2)(xiv) and what information would need to be 
included. The Department believes that these disclosures should provide 
borrowers with information about an additional set of tools that are 
available to help them manage their student loan debt. In doing so, 
lenders need to ensure that borrowers are aware of any appropriate Web 
sites, organizations, and counseling services of which the lender is 
aware and that can be of assistance to borrowers when managing the 
repayment of their debt. The Department agreed to provide lenders a Web 
link to its Ombudsman's Office. Lenders may provide borrowers seeking 
to reach the Department's Ombudsman's Office with the following link: 
http://www.ombudsman.ed.gov/.
    Some non-Federal negotiators also asked for clarification of when a 
lender must send the disclosure that is required at or prior to 
repayment, in accordance with Sec.  685.205(c)(1), in the case of a 
PLUS loan that immediately enters an in-school deferment status upon 
the start of the repayment period. Specifically, the negotiators asked 
if the lender should wait until the end of the in-school deferment 
period (and any post-enrollment deferment period, if applicable) before 
sending the disclosure, or if the lender would be required to send the 
disclosure when the loan has been fully disbursed. The Department noted 
that a PLUS loan enters the repayment period on the date that the final 
disbursement of the loan is made. Therefore, the disclosure that is 
required at or prior to repayment must be sent at or before the time of 
the final loan disbursement rather than at the end of the deferment 
period.
    A non-Federal negotiator raised a concern about flexibility in the 
distribution of the disclosures required in this section of the 
regulations in light of the regulatory authority in 34 CFR 682.205(f) 
that allows a lender to provide disclosures through written or 
electronic means. The negotiator wanted to ensure that lenders may 
provide the disclosures using the method best suited

[[Page 36572]]

to the borrower's repayment method. The negotiator asked the Department 
to clarify that a lender would be able to provide the required 
disclosures through secure e-mail or electronic links to the borrower's 
account-specific information.
    The Department is concerned that the purpose of the statute would 
not be served if a lender simply provides a general electronic source 
for a borrower to retrieve the required disclosure information. Lenders 
may use appropriate electronic methods to provide the required 
disclosure information directly to the borrower. For example, if the 
lender sends an e-mail to the borrower containing the required general 
disclosures as well as a secure link to allow the borrower to obtain 
specific account information, the lender will have met the requirement. 
However, if the lender receives information that the e-mail address 
used is no longer valid or not the borrower's, the lender must take 
appropriate action as it would in situations when a mailing address 
used to communicate with the borrower is determined to be incorrect. 
Similarly, a lender may mail the required general disclosures to a 
borrower with information about a secure Web site for the borrower to 
access specific personal account information. If no return mail or 
evidence of a bad address is received by the lender, the lender may 
assume the mail has been received. Thus, we are proposing to treat 
these electronic disclosures similarly to mailed disclosures.
    Many non-Federal negotiators assured the Department that the 
required disclosure information, particularly the borrower-specific 
account information, could be provided through secure means and could 
provide confirmation that the borrower has accessed the information. 
The Department is not requiring lenders to document that the borrower 
has accessed the information, but would encourage lenders to do so to 
help identify borrowers who may need additional contact.
    The Department does not agree with the suggestion that it would be 
sufficient for a lender to provide general instructions on a statement, 
bill, coupon or other form (electronically or by mail) to a borrower 
that directs the borrower to a particular Web site for disclosure 
information. This approach would not fulfill the intent of the statute 
or serve the borrower. The Department fully supports the appropriate 
use of electronic communication with a borrower, but the Department 
must also ensure the statute is properly implemented and that borrowers 
are provided the required information in a manner that best serves both 
statutory intent and the needs of the borrower.
    Negotiators representing the student loan industry raised a concern 
about the impact of the distribution of the disclosures required by 
proposed Sec.  682.205(c)(3), those that are required during repayment, 
on their current loan servicing systems. The Department expects that 
the disclosures required by Sec.  682.205(c)(3) will be provided in 
accordance with the lender's or servicer's current account 
organizational practices. The disclosures may be provided by account or 
by borrower. The Department understands that lenders and servicers have 
developed systems to comply with disclosure requirements during 
repayment and does not intend to require lenders and servicers to 
unnecessarily alter those systems. Therefore, lenders and servicers may 
make the disclosures pursuant to Sec.  682.205(c)(3) by loan, by 
account, or by borrower.

Information to Borrowers Upon Transfer, Sale or Assignment of a FFEL 
Program Loan (Sec.  682.208(e))

    Statute: Section 428(b)(2)(F)(i) of the HEA was amended by the HEOA 
to require that a borrower be provided with additional information when 
the transfer, sale, or assignment of the borrower's FFEL loan results 
in a change in the identity of the party to whom payments and 
communications must be sent. The borrower must now be notified of the 
effective date of the assignment or transfer of the loan, the date that 
the current loan servicer will stop accepting the borrower's payments, 
and the date the new loan servicer will begin accepting those payments.
    Current Regulations: Current FFEL Program regulations require that 
if the assignment of a FFEL Program loan results in a change in the 
identity of the party to whom the borrower must send subsequent 
payments, the assignor and the assignee of the loan must, within 45 
days from the date the assignee acquires the legally enforceable right 
to receive payment from the borrower on the assigned loan, provide the 
borrower with a notice, either jointly or separately, that informs the 
borrower of the assignment, the identity of the party to which the loan 
is assigned, the name and address of the party to whom the borrower 
must send subsequent payments or communications, and the telephone 
numbers of both the assignor and assignee. If a separate notice is sent 
by each party, each notice must indicate that a corresponding notice 
will be sent by the other party. The current regulations define 
assignment for this purpose to mean any kind of transfer of an interest 
in the loan, including a pledge of such an interest as security. The 
notification requirements apply if the borrower is in the grace period 
or has entered repayment on the loan. The assignee, or the assignor on 
the assignee's behalf, must also notify the guaranty agency of the 
assignment, and the name, address, and telephone number of the assignee 
within 45 days of the date the assignee acquires a legally enforceable 
right to receive payment on the loan.
    Proposed Regulations: The proposed regulations incorporate the 
additional information specified in the HEA that must be provided to a 
borrower if the assignment or transfer of ownership interest on a FFEL 
Program loan results in a change in the identity of the party to whom 
subsequent payments must be sent. The date on which the current 
servicer will stop accepting payments is required only if that is 
applicable.
    Reasons: The proposed regulations reflect the HEOA changes to the 
HEA. Notification of the date on which the current servicer will stop 
accepting payments is not required if the servicer continues to accept 
payments throughout the assignment process and forwards them on to the 
assignee. Non-Federal negotiators with knowledge of loan servicing 
practices indicated that loan servicers do not stop accepting borrower 
payments during sales, transfers, and assignment.

Forbearance (Sec.  682.211)

    Statute: Section 428(c)(3)(C) of the HEA outlines what disclosures 
the lender must make to the borrower upon granting forbearance and 
during a forbearance period. The HEA requires lenders to provide a 
borrower with information regarding the impact that capitalizing 
interest will have on the loan and the total balance to be repaid. It 
requires lenders to provide additional disclosures to borrowers during 
a forbearance period, including the amount of interest that will be 
capitalized, the date on which capitalization will occur and the option 
of the borrower to pay the interest that has accrued before the 
interest is capitalized.
    Current Regulations: Current Sec.  682.211(e) requires the lender 
to contact a borrower at least once every six months during a period of 
forbearance only when the forbearance involves the cessation of all 
payments. The lender must provide the borrower with a reminder of the 
obligation to repay the loan, the amount of principal and interest on 
the loan, the fact that interest will continue to accrue and the

[[Page 36573]]

borrower's or endorser's option to cancel the forbearance at any time.
    Proposed Regulations: Section 682.211(e) of the proposed 
regulations would require the lender, at the time the borrower is 
granted a forbearance, to give the borrower information about the 
impact of capitalization of interest on the loan and the total amount 
to be repaid over the life of the loan. The proposed regulations would 
also require the lender to contact the borrower at least once every 180 
days during any period of forbearance and to give the borrower or 
endorser more specific information, in conjunction with that required 
under previous regulations, as to the impact of forbearance on the 
loan. This information includes the amount of interest that will be 
capitalized and when that capitalization will take place and the option 
of the borrower or endorser to pay the interest that has accrued before 
it is capitalized.
    Reasons: The proposed regulations implement statutory requirements.
    Some negotiators asked the Department to clarify the new 
forbearance disclosure requirement as they relate to administrative 
forbearances. Some negotiators were concerned that lenders will not be 
able to satisfy the disclosure requirements if an administrative 
forbearance is granted to provide a borrower assistance with a 
situation occurring in the past. The Department agreed with the other 
negotiators that if an administrative forbearance is granted 
retroactively, the lender need not go back in time to provide the 
required information retroactively. Lenders must, however, contact the 
borrower as required going forward from the date the lender applied the 
forbearance.

Audit Requirement for a FFEL School Lender or an Eligible Lender 
Trustee (ELT) That Originates FFEL Loans for a School or School-
Affiliated Organization (Sec. Sec.  682.305(c) and 682.601(a)(7))

    Statute: The HEOA added section 435(d)(8) to the HEA which requires 
any school that serves as a FFEL lender or any eligible lender that 
serves as an Eligible Lender Trustee (ELT) for a school or school-
affiliated organization for the purpose of making FFEL loans to 
complete and submit annually to the Secretary a compliance audit. The 
compliance audit must determine that the school or lender: Used all 
proceeds from special allowance payments, borrower interest payments, 
interest subsidy payments received from the Department and any proceeds 
from the sale or other disposition of the loans originated for need-
based grants; that no more than a reasonable portion of the proceeds 
were used for direct administrative expenses; and that the need-based 
grants made from the proceeds supplemented and did not supplant Federal 
and non-Federal funds that would otherwise have been used by the school 
for need-based grant programs.
    Current Regulations: Section 682.305(c) of the FFEL Program 
regulations requires all FFEL lenders that originate or hold at least 
$5 million in FFEL loans during the lender's fiscal year to complete 
and submit to the Department an independent annual compliance audit for 
that year. The audit must be completed by a qualified, independent 
organization or person. Section 682.601(a)(7) requires a school that 
makes or originates FFEL loans, regardless of the dollar volume, to 
submit an annual compliance audit to the Department. For a school that 
is not a governmental entity or a nonprofit organization, the audit 
must examine the school lender's compliance with the HEA and applicable 
regulations, examine the school lender's financial management of its 
FFEL Program activities, and be conducted in accordance with the 
standards for audits issued by the United States Government 
Accountability Office's Government Auditing Standard using the 
procedures outlined in an audit guide produced by the Department's 
Office of Inspector General. For a school lender that is a governmental 
entity or a nonprofit organization, the audit must meet the same 
standards as audits for other school lenders and be conducted in 
accordance with chapter 75 of title 31 of the United States Code. In 
addition, in years in which student financial aid is not audited as a 
``Major Program,'' as defined under 31 U.S.C. 7501, the school's 
lending activities, regardless of dollar amount, must be included in 
the audit as a Major Program.
    Proposed Regulations: The proposed regulations would revise Sec.  
682.305(c) to require that a FFEL school lender, or a lender serving as 
a trustee on behalf of a school or school-affiliated organization for 
the purpose of originating loans, submit an annual compliance audit to 
the Department regardless of the dollar volume of loans originated. The 
proposed regulations also require that the audit be conducted by a 
qualified, independent organization or person. A new proposed Sec.  
682.305(c)(2)(vii) would govern the compliance audit of a school or 
school-affiliated organization's lender trustee. The proposed 
regulations require that the trustee's audit include a determination 
that the school for whom the lender serves as trustee used all the 
proceeds from special allowance payments, interest subsidies received 
from the Department, and any proceeds from the sale or other 
disposition of the loans originated through the lender for need-based 
grants, and that those funds supplemented, but did not supplant, other 
Federal or non-Federal funds otherwise available to the school to make 
need-based grants to its students. The proposed regulations also 
require that the audit must determine that no more than a reasonable 
portion of the payments and proceeds from the loans were used for 
direct administrative expenses in accordance with Sec.  682.601(b) of 
the current regulations. These same requirements with regard to annual 
compliance audit determinations were also added to the FFEL school 
lender audit requirements in Sec.  682.601(a)(7) of the regulations.
    Reasons: The proposed regulations reflect the HEOA changes made to 
the HEA provisions governing the compliance audit of a FFEL school 
lender or an eligible FFEL lender in its capacity as trustee for a 
school or school-affiliated organization for the purpose of making FFEL 
loans. The audit determination will ensure that funds received by a 
school as a lender or through an ELT arrangement with an eligible FFEL 
lender will be used to benefit students enrolled at the school as 
intended by the HEA.

Consumer Education Information Provided by Guaranty Agencies (Sec.  
682.401(g))

    Statute: The HEOA added a new section 433A to the HEA that requires 
a guaranty agency to work with the schools that it serves to develop 
and make available high-quality educational materials and programs that 
provide training for students and their families in budgeting and 
financial management, including debt management and other aspects of 
financial literacy, such as the cost of using high-interest loans to 
pay for postsecondary education, and how budgeting and financial 
management relate to the title IV student loan programs. The HEA 
requires these programs and materials to be in formats that are simple 
and understandable to students and their families, and specifies that 
they must be provided before, during, and after a student's enrollment 
at an institution of higher education. A guaranty agency's activities 
under section 433A are considered default reduction activities for the 
purposes of section 422 of the HEA.
    A guaranty agency is not prohibited from using existing activities, 
programs,

[[Page 36574]]

and materials to meet the requirements of section 433A, and may provide 
programs or materials similar to the programs and materials required by 
section 433A to schools that participate only in the Direct Loan 
Program.
    A lender or loan servicer may also provide outreach or financial 
aid literacy information in accordance with the requirements of section 
433A.
    Proposed Regulations: The proposed regulations would reflect the 
requirements of section 433A of the HEA as described above.
    Reasons: The proposed changes are necessary to reflect a statutory 
requirement.

Financial and Economic Literacy for Rehabilitated Borrowers (Sec.  
682.405)

    Statute: The HEOA amended section 428F of the HEA to require a 
guaranty agency to make available financial and economic education 
materials for a borrower who has rehabilitated a defaulted loan.
    Proposed Regulations: The proposed regulations would revise Sec.  
682.405, regarding loan rehabilitation agreements, by adding a 
provision requiring guaranty agencies to make available financial and 
economic education materials, including debt management information, to 
any borrower who has rehabilitated a defaulted loan.
    Reasons: The proposed change is necessary to implement a statutory 
requirement. Some of the non-Federal negotiators requested 
clarification of the methods by which a guaranty agency may make the 
required information available to borrowers who have rehabilitated a 
defaulted loan. One non-Federal negotiator representing students asked 
for clarification that the required information must be provided to 
individual borrowers who have rehabilitated defaulted loans, and not 
simply made available on a guaranty agency's Web site or in other 
general materials.
    The Department confirmed that a guaranty agency must provide the 
required financial and economic education materials to each individual 
borrower who has rehabilitated a defaulted loan. A guaranty agency may 
provide the required information to individual borrowers by mailing 
written materials or through electronic means. The materials may 
provide general financial and economic education information that would 
be applicable to any borrower, including information on debt 
management, and need not be specific to the individual borrower's 
circumstances.

Consumer Credit Reporting Following Loan Rehabilitation (Sec.  
682.405(b)(1)(iii) and (b)(3))

    Statute: Section 428F(a)(1)(A) of the HEA was amended by the HEOA 
to require that, upon sale of a rehabilitated loan to an eligible 
lender, the guaranty agency or other holder of the loan must request 
any consumer reporting agency to which the guaranty agency or holder 
had reported the default of the loan to remove the record of default 
from the borrower's credit history.
    Current Regulations: Section 682.405(b)(3) of the FFEL regulations 
states that the guaranty agency must report to all national credit 
bureaus within 90 days of the date the loan was rehabilitated that the 
loan is no longer in a default status and that the default is to be 
removed from the borrower's credit history.
    Proposed Regulations: The proposed regulations would require the 
prior holder of the loan, in addition to the guaranty agency, to 
request that a consumer reporting agency to which the default was 
reported remove the default from the borrower's credit history. The 
proposed regulations would also provide more detailed reporting 
deadlines for the guaranty agency and the prior loan holder to request 
removal of the report of the default from the borrower's credit 
history, and would reduce the overall period for this activity from 90 
to 75 days. Under the proposed regulations, the guaranty agency must, 
within 45 days of the sale of the rehabilitated loan to an eligible 
lender, request that the consumer reporting agency remove the record of 
default from the borrower's credit history and notify the prior holder 
of the loan rehabilitation. The proposed regulations would require the 
prior holder of the loan, within 30 days of the guaranty agency's 
notification of the loan's rehabilitation, to request that the consumer 
reporting agency remove the loan holder's default claim record or its 
equivalent from the borrower's credit history.
    Reasons: The proposed regulations incorporate the HEOA changes to 
the HEA provisions governing default rehabilitation-related reporting 
to consumer reporting agencies. Establishing specific deadlines for a 
guaranty agency's notice to the prior holder and for the guaranty 
agency and loan holder to make their requests to consumer reporting 
agencies will ensure that affected borrowers receive the primary loan 
rehabilitation benefit in a timely and efficient manner.
    The Department initially proposed reducing the overall timeframe 
for reporting to the consumer reporting organizations from the current 
90 days to 45 days without separate reporting deadlines for the 
guaranty agency and loan holder. Several non-Federal negotiators 
expressed concern that 45 days did not provide sufficient time for both 
parties to report to consumer reporting agencies and noted that the 
prior loan holder would not be aware that it was required to initiate 
such a request unless it was informed by the guaranty agency of the 
sale. These negotiators also recommended that separate deadlines be 
established for the guaranty agency and the loan holder so that one 
party's failure to meet the deadline would not result in a compliance 
failure for both parties. A non-Federal negotiator familiar with 
guaranty agency requirements also requested that the Department clarify 
a guaranty agency's responsibilities when the prior loan holder that 
reported the default was no longer in existence. The negotiators 
discussed consumer credit reporting in greater detail, with the Federal 
negotiator providing an overview of the process and information on the 
Department's consumer credit reporting process for rehabilitated Direct 
Loans. In both the FFEL and Direct Loan programs a record of the 
default, or an equivalent reporting code, is reported by the loan 
holder (in FFEL) or the Direct Loan servicer and by the guaranty agency 
(in FFEL) or the Department's debt collection unit (in Direct Loans) 
and that neither the Department nor a guaranty agency has the authority 
to request deletion by the consumer reporting organization of another 
creditor's reported ``trade line.'' If the loan holder that reported a 
default insurance claim no longer exists, the borrower's recourse is to 
directly request that the consumer reporting organization remove the 
defunct loan holder's reported record of default or its equivalent from 
the borrower's credit history. The Department expects guaranty agencies 
to assist borrowers to the extent possible under these circumstances by 
informing the borrower of the identity of the prior holder and of the 
borrower's right to directly request removal of the default by the 
consumer reporting agency. However, the Department understands that a 
guaranty agency's ability to assist borrowers is limited in this area.

Notifications to Borrowers in Default and Definition of Nationwide 
Consumer Reporting Agency (Sec. Sec.  682.410(b) and 682.200(b))

    Statute: The HEOA amended section 428(k) of the HEA by adding a 
requirement for guaranty agencies that

[[Page 36575]]

have received a default claim from a lender to provide the defaulted 
borrower with at least two separate notices, using simple and 
understandable terms, that explain, at a minimum, the borrower's 
options for removing the loan from default, and the fees and conditions 
associated with each option.
    The HEOA also changed all current references to ``credit bureaus'' 
in the HEA to ``consumer reporting agencies.''
    Current Regulations: Section 682.410(b)(5)(ii) requires a guaranty 
agency, after it pays a default claim on a loan but before it reports 
the default to a credit bureau or assesses collection costs against the 
borrower, to provide the borrower, within a specified timeframe, with a 
notice that advises the borrower of the actions that will be taken with 
regard to the default claim and explains the borrower's rights in 
connection with the claim. Section 682.410(b)(6) specifies the 
collection efforts that a guaranty agency must take on a defaulted 
loan.
    Proposed Regulations: The proposed regulations would expand the 
information that must be provided in the notice required under Sec.  
682.410(b)(5)(ii) to include information on the options that are 
available to the borrower to remove the loan from default, including an 
explanation of the fees and conditions associated with each option. The 
proposed regulations would also require a guaranty agency to provide 
this same information to a defaulted borrower in a second notice that 
the guaranty agency must send as part of its required collection 
efforts on a defaulted loan under Sec.  682.410(b)(6). The second 
notice would have to be sent within a reasonable time after the end of 
the period during which the borrower may request an administrative 
review as specified in Sec.  682.410(b)(5)(iv)(B) or, if the borrower 
has requested an administrative review, within a reasonable time 
following the conclusion of the administrative review.
    The proposed regulations would also remove the definition of 
National credit bureau from Sec.  682.200(b) and replace it with a 
definition of Nationwide consumer reporting agency, and would replace 
all references to ``credit bureau'' with ``consumer reporting agency'' 
throughout Sec.  682.410(b)(5) and (b)(6). The proposed regulations 
would specify that a nationwide consumer reporting agency is a consumer 
reporting agency as defined in 15 U.S.C. 1681a.
    Reasons: The proposed changes in Sec.  682.410(b) reflect statutory 
requirements. The proposed definition of nationwide consumer reporting 
agency refers to the definition of this term in the Fair Credit 
Reporting Act.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the OMB. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action likely to result in a rule that may 
(1) have an annual effect on the economy of $100 million or more, or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local or 
Tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    Pursuant to the terms of the Executive order, it has been 
determined this proposed regulatory action will not have an annual 
effect on the economy of more than $100 million. Therefore, this action 
is not ``economically significant'' and subject to OMB review under 
section 3(f)(1) of Executive Order 12866. Notwithstanding this 
determination, the Secretary has assessed the potential costs and 
benefits of this regulatory action and has determined that the benefits 
justify the costs.

Need for Federal Regulatory Action

    These proposed regulations are needed to implement provisions of 
the HEA, as amended by the HEOA, particularly related to changes 
related to loan discharge, deferment, consolidation, rehabilitation, 
and repayment plan provisions, and the addition of a new Part E to 
title I of the HEA which establishes extensive new disclosure 
requirements for lenders and institutions participating in Federal and 
private student loan programs.
    In general, these proposed regulations simply restate specific HEOA 
requirements, in many cases using language drawn directly from the 
statute. In the following areas, the Secretary has exercised limited 
discretion in implementing the HEOA provisions through proposed 
regulations:
    Total and permanent disability discharges: The Secretary determined 
that the monitoring period after a borrower receives a discharge due to 
total and permanent disability would be three years; that interest 
would not accrue during this period for loans that are ultimately 
reinstated; that the employment earnings standard would be based on the 
poverty guideline amount for a family of two; that, for student loan 
and TEACH grant disbursements received during the monitoring period, a 
borrower's obligation to repay a discharged loan will not be reinstated 
if funds are returned to the holder within 120 days of the disbursement 
date; and that the Secretary will provide certain information to a 
borrower as part of a notification to the borrower that his or her 
obligation to repay a previously discharged loan has been reinstated.
    Opportunity to cancel a consolidation loan: The Secretary would 
require lenders to provide a Consolidation loan borrower a period of 
not less than 10 days, from the date the borrower is notified the 
lender is ready to make the Consolidation loan, to cancel the loan.
    PLUS loan deferment: The Secretary aligned the repayment of a 
borrower's PLUS loans first disbursed before July 1, 2008, with a 
borrower's PLUS loans first disbursed on or after July 1, 2008, and 
with a borrower's Stafford Loans that have a grace period, so that the 
borrower would begin making payments on all of the loans at the same 
time.
    Income-based repayment: The Secretary determined that a borrower 
whose outstanding balance has increased rather than decreased 
throughout the repayment period prior to the borrower's request for IBR 
should be given the benefit of determining partial financial hardship 
based on the borrower's increased outstanding loan principal balance.
    The Secretary would require that, for married borrowers, joint AGI 
and the annual amount due on both the borrower's and the spouse's 
eligible loans be used to determine eligibility for IBR and the partial 
financial hardship payment amount. That payment amount would then be 
adjusted based on the percentage of the combined total eligible loan 
debt attributable to each individual borrower, with a further 
adjustment if the borrower has multiple loan holders.
    Teacher loan forgiveness: The Secretary determined that the five 
complete consecutive years of teaching required to qualify for loan 
forgiveness may include any combination of qualifying teaching service 
at an eligible

[[Page 36576]]

elementary or secondary school or at an eligible educational service 
agency, but teaching at an educational service agency may be counted 
toward the five years only if the consecutive five-year period includes 
qualifying teaching at an eligible educational service agency performed 
after the 2007-2008 academic year.
    Forbearance: The Secretary determined that, if an administrative 
forbearance is granted retroactively, the lender need not go back in 
time to provide the required information retroactively. Lenders must, 
however, contact the borrower as required going forward from the date 
the lender applied the forbearance.
    Consumer credit reporting after loan rehabilitation: The Secretary 
determined that guaranty agencies must, within 45 days of the sale of 
the rehabilitated loan to an eligible lender, request that the consumer 
reporting agency remove the record of default from the borrower's 
credit history and notify the prior holder of the loan rehabilitation. 
The Secretary also determined that the prior holder of the loan, within 
30 days of the guaranty agency's notification of the loan's 
rehabilitation, must request that the consumer reporting agency remove 
the loan holder's default claim record or its equivalent from the 
borrower's credit history.
    The following section addresses the alternatives that the Secretary 
considered in implementing these discretionary portions of the HEOA 
provisions. These alternatives are also discussed in more detail in the 
Reasons sections of this preamble related to the specific regulatory 
provisions.

Regulatory Alternatives Considered

    Total and permanent disability discharges: The Department's initial 
proposals included a 5-year post-discharge monitoring period and 
interest charges for the period from the date of discharge to the 
reinstatement date when a borrower's obligation to repay a previously 
discharged loan is reinstated for failure to meet one of the post-
discharge requirements. Non-Federal negotiators did not support these 
proposals, questioning the rationale for changing the current 
policies--under which the conditional discharge period is three years 
and interest is not charged for reinstated loans during the conditional 
period--in the absence of a specific statutory requirement to do so. 
After considering the negotiators' concerns, the Department revised the 
proposed regulations by changing the post-discharge monitoring period 
from five years to three years, and by removing the provision that 
would have required a borrower to pay interest from the date of 
discharge if the borrower's repayment obligation is reinstated.
    Under the Department's initial proposal, a borrower's obligation to 
repay a previously discharged loan would be reinstated if the 
borrower's annual earnings from employment during the monitoring period 
exceeded the poverty guideline amount for the borrower's family size. 
Non-Federal negotiators raised concerns about this proposal, noting 
that while the proposed approach could be seen as more equitable than 
the current regulatory approach--under which the criteria for the 
reinstatement of a loan is tied to poverty guideline amount for a 
family of two, regardless of the borrower's actual family size--it also 
could be confusing to borrowers, since a borrower's family size could 
change during the post-discharge monitoring period. These negotiators 
argued that the current standard based on a family size of two would be 
preferable, as it would eliminate the need for borrowers to monitor 
changes in the employment earnings limit during the post-discharge 
monitoring period. The Department agreed.
    Non-Federal negotiators also raised concerns about the treatment of 
a title IV loan disbursement made during the post-discharge monitoring 
period for a loan the borrower received prior to the physician's 
certification date. The Department initially did address this issue in 
the proposed regulations because the current regulatory provision, 
under which a borrower is ineligible for a final discharge unless the 
borrower ensures that such a disbursement is returned to the loan 
holder within 120 days of the disbursement date, is tied to the 
conditional discharge period, which would be eliminated under the 
proposed regulations. After considering the concerns of the non-Federal 
negotiators, the Department agreed to change the proposed regulations 
to provide that a borrower's obligation to repay a discharged loan will 
not be reinstated if the borrower ensures that a title IV loan or TEACH 
Grant disbursement made during the post-discharge monitoring period for 
a loan or TEACH Grant received prior to the discharge date is returned 
to the loan holder within 120 days of the disbursement date. The 
Department also agreed to revise the proposed regulations to provide 
that if a disbursement of a title IV loan or TEACH Grant is made during 
the period between the physician's certification date and the discharge 
date, the processing of the borrower's loan discharge request will be 
suspended until the borrower ensures the disbursement is returned to 
the loan holder or the Secretary, as applicable.
    Lastly, the Department's initial proposal did not explicitly 
provide that the Secretary would notify a borrower who fails to meet 
one of the eligibility requirements during the post-discharge 
monitoring period that the borrower's obligation to repay the 
discharged loan has been reinstated. In response to serious concerns 
from non-Federal negotiators, the Department agreed to add a provision 
to the proposed regulations stating the Secretary will notify a 
borrower that his or her obligation to repay a previously discharged 
loan has been reinstated, and that the notification of reinstatement 
will explain why the obligation was reinstated, that the first payment 
due date following reinstatement will be no earlier than 60 days after 
the date of the notification of reinstatement, and how the borrower may 
contact the Department if he or she has questions or believes the 
obligation to repay was reinstated based on incorrect information.
    Opportunity to cancel a consolidation loan: A number of non-Federal 
negotiators raised concerns about the requirement that lenders provide 
Consolidation loan borrowers an explicit period of time to cancel the 
loan after the date the borrower is notified that the lender is ready 
to make the Consolidation loan. These negotiators argued that the 
Department's original proposal to provide a five-day period for a 
borrower to cancel the loan with the lender lacked clarity and did not 
fully recognize the highly automated consolidation process in which 
some loans could be fully processed in as little as 24-48 hours. One 
negotiator suggested that the Department provide borrowers with the 
opportunity to expedite processing by waiving their right to cancel the 
loan. After considering these concerns and suggestions, the Department 
proposed revised language establishing a timeframe for a borrower to 
cancel a Consolidation loan that would be similar to the operational 
timeframe used in the Direct Loan Program, which would be clear and 
understandable to all participants. This revised proposal is reflected 
in the proposed regulations.
    PLUS loan deferment: A non-Federal negotiator raised concerns that, 
under the Department's original proposal, borrowers with PLUS loans 
first disbursed before July 1, 2008, and PLUS loans first disbursed on 
or after July 1,

[[Page 36577]]

2008, could erroneously believe that all their PLUS loans are eligible 
for the new 6-month post-enrollment deferment period, which is actually 
only available on PLUS loans first disbursed on or after July 1, 2008. 
This negotiator suggested, and the Department agreed, that the proposed 
regulations be revised to provide an administrative forbearance that 
would allow a lender to align repayment of a borrower's PLUS loans 
first disbursed before July 1, 2008 with a borrower's PLUS loans first 
disbursed on or after July 1, 2008, and with a borrower's Stafford 
Loans that have a grace period.
    Income-based repayment: A non-Federal negotiator noted that 
borrowers whose outstanding loan balance increased after they initially 
entered repayment and before they request IBR would be disadvantaged 
under the Department's original proposal to always base a borrower's 
annual payment amount on the outstanding balance when the borrower 
initially entered repayment. The negotiator argued that borrowers who 
have had difficulty repaying the loan and who have taken advantage of 
deferments and forbearances to avoid delinquency would be particularly 
disadvantaged as their outstanding loan principal balance would have 
increased due to capitalized interest. After considering these factors, 
the Department agreed that, for a borrower whose outstanding balance 
has increased during the repayment period prior to the borrower's 
request for IBR, the determination of partial financial hardship should 
be based on the borrower's increased outstanding loan principal 
balance.
    The Department also considered alternative approaches for 
determining eligibility for partial financial hardship for married 
borrowers who file a joint Federal tax return and who both have 
eligible loans. The Department initially proposed using each individual 
borrower's portion of the joint AGI and eligible loan amount to 
determine eligibility for IBR. Following discussions with non-Federal 
negotiators, the Department determined that this approach would impose 
significant burdens both on borrowers, who would be required to submit 
additional documentation to identify the individual portion of any 
joint income, and loan holders, who would need to determine each 
borrower's eligibility using a manual process (rather than automated 
process). As an alternative, the Department agreed to adopt a non-
Federal negotiator's suggestion to determine eligibility for IBR using 
married borrowers' joint AGI and the annual amount due on both the 
borrower's and the spouse's eligible loans, with the payment amount 
adjusted based on the percentage of the combined total eligible loan 
debt attributable to each individual borrower and with a further 
adjustment for borrowers with multiple loan holders.
    The alternatives adopted would increase Federal costs for fiscal 
years 2009 through 2019 related to the IBR program by an estimated $101 
million compared with baseline estimated costs for the original 
authorizing legislation. (These costs include the impact of the 
proposed changes on loans made prior to FY 2009.) The Department does 
not forecast any new borrowers will choose the IBR repayment schedule 
beyond those assumed in the baseline because the alternatives adopted 
were relatively minor and, therefore, not likely to change borrowers' 
repayment choices. Projected costs were determined based on those 
borrowers from the 1994 through 2019 cohorts already assumed to choose 
the IBR repayment schedule. Estimates were derived using data from the 
Department's Direct Loan servicing system on borrowers who have chosen 
income-contingent repayment, merged with a statistically significant 
sample of National Student Loan Data System data. Current Population 
Survey data from the Census Bureau was used to project borrower 
incomes. Estimated loan volume associated with borrowers affected by 
the alternatives adopted is $93 billion over 1994 through 2019.
    While the cost of these provisions would normally need to be 
offset, the Department requested and the Office of Management and 
Budget granted an exception to budget neutrality requirements. This 
exception reflects the relatively small cost of the provisions and the 
fact that in their absence borrowers would be harmed by having unduly 
high payment amounts or being denied access to IBR entirely. This harm 
would be most significant to married borrowers with significant student 
loan debt, including those engaged in public service careers, which 
often pay less than comparable jobs in the private sector.
    Teacher loan forgiveness: The Department's initial proposal allowed 
only qualifying teaching service performed at an eligible educational 
service agency after August 14, 2008, the date of enactment of the 
HEOA, to be counted toward a borrower's required five complete 
consecutive years of teaching service. A non-Federal negotiator argued 
that this approach was too restrictive, and that the HEOA's provisions 
in this area were intended to apply retroactively to October 1, 1998, 
the date of enactment of the original FFEL and Direct Loan teacher loan 
forgiveness provisions. While the Department did not agree with this 
interpretation of the HEOA, the proposed regulations were revised to 
provide that the required five complete consecutive years of teaching 
may include any combination of qualifying teaching service at an 
eligible elementary or secondary school or at an eligible educational 
service agency, provided the consecutive five-year period includes 
qualifying teaching at an eligible educational service agency performed 
after the 2007-2008 academic year.
    Forbearance: Some non-Federal negotiators raised concerns that 
lenders will not be able to satisfy disclosure requirements if an 
administrative forbearance is granted to assist a borrower with a 
situation occurring in the past. The Department, after discussions with 
other negotiators, agreed that if an administrative forbearance is 
granted retroactively, the lender need not go back in time to provide 
the required information retroactively. The lender must, however, 
contact the borrower as required going forward from the date the lender 
applied the forbearance.
    Consumer credit reporting after loan rehabilitation: The Department 
initially proposed reducing the overall timeframe for both guaranty 
agency and loan holder reporting to the consumer reporting 
organizations from the current 90 days to 45 days. Non-Federal 
negotiators argued that 45 days was not enough time for both parties to 
report to consumer reporting agencies, noting that the prior loan 
holder would be unaware of the requirement until informed by the 
guaranty agency of the sale. These negotiators recommended separate 
deadlines for the guaranty agency and the loan holder to ensure that 
one party's failure to comply with the deadline would not result in a 
compliance failure for both parties. After consideration of these 
concerns, the Department agreed to an alternative approach that would 
reduce the overall period for this activity from 90 to 75 days. Under 
this alternative approach, the guaranty agency must, within 45 days of 
the sale of the rehabilitated loan to an eligible lender, request that 
the consumer reporting agency remove the record of default from the 
borrower's credit history and notify the prior holder of the loan 
rehabilitation. The proposed regulations would require the prior holder 
of the loan, within 30 days of the guaranty agency's notification of 
the loan's rehabilitation, to request that the consumer reporting 
agency remove the loan holder's default claim record or

[[Page 36578]]

its equivalent from the borrower's credit history.

Benefits

    Benefits provided in these proposed regulations include greater 
transparency for borrowers participating in the Federal and private 
student loan programs; clearer guidelines on acceptable behavior by and 
relationships among institutions participating in the student loan 
programs; improvements to the IBR plan, particularly for married 
borrowers; a simpler process for obtaining loan discharges due to total 
and permanent disability; and expanded eligibility for Teacher Loan 
forgiveness benefits. It is difficult to quantify benefits related to 
the new institutional and lender requirements, as there is little 
specific data available on either the extent of improper or 
questionable relationships between institutions and lenders prior to 
the HEOA or of the harm such relationships actually caused for either 
borrowers, institutions, or the Federal taxpayer. The extent these 
relationships prevented borrowers from accessing the most favorable 
loan terms, however, is likely to have changed in any case since recent 
shifts in economic conditions and lender net revenues have greatly 
reduced the availability of borrower benefits in the FFEL program. The 
Department is interested in receiving comments or data that would 
support a more rigorous analysis of the impact of these provisions.
    These benefits all flow directly from statutory changes included in 
the HEOA; they are not materially affected by discretionary choices 
exercised by the Department in developing these regulations. As 
discussed in greater detail under Net Budget Impacts, these proposed 
provisions result in net costs to the government of $192.7 million over 
2009-2013.

Costs

    Many of the statutory provisions implemented though this NPRM will 
require regulated entities to develop new disclosures and other 
materials, as well as accompanying dissemination processes. Other 
proposed regulations generally would require discrete changes in 
specific parameters associated with existing guidance--such as changes 
to the process for loan discharges, IBR, and various deferment and 
forbearance benefits--rather than wholly new requirements. In total, 
these changes are estimated to increase burden on entities 
participating in the FFEL program by 1,313,964 hours. Of this increased 
burden, 1,184,115 hours are associated with lenders, 110,360 hours with 
guaranty agencies, and 7,200 hours with institutions. An additional 
12,289 hours are associated with borrowers, generally reflecting the 
time required to read new disclosures or submit required information. 
The monetized cost of this additional burden, using loaded wage data 
developed by the Bureau of Labor Statistics, is $24,334,225.
    While there is additional burden associated with a range of 
proposed provisions in this NPRM, nearly 95 percent of the burden hours 
associated with this package result from six provisions, all with a 
burden greater than 20,000 hours. In estimating the cost of these 
provisions, the Department used wage information from the Bureau of 
Labor Statistics. For lenders, institutions, and guaranty agencies, the 
May 2009 total private non-agricultural average hourly earnings of 
$18.54 was used as the hourly rate to monetize the burden of these 
provisions. For borrowers, the first quarter 2009 median weekly 
earnings for full-time wage and salary workers by age range were used. 
This was weighted to reflect the age profile of the student loan 
portfolio, with 50 percent of the portfolio assigned to the 20-to-24 
age category and 50 percent to the 25-to-34 age category. Using median 
weekly earnings of $472 for workers in the 20-to-24 age category and 
$674 for workers in the 25-to-34 age category and assuming a 35-hour 
work week, the Department calculated an hourly rate of $16.37 to use in 
monetizing the burden on borrowers. The following discussion provides 
additional detail on the impact of these provisions.
    The greatest number of burden hours is associated with proposed 
Sec.  682.205, which implements new statutory requirements for lenders 
to disclose specified information to borrowers throughout the life-
cycle of the loan. These required disclosures include information about 
a 10-day cancellation period for consolidation loans, the availability 
of forbearance and its effects, discharge options, repayment plans, and 
resources available to borrowers, among others. The Department 
determined that the lenders will have increased burden due to the 
additional disclosures for two groups of borrowers: Borrowers that are 
having difficulty making payments, and borrowers that are 60-days 
delinquent. There is no additional burden associated with the 
disclosures that loan holders are already required to make to borrowers 
prior to and during repayment. An estimated 4,692,126 borrowers fall 
within these two categories with additional burden, and the burden of 
developing and distributing the new disclosures is estimated to be .17 
hours per borrower, for a total burden of 797,661 hours for this 
provision. Using the lender rate of $18.54 per hour, the cost 
associated with this provision is $14.8 million.
    The next highest number of burden hours is associated with proposed 
Sec.  682.211, which specifies lender disclosure requirements related 
to forbearance and creates a new administrative forbearance to align 
repayment of PLUS loans. Lenders must disclose the effect of interest 
capitalization and the total to be repaid during the life of a loan 
under this provision. An estimated 215,734 borrowers are affected by 
this provision, and the hour burden on lenders is estimated to be .03 
hours per borrower, for a total of 215,734 hours. Therefore, the cost 
associated with this provision is approximately $4.0 million.
    An estimated 90,286 burden hours are associated with Sec.  682.215 
and Sec.  685.221, the provisions related to the definition of partial 
financial hardship and the calculation of the borrower's payment under 
income-based repayment plans. The change in the method of calculating 
an income-based repayment will increase burden to loan holders by .08 
hours per borrower. The number of borrowers expected to qualify for IBR 
is 1,128,579, generating a total burden of 90,286. Using the lender 
rate, the cost associated with this provision is $1.7 million.
    Another provision that has an estimated burden greater than 20,000 
hours is Sec.  682.206, which requires lenders to offer consolidation 
borrowers a 10-day cancellation period. The burden of this provision 
falls on borrowers, who have to read the disclosure about cancellations 
and act if they want to pursue that option, and lenders, who have to 
provide the disclosure about cancellation and delay loan processing to 
allow cancellations. An estimated 10,032 FFEL consolidation borrowers 
are affected by this provision, with an estimated burden of one hour 
for a total of 10,032 hours. For lenders, the burden of providing 
application disclosures to approximately 670,753 potential 
consolidation loan applicants and information about cancellations to 
approximately 11,147 consolidated borrowers, calculated at a rate of 
.08 hours per borrower, totals 54,552 hours. Applying the appropriate 
rates for borrowers and lenders, the total cost associated with this 
provision is $1.2 million.
    An estimated 58,793 burden hours are associated with Sec.  682.410, 
the provision

[[Page 36579]]

requiring guaranty agencies to provide certain notifications to 
borrowers who are in default. Guaranty agency default notices must 
include information on the options that are available to the borrower 
to remove the loan from default, including an explanation of the fees 
and conditions associated with each option. Approximately 734,918 
borrowers in default are affected by this provision, with a burden of 
.08 hours per borrower. At the guaranty agency rate of $18.54 per hour, 
the cost associated with this provision totals $1.1 million.
    The final provision estimated to result in over 20,000 burden hours 
is Sec.  682.405, which requires guaranty agencies to provide certain 
information to borrowers who have rehabilitated defaulted loans. 
Guaranty agencies are required to provide financial and economic 
educational materials to borrowers who have rehabilitated loans. Given 
an estimated 143,687 rehabilitated loans and an increase in burden of 
.17 hours per loan, the burden hours associated with this provision 
total 24,427. Applying the guaranty agency rate, the cost associated 
with this provision totals $0.5 million.
    The other provisions that increase burden and associated costs are 
relatively minor, especially when looked at for an individual entity 
rather than in total. In general, entities wishing to continue to 
participate in the student aid programs have already absorbed most of 
the administrative costs related to implementing these provisions. 
Marginal costs over this baseline are primarily related to one-time 
system changes that, while possibly significant for some entities, are 
an unavoidable--and in most cases minor--cost of continued program 
participation. Additional workload would normally be expected to result 
in estimated costs associated with either the hiring of additional 
employees or opportunity costs related to the reassignment of existing 
staff from other activities.
    Given the limited data available, the Department is interested in 
comments and supporting information related to possible burden stemming 
from the proposed regulations. In particular, we ask institutions to 
provide detailed data on actual staffing and system costs associated 
with implementing these proposed regulations; data on the 
implementation of proposed regulations regarding the adoption and 
distribution of required disclosures would be especially helpful. 
Estimates included in this notice will be reevaluated based on any 
information received during the public comment period.

Net Budget Impacts

    HEOA provisions implemented by these regulations are estimated to 
have a net budget impact of $34.7 million in 2009 and $192.7 million 
over FY 2009-2013. (The estimated impact for 2009 does not include 
$144.2 million in costs related to loans originated in prior fiscal 
years.) Consistent with the requirements of the Credit Reform Act of 
1990, budget cost estimates for the student loan programs reflect the 
estimated net present value of all future 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 (OMB's) Credit Subsidy Calculator. (This calculator will also 
be used for re-estimates 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 government-wide to develop 
estimates of the Federal cost of credit programs. Accordingly, the 
Department believes it is the appropriate methodology to use in 
developing estimates for these regulations. That said, however, in 
developing the Accounting Statement included below, the Department 
consulted with OMB on how to integrate our discounting methodology with 
the discounting methodology traditionally used in developing regulatory 
impact analyses.
    Absent evidence on the impact of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys listed under 
Assumptions, Limitations, and Data Sources. Program cost estimates were 
generated by running projected cash flows related to each provision 
through the Department's student loan cost estimation model. Student 
loan cost estimates are developed across five risk categories: 
Proprietary schools, two-year schools, freshmen/sophomores at four-year 
schools, juniors/seniors at four-year schools, and graduate students. 
Risk categories have separate assumptions based on the historical 
pattern of behavior--for example, the likelihood of default or the 
likelihood to use statutory deferment or discharge benefits--of 
borrowers in each category.
    The budgetary impact of the proposed regulations is largely driven 
by statutory changes involving teacher loan forgiveness, loan 
discharges, and IBR. The Department estimates no budgetary impact for 
other proposed regulations included in this NPRM; there is no data 
indicating that the new requirements related to improper inducements 
and additional loan disclosures will have any impact on the volume or 
composition of Federal student loans.

Assumptions, Limitations, and Data Sources

    Because these proposed regulations would largely restate statutory 
requirements that would be self-implementing in the absence of 
regulatory action, impact estimates provided in the preceding section 
reflect a pre-statutory baseline in which the HEOA changes implemented 
in these proposed regulations do not exist. Costs have been quantified 
for five years. In general, these estimates should be considered 
preliminary; they will be reevaluated in light of any comments or 
information received by the Department prior to the publication of the 
final regulations. The final regulations will incorporate this 
information in a revised analysis.
    In developing these estimates, a wide range of data sources was 
used, including data from the NSLDS; operational and financial data 
from Department systems; and data from a range of surveys conducted by 
the National Center for Education Statistics, such as the 2004 National 
Postsecondary Student Aid Survey, the 1994 National Education 
Longitudinal Study, and the 1996 Beginning Postsecondary Student 
Survey. Data from other sources, such as the Census Bureau, were also 
used. Data on administrative burden at participating schools, lenders, 
guaranty agencies, and third-party servicers are extremely limited; 
accordingly, as noted above, the Department is particularly interested 
in comments in this area.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.

[[Page 36580]]

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these proposed 
regulations. This table provides our best estimate of the changes in 
Federal student aid payments as a result of these proposed regulations. 
Expenditures are classified as transfers from the Federal government to 
student loan borrowers (for expanded loan discharges, teacher loan 
forgiveness payments).

 Table 2--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $57.
From Whom To Whom?.....................  Federal Government to Student
                                          Loan Borrowers.
------------------------------------------------------------------------

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
    <bullet> Are the requirements in the proposed regulations clearly 
stated?
    <bullet> Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
    <bullet> Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
    <bullet> Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec. '' and a numbered heading; for example, 
Sec.  682.209 Repayment of a loan.)
    <bullet> 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?
    <bullet> 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 short-term, for-profit schools focusing on 
vocational training. Other affected small institutions include small 
community colleges and Tribally controlled schools. Burden on 
institutions associated with these proposed regulations is associated 
with audit requirements for schools serving as lenders. Institutions 
meeting the definition of small entities are extremely unlikely to act 
as lenders in the FFEL program. Accordingly, new requirements imposed 
under the proposed regulations are not expected to impose significant 
new costs on these institutions.
    The Department believes few if any lenders participating in the 
FFEL program have revenues of less than $5 million. FFEL program 
activity is highly concentrated among the largest lenders; should an 
extremely small number of lenders that meet the threshold participate 
in the program, they likely are making loans as a service to current 
clients rather than soliciting new business. This type of lender, with 
a tangential relationship to Federal student loans, is extremely 
unlikely to engage in the type of activities--inducements, etc.--
governed by these regulations. Accordingly, the Department has 
determined that the regulations would not represent a significant 
burden on small lenders.
    Guaranty agencies are State and private nonprofit entities that act 
as agents of the Federal government, and as such are not considered 
``small entities'' under the Regulatory Flexibility Act. The impact of 
the proposed regulations on individuals is not subject to the 
Regulatory Flexibility Act.
    The Secretary invites comments from small institutions and lenders 
as to whether they believe the proposed changes would have a 
significant economic impact on them and, if so, requests evidence to 
support that belief.

Paperwork Reduction Act of 1995

    Proposed 674.61, 682.202, 682.205, 682.206, 682.208, 682.210, 
682.211, 682.216, 682.302, 682.305, 682.401, 682.402, 682.410, 682.601, 
685.202, 685.204, 685.205, 685.213, and 685.217 contain information 
collection requirements. Under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Department of Education has submitted a copy of 
these sections to the Office of Management and Budget (OMB) for its 
review.

Sections 674.61, 682.402, and 685.213--Total and Permanent Disability 
Loan Discharges

    The proposed regulations would revise the loan discharge process 
for borrowers seeking to have their title IV loans discharged based on 
a total and permanent disability. The proposed changes to the loan 
discharge process affect borrowers, loan holders (and their servicers), 
and guaranty agencies.
    The burden hour estimate associated with the current total and 
permanent disability loan discharge provisions is reported under OMB 
Control Number 1845-0065 (Discharge Application: Total and Permanent 
Disability). The Department does not expect the proposed changes to 
increase the burden for this collection. However, the Department will 
need to revise the Discharge Application: Total and Permanent 
Disability currently approved under 1845-0065 to reflect the final 
regulations that will be published by November 1, 2009. The Department 
will submit a revised form for clearance

[[Page 36581]]

after the final regulations have been published. The revised form will 
not be needed until July 1, 2010, the effective date of the final 
regulations.

Section 682.206--Consolidation Loans

    The proposed regulations would revise Sec.  682.206(f) to 
incorporate a new requirement that is needed to fully implement 
proposed Sec.  682.205(i)(7), which requires lenders to inform 
borrowers that, by applying for the Consolidation loan, the borrower is 
not obligated to take the loan. Specifically, Sec.  682.206(f) would be 
revised to include a requirement that the lender provide a 
Consolidation loan borrower a period of not less than 10 days, from the 
date the borrower is notified by the lender that it is ready to make 
the Consolidation loan, to cancel the loan. The proposed regulations 
would require the lender to send the notice of the option to cancel the 
loan to the borrower before making any payments to pay off a loan with 
the proceeds of a Consolidation loan.
    We estimate that the proposed changes will increase burden for 
borrowers by 10,032 hours and for loan holders (and their servicers) by 
54,552 hours for a total increase in burden of 64,584 hours in OMB 
Control Number 1845-0020.

Sections 682.210, 682.211, 685.204 and 685.205--In-School Deferments 
and Administrative Forbearance for PLUS Loans

    The proposed regulations would revise Sec. Sec.  682.210 and 
685.204 to reflect statutory deferment provisions for FFEL and Direct 
PLUS loan borrowers with loans first disbursed on or after July 1, 
2008. Upon the request of the borrower, a parent PLUS borrower must be 
granted a deferment on a PLUS loan first disbursed on or after July 1, 
2008, during the period when the student on whose behalf the loan was 
obtained is enrolled on at least a half-time basis at an eligible 
institution, and during the 6-month period that begins on the later of 
the day after the student ceases to be enrolled on at least a half-time 
basis or, if the parent borrower is also a student, the day after the 
parent ceases to be enrolled on at least a half-time basis.
    For graduate and professional student PLUS borrowers, the proposed 
regulations would provide that a borrower may be granted a deferment on 
a PLUS loan first disbursed on or after July 1, 2008 during the 6-month 
period that begins on the day after the student ceases to be enrolled 
on at least a half-time basis at an eligible institution. If a lender 
or the Secretary grants an in-school deferment on a student PLUS loan 
based on information from the borrower's school about the borrower's 
eligibility for a new loan, student status information from the school 
or information from NSLDS confirming the borrower's half-time 
enrollment status, the in-school deferment period for a student PLUS 
loan first disbursed on or after July 1, 2008 would include the 6-month 
period that begins on the day after the student PLUS borrower ceases to 
be enrolled on at least a half-time basis.
    The proposed regulations would also add a new administrative 
forbearance provision to Sec.  682.211(f) allowing a lender to grant a 
forbearance, upon notice to the borrower, on a borrower's PLUS loans 
first disbursed before July 1, 2008 to align repayment of the loans 
with a borrower's PLUS loans first disbursed on or after July 1, 2008, 
or with a borrower's Stafford loans that are subject to a grace period. 
The lender would be required to notify the borrower that he or she has 
the option to cancel the forbearance and to continue paying on the 
loan. A corresponding administrative forbearance provision would be 
added to Sec.  685.205(b) in the Direct Loan Program regulations.
    The proposed changes to Sec. Sec.  682.210 and 685.204 affect 
borrowers and loan holders (and their servicers). The new deferment 
provisions for certain PLUS borrowers are expected to increase the 
number of borrowers who apply for deferments. Because these statutory 
provisions could be implemented without regulations, the FFEL and 
Direct Loan deferment request forms were previously revised to include 
the new deferments for PLUS borrowers and have been approved under OMB 
Control Numbers 1845-0005 (FFEL Program Deferment Request Forms) and 
1845-0011 (Direct Loan Program Deferment Request Forms). The increased 
burden associated with the proposed regulatory changes is reflected in 
the burden estimates reported under those control numbers.
    We estimate that the proposed regulations in Sec.  682.211(e) 
related to administrative forbearances will increase burden for loan 
holders by 14,440 hours in OMB Control Number 1845-0020.

Sections 682.215 and 685.221--Income-Based Repayment (IBR) Plan

    The proposed regulations would revise the definition of partial 
financial hardship in Sec.  682.215(a)(4) and 685.221(a)(4) to specify 
that the annual amount due on a borrower's eligible loans for purposes 
of determining whether the borrower has a partial financial hardship is 
the greater of the amount due on the eligible loans when the borrower 
initially entered repayment on those loans, or the amount due on those 
loans when the borrower elects the IBR plan. The proposed regulations 
would also provide that when a married borrower and his or her spouse 
file a joint Federal tax return with the IRS and both the borrower and 
the spouse have eligible loans, the joint AGI and the total amount of 
the borrower's and spouse's eligible loans will be used in determining 
whether each borrower has a partial financial hardship.
    The proposed regulations would revise Sec. Sec.  
682.215(b)(1)[hairsp]and 685.221[hairsp](b)(2) to provide that if a 
borrower and a borrower's spouse both have eligible loans and filed a 
joint Federal tax return, each borrower's percentage of the couple's 
total eligible loan debt would be determined, and the calculated 
partial financial hardship payment amount for each borrower would be 
adjusted by multiplying the payment by the applicable borrower's 
percentage. As with all other borrowers, each borrower's adjusted 
payment amount would be further adjusted if the borrower's loans are 
held by multiple holders.
    We estimate that the proposed regulations will increase burden for 
loan holders by 90,286 hours in OMB Control Number 1845-0020.

Sections 682.202, 682.302, and 685.202--Applicability of the 
Servicemembers Civil Relief Act (SCRA) to FFEL and Direct Loan Program 
Loans

    The proposed regulations would revise Sec. Sec.  682.202 and 
685.202 to provide that, effective August 14, 2008, upon a loan 
holder's receipt of a written request from a borrower and a copy of the 
borrower's military orders, the maximum interest rate (as defined in 50 
U.S.C. 527, App, section 207(d)) that may be charged on FFEL or Direct 
Loan program loans made prior to the borrower entering active duty 
status is six percent while the borrower is on active duty status. The 
proposed regulations would also revise Sec.  682.302 of the FFEL 
regulations by adding a new paragraph (h) that specifies that, for FFEL 
loans first disbursed on or after July 1, 2008, that are subject to the 
SCRA interest rate cap, the FFEL lender's special allowance payment is 
calculated as it otherwise would be under program requirements, except 
that the applicable interest rate used is six percent.
    We estimate that the proposed regulations will increase burden for 
borrowers by 1,694 hours and for loan

[[Page 36582]]

holders by 542 hours in new OMB Control Number 1845-XXX1. We estimate 
that the proposed regulations will increase burden for borrowers by 563 
hours in new OMB Control Number 1845-XXX2.

Sections 682.210 and 685.204--In-School Deferment

    The proposed regulations would revise Sec.  682.210(a)(3) of the 
FFEL regulations to provide that if a borrower is responsible for the 
interest on a loan during a deferment period, the lender, at or before 
the time the deferment is granted, must notify the borrower that he or 
she has the option to pay the accruing interest or cancel the deferment 
and continue paying on the loan. The lender would also be required to 
provide information, including an example, on the impact on a 
borrower's loan debt of capitalization of accrued unpaid interest and 
on the total amount of interest to be paid over the life of the loan. A 
similar notification provision that applied only to the granting of in-
school deferments would be removed from Sec.  682.210(c)(2) of the FFEL 
regulations. A comparable change would be made in Sec.  
685.204(b)(1)(iii)(B) of the Direct Loan regulations to provide that 
borrowers will be notified of their option to cancel a deferment and 
continue paying on the loan and will be provided with information on 
the impact of capitalization, including an example.
    The proposed changes to Sec. Sec.  682.210 and 685.204 affect 
borrowers and loan holders (and their servicers). The FFEL and Direct 
Loan deferment request forms currently approved under OMB Control 
Numbers 1845-0005 and 1845-0011 already include the information that a 
loan holder must provide to a borrower at or before the time a 
deferment is granted, as described above. Therefore, there is no 
increase in burden associated with the proposed regulations.

Sections 682.216 and 685.217--FFEL and Direct Loan Program Teacher Loan 
Forgiveness

    The proposed regulations would allow a borrower who otherwise meets 
the eligibility requirements for teacher loan forgiveness to receive 
forgiveness based on teaching service performed at one or more eligible 
elementary or secondary schools that serve low-income families, or one 
or more eligible educational service agencies that serve low-income 
families. A borrower could also qualify based on teaching service 
performed at a combination of eligible elementary or secondary schools 
and eligible educational service agencies. To be considered eligible 
for teacher loan forgiveness purposes, an educational service agency 
would have to meet the same eligibility requirements that apply to 
elementary and secondary schools.
    The proposed changes will increase the number of borrowers who are 
eligible for teacher loan forgiveness, and will require a revision of 
the FFEL and Direct Loan Program Teacher Loan Forgiveness Application 
that is currently approved under OMB Control Number 1845-0059. The 
Department will submit a change request for 1845-0059 (including an 
adjustment to the burden hours associated with this collection) after 
the final regulations have been published.

Section 682.205--Disclosure Requirements for Lenders

    The proposed regulations would reorganize and expand Sec.  682.205 
to reflect new disclosure requirements added by the HEOA. The HEOA 
added additional disclosures by lenders before disbursement and 
requires new disclosures at differing points in the borrower's 
repayment cycle. The HEOA also added a separate set of disclosures 
specifically for Consolidation loan borrowers.
    We estimate that the proposed regulations will increase burden for 
loan holders (and their servicers) by 797,661 hours in OMB Control 
Number 1845-0020.

Section 682.208--Information to Borrowers Upon Transfer, Sale or 
Assignment of a FFEL Program Loan

    The proposed regulations incorporate three additional information 
items specified in the HEA that must be provided to a borrower if the 
assignment or transfer of an ownership interest in a FFEL program loan 
results in a change in the identity of the party to whom subsequent 
payments must be sent. The three additional data items are: (1) The 
effective date of the assignment or transfer of the loan; (2) the date 
on which the current loan servicer will cease accepting payments; and 
(3) the date on which the new loan servicer will begin accepting 
payments. The date on which the current servicer will stop accepting 
payments is required only if that is applicable.
    Loan holders are already required, under current regulations, to 
provide certain information to a borrower if the assignment of a FFEL 
Program loan results in a change in the identity of the party to whom 
the borrower must send payments. The proposed regulations merely add 
three additional items to the notice that a loan holder is already 
required to provide. Therefore, the Department believes that the 
proposed regulations will not significantly increase burden for loan 
holders (and their servicers) in OMB Control Number 1845-0020.

Section 682.211--Forbearance

    Section 682.211(e) of the proposed regulations would require the 
lender, at the time the borrower is granted a forbearance, to give the 
borrower information about the impact of capitalization of interest on 
the loan and the total amount to be repaid over the life of the loan. 
The proposed regulations would also require the lender to contact the 
borrower at least once every 180 days during any period of forbearance 
and to give the borrower or endorser more specific information, in 
conjunction with that required under existing regulations, as to the 
impact of forbearance on the loan. This information includes the amount 
of interest that will be capitalized and when that capitalization will 
take place and the option of the borrower or endorser to pay the 
interest that has accrued before it is capitalized.
    We estimate that the proposed regulations will increase burden for 
loan holders (and their servicers) by 215,734 hours in OMB Control 
Number 1845-0020.

Sections 682.305 and 682.601--Audit Requirements for a FFEL School 
Lender or an Eligible Lender Trustee (ELT)

    The proposed regulations would revise Sec.  682.305(c) to require 
that a FFEL school lender, or a lender serving as a trustee on behalf 
of a school or school-affiliated organization for the purpose of 
originating loans, submit an annual compliance audit to the Department 
regardless of the dollar volume of loans originated. The proposed 
regulations also require that the audit be conducted by a qualified, 
independent organization or person. A new proposed Sec.  
682.305(c)(2)(vii) would govern the compliance audit of a school or 
school-affiliated organization lender trustee. The proposed regulations 
require that the trustee's audit include a determination that the 
school for whom the lender serves as trustee used all the proceeds from 
special allowance payments, interest subsidies received from the 
Department, and any proceeds from the sale or other disposition of the 
loans originated through the lender for need-based grants, and that 
those funds supplemented, but did not supplant, other Federal or non-
Federal funds otherwise available to the school to make need-based 
grants to its students. The proposed regulations also require that the 
audit determine that no more

[[Page 36583]]

than a reasonable portion of the payments and proceeds from the loans 
were used for direct administrative expenses in accordance with Sec.  
682.601(b) of the current regulations. These same requirements with 
regard to annual compliance audit determinations were also added to the 
FFEL school lender audit requirements in Sec.  682.601(a)(7) of the 
regulations.
    We estimate that the proposed regulations will increase burden for 
institutions by 7,200 hours and for loan holders (and their servicers) 
by 10,900 hours for a total increase in burden of 18,100 hours in OMB 
Control Number 1845-0020.

Section 682.401--Consumer Education Information Provided by Guaranty 
Agencies

    The proposed regulations require guaranty agencies to work with the 
schools that it serves to develop and make available high-quality 
educational materials and programs that provide training for students 
and their families in budgeting and financial management, including 
debt management and other aspects of financial literacy, such as the 
cost of using high-interest loans to pay for postsecondary education, 
and how budgeting and financial management relate to the title IV 
student loan programs.
    We estimate that the proposed regulations will increase burden for 
institutions and guaranty agencies by 8,748 hours in OMB Control Number 
1845-0020.

Section 682.405--Financial and Economic Literacy for Rehabilitated 
Borrowers

    The proposed regulations would revise Sec.  682.405, regarding loan 
rehabilitation agreements, by adding a provision requiring guaranty 
agencies to make available financial and economic education materials, 
including debt management information, to any borrower who has 
rehabilitated a defaulted loan.
    We estimate that the proposed regulations will increase burden for 
guaranty agencies by 24,427 hours in OMB Control Number 1845-0020.

Section 682.405--Consumer Credit Reporting Following Loan 
Rehabilitation

    If a borrower successfully rehabilitates a previously defaulted 
loan, the proposed regulations would require the prior holder of the 
loan, in addition to the guaranty agency, to request that a consumer 
reporting agency to which the default was reported remove the default 
from the borrower's credit history. The proposed regulations would also 
provide more detailed reporting deadlines for the guaranty agency and 
prior loan holder to request removal of the report of the default from 
the borrower's credit history, and would reduce the overall period for 
this activity from 90 to 75 days.
    We estimate that the proposed regulations will increase burden for 
guaranty agencies by 18,392 hours in OMB Control Number 1845-0020.

Section 682.410--Notifications to Borrowers in Default

    The proposed regulations would expand the information that must be 
provided in the notice required under Sec.  682.410(b)(5)(ii) to 
include information on the options that are available to the borrower 
to remove the loan from default, including an explanation of the fees 
and conditions associated with each option. The proposed regulations 
would also require a guaranty agency to provide this same information 
to a defaulted borrower in a second notice that the guaranty agency 
must send as part of its required collection efforts on a defaulted 
loan under Sec.  682.410(b)(6). The second notice would have to be sent 
within a reasonable time after the end of the period during which the 
borrower may request an administrative review as specified in Sec.  
682.410(b)(5)(iv)(B) or, if the borrower has requested an 
administrative review, within a reasonable time following the 
conclusion of the administrative review.
    We estimate that the proposed regulations will increase burden for 
guaranty agencies by 58,793 hours in OMB Control Number 1845-0020.
    Consistent with the discussion above, the following chart describes 
the sections of the proposed regulations involving information 
collections, the information being collected, and the collections that 
the Department will submit to the Office of Management and Budget for 
approval and public comment under the Paperwork Reduction Act.

------------------------------------------------------------------------
                                        Information
         Regulatory section              collection        Collection
------------------------------------------------------------------------
674.61, 682.402, and 685.213.......  The proposed       OMB 1845-0065.
                                      regulations        The Discharge
                                      would revise the   Application:
                                      loan discharge     Total and
                                      process for        Permanent
                                      borrowers          Disability that
                                      seeking to have    is currently
                                      their title IV     approved under
                                      loans discharged   1845-0065 will
                                      based on total     be revised to
                                      and permanent      reflect the
                                      disability.        final
                                      Borrowers who      regulations
                                      apply for a        that will be
                                      total and          published by
                                      permanent          November 1,
                                      disability         2009. The
                                      discharge must     Department will
                                      complete a         submit a
                                      discharge          revised form
                                      application that   for clearance
                                      collects the       after the final
                                      information        regulations
                                      needed to          have been
                                      determine their    published. The
                                      eligibility for    revised form
                                      discharge.         will not be
                                                         needed until
                                                         July 1, 2010,
                                                         the effective
                                                         date of the
                                                         final
                                                         regulations.
682.206............................  Sec.   682.206(f)  OMB 1845-0020.
                                      would be amended
                                      to include a
                                      requirement that
                                      the lender
                                      provide a
                                      Consolidation
                                      loan borrower a
                                      period of not
                                      less than 10
                                      days, from the
                                      date the
                                      borrower is
                                      notified by the
                                      lender that it
                                      is ready to make
                                      the
                                      Consolidation
                                      loan, to cancel
                                      the loan.
682.210, 682.211, 685.204 and        The proposed       OMB 1845-0005,
 685.205.                             regulations        1845-0011 and
                                      implement new      1845-0020. The
                                      deferment          FFEL and Direct
                                      provisions for     Loan deferment
                                      FFEL and Direct    request forms
                                      PLUS loan          were previously
                                      borrowers with     revised to
                                      loans first        include the new
                                      disbursed on or    deferments for
                                      after July 1,      PLUS borrowers
                                      2008 that were     and have been
                                      added to the HEA   approved under
                                      by the HEOA. A     OMB Control
                                      loan holder must   Numbers 1845-
                                      collect the        0005 (FFEL) and
                                      information        1845-0011
                                      needed to          (Direct Loan).
                                      determine that a
                                      borrower is
                                      eligible for a
                                      deferment.

[[Page 36584]]

 
682.202, 682.302, and 685.202......  The proposed       OMB 1845-XXX1
                                      regulations        and 1845-XXX2.
                                      provide that,      These will be
                                      effective August   new
                                      14, 2008, upon a   collections. A
                                      loan holder's      separate 60-day
                                      receipt of a       Federal
                                      written request    Register Notice
                                      from a borrower    will be
                                      and a copy of      published to
                                      the borrower's     solicit
                                      military orders,   comments.
                                      the maximum
                                      interest rate
                                      that may be
                                      charged on FFEL
                                      or Direct Loan
                                      program loans
                                      made prior to
                                      the borrower
                                      entering active
                                      duty status is
                                      six percent
                                      while the
                                      borrower is on
                                      active duty
                                      status.
682.210 and 685.204................  The proposed       OMB 1845-0005
                                      regulations        and 1845-0011.
                                      would require a    These
                                      loan holder to     collections
                                      provide            (FFEL and
                                      information        Direct Loan
                                      about interest     Program
                                      capitalization     deferment
                                      to a borrower      request forms)
                                      prior to or at     were previously
                                      the time of        revised to
                                      granting a         include the
                                      deferment on an    required
                                      unsubsidized       information
                                      loan.              about interest
                                                         capitalization
                                                         and have been
                                                         approved by
                                                         OMB.
682.215 and 685.221................  The proposed       OMB 1845-0020.
                                      regulations
                                      would revise the
                                      definition of
                                      partial
                                      financial
                                      hardship for
                                      purposes of
                                      determining a
                                      borrower's
                                      eligibility for
                                      the income-based
                                      repayment plan
                                      and would also
                                      revise the
                                      provisions
                                      governing a loan
                                      holder's
                                      calculation of a
                                      borrower's
                                      income-based
                                      payment amount.
682.216 and 685.217................  The proposed       OMB 1845-0059.
                                      regulations        The proposed
                                      would expand       changes will
                                      eligibility for    require a
                                      teacher loan       revision of the
                                      forgiveness to     FFEL and Direct
                                      allow a borrower   Loan Program
                                      who otherwise      Teacher Loan
                                      meets the loan     Forgiveness
                                      forgiveness        Application
                                      eligibility        currently
                                      requirements to    approved under
                                      receive            OMB Control
                                      forgiveness        Number 1845-
                                      based on           0059. The
                                      teaching service   Department will
                                      performed at one   submit a change
                                      or more eligible   request for
                                      educational        1845-0059
                                      service agencies   (including an
                                      that serve low-    adjustment to
                                      income families.   the burden
                                                         hours
                                                         associated with
                                                         this
                                                         collection)
                                                         after the final
                                                         regulations
                                                         have been
                                                         published.
682.205............................  The proposed       OMB 1845-0020.
                                      regulations
                                      implement new
                                      statutory
                                      requirements for
                                      lenders to
                                      disclosure
                                      certain
                                      information to
                                      borrowers at
                                      various points
                                      during the
                                      lifecycle of a
                                      borrower's loan.
                                      The proposed
                                      regulations also
                                      add new lender
                                      disclosure
                                      requirements for
                                      consolidation
                                      loan borrowers.
682.208............................  The proposed       OMB 1845-0020.
                                      regulations
                                      incorporate
                                      three additional
                                      information
                                      items that must
                                      be provided to a
                                      borrower if the
                                      assignment or
                                      transfer of an
                                      ownership
                                      interest in a
                                      FFEL program
                                      loan results in
                                      a change in the
                                      identity of the
                                      party to whom
                                      subsequent
                                      payments must be
                                      sent.
682.211............................  The proposed       OMB 1845-0020.
                                      regulations
                                      would require
                                      the lender, at
                                      the time the
                                      borrower is
                                      granted a
                                      forbearance, to
                                      give the
                                      borrower
                                      information
                                      about the impact
                                      of
                                      capitalization
                                      of interest on
                                      the loan and the
                                      total to be
                                      repaid over the
                                      life of the loan.
682.305 and 682.601................  The proposed       OMB 1845-0020.
                                      regulations
                                      would amend Sec.
                                        682.305(c) to
                                      require that a
                                      FFEL school
                                      lender, or a
                                      lender serving
                                      as a trustee on
                                      behalf of a
                                      school or school-
                                      affiliated
                                      organization for
                                      the purpose of
                                      originating
                                      loans, submit an
                                      annual
                                      compliance audit
                                      to the
                                      Department
                                      regardless of
                                      the dollar
                                      volume of loans
                                      originated.
682.401............................  The proposed       OMB 1845-0020.
                                      regulations
                                      require guaranty
                                      agencies to work
                                      with the schools
                                      that it serves
                                      to develop and
                                      make available
                                      high-quality
                                      educational
                                      materials and
                                      programs to
                                      provide training
                                      for students and
                                      their families
                                      in budgeting and
                                      financial
                                      management,
                                      including debt
                                      management and
                                      other aspects of
                                      financial
                                      literacy, such
                                      as the cost of
                                      using high-
                                      interest loans
                                      to pay for
                                      postsecondary
                                      education, and
                                      how budgeting
                                      and financial
                                      management
                                      relate to the
                                      title IV student
                                      loan programs.
682.405............................  The proposed       OMB 1845-0020.
                                      regulations
                                      would require
                                      guaranty
                                      agencies to
                                      provide certain
                                      information to
                                      borrowers who
                                      have
                                      rehabilitated
                                      defaulted loans.
682.405............................  The proposed       OMB 1845-0020.
                                      regulations
                                      would require
                                      the prior holder
                                      of a previously
                                      defaulted loan,
                                      in addition to
                                      the guaranty
                                      agency, to
                                      request that
                                      consumer
                                      reporting
                                      agencies remove
                                      the record of
                                      the default from
                                      the borrower's
                                      credit history
                                      after the
                                      borrower has
                                      successfully
                                      rehabilitated
                                      the loan.
682.410............................  The proposed       OMB 1845-0020.
                                      regulations
                                      require guaranty
                                      agencies to
                                      provide certain
                                      additional
                                      notifications to
                                      borrowers who
                                      are in default.
------------------------------------------------------------------------


[[Page 36585]]

    If you want to comment on the proposed information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. 
Department of Education. Send these comments by e-mail to <a href="/cdn-cgi/l/email-protection#f0bfb9a2b1afb4bfb3bbb5a4b09f9d92de959f80de979f86"><span class="__cf_email__" data-cfemail="511e1803100e151e121a1405113e3c337f343e217f363e27">[email protected]</span></a> 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--
    <bullet> Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
    <bullet> Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
    <bullet> Enhancing the quality, usefulness, and clarity of the 
information we collect; and
    <bullet> Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collections of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.


(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal 
Family Education Loan Program; 84.038 Federal Perkins Loan Program; 
84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR 674, 682 and 685

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

    Dated: July 13, 2009.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary proposes 
to amend 34 CFR chapter VI as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

    1. The authority citation for part 674 continues to read as 
follows:

    Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless 
otherwise noted.

    2. Section 674.9 is amended by:
    A. Revising paragraph (g).
    B. In the introductory text of paragraph (h), removing the words 
``based on'' and adding, in their place, the word ``after'', and adding 
the words ``based on a discharge request received prior to July 1, 
2010'' immediately after the word ``disabled''.
    C. In paragraph (h)(1), removing the words ``paragraphs (h)(1) and 
(h)(2)'' and adding, in their place, the words ``paragraphs (g)(1) and 
(g)(2)''.
    D. In paragraph (h)(2)(ii), removing the words ``, as described in 
Sec.  674.61(b)(9)'' immediately after the word ``period''.
    E. In the second sentence of paragraph (i), removing the words 
``described in Sec. Sec.  674.61(b), 682.402(e), or 685.213(a)'' 
immediately after the word ``period''.
    The revision reads as follows:


Sec.  674.9  Student eligibility.

* * * * *
    (g) In the case of a borrower whose prior loan under title IV of 
the Act was discharged after a final determination of total and 
permanent disability--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity;
    (2) Signs a statement acknowledging that any new Federal Perkins 
Loan the borrower receives cannot be discharged in the future on the 
basis of any present impairment, unless that condition substantially 
deteriorates; and
    (3) If the borrower receives a new Federal Perkins Loan within 
three years of the date that any previous title IV loan or TEACH Grant 
service obligation was discharged due to a total and permanent 
disability in accordance with Sec.  674.61(b)(3)(i), 34 CFR 682.402(c), 
34 CFR 685.213, or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, resumes repayment on the previously 
discharged loan in accordance with Sec.  674.61(b)(5), 34 CFR 
682.402(c)(5), or 34 CFR 685.213(b)(4), or acknowledges that he or she 
is once again subject to the terms of the TEACH Grant agreement to 
serve before receiving the new loan.
* * * * *
    3. Section 674.51 is amended by:
    A. Revising paragraph (d).
    B. Redesignating paragraphs (e) through (s) as follows:

------------------------------------------------------------------------
             Old paragraph                        New paragraph
------------------------------------------------------------------------
674.51(e)..............................  674.51(f)
674.51(f)..............................  674.51(h)
674.51(g)..............................  674.51(l)
674.51(h)..............................  674.51(m)
674.51(i)..............................  674.51(n)
674.51(j)..............................  674.51(p)
674.51(k)..............................  674.51(q)
674.51(l)..............................  674.51(r)
674.51(m)..............................  674.51(s)
674.51(n)..............................  674.51(t)
674.51(o)..............................  674.51(u)
674.51(p)..............................  674.51(w)
674.51(q)..............................  674.51(y)
674.51(r)..............................  674.51(z)
674.51(s)..............................  674.51(aa)
------------------------------------------------------------------------

    C. Adding new paragraphs (e), (g), (i), (j), (k), (o), (v), (x), 
and (bb).
    D. In newly redesignated paragraph (f), removing the number 
``672(2)'', and adding, in its place, the number ``632(4)''.
    E. Revising newly redesignated paragraph (n).
    F. In newly redesignated paragraph (t), by removing the number 
``672(2)'', and adding, in its place, the number ``632''.
    G. Revising newly redesignated paragraph (aa).
    H. Revising the authority citation that appears at the end of the 
section.
    The revisions and additions read as follows:


Sec.  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

[[Page 36586]]

3006A(g)(2)(B) of title 18, United States Code.
* * * * *
    (g) Educational service agency: A regional public multi-service 
agency authorized by State law to develop, manage, and provide services 
or programs to local educational agencies as defined in section 9101 of 
the Elementary and Secondary Education Act of 1965, as amended.
* * * * *
    (i) Faculty member at a Tribal College or University: An educator 
or tenured individual who is employed by a Tribal College or 
University, as that term is defined in section 316 of the HEA, to 
teach, research, or perform administrative functions. For purposes of 
this definition an educator may be an instructor, lecturer, lab 
faculty, assistant professor, associate professor, or full professor, 
dean or academic department head.
    (j) Federal public defender organization: A defender organization 
established in accordance with section 3006A(g)(2)(A) of title 18, 
United States Code.
    (k) Firefighter: A firefighter is an individual who is employed by 
a Federal, State, or local firefighting agency to extinguish 
destructive fires; or provide firefighting related services such as--
    (1) Providing community disaster support and, as a first responder, 
providing emergency medical services;
    (2) Conducting search and rescue; or
    (3) Providing hazardous materials mitigation (HAZMAT).
* * * * *
    (n) Infant or toddler with a disability: An infant or toddler from 
birth to age 2, inclusive, who needs early intervention services for 
specified reasons, as defined in section 632(5)(A) of the Individuals 
with Disabilities Education Act.
    (o) Librarian with a master's degree: A librarian with a master's 
degree is an information professional trained in library or information 
science who has obtained a postgraduate academic degree in library 
science awarded after the completion of an academic program of up to 
six years in duration, excluding a doctorate or professional degree.
* * * * *
    (v) Speech language pathologist with a master's degree: An 
individual who evaluates or treats disorders that affect a person's 
speech, language, cognition, voice, swallowing and the rehabilitative 
or corrective treatment of physical or cognitive deficits/disorders 
resulting in difficulty with communication, swallowing, or both.
* * * * *
    (x) Substantial gainful activity: A level of work performed for pay 
or profit that involves doing significant physical or mental 
activities, or a combination of both.
* * * * *
    (aa) Total and permanent disability: The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
    (bb) Tribal College or University: An institution that--
    (1) Qualifies for funding under the Tribally Controlled Colleges 
and Universities Assistance Act of 1978 (25 U.S.C. 1801 et seq.) or the 
Navajo Community College Assistance Act of 1978 (25 U.S.C. 640a note); 
or
    (2) Is cited in section 532 of the Equity in Education Land Grant 
Status Act of 1994 (7 U.S.C. 301 note).
* * * * *
    4. Section 674.61 is amended by:
    A. Revising paragraph (b).
    B. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e), 
respectively.
    C. Adding a new paragraph (c).
    The revision and addition read as follows:


Sec.  674.61  Discharge for death or disability.

* * * * *
    (b) Total and permanent disability as defined in Sec.  
674.51(aa)(1)--
    (1) General. A borrower's Defense, NDSL, or Perkins loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  674.51(aa)(1), and satisfies the additional 
eligibility requirements contained in this section.
    (2) Discharge application process for borrowers who have a total 
and permanent disability as defined in Sec.  674.51(aa)(1). (i) To 
qualify for discharge of a Defense, NDSL, or Perkins loan based on a 
total and permanent disability as defined in Sec.  674.51(aa)(1), a 
borrower must submit a discharge application approved by the Secretary 
to the institution that holds the loan.
    (ii) The application must contain a certification by a physician, 
who is a doctor of medicine or osteopathy legally authorized to 
practice in a State, that the borrower is totally and permanently 
disabled as defined in Sec.  674.51(aa)(1).
    (iii) The borrower must submit the application to the institution 
within 90 days of the date the physician certifies the application.
    (iv) Upon receiving the borrower's complete application, the 
institution must suspend collection activity on the loan and inform the 
borrower that--
    (A) The institution will review the application and assign the loan 
to the Secretary for an eligibility determination if the institution 
determines that the certification supports the conclusion that the 
borrower is totally and permanently disabled, as defined in Sec.  
674.51(aa)(1);
    (B) The institution will resume collection on the loan if the 
institution determines that the certification does not support the 
conclusion that the borrower is totally and permanently disabled; and
    (C) If the Secretary discharges the loan based on a determination 
that the borrower is totally and permanently disabled, as defined in 
Sec.  674.51(aa)(1), the Secretary will reinstate the borrower's 
obligation to repay the loan if, within three years after the date the 
Secretary granted the discharge, the borrower--
    (1) Has annual earnings from employment that exceed 100 percent of 
the poverty line for a family of two, as determined in accordance with 
the Community Service Block Grant Act;
    (2) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for an FFEL or Direct 
Consolidation Loan that includes loans that were not discharged; or
    (3) Fails to ensure that the full amount of any disbursement of a 
Title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (v) If, after reviewing the borrower's application, the institution 
determines that the application is complete and supports the conclusion 
that the borrower is totally and permanently disabled as defined in 
Sec.  674.51(aa)(1), the institution must assign the loan to the 
Secretary.
    (vi) At the time the loan is assigned to the Secretary, the 
institution must notify the borrower that the loan has been assigned to 
the Secretary for determination of eligibility for a total and 
permanent disability discharge and that no payments are due on the 
loan.

[[Page 36587]]

    (3) Secretary's eligibility determination. (i) If the Secretary 
determines that the borrower is totally and permanently disabled as 
defined in Sec.  674.51(aa)(1), the Secretary discharges the borrower's 
obligation to make further payments on the loan and notifies the 
borrower that the loan has been discharged. The notification to the 
borrower explains the terms and conditions under which the borrower's 
obligation to repay the loan will be reinstated, as specified in 
paragraph (b)(5) of this section.
    (ii) If the Secretary determines that the certification provided by 
the borrower does not support the conclusion that the borrower is 
totally and permanently disabled as defined in Sec.  674.51(aa)(1), the 
Secretary notifies the borrower that the application for a disability 
discharge has been denied, and that the loan is due and payable to the 
Secretary under the terms of the promissory note.
    (iii) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the Secretary determines that the 
borrower's application does not conclusively prove that the borrower is 
totally and permanently disabled as defined in Sec.  674.51(aa)(1). As 
part of the Secretary's review of the borrower's discharge application, 
the Secretary may arrange for an additional review of the borrower's 
condition by an independent physician at no expense to the borrower.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a Title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, the processing of the borrower's 
loan discharge request will be suspended until the borrower ensures 
that the full amount of the disbursement has been returned to the loan 
holder or to the Secretary, as applicable.
    (5) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(3)(i) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty line for a family of two, as determined in accordance with 
the Community Service Block Grant Act;
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL or Direct Loan programs, except for an FFEL or Direct 
Consolidation Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
Title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (ii) If a borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(5)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (6) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(5)(i) of this section, the borrower or, if applicable, 
the borrower's representative--
    (i) Must promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(5)(i)(A) of this section; and
    (iii) Must provide the Secretary, upon request, with documentation 
of the borrower's annual earnings from employment.
    (7) Payments received after the physician's certification of total 
and permanent disability. (i) If, after the date the physician 
certifies the borrower's loan discharge application, the institution 
receives any payments from or on behalf of the borrower on or 
attributable to a loan that was assigned to the Secretary for 
determination of eligibility for a total and permanent disability 
discharge, the institution must forward those payments to the Secretary 
for crediting to the borrower's account.
    (ii) At the same time that the institution forwards the payment, it 
must notify the borrower that there is no obligation to make payments 
on the loan prior to the Secretary's determination of eligibility for a 
total and permanent disability discharge, unless the Secretary directs 
the borrower otherwise.
    (iii) When the Secretary makes a determination to discharge the 
loan, the Secretary returns any payments received on the loan after the 
date the physician certified the borrower's loan discharge application 
to the person who made the payments on the loan.
    (c) Total and permanent disability discharges for veterans--(1) 
General. A veteran's Defense, NDSL, or Perkins loan will be discharged 
if the veteran is totally and permanently disabled, as defined in Sec.  
674.51(aa)(2).
    (2) Discharge application process for veterans who have a total and 
permanent disability as defined in Sec.  674.51(aa)(2). (i) To qualify 
for discharge of a Defense, NDSL, or Perkins loan based on a total and 
permanent disability as defined in Sec.  674.51(aa)(2), a veteran must 
submit a discharge application approved by the Secretary to the 
institution that holds the loan.
    (ii) With the application, the veteran must submit documentation 
from the Department of Veterans Affairs showing that the Department of 
Veterans Affairs has determined that the veteran is unemployable due to 
a service-connected disability. The veteran will not be required to 
provide any additional documentation related to the veteran's 
disability.
    (iii) Upon receiving the veteran's completed application and the 
required documentation from the Department of Veterans Affairs, the 
institution must suspend collection activity on the loan and inform the 
veteran that--
    (A) The institution will review the application and submit the 
application and supporting documentation to the Secretary for an 
eligibility determination if the documentation from the Department of 
Veterans Affairs indicates that the veteran is totally and permanently 
disabled as defined in Sec.  674.51(aa)(2);
    (B) The institution will resume collection on the loan if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as defined in 
Sec.  674.51(aa)(2); and

[[Page 36588]]

    (C) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as defined in Sec.  674.51(aa)(2), but the documentation indicates that 
the veteran may be totally and permanently disabled as defined in Sec.  
674.51(aa)(1), the veteran may reapply for a total and permanent 
disability discharge in accordance with the procedures described in 
Sec.  674.61(b).
    (iv) If the documentation from the Department of Veterans Affairs 
indicates that the veteran is totally and permanently disabled as 
defined in Sec.  674.51(aa)(2), the institution must submit a copy of 
the veteran's application and the documentation from the Department of 
Veterans Affairs to the Secretary. At the time the application and 
documentation are submitted to the Secretary, the institution must 
notify the veteran that the veteran's discharge request has been 
referred to the Secretary for determination of discharge eligibility 
and that no payments are due on the loan.
    (v) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as defined in Sec.  674.51(aa)(2), the institution must resume 
collection on the loan.
    (4) Secretary's determination of eligibility. (i) If the Secretary 
determines, based on a review of the documentation from the Department 
of Veterans Affairs, that the veteran is totally and permanently 
disabled as defined in Sec.  674.51(aa)(2), the Secretary notifies the 
institution of this determination, and the institution must--
    (A) Discharge the veteran's obligation to make further payments on 
the loan; and
    (B) Return to the person who made the payments on the loan any 
payments received on or after the effective date of the determination 
by the Department of Veterans Affairs that the veteran is unemployable 
due to a service-connected disability.
    (ii) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as defined in Sec.  
674.51(aa)(2), the Secretary notifies the institution of this 
determination, and the institution must resume collection on the loan.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

    5. The authority citation for part 682 continues to read as 
follows:

    Authority: 20 U.S.C. 1071-1087-2 unless otherwise noted.

    6. Section 682.200(b) is amended by:
    A. Revising paragraph (5) of the definition of ``Lender.''
    B. Removing the definition of ``National credit bureau.''
    C. Adding a definition of ``Nationwide consumer reporting agency.''
    D. Adding a definition of ``Substantial gainful activity.''
    E. Revising the definition of ``Totally and permanently disabled.''
    The revisions and additions read as follows:


Sec.  682.200  Definitions.

* * * * *
    (b) * * *
    Lender. * * *
    (5)(i) The term eligible lender does not include any lender that 
the Secretary determines, after notice and opportunity for a hearing 
before a designated Department official, has, directly or through an 
agent or contractor--
    (A) Except as provided in paragraph (5)(ii) of this definition, 
offered, directly or indirectly, points, premiums, payments (including 
payments for referrals, finder fees or processing fees), or other 
inducements to any school, any employee of a school, or any other party 
to secure applications for FFEL loans or to secure FFEL loan volume. 
This includes but is not limited to--
    (1) Payments or offerings of other benefits, including prizes or 
additional financial aid funds, to a prospective borrower or to a 
school or school employee in exchange for applying for or accepting a 
FFEL loan from the lender;
    (2) Payments or other benefits, including payments of stock or 
other securities, tuition payments or reimbursements, to a school, a 
school employee, any school-affiliated organization, or to any other 
individual in exchange for FFEL loan applications, application 
referrals, or a specified volume or dollar amount of loans made, or 
placement on a school's list of recommended or suggested lenders;
    (3) Payments or other benefits provided to a student at a school 
who acts as the lender's representative to secure FFEL loan 
applications from individual prospective borrowers, unless the student 
is also employed by the lender for other purposes and discloses that 
employment to school administrators and to prospective borrowers;
    (4) Payments or other benefits to a loan solicitor or sales 
representative of a lender who visits schools to solicit individual 
prospective borrowers to apply for FFEL loans from the lender;
    (5) Payment to another lender or any other party, including a 
school, a school employee, or a school-affiliated organization or its 
employees, of referral fees, finder fees or processing fees, except 
those processing fees necessary to comply with Federal or State law;
    (6) Compensation to an employee of a school's financial aid office 
or other employee who has responsibilities with respect to student 
loans or other financial aid provided by the school or compensation to 
a school-affiliated organization or its employees, to serve on a 
lender's advisory board, commission or other group established by the 
lender, except that the lender may reimburse the employee for 
reasonable expenses incurred in providing the service;
    (7) Payment of conference or training registration, travel, and 
lodging costs for an employee of a school or school-affiliated 
organization;
    (8) Payment of entertainment expenses, including expenses for 
private hospitality suites, tickets to shows or sporting events, meals, 
alcoholic beverages, and any lodging, rental, transportation, and other 
gratuities related to lender-sponsored activities for employees of a 
school or a school-affiliated organization;
    (9) Philanthropic activities, including providing scholarships, 
grants, restricted gifts, or financial contributions in exchange for 
FFEL loan applications or application referrals, or a specified volume 
or dollar amount of FFEL loans made, or placement on a school's list of 
recommended or suggested lenders;
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform exit counseling as provided in Sec.  682.604(g), and may 
provide services to participating foreign schools at the direction of 
the Secretary, as a third-party servicer; and
    (11) Any type of consulting arrangement or other contract with an 
employee of a financial aid office at a school, or an employee of a 
school who otherwise has responsibilities with respect to student loans 
or other financial aid provided by the school under which the employee 
would provide services to the lender.
    (B) Conducted unsolicited mailings, by postal or electronic means, 
of student loan application forms to students enrolled in secondary 
schools or

[[Page 36589]]

postsecondary institutions or to family members of such students, 
except to a student or borrower who previously has received a FFEL loan 
from the lender;
    (C) Offered, directly or indirectly, a FFEL loan to a prospective 
borrower to induce the purchase of a policy of insurance or other 
product or service by the borrower or other person; or
    (D) Engaged in fraudulent or misleading advertising with respect to 
its FFEL loan activities.
    (ii) Notwithstanding paragraph (5)(i) of this definition, a lender, 
in carrying out its role in the FFEL program and in attempting to 
provide better service, may provide--
    (A) Technical assistance to a school that is comparable to the 
kinds of technical assistance provided to a school by the Secretary 
under the Direct Loan program, as identified by the Secretary in a 
public announcement, such as a notice in the Federal Register;
    (B) Support of and participation in a school's or a guaranty 
agency's student aid and financial literacy-related outreach 
activities, excluding in-person entrance counseling, as long as the 
name of the entity that developed and paid for any materials is 
provided to the participants and the lender does not promote its 
student loan or other products;
    (C) Meals, refreshments, and receptions that are reasonable in cost 
and scheduled in conjunction with training, meeting, or conference 
events if those meals, refreshments, or receptions are open to all 
training, meeting, or conference attendees;
    (D) Toll-free telephone numbers for use by schools or others to 
obtain information about FFEL loans and free data transmission service 
for use by schools to electronically submit applicant loan processing 
information or student status confirmation data;
    (E) A reduced origination fee in accordance with Sec.  682.202(c);
    (F) A reduced interest rate as provided under the Act;
    (G) Payment of Federal default fees in accordance with the Act;
    (H) Purchase of a loan made by another lender at a premium;
    (I) Other benefits to a borrower under a repayment incentive 
program that requires, at a minimum, one or more scheduled payments to 
receive or retain the benefit or under a loan forgiveness program for 
public service or other targeted purposes approved by the Secretary, 
provided these benefits are not marketed to secure loan applications or 
loan guarantees;
    (J) Items of nominal value to schools, school-affiliated 
organizations, and borrowers that are offered as a form of generalized 
marketing or advertising, or to create good will; and
    (K) Other services as identified and approved by the Secretary 
through a public announcement, such as a notice in the Federal 
Register.
    (iii) For the purposes of this paragraph (5)--
    (A) The term ``school-affiliated organization'' is defined in Sec.  
682.200.
    (B) The term ``applications'' includes the Free Application for 
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and 
FFEL Consolidation loan application and promissory notes.
    (C) The term ``other benefits'' includes, but is not limited to, 
preferential rates for or access to the lender's other financial 
products, information technology equipment, or non-loan processing or 
non-financial aid-related computer software at below market rental or 
purchase cost, and printing and distribution of college catalogs and 
other materials at reduced or no cost.
* * * * *
    Nationwide consumer reporting agency. A consumer reporting agency 
as defined in 15 U.S.C. 1681a.
* * * * *
    Substantial gainful activity. A level of work performed for pay or 
profit that involves doing significant physical or mental activities, 
or a combination of both.
* * * * *
    Totally and permanently disabled. The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
* * * * *
    7. Section 682.201 is amended by:
    A. In paragraph (a)(4)(i), removing the words ``legal costs, and 
late charges'' and adding, in their place, the words ``court costs, 
attorney fees, and late charges''.
    B. In paragraph (a)(5), removing the words ``under Sec.  
682.402(c)''.
    C. Revising paragraph (a)(6)(iii).
    D. In the introductory text of paragraph (a)(7), removing the words 
``based on'' and adding, in their place, the word ``after'', and adding 
the words ``based on a discharge request received prior to July 1, 
2010'' immediately after the word ``disabled''.
    E. In paragraph (a)(7)(ii)(B), removing the words ``, as described 
in paragraph 682.402(c)(16)''.
    F. In paragraph (e)(4), adding the words ``is in default or'' 
immediately after the first appearance of the words ``consolidation 
loan'' and adding the words ``or an income-based repayment plan'' 
immediately after the words ``income contingent repayment plan''.
    G. In paragraph (e)(5), adding the words ``, or the no accrual of 
interest benefit for active duty service'' immediately after the words 
``Public Service Loan Forgiveness Program''.
    The revision reads as follows:


Sec.  682.201  Eligible borrowers.

    (a) * * *
    (6) * * *
    (iii) If a borrower receives a new FFEL loan within three years of 
the date that any previous title IV loan or TEACH Grant service 
obligation was discharged due to a total and permanent disability in 
accordance with Sec.  682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR 
685.213, or 34 CFR 686.42(b) based on a discharge request received on 
or after July 1, 2010, resume repayment on the previously discharged 
loan in accordance with Sec.  682.402(c)(5), 34 CFR 674.61(b)(5), or 34 
CFR 685.213(b)(4), or acknowledge that he or she is once again subject 
to the terms of the TEACH Grant agreement to serve before receiving the 
new loan.
* * * * *
    8. Section 682.202 is amended by:
    A. In the introductory text of paragraph (a), adding the words 
``and (a)(8)'' after the reference ``(a)(4)''.
    B. Adding a new paragraph (a)(8).
    C. In paragraph (b)(2)(i), adding the words ``or, for a PLUS loan, 
for the period from the date the first disbursement was made to the 
date the repayment period begins'' immediately before the semicolon.
    The addition reads as follows:


Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (8) Applicability of the Servicemembers Civil Relief Act (50 U.S.C. 
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (a)(4) 
of this section, effective August 14, 2008, upon the loan holder's 
receipt of the borrower's written request and a copy of the borrower's 
military orders, the maximum interest rate, as defined in 50 U.S.C. 
527, App. section 207(d), on FFEL Program loans made

[[Page 36590]]

prior to the borrower entering active duty status is 6 percent while 
the borrower is on active duty military service.
* * * * *
    9. Section 682.205 is amended by:
    A. In paragraph (a)(2)(vi), removing the words ``insurance 
premium'' and adding, in their place, the words ``Federal default 
fee'', and adding, immediately before the semicolon, the words ``or 
paid by the lender''.
    B. In paragraph (a)(2)(ix), removing the words ``a national credit 
bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
    C. In paragraph (a)(2)(x), adding, immediately before the 
semicolon, the words ``, and a description of the types of repayment 
plans available''.
    D. In paragraph (a)(2)(xvi), removing the words ``a national credit 
bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
    E. In paragraph (a)(2)(xviii), removing the words ``in the making 
or'' and adding, in their place, the words ``during repayment or in 
the''; adding the words ``including any fees the borrower may be 
charged'' immediately after the words ``the loan,''; and removing the 
words ``; and'' at the end of the paragraph and adding, in their place, 
the punctuation ``;''.
    F. In paragraph (a)(2)(xx), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the punctuation ``;''.
    G. Adding new paragraphs (a)(2)(xxi), (a)(2)(xxii), (a)(2)(xxiii), 
and (a)(2)(xxiv).
    H. In paragraph (b), in the second sentence, adding the words ``, 
and that the default will be reported to each nationwide consumer 
reporting agency'' immediately after the word ``loan''.
    I. In paragraph (c), in the heading, removing the words 
``Disclosure of repayment'' and adding, in their place, the word 
``Repayment''.
    J. In paragraph (c)(1), adding the heading ``Disclosures at or 
prior to repayment.'' immediately after the paragraph designation 
``(1)''; removing the words ``Federal SLS'' and adding, in their place, 
the words ``Federal PLUS''; and removing the words ``240 days'' and 
adding, in their place, the words ``150 days''.
    K. In paragraph (c)(2)(ii), adding the words ``, or a deferment 
under Sec.  682.210(v), if applicable, is to end'' immediately after 
the word ``begin'' at the end of the sentence.
    L. In paragraph (c)(2)(iii), adding the words ``a deferment under 
Sec.  682.210(v), if applicable, is to end,'' immediately after the 
word ``begin''.
    M. In paragraph (c)(2)(vi), adding the words ``based on the 
repayment schedule selected by the borrower'' immediately after the 
word ``payments''.
    N. In paragraph (c)(2)(viii), adding the words ``if interest has 
been paid, the amount of interest paid'' immediately after the words 
``; and''.
    O. In paragraph (c)(2)(ix), removing the punctuation ``.'' at the 
end of the sentence and adding, in its place, the punctuation ``;''.
    P. Adding new paragraphs (c)(2)(x), (c)(2)(xi), (c)(2)(xii), 
(c)(2)(xiii) and (c)(2)(xiv).
    Q. Adding new paragraphs (c)(3), (c)(4) and (c)(5).
    R. In paragraph (d), adding the words ``Federal Unsubsidized 
Stafford loan or a'' immediately after the words ``In the case of a'' 
at the beginning of the first sentence and removing the words ``the 
student'' in the first sentence and adding, in their place, the words 
``the borrower or student on whose behalf the loan is made''.
    S. Adding new paragraph (i).
    T. Adding new paragraph (j).
    The additions read as follows:


Sec.  682.205   Disclosure requirements for lenders.

    (a) * * *
    (1) * * *
    (2) * * *
    (xxi) For unsubsidized Stafford or student PLUS borrowers, an 
explanation that the borrower may pay the interest while in school and, 
if the interest is not paid by the borrower while in school, when and 
how often the interest will be capitalized;
    (xxii) For parent PLUS borrowers, an explanation that the parent 
may defer payment on the loan while the student on whose behalf the 
parent borrowed is enrolled at least half-time and, if the parent does 
not pay interest while the student is in school, when and how often 
interest will be capitalized, and that the parent may be eligible for a 
deferment on the loan if the parent is enrolled at least half-time;
    (xxiii) A statement summarizing the circumstances in which a 
borrower may obtain forbearance on the loan; and
    (xxiv) A description of the options available for forgiveness of 
the loan and the requirements to obtain that forgiveness.
* * * * *
    (c) * * *
    (2) * * *
    (x) Information on any special loan repayment benefits offered on 
the loan, including benefits that are contingent on repayment behavior, 
and any other special loan repayment benefits for which the borrower 
may be eligible that would reduce the amount or length of repayment; 
and at the request of the borrower, an explanation of the effect of a 
reduced interest rate on the borrower's total payoff amount and time 
for repayment;
    (xi) If the lender provides a repayment benefit, any limitations on 
that benefit, any circumstances in which the borrower could lose that 
benefit, and whether and how the borrower may regain eligibility for 
the repayment benefit;
    (xii) A description of all the repayment plans available to the 
borrower and a statement that the borrower may change plans during the 
repayment period at least annually;
    (xiii) A description of the options available to the borrower to 
avoid or be removed from default, as well as any fees associated with 
those options; and
    (xiv) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (3) Required disclosures during repayment. In addition to the 
disclosures required in paragraph (c)(1) of this section, the lender 
must provide the borrower of an FFEL loan with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due that includes in simple and understandable terms--
    (i) The original principal amount of the borrower's loan;
    (ii) The borrower's current balance, as of the time of the bill or 
statement;
    (iii) The interest rate on the loan;
    (iv) The total amount of interest for the preceding installment 
paid by the borrower;
    (v) The aggregate amount paid by the borrower on the loan, and 
separately identifying the amount the borrower has paid in interest on 
the loan, the amount of fees the borrower has paid on the loan, and the 
amount paid against the balance in principal;
    (vi) A description of each fee the borrower has been charged for 
the most recent preceding installment time period;
    (vii) The date by which a payment must be made to avoid additional 
fees and the amount of that payment and the fees;
    (viii) The lender's or servicer's address and toll-free telephone 
number for repayment options, payments and billing error purposes; and
    (ix) A reminder that the borrower may change repayment plans, a 
list of all of the repayment plans that are available to

[[Page 36591]]

the borrower, a link to the Department of Education's Web site for 
repayment plan information, and directions on how the borrower may 
request a change in repayment plans from the lender.
    (4) Required disclosures for borrowers having difficulty making 
payments. The lender shall provide a borrower who has notified the 
lender that he or she is having difficulty making payments with--
    (i) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;
    (ii) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (iii) A description of the options available to the borrower to 
avoid default and any fees or costs associated with those options.
    (5) Required disclosures for borrowers who are 60-days delinquent 
in making payments on a loan. (i) The lender shall provide to a 
borrower who is 60 days delinquent in making required payments a notice 
of--
    (A) The date on which the loan will default if no payment is made;
    (B) The minimum payment the borrower must make, as of the date of 
the notice, to avoid default, including the payment amount needed to 
bring the loan current or payment in full;
    (C) A description of the options available to the borrower to avoid 
default, including deferment and forbearance and any fees and costs 
associated with those options;
    (D) Any options for discharging the loan that may be available to 
the borrower; and
    (E) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (ii) The notice must be sent within five days of the date the 
borrower becomes 60 days delinquent, unless the lender has sent such a 
notice within the previous 120 days.
* * * * *
    (i) Separate disclosure for Consolidation loans. At the time the 
lender provides a Consolidation loan application to a prospective 
borrower, it must disclose to the prospective borrower, in simple and 
understandable terms--
    (1) Whether consolidation will result in a loss of loan benefits, 
including, but not limited to, loan forgiveness, cancellation, 
deferment, or a reduced interest rate on FFEL or Direct Loans repaid 
through consolidation;
    (2) If a borrower is repaying a Federal Perkins Loan with the 
Consolidation loan, that the borrower will lose--
    (i) The interest-free periods available on the Perkins Loan while 
the borrower is enrolled in-school at least half-time, in the grace 
period, or in a deferment period; and
    (ii) The cancellation benefits on the Perkins Loan. The lender must 
provide to the borrower a list of the Perkins Loan cancellation 
benefits that would not be available on the Consolidation loan.
    (3) The repayment plans available to the borrower;
    (4) The borrower's options to prepay the Consolidation loan, to pay 
the loan on a shorter repayment schedule, and to change repayment 
plans;
    (5) That the borrower benefit programs for a Consolidation loan 
vary among lenders;
    (6) The consequences of default on the Consolidation loan; and
    (7) That applying for the Consolidation loan does not obligate the 
borrower to agree to take the Consolidation loan, and the process and 
deadline by which the borrower may cancel the Consolidation loan.
    (j) Disclosure procedures when a borrower's address is not 
available. If a lender receives information indicating it does not know 
the borrower's current address, the lender is excused from providing 
disclosure information under this section unless it receives 
communication indicating a valid borrower address before the 241st day 
of delinquency, at which point the lender must resume providing the 
installment bill or statement, and any other disclosure information 
required under this section not previously provided.
    10. Section 682.206 is amended by revising paragraph (f) to read as 
follows:


Sec.  682.206   Due diligence in making a loan.

* * * * *
    (f) Additional requirements for Consolidation loans. (1) Prior to 
making any payments to pay off a loan with the proceeds of a 
Consolidation loan, the lender shall--
    (i) Obtain from the holder of each loan to be consolidated a 
certification with respect to the loan held by the holder that--
    (A) The loan is a legal, valid, and binding obligation of the 
borrower;
    (B) The loan was made and serviced in compliance with applicable 
laws and regulations; and
    (C) In the case of a FFEL loan, that the guarantee on the loan is 
in full force and effect; and
    (ii) Consistent with the requirements of Sec.  682.205(i)(7), 
notify the borrower, upon receipt of all information necessary to make 
the Consolidation loan, of the borrower's option to cancel the 
Consolidation loan, and the deadline by which the borrower must notify 
the lender that he or she wishes to cancel the loan. The lender must 
allow the borrower no less than 10 days from the date of the notice to 
cancel the loan.
    (2) The Consolidation loan lender may rely in good faith on the 
certification provided under paragraph (f)(1)(i) of this section by the 
holder of a loan to be consolidated.
    11. Section 682.208 is amended by:
    A. In paragraph (e)(1) introductory text, adding the words ``or 
transfer of ownership interest'' immediately after the word 
``assignment''.
    B. In paragraph (e)(1)(iii), removing the word ``and'' after the 
semicolon.
    C. In paragraph (e)(1)(iv), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the punctuation ``;''.
    D. Adding new paragraphs (e)(1)(v), (vi), and (vii).
    The additions read as follows:


Sec.  682.208   Due diligence in servicing a loan.

* * * * *
    (e) * * *
    (1) * * *
    (v) The effective date of the assignment or transfer of the loan;
    (vi) The date, if applicable, on which the current loan servicer 
will stop accepting payments; and
    (vii) The date on which the new loan servicer will begin accepting 
payments.
* * * * *


Sec.  682.209   [Amended]

    12. Section 682.209 is amended in paragraph (a)(2)(v) by removing 
the reference ``(a)(2)(ii)'' and adding, in its place, the reference 
``(a)(2)(i)''.
    13. Section 682.210 is amended by:
    A. In paragraph (a)(1)(i), adding the words ``and paragraphs (s) 
through (v)'' after the words ``paragraph (b)''.
    B. Revising paragraph (a)(3).
    C. In paragraph (c)(1)(ii), removing the word ``or'' at the end of 
the paragraph.
    D. In paragraph (c)(1)(iii), removing the punctuation ``.'' and 
adding, in its place, ``; or'' at the end of the paragraph.
    E. Adding a new paragraph (c)(1)(iv).
    F. Revising paragraph (c)(2).
    G. In paragraph (c)(3), removing the word ``SSCR'' and adding, in 
its place, the words ``Student Status Confirmation Report''.
    H. Adding a new paragraph (v).
    The revisions and additions read as follows:

[[Page 36592]]

Sec.  682.210   Deferment.

    (a) * * *
    (3)(i) Interest accrues and is paid by--
    (A) The Secretary during the deferment period for a subsidized 
Stafford loan and for all or a portion of a Consolidation loan that 
qualifies for interest benefits under Sec.  682.301; or
    (B) The borrower during the deferment period and, as applicable, 
the post-deferment grace period, on all other loans.
    (ii) A borrower who is responsible for payment of interest during a 
deferment period must be notified by the lender, at or before the time 
the deferment is granted, that the borrower has the option to pay the 
accruing interest or cancel the deferment and continue paying on the 
loan. The lender must also provide information, including an example, 
on the impact of capitalization of accrued, unpaid interest on loan 
principal, and on the total amount of interest to be paid over the life 
of the loan.
* * * * *
    (c) * * *
    (1) * * *
    (iv) The lender confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested 
to do so by the school the borrower is attending.
    (2) The lender must notify the borrower that a deferment has been 
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section 
and that the borrower has the option to cancel the deferment and 
continue paying on the loan.
* * * * *
    (v) In-school deferments for PLUS loan borrowers with loans first 
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is 
entitled to a deferment on a PLUS loan first disbursed on or after July 
1, 2008 during the 6-month period that begins on the day after the 
student ceases to be enrolled on at least a half-time basis at an 
eligible institution.
    (ii) If a lender grants an in-school deferment to a student PLUS 
borrower based on Sec.  682.210(c)(1)(ii), (iii), or (iv), the 
deferment period for a PLUS loan first disbursed on or after July 1, 
2008 includes the 6-month post-enrollment period described in paragraph 
(v)(1)(i) of this section. The notice required by Sec.  682.210(c)(2) 
must inform the borrower that the in-school deferment on a PLUS loan 
first disbursed on or after July 1, 2008 will end six months after the 
day the borrower ceases to be enrolled on at least a half-time basis.
    (2) Upon the request of the borrower, an eligible parent PLUS 
borrower must be granted a deferment on a PLUS loan first disbursed on 
or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained ceases to be 
enrolled on at least a half-time basis or, if the parent borrower is 
also a student, the day after the parent borrower ceases to be enrolled 
on at least a half-time basis.
    14. Section 682.211 is amended by:
    A. Revising paragraph (e).
    B. In paragraph (f)(11), removing the word ``or'' at the end of the 
paragraph.
    C. In paragraph (f)(12), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, the punctuation ``;''.
    D. In paragraph (f)(13), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, the punctuation ``;''.
    E. In paragraph (f)(14), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, ``; or''.
    F. Adding new paragraph (f)(15).
    The revisions and additions read as follows:


Sec.  682.211   Forbearance.

* * * * *
    (e)(1) At the time of granting a borrower or endorser a 
forbearance, the lender must provide the borrower or endorser with 
information to assist the borrower or endorser in understanding the 
impact of capitalization of interest on the loan principal and total 
interest to be paid over the life of the loan; and
    (2) At least once every 180 days during the period of forbearance, 
the lender must contact the borrower or endorser to inform the borrower 
or endorser of--
    (i) The outstanding obligation to repay;
    (ii) The amount of the unpaid principal balance and any unpaid 
interest that has accrued on the loan since the last notice provided to 
the borrower or endorser under this paragraph;
    (iii) The fact that interest will accrue on the loan for the full 
term of the forbearance;
    (iv) The amount of interest that will be capitalized, as of the 
date of the notice, and the date capitalization will occur;
    (v) The option of the borrower or endorser to pay the interest that 
has accrued before the interest is capitalized; and
    (vi) The borrower's or endorser's option to discontinue the 
forbearance at any time.
    (f) * * *
    (15) For PLUS loans first disbursed before July 1, 2008, to align 
repayment with a borrower's PLUS loans that were first disbursed on or 
after July 1, 2008, or with Stafford Loans that are subject to a grace 
period under Sec.  682.209(a)(3). The notice specified in paragraph (f) 
introductory text must inform the borrower that the borrower has the 
option to cancel the forbearance and continue paying on the loan.
* * * * *
    15. Section 682.215 is amended by:
    A. Revising paragraph (a)(4).
    B. In paragraph (b)(1), removing the words ``Except as provided 
under paragraph (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) of this section, 
the'' in the second sentence and adding, in their place, the word 
``The''.
    C. In paragraph (b)(1)(i), removing the word ``The'' at the 
beginning of the paragraph and adding, in its place, the words ``Except 
for borrowers provided for in paragraph (b)(1)(ii) of this section, 
the''.
    D. Redesignating paragraphs (b)(1)(ii) and (b)(1)(iii) as 
paragraphs (b)(1)(iii) and (b)(1)(iv), respectively.
    E. Adding a new paragraph (b)(1)(ii).
    F. In newly redesignated paragraph (b)(1)(iii), removing the words 
``or (b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i), 
or (b)(1)(ii)''.
    G. In newly redesignated paragraph (b)(1)(iv), removing the words 
``or (b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i), 
or (b)(1)(ii)''.
    H. In paragraph (b)(2), removing the words ``(b)(1)(ii) and (iii)'' 
in the second sentence and adding, in their place, the words 
``(b)(1)(iii) and (iv)''.
    The revision and addition reads as follows:


Sec.  682.215   Income-based repayment plan.

    (a) * * *
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment 
plan based on a 10-year repayment period, using the greater of the 
amount due at the time the borrower initially entered repayment or at 
the time the borrower elects the income-based repayment plan, exceeds 
15 percent of the difference between the borrower's AGI and 150 percent 
of the poverty guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her

[[Page 36593]]

spouse, the annual amount due on all of the borrower's eligible loans 
and, if applicable, the spouse's eligible loans, as calculated under a 
standard repayment plan based on a 10-year repayment period, using the 
greater of the amount due at the time the loans initially entered 
repayment or at the time the borrower or spouse elects the income-based 
repayment plan, exceeds 15 percent of the difference between the 
borrower's and spouse's AGI, and 150 percent of the poverty guideline 
for the borrower's family size.
* * * * *
    (b) * * *
    (1) * * *
    (ii) Both the borrower and the borrower's spouse have eligible 
loans and filed a joint Federal tax return, in which case the loan 
holder determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(1)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly payment by multiplying the payment 
determined in paragraph (b)(1)(ii)(B) of this section by the percentage 
of the total outstanding principal amount of eligible loans that are 
held by the loan holder;
* * * * *
    16. Section 682.216 is amended by:
    A. Revising paragraph (a).
    B. In paragraph (b), adding, in alphabetical order, a definition of 
Educational service agency.
    C. Revising the introductory text of paragraph (c)(1).
    D. In paragraph (c)(1)(ii), adding the words ``or educational 
service agency's'' immediately after the words ``the school's''.
    E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian 
Affairs (BIA)'' and adding, in their place, the words ``Bureau of 
Indian Education (BIE)'', and removing the words ``the BIA'' and 
adding, in their place, the words ``the BIE''.
    F. In paragraph (c)(2), adding the words ``or educational service 
agency'' immediately after the words ``If the school'' at the beginning 
of the paragraph, and removing the words ``the school'' immediately 
after the words ``teaching and''.
    G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
    H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
    I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding, 
in its place, the word ``at'', and adding the words ``, or taught 
mathematics or science to secondary school students on a full-time 
basis at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
    J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first 
time it appears and adding, in its place, the word ``at'', and adding 
the words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
    K. Adding a new paragraph (c)(3)(iii).
    L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``or educational 
service agency'' immediately after the words ``secondary school'' the 
first time they appear.
    M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding, 
in its place, the word ``at'', and adding the words ``, or taught 
mathematics or science on a full-time basis to secondary school 
students at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
    N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first 
time it appears and adding, in its place, the word ``at'', and by 
adding the words ``or educational service agency'' immediately after 
the words ``secondary school'' the first time they appear.
    O. Adding a new paragraph (c)(4)(iii).
    P. Revising paragraph (c)(9).
    Q. Revising paragraph (c)(11).
    The revisions and additions read as follows:


Sec.  682.216  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended 
to encourage individuals to enter and continue in the teaching 
profession. For new borrowers, the Secretary repays the amount 
specified in this paragraph on the borrower's subsidized and 
unsubsidized Federal Stafford Loans, Direct Subsidized Loans, Direct 
Unsubsidized Loans, and in certain cases, Federal Consolidation Loans 
or Direct Consolidation Loans. The forgiveness program is only 
available to a borrower who has no outstanding loan balance under the 
FFEL Program or the Direct Loan Program on October 1, 1998 or who has 
no outstanding loan balance on the date he or she obtains a loan after 
October 1, 1998.
    (2) The borrower must have been employed at an eligible elementary 
or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. For teaching 
service performed at an eligible elementary or secondary school, at 
least one of the academic years must have been after the 1997-1998 
academic year. For teaching service performed by an employee of an 
eligible educational service agency, at least one of the five 
consecutive complete academic years must have been after the 2007-2008 
academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan 
Program loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or at an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must 
have been made prior to the end of the borrower's fifth year of 
qualifying teaching service.
    (b) * * *
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
* * * * *
    (c) * * *
    (1) A borrower who has been employed at an elementary or secondary 
school or at an educational service agency as a full-time teacher for 
five consecutive complete academic years may obtain loan forgiveness 
under this program if the elementary or secondary school or educational 
service agency-- * * *
    (3) * * *
    (iii) For teaching service performed by an employee of an eligible 
educational service agency, at least one of the five consecutive 
complete academic years must have been after the 2007-2008 academic 
year.
    (4) * * *
    (iii) For teaching service performed by an employee of an eligible 
educational

[[Page 36594]]

service agency, at least one of the five consecutive complete academic 
years must have been the 2008-2009 academic year or a subsequent 
academic year.
* * * * *
    (9) A borrower who was employed as a teacher at more than one 
qualifying school, at more than one qualifying educational service 
agency, or at a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (11) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) 34 CFR 685.217;
    (ii) Subtitle D of title I of the National and Community Service 
Act of 1990;
    (iii) 34 CFR 685.219; or
    (iv) Section 428K of the Act.
* * * * *
    17. Section 682.302 is amended by adding a new paragraph (h) to 
read as follows:


Sec.  682.302  Payment of special allowance on FFEL loans.

* * * * *
    (h) Calculation of special allowance payments for loans subject to 
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For 
FFEL Program loans first disbursed on or after July 1, 2008 that are 
subject to the interest rate limit under the Servicemembers Civil 
Relief Act, special allowance is calculated in accordance with 
paragraphs (c) and (f) of this section, except the applicable interest 
rate for this purpose shall be 6 percent.
    18. Section 682.305 is amended by:
    A. Revising paragraph (c)(1).
    B. In paragraph (c)(2)(v), removing the word ``and'' immediately 
after the semicolon
    C. In paragraph (c)(2)(vi), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the words ``; and''.
    D. Redesignating paragraph (c)(2)(vii) as paragraph (c)(3).
    E. Adding a new paragraph (c)(2)(vii).
    The revision and addition read as follows:


Sec.  682.305  Procedures for payment of interest benefits and special 
allowance and collection of origination and loan fees.

* * * * *
    (c) Independent audits. (1)(i) A lender originating or holding more 
than $5 million in FFEL loans during its fiscal year must submit an 
independent annual compliance audit for that year, conducted by a 
qualified independent organization or person.
    (ii) Notwithstanding the dollar volume of loans originated or held, 
a school lender under Sec.  682.601 or a lender serving as trustee on 
behalf of a school or a school-affiliated organization for the purpose 
of originating loans must submit an independent annual compliance audit 
for that year, conducted by a qualified independent organization or 
person.
    (iii) The Secretary may, following written notice, suspend the 
payment of interest benefits and special allowance to a lender that 
does not submit its audit within the time period prescribed in 
paragraph (c)(2) of this section.
    (2) * * *
    (vii) With regard to a lender serving as a trustee for the purpose 
of originating loans for a school or school-affiliated organization, 
the audit must include a determination that--
    (A) Except as provided in paragraph (c)(2)(vii)(B) of this section, 
the school used all proceeds from special allowance payments, interest 
subsidies received from the Department, and any proceeds from the sale 
or other disposition of the loans originated through the lender for 
need-based grant programs and that those funds supplemented, but did 
not supplant, other Federal or non-Federal funds otherwise available to 
be used to make need-based grants to its students; and
    (B) The lender used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses in 
accordance with Sec.  682.601(b), with all references to eligible 
school lender understood to mean a lender in its capacity as trustee on 
behalf of a school or school-affiliated organization for the purpose of 
originating loans.
* * * * *
    19. Section 682.401 is amended by:
    A. In paragraph (e)(1)(i), adding the words ``stock or other 
securities, tuition payment or reimbursement'' immediately after the 
word ``payment''.
    B. In paragraph (e)(1)(i)(D), adding the words ``travel or'' 
immediately after the words ``Payment of''.
    C. Revising paragraph (e)(1)(i)(F).
    D. In paragraph (e)(1)(iii)(C), removing the word ``and'' 
immediately after the semicolon.
    E. In paragraph (e)(1)(iii)(D), removing the punctuation ``.'' at 
the end of the paragraph and adding, in its place, the punctuation 
``;''.
    F. Adding new paragraphs (e)(1)(iii)(E), (F), and (G).
    G. In paragraph (e)(1)(v), adding the words ``, terms or 
conditions'' immediately after the word ``availability''.
    H. In paragraph (e)(2)(i), removing the word ``Assistance'' at the 
beginning of the paragraph and adding, in its place, the words 
``Technical assistance'', and removing the words ``that provided'' and 
adding, in their place, the words ``the technical assistance 
provided''.
    I. In paragraph (e)(2)(ii), adding the words ``and 433A'' 
immediately after the reference to ``422(h)(4)(B)''.
    J. In paragraph (e)(2)(iii), removing the words ``initial and 
exit'' and adding, in their place, the word ``entrance''.
    K. Revising paragraph (e)(2)(vi).
    L. In paragraph (e)(3)(iii), removing the words ``The terms'' and 
adding, in their place, the words ``The term'', and removing the words 
``computer hardware'' and adding, in their place, the words 
``information technology equipment''.
    M. Removing paragraph (e)(3)(v).
    N. Adding a new paragraph (g).
    The revision and additions read as follows:


Sec.  682.401  Basic Program Agreement.

* * * * *
    (e) * * *
    (1) * * *
    (i) * * *
    (F) Performance of, or payment to a third party to perform, any 
school function required under title IV, except that the guaranty 
agency may provide exit counseling as provided in Sec.  682.604(g), and 
may provide services to participating foreign schools at the direction 
of the Secretary, as a third-party servicer.
* * * * *
    (iii) * * *
    (E) Providing or reimbursing travel or entertainment expenses;
    (F) Providing or reimbursing tuition payments or expenses; and
    (G) Offering prizes, or providing payments of stocks or other 
securities.
* * * * *
    (g)(1) A guaranty agency must work with schools that participate in 
its program to develop and make available high-quality educational 
materials and programs that provide training to students and their 
families in budgeting and financial management, including debt 
management and other aspects of financial literacy, such as the cost of 
using high-interest loans to pay for postsecondary education, and how 
budgeting and financial management relate to the title IV student loan 
programs.

[[Page 36595]]

    (2) The materials and programs described in paragraph (g)(1) of 
this section must be in formats that are simple and understandable to 
students and their families, and must be made available to students and 
their families by the guaranty agency before, during, and after a 
student's enrollment at an institution of higher education.
    (3) A guaranty agency may provide similar programs and materials to 
an institution that participates only in the William D. Ford Federal 
Direct Loan Program.
    (4) A lender or loan servicer may also provide an institution with 
outreach and financial literacy information consistent with the 
requirements of paragraphs (g)(1) and (2) of this section.
    20. Section 682.402 is amended by revising paragraph (c) to read as 
follows:


Sec.  682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

* * * * *
    (c)(1) Total and permanent disability. (i) A borrower's loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  682.200(b), and satisfies the eligibility requirements 
in this section.
    (ii) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraphs (c)(2) through (7) of this section.
    (iii) For a veteran who is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c)(8) of this section.
    (2) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). After being notified by the borrower or 
the borrower's representative that the borrower claims to be totally 
and permanently disabled, the lender promptly requests that the 
borrower or the borrower's representative submit a discharge 
application to the lender on a form approved by the Secretary. The 
application must contain a certification by a physician, who is a 
doctor of medicine or osteopathy legally authorized to practice in a 
State, that the borrower is totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b). The borrower must submit the application to the lender 
within 90 days of the date the physician certifies the application. If 
the lender and guaranty agency approve the discharge claim under the 
procedures described in paragraph (c)(7) of this section, the guaranty 
agency must assign the loan to the Secretary.
    (3) Secretary's eligibility determination. (i) If, after reviewing 
the borrower's application, the Secretary determines that the 
certification provided by the borrower supports the conclusion that the 
borrower is totally and permanently disabled, as described in paragraph 
(1) of the definition of that term in Sec.  682.200(b), the borrower is 
considered totally and permanently disabled as of the date the 
physician certifies the borrower's application.
    (ii) Upon making a determination that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b), the Secretary discharges the borrower's 
obligation to make further payments on the loan and notifies the 
borrower that the loan has been discharged. Any payments received after 
the date the physician certified the borrower's loan discharge 
application are returned to the person who made the payments on the 
loan. The notification to the borrower explains the terms and 
conditions under which the borrower's obligation to repay the loan will 
be reinstated, as specified in paragraph (c)(5)(i) of this section.
    (iii) If the Secretary determines that the certification provided 
by the borrower does not support the conclusion that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b), the Secretary notifies the 
borrower that the application for a disability discharge has been 
denied and that the loan is due and payable to the Secretary under the 
terms of the promissory note.
    (iv) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the Secretary determines that the 
borrower's application does not conclusively prove that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b). As part of the Secretary's 
review of the borrower's discharge application, the Secretary may 
arrange for an additional review of the borrower's condition by an 
independent physician at no expense to the borrower.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a Title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, the processing of the borrower's 
loan discharge request will be suspended until the borrower ensures 
that the full amount of the disbursement has been returned to the loan 
holder or to the Secretary, as applicable.
    (5) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (c)(3)(ii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty line for a family of two, as determined in accordance with 
the Community Service Block Grant Act;
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for a FFEL or Direct 
Consolidation Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (ii) If a borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
loan was reinstated.
    (iii) The Secretary's notification under paragraph (c)(5)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (6) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period

[[Page 36596]]

described in paragraph (c)(5)(i) of this section, the borrower or, if 
applicable, the borrower's representative must--
    (i) Promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(5)(i)(A) of this section; and
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment.
    (7) Lender and guaranty agency actions. (i) After being notified by 
a borrower or a borrower's representative that the borrower claims to 
be totally and permanently disabled, the lender must continue 
collection activities until it receives either the certification of 
total and permanent disability from a physician or a letter from a 
physician stating that the certification has been requested and that 
additional time is needed to determine if the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). Except as provided in paragraph 
(c)(7)(iii) of this section, after receiving the physician's 
certification or letter the lender may not attempt to collect from the 
borrower or any endorser.
    (ii) The lender must submit a disability claim to the guaranty 
agency if the borrower submits a certification by a physician and the 
lender makes a determination that the certification supports the 
conclusion that the borrower is totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b).
    (iii) If the lender determines that a borrower who claims to be 
totally and permanently disabled is not totally and permanently 
disabled as described in paragraph (1) of the definition of that term 
in Sec.  682.200(b), or if the lender does not receive the physician's 
certification of total and permanent disability within 60 days of the 
receipt of the physician's letter requesting additional time, as 
described in paragraph (c)(7)(i) of this section, the lender must 
resume collection of the loan and is deemed to have exercised 
forbearance of payment of both principal and interest from the date 
collection activity was suspended. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (iv) The guaranty agency must pay a claim submitted by the lender 
if the guaranty agency has reviewed the application and determined that 
it is complete and that it supports the conclusion that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b).
    (v) If the guaranty agency does not pay the disability claim, the 
guaranty agency must return the claim to the lender with an explanation 
of the basis for the agency's denial of the claim. Upon receipt of the 
returned claim, the lender must notify the borrower that the 
application for a disability discharge has been denied, provide the 
basis for the denial, and inform the borrower that the lender will 
resume collection on the loan. The lender is deemed to have exercised 
forbearance of both principal and interest from the date collection 
activity was suspended until the first payment due date. The lender may 
capitalize, in accordance with Sec.  682.202(b), any interest accrued 
and not paid during that period.
    (vi) If the guaranty agency pays the disability claim, the lender 
must notify the borrower that--
    (A) The loan will be assigned to the Secretary for determination of 
eligibility for a total and permanent disability discharge and that no 
payments are due on the loan; and
    (B) If the Secretary discharges the loan based on a determination 
that the borrower is totally and permanently disabled as described in 
paragraph (1) of the definition of that term in Sec.  682.200(b), the 
Secretary will reinstate the borrower's obligation to repay the loan 
if, within three years after the date the Secretary granted the 
discharge, the borrower--
    (1) Receives annual earnings from employment that exceed 100 
percent of the poverty line for a family of two, as determined in 
accordance with the Community Services Block Grant;
    (2) Receives a new TEACH Grant or a new title IV loan, except for a 
FFEL or Direct Consolidation Loan that includes loans that were not 
discharged; or
    (3) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (vii) After receiving a claim payment from the guaranty agency, the 
lender must forward to the guaranty agency any payments subsequently 
received from or on behalf of the borrower.
    (viii) The Secretary reimburses the guaranty agency for a 
disability claim paid to the lender after the agency pays the claim to 
the lender.
    (ix) The guaranty agency must assign the loan to the Secretary 
after the guaranty agency pays the disability claim.
    (8) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b)--(i) General. After being notified by the 
veteran or the veteran's representative that the veteran claims to be 
totally and permanently disabled, the lender promptly requests that the 
veteran or the veteran's representative submit a discharge application 
to the lender, on a form approved by the Secretary. The application 
must be accompanied by documentation from the Department of Veterans 
Affairs showing that the Department of Veterans Affairs has determined 
that the veteran is unemployable due to a service-connected disability. 
The veteran will not be required to provide any additional 
documentation related to the veteran's disability.
    (ii) Lender and guaranty agency actions. (A) After being notified 
by a veteran or a veteran's representative that the veteran claims to 
be totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  682.200(b), the lender must 
continue collection activities until it receives the veteran's 
completed loan discharge application with the required documentation 
from the Department of Veterans Affairs, as described in paragraph 
(8)(i) of this section. Except as provided in paragraph (c)(8)(ii)(C) 
of this section, the lender will not attempt to collect from the 
veteran or any endorser after receiving the veteran's discharge 
application and documentation from the Department of Veterans Affairs.
    (B) If the veteran submits a completed loan discharge application 
and the required documentation from the Department of Veterans Affairs, 
and the documentation indicates that the veteran is totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b), the lender must submit a disability 
claim to the guaranty agency.
    (C) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the lender--
    (1) Must resume collection and is deemed to have exercised 
forbearance of payment of both principal and interest from the date 
collection activity was suspended. The lender may capitalize, in 
accordance with Sec.  682.202(b), any

[[Page 36597]]

interest accrued and not paid during that period.
    (2) Must inform the veteran that he or she may reapply for a total 
and permanent disability discharge in accordance with the procedures 
described in Sec.  682.402(c)(2) through (c)(7), if the documentation 
from the Department of Veterans Affairs does not indicate that the 
veteran is totally and permanently disabled as described in paragraph 
(2) of the definition of that term in Sec.  682.200(b), but indicates 
that the veteran may be totally and permanently disabled as described 
in paragraph (1) of the definition of that term.
    (D) If the documentation from the Department of Veterans Affairs 
indicates that the borrower is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the guaranty agency must submit a copy of the veteran's 
discharge application and supporting documentation to the Secretary, 
and must notify the veteran that the veteran's loan discharge request 
has been referred to the Secretary for a determination of discharge 
eligibility.
    (E) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the guaranty agency does not pay the disability claim and 
must return the claim to the lender with an explanation of the basis 
for the agency's denial of the claim. Upon receipt of the returned 
claim, the lender must notify the veteran that the application for a 
disability discharge has been denied, provide the basis for the denial, 
and inform the veteran that the lender will resume collection on the 
loan. The lender is deemed to have exercised forbearance of both 
principal and interest from the date collection activity was suspended 
until the first payment due date. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (F) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  682.200(b), the Secretary notifies 
the guaranty agency that the veteran is eligible for a total and 
permanent disability discharge. Upon notification by the Secretary that 
the veteran is eligible for a discharge, the guaranty agency pays the 
disability discharge claim and notifies the veteran that the veteran's 
obligation to make any further payments on the loan has been 
discharged. Upon receipt of the claim payment from the guaranty agency, 
the lender returns to the person who made the payments on the loan any 
payments received on or after the effective date of the determination 
by the Department of Veterans Affairs that the veteran is unemployable 
due to a service-connected disability.
    (G) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in Sec.  682.200(b), the Secretary 
notifies the guaranty agency of this determination. Upon notification 
by the Secretary that the veteran is not eligible for a discharge, the 
guaranty agency and the lender must follow the procedures described in 
paragraph (c)(8)(ii)(E) of this section.
    (H) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender.
* * * * *
    21. Section 682.405 is amended by:
    A. In paragraph (a)(3), adding the sentence ``Effective for any 
loan that is rehabilitated on or after August 14, 2008, the borrower 
cannot rehabilitate the loan again if the loan returns to default 
status following the rehabilitation.'' at the end of the paragraph.
    B. In paragraph (b)(1)(iii), adding the words ``by the guaranty 
agency or its agents'' immediately after the word ``affordable''.
    C. Revising paragraph (b)(3).
    D. Adding a new paragraph (c).
    The revision and addition read as follows:


Sec.  682.405  Loan rehabilitation agreement.

* * * * *
    (b) * * *
    (3) (3) Upon the sale of a rehabilitated loan to an eligible 
lender--
    (i) The guaranty agency must, within 45 days of the sale--
    (A) Provide notice to the prior holder of such sale, and
    (B) Request that any consumer reporting agency to which the default 
was reported remove the record of default from the borrower's credit 
history.
    (ii) The prior holder of the loan must, within 30 days of receiving 
the notification from the guaranty agency, request that any consumer 
reporting agency to which the default claim payment or other equivalent 
record was reported remove such record from the borrower's credit 
history.
* * * * *
    (c) A guaranty agency must make available financial and economic 
education materials, including debt management information, to any 
borrower who has rehabilitated a defaulted loan in accordance with 
paragraph (a)(2) of this section.
    22. Section 682.410 is amended by:
    A. In paragraph (b)(5), removing the heading ``Credit bureau 
reports'' and adding, in its place, the heading ``Reports to consumer 
reporting agencies''.
    B. In paragraph (b)(5)(i), removing the words ``national credit 
bureaus'' at the end of the paragraph and adding, in their place, the 
words ``nationwide consumer reporting agencies''.
    C. In paragraph (b)(5)(ii), removing the words ``credit bureau'' 
and adding, in their place, the words ``consumer reporting agency'', 
and removing the reference ``(b)(6)(v)'' and adding, in its place, the 
reference ``(b)(6)(ii)''.
    D. In paragraph (b)(5)(iv)(A), removing the words ``credit 
bureaus'' and adding, in their place, the words ``consumer reporting 
agencies''.
    E. In paragraph (b)(5)(vi)(F), removing the words ``national credit 
bureaus'' and adding, in their place, the words ``nationwide consumer 
reporting agencies''.
    F. In paragraph (b)(5)(vi)(G), removing the words ``credit 
bureaus'' and adding, in their place, the words ``consumer reporting 
agencies''.
    G. In paragraph (b)(5)(vi)(K), removing the word ``and'' at the end 
of the paragraph.
    H. In paragraph (b)(5)(vi)(L), removing the punctuation ``.'' at 
the end of the paragraph and adding, in its place, the words ``; and''.
    I. Adding a new paragraph (b)(5)(vi)(M).
    J. Redesignating paragraph (b)(6)(ii) as paragraph (b)(6)(v).
    K. Redesignating paragraph (b)(6)(iii) as paragraph (b)(6)(vi).
    L. Redesignating paragraph (b)(6)(iv) as paragraph (b)(6)(vii).
    M. Redesignating paragraph (b)(6)(v) as paragraph (b)(6)(ii).
    N. Redesignating paragraph (b)(6)(vi) as paragraph (b)(6)(iii).
    O. In newly redesignated paragraph (b)(6)(iii), removing the 
reference ``(b)(6)(v)'' and adding, in its place, the reference 
``(b)(6)(ii)'', and removing the words ``national credit bureaus (if 
that is the case)'' and adding, in their place, the words ``nationwide 
consumer reporting agencies''.
    P. Adding a new paragraph (b)(6)(iv).

[[Page 36598]]

    Q. In newly redesignated paragraph (b)(6)(vi), removing the 
reference ``(b)(6)(iv)'' and adding, in its place, the reference 
``(b)(6)(vii)''.
    The additions read as follows:


Sec.  682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (5) * * *
    (vi) * * *
    (M) Inform the borrower of the options that are available to the 
borrower to remove the loan from default, including an explanation of 
the fees and conditions associated with each option.
    (vii) * * *
    (6) * * *
    (iv) The agency must send a notice informing the borrower of the 
options that are available to remove the loan from default, including 
an explanation of the fees and conditions associated with each option. 
This notice must be sent within a reasonable time after the end of the 
period for requesting an administrative review as specified in 
paragraph (b)(5)(iv)(B) of this section or, if the borrower has 
requested an administrative review, within a reasonable time following 
the conclusion of the administrative review.
* * * * *
    23. Section 682.601 is amended by adding a new paragraph 
(a)(7)(iii) to read as follows:


Sec.  682.601  Rules for a school that makes or originates loans.

    (a) * * *
    (7) * * *
    (iii) With regard to any school, the audit must include a 
determination that--
    (A) Except as provided in paragraphs (a)(8) and (b) of this 
section, the school used all payments and proceeds from the loans for 
need-based grant programs;
    (B) The school met the requirements of paragraph (c) of this 
section in making the need-based grants; and
    (C) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
* * * * *

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

    24. The authority citation for part 685 continues to read as 
follows:

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

    25. Section 685.200 is amended by:
    A. In paragraph (a)(1)(iv)(A)(1), removing the word ``and'' at the 
end of the paragraph.
    B. In paragraph (a)(1)(iv)(A)(2), removing the punctuation ``.'' at 
the end of the paragraph and adding, in its place, the words ``; and''.
    C. Adding a new paragraph (a)(1)(iv)(A)(3).
    D. Removing paragraph (a)(1)(iv)(B).
    E. Redesignating paragraph (a)(1)(iv)(C) as paragraph 
(a)(1)(iv)(B).
    F. In newly redesignated paragraph (a)(1)(iv)(B), removing the 
words ``based on'' and adding, in their place, the word ``after'', and 
adding the words ``based on a discharge request received prior to July 
1, 2010'' immediately after the word ``disabled''.
    The addition reads as follows:


Sec.  685.200  Borrower eligibility.

    (a) * * *
    (1) * * *
    (iv) * * *
    (A) * * *
    (3) If the borrower receives a new Direct Subsidized Loan or Direct 
Unsubsidized Loan within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with Sec.  685.213(b)(4), 
34 CFR 674.61(b)(3)(i), 34 CFR 682.402(c), or 34 CFR 686.42(b) based on 
a discharge request received on or after July 1, 2010, resumes 
repayment on the previously discharged loan in accordance with Sec.  
685.213(b)(3)(ii)(A), 34 CFR 674.61(b)(5), or 34 CFR 682.402(c)(5), or 
acknowledges that he or she is once again subject to the terms of the 
TEACH Grant agreement to serve before receiving the new loan.
* * * * *
    26. Section 685.202 is amended by:
    A. Adding a new paragraph (a)(4).
    B. In paragraph (b)(2), removing the words ``the Secretary 
capitalizes'' and adding, in their place, the words ``or for a Direct 
PLUS Loan, the Secretary may capitalize''.
    The addition reads as follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) * * *
    (4) Applicability of the Servicemembers Civil Relief Act (50 U.S.C. 
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (3) of 
this section, effective August 14, 2008, upon the Secretary's receipt 
of a borrower's written request and a copy of the borrower's military 
orders, the maximum interest rate, as defined in 50 U.S.C. 527, App. 
section 207(d), on Direct Loan Program loans made prior to the borrower 
entering active duty status is 6 percent while the borrower is on 
active duty military service.
* * * * *
    27. Section 685.204 is amended by:
    A. In paragraph (b)(1)(iii)(A)(2), removing the word ``or'' at the 
end of the paragraph.
    B. In paragraph (b)(1)(iii)(A)(3), removing the punctuation ``.'' 
and adding, in its place, ``; or'' at the end of the paragraph.
    C. Adding a new paragraph (b)(1)(iii)(A)(4).
    D. Revising paragraph (b)(1)(iii)(B).
    E. Redesignating paragraphs (g) and (h) as paragraphs (h) and (i), 
respectively.
    F. In newly redesignated paragraph (i)(3), removing the words 
``paragraph (h)(2)'' each time they appear and adding, in their place, 
the words ``paragraph (i)(2)''.
    G. In newly redesignated paragraph (i)(4), removing the words 
``paragraph (h)(2)'' and adding, in their place, the words ``paragraph 
(i)(2)''.
    H. Adding a new paragraph (g).
    The revisions and additions read as follows:


Sec.  685.204  Deferment.

* * * * *
    (b) * * *
    (1)(i) * * *
    (iii)(A) * * *
    (4) The Secretary confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested 
to do so by the school the borrower is attending.
    (B)(1) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(1)(iii)(A)(2), (3), or (4) of this 
section, the borrower has the option to cancel the deferment and 
continue paying on the loan.
    (2) If the borrower elects to cancel the deferment and continue 
paying on the loan, the borrower has the option to make the principal 
and interest payments that were deferred. If the borrower does not make 
the payments, the Secretary applies a deferment for the period in which 
payments were not made and capitalizes the interest. The Secretary will 
provide information, including an example, to assist the borrower in 
understanding the impact of capitalization of accrued, unpaid interest 
on the borrower's loan principal and on the total amount of interest to 
be paid over the life of the loan.
* * * * *
    (g) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is

[[Page 36599]]

entitled to a deferment on a Direct PLUS Loan first disbursed on or 
after July 1, 2008 during the 6-month period that begins on the day 
after the student ceases to be enrolled on at least a half-time basis 
at an eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower based on Sec.  682.204(b)(1)(iii)(A)(2), (3), 
or (4), the deferment period for a Direct PLUS Loan first disbursed on 
or after July 1, 2008 includes the 6-month post-enrollment period 
described in paragraph (g)(1)(i) of this section.
    (2) Upon the request of the borrower, an eligible parent Direct 
PLUS Loan borrower will receive a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained ceases to be 
enrolled on at least a half-time basis or, if the parent borrower is 
also a student, the day after the parent borrower ceases to be enrolled 
on at least a half-time basis.
* * * * *
    28. Section 685.205 is amended by:
    A. In paragraph (b)(8), removing the word ``or'' at the end of the 
paragraph.
    B. In paragraph (b)(9), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, ``; or''.
    C. Adding a new paragraph (b)(10) to read as follows:


Sec.  685.205  Forbearance.

* * * * *
    (b) * * *
    (10) For Direct PLUS Loans first disbursed before July 1, 2008, to 
align repayment with a borrower's Direct PLUS Loans that were first 
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 
Direct Unsubsidized Loans that have a grace period in accordance with 
Sec.  685.207(b) or (c). The Secretary notifies the borrower that the 
borrower has the option to cancel the forbearance and continue paying 
on the loan.
* * * * *
    29. Section 685.211 is amended by:
    A. In paragraph (f)(1), removing the words ``credit bureau'' in the 
third sentence and adding, in their place, the words ``consumer 
reporting agency''.
    B. Adding a new paragraph (f)(4).
    The addition reads as follows:


Sec.  685.211   Miscellaneous repayment provisions.

* * * * *
    (f) * * *
    (4) Effective for any defaulted Direct Loan that is rehabilitated 
on or after August 14, 2008, the borrower cannot rehabilitate the loan 
again if the loan returns to default status following the 
rehabilitation.
    30. Section 685.213 is revised to read as follows:


Sec.  685.213   Total and permanent disability discharge.

    (a) General. (1) A borrower's Direct Loan is discharged if the 
borrower becomes totally and permanently disabled, as defined in 34 CFR 
682.200(b), and satisfies the eligibility requirements in this section.
    (2) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in 34 CFR 
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraph (b) of this section.
    (3) For veterans who are totally and permanently disabled as 
described in paragraph (2) of the definition of that term in 34 CFR 
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c) of this section.
    (b) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in 34 CFR 682.200(b). (1) Borrower application for discharge. 
To qualify for a discharge of a Direct Loan based on a total and 
permanent disability, a borrower must submit a discharge application to 
the Secretary on a form approved by the Secretary. The application must 
contain a certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of 
the definition of that term in 34 CFR 682.200(b). The borrower must 
submit the application to the Secretary within 90 days of the date the 
physician certifies the application. Upon receipt of the borrower's 
application, the Secretary notifies the borrower that no payments are 
due on the loan while the Secretary determines the borrower's 
eligibility for discharge.
    (2) Determination of eligibility. (i) If, after reviewing the 
borrower's application, the Secretary determines that the certification 
provided by the borrower supports the conclusion that the borrower 
meets the criteria for a total and permanent disability discharge, as 
described in paragraph (1) of the definition of that term in 34 CFR 
682.200(b), the borrower is considered totally and permanently disabled 
as of the date the physician certifies the borrower's application.
    (ii) Upon making a determination that the borrower is totally and 
permanently disabled, as described in paragraph (1) of the definition 
of that term in 34 CFR 682.200(b), the Secretary discharges the 
borrower's obligation to make any further payments on the loan, 
notifies the borrower that the loan has been discharged, and returns to 
the person who made the payments on the loan any payments received 
after the date the physician certified the borrower's loan discharge 
application. The notification to the borrower explains the terms and 
conditions under which the borrower's obligation to repay the loan will 
be reinstated, as specified in paragraph (b)(4)(i) of this section.
    (iii) If the Secretary determines that the certification provided 
by the borrower does not support the conclusion that the borrower is 
totally and permanently disabled, as described in paragraph (1) of the 
definition of that term in 34 CFR 682.200(b), the Secretary notifies 
the borrower that the application for a disability discharge has been 
denied, and that the loan is due and payable to the Secretary under the 
terms of the promissory note.
    (iv) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the Secretary determines that the 
borrower's application does not conclusively prove that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in 34 CFR 682.200(b). As part of the 
Secretary's review of the borrower's discharge application, the 
Secretary may arrange for an additional review of the borrower's 
condition by an independent physician at no expense to the borrower.
    (3) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, the processing of the borrower's 
loan discharge request will be suspended until the borrower ensures 
that the full amount of the disbursement has been returned to the loan 
holder or to the Secretary, as applicable.

[[Page 36600]]

    (4) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(2)(ii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty line for a family of two, as determined in accordance with 
the Community Service Block Grant Act;
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation 
Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (ii) If the borrower's obligation to repay the loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(4)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (5) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(4)(i) of this section, the borrower or, if applicable, 
the borrower's representative must--
    (i) Promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(4)(i)(A) of this section; and
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment.
    (c) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in 34 CFR 682.200(b).
    (1) Veteran's application for discharge. To qualify for a discharge 
of a Direct Loan based on a total and permanent disability as described 
in paragraph (2) of the definition of that term in 34 CFR 682.200(b), a 
veteran must submit a discharge application to the Secretary on a form 
approved by the Secretary. The application must be accompanied by 
documentation from the Department of Veterans Affairs showing that the 
Department of Veterans Affairs has determined that the veteran is 
unemployable due to a service-connected disability. The Secretary does 
not require the veteran to provide any additional documentation related 
to the veteran's disability. Upon receipt of the veteran's application, 
the Secretary notifies the veteran that no payments are due on the loan 
while the Secretary determines the veteran's eligibility for discharge.
    (2) Determination of eligibility. (i) If the Secretary determines, 
based on a review of the documentation from the Department of Veterans 
Affairs, that the veteran is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the Secretary discharges the veteran's obligation to make 
any further payments on the loan and returns to the person who made the 
payments on the loan any payments received on or after the effective 
date of the determination by the Department of Veterans Affairs that 
the veteran is unemployable due to a service-connected disability.
    (ii)(A) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in 34 CFR 682.200(b), the Secretary 
notifies the veteran that the application for a disability discharge 
has been denied, and that the loan is due and payable to the Secretary 
under the terms of the promissory note.
    (B) The Secretary notifies the veteran that he or she may reapply 
for a total and permanent disability discharge in accordance with the 
procedures described in paragraph (b) of this section if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as described in 
paragraph (2) of the definition of that term in 34 CFR 682.200(b), but 
indicates that the veteran may be totally and permanently disabled as 
described in paragraph (1) of the definition of that term.
    31. Section 685.217 is amended by:
    A. Revising paragraph (a).
    B. In paragraph (b), adding a definition of Educational service 
agency.
    C. Revising the introductory text of paragraph (c)(1).
    D. In paragraph (c)(1)(ii), adding the words ``or educational 
service agency's'' immediately after the words ``the school's''.
    E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian 
Affairs (BIA)'' and adding, in their place, the words ``Bureau of 
Indian Education (BIE)'', and removing the words ``the BIA'' and 
adding, in their place, the words ``the BIE''.
    F. In paragraph (c)(2), adding the words ``or educational service 
agency'' immediately after the words ``If the school'' at the beginning 
of the paragraph, and removing the words ``the school failed'' and 
adding, in their place, the word ``fails''.
    G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
    H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
    I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding, 
in its place, the word ``at'', and adding the words ``, or taught 
mathematics or science to secondary school students on a full-time 
basis at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
    J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first 
time it appears and adding, in its place, the word ``at'', and adding 
the words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
    K. Adding a new paragraph (c)(3)(iii).
    L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``or educational 
service agency'' immediately after the words ``secondary school'' the 
first time they appear.
    M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding, 
in its place, the word ``at'', and adding the words ``, or taught 
mathematics or science on a full-time basis to secondary school 
students at an eligible educational

[[Page 36601]]

service agency,'' immediately after the words ``secondary school''.
    N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first 
time it appears and adding, in its place, the word ``at'', and by 
adding the words ``or educational service agency'' immediately after 
the words ``secondary school'' the first time they appear.
    O. Adding a new paragraph (c)(4)(iii).
    P. Revising paragraph (c)(9).
    Q. Revising paragraph (c)(11).
    The revisions and additions read as follows:


Sec.  685.217   Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended 
to encourage individuals to enter and continue in the teaching 
profession. For new borrowers, the Secretary repays the amount 
specified in this paragraph on the borrower's subsidized and 
unsubsidized Federal Stafford Loans, Direct Subsidized Loans, Direct 
Unsubsidized Loans, and in certain cases, Federal Consolidation Loans 
or Direct Consolidation Loans. The forgiveness program is only 
available to a borrower who has no outstanding loan balance under the 
FFEL Program or the Direct Loan Program on October 1, 1998 or who has 
no outstanding loan balance on the date he or she obtains a loan after 
October 1, 1998.
    (2) The borrower must have been employed at an eligible elementary 
or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. For teaching 
service performed at an eligible elementary or secondary school, at 
least one of the academic years must have been after the 1997-1998 
academic year. For teaching service performed by an employee of an 
eligible educational service agency, at least one of the five 
consecutive complete academic years must have been after the 2007-2008 
academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan 
Program loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or at an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a highly qualified special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must 
have been made prior to the end of the borrower's fifth year of 
qualifying teaching service.
    (b) * * *
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
* * * * *
    (c) * * *
    (1) A borrower who has been employed at an elementary or secondary 
school or an educational service agency as a full-time teacher for five 
consecutive complete academic years may obtain loan forgiveness under 
this program if the elementary or secondary school or educational 
service agency-- * * *
    (3) * * *
    (iii) For teaching service performed by an employee of an eligible 
educational service agency, at least one of the five consecutive 
complete academic years must have been after the 2007-2008 academic 
year.
    (4) * * *
    (iii) For teaching service performed by an employee of an eligible 
educational service agency, at least one of the five consecutive 
complete academic years must have been after the 2007-2008 academic 
year.
* * * * *
    (9) A borrower who was employed as a teacher at more than one 
qualifying school, at more than one qualifying educational service 
agency, or at a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (11) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) 34 CFR 682.216;
    (ii) Subtitle D of title I of the National and Community Service 
Act of 1990;
    (iii) 34 CFR 685.219; or
    (iv) Section 428K of the Act.
* * * * *


Sec.  685.220   [Amended]

    32. Section 685.220 is amended by:
    A. In paragraph (d)(1)(i)(B)(3), adding the words ``or the no 
accrual of interest benefit for active duty service'' immediately after 
the word ``Program''.
    B. In paragraph (d)(1)(i)(B)(4), adding the words ``or an income-
based repayment plan'' immediately after the words ``income contingent 
repayment plan''.
    C. In paragraph (d)(1)(i)(B)(5), adding the words ``or the no 
accrual of interest benefit for active duty service'' immediately after 
the word ``Program''.
    33. Section 685.221 is amended by:
    A. Revising paragraph (a)(4).
    B. In paragraph (b)(1), removing the words ``Except as provided 
under paragraph (b)(2) of this section, the'' in the second sentence 
and adding, in their place, the word ``The''.
    C. In paragraph (b)(2)(i), removing the word ``The'' at the 
beginning of the sentence and adding, in its place, the words ``Except 
for borrowers provided for in paragraph (b)(2)(ii) of this section, 
the''.
    D. Redesignating paragraphs (b)(2)(ii) and (b)(2)(iii) as 
paragraphs (b)(2)(iii) and (b)(2)(iv), respectively.
    E. Adding a new paragraph (b)(2)(ii).
    F. In newly redesignated paragraph (b)(2)(iii), removing the words 
``or (b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i), 
or (b)(2)(ii)''.
    G. In newly redesignated paragraph (b)(2)(iv), removing the words 
``or (b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i), 
or (b)(2)(ii)''.
    The revision and addition read as follows:


Sec.  685.221   Income-based repayment plan.

    (a) * * *
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment 
plan based on a 10-year repayment period, using the greater of the 
amount due at the time the borrower initially entered repayment or at 
the time the borrower elects the income-based repayment plan, exceeds 
15 percent of the difference between the borrower's AGI and 150 percent 
of the poverty guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if

[[Page 36602]]

applicable, the spouse's eligible loans, as calculated under a standard 
repayment plan based on a 10-year repayment period, using the greater 
of the amount due at the time the loans initially entered repayment or 
at the time the borrower or spouse elects the income-based repayment 
plan, exceeds 15 percent of the difference between the borrower's and 
spouse's AGI, and 150 percent of the poverty guideline for the 
borrower's family size.
    (b) * * *
    (2) * * *
    (ii) Both the borrower and borrower's spouse have eligible loans 
and filed a joint Federal tax return, in which case the Secretary 
determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(2)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (b)(2)(ii)(B) of this section by the 
percentage of the outstanding principal amount of eligible loans that 
are Direct Loans;
* * * * *
[FR Doc. E9-16952 Filed 7-22-09; 8:45 am]
BILLING CODE 4000-01-P


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