[Federal Register Volume 74, Number 143 (Tuesday, July 28, 2009)]
[Proposed Rules]
[Pages 37432-37494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17119]



[[Page 37431]]

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Part IV





Department of Education





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34 CFR Parts 601, 668, 674, 682, and 685



Institutions and Lender Requirements Relating to Education Loans, 
Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan Program, and William D. Ford Federal 
Direct Loan Program; Proposed Rule

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

[[Page 37432]]


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DEPARTMENT OF EDUCATION

[Docket ID ED-2009-OPE-0003]

34 CFR Parts 601, 668, 674, 682, and 685

RIN 1840-AC95


Institutions and Lender Requirements Relating to Education Loans, 
Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan Program, and William D. Ford Federal 
Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to establish new regulations in 34 CFR 
part 601, Institutions and Lender Requirements Relating to Education 
Loans, to implement requirements relating to education loans that were 
added to the Higher Education Act of 1965, as amended (HEA) by the 
Higher Education Opportunity Act of 2008 (HEOA). The Secretary also 
proposes to amend the regulations for Student Assistance General 
Provisions in part 668, the Federal Perkins Loan (Perkins Loan) Program 
in part 674, the Federal Family Education Loan (FFEL) Program in part 
682, and the William D. Ford Federal Direct Loan (Direct Loan) Program 
in part 685 to implement certain provisions of the HEA that involve 
school-based loan issues and that were affected by the statutory 
changes made to the HEA by the HEOA.

DATES: We must receive your comments on or before August 27, 2009.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by e-mail. Please submit your comments only 
one time in order to ensure that we do not receive duplicate copies. In 
addition, please include the Docket ID at the top of your comments.
    <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 Brian Smith, U.S. Department of Education, 1990 K Street, NW., 
room 8033, Washington, DC 20006-8502.

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


FOR FURTHER INFORMATION CONTACT: Marty Guthrie, U.S. Department of 
Education, 1990 K Street, NW., Room 8042, Washington, DC 20006-8502. 
Telephone: (202) 219-7031 or via the Internet at: <a href="/cdn-cgi/l/email-protection#460b2734323f680133322e342f2306232268212930"><span class="__cf_email__" data-cfemail="3d705c4f4944137a4849554f54587d5859135a524b">[email protected]</span></a>, 
or Gail McLarnon, U.S. Department of Education, 1990 K Street, NW., 
room 8026, Washington, DC 20006-8502. Telephone: (202) 219-7048 or via 
the Internet at: <a href="/cdn-cgi/l/email-protection#0b4c6a6267254668476a796564654b6e6f256c647d"><span class="__cf_email__" data-cfemail="cb8caaa2a7e586a887aab9a5a4a58baeafe5aca4bd">[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 one of the contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    As outlined in the section of this notice entitled Negotiated 
Rulemaking, significant public participation, through six public 
hearings and three negotiated rulemaking sessions, has occurred in 
developing this notice of proposed rulemaking (NPRM). In accordance 
with the requirements of the Administrative Procedure Act, the 
Department invites you to submit comments regarding these proposed 
regulations on or before August 27, 2009. To ensure that your comments 
have maximum effect in developing the final regulations, we urge you to 
identify clearly the specific section or sections of the proposed 
regulations that each of your comments addresses and to arrange your 
comments in the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866, including its overall 
requirements to assess both the costs and the benefits of the proposed 
regulations and feasible alternatives, and to make a reasoned 
determination that the benefits of these proposed regulations justify 
their costs. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    As noted elsewhere in this NPRM, two of the Department's negotiated 
rulemaking committees considered proposed revisions to 34 CFR 674.51 
(Special Definitions) in subpart D of part 674 of the Federal Perkins 
Loan Program regulations. Team I--Loans--Lender General Loan Issues, 
the negotiating committee responsible for regulations involving issues 
related to lender and general loan issues, negotiated the proposed 
definitions of substantial gainful activity and permanent and total 
disability. Team II--Loans--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 notice of proposed rulemaking that we are publishing 
as a result of the negotiations of Team I--Loans--Lender General Loan 
Issues. However, we ask that when submitting your comments on the 
proposed changes to 34 CFR 674.51, you submit any comments on the 
proposed definitions of substantial gainful activity and total and 
permanent disability in the docket (Docket ID ED-2009-OPE-0004) for the 
Team I notice of proposed rulemaking. Comments on all other provisions 
in this section should be submitted in the docket (Docket ID ED-2009-
OPE-0003) for this NPRM.
    In addition, in this NPRM we have included a proposed change to 
Sec.  668.184(a)(1). As amended by the HEOA, section 498(k) of the HEA 
states that an institution that conducts a teach-out under certain 
circumstances is not responsible for any liabilities of the closed 
institution. As a result of this statutory change, the Department 
intends to propose, in a separate notice of proposed rulemaking (Docket 
ID ED-2009-OPE-0005, an amendment to 34 CFR 600.32(d) to provide that 
the default rate of an institution that establishes an additional 
location at the site of a closed institution for which it conducted a 
teach-out would not be affected in any way by the closed institution's 
cohort default rate. In light of this statutory change and our intended 
amendment to 34 CFR 600.32(d), the Department also proposes to amend 
Sec.  668.184(a)(1) to cross-reference 34 CFR 600.32(d) and to include 
a similar cross-reference to 34 CFR 600.32(d) in new Sec.  
668.203(a)(1). We have included the proposed amendment to Sec.  
668.184(a)(1) and proposed Sec.  668.203(a)(1) in this NPRM

[[Page 37433]]

to enable the public to view all changes to these sections in context. 
These proposed changes will also be included and discussed in a 
separate notice of proposed rulemaking based on the negotiations of the 
negotiating rulemaking committee responsible for regulatory issues 
involving Title IV general provisions. Accordingly, we ask that when 
submitting any comments on the proposed changes to Sec. Sec.  600.32(d) 
or the proposed cross-references to that section in Sec. Sec.  
668.184(a)(1) and 668.203(a)(1), you submit any comments in the docket 
for that notice of proposed rulemaking (Docket ID ED-2009-OPE-0005).
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments, in person, in room 8031, 1990 K 
Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4:00 
p.m., Eastern time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

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

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary, before publishing 
any proposed regulations for programs authorized by Title IV of the 
HEA, to obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations from the 
public, including individuals and representatives of groups involved in 
the Federal student financial assistance programs, the Secretary must 
subject the proposed regulations to a negotiated rulemaking process. 
All proposed regulations that the Department publishes on which the 
negotiators reached consensus must conform to final agreements 
resulting from that process unless the Secretary reopens the process or 
provides a written explanation to the participants stating why the 
Secretary has decided to depart from the agreements. Further 
information on the negotiated rulemaking process can be found at: 
http://www.ed.gov/policy/highered/leg/hea08/index.html.
    On December 31, 2008, the Department published a notice in the 
Federal Register (73 FR 80314) announcing our intent to establish five 
negotiated rulemaking committees to prepare proposed regulations. One 
committee would focus on issues related to lender and general loan 
issues (Team I--Loans--Lender General Loan Issues). A second committee 
would focus on school-based loan issues (Team II--Loans--School-based 
Loan Issues). A third committee would focus on accreditation (Team 
III--Accreditation). A fourth committee would focus on discretionary 
grants (Team IV--Discretionary Grants). A fifth committee would focus 
on general and non-loan programmatic issues (Team V--General and Non-
Loan Programmatic Issues). The notice requested nominations of 
individuals for membership on the committees who could represent the 
interests of key stakeholder constituencies on each committee.
    Team II--Loans--School-based Loan Issues (Team II) met to develop 
proposed regulations during the months of March 2009, April 2009, and 
May 2009. This NPRM resulted primarily from the work of Team II and, in 
a couple of instances where the subject matter of the proposed 
regulations overlapped, the work of Team I--Loans--Lender General Loan 
Issues (Team I).\1\ This NPRM proposes regulations relating to the 
administration of the Federal student loan programs.
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    \1\ As discussed elsewhere in this preamble, Team I--Loans--
Lender General Loan Issues was responsible for negotiating the 
following provisions, which appear in this NPRM: 34 CFR 601.2 
(definitions of the terms lender and private education loan), 34 CFR 
601.40 (Disclosure and reporting requirements for lenders), and 34 
CFR 674.51 (definitions of the terms substantial gainful activity 
and total and permanent disability).
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    The Department developed a list of proposed regulatory provisions 
based on the provisions contained in the HEOA and from advice and 
recommendations submitted by individuals and organizations as testimony 
to the Department in a series of six public hearings held on:
    <bullet> September 19, 2008 at 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 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; and
    <bullet> October 15, 2008, at Cuyahoga Community College, in 
Cleveland, Ohio.
    In addition, the Department accepted written comments on possible 
regulatory provisions submitted directly to the Department by 
interested parties and organizations. A summary of all comments 
received orally and in writing is posted as background material in the 
docket for this NPRM. Transcripts of the regional meetings can be 
accessed at http://www.ed.gov/policy/highered/leg/hea08/index.html.
    Staff within the Department also identified issues for discussion 
and negotiation.
    At its first meeting, Team II reached agreement on its protocols. 
These protocols provided that for each community of interest identified 
as having interests that were significantly affected by the subject 
matter of the negotiations, the non-Federal negotiators would represent 
the organizations listed after their names in the protocols in the 
negotiated rulemaking process.
    Team II included the following members:
    <bullet> Angela Peoples, United States Student Association, and 
Rich Williams (alternate), State Public Interest Research Groups 
representing students.
    <bullet> Richard Heath, Anne Arundel Community College, and Pat 
Hurley (alternate), Glendale Community College representing 2-year 
public institutions.
    <bullet> Roberta Johnson, Iowa State University, and Mr. Kim 
Jenerette (alternate), University of South Carolina-Upstate 
representing 4-year public institutions.
    <bullet> Elizabeth Hicks, Columbia University, and Nancy Hoover 
(alternate), Denison University representing private, nonprofit 
institutions.
    <bullet> Mary Dorrell, Career Education Corporation, and Nancy 
Broff (alternate), Dickstein Shapiro LLP representing private, for-
profit institutions.
    <bullet> Thelma Ross, Lincoln University, and Helga Greenfield 
(alternate), Spelman College representing minority-serving 
institutions.
    <bullet> Justin Draeger, National Association of Student Financial 
Aid Administrators, and Charles ``Buddy'' Mayfield (alternate), 
Missouri Valley College representing financial aid administrators.
    <bullet> Virginia Layton, Miami University, and Anne Gross 
(alternate), National Association of College and University

[[Page 37434]]

Business Officers representing business officers.
    <bullet> Mary Lyn Hammer, Champion College Solutions, and James B. 
Parker (alternate), Panhandle Plains Student Loan Center representing 
institutional and loan servicers.
    <bullet> Scot Williams, EdFund/CSAC, and Jacqueline Fairbairn 
(alternate), Great Lakes Higher Education Guaranty Corp. representing 
guaranty agencies.
    <bullet> Jackie Ito-Woo, University of California, and Beth Stack 
(alternate), University of Pittsburgh representing institutions 
participating in the Perkins Loan Program.
    <bullet> J.D. LaRock, Massachusetts Office of Higher Education 
representing States.
    <bullet> Gail McLarnon, U.S. Department of Education representing 
the Federal Government.
    These protocols also provided that, unless agreed to otherwise, 
consensus on all of the amendments in the proposed regulations had to 
be achieved for consensus to be reached on the entire NPRM. Consensus 
means that there must be no dissent by any member.
    During the meetings, Team II reviewed and discussed drafts of 
proposed regulations. At the final meeting in May 2009, Team II reached 
consensus on all of the proposed regulations in this document except:
    <bullet> The proposed definitions of the terms lender and private 
education loan in 34 CFR 601.2 (Definitions).
    <bullet> The proposed requirements in 34 CFR 601.40 (Disclosure and 
reporting requirements for lenders).
    <bullet> The proposed definitions of the terms substantial gainful 
employment and total and permanent disability in 34 CFR 674.51 (Special 
Definitions).
    These proposed regulatory provisions were assigned to Team I for 
negotiated rulemaking purposes because the substance of the provisions 
fell within the purview of Team I's expertise. Team I reached consensus 
on all of its proposed regulations, including the provisions identified 
in this paragraph, in its final meeting in May 2009.
    Team I and Team II were advised that, to ensure transparency and 
ease of use for public commenters, the Department would propose the 
entirety of 34 CFR part 601 in a single NPRM. Given Team I's consensus, 
which included consensus on the definitions of the terms lender and 
private education loan in proposed 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 34 CFR 674.51, the 
Department determined that it would be helpful for the public to be 
able to view all proposed changes to this special definitions section 
for the Perkins Program in both Team I's notice of proposed rulemaking 
and Team II's NPRM. Team I and Team II were advised that the proposed 
changes to 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 notice of proposed rulemaking 
published as a result of the other team's negotiations.
    More information on the work of Team II can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-school-based.html and more information on the work of Team I can be found at 
http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-lender.html.

Summary of Proposed Changes

    These proposed regulations would implement the school-based loan 
provisions of the HEA, as amended by the HEOA. These provisions 
include:
    <bullet> An increase in the period used to calculate the cohort 
default rate (CDR) from 2 to 3 years effective for CDRs calculated for 
fiscal year 2009 and subsequent years, the requirement that an 
institution whose CDR is greater than or equal to 30 percent for any 
fiscal year establish a default prevention plan, and an increase from 
25 to 30 percent in the threshold default that would render an 
institution ineligible to participate in the Pell, FFEL, and Direct 
Loan Programs (see section 435(a) and (m) of the HEA);
    <bullet> An expansion of exit counseling requirements in the title 
IV, HEA loan programs (see section 485(b)(1)(A) of the HEA);
    <bullet> An expansion of entrance counseling requirements in the 
FFEL and Direct Loan Programs (see section 485(l) of the HEA);
    <bullet> Additions to the conditions an institution must agree to 
in its program participation agreement with the Secretary of Education 
(the agreement between the institution and the Department that enables 
the institution to participate in the loan programs under Title IV of 
the HEA). These conditions include: (1) A requirement that an 
institution develop, publish, administer and enforce a code of conduct 
with respect to its FFEL Program activities (see section 487(a)(25) of 
the HEA); (2) a requirement that an institution compile, maintain and 
make available to students and their families a list of its preferred 
lenders if it enters into any preferred lender arrangement (see section 
487(a)(27) of the HEA); and (3) a requirement that an institution, upon 
the request of an applicant of a private education loan, provide the 
applicant with the private education loan certification form developed 
by the Secretary (see section 487(a)(28) of the HEA);
    <bullet> The addition of education loan borrower disclosures by 
institutions of higher education, and institution-affiliated 
organizations, including definitions (see sections 151 through 155, 
487(a) and 487(h) of the HEA);
    <bullet> The addition of borrower disclosures by covered 
institutions and institution-affiliated organizations that participate 
in a preferred lender arrangement (see section 153(c) of the HEA);
    <bullet> The addition of reporting requirements for covered 
institutions and institution-affiliated organizations (see section 
153(c)(2) of the HEA);
    <bullet> Dissemination of information to prospective and enrolled 
students regarding the terms and conditions of title IV, HEA loans (see 
section 485(a) of the HEA);
    <bullet> Disclosure to the Secretary of any reimbursements made to 
employees of an institution of higher education for service on advisory 
boards (see section 485(m) of the HEA); and
    <bullet> An expansion of cancellation benefits for Perkins Loan 
borrowers, including cancellation benefits for teachers in an 
educational service agency; staff members in a pre-kindergarten or 
childcare program; attorneys employed in a Federal Public Defender 
Organization or community Defender Organization; fire fighters, faculty 
members of a Tribal College or University, librarians with a master's 
degree employed in an elementary or secondary school or in a public 
library that serves one or more schools eligible for funding under 
title I of the Elementary and Secondary Education Act of 1965, as 
amended; and speech pathologists with a master's degree who

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work exclusively with title I-eligible schools (see section 465(a) of 
the HEA).

Significant Proposed Regulations

    We discuss substantive issues under the sections of the regulations 
to which they pertain. Generally, we do not address regulatory changes 
that are technical or otherwise minor in effect.

Part 601--Institution and Lender Requirements Relating to Education 
Loans

Subpart A--General

Scope (Sec.  601.1)
    Statute: Sections 120 and 1021(b) of the HEOA added a new part E to 
title I of the HEA, titled Lender and Institution Requirements Relating 
to Education Loans. Part E, consisting of new sections 151 through 155, 
requires significant new disclosures to borrowers of education loans 
and related institutional and lender reporting to the Department. The 
required borrower disclosures apply to both Title IV student loans and 
private education loans, and are required of institutions of higher 
education, institution-affiliated organizations, and lenders.
    Current Regulations: None.
    Proposed Regulations: We propose to add a new part 601 to title 34 
of the Code of Federal Regulations to implement the statutory 
provisions of sections 151 through 155 of the HEA. Proposed Sec.  601.1 
would briefly summarize the content of the new part 601.
    Reasons: Proposed Sec.  601.1 would be added to implement part E of 
title I of the HEA, which was added by the HEOA.
Definitions (Sec.  601.2)
    Statute: Section 120 of the HEOA added section 151 to the HEA. 
Section 151 of the HEA sets forth the definitions for terms used in 
part E of title I of the HEA. These terms include covered institution, 
education loan, institution-affiliated organization, preferred lender 
arrangement, and private education loan.
    The term covered institution is defined as an institution of higher 
education, as defined in section 102 of the HEA, that receives any 
Federal funding or assistance. Thus, the term covered institution 
includes any institution of higher education that receives any type of 
Federal funding or assistance, not just any institution of higher 
education that receives Title IV, HEA funding or assistance.
    The term institution-affiliated organization is defined as any 
organization directly or indirectly related to a covered institution, 
including alumni organizations, foundations, or social organizations, 
that recommends, promotes, or endorses education loans for students 
attending the covered institution.
    The term education loan is defined as a FFEL Loan, a Direct Loan, 
or a private education loan. Section 151(9) of the HEA defines the term 
private education loan as that term is defined in section 140 of the 
Truth in Lending Act (TILA) (15 U.S.C. 1631). Under this definition, a 
private education loan is a non-Title IV loan provided by a private 
educational lender to a borrower expressly for postsecondary 
educational expenses, and that is not an extension of credit under an 
open-end consumer credit plan, or secured by real property or a 
dwelling.
    The term preferred lender arrangement is defined as an arrangement 
or agreement between a lender and a covered institution or an 
institution-affiliated organization, under which the lender provides or 
otherwise issues education loans to the covered institution's students 
or their families, and that relates to the covered institution or 
institution-affiliated organization recommending, promoting, or 
endorsing the lender's education loan products. The term preferred 
lender arrangement does not include arrangements or agreements with 
respect to Direct Loan Program loans or loans that originate through 
the PLUS Loan auction pilot program, authorized under section 499(b) of 
the HEA.
    Section 151 of the HEA also provides definitions for the terms 
agent, eligible lender, lender, and officer as those terms are used in 
title I, part E of the HEA.
    Section 151(4) of the HEA states that the term eligible lender has 
the same meaning as provided in section 435(d) of the HEA. The term 
lender is defined in section 151(6) of the HEA as an eligible lender 
for Federal Family Education Loan (FFEL) Program loans, the Department 
of Education for William D. Ford Direct Loans, and a private 
educational lender as that term is defined in section 140 of the TILA 
(15 U.S.C. 1631) for private education loans. The term lender includes 
any other person engaged in the business of securing, making, or 
extending educational loans on behalf of the lender.
    The term agent is defined as an officer or employee of a covered 
institution or an institution-affiliated organization. The definition 
of the term officer includes a director or trustee of a covered 
institution or institution-affiliated organization, if such individual 
is treated as an employee of the covered institution or the 
institution-affiliated organization.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  601.2(b) would set forth the 
definitions for the terms described in the preceding Statute section 
that apply to new part 601. With one exception, the regulatory 
definitions do not make substantive changes to the corresponding 
statutory definitions.
    The one exception is for the term preferred lender arrangement. The 
definition for preferred lender arrangement in proposed Sec.  601.2(b) 
would track the statutory definition in section 151(8) of the HEA, 
except that it would specify that an arrangement or agreement does not 
exist for private education loans that a covered institution makes to 
its own students, as long as the private education loan is funded by 
the covered institution's own funds; is funded by donor-directed 
contributions; is made under title VII or title VIII of the Public 
Service Health Act; or is made under an institutional payment plan of 
the covered institution.
    Reasons: The proposed regulations in Sec.  601.2(b) were negotiated 
by two teams during the negotiated rulemaking process. Team I, which 
covered general and lender loan issues, negotiated the definitions for 
the terms eligible lender, lender, and private education loan. Team II, 
which covered school-based loan issues, negotiated the remaining 
definitions.
    The statutory definitions for the terms that would be used in part 
601 are detailed and specific. Therefore, except as noted for the 
definition of preferred lender arrangement, the Department has declined 
to expand on the statutory definitions in the regulations.
    The proposed regulations negotiated by Team I reflect the statutory 
definitions for the terms lender and private education loan. The 
definition of lender, as reflected in the proposed regulations, would 
simply provide a cross reference to the definition of that term in 
current Sec.  682.200(b). The definition of private education loan 
would mirror the definition provided for private education loan in 
section 140 of the TILA (15 U.S.C. 1631). Use of this TILA definition 
is required by section 151(9) of the HEA.
    The Team I non-Federal negotiators raised some concern over the 
cross references in our proposed regulations to the requirements in the 
TILA. Specifically, there was discussion about the regulations 
implementing the TILA, which will not be published in final form before 
the conclusion of the negotiation process for these regulations. The 
Department made clear

[[Page 37436]]

that, in terms of the definition of private education loan, section 
151(9) of the HEA requires the Department to use the TILA definition. 
Under this requirement, the Department has no authority to negotiate 
that definition for purposes of these proposed regulations.
    For Team II, discussions regarding the proposed definitions focused 
on two terms: Agent and preferred lender arrangement.
    The meaning of the term agent came up as part of the discussion 
around the code of conduct requirements in proposed Sec.  601.21. This 
discussion is summarized in the code of conduct section of the 
preamble.
    The meaning of the term preferred lender arrangement came up 
frequently during the negotiated rulemaking sessions, and is discussed 
in the following paragraphs.
    Several of the Team II non-Federal negotiators argued that a 
preferred lender arrangement can exist only if there is a written or 
verbal agreement between a lender and a covered institution or 
institution-affiliated organization. One of the non-Federal negotiators 
submitted an alternative definition for preferred lender arrangement 
that would have built this written or verbal agreement requirement into 
the definition, only allowing exceptions to this requirement in cases 
when a course of conduct evidencing intention by the parties to create 
an arrangement exists.
    The Department declined to adopt this proposed alternative 
definition because the statutory definition of preferred lender 
arrangement does not address how the arrangement comes about, nor does 
it specify that a written or verbal agreement must exist. Instead, 
section 151(8) of the HEA provides that two conditions must be met for 
a preferred lender arrangement to exist between a lender and a covered 
institution or an institution-affiliated organization. These conditions 
are that--
    (1) A lender provides or issues education loans to students, or the 
families of such students, attending a covered institution; and
    (2) The covered institution or an institution-affiliated 
organization recommends, promotes, or endorses the education loan 
products of the lender.
    If both of those conditions are met, a preferred lender arrangement 
exists, whether or not the covered institution and the lender entered 
into a formal agreement.
    Several non-Federal negotiators asked whether the Department viewed 
institutional loans--that is, loans made directly by a covered 
institution to its own students--as being covered by the term preferred 
lender arrangement. These non-Federal negotiators identified several 
preferred lender arrangement requirements in section 487(e) of the HEA 
(and proposed Sec.  601.21) that they believed would be impossible or 
impractical for a covered institution to comply with if the preferred 
lender arrangement requirements applied to institutional loans (i.e., 
loans made directly by a covered institution to its own students). For 
example, non-Federal negotiators noted that a school, in its capacity 
as a lender, could be prohibited from paying its own employees. They 
argued that, if we applied the code of conduct requirement that a 
lender not provide gifts to employees of a covered institution's 
financial aid office to a covered institution that makes loans directly 
to their students (and, therefore, falls within the definition of 
``lender''), these covered institutions would be prohibited from paying 
the employees in its financial aid office.
    To avoid this unintended consequence, some of the Team II non-
Federal negotiators recommended that the Department exempt 
institutional loans from the definition of private education loan. As 
noted earlier in this preamble, the definition of the term private 
education loan is established by the TILA and any regulations the 
Federal Reserve issues in connection with this statutory definition. 
The Department has no authority to alter the statutory definition of 
private education loan.
    Furthermore, we do not agree that the Federal Reserve should 
interpret, through its regulations implementing TILA, that the term 
private education loan does not include institutional loans. If the 
Federal Reserve did so, such loans would not only be exempt from the 
preferred lender arrangement requirements in part E, title I of the 
HEA, and proposed 34 CFR part 601, but they would also be exempt from 
certain TILA requirements that the Department believes provide 
beneficial protections to student borrowers (such as requiring private 
educational lenders to inform a potential private education loan 
borrower that the borrower may qualify for title IV, HEA student 
financial assistance in addition to or in lieu of the private education 
loan, as required under section 128(e)(1)(M) of the TILA).
    Recognizing that the Department cannot modify the definition of 
private education loan, non-Federal negotiators asked that 
institutional loans, and other Federal Loans, be excluded from the 
definition of preferred lender arrangement. As an alternative, if that 
approach could not be accepted, several non-Federal negotiators offered 
a proposal in which certain types of institutional loans, with certain 
types of terms and conditions, would be exempt from some or all of the 
requirements governing loans made pursuant to a preferred lender 
arrangement.
    After considering the proposals from the non-Federal negotiators, 
the Department declined to adopt this approach. The term preferred 
lender arrangement defines a relationship between two parties regarding 
loans offered to student borrowers and their families. Nothing in the 
statutory definition of the term suggests that the relationship is 
contingent on the terms and conditions of the loans being provided. The 
relationship is defined by the actions of the two parties--that is, the 
lender provides or issues education loans and the covered institution 
or institution-affiliated organization recommends, promotes or endorses 
the education loan products of the lender.
    The Department believes that these actions must be taken by at 
least two separate parties for a preferred lender arrangement to exist. 
The definition of the term preferred lender arrangement refers to ``an 
arrangement or agreement between a lender and a covered institution or 
institution-affiliated organization.'' Implicit in the definition is 
the understanding that the lender and the covered institution are not 
one and the same entity.
    The Department responded to the non-Federal negotiators by 
proposing to expand the regulatory definition for preferred lender 
arrangement in proposed Sec.  601.2(b) by specifying that such an 
arrangement does not exist for a private education loan made by a 
covered institution to the covered institution's students.
    The proposed definition for preferred lender arrangement also would 
clarify that a preferred lender arrangement does would not exist for a 
private education loan made by a covered institution to the covered 
institution's students, but only if the covered institution made the 
loan using its own funds.
    Some non-Federal negotiators requested clarification of the phrase 
``own funds'' as used in the proposed definition of preferred lender 
arrangement. For example, they presented a scenario in which a lender 
provides funds to a covered institution, the covered institution uses 
the funds to make loans to its students, and then the covered 
institution sells the loans to the lender (possibly immediately after 
the loan is made). These non-Federal negotiators requested that funds

[[Page 37437]]

provided under these conditions be considered the covered institution's 
``own funds'' for purposes of the proposed definition of preferred 
lender arrangement. The Department strongly disagreed with this 
suggestion. In the current context, the Department does not consider 
funds obtained by covered institutions under this or similar scenarios 
in which loans are sold shortly after they are made to be the covered 
institution's ``own funds'' because the covered institution is merely 
acting as a pass-through for the lender's funds in these cases. The 
Department believes that exempting loans made under these conditions 
from the preferred lender arrangement requirements would open the door 
to abuse, potentially creating a loophole that covered institutions 
might use to evade the preferred lender arrangement requirements. The 
Department has long been concerned about this type of arrangement 
involving schools which are lenders in the FFEL Program but which use 
funds provided by FFEL lenders to make the loans and then immediately 
sell the loans. The Department believes that such arrangements could be 
a loophole for institutions to avoid the limitation on improper 
inducements in the FFEL Program. Moreover, these arrangements may be 
deceptive to students who believe they are making an arrangement with 
the institution but are quickly dealing with a different lender. The 
Department does not want to repeat those problems in the area of 
preferred lender arrangements. As the Department's negotiator 
emphasized to the negotiated rulemaking committee, the Department 
intends for the proposed definition of preferred lender arrangement to 
be applied in such a manner as to avoid the masking of the true source 
of loan funds.
    Team II's discussions concerning the definition of the term 
preferred lender arrangement also focused on the requirements 
surrounding preferred lender lists under section 487(h)of the HEA (and 
proposed Sec.  668.14(b)(28)). Proposed Sec.  668.14 of the program 
participation agreement regulations, which would implement changes made 
to section 487(h) of the HEA by section 493(c) of the HEOA, would 
specify that for any year in which an institution has a preferred 
lender arrangement, the institution must compile, maintain, and make 
available for students attending the institution, and their families, a 
preferred lender list. The non-Federal negotiators asked for 
clarification from the Department regarding what constitutes a 
preferred lender list.
    The Department referred non-Federal negotiators to Dear Colleague 
Letter GEN-08-06 \2\ in which we stated that if a school provides to 
its students a neutral, comprehensive list of lenders who have made 
loans to students at the covered institution within a set period of 
time, such as three to five years, and the school provides a clear 
statement on the list that a borrower can choose to use any FFEL 
lender, not just the lenders identified on the list, the list is not a 
preferred lender list.
---------------------------------------------------------------------------

    \2\ GEN-08-06 was issued by the Department on May 9, 2008, and 
can be accessed on http://www.ifap.ed.gov/dpcletters/GEN0806.html.
---------------------------------------------------------------------------

    The Department also clarified for the non-Federal negotiators that 
if a covered institution provides a list of lenders to students, and 
the list includes some lenders who lend to students at the school but 
not others, the Department views the covered institution as inherently 
showing a preference for the lenders it includes on the list. In this 
case, therefore, the covered institution would be considered to have 
created a preferred lender list.
    If a covered institution includes certain lenders on the list and 
leaves other lenders off the list, the Department views the covered 
institution as recommending, promoting, or endorsing the lenders on the 
list over the lenders that it has chosen to leave off the list 
regardless of whether the covered institution includes a disclaimer on 
the list, asserting that the covered institution does not recommend, 
promote, or endorse the lenders on its list. Unless the list is a 
neutral, comprehensive list of lenders who lent to students at the 
school, the list serves to recommend, promote, or endorse the lenders 
on the list, despite whatever disclaimers the school may attach to the 
list.

Subpart B--Loan Information To Be Disclosed by Covered Institutions and 
Institution-Affiliated Organizations

Preferred Lender Arrangement Disclosures (Sec.  601.10)
    Statute: Section 152(a)(1)(A)(i) of the HEA, as amended by section 
120 of the HEOA, requires a covered institution or an institution-
affiliated organization with a preferred lender arrangement to provide 
on its Web site and in all informational materials including 
publications, mailings, electronic messages, or materials that are 
distributed to current or prospective students and that describe or 
discuss education loans, the following disclosures:
    <bullet> The maximum amount of Title IV grant and loan aid 
available to students in an easy to understand format.
    <bullet> Information on the model disclosure form for each FFEL 
loan offered pursuant to a preferred lender arrangement, to be 
determined by the Department of Education in coordination with the 
Board of Governors of the Federal Reserve System.
    <bullet> A statement that the institution is required to process 
documents necessary to obtain a FFEL loan from any eligible lender the 
student selects.
    Section 152(a)(1)(A)(ii) of the HEA also requires a covered 
institution or institution-affiliated organization's Web site or other 
information materials, including publications, electronic messages or 
materials, that describe or discuss private education loans made to 
students or the families of such students pursuant to a preferred 
lender arrangement to provide the disclosures specified in the TILA. A 
covered institution must provide the information required by section 
128(e)(11) of the TILA and an institution-affiliated organization must 
provide the information required by section 128(e)(1) of the TILA.
    Section 493(c) of the HEOA amended section 487 of the HEA by adding 
a new subsection (h). Section 487(h)(1)(A) of the HEA requires that if 
a covered institution compiles, maintains, and makes available a 
preferred lender list, the institution must clearly and fully disclose 
on the preferred lender list (a) at least the information required to 
be disclosed under Section 153(a)(2)(A) of the HEA; (b) why the 
institution participates in a preferred lender arrangement with each 
lender on the preferred lender list, particularly with respect to terms 
and conditions or provisions favorable to the borrower; and (c) that 
the students attending the institution, or the families of such 
students, do not have to borrow from a lender on the preferred lender 
list.
    Section 487(h)(1)(B) of the HEA requires covered institutions to 
ensure, through the use of the list of lender affiliates provided by 
the Secretary under Section 487(h)(2) of the HEA, that there are not 
less than three FFEL lenders that are not affiliates of each other 
included on the preferred lender list and, for institutions that 
recommend, promote, or endorse private education loans, that there are 
not less than two lenders of private education loans that are not 
affiliates of each other included on the preferred lender list.
    The preferred lender list must specifically indicate, for each 
listed

[[Page 37438]]

lender, whether the lender is or is not an affiliate of another lender 
on the preferred lender list; and if a lender is an affiliate of 
another lender on the preferred lender list, must describe the details 
of such affiliation.
    Section 487(h)(1)(C) of the HEA requires institutions to 
prominently disclose the method and criteria used by the institution in 
selecting lenders with which to participate in preferred lender 
arrangements to ensure that such lenders are selected on the basis of 
the best interests of the borrowers. These criteria include payment of 
origination or other fees on behalf of the borrower; highly competitive 
interest rates, or other terms and conditions or provisions of Title 
IV, HEA program loans or private education loans; high-quality 
servicing; or additional benefits beyond the standard terms and 
conditions or provisions for such loans.
    Section 487(h)(1)(D) of the HEA requires institutions to exercise a 
duty of care and a duty of loyalty to compile the preferred lender list 
without prejudice and for the sole benefit of the students attending 
the institution, or the families of such students.
    Section 487(h)(1)(E) of the HEA requires institutions to not deny 
or otherwise impede the borrower's choice of a lender or cause 
unnecessary delay in certification of a Title IV loan for those 
borrowers who choose a lender that is not included on the preferred 
lender list.
    Current Regulations: None.
    Proposed Regulations: Under proposed Sec.  601.10(a)(1), a covered 
institution, or an institution-affiliated organization of a covered 
institution, that participates in a preferred lender arrangement would 
be required to disclose to students the maximum amount of Federal grant 
and loan aid available under Title IV of the HEA; the information 
identified on the model disclosure form developed by the Secretary for 
each type of education loan that is offered pursuant to a preferred 
lender arrangement; and a statement that the institution is required to 
process the documents required to obtain a loan under the FFEL Program 
from any eligible lender the student selects.
    Consistent with section 152(a)(1)(A)(ii) of the HEA, proposed Sec.  
601.10(a) would require that these disclosures be provided on the 
covered institution's or institution-affiliated organization's Web site 
and in all informational materials such as publications, mailings, or 
electronic messages or materials that are distributed to prospective or 
current students of a covered institution and families of such students 
and that describe or discuss the financial aid opportunities available 
to students at an institution of higher education.
    Proposed Sec.  601.10(a)(2)(i) would require a covered institution 
to provide the disclosures required under section 128(e)(11) of the 
TILA for each type of private education loan offered pursuant to a 
preferred lender arrangement. For an institution-affiliated 
organization, proposed Sec.  601.10(a)(2)(ii) would require the 
institution-affiliated organization to provide the disclosures required 
under section 128(e)(1) of TILA for each type of private education loan 
offered pursuant to a preferred lender arrangement.
    Proposed Sec.  601.10(c) would require covered institutions and 
institution-affiliated organizations that participate in a preferred 
lender arrangement to provide the information described in proposed 
Sec.  601.10(a)(1)(ii), and the information described in proposed 
Sec. Sec.  601.10(a)(2)(i) and (a)(2)(ii), respectively, for each type 
of education loan offered pursuant to the preferred lender arrangement. 
Covered institutions and institution-affiliated organizations would be 
required to provide this information to students attending the covered 
institution, or the families of such students, as applicable. The 
information would be provided annually and must be provided in a manner 
that allows for the students or their families to take the information 
into account before selecting a lender or applying for an education 
loan.
    Consistent with new section 487(h)(1)(A) of the HEA, proposed Sec.  
601.10(d) would require that if a covered institution compiles, 
maintains, and makes available a preferred lender list, the covered 
institution clearly and fully disclose on the preferred lender list (a) 
at least the information required to be disclosed under section 
153(a)(2)(A) of the HEA; (b) why the institution participates in a 
preferred lender arrangement with each lender on the preferred lender 
list, particularly with respect to terms and conditions or provisions 
favorable to the borrower; and (c) that the students attending the 
institution, or the families of such students, do not have to borrow 
from a lender on the preferred lender list.
    Proposed Sec.  601.10(d)(2) would track the statutory requirement 
reflected in section 487(h)(1)(B)(i) of the HEA, which requires the 
covered institution to ensure, through the use of the list of lender 
affiliates provided by the Secretary under section 487(h)(2) of the 
HEA, that there are not less than three FFEL lenders that are not 
affiliates of each other included on the preferred lender list and, if 
the institution recommends, promotes, or endorses private education 
loans, that there are not less than two lenders of private education 
loans that are not affiliates of each other included on the preferred 
lender list.
    Proposed Sec.  601.10(d)(2) would incorporate the statutory 
requirements in section 487(h)(1)(B)(ii) of the HEA that the preferred 
lender list (a) specifically indicate, for each listed lender, whether 
the lender is or is not an affiliate of another lender on the preferred 
lender list, and (b) if a lender is an affiliate of another lender on 
the preferred lender list, must describe the details of such 
affiliation.
    Proposed Sec.  601.10(d)(3) would incorporate the requirement in 
section 487(h)(1)(C) of the HEA that requires the preferred lender list 
to prominently disclose the method and criteria used by the institution 
in selecting lenders with which to participate in preferred lender 
arrangements to ensure that such lenders are selected on the basis of 
the best interests of the borrowers.
    Under proposed Sec.  601.10(d)(4) and consistent with section 
487(h)(1)(D) of the HEA, covered institutions would be required to 
exercise a duty of care and a duty of loyalty to compile the preferred 
lender list without prejudice and for the sole benefit of the students 
attending the institution, or the families of such students. Proposed 
Sec.  601.10(d)(5) would incorporate the requirement from section 
487(h)(1)(E) of the HEA that requires a covered institution to not deny 
or otherwise impede the borrower's choice of a lender or cause 
unnecessary delay in certification of a Title IV loan for those 
borrowers who choose a lender that is not included on the preferred 
lender list.
    Reasons: Proposed Sec.  601.10 would be included in new part 601 in 
order to implement the provisions relating to preferred lender 
arrangement disclosures in new part E, title I of the HEA.
    Some non-Federal negotiators expressed a concern regarding proposed 
Sec.  601.10(a)(1)(iii), which would require a covered institution that 
participates in a preferred lender arrangement to include a statement 
on its Web site and other informational materials that the covered 
institution is required to process loan documents from any eligible 
FFEL Program lender. The non-Federal negotiators pointed out that a 
Direct Loan school could have a preferred lender arrangement with a 
private education lender (and, therefore, be covered by the 
requirements in proposed Sec.  601.10), but that most Direct

[[Page 37439]]

Loan schools do not also participate in the FFEL program, and would not 
be able to process FFEL loans.
    The Department responded that the requirement in proposed Sec.  
601.10(a)(1)(iii) is not applicable to Direct Loan-only schools, and 
such schools would not be required to provide this statement on their 
Web sites or other informational materials.
    The non-Federal negotiators asked for clarification regarding the 
information that a covered institution is required to provide on the 
informational materials referenced in proposed Sec.  601.10(b)(1). The 
informational materials are publications, mailings, or electronic 
materials that the covered institution makes available to prospective 
and current students and their families. The non-Federal negotiators 
asked whether a brochure would be required to provide all of the 
information specified in proposed Sec.  601.10(a), or whether the 
brochure could provide a link to an institutional Web site with the 
required information.
    The non-Federal negotiators were particularly concerned about 
``first touch'' information provided to prospective students, which is 
intended to provide basic information regarding the institution, and 
might briefly summarize financial aid opportunities at the school. The 
non-Federal negotiators were concerned that including the detailed 
student loan information required by proposed Sec.  601.10(a) in such 
``first touch'' materials would be overwhelming to potential students.
    The non-Federal negotiators also pointed out that information 
provided in print publications can quickly become outdated, whereas 
information provided on a Web site can be updated easily, on an as-
needed basis.
    The Department responded that a link to a Web site that contains 
information that meets the requirements in proposed Sec.  601.10(a) 
would be sufficient for printed materials provided to potential 
borrowers, as long as the printed materials provide the potential 
borrower with information for a point of contact at the school where 
the potential borrower can obtain the information in printed form.
    Non-Federal negotiators expressed concerns about proposed Sec.  
601.10(c)(2), which would require a covered institution to ``provide'' 
certain information to students in a manner that allows the students to 
take that information into account before selecting a lender or 
applying for an education loan. The non-Federal negotiators requested 
the Department to change this requirement from ``provide'' to ``make 
available.''
    The Department declined to make this requested change. The purpose 
of the requirement to provide the described information is to give 
students current information on education loans available at the school 
before the student selects a lender or applies for an education loan. 
The term ``make available'' is more passive than the term ``provide.'' 
The Department expects schools to be more proactive in providing this 
information to borrowers than the phrase ``make available'' implies. 
However, the Department recognizes that, regardless of how proactive a 
school may be, the school cannot guaranty that every student attending 
the school will receive the information. A school that makes reasonable 
efforts to give this information to its students at the appropriate 
time in the award year would be in compliance with proposed Sec.  
601.10(c)(2), even if not all students at the school actually receive 
the information.
    Non-Federal negotiators asked if the requirements for a preferred 
lender list specified in proposed Sec.  601.10(d) would apply to a 
neutral, comprehensive list of lenders who lent at the school, as 
discussed earlier in the preamble discussion regarding proposed Sec.  
601.2 (Definitions). The Department responded that a neutral, 
comprehensive list of lenders that have provided loans to students at a 
covered institution is not a preferred lender list under the HEA or 
these proposed regulations. If the covered institution has not made a 
judgment regarding which lenders to include on the list, it is not 
using the list to identify the lenders it prefers its students to use. 
A comprehensive, neutral list of lenders is not a preferred lender list 
and is not covered by the requirements in proposed Sec.  601.10(c).
Private Education Loan Disclosures and Self-Certification Form (Sec.  
601.11)
    Statute: Section 152(a)(1)(B) of the HEA, which was added by 
section 120 of the HEOA, requires a covered institution, or an 
institution-affiliated organization, that provides information 
regarding a private education loan from a lender to a prospective 
borrower, regardless of whether the covered institution or institution-
affiliated organization participates in a preferred lender arrangement, 
to provide the following disclosures:
    <bullet> The information required by section 128(e)(1) of the TILA.
    <bullet> Information on the availability of Title IV loans or other 
assistance.
    <bullet> That the terms and conditions of Title IV loans or 
assistance may be more beneficial than the terms and conditions of 
private education loans.
    Section 153(c)(1)(B) of the HEA, which also was added by section 
120 of the HEOA, requires covered institutions and institution-
affiliated organizations to provide the information described in the 
previous paragraphs in a manner that allows students or their families 
to take that information into account before selecting a lender or 
applying for an education loan.
    Section 152(a)(1)(B)(iii) of the HEA specifies that the information 
regarding private education loans must be presented in a manner that is 
distinct from information regarding Title IV, HEA program loans.
    Covered institutions or institution-affiliated organizations must 
provide these disclosures whether or not they have a preferred lender 
arrangement with the lender.
    Section 155(a) of the HEA, as amended by section 1021(b) of the 
HEOA, requires the Department, in consultation with the Board of 
Governors of the Federal Reserve System, to develop a self-
certification form for private education loans. The form must be 
provided to an applicant for a private education loan by an institution 
of higher education at the request of the applicant. In addition, the 
institution of higher education is required to provide to the applicant 
the information needed to complete the form, if the institution of 
higher education has that information. Under section 155(a)(4) of the 
HEA, information required to complete the self-certification form 
includes the applicant's cost of attendance at the institution, the 
applicant's expected family contribution, and the applicant's estimated 
financial assistance.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  601.11(a) would provide that a 
covered institution, or an institution-affiliated organization of a 
covered institution, that provides information regarding a private 
education loan from a lender to a prospective borrower must provide 
private education loan disclosures to the prospective borrower. These 
disclosures would need to be provided regardless of whether the covered 
institution or institution-affiliated organization participates in a 
preferred lender arrangement.
    The private education loan disclosures required under proposed 
Sec.  601.11(b)(1) and (b)(2) would need to provide the prospective 
borrower with the information required under section 128(e)(1) of the 
TILA; and would need

[[Page 37440]]

to inform the prospective borrower that he or she may qualify for loans 
or other assistance under title IV of the HEA; and that the terms and 
conditions of Title IV, HEA program loans may be more favorable than 
the provisions of private education loans.
    Under proposed Sec.  601.11(c), the covered institution or 
institution-affiliated organization would need to ensure that 
information regarding private education loans is presented in such a 
manner as to be distinct from information regarding Title IV, HEA 
program loans.
    Proposed Sec.  601.11(d) would require that, upon an enrolled or 
admitted student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in 
written or electronic form, the self-certification form for private 
education loans developed by the Secretary to satisfy the requirements 
of section 128(e)(3) of the TILA. The institution would also be 
required to provide the information necessary to complete the form, if 
the institution possesses that information.
    Reasons: The Department would include proposed Sec.  601.11 in new 
part 601 to implement the HEOA provisions relating to private education 
loan disclosures and the self-certification form the Department is 
required to develop pursuant to section 155(a) of the HEA.
    Non-Federal negotiators questioned the value of requiring a school 
to provide an applicant with the private education loan self-
certification form in cases where the applicant is applying for a 
private education loan made by the covered institution. Non-Federal 
negotiators asserted that in these cases the covered institution would 
simply be providing the private education loan self-certification form 
to itself.
    In the Department's view, the purpose of the private education loan 
self-certification form is to provide disclosure information to the 
borrower, not to the lender. In cases where the covered institution is 
also the lender, the Department believes that the borrower should still 
receive and complete the private education loan self-certification form 
before obtaining the institutional loan.
    In addition, the TILA requires private education lenders to obtain 
the completed private education loan self-certification form from a 
borrower before it makes a private education loan. In that regard, the 
Department advised the non-Federal negotiators that submitting public 
comment on the Federal Reserve's TILA proposed regulations may be an 
appropriate forum for addressing this issue.
    Further discussion of the private education loan self-certification 
form is provided under the program participation agreement section of 
this preamble.
Use of Institution and Lender Name (Sec.  601.12)
    Statute: Section 152(a)(2) of the HEA, added by section 120 of the 
HEOA, prohibits a covered institution or an institution-affiliated 
organization from allowing a lender with which it has a preferred 
lender arrangement to use the name, emblem, mascot, logo, or other 
identifiable symbol of the covered institution or institution-
affiliated organization to market private education loans to students.
    Section 152(a)(3) of the HEA, added by section 120 of the HEOA, 
requires a covered institution or an institution-affiliated 
organization to ensure that the name of a lender with which it has a 
preferred lender arrangement is displayed in all information and 
documentation related to private education loans offered by the lender.
    Current Regulations: None.
    Proposed Regulations: Under proposed Sec.  601.12(a), a covered 
institution, or an institution-affiliated organization of a covered 
institution, that participates in a preferred lender arrangement 
regarding private education loans would be prohibited from agreeing to 
the lender's use of the name, emblem, mascot, or logo of the 
institution or organization, or other words, pictures, or symbols 
readily identified with the institution or organization, in the 
marketing of private education loans to students attending the 
institution in any way that implies that the loan is offered or made by 
the institution or organization instead of the lender.
    Proposed Sec.  601.12(b) also would require covered institutions or 
institution-affiliated organizations that participate in preferred 
lender arrangements regarding private education loans to ensure that 
the name of the lender is displayed in all information and 
documentation related to the private education loans.
    Reasons: We propose to include proposed Sec.  601.12 in new part 
601 to implement the provisions relating to the use of institution and 
lender name in section 152 of the HEA.
    During the negotiated rulemaking process, non-Federal negotiators 
expressed concern about the use of the term ``ensure'' in proposed 
Sec.  601.12(b). The non-Federal negotiators argued that covered 
institutions have no direct control over lenders with which they have 
preferred lender arrangements, particularly if there is no formal 
agreement between the covered institution and the lender. Therefore, 
argued the non-Federal negotiators, a covered institution cannot ensure 
that the lender displays its name in all information and documentation 
relating to the lender's private education loans.
    The Department understands that a covered institution cannot 
control a lender with which it has a preferred lender arrangement. 
However, we believe that a covered institution does have leverage over 
such lenders, and can use that leverage to require the lender to 
display the lender's own name on information or documentation about 
private education loans provided by the lender. If a lender refuses to 
display its own name on private education loan marketing materials that 
the lender provides to students at the covered institution, and the 
covered institution cannot convince the lender to do so, the covered 
institution always has the option to end the preferred lender 
arrangement with the lender and remove the lender from its preferred 
lender list.
    Non-Federal negotiators asked whether a credit union that shares 
its name with the name of a covered institution would be prohibited 
under proposed Sec.  601.12(a) from using its own name in its marketing 
materials regarding private education loans. The Department responded 
that if the name of the covered institution is part of the name of the 
credit union, the prohibition against allowing the lender to use the 
institution's name would not apply. In these cases, the credit union is 
using its own name, not the institution's name.
    This interpretation is consistent with the Manager's Report for the 
Higher Education Opportunity Act, which states that ``the Conferees 
understand that some credit unions share the names of the institutions 
of higher education whose communities they serve. Nothing in [section 
140 of the TILA] is intended to prohibit a credit union whose name 
includes the name of a covered educational institution from using its 
own name in marketing its private education loans'' (Joint Explanatory 
Statement of the Committee of Conference, p. 198).

Subpart C--Responsibilities of Covered Institutions and Institution-
Affiliated Organizations

Annual Report (Sec.  601.20)
    Statute: Section 153(c)(2)(A)(i) of the HEA, added by section 120 
of the HEOA, requires a covered institution

[[Page 37441]]

and an institution-affiliated organization that has a preferred lender 
arrangement to submit to the Department of Education an annual report 
that provides the information described in section 153(c)(1)(A)(i) and 
(ii) of the HEA. This is the same information required under section 
152(a)(1)(A)(i) and (a)(1)(A)(ii) of the HEA, and discussed earlier in 
the preamble discussion for proposed subpart B of part 601.
    Section 153(c)(2)(A)(ii) of the HEA, added by section 120 of the 
HEOA, requires that the annual report include a detailed explanation of 
why the covered institution or institution-affiliated organization 
entered into a preferred lender arrangement with each lender. The 
explanation must explain how the terms, conditions, and provisions of 
each type of education loan provided pursuant to the preferred lender 
arrangement are beneficial to students attending the covered 
institution.
    Section 153(c)(2)(B) of the HEA requires the covered institution 
and institution-affiliated organization to ensure that the annual 
report is made available to the public, and is provided to students 
attending or planning to attend the covered institution.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  601.20(a) would require a 
covered institution and an institution-affiliated organization that 
participates in a preferred lender arrangement to prepare and submit to 
the Secretary an annual report, by a date determined by the Secretary. 
The annual report would include, for each lender that participates in a 
preferred lender arrangement with the covered institution or 
organization, the information described in proposed Sec.  601.10(c); 
and a detailed explanation of why the covered institution or 
institution-affiliated organization participates in a preferred lender 
arrangement with the lender. Under the proposed regulations, this 
explanation would need to include an explanation of why the terms, 
conditions, and provisions of each type of education loan provided 
pursuant to the preferred lender arrangement are beneficial for 
students attending the institution, or the families of such students, 
as applicable.
    Proposed Sec.  601.20(b) would require a covered institution or 
institution-affiliated organization to ensure that the annual report is 
made available to the public and provided to students attending or 
planning to attend the covered institution and the families of such 
students.
    Reasons: Proposed Sec.  601.20 would implement the annual report 
requirements governing covered institutions and institution-affiliated 
organizations that have a preferred lender arrangement in section 
153(c) of the HEA.
    There was significant discussion among the negotiators regarding 
the timing and content of the annual report required under 153(c)(2) of 
the HEA. Non-Federal negotiators believed it would be reasonable for 
the annual report to be due by July 1st each year. However, negotiators 
decided that determining the due date for the annual report is an 
operational issue, not a regulatory issue. For this reason, the 
Department does not propose to specify a due date for the annual report 
in the regulations.
    The non-Federal negotiators also pointed out that in the course of 
a year, lenders on a preferred lender list can change. Some lenders 
might drop off the list, or new lenders might be added. The negotiators 
agreed that the annual report would have most utility for the 
Department and for potential borrowers if it identified the lenders on 
the covered institution's preferred lender list at the time the report 
is submitted to the Department, providing a snapshot of the lenders on 
its preferred lender list at that time. The Department agreed that 
covered institutions would not be required to update the annual report 
during the year as lenders are added or dropped from the preferred 
lender list. The Department believed that a yearly snapshot would 
provide it with adequate information to monitor the preferred lender 
activities of covered institutions.
Code of Conduct (Sec.  601.21)
    Statute: Section 153(c)(3)(A) of the HEA, added by Section 120 of 
the HEOA, requires a covered institution and an institution-affiliated 
organization that has a preferred lender arrangement to comply with the 
code of conduct requirements in section 487(a)(25)(A) through (C) of 
the HEA.
    Section 153(c)(3)(B) of the HEA requires an institution-affiliated 
organization of a covered institution to comply with the code of 
conduct developed and published by the covered institution; publish the 
code of conduct prominently on its Web site, if it has one; and 
administer and enforce the code of conduct. At a minimum, the 
institution-affiliated organization must require that all of the 
organization's agents with responsibilities with respect to education 
loans are annually informed of the provisions of the code of conduct.
    In accordance with section 487(e)(1) through (e)(7) of the HEA, as 
amended by section 493(c) of the HEOA, the code of conduct must ban 
revenue-sharing arrangements; gifts; consulting or other contracting 
arrangements; directing borrowers to particular lenders or delaying 
loan certification; offers of funds for private loans, including 
opportunity pool loans; staffing assistance; and advisory board 
compensation, as these terms are defined and further explained in 
section 487(e) of the HEA.
    Current Regulations: None.
    Proposed Regulations: A covered institution that participates in a 
preferred lender arrangement would be required to comply with the code 
of conduct requirements described in proposed Sec.  601.21. Under this 
section, the covered institution would be required to develop a code of 
conduct with respect to FFEL Program loans and private education loans 
with which the institution's agents must comply.
    Proposed Sec.  601.21(a)(2)(i) would require the code of conduct to 
prohibit a conflict of interest with the responsibilities of an agent 
of an institution with respect to FFEL Program loans and private 
education loans and, at a minimum, include the provisions specified in 
the following paragraphs. Under proposed Sec.  601.21(a)(2)(ii) and 
(iii), the institution would be required to publish the code of conduct 
prominently on the institution's Web site and administer and enforce 
the code by, at a minimum, requiring that all of the institution's 
agents with responsibilities with respect to FFEL Program loans or 
private education loans be annually informed of the provisions of the 
code of conduct.
    Proposed Sec.  601.21(b)(1) and (b)(2) would require any 
institution-affiliated organization of a covered institution that 
participates in a preferred lender arrangement to comply with the code 
of conduct developed and published by the covered institution and, if 
the institution-affiliated organization has a Web site, publish the 
code of conduct prominently on the Web site.
    Under proposed Sec.  601.21(b)(3), the institution-affiliated 
organization would be required to administer and enforce the code of 
conduct by, at a minimum, requiring that all of the institution-
affiliated organization's agents with responsibilities with respect to 
FFEL Program loans or private education loans be annually informed of 
the provisions of the code of conduct.
    Proposed Sec.  601.21(c) would prescribe the minimum requirements 
of a covered institution's code of conduct. Under this section, an 
institution's code of conduct would be required to prohibit--

[[Page 37442]]

    <bullet> Revenue-sharing arrangements with any lender;
    <bullet> Soliciting or accepting gifts from a lender, guarantor, or 
servicer;
    <bullet> Accepting any fee, payment, or other financial benefit as 
compensation for any type of consulting or any contractual relationship 
with a lender;
    <bullet> Assigning a first-time borrower's loan to a particular 
lender or refusing to certify, or delaying certification of, any loan 
based on a borrower's selection of a particular lender;
    <bullet> Requesting offers of funds for private education loans, 
including opportunity pool loans, from a lender in exchange for 
providing the lender with a specified number or loan volume of FFEL 
Program loans or private education loans or a preferred lender 
arrangement;
    <bullet> Requesting or accepting staffing assistance from a lender; 
and
    <bullet> Receipt of compensation for serving on an advisory board, 
commission, or group established by a lender, guarantor, or group of 
lenders or guarantors.
    Proposed Sec.  601.21(c)(6) would incorporate language from section 
487(e)(6) of the HEA and set forth exceptions to the ban on staffing 
assistance, such as staffing assistance related to professional 
development or training; providing educational counseling materials, or 
short-term, nonrecurring staffing assistance during disasters or 
emergencies.
    In addition, the proposed regulations would include the statutory 
definitions provided for the terms revenue-sharing arrangement, gift, 
and opportunity pool loan.
    Proposed Sec.  601.21(c)(1) would incorporate the definition of the 
term revenue-sharing arrangement from section 487(e)(1)(B)of the HEA: 
An arrangement between a covered institution and FFEL lender or a 
private education loan lender in which the lender pays a fee or 
provides material benefits in exchange for the covered institution 
recommending the lender or its loan products to students attending the 
institution or to the families of such students.
    Proposed Sec.  601.21(c)(2)(ii) would incorporate the definition of 
the term gift from section 487(e)(2)(B)of the HEA: As any gratuity, 
favor, discount, entertainment, hospitality, loan or other item with a 
monetary value of more than a de minimus amount, including gifts of 
services, transportation, lodging or meals. Proposed Sec.  
601.21(c)(2)(iii)(A) through (F) would identify the items of monetary 
value that are excluded from the definition of gift.
    Proposed Sec.  601.21(c)(5)(ii) would incorporate the definition of 
the term opportunity pool loan from section 487(e)(5)(B)of the HEA: As 
a private education loan made by a lender to a student, or a family 
member of a student, attending the institution that involves a payment, 
directly or indirectly, by the institution of points, premiums, 
additional interest, or financial support to the lender for the purpose 
of the lender extending credit to the student or the student's family.
    Reasons: Proposed Sec.  601.21(c) would be included in new part 601 
to implement the code of conduct provisions added to section 487(e) of 
the HEA.
    Numerous questions and concerns relating to the code of conduct 
were discussed during the negotiated rulemaking sessions. For example, 
non-Federal negotiators asked if the prohibition against revenue-
sharing arrangements would apply to a servicer collecting student loans 
on behalf a school. The Department responded that this is a standard 
service provided by loan servicers, and that it does not view this 
service as a revenue-sharing arrangement that is prohibited under 
section 487(e)(1) of the HEA.
    Non-Federal negotiators pointed out that, in some cases, if a 
borrower selects a lender that the covered institution does not 
normally do business with, there could be delays in processing the 
borrower's student loans due to compatibility issues with the computer 
programs used by the lender and covered institution. These delays would 
not be due to the school deliberately attempting to impede the 
borrower's choice of lender, but simply due to processing complications 
that may occur when a school is working with an unfamiliar lender. The 
Department agrees that processing delays may occur if a borrower 
selects a lender with which the school is unaccustomed to doing 
business. We expect the covered institution to do everything it can to 
minimize such delays, but it is the Department's view that reasonable 
delays in situations such as these would not be considered to be a 
violation of the code of conduct. That said, the Department also points 
out that the requirement in the code of conduct refers to certifying a 
loan, not other aspects of processing a loan. Because certification of 
a loan is an internal school process, we do not believe that choice of 
a lender would normally affect a school's ability to certify a loan in 
a timely manner.
    Non-Federal negotiators asked about proposed Sec.  
601.21(c)(4)(ii), which states that a borrower may choose a particular 
lender or guaranty agency. The non-Federal negotiators asked about the 
reference to guaranty agencies, pointing out that the guaranty agency 
that guarantees a borrower's loan depends on the borrower's choice of 
lender. They argued that this provision does not make sense because a 
borrower does not have the ability to select from among different 
guaranty agencies, except to the extent that a borrower does have the 
ability to select from among different lenders. The Department 
clarified that guaranty agencies are included in this proposed 
provision because they can serve as lenders-of-last-resort. When a 
borrower is using a guaranty agency as a lender-of-last-resort, the 
borrower can choose among different guaranty agencies.
    Non-Federal negotiators asked about proposed Sec.  
601.21(c)(2)(iii)(C), which would exclude from the definition of the 
term gift, favorable terms, conditions, and borrower benefits on a loan 
provided to students employed at a covered institution, if the terms, 
conditions, or benefits are comparable to those provided to all 
students at the institution. The non-Federal negotiators asked the 
Department to clarify whether the reference to ``all students'' at the 
institution meant the general student population, or if it meant other 
similarly situated students. The intent of proposed Sec.  
601.21(c)(2)(iii)(C) is to allow student employees of a covered 
institution's financial aid office to receive favorable terms, 
conditions, or benefits on a student loan, as long as those favorable 
terms, conditions, and benefits are comparable to the benefits other 
students at the school receive. In recognition of the fact that a 
lender may offer favorable terms, conditions and borrower benefits to 
certain types of students at an institution--such as students at a 
particular grade level or in a particular program of study--we believe 
that it would be acceptable for a school to use benefits offered to 
similarly situated students as a benchmark, rather than benefits 
available to all students at the institution.
    Non-Federal negotiators asked if recourse loans qualify as 
opportunity pool loans, as defined in proposed Sec.  0601.21(c)(5)(ii). 
Recourse loan arrangements are arrangements between schools and 
lenders, in which the school provides funds to a lender to offset the 
risk of the lender providing loans to students at the school who have a 
high risk of default. As discussed earlier in this preamble, an 
opportunity pool loan is defined in section 487(e)(5)(B) of the HEA as 
a private education loan that involves a payment,

[[Page 37443]]

either directly or indirectly, from an institution to the lender for 
the purpose of the lender offering a loan to a borrower at the school. 
Because the Department sees no real distinction between the meaning of 
the terms opportunity pool loan and recourse loan, we believe that 
recourse loans would be covered by the requirements in proposed Sec.  
601.21(c)(5)(i). However, the Department notes that proposed Sec.  
601.21(c)(5)(i) would not prohibit opportunity pool loans or recourse 
loans in all cases. It would only prohibit such loans if the funds for 
the opportunity pool loan or recourse loan are provided in exchange for 
concessions or promises regarding providing the lender with a specified 
number or loan volume of FFEL or private education loans, or a 
preferred lender arrangement for FFEL or private education loans.
    Consistent with section 487(e)(7) of the HEA, proposed Sec.  
601.21(c)(7) would prohibit compensation from a lender, guarantor, or 
group of lenders or guarantors for service on an advisory board 
established by such group. This provision would, however, allow for 
reimbursement for reasonable expenses incurred for serving on such an 
advisory board. The non-Federal negotiators asked that we clarify the 
meaning of the term reasonable expenses for this purpose. We agreed 
that such clarification would be useful, and added a cross-reference to 
Sec.  668.16(d)(2)(ii) in proposed Sec.  601.21(c)(7). For further 
discussion of this topic, see the preamble discussion under ``Standards 
of administrative capability.''
    Non-Federal negotiators asked if the code of conduct covers 
employees of a covered institution who work on the back end of the 
student loan process, such as employees who work on default prevention 
with lenders. In general, it is the view of the Department that the 
code of conduct regulations apply to agents of a covered institution 
who are employed in the financial aid office of a covered institution, 
or who otherwise have responsibilities with respect to FFEL program 
loans or private education loans. Nothing in the HEA, as amended by the 
HEOA or these proposed regulations would exempt agents of a covered 
institution who are involved in the back end of the student loan 
process. We believe that employees working at this stage of the process 
have responsibilities with regard to student loans and, therefore, are 
covered by the code of conduct.
    Non-Federal negotiators noted that the term agent is defined as an 
officer or an employee in section 151(1) of the HEA (and proposed Sec.  
601.2(b)) and asked whether there is a distinction between the meaning 
of agents of a covered institution and officers or employees of a 
covered institution.
    The Department agreed that, when coupled with the terms ``officer'' 
and ``employee'', the term agent is redundant. The Department also 
agreed that use of all three terms in the code of conduct section of 
the regulations could potentially be confusing, given that use of all 
three terms implies that the term agent is intended to include 
individuals who are not officers or employees of a covered institution, 
but have some other connection to the covered institution. To avoid 
this confusion, the Department agreed to remove the terms ``officer'' 
and ``employee'' from those sections of the code of conduct regulations 
where the term agent is sufficient.
    Further discussion of the code of conduct requirements is provided 
in the program participation agreement section of this preamble.
Duties of Institutions Participating in the William D. Ford Direct Loan 
Program (Sec.  601.30)
    Statute: Section 154(a) of the HEA, as amended by section 120 of 
the HEOA, requires a school participating in the William D. Ford Direct 
Loan Program (Direct Loan Program) to provide the information on a 
Direct Loan model disclosure form developed by the Department to 
students attending or planning to attend the school, or to their 
families. If the Direct Loan school provides information regarding a 
private education loan to a prospective borrower, it must provide the 
information from the Direct Loan model disclosure form at the same 
time.
    The Direct Loan school may use the Direct Loan model disclosure 
form for this purpose, or may use a comparable form designed by the 
school.
    Current Regulations: None.
    Proposed Regulations: Under proposed Sec.  601.30(a), a covered 
institution participating in the Direct Loan Program would be required 
to make the information identified in a model disclosure form developed 
by the Secretary available to students attending or planning to attend 
the institution, or the families of such students. If the institution 
provides information regarding a private education loan to a 
prospective borrower, the institution would concurrently provide the 
borrower with the information identified on the model disclosure form. 
Proposed Sec.  601.30(b) would allow a covered institution to use a 
comparable form designed by the institution to provide this 
information, instead of the model disclosure form.
    Reasons: We would include proposed Sec.  601.30(b) in new part 601 
to implement the requirements in section 154(a) of the HEA.

Subpart E--Lender Responsibilities

    Statute: Section 152 of the HEA requires lenders to disclose 
certain information to borrowers of a FFEL or Federal Direct Loan. 
These disclosures include the information described in section 433(a) 
and (c) of the HEA. In addition, for each lender's private education 
loans, the lender must comply with the disclosure requirements of 
section 128(e) of the TILA.
    Section 152 of the HEA also requires lenders to report certain 
information about its FFEL Program preferred lender arrangements to the 
Secretary. This report must include information about expenses paid or 
provided by the lender to any agent of a covered institution employed 
in the financial aid office of that institution or who otherwise has 
responsibility with respect to education loan or other financial aid of 
the institution for service by that employee on an advisory board, 
commission or group established by a lender or group of lenders. The 
lender must also report this information for expenses paid or provided 
to any agent of an institution-affiliated organization involved in 
recommending, promoting or endorsing education loans.
    Section 153 of the HEA also requires FFEL lenders that participate 
in one or more preferred lender arrangements, to certify annually to 
the Secretary, that they are in compliance with the requirements of the 
HEA. If the lender submits an audit under section 428(b)(1)(U)(iii) of 
the HEA, the auditor may provide this certification as part of that 
audit. If the lender is not required to submit an audit, it must 
provide the certification separately.
    Section 153 of the HEA requires lenders to provide an annual report 
to covered institutions or a covered institution's affiliated 
organization and to the Secretary, disclosing certain information about 
its loans. The Secretary, in consultation with the Federal Reserve will 
determine the information to be disclosed. The information will have to 
address each type of FFEL loan the lender plans to offer pursuant to 
the preferred lender arrangement to the students or families of 
students attending that institution for the next award year.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  601.40(a) would require FFEL 
lenders to provide FFEL borrowers the disclosures required under 
current

[[Page 37444]]

Sec.  682.205(a) and (b). Proposed Sec.  601.40(a) would require that a 
lender offering private education loans comply with the disclosures 
required under section 128(e) of TILA for each type of private loan.
    Proposed Sec.  601.40(b) would set forth the information the 
lenders will have to provide to the Secretary on an annual basis 
regarding any reasonable expenses paid or provided to any agent of a 
covered institution who is employed in the financial aid office or has 
responsibilities with respect to education loans or other financial aid 
of the institution for service by the employee on an advisory board, 
commission or group established by a lender or a group of lenders. 
Under proposed Sec.  601.40(b), lenders would be required to report 
this information for expenses paid or provided to any agent of an 
institution-affiliated organization involved in recommending, promoting 
or endorsing education loans. Lenders would be required to report the 
amount of the expenses paid and the specific instances for which it was 
paid; the names of the agent to whom expenses were paid; and the date 
and description of each activity for which expenses were paid.
    Proposed Sec.  601.40(c) would also require the lender to submit a 
certification of compliance to the Secretary.
    Proposed Sec.  601.40(c) would require any FFEL lender 
participating in one or more preferred lender arrangements to annually 
certify to the Secretary its compliance with the HEA. Under this 
proposed provision, lenders required to file an audit under Sec.  
682.305(c) would need to include the certification as part of the audit 
and lenders that are not required to submit an audit would be required 
to provide the certification separately.
    Proposed Sec.  601.40(d) would require FFEL lenders with a 
preferred lender arrangement with a covered institution or an 
institution-affiliated organization to annually provide to the 
institution, institution-affiliated organization, and the Secretary 
information regarding the FFEL loans the lender will provide to 
students and families pursuant to the preferred lender arrangement for 
the next award year. The information that would be provided will be 
prescribed by the Secretary, after consultation with the Federal 
Reserve, pursuant to section 153(a)(2)(A)(i) of the HEA.
    Reasons: These regulations are provided to implement statutory 
requirements.
    During the negotiations, some negotiators raised a question as to 
the lender certification requirements proposed as part of Sec.  601.40. 
In particular, a negotiator asked the Department to clarify the 
application of the certification requirements to holders of FFEL 
Program loans who make private education loans. The Department 
explained that the certification requirements apply to any lender who 
holds FFEL loans and has a preferred lender arrangement that relates to 
FFEL loans or to private education loans. A lender who holds FFEL 
Program loans and has a preferred lender arrangement relating to 
private education loans has to provide the required certifications even 
if the lender is not actively making new FFEL loans and does not have a 
preferred lender arrangement for FFEL loans.
    Under section 152(b)(2) of the HEA, a FFEL loan holder that has a 
preferred lender arrangement for FFEL or private education loans has to 
annually certify that it is in compliance with the HEA, whether or not 
the lender is actively making FFEL Program loans. A lender that is 
required to have an independent financial and compliance audit can 
provide the certification through that process. The HEA requires a 
lender to provide two specific certifications about its private 
education loans: (1) A certification that it is in compliance with the 
disclosure requirements under section 128(e) of the Truth in Lending 
Act (reflected in section 152(b)(1)(A)(ii) of the HEA); and (2) that it 
has provided the required annual report to the Secretary on any 
reasonable expenses paid or provided to any agent of a covered 
institution who is employed in the institution's financial aid office 
or who otherwise has responsibilities with respect to education loans 
or other financial aid of the institution and any similar expenses paid 
or provided to any agent of an institution-affiliated organization who 
is involved in the practice of recommending, promoting or endorsing 
education loans (see section 152(b)(1)(B) of the HEA). The specific 
requirements for these certifications will be addressed in audit guides 
issued by the Department.
Program Participation Agreement (Sec.  668.14)
    Statute: Section 493(e) of the HEOA amended section 487(a)(25) of 
the HEA by adding to the program participation agreement (PPA) 
requirements a requirement that an institution participating in a Title 
IV loan program develop, publish, administer, and enforce a code of 
conduct that prohibits a conflict of interest with the responsibilities 
of an officer, employee or agent of the institution with respect to any 
Title IV loan and that contains, at a minimum, the provisions described 
in section 487(e) of the HEA. Under section 487(a)(25)(B) and (C), the 
institution must publish the code of conduct prominently on its Web 
site and annually inform its officers, employees, and agents with 
responsibilities for loans made, insured, or guaranteed under Title IV 
loan programs of the provisions of the code of conduct.
    Current Regulations: The Department's current regulations governing 
PPA requirements appear in Sec.  668.14.
    Proposed Regulations: Consistent with section 487(a)(25) of the 
HEA, we propose to amend Sec.  668.14 (Program participation agreement) 
by adding a new paragraph (b)(27) that would reflect the requirement 
that institutions agree, as part of their PPA, to develop, publish, 
administer, and enforce a code of conduct with respect to loans made, 
insured, or guaranteed under Title IV loan programs.
    Reason: We propose to add paragraph (b)(27) to Sec.  668.14 in 
order to implement the new statutory requirement in section 487(a)(25) 
of the HEA.
    Statute: Section 493(a)(1)(A) of the HEOA amended section 
487(a)(28)(A) of the HEA by adding to the PPA requirements a 
requirement that an institution will, at the request of an applicant 
for a private education loan, provide the applicant with the self-
certification form required under section 128(e)(3) of the TILA (15 
U.S.C. 1638(e)(3)). This section also requires the institution to 
provide the applicant with the specific information needed to complete 
the form, to the extent that the institution possesses the information.
    Section 487(a)(28)(B) of the HEA states that the term ``private 
education loan'' has the meaning given to the term in section 140(a)(7) 
of the TILA. That statute defines ``private education loan'' as a loan 
provided by a private educational lender that is not made, insured, or 
guaranteed under Title IV of the HEA and is issued expressly for 
postsecondary educational expenses to a borrower. It does not include 
an extension of credit under an open end consumer credit plan, a 
reverse mortgage transaction, a residential mortgage transaction, or 
any other loan secured by real property or a dwelling.
    Under section 155(a)(4) of the HEA, the information to be supplied 
to the applicant by the institution (if available) includes cost of 
attendance and resource information regarding the applicant.
    Current Regulations: The Department's current regulations governing 
PPA requirements appear in Sec.  668.14.

[[Page 37445]]

    Proposed Regulations: Proposed Sec.  668.14(b)(29) would 
incorporate the requirement for an institution participating in the 
Title IV, HEA programs to agree as part of its PPA to provide, upon 
request, an enrolled or admitted applicant for a private education loan 
with the self-certification form and the information to complete it, to 
the extent the institution possesses that information.
    In addition, proposed Sec.  668.14(b)(29)(ii) would require the 
institution, at the request of the applicant for a private education 
loan, to discuss with the applicant the Federal, State, and 
institutional student aid that may be available.
    Reasons: This section implements the new statutory requirement in 
section 487(a)(25) of the HEA that an institution provide a private 
education loan applicant with a self-certification form, and the 
information required to complete the form to the extent the institution 
possesses such information, in order to participate in the Title IV, 
HEA programs.
    The non-Federal negotiators engaged in considerable discussion 
about the information items to be supplied to the applicant for a 
private education loan. Negotiators were concerned about several 
aspects, including how an institution should provide the information to 
an applicant, how an applicant might use the information provided by 
the institution, and how the institution could ensure that an applicant 
would complete the self-certification form accurately using the 
information the institution supplies. In addition, non-Federal 
negotiators were concerned about whether the self-certification 
information would need to be updated if the institution received 
additional information after initially providing the self-certification 
information to the applicant.
    The Department explained during negotiations that it is bound by 
the specific items and processes required in the HEA. We believe that 
the intent of the self-certification form is to prevent over-borrowing 
and provide for a more educated private education loan consumer by 
ensuring the provision of disclosures, through the institution, 
regarding the availability of Federal student aid, information on the 
cost of attendance, expected family contribution and the applicant's 
estimated financial assistance so that the applicant will be aware of 
the amount that must be borrowed to cover any gaps before consummating 
a private education loan. New section 487(a)(28) of the HEA requires 
that the institution provide the form and the required information to 
the applicant. As we discussed during negotiations, an institution may 
post the self-certification form on its Web site for the applicant to 
download or it may provide the self-certification form directly through 
its financial aid or other designated office. While the Department 
believes that contact between the institution and the applicant is an 
essential component of this process, once the form and information has 
been disseminated to the applicant, nothing in the HEA or the proposed 
regulations require institutions to track the status of private 
education loans. A non-Federal negotiator asked whether updates to the 
information provided to the applicant would be needed if the applicant 
subsequently filed or updated an application. The Department responded 
that when an institution is asked for the self-certification form and 
the required information, it should supply the form and information 
available to the institution at that time. There is no requirement to 
update it.
    In response to concerns about the potential for fraudulent use of 
the self-certification form, the negotiating committee agreed to 
specify in the proposed regulations that the required self-
certification form and information that must be provided to an 
applicant for a private education loan must be provided only to an 
applicant who is ``enrolled or admitted'' to the institution rather 
than to any student who requests the information. The non-Federal 
negotiators believed that this modification would minimize the 
possibility that a student who is not enrolled or admitted to the 
institution may request the form and the requisite information--which, 
if the student has not completed a Free Application for Federal Student 
Aid (FAFSA), may be limited to the cost of attendance only--and receive 
a private education loan for which the student is not eligible.
    The committee also agreed to add a provision to the proposed 
regulations requiring an institution to discuss the availability of 
Federal, State, and institutional aid with the applicant, at the 
request of the applicant. The addition of this requirement (reflected 
in proposed Sec.  668.14(b)(29)(ii)) addressed the concerns of several 
non-Federal negotiators who wanted to assure that an applicant for a 
private education loan could receive as much information as possible 
regarding available aid options.
    The Department agrees that it is important to call attention to the 
availability of other more favorable types of aid and believes that the 
addition of the requirement in Sec.  668.14(b)(29)(ii) will support 
this purpose. A request by the applicant for a private education loan 
will initiate the discussion about other aid options, permit the 
financial aid administrator to counsel the applicant about such 
options, and offer the applicant the opportunity to ask any questions 
he or she may have about the aid options or how to apply for the aid.
    Statute: The HEOA amended section 487(h) of the HEA by adding a new 
paragraph (27) to require any institution that enters into a preferred 
lender arrangement to agree, as a condition of program participation 
under the PPA, to compile, maintain, and make available to students and 
their families a list of the specific lenders for loans made under a 
Title IV program and for private education loans the institution 
recommends or promotes in accordance with its lender arrangement. New 
section 487(h)(27) of the HEA also requires that the institution must, 
at least annually, compile and make the list available in print or 
other medium.
    Current Regulations: While current Sec.  668.14(b) does not include 
any information related to preferred lender arrangements, current Sec.  
682.212(h) contains, consistent with our authority under sections 
432(m)(1)(B)(ii) and 479A(c) of the HEA, the Department's restrictions 
on the development and content of a preferred lender list.
    Proposed Regulations: Proposed Sec.  668.14(b)(28) would add the 
requirements reflected in section 487(h)(27) of the HEA to the 
Department's regulations governing the PPA requirements. In conjunction 
with this proposed addition, we also propose to amend Sec.  682.212(h) 
to remove information about the preferred lender list restrictions and 
instead provide a cross-reference to the requirements in proposed Sec.  
602.10. We propose to include the preferred lender list requirements in 
new Sec.  602.10, rather than part 682, because, under section 
152(a)(1)(A) of the HEA, as amended by the HEOA, all covered 
institutions (as defined in section 151(2) of the HEA) that have 
preferred lender arrangements must comply with these requirements. Part 
682 only covers the FFEL program.
    Reasons: Proposed Sec.  668.14(b)(28) would implement the new 
statutory requirements any institution that has established a preferred 
lender arrangement must meet in order to participate in the Title IV, 
HEA programs. Please refer to the preamble discussions regarding 
proposed Sec. Sec.  601.2 and 601.10 for more information on the 
definition of a preferred lender arrangement and the requirements

[[Page 37446]]

associated with such an arrangement and preferred lender lists.
Standards of Administrative Capability (Sec.  668.16)
    Statute: The HEOA amended section 485(m) of the HEA by adding a 
requirement that an institution participating in any Title IV program 
must report annually to the Secretary, any reasonable reimbursements 
paid or provided by a private educational lender or group of such 
lenders for service on an advisory board, commission, or group 
established by such lenders.
    Under section 485(m) of the HEA, the reports must include, among 
other items, the amount for each specific instance of reasonable 
expenses paid or provided and a brief description of the activity for 
which the expenses were paid or provided.
    Current Regulations: None.
    Proposed Regulations: We propose to amend Sec.  668.16 (Standards 
of administrative capability) to incorporate the requirement from 
section 485(m) of the HEA that institutions participating in the Title 
IV, HEA Program report annually to the Secretary any reasonable 
expenses paid or provided to any employee of the financial aid office, 
or any employee who otherwise has responsibilities with respect to 
education loans or other financial aid at the institution, for service 
on an advisory board, commission, or group established by a private 
educational lender or group of lenders. Consistent with section 
485(m)(1)(A) through (D) of the HEA, the information to be reported 
pursuant to proposed Sec.  668.16(d)(2)(i) would consist of: (1) The 
amount for each specific instance of reasonable expenses paid or 
provided; (2) The name of the individual to whom the expenses were paid 
or provided; (3) The dates of the activity for which the expenses were 
paid or provided; and (4) A brief description of the activity for which 
the expenses were paid or provided.
    Under proposed Sec.  668.16(d)(2)(ii), expenses would be considered 
``reasonable'' if the expenses meet the standards of and are paid in 
accordance with an applicable State government reimbursement policy or, 
if no applicable State policy exists, in accordance with applicable 
Federal cost principles. In addition, for purposes of determining 
whether expenses are ``reasonable'' under this provision, the 
applicable policy would need to be consistently applied to an 
institution's employees being reimbursed.
    Reasons: Proposed Sec.  668.16(d)(2)(i) would implement the changes 
made to section 485(m) of the HEA by the HEOA. We propose to include 
the requirements from section 485(m) of the HEA in current Sec.  
668.16, because this section identifies standards of administrative 
capability applicable to all institutions that participate in any Title 
IV program and includes similar requirements not specified in the PPA.
    Proposed Sec.  668.16(d)(2)(ii) would clarify how to determine 
whether expenses are ``reasonable expenses'' under section 485(m) of 
the HEA and proposed Sec.  668.16(d)(2)(i). Many negotiators asked for 
clarification about what constitutes a ``reasonable'' expense. While 
the Department declined to define the term ``reasonable,'' the 
Department developed language loosely modeled after the language 
included in Sec.  682.418(b)(10). The language reflected in proposed 
Sec.  668.16(d)(2)(ii) describes reasonable expenses as those paid in 
accordance with an applicable State government reimbursement policy or 
with applicable Federal cost principles. Federal cost principles would 
include those contained in the Office of Management and Budget (OMB) 
circulars A-21 and A-122.
    We propose to tie ``reasonable expenses'' to State policies or the 
applicable Federal cost principles because we envision that a public 
institution generally would use the State government reimbursement 
policy of the State in which the institution is located and that a 
private institution generally would use the applicable Federal cost 
principles contained in either OMB Circular A-21 or Circular A-122.
    In addition, we understand that there may be circumstances under 
which a private institution receives funding from a State and may 
therefore use the State government reimbursement policy. In such cases, 
private schools may choose whether to use a State policy or the Federal 
cost principles. Proposed Sec.  668.16(d)(2)(ii) would not specify 
which policy or principles must be used, but rather would provide 
institutions with some flexibility as long as the policy or principle 
is consistently applied to an institution's employees.
    The non-Federal negotiators also had concerns regarding how an 
institution is to determine the correct amount to report for each 
expense. The Department believes that an institution can rely on 
information provided by a third party (in this case, the lender or 
lenders) in reporting the amount of reasonable expenses.
    Lastly, non-Federal negotiators requested clarification on whether 
an annual report must be filed with the Secretary if no employee has 
received reimbursements. After the required form is developed, the 
Department will provide clarification on this issue through the Federal 
Register notice that announces and describes the reporting process.
Financial Assistance Information (Sec.  668.42)
    Statute: The HEOA amended section 485(a)(1)(M) of the HEA by adding 
a requirement that institutions that participate in the Title IV 
programs describe--for prospective and enrolled students--the terms and 
conditions of the loans students receive under the FFEL, Direct Loan 
and Perkins Loan programs.
    The HEOA removed from section 485(a)(1)(M) of the HEA the 
requirement that institutions provide information about the terms and 
conditions under which FFEL and Perkins Loans could be deferred or 
partially cancelled for service under the Peace Corps Act or the 
Domestic Volunteer Service Act.
    Current Regulations: Current Sec.  668.42(a)(1) requires that an 
institution provide a description of all student financial assistance 
programs to prospective and enrolled students.
    For students receiving financial assistance, current Sec.  
668.42(c)(4) requires an institution to provide specific information 
about any loan received by the student as part of the aid package.
    Proposed Regulations: Proposed Sec.  668.42(a)(4) would require 
institutions to describe for prospective and enrolled students the 
terms and conditions of loans students receive under the FFEL, Direct 
Loan, and Perkins Loan programs in addition to a general description of 
the programs.
    The proposed regulations also would remove the requirement, 
reflected in current Sec.  668.42(c)(7), to describe the terms and 
conditions under which FFEL and Perkins Loans could be deferred for 
service under the Peace Corps Act or the Domestic Volunteer Service 
Act.
    Reason: We propose to amend Sec.  668.42 to incorporate the 
expanded information dissemination requirement for prospective and 
enrolled students reflected in the new statutory language and to remove 
the description of the Peace Corps Act and Domestic Volunteer Service 
Act deferments and partial cancellations in accordance with changes 
made to section 485(a)(1)(M) of the HEA by the HEOA.

[[Page 37447]]

Cohort Default Rates

Three-Year Cohort Default Rate (Sec. Sec.  668.200 Through 668.217)
    Statute: The HEOA amended section 435(m) of the HEA by increasing 
the period used to calculate the cohort default rate from two to three 
years. Under the new three-year method, the cohort default rate is the 
percentage of borrowers who default on their FFEL or Direct Loans 
before the end of the second fiscal year (instead of the first fiscal 
year) following the fiscal year in which the borrowers entered 
repayment. The three-year method is effective for cohort default rates 
calculated for fiscal year 2009 and subsequent years. However, section 
436(e)(2) of the HEA provides for a transition period during which 
sanctions will continue to be imposed based on the two-year cohort 
default rates until rates based on the three-year method are calculated 
for three consecutive years.
    Current Regulations: Current Sec.  668.183 under subpart M of part 
668 provides for a two-year cohort default rate. The two-year rate is 
the percentage of borrowers who default on their loans by the end of 
the fiscal year following the year those borrowers entered repayment.
    Proposed Regulations: We propose to add a new subpart N to part 668 
to provide for regulations for calculating the three-year cohort 
default rate. Proposed Sec.  668.202 would describe the four steps that 
the Department follows to calculate and apply the three-year cohort 
default rate for a fiscal year. With regard to the transition period, 
proposed Sec. Sec.  668.181 and 668.200(b) would specify that the 
Department will issue annually two sets of draft and official cohort 
default rates for fiscal years 2009, 2010, and 2011. For each of these 
years, an institution would receive one set of draft and official rates 
under proposed subpart N and another set under subpart M, and could 
take administrative appeals as outlined in those subparts from the two-
year rates, the three-year rates, or both. For consistency with the 
HEOA's transition provision, proposed Sec.  668.206(a)(1) would specify 
that institutions would not lose eligibility based on one three-year 
rate of 40 percent or higher until the Department's issuance of 
official three-year rates for the fiscal year 2011 cohort (i.e., in 
2014).
    Reasons: Proposed subpart N would include the three-year 
calculation as well as all of the statutory and regulatory changes 
relating to the three-year default rates. In most other respects, the 
provisions in proposed subpart N would parallel the two-year provisions 
in current subpart M. We believe that having two subparts for the two 
cohort default rates provides the best solution for dealing with the 
transition period during which some provisions from both subparts would 
apply. After the transition period, an institution would rely solely on 
the provisions in subpart N because the Department would no longer be 
calculating or issuing two-year cohort default rates.
Institutional Eligibility and Appeals (Sec.  668.16(m))
    Statute: For three-year cohort default rates, issued beginning in 
fiscal year 2012 with the three-year rate for fiscal year 2009, section 
435(a)(2)(B) of the HEA imposes a threshold default rate of 30 percent 
(an increase from the 25 percent rate applicable to the two-year 
default rates under the transition provision in section 436(e)(2) of 
the HEOA). Under section 435(a)(2)(B) of the HEA, an institution may 
lose its eligibility to participate in the Pell Grant, FFEL, and Direct 
Loan programs if its three-year default rate is equal to or greater 
than 30 percent for three consecutive years. However, section 435(a)(3) 
of the HEA allows an institution whose three-year default rate is 30 
percent or more for two consecutive years to file an appeal 
demonstrating exceptional mitigating circumstances as described in 
section 435(a)(5) of the HEA (this appeal is referred to as the 
``economically disadvantaged'' appeal in the regulations). The 
institution must file the appeal no later than 30 days after it 
receives a notice from the Department regarding its second successive 
three-year default rate that exceeds the 30 percent threshold. If the 
Department determines that the institution satisfies the requirements 
specified for the appeal, the Department will not place the institution 
on provisional certification based solely on its default rate.
    In addition, the HEOA increased the participation rate index, as 
reflected in section 435(a)(8) of the HEA, from 0.0375 to 0.0625. Under 
this section, an institution may avoid sanctions based on three 
consecutive years of three-year default rates that are 30 percent or 
higher if its participation rate index for any of the three years is 
equal to or lower than 0.0625.
    Current Regulations: Under current Sec. Sec.  668.16(m) and 
668.187, an institution is subject to loss of eligibility if its three 
most recent cohort default rates are 25 percent but less than 40 
percent, or if its most recent cohort default rate is 40 percent or 
more, and it is subject to provisional certification if any of its 
three most recent two-year cohort default rates are 25 percent or more. 
The threshold for a participation rate index appeal under current Sec.  
668.195(a)(2) is 0.0375.
    Proposed Regulations: Proposed Sec.  668.16(m)(1)(ii) would apply 
the current rules for administrative capability based on two-year 
cohort default rates during the transition period. Thereafter, a school 
would be administratively capable if two of its three most recent 
three-year rates are less than 30 percent. Under proposed Sec.  
668.16(m)(2), the current rules for provisional certification based on 
two-year cohort default rates of 25 percent or more but less than 40 
percent would continue to apply during the transition period. 
Thereafter, an institution whose three-year default rates are 30 
percent or more, but less than 40 percent, for two years would not be 
provisionally certified based solely on its default rates under the 
following circumstances:
    (1) The institution files timely a request for adjustment or appeal 
from the second such rate under proposed Sec. Sec.  668.209 
(Uncorrected data adjustments), 668.210 (New data adjustments), or 
668.212 (Loan servicing appeals) and the request or appeal is pending 
or succeeds in reducing the institution's three-year rate below 30 
percent.
    (2) The institution files timely an appeal under proposed Sec.  
668.213 (Economically disadvantaged appeals) from the second such rate 
and the appeal is pending or successful. Proposed Sec.  668.213 
provides that the two rates of 30 percent or more must be successive to 
permit the appeal.
    (3) The institution files a timely participation rate index appeal 
under Sec.  668.214 and the appeal is pending or successful.
    (4) The institution had 30 or fewer borrowers in the three most 
recent cohorts of borrowers used to calculate the institution's rates.
    (5) A three-year rate that would otherwise potentially subject the 
institution to provisional certification was calculated as an average 
rate.
    To avoid provisional certification by invoking exceptions (1), (2) 
or (3), the institution would file a request for adjustment or appeal 
in response to a notice from the Department that the institution's 
second three-year cohort default rate, or second successive three-year 
default rate for an economically disadvantaged appeal, is 30 percent or 
more, but less than 40 percent.
    Under proposed Sec.  668.214, a participation rate index appeal 
could be taken from a loss of eligibility, or

[[Page 37448]]

potential placement on provisional certification, based on three-year 
cohort default rates if the participation rate index for any of the 
excessive rates was .0625 or less. The appeal would be taken within 30 
days of receiving the most recent excessive official rate.
    In addition, under proposed Sec.  668.204(c)(1)(iii), an 
institution would be allowed to challenge a potential placement on 
provisional certification because its three-year cohort default rates 
for two of the most recent three years would be 30 percent or more, but 
less than 40 percent, even though the second such rate was available 
only as a draft rate, if its participation rate index was equal to or 
less than 0.0625 for either its draft rate, or its most recent official 
rate equaling or exceeding 30 percent but less than 40 percent. The 
challenge would be taken following notice to the school of its draft 
rate.
    Reasons: The proposed amendments to Sec.  668.16(m) would 
incorporate into the Department's cohort default rate regulations the 
statutory requirements relating to appeals for extenuating 
circumstances and raising the ceiling for the participation rate index 
appeal.
    The proposed regulations would also allow data appeals to ensure 
that schools are not provisionally certified based on incorrect data.
    In addition, the Department proposes to exempt from provisional 
certification based solely on cohort default rates any school that has 
thirty or fewer borrowers included in its most recent three cohort 
default rates, or had its excessive rates calculated by the ``average 
rates'' method, or that qualifies for a successful participation rate 
challenge or appeal. The Department believes that two relatively high 
cohort default rates that are average rates, or that pertain to very 
small schools, or to schools that certify loans for only a very small 
portion of their enrollment, are not necessarily indicative of a lack 
of administrative capability necessitating provisional certification.
Default Prevention Plans (Sec.  668.217)
    Statute: Section 435(a)(7) of the HEA requires an institution whose 
3-year cohort default rate for a fiscal year is 30 percent or more to 
establish a default prevention task force to prepare a default 
prevention plan to (1) identify the factors causing the institution's 
rate to be 30 percent or more, (2) establish measurable objectives and 
steps to improve its default rate, and (3) specify actions that can be 
taken to improve student loan repayment, including counseling regarding 
loan repayment options. The institution must submit the plan to the 
Department, and, after reviewing the plan, the Department offers 
technical assistance to the institution to help improve the default 
rate.
    In cases where the institution's default rate is 30 percent or more 
for two consecutive fiscal years, the institution's default prevention 
task force must review and revise its plan. The institution must send 
the revised plan to the Department, and, after reviewing the plan, we 
may require the institution to take actions that promote student loan 
repayment.
    Current Regulations: The Department's current regulations do not 
address default prevention plans. However, current Appendix B to 
subpart M provides guidance to an institution on strategies it may 
employ or measures it may use in developing a default management plan.
    Proposed Regulations: Proposed Sec.  668.217 would incorporate the 
statutory requirements from section 435(a)(7) of the HEA, and would 
apply to all 3-year rates published, beginning with the 3-year rate to 
be published in 2012, that would cover borrowers who entered repayment 
in FY 2009. The guidance in current Appendix B to subpart M would be 
slightly modified and reorganized and included as Appendix A to new 
subpart N.
    Reasons: The statute provides flexibility to an institution to 
develop a default prevention plan pertinent to its circumstances, and 
the Department does not wish to specify in regulations what the 
institution may or may not include in its default prevention plan. The 
Department already has the authority, under the statutory provisions 
for reviewing the plan, to require institutions to take actions on a 
case by case basis. For this reason, the Department elected not to 
specify detailed requirements for the default prevention plan.
Electronic Processes (Sec. Sec.  668.186, 668.190(b), 668.191(b), 
668.209, 668.210, 668.211, and 668.212)
    Statute: Section 435(a)(2) of the HEA requires the Department to 
provide institutions that are subject to loss of eligibility based on 
cohort default rates with an opportunity to appeal within 30 days of 
their receipt of notice of the impending loss of eligibility.
    Current Regulations: Under current Sec.  668.186(c), an institution 
whose cohort default rate is less than 10 percent receives a copy of a 
loan record detail report that lists the loans included in its default 
rate calculation only on request. If the institution is requesting an 
adjustment to, or appealing, its default rate under current subpart M, 
and does not have a copy of its loan record detail report, current 
Sec.  668.190(b)(1) (Uncorrected data adjustments), Sec.  668.191(b) 
(New data adjustments), Sec.  668.192(b)(1) (Erroneous data appeals) 
and Sec.  668.193(c) (Loan servicing appeals) require the institution 
to request the report within 15 days after it receives notice from the 
Department of its official cohort default rate.
    Proposed Regulations: Proposed Sec.  668.186 would eliminate the 
need to request a loan record detail report, and the associated 15-day 
deadline, by providing that the report will be sent electronically to 
the institution as part of a package notifying the institution of its 
official cohort default rate. The institution would have five business 
days, from the transmission date of the package as posted on the 
Department's Web site, to report any problem with receiving that 
transmission. If the institution reports a problem within the five-day 
period, and the Department agrees that the institution did not cause 
the problem, the Department would extend the adjustment, challenge, and 
appeal deadlines and timeframes to account for retransmitting the 
package after the problem is resolved. If no problems are reported by 
the institution, the timeframe associated with filing or requesting the 
adjustment, challenge, or appeal would begin on the sixth day following 
the transmission date of the package that is posted on the Department's 
Web site. The timeframes for the adjustments, challenges, and appeals, 
and eliminating the fifteen-day deadlines for requesting the loan 
record detail reports are reflected in Sec. Sec.  668.190(b), 
668.191(b), 668.192(b), and 668.193(c).
    The provisions in proposed Sec.  668.186 regarding electronic 
delivery of the loan detail report, and the proposed elimination, from 
subpart M provisions regarding adjustments, challenges and appeals, of 
the fifteen-day deadline for requesting a copy of the report, would 
also be reflected in the following parallel provisions in subpart N: 
Sec. Sec.  668.209, 668.210, 668.211, and 668.212.
    Reasons: These proposed changes merely update the regulations to 
reflect the shift from paper to electronic processes, as established by 
a notice published in the Federal Register on February 25, 2003 (68 FR 
8746).

Conforming Changes

    Statute: Section 428G(a)(4) and (b)(3) of the HEA provide that 
beginning October 1, 2011, an institution whose cohort default rate for 
each of the three most recent fiscal years is less than 15

[[Page 37449]]

percent (1) may disburse a FFEL loan in one installment for a period of 
enrollment that is no longer than one semester, trimester, quarter, or 
4 months; and (2) does not have to delay for 30 days disbursing a FFEL 
loan to a first year, first time borrower. These disbursement 
provisions currently apply only to an institution whose default rate is 
less than 10 percent. The HEOA added section 428G(a)(4) and (b)(3) to 
the HEA and, in doing so, substituted the 15 percent default rate for 
the 10 percent rate beginning on October 1, 2011.
    Current regulations: The FFEL regulations in Sec.  682.604(c)(5) 
and (c)(8), and the corresponding Direct Loan regulations in Sec. Sec.  
685.301(b)(6) and 685.303(b)(4), make the HEA's disbursement benefits 
available only to institutions whose cohort default rate is less than 
10 percent.
    Proposed regulations: We propose to amend Sec.  668.604(c)(5) and 
(c)(8), 668.301(b)(6), and 685.303(b)(4) to use the new 15 percent 
default threshold for FFEL and Direct Loans first disbursed on or after 
October 1, 2011. These proposed amendments would provide the 
disbursement benefits to an institution whose default rate, as 
calculated under either subpart M or subpart N, was less than 15 
percent.
    Reasons: Because the Department will issue cohort default rates for 
fiscal years 2009, 2010, and 2011 under both subpart M and subpart N, 
we believe it is reasonable to allow an institution to use the default 
rates under either subpart for its three most recent fiscal years to 
qualify for the disbursement benefits. For this reason, we have drafted 
proposed Sec.  668.604(c)(5) and (c)(8), 668.301(b)(6), and 
685.303(b)(4) to permit institutions to use either default rate.
    Statute: As amended by the HEOA, sections 487(f) and 498(k) of the 
HEA provide, in part, that an institution that conducts a teach-out at 
a site of a closed institution may have that site approved as an 
additional location if--
    (1) The closed institution ceased operations as a result of an 
emergency action or other action initiated by the Department to limit, 
suspend, or terminate the institution's participation in the Title IV, 
HEA programs; and
    (2) The closed institution submitted a teach-out plan that was 
approved by its accrediting agency.
    Under section 498(k) of the HEA, as amended, an institution that 
conducts a teach-out under these circumstances is not responsible for 
any liabilities of the closed institution.
    Current Regulations: Current Sec.  668.184 describes how cohort 
default rates are calculated or determined for institutions that 
undergo a change in status. A change in status occurs whenever an 
institution acquires or merges with another institution, acquires a 
branch or location of another institution, or whenever a branch or 
location of an institution becomes a separate institution. For these 
cases, current Sec.  668.184 describes how the default rate of the 
merged or acquired institution is blended with or used to determine the 
institution's default rate before and after the change in status.
    Proposed Regulations: In a separate notice of proposed rulemaking 
and consistent with sections 487(f) and 498(k) of the HEA, the 
Department intends to propose to amend 34 CFR 600.32(d) to provide that 
the default rate of an institution that establishes an additional 
location at the site of a closed institution for which it conducted a 
teach-out would not be affected in any way by the closed institution's 
cohort default rate. In light of the statutory changes and our intended 
amendment to 34 CFR 600.32(d), we propose to amend Sec. Sec.  
668.184(a)(1) and 668.203(a)(1) to cross-reference 34 CFR 600.32(d).
    Reasons: In keeping with the statutory intent to encourage an 
institution to conduct a teach-out of a closed institution, we view the 
cohort default rate of a closed institution as a non-monetary liability 
that could dissuade an institution from conducting the teach-out if its 
cohort default rate would be adversely affected by the closed 
institution's cohort default rate. For this reason, we believe that it 
is appropriate to ensure that the default rate of an institution that 
establishes an additional location at the site of a closed institution 
for which it conducted a teach-out would not be affected in any way by 
the closed institution's cohort default rate.

Entrance Counseling

Counseling Borrowers (Sec. Sec.  682.604 and 685.304)
    Statute: Section 488(g) of the HEOA modified the entrance 
counseling that institutions are required to provide to first-time 
borrowers of FFEL or Direct Loan Program loans at or prior to the first 
disbursement of such loans. The HEOA added these requirements to new 
section 485(l) of the HEA. Prior to the enactment of the HEOA, the 
Department's entrance counseling requirements were purely regulatory. 
Section 485(l) of the HEA modifies and expands on the Department's 
current regulatory entrance counseling requirements in Sec. Sec.  
682.604 and 685.304.
    Under section 485(l) of the HEA, entrance counseling may be 
conducted during an in-person session, provided to a borrower in a 
separate notice that the borrower signs and returns to the institution, 
or provided to a borrower online or by interactive electronic means, 
with the borrower acknowledging receipt of the information.
    The entrance counseling required under section 485(l) of the HEA 
must include the following information:
    <bullet> To the extent practicable, the effect of accepting the 
loan to be disbursed on the eligibility of the borrower for other forms 
of student aid;
    <bullet> An explanation of the use of the master promissory note;
    <bullet> Information on how interest accrues and is capitalized 
during periods when the interest is not paid by the borrower or the 
Secretary;
    <bullet> For Unsubsidized Stafford Loans or PLUS Loans made under 
the FFEL or Direct Loan programs, the option of the borrower to pay the 
interest while in school;
    <bullet> The definition of half-time enrollment at the institution, 
during regular terms and summer school, and the consequences of not 
maintaining half-time enrollment;
    An explanation of the importance of contacting the appropriate 
offices at the institution if the borrower withdraws prior to 
completing the program of study so the institution can provide exit 
counseling, including information regarding the borrower's repayment 
options and loan consolidation;
    <bullet> Examples of monthly repayment amounts based on a range of 
level of indebtedness of borrowers of Stafford Loans and, as 
appropriate, graduate borrowers of Stafford or PLUS loans, or the 
average cumulative indebtedness of other borrowers in the same programs 
as the borrower at the same institution;
    <bullet> The obligation of the borrower to repay the full amount of 
the loan, regardless of whether the borrower completes the program in 
which the borrower is enrolled within the regular time for completion;
    <bullet> The likely consequences of default on the loan, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    <bullet> Information on the National Student Loan Data System 
(NSLDS) and how the borrower may access his or her records; and
    <bullet> The name and contact information of the individual a 
borrower can contact with questions regarding the borrower's rights and 
responsibilities or the terms and conditions of the loan.

[[Page 37450]]

    When providing entrance counseling, institutions are encouraged to 
use interactive programs to test the borrower's understanding of the 
terms and conditions of their student loans.
    Current Regulations: For the FFEL Program, current Sec.  682.604(f) 
requires a school to conduct initial counseling with each Stafford Loan 
borrower prior to its release of the first disbursement, unless the 
borrower has received a prior Stafford, SLS, or Direct Subsidized or 
Unsubsidized loan. Current Sec. Sec.  682.604(f)(1) and 682.604(f)(5) 
describe what must be included in the initial counseling for Stafford 
Loan borrowers (e.g., an explanation of the use of a Master Promissory 
Note; the seriousness and importance of the repayment obligation the 
student borrower is assuming; and the likely consequences of default, 
including adverse credit reports, Federal offset, and litigation).
    Current Sec.  682.604(f)(2) requires a school to ensure that 
initial counseling is conducted with each graduate or professional 
student PLUS loan borrower prior to its release of the first 
disbursement of the PLUS Loan, unless the student has received a prior 
FFEL PLUS loan or Direct PLUS loan. Current Sec.  682.604(f)(2) also 
specifies what must be included in the initial counseling for graduate 
or professional student PLUS Loan borrowers (e.g., sample monthly 
repayment amounts based on a range of student levels of indebtedness or 
on the average indebtedness of graduate or professional student PLUS 
loan borrowers, or student borrowers with Stafford and PLUS loans, 
depending on the types of loans the borrower has obtained, at the same 
school or in the same program of study at the same school).
    For both Stafford and PLUS loan borrowers, current Sec.  
682.604(f)(3) requires schools to conduct initial counseling either in 
person, by audiovisual presentation, or by interactive electronic 
means. Under current Sec.  682.604(f)(6), if initial counseling is 
conducted through interactive electronic means, the school must take 
reasonable steps to ensure that each student borrower receives the 
counseling materials and participates in and completes the initial 
counseling.
    Current Sec.  682.604(f)(4) requires a school to ensure that an 
individual with expertise in the Title IV programs is reasonably 
available shortly after the counseling to answer the student borrower's 
questions regarding those programs. As an alternative, prior to 
releasing the proceeds of a loan in the case of a student borrower 
enrolled in a correspondence program or a student borrower enrolled in 
a study-abroad program that the home institution approves for credit, 
the counseling may be provided through written materials.
    Current Sec.  682.604(f)(7) requires a school to maintain 
documentation substantiating the school's compliance with the entrance 
counseling requirements for each student borrower.
    For the Direct Loan program, current Sec.  685.304(a) requires 
schools to ensure that initial counseling is conducted with each Direct 
Subsidized Loan or Direct Unsubsidized Loan student borrower prior to 
making the first disbursement of the proceeds of a loan to a student 
borrower unless the student borrower has received a prior Direct 
Subsidized, Direct Unsubsidized, FFEL Stafford, or Federal SLS Loan.
    Current Sec.  685.304(b) requires schools to conduct initial 
counseling with each graduate or professional student Direct PLUS Loan 
borrower prior to making the first disbursement of the loan unless the 
student borrower has received a prior Direct PLUS Loan or FFEL PLUS 
Loan.
    The entrance counseling requirements specified in current 
Sec. Sec.  685.304(a) and 685.304(b) of the Direct Loan Program 
regulations correspond to the entrance counseling requirements in the 
FFEL program, except that, as provided for in current Sec.  
685.304(a)(5), a Direct Loan school may adopt an alternative approach 
for initial counseling as part of the school's quality assurance plan.
    Proposed Regulations: The Department has restructured and modified 
Sec.  682.604(f) of the FFEL regulations to align the regulations with 
section 485(l) of the HEA. Under proposed Sec.  682.604(f)(3), initial 
counseling for Stafford and graduate or professional student PLUS Loan 
borrowers must provide comprehensive information on the terms and 
conditions of the loan and on the responsibilities of the borrower with 
respect to the loan. This information would be provided to the borrower 
during an entrance counseling session conducted in person; on a 
separate written form provided to the borrower that the borrower signs 
and returns to the school; or online or by interactive electronic 
means, with the borrower acknowledging receipt of the information.
    Proposed Sec.  682.604(f)(4) would largely mirror current Sec.  
682.604(f)(6) by requiring a school that conducts initial counseling 
online or through interactive electronic means to take reasonable steps 
to ensure that each student borrower receives the counseling materials 
and participates in and completes the initial counseling. Consistent 
with new section 485(l)(1)(B) of the HEA, proposed Sec.  682.604(f)(4) 
would also provide that such reasonable steps may include completion of 
any interactive program that tests the borrower's understanding of the 
terms and conditions of the borrower's loans.
    Proposed Sec.  682.604(f)(5), which provides that a school must 
ensure that an individual with expertise in the Title IV programs is 
reasonably available shortly after the counseling to answer questions 
regarding those programs, would mirror current Sec.  682.604(f)(4).
    The content of the initial counseling, which appears in current 
Sec.  682.604(f)(1) and 682.604(f)(5), would be included, with 
modifications aligning the regulatory language with new section 485(l) 
of the HEA, in proposed Sec.  682.604(f)(6) (for Stafford Loan 
borrowers) and Sec.  682.604(f)(7) (for graduate and professional 
student PLUS Loan borrowers). Under proposed Sec.  682.604(f)(6), 
initial counseling for Stafford Loan borrowers must--
    <bullet> Explain the use of a Master Promissory Note;
    <bullet> Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the student borrower is 
assuming;
    <bullet> Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    <bullet> In the case of a student borrower (for other than a loan 
made or originated by the school), emphasize that the student borrower 
is obligated to repay the full amount of the loan even if the student 
borrower does not complete the program, does not complete the program 
within the regular time for program completion, is unable to obtain 
employment upon completion, or is otherwise dissatisfied with or does 
not receive the educational or other services that the student borrower 
purchased from the school;
    <bullet> Inform the student borrower of sample monthly repayment 
amounts based on a range of student levels of indebtedness of Stafford 
loan borrowers, or student borrowers with Stafford and PLUS loans, 
depending on the types of loans the borrower has obtained; or the 
average indebtedness of other borrowers in the same program at the same 
school as the borrower;
    <bullet> To the extent practicable, explain the effect of accepting 
the loan to be disbursed on the eligibility of the borrower for other 
forms of student financial assistance;
    <bullet> Provide information on how interest accrues and is 
capitalized during periods when the interest is not

[[Page 37451]]

paid by either the borrower or the Secretary;
    <bullet> Inform the borrower of the option to pay the interest on 
an unsubsidized Stafford Loan while the borrower is in school;
    <bullet> Explain the definition of half-time enrollment at the 
school, during regular terms and summer school, if applicable, and the 
consequences of not maintaining half-time enrollment;
    <bullet> Explain the importance of contacting the appropriate 
offices at the school if the borrower withdraws prior to completing the 
borrower's program of study so that the school can provide exit 
counseling, including information regarding the borrower's repayment 
options and loan consolidation;
    <bullet> Provide information on NSLDS and how the borrower can 
access the borrower's records; and
    <bullet> Provide the name of and contact information for the 
individual the borrower may contact if the borrower has any questions 
about the borrower's rights and responsibilities or the terms and 
conditions of the loan.
    Under proposed Sec.  682.604(f)(7), initial counseling for graduate 
or professional student PLUS Loan borrowers must--
    <bullet> Inform the student borrower of sample monthly repayment 
amounts based on a range of student levels of indebtedness of graduate 
or professional student PLUS loan borrowers, or student borrowers with 
Stafford and PLUS loans, depending on the types of loans the borrower 
has obtained; or the average indebtedness of other borrowers in the 
same program at the same school as the borrower;
    <bullet> Inform the borrower of the option to pay interest on a 
PLUS Loan while the borrower is in school;
    <bullet> For a graduate or professional student PLUS Loan borrower 
who has received a prior FFEL Stafford or Direct Subsidized or 
Unsubsidized loan, provide the information, specified in Sec.  
682.603(d)(1)(i) through Sec.  682.603(d)(1)(iii), that compares 
Stafford and PLUS Loan interest rates, interest accrual periods, and 
repayment period begin dates; and
    <bullet> For a graduate or professional student PLUS Loan borrower 
who has not received a prior FFEL Stafford, or Direct Subsidized or 
Unsubsidized loan, provide the Stafford Loan initial counseling 
information specified in proposed Sec.  682.604(f)(6)(i) through Sec.  
682.604(f)(6)(xii).
    Corresponding initial counseling requirements for Direct 
Subsidized, Direct Unsubsidized, and Direct PLUS loan borrowers are 
included in proposed Sec.  685.304(a)(1) through Sec.  685.304(a)(9) of 
the Direct Loan regulations.
    Reasons: These proposed amendments to Sec. Sec.  682.694(f) and 
685.304(a) are intended to implement the changes made to section 485(l) 
of the HEA. The HEOA incorporated into the HEA many of the entrance 
counseling requirements already reflected in current Sec. Sec.  
682.694(f) and 685.304(a) and also added several new requirements. In 
cases where the statutory language in the HEA is similar to current 
regulatory language, the Department modified the current regulations to 
track more closely the new statutory language. In cases where no 
current regulatory requirements exist, we propose to incorporate--with 
a few minor changes--the statutory language regarding the requirements 
into our regulations. To this end, the proposed regulations closely 
follow the language of section 485(l) of the HEA. For this reason, only 
a few issues generated extensive discussion during the negotiated 
rulemaking sessions.
    Initially, the Department proposed language that would allow 
schools to provide entrance counseling ``online by interactive 
electronic means.'' The non-Federal negotiators pointed out that the 
term ``online'' does not necessarily mean the same thing as 
``interactive.'' The Department agreed with the non-Federal 
negotiators, and changed the wording of the proposed regulations to 
read ``online or through interactive electronic means.''
    The draft language initially proposed by the Department for Sec.  
682.604(f)(6)(v)(B) of the Stafford Loan entrance counseling 
requirements would have given schools the option to provide information 
on the ``average cumulative indebtedness of other borrowers in the same 
program at the same school as the borrower'' during Stafford Loan 
entrance counseling. The Department proposed similar language in 
proposed Sec.  682.604(f)(7)(i)(B) for PLUS Loan entrance counseling. 
When presented with this draft language, the non-Federal negotiators 
expressed concern that requiring the provision of ``cumulative'' 
indebtedness information could be misleading, especially in the case of 
graduate or professional student PLUS Loan borrowers, whose level of 
undergraduate indebtedness could vary significantly by the time the 
student enters a graduate or professional program.
    The Department agreed that the information on indebtedness provided 
to students would be more useful if it were limited to the average 
indebtedness incurred by the borrowers while they are in the program of 
study. For this reason, we agreed not to include the word 
``cumulative'' in proposed Sec. Sec.  682.604(f)(6)(v)(B) and 
682.604(f)(7)(i)(B), and to make corresponding changes in proposed 
Sec. Sec.  685.304(a)(6)(v)(B) and 685.304(a)(7)(i)(B) of the Direct 
Loan regulations.
    Some non-Federal negotiators raised questions about the scope of 
proposed Sec.  682.604(f)(6)(iv), which would require schools to inform 
borrowers that the borrower is responsible for repaying the loan, even 
if the borrower does not complete the program within the regular time 
for completion. The negotiators questioned how this requirement would 
affect requests for in-school deferments for borrowers who are 
attending less than full time. The Department responded that this 
requirement is unrelated to a borrower's eligibility for an in-school 
deferment and that it merely would require that borrowers be informed 
that they are still obligated to repay the loan, even if it takes them 
a longer time to complete the program than is normally expected (as 
might be the case with a borrower attending less than full time).

Exit Counseling

Counseling Borrowers (Sec. Sec.  674.42(b), 682.604(g) and 685.304(b))
    Statute: Section 488(b) of the HEOA modified section 485(b)(1)(A) 
of the HEA to require each eligible institution, through financial aid 
offices or otherwise, to conduct exit counseling for borrowers 
receiving loans made, insured or guaranteed under the FFEL Program 
(except for Consolidation Loans or Federal PLUS loans made to parent 
borrowers) or loans made under the Direct Loan Program (other than 
Federal Direct Consolidation Loans or Federal Direct PLUS loans made to 
parent borrowers) or made under the Perkins Loan Program prior to the 
completion of the borrower's course of study or the borrower's 
departure from the institution. Many of the exit counseling 
requirements in section 485(b)(1)(A) of the HEA are similar to the exit 
counseling requirements in current 34 CFR Sec. Sec.  674.42(b), 
682.604(g), and 685.304(b).
    Section 485(b)(1)(A) of the HEA, as amended by the HEOA, requires 
exit counseling to include:
    <bullet> Information on repayment plans, including a description of 
the different features of each plan and samples showing average 
anticipated monthly payments with the difference in interest paid and 
total payments shown with each plan.

[[Page 37452]]

    <bullet> Debt management strategies to assist the borrower in 
repaying the debt.
    <bullet> Options the borrower has to prepay each loan or pay each 
loan on a shorter schedule or to change repayment plans.
    <bullet> Information on loan forgiveness and cancellation 
provisions and the conditions under which the borrower may obtain full 
or partial forgiveness or cancellation of principal and interest.
    <bullet> Information on forbearance provisions and a general 
description of terms and conditions under which the borrower may defer 
repayment of principal or interest or be granted forbearance.
    <bullet> Information on the consequences of default on a loan, 
including adverse credit reports and delinquent debt collection 
procedures under Federal law and litigation.
    <bullet> Information with respect to Consolidation Loans to 
discharge FFEL, Direct Loan, and Perkins Loan program loans, which 
includes--
    (1) The effects of the consolidation on total interest to be paid, 
fees, and length of repayment;
    (2) The effect on a borrower's underlying loan benefits, which 
includes grace periods, loan forgiveness, cancellation and deferment;
    (3) The option the borrower has to prepay the loan or to change 
repayment plans; and
    (4) That borrower benefit programs may vary depending on the 
lender.
    <bullet> A general description of the types of tax benefits that 
might be available to borrowers.
    <bullet> Information on how a borrower can use NSLDS to get 
information on the status of his or her loans.
    Current Regulations: Under current Sec. Sec.  674.42(b), 
682.604(g), and 685.304(b), schools must ensure that exit counseling is 
conducted with Perkins, FFEL Stafford, and Direct Subsidized and 
Unsubsidized Loan borrowers. These regulations provide that (a) the 
exit counseling must be conducted with each borrower either in person, 
by audiovisual presentation, or by interactive electronic means; (b) 
exit counseling must be conducted shortly before the student borrower 
ceases at least half-time study at the school; and (c) an individual 
with expertise in the Title IV programs is reasonably available shortly 
after the counseling to answer the student borrower's questions. 
Current Sec. Sec.  674.42(b)(1), 682.604(g)(1), and 685.304(b)(2) also 
provide that, in the case of a student borrower enrolled in a 
correspondence program or a study-abroad program that the home 
institution approves for credit, written counseling materials may be 
provided by mail within 30 days after the student borrower completes 
the program. Under Sec. Sec.  674.42(b)(1), 682.604(g)(1), and 
685.304(b)(3), if a student borrower withdraws from school without the 
school's prior knowledge or fails to complete an exit counseling 
session as required, the school must ensure that exit counseling is 
provided through either interactive electronic means or by mailing 
written counseling materials to the student borrower at the student 
borrower's last known address within 30 days after learning that the 
student borrower has withdrawn from school or failed to complete the 
exit counseling as required.
    If exit counseling is conducted by electronic interactive means, 
under current Sec. Sec.  674.42(b)(3), 682.604(g)(3), and 
685.304(b)(6), the school must take reasonable steps to ensure that 
each Perkins, FFEL Stafford and Direct Subsidized and Unsubsidized Loan 
student borrower receives the counseling materials, and participates in 
and completes the counseling.
    Under current Sec. Sec.  674.42(b)(4), 682.604(g)(4), and 
685.304(b)(7), the school must maintain documentation substantiating 
the school's compliance with the exit counseling requirements for each 
Perkins, FFEL Stafford, and Direct Subsidized and Unsubsidized Loan 
student borrower.
    As specified in current Sec. Sec.  674.42(b)(2), 682.604(g)(2), and 
685.304(b)(4), the exit counseling for Perkins, FFEL Stafford, and 
Direct Subsidized and Unsubsidized Loan borrowers must--
    <bullet> Inform the student borrower of the average anticipated 
monthly repayment amount based on the student borrower's indebtedness 
or on the average indebtedness of student borrowers who have obtained 
the same types of Title IV loans the student borrower has obtained for 
attendance at the same school or in the same program of study at the 
same school;
    <bullet> Review loan consolidation for the student borrower;
    <bullet> Suggest to the student borrower debt-management strategies 
that would facilitate repayment;
    <bullet> Include the entrance counseling topics described in the 
FFEL regulations in Sec.  682.604(f)(2)(i) (use of the Master 
Promissory Note), Sec.  682.604(f)(2)(ii) (seriousness of the repayment 
obligation), Sec.  682.604(f)(2)(iii) (consequences of default), and 
Sec.  682.604(f)(2)(iv) (obligation to repay despite the failure of a 
borrower to complete the program);
    <bullet> Review for the student borrower the conditions under which 
the student borrower may defer or forbear repayment or obtain a full or 
partial forgiveness, discharge or cancellation of a loan;
    <bullet> Require the student borrower to provide current 
information concerning name, address, social security number, 
references, and driver's license number and State of issuance, as well 
as the student borrower's expected permanent address, the address of 
the student borrower's next of kin, and the name and address of the 
student borrower's expected employer (if known);
    <bullet> Review for the student borrower information on the 
availability of the Student Loan Ombudsman's office; and
    <bullet> Inform the student borrower of the availability of Title 
IV loan information in the National Student Loan Data System (NSLDS).
    In addition, current Sec.  685.304(b)(4)(iv) of the Direct 
Subsidized and Unsubsidized Loan regulations requires that exit 
counseling for a Direct Subsidized and Unsubsidized Loan borrower must 
explain to the borrower how to contact the party servicing the 
borrower's Direct Loan. For FFEL Stafford and Direct Subsidized and 
Unsubsidized Loan borrowers, the exit counseling must review available 
repayment plan options (see current Sec. Sec.  682.604(g)(2)(ii) and 
685.304(b)(4)(ii)) and explain the use of the Master Promissory Note 
(see current Sec. Sec.  682.604(g)(2)(iv) and 685.304(b)(4)(v)).
    Proposed Regulations: Because the HEA incorporated the majority of 
the exit counseling requirements from the Department's current 
regulations, proposed Sec.  674.42(b) (Perkins Loan exit counseling), 
Sec.  682.604(g) (FFEL Stafford Loan exit counseling), and Sec.  
685.304(b) (Direct Subsidized and Unsubsidized Loan exit counseling) 
would continue to include the substantive requirements from current 
Sec. Sec.  674.42(b), 682.604(g) and 685.304(b). The major proposed 
changes would be as follows:
Exit Counseling for Perkins Loan Borrowers (Sec.  674.42(b))
    <bullet> The addition of Sec.  674.42(b)(2)(ii), which would 
require that exit counseling explain the options the borrower has to 
prepay each loan and pay each loan on a shorter schedule.
    <bullet> The redesignation of current Sec.  674.42(b)(2)(ii) as 
proposed Sec.  674.42(b)(2)(iii) and revision of the section to focus 
on reviewing for the borrower the option to consolidate a Federal 
Perkins Loan and the consequences of doing so.
    <bullet> The addition of a new Sec.  674.42(b)(2)(v), which would 
require that exit counseling explain the use of a master promissory 
note.

[[Page 37453]]

    <bullet> The redesignation of current Sec.  674.42(b)(2)(v) as 
proposed Sec.  674.42(b)(2)(vii) and revision of the section to 
include, in the required description of the likely consequences of 
default, delinquent debt collection procedures under Federal law.
    <bullet> The redesignation of current Sec.  674.42(b)(2)(vi) as 
proposed Sec.  674.42(b)(2)(viii) and revision of the section to 
include, as part of Perkins Loan exit counseling, information about the 
borrower's obligation to repay the full amount of the loan even if the 
borrower has not completed the program within the regular time for 
completion.
    <bullet> The redesignation of current Sec.  674.42(b)(2)(vii) as 
proposed Sec.  674.42(b)(2)(ix) and revision of the section to require 
that exit counseling provide a general description of the terms and 
conditions under which a borrower may obtain full or partial 
forgiveness or cancellation of principal and interest, defer repayment 
of principal or interest, or be granted an extension of the repayment 
period or a forbearance on a Title IV loan; and a copy, either in print 
or by electronic means, of the information the Secretary makes 
available pursuant to section 485(d)of the HEA.
    <bullet> The addition of language in proposed Sec.  
674.42(b)(2)(xi) (current Sec.  674.42(b)(2)(viii)) to clarify that 
exit counseling must not only inform the student borrower of the 
availability of information in the National Student Loan Data System 
(NSLDS), but also how the NSLDS can be used to obtain title IV loan 
status information.
    <bullet> The addition of new Sec.  674.42(b)(2)(xii), which would 
require exit counseling to include a general description of the types 
of tax benefits that may be available to borrowers.
Exit Counseling for FFEL Stafford Loan Borrowers (Sec.  682.604(g))
    <bullet> The revision of current Sec.  682.604(g)(2)(i) to include 
borrowers who have only obtained PLUS Loans, in addition to borrowers 
who have obtained both PLUS and Stafford Loans.
    <bullet> The revision of current Sec.  682.604(g)(2)(ii) to 
include, as part of the review of borrower repayment plans, a 
description of the different features of each repayment plan and sample 
information showing the average anticipated monthly payments, and the 
difference in interest paid under each plan.
    <bullet> The addition of a new Sec.  682.604(g)(2)(iii), which 
would require that exit counseling explain the options the borrower has 
to prepay each loan, pay each loan on a shorter schedule, and change 
repayment plans.
    <bullet> The addition of a new 682.604(g)(2)(iv), which would 
require exit counseling to provide information on the effects of loan 
consolidation.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(iii) as 
Sec.  682.604(g)(2)(v), and the revision of the section to require that 
exit counseling ``include'' debt-management strategies rather than 
``suggest'' debt-management strategies.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(iv) as 
Sec.  682.604(g)(2)(vi), with no other changes except to update the 
cross-references.
    <bullet> The addition of new Sec.  682.604(g)(2)(vii) to describe 
the likely consequences of default, including the delinquent debt 
collection procedures under Federal law and litigation.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(v) as 
Sec.  682.604(g)(2)(viii), and revision of the section to require that 
exit counseling provide a general description of the terms and 
conditions under which a borrower may obtain full or partial 
forgiveness or cancellation of principal and interest, defer repayment 
of principal or interest, or be granted an extension of the repayment 
period or a forbearance on a title IV loan; and a copy, either in print 
or by electronic means, of the information the Secretary makes 
available pursuant to section 485(d)of the HEA.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(vi) as 
Sec.  682.604(g)(2)(ix), with no other revisions.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(vii) as 
Sec.  682.604(g)(2)(x), with no other revisions.
    <bullet> The redesignation of current Sec.  682.604(g)(2)(viii) as 
Sec.  682.604(g)(2)(xi), and the addition of language to clarify that 
exit counseling must not only inform the student borrower of the 
availability of information in the National Student Loan Data System 
(NSLDS), but also how the NSLDS can be used to obtain title IV loan 
status information.
    <bullet> The addition of new Sec.  682.604(g)(2)(xii), which would 
require exit counseling to include a general description of the types 
of tax benefits that may be available to borrowers.
Exit Counseling for Direct Subsidized and Unsubsidized Loan Borrowers 
(Sec.  685.304(b))
    <bullet> The revision of current Sec.  685.304(b)(4)(i) to include 
borrowers who have only obtained PLUS Loans, in addition to borrowers 
who have obtained both PLUS and Stafford Loans.
    <bullet> The revision of current Sec.  685.304(b)(4)(ii) to 
include, as part of the review of borrower repayment plans, a 
description of the different features of each repayment plan and sample 
information showing the average anticipated monthly payments, and the 
difference in interest paid under each plan.
    <bullet> The addition of a new Sec.  685.304(b)(4)(iii), which 
would require that exit counseling explain the options the borrower has 
to prepay each loan, pay each loan on a shorter schedule, and change 
repayment plans.
    <bullet> The addition of a new Sec.  685.304(b)(4)(iv), which would 
require exit counseling to provide information on the effects of loan 
consolidation.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(iii) as 
Sec.  685.304(b)(4)(v), and the revision of the section to require that 
exit counseling ``include'' debt-management strategies rather than 
``suggest'' debt-management strategies.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(iv) as 
Sec.  685.304(b)(4)(vi), with no other changes.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(v) as 
Sec.  685.304(b)(4)(vii), with no other changes except to update the 
cross-references.
    <bullet> The addition of new Sec.  685.304(b)(4)(viii) to describe 
the likely consequences of default, delinquent debt collection 
procedures under Federal law and litigation.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(vii) as 
Sec.  685.304(b)(4)(ix) and revision of the section to require that 
exit counseling provide a general description of the terms and 
conditions under which a borrower may obtain full or partial 
forgiveness or cancellation of principal and interest, defer repayment 
of principal or interest, or be granted an extension of the repayment 
period or a forbearance on a title IV loan; and a copy, either in print 
or by electronic means, of the information the Secretary makes 
available pursuant to section 485(d) of the HEA.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(vii) as 
Sec.  685.304(b)(4)(x), with no other revisions.
    <bullet> The redesignation of current Sec.  685.304(b)(4)(viii) as 
Sec.  685.304(b)(4)(xi) and the addition of language to clarify that 
exit counseling must not only inform the student borrower of the 
availability of information in the National Student Loan Data System 
(NSLDS), but also how the NSLDS can be used to obtain title IV loan 
status information.
    <bullet> The addition of new Sec.  685.304(b)(4)(xii), which would 
require exit counseling to include a general description of the types 
of tax benefits that may be available to borrowers.

[[Page 37454]]

    <bullet> The redesignation of current Sec.  685.304(b)(4)(ix) as 
Sec.  685.304(b)(4)(xiii), with no other revisions.
    Reasons: These proposed amendments to Sec. Sec.  674.42(b), 
682.604(g), and 685.304(b) are intended to align the Department's exit 
counseling requirements for its Perkins Loan, FFEL Stafford, and Direct 
Subsidized and Unsubsidized Loan programs with the exit counseling 
requirements added to section 485(b)(1)(A) of the HEA by section 488(b) 
of the HEOA.
    For the most part, we were able to simply incorporate the statutory 
language from section 485(b)(1)(A) of the HEA into our current 
regulations. One exception includes the requirement that exit 
counseling include reviewing with the borrower different repayment plan 
options. Perkins Loan borrowers, unlike FFEL Stafford and Direct 
Subsidized and Unsubsidized Loan borrowers, do not have the option to 
choose among different repayment plans. For this reason, we did not 
include this requirement in the Perkins Loan regulations.
    In addition to implementing the statutory changes made by the HEOA, 
we also propose to amend the Perkins Loan exit counseling requirements 
to include explaining the use of a Master Promissory Note (MPN). The 
MPN has been in use for the Perkins Loan program since August 2003, and 
the Department believes it is appropriate to require schools to explain 
the use of the MPN as part of Perkins Loan exit counseling, just as we 
do for FFEL and Direct Loan exit counseling.
    Several questions and concerns relating to the exit counseling 
requirements in the proposed regulations were discussed at the 
negotiated rulemaking sessions.
    Although explaining the use of the Master Promissory Note (MPN) 
during exit counseling has been a long-standing requirement in the FFEL 
Stafford and Direct Subsidized and Unsubsidized Loan programs, non-
Federal negotiators questioned the value of explaining how the MPN 
works during exit counseling, at a time when the borrower has already 
received his or her student loans and is about to leave the school. The 
Department responded that an MPN may be used for up to ten years after 
a borrower initially signs it. Therefore, we believe that it would be 
helpful to remind the borrower--during exit counseling--that the 
borrower may continue to use the MPN to borrow Title IV loans if the 
borrower returns to school before the 10-year period expires.
    Non-Federal negotiators asked the Department to clarify the meaning 
of the term ``delinquent debt collection procedures under Federal 
law.'' The Department responded that these procedures refer to debt 
collection procedures under the Fair Debt Collection Act. During this 
discussion, the Department also noted that the exit counseling session 
would be an appropriate time for schools to advise FFEL Stafford and 
Perkins Loan borrowers that defaulted FFEL Stafford and Perkins Loans 
may be assigned to the Department of Education. In cases where the 
Department accepts the loan assignment, borrowers who have defaulted on 
these loans are subject to Federal income tax offset.
    Non-Federal negotiators also asked if providing borrowers with the 
information relating to forbearance, deferment, forgiveness, discharge 
and cancellation that appears on the borrower's MPN would be sufficient 
to meet the requirement of providing a description of the terms and 
conditions for obtaining these benefits under proposed Sec. Sec.  
674.42(b)(2)(ix)(A), 682.604(g)(2)(viii)(A), and 685.304(b)(4)(ix)(A). 
The Department responded that the information relating to these 
benefits available on the MPNs is necessarily limited. For this reason, 
we expect schools to provide more detailed and comprehensive 
information on these benefits during exit counseling.
    Non-Federal negotiators asked about the information relating to 
Consolidation Loans that schools are required to provide, particularly 
with regard to changing repayment plans. Non-Federal negotiators 
pointed out that the Perkins Loan Program does not have different 
repayment plans, and that Perkins borrowers do not have this option. 
The Department clarified that the reference to changing repayment plans 
in proposed Sec.  674.42(b)(2)(iii)(C) refers to the Consolidation 
Loan, not the Perkins Loan. If a borrower consolidates his or her 
Perkins Loan into a FFEL or Direct Consolidation Loan, the terms and 
conditions of the Perkins Loan are replaced by the terms and conditions 
of the Consolidation Loan. Borrowers with Consolidation Loans have the 
option to change repayment plans on the Consolidation Loan.
Special Definitions (Sec.  674.51)
    Statute: The HEOA amended section 465(a) of the HEA by expanding 
the existing teacher, Head Start, and law enforcement cancellation 
categories to include:
    <bullet> A teacher in a designated low-income elementary or 
secondary school who is employed by, or working in a school operated 
by, an educational service agency (see new section 465(a)(2)(A) of the 
HEA).
    <bullet> Full-time special education teacher, including teachers of 
infants, toddlers, children, or youth with disabilities, in a public or 
other nonprofit elementary or secondary school system administered by 
an educational service agency (see new section 465(a)(2)(C) of the 
HEA).
    <bullet> Full-time staff members in a pre-kindergarten or childcare 
program that is licensed or regulated by the State (see new section 
465(a)(2)(B) of the HEA).
    <bullet> Full-time attorneys employed in Federal Public Defender 
Organizations or Community Defender Organizations, established in 
accordance with section 3006A(g)(2) of title 18, U.S.C. (see new 
section 465(a)(2)(F) of the HEA).
    Section 465(a) of the HEA also was amended to allow for 
cancellation benefits for the following additional categories of 
borrowers:
    <bullet> Full-time fire fighters with a local, State, or Federal 
fire department or fire district (see new section 465(a)(2)(J) of the 
HEA).
    <bullet> Full-time faculty members at a Tribal College or 
University, as defined in section 316 of the HEA (see new section 
465(a)(2)(K) of the HEA).
    <bullet> Librarians with a master's degree in library science who 
are employed in an elementary or secondary school that qualifies for 
funding under title I of the Elementary and Secondary Education Act of 
1965, as amended, or in a public library that serves a geographic area 
that includes one or more Title I schools (see new section 465(a)(2)(L) 
of the HEA).
    <bullet> Full-time speech-language pathologists with a master's 
degree who are working exclusively with Title I eligible schools (see 
new section 465(a)(2)(M) of the HEA).
    Current regulations: Current Sec.  674.51 contains the definitions 
of key terms in the Federal Perkins Loan program regulations.
    Proposed regulations: With the statutory expansion of the 
categories of borrowers eligible for cancellation benefits under the 
Perkins program, it is necessary to make several amendments to Sec.  
674.51.
    For purposes of determining cancellation benefits under Sec.  
674.53 (Teacher cancellation--Federal Perkins, NDSL and Defense loans), 
we propose to define the term education service agency as a regional 
multi-service agency authorized by State law to develop, manage, and 
provide services or programs to local educational agencies as defined 
in section 9101 of the Elementary and Secondary Education Act of 1965, 
as amended (see proposed Sec.  674.51(g)).

[[Page 37455]]

    For purposes of determining cancellation benefits under Sec.  
674.57 (Cancellation for law enforcement or corrections officer 
service--Federal Perkins, NDSL and Defense loans), the Secretary 
proposes to define the term Community Defender Organizations as 
defender organizations established in accordance with section 
3006A(g)(2)(B) of title 18, United States Code (see proposed Sec.  
674.51(e)), and the term Federal Public Defender Organization as 
defender organizations established in accordance with section 
3006A(g)(2)(A) of title 18, United States Code (see proposed Sec.  
674.51(j)).
    For purposes of implementing the cancellation benefits for full-
time faculty members at a Tribal College or University, full-time 
firefighters, librarians with a master's degree, and full-time speech 
pathologists with a master's degree under Sec.  674.56 (employment 
cancellation--Federal Perkins, NDSL and Defense loans), the Secretary 
proposes to add the following definitions to Sec.  674.51:
    A faculty member at a Tribal College or University is an educator 
or tenured individual who is employed by a Tribal College or 
University, as that term is defined in section 316 of the HEA, to 
teach, research, or perform administrative functions. For purposes of 
this definition an educator may be an instructor, lecturer, lab 
faculty, assistant professor, associate professor, or full professor, 
dean, or academic department head (see proposed Sec.  674.51(i)).
    A Tribal College or University is an institution that qualifies for 
funding under the Tribally Controlled Colleges and Universities 
Assistance Act of 1978 (25 U.S.C. 1801 et seq.), or the Navajo 
Community College Assistance Act of 1978 (25 U.S.C. 640a note), or is 
cited in section 532 of the Equity in Education Land Grant Status Act 
of 1994 (7 U.S.C. 301 note) (see proposed Sec.  674.51(bb)).
    A firefighter is an individual who is employed by a Federal, State, 
or local firefighting agency to extinguish destructive fires or 
provides firefighting related services such as (a) providing community 
disaster support and, as a first responder, emergency medical services; 
(b) conducting search and rescue; or (c) providing hazardous material 
mitigation (HAZMAT) (see proposed Sec.  674.51(k)).
    A librarian with a master's degree is an information professional 
trained in library or information science who has obtained a 
postgraduate academic degree awarded after the completion of an 
academic program in library science of up to six years in duration, 
excluding a doctorate or professional degree (see proposed Sec.  
674.51(o)).
    A speech language pathologist with a master's degree is an 
individual who evaluates or treat disorders that affect a person's 
speech, language, cognition, voice, swallowing and the rehabilitative 
or corrective treatment of physical or cognitive deficits/disorders 
resulting in difficulty with communication, swallowing, or both and has 
obtained a postgraduate academic degree awarded after the completion of 
an academic program of up to six years in duration, excluding a 
doctorate or professional degree.
    Finally, as noted earlier in this preamble, Team I, the negotiating 
committee responsible for regulations involving issues related to 
lender and general loan issues, negotiated proposed definitions for the 
terms substantial gainful activity and total and permanent disability, 
as those terms are used in the Perkins Loan Program regulations. In 
proposed Sec.  674.51(x), the term substantial gainful activity is 
defined as a level of work performed for pay or profit that involves 
doing significant physical or mental activities, or a combination of 
both. Proposed Sec.  674.51(aa) would define total and permanent 
disability as the condition of an individual who (a) is unable to 
engage in any substantial gainful activity by reason of any medically 
determinable physical or mental impairment that can be expected to 
result in death, has lasted for a continuous period of not less than 60 
months, or can be expected to last for a continuous period of not less 
than 60 months; or (b) has been determined by the Secretary of Veteran 
Affairs to be unemployable due to a service-connected disability. In 
addition to incorporating new definitions to implement the expanded 
cancellation benefits provided by the HEOA, we propose to update a few 
of the longstanding definitions in Sec.  674.51 that are based on the 
Individuals with Disabilities Education Act (IDEA), which was 
reauthorized in 2004. Specifically, we propose to replace the current 
definition of the term children and youth with disabilities with the 
definition of the term child with a disability and the definition of 
the term infants and toddlers with disabilities with the definition of 
the term infant or toddler with a disability. These proposed 
definitions align with the definitions of these terms in the IDEA.
    Reasons: We propose to revise Sec.  674.51 to incorporate the 
definitions of key terms that are used in section 465(a) of the HEA, as 
amended by the HEOA. Definitions of the terms Community Defender 
Organizations, education service agency, Federal Public Defender 
Organization, and Tribal College or University would be based on the 
statutory language referencing their definitions in the HEA.
    The Department developed definitions for the terms faculty member 
at a Tribal College or University, firefighter, librarian with a 
master's degree, and speech language pathologist with a master's degree 
by considering the generally accepted meaning of these terms as well as 
the discussion of these terms during the negotiated rulemaking 
sessions. During the sessions, there was much discussion about how 
broad these definitions should be. The general consensus was that the 
definitions should be written to incorporate as many eligible borrowers 
as possible for the expanded cancellation benefits. The proposed 
definitions reflect the consensus of Team II.
Expansion of Teacher, Head Start, and Law Enforcement Cancellation 
Categories (Sec. Sec.  674.53, 674.57, 674.58)
    Statute: Effective August 14, 2008, section 465 of the HEOA 
expanded the existing teacher, Head Start, and law enforcement 
cancellation provisions in section 465(a) of the HEA.
    The cancellation for borrowers who teach in a designated low-income 
elementary or secondary school authorized by section 465(a)(2)(A) of 
the HEA has been expanded to include borrowers who are employed by an 
educational service agency as that term is defined section 481(f) of 
the HEA. The cancellation for full-time staff members in a Head Start 
preschool program authorized by section 465(a)(2)(B) of the HEA has 
been expanded to include borrowers who are full-time staff members in a 
pre-kindergarten or childcare program that is licensed or regulated by 
the State. The cancellation authorized by section 465(a)(2)(C) of the 
HEA for borrowers who are full-time special education teachers, 
including teachers of infants, toddlers, children, or youth with 
disabilities in a public or other nonprofit elementary or secondary 
school system, has been expanded to include borrowers who are special 
education teachers in a system administered by an educational service 
agency. Lastly, the cancellation for full-time local, State, or Federal 
law enforcement or corrections officers authorized by section 
465(a)(2)(F) of the HEA has been expanded to include full-time 
attorneys employed in Federal Public Defender Organizations or 
Community Defender Organizations established in accordance with section

[[Page 37456]]

3006A(g)(2) of title 18 of the United States Code.
    Effective August 14, 2008, an institution must cancel up to 100 
percent of the outstanding balance of a borrower's NDSL, Defense, or 
Federal Perkins loan for eligible service performed in each of these 
expanded cancellation categories.
    Current Regulations: Current Sec.  674.53 of the Perkins Loan 
Program regulations requires an institution to cancel up to 100 percent 
of the outstanding balance on a Perkins Loan for borrowers who perform 
eligible service as a:
    <bullet> Full-time teacher in a designated elementary or secondary 
school serving low-income families;
    <bullet> Full-time special education teacher (including teaching 
children with disabilities in a public or other nonprofit elementary or 
secondary school);
    <bullet> Full-time teacher of math, science, foreign languages, 
bilingual, or other fields designated as teacher shortage areas.
    Current Sec.  674.57 requires an institution to cancel up to 100 
percent of the outstanding balance of a Perkins Loan for borrowers who 
perform eligible service as a full-time local, State, or Federal law 
enforcement or corrections officer and who are employed by an eligible 
employing agency. Lastly, current Sec.  674.58 requires an institution 
to cancel up to 100 percent of the outstanding balance of a Perkins 
Loan for borrowers who perform eligible service as a full-time staff 
member in the educational component of a Head Start program.
    Proposed regulations: The proposed changes to Sec. Sec.  674.53, 
674.57, 674.58 would extend the new cancellation categories to current 
Federal Perkins Loan borrowers with outstanding balances on loans 
already in repayment and all new borrowers who perform eligible service 
that includes August 14, 2008, or begins on or after that date, 
regardless of whether information on the expanded cancellation 
categories appears on the borrower's promissory note.
    Under proposed Sec.  674.53, a teacher who is employed by an 
educational service agency, or a full-time special education teacher, 
including teachers of infants, toddlers, children, or youth with 
disabilities, who is working in a system administered by an educational 
service agency, is eligible for cancellation benefits.
    We propose to amend the cancellation provisions for law enforcement 
or correction officer regulations in Sec.  674.57 to include borrowers 
who are employed full-time as an attorney in Federal Public Defender 
Organizations or Community Defender Organizations established in 
accordance with section 3006A(g)(2) of title 18, United States Code. 
The HEA provides for cancellation benefits for public defenders that 
work in these community defender organizations and Federal courts only. 
State public defenders (unless they are employed by one of the 
specified organizations) are not eligible for cancellation benefits 
under this provision.
    Consistent with section 465(a)(2)(B) of the HEA, the Secretary 
proposes to amend current Sec.  674.58 of the Head Start cancellation 
provisions by expanding cancellation benefits to include borrowers who 
are performing qualifying service as full-time staff members in a pre-
kindergarten or childcare program that is licensed or regulated by the 
State. We propose to change the heading of Sec.  674.51 to Cancellation 
for service in an early childhood education program to reflect the fact 
that the expansion of cancellation benefits available to borrowers 
under this provision are no longer limited to service in early 
childhood education programs authorized by the Head Start Act. We also 
propose to add ``pre-kindergarten or child care program'' to the 
definition of ``full-time staff member'' in Sec.  674.58.
    We propose to add definitions of the terms pre-kindergarten program 
and child care program to Sec.  674.58(c). A pre-kindergarten program 
would be defined as a State-funded program that serves children from 
birth through age six and addresses the children's cognitive (including 
language, early literacy, and early mathematics), social, emotional, 
and physical development (see proposed Sec.  674.58(c)(2)). A child 
care program would be defined as a program that is licensed and 
regulated by the State and provides child care services for fewer than 
24 hours per day per child, unless care in excess of 24 consecutive 
hours is needed due to the nature of the parents' work (see proposed 
Sec.  674.58(c)(3)).
    Reasons: We are proposing to make changes to Sec. Sec.  674.53, 
674.57, and 674.58 to ensure that the Department's regulations reflect 
the expansion of benefits that are now available for borrowers in the 
Federal Perkins Loan program as a result of the enactment of the HEOA.
    It is important to note that in order to be consistent with Team 
I's development of the proposed regulations for the teacher loan 
forgiveness program contained in the Federal Family Education Loan 
(FFEL) and William D. Federal Direct Loan (Direct Loan) programs, the 
Department proposed regulatory language to allow borrowers in the 
Perkins Loans program to receive credit for a full year of 
cancellation, as long as the eligible service crossed over the 
enactment date of August 14, 2008. The non-Federal negotiators agreed 
with this proposal as it will ensure equitable treatment of borrowers 
in all three loan programs.
Addition of New Public Service Cancellation Categories (Sec.  674.56)
    Statute: Section 465 of the HEOA amended section 465(a)(2) of the 
HEA by adding the following new public service cancellation categories 
for borrowers in the Federal Perkins Loan program who are performing 
qualifying service:
    <bullet> Full-time faculty members at a Tribal College or 
University, as that term is defined in section 316 of the HEA.
    <bullet> Full-time fire fighters who serve a local, State, or 
Federal fire department or fire district.
    <bullet> Librarians with a master's degree in library science who 
are employed in an elementary or secondary school that qualifies for 
Title I funding, or in a public library that serves a geographic area 
that includes one or more Title I-eligible schools.
    <bullet> Full-time speech-language pathologists with a master's 
degree who are working exclusively with Title I-eligible schools.
    Current Regulations: None.
    Proposed regulations: The Secretary proposes to amend Sec.  674.56 
to incorporate the new public service employment cancellations for 
borrowers in the Federal Perkins Loan program who are performing 
qualifying service as full-time faculty members at a Tribal College or 
University, full-time fire fighters who serve a local, State, or 
Federal fire department or fire district, librarians with a master's 
degree in library science, and full-time speech-language pathologists 
with a master's degree.
    Under proposed Sec.  674.56, current borrowers with outstanding 
balances on loans already in repayment and all new borrowers who 
perform eligible service that includes August 14, 2008, or begins on or 
after that date, in these new cancellation categories, would qualify 
for cancellation, regardless of whether the cancellation category 
appears on the borrower's promissory note.
    Reasons: The Secretary proposes to amend Sec.  674.56 (Employment 
cancellation--Federal Perkins, NDSL and Defense loans) to incorporate 
the new public service employment

[[Page 37457]]

cancellations reflected in amended section 465(a) of the HEA.
Military Service Cancellation (Sec.  674.59)
    Statute: Section 465 of the HEOA amended section 465(a)(3)(A) of 
the HEA to eliminate the provision that limited cancellation for 
eligible military service to 50 percent of a borrower's outstanding 
balance on his or her Perkins Loan.
    Current regulations: Current Sec.  674.59 provides that Federal 
Perkins Loan borrowers who are serving in areas of hostility are 
eligible for cancellation of up to 50 percent of their outstanding 
balance, in increments of 12 percent a year for each full year of 
active duty service, if the borrower is serving in an area of imminent 
danger that qualifies for special pay under section 310 of title 37 of 
the United States Code.
    Proposed regulations: Proposed Sec.  674.59 would amend the 
cancellation rate for each year of qualifying service for the military 
service cancellation. Specifically, borrowers who are serving in areas 
of hostility are now eligible to receive a cancellation of up to 100 
percent of the loan for each full year of active duty service that 
includes August 14, 2008, or begins on or after that date in the 
following increments: 15 percent for the first and second years of 
service; 20 percent for the third and fourth years of service; and, 30 
percent for the fifth year of service.
    Reasons: The changes in the military service cancellation 
provisions implement the new statutory changes in the Federal Perkins 
Loan program as a result of the HEOA.

Executive Order 12866

1. Regulatory Impact Analysis
    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the OMB. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action likely to result in a rule that may 
(1) have an annual effect on the economy of $100 million or more, or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    Pursuant to the terms of the Executive order, it has been 
determined this proposed regulatory action will not have an annual 
effect on the economy of more than $100 million. Therefore, this action 
is not ``economically significant'' and subject to OMB review under 
section 3(f)(1) of Executive Order 12866. Notwithstanding this 
determination, the Secretary has assessed the potential costs and 
benefits of this regulatory action and has determined that the benefits 
justify the costs.
Need for Federal Regulatory Action
    These proposed regulations are needed to implement provisions of 
the HEA, as amended by the HEOA, particularly related to the new part E 
to the HEA, Lender and Institution Requirements Relating to Education 
Loans, which establishes extensive new disclosure requirements for 
lenders and institutions participating in Federal and private student 
loan programs. These regulations also implement significant changes 
made by the HEOA to provisions related to institutional cohort default 
rates and Perkins Loan cancellations.
    In general, these regulations simply restate specific HEOA 
requirements, in many cases using language drawn directly from the 
statute. In the following areas, the Secretary has exercised limited 
discretion in implementing the HEOA provisions through proposed 
regulations:
    Preferred lender arrangement: In defining a preferred lender 
arrangement, the Secretary determined that such an arrangement does not 
exist for private education loans that a covered institution makes to 
its own students, as long as the private education loan is funded by 
the covered institution's own funds; is funded by donor-directed 
contributions; is made under title VII or title VIII of the Public 
Service Health Act; or is made under an institutional repayment plan of 
the covered institution.
    Disclosures from schools with preferred lender lists: In response 
to concerns from a number of non-Federal negotiators, the Secretary 
considered whether to require institutions to ``provide'' students and 
parents with the required materials or, as suggested by the non-Federal 
negotiators, ``make available'' the required materials. As discussed 
elsewhere in this preamble, the Secretary determined that a requirement 
to provide the materials was more appropriate.
    Private loan self-certification forms: The Secretary determined 
that private education loan borrowers should be required to fill out 
self-certification forms even if the lender is their institution.
    Definition of ``gift'': In defining the term gift for the purposes 
of institutional codes of conduct, section 487(e)(2)(B)(ii) of the HEA 
excluded favorable terms, conditions, and borrower benefits on a loan 
provided to students employed at a covered institution, if the terms, 
conditions, or benefits are comparable to those provided to all 
students at the institution. As discussed more fully in the code of 
conduct discussion in this preamble, the Secretary determined that 
``all students'' refers to all students employed at the covered 
institution, rather than to the general student population at that 
institution.
    Self-certification forms: The Secretary determined that self-
certification forms and information must only be provided to an 
applicant for a private education loan who is ``enrolled or admitted'' 
to an institution rather than to any student who requests the 
information. The Secretary also included a provision to the proposed 
regulations to require an institution to discuss the availability of 
Federal, State, and institutional aid with an applicant for a private 
loan at the request of the applicant.
    Cohort Default Rate: As discussed further in the discussion 
surrounding cohort default rates in this preamble, the Secretary 
determined that the default rate of an institution that establishes an 
additional location at the site of a closed institution for which it 
conducted a teach-out would not be affected in any way by the closed 
institution's cohort default rate.
    Perkins loan cancellations: Following discussions with the non-
Federal negotiators, the Secretary proposed to define a number of key 
terms used for purposes of determining cancellation benefits in the 
Perkins Loan Program (see proposed Sec.  674.51). It was determined 
that additional clarity was needed for some of the terms used in the 
HEA in order for the Department to implement the Perkins Loan 
cancellation provisions of the HEA. Some of the key terms proposed to 
be defined in these regulations include firefighter, faculty member at 
a Tribal College or University, librarian with a master's degree, and 
speech language pathologist with a master's degree. The other 
definitions provided in proposed Sec.  674.51 incorporate the language 
from the HEA.

[[Page 37458]]

    The following section addresses the alternatives that the Secretary 
considered in implementing these discretionary portions of the HEOA 
provisions. These alternatives are also discussed in more detail in the 
Reasons sections of this preamble related to the specific regulatory 
provisions.
Regulatory Alternatives Considered
    Preferred lender arrangement: Several non-Federal negotiators 
argued that preferred lender arrangements can exist only in cases where 
a written or verbal agreement exists between a lender and a covered 
institution or institution-affiliated organization. One non-Federal 
negotiator submitted an alternative definition for preferred lender 
arrangement that would have built this requirement into the definition, 
except in cases where conduct by the parties indicates an intention to 
create a preferred lender arrangement. The Department declined to adopt 
this alternative definition, arguing that the statutory definition of 
preferred lender arrangement does not address how the arrangement comes 
about, nor does the definition specify that a written or verbal 
agreement must exist.
    Several non-Federal negotiators proposed to exempt loans made 
directly by a covered institution to its own students from falling 
under the term preferred lender arrangement, arguing that under those 
circumstances covered institutions would find it impossible or 
impractical to comply with a number of the regulatory requirements that 
flow from having a preferred lender arrangement. For example, non-
Federal negotiators noted that a school, in its capacity as a lender, 
could be prohibited from paying its own employees, in its capacity as a 
covered institution, under the code of conduct requirement that 
prohibits a lender from providing gifts to employees of a covered 
institution's financial aid office.
    After considering proposals from non-Federal negotiators, the 
Department determined that a preferred lender arrangement requires the 
participation of at least two separate parties. Accordingly, the 
Department agreed to clarify in the regulatory definition for preferred 
lender arrangement that a preferred lender arrangement does not exist 
for a private education loan made by a covered institution to the 
covered institution's own students provided that the loan is paid for 
by the institution's own funds, funded by donor-directed contributions, 
made under title VII or title VIII of the Public Service Health Act, or 
made under an institutional payment plan of the covered institution.
    Disclosures from schools with preferred lender lists: Non-Federal 
negotiators raised concerns about the proposed requirement, reflected 
in proposed Sec.  601.10 that covered institutions ``provide'' certain 
information to students before those students select a lender or apply 
for an education loan. These negotiators asked that the requirement be 
changed from ``provide'' to ``make available.'' The Department declined 
to make this change, arguing that the term ``make available'' is more 
passive than the term ``provide,'' and as such is inconsistent with the 
intent of the requirement. While schools are expected to be proactive 
in providing information to potential borrowers, the Department did 
acknowledge that schools cannot ensure every student receives the 
required information, and that schools making reasonable efforts to 
give this information to its students at the appropriate time in the 
award year would be considered to have complied with the requirement.
    Private loan self-certification forms: Non-Federal negotiators 
questioned the value of requiring schools to provide applicants with a 
private education loan self-certification form in cases where the 
applicant is applying for a private education loan made by the covered 
institution. These negotiators argued that there was no reason for the 
covered institution to provide the form to itself. The Department 
determined that, because the self-certification form is intended to 
disclose information to the borrower, not to the lender, borrowers 
should still receive and complete the form before obtaining an 
institutional loan.
    Definition of ``gift'': Non-Federal negotiators raised concerns 
about proposed language excluding from the definition of the term gift, 
favorable terms, conditions, and borrower benefits on a loan provided 
to students employed at a covered institution, if the terms, 
conditions, or benefits are comparable to those provided to all 
students at the institution. These negotiators asked whether ``all 
students'' at the institution meant the general student population or 
only other students employed at the institution. After considering the 
intent of the statutory requirement underlying the proposed regulation 
and recognizing that lenders may offer preferable terms and conditions 
to student employees at the school as a matter of course, the 
Department determined that it is acceptable to use benefits offered to 
all student employees as a benchmark, rather than the benefits the 
students in the general population receive.
    Self-certification forms: A number of negotiators raised concerns 
about the potential for fraudulent use of the self-certification form. 
In response, it was suggested that the required self-certification form 
and information only must be provided to an applicant who is ``enrolled 
or admitted'' to the institution rather than to any student who 
requests the information. The Department agreed to adopt this approach, 
which non-Federal negotiators agreed would minimize the chances a 
student who is not enrolled or admitted to the institution would use 
the form and information to obtain a private education loan for which 
the student is not eligible.
    Several non-Federal negotiators requested that an applicant for a 
private education loan receive as much information as possible 
regarding available aid options. Accordingly, the Department agreed to 
add a provision to proposed Sec.  668.14(29)(ii) that would require an 
institution to discuss the availability of Federal, State, and 
institutional aid with the applicant, at the request of the applicant. 
The Department and the non-Federal negotiators agreed that this would 
result in financial aid administrators counseling the applicant and 
providing students with an opportunity to ask questions about aid 
options or how to apply for aid.
    Cohort Default Rate: The Department and non-Federal negotiators 
considered the best way to support the clear statutory intent of the 
HEA to encourage institutions to conduct teach-outs of closed 
institutions. Discussions indicated that a requirement to include a 
closed school's cohort default rate in its own rate could dissuade an 
institution from conducting the teach-out. Accordingly, the Department 
determined that the cohort default rate of an institution that 
establishes an additional location at the site of a closed institution 
for which it conducted a teach-out would not be affected in any way by 
the closed institution's cohort default rate.
    Perkins loan cancellations: The Department proposed to define a 
number of terms, such as faculty member at a Tribal College or 
University, firefighter, librarian with a master's degree, and speech 
language pathologist with a master's degree in proposed Sec.  674.51. 
The Department included definitions for these terms after considering 
the generally accepted meaning of the terms as well as the discussion 
of these terms during the negotiated rulemaking sessions. In addition, 
to be consistent with proposed regulations developed for the teacher

[[Page 37459]]

loan forgiveness program contained in the FFEL and Direct Loan 
programs, the Secretary determined that borrowers in the Perkins Loans 
program should receive credit for a full year of cancellation, as long 
as the eligible service crossed over the enactment date of August 14, 
2008.
Benefits
    Benefits provided in these regulations include greater transparency 
for borrowers participating in the Federal and private student loan 
programs, clearer guidelines on acceptable behavior by and 
relationships among institutions participating in the student loan 
programs, and expanded eligibility for Perkins Loan cancellation 
benefits. It is difficult to quantify benefits related to the new 
institutional and lender requirements, as there is little specific data 
available on either the extent of improper or questionable 
relationships between institutions and lenders prior to the HEOA or of 
the harm such relationships actually caused for borrowers, 
institutions, or the Federal taxpayer. The Department is interested in 
receiving comments or data that would support a more rigorous analysis 
of the impact of these provisions.
    The Department estimates that expanded eligibility for Perkins Loan 
cancellations would benefit approximately 33,000 borrowers annually. 
This estimate is based on an analysis of data from a number of sources, 
including primarily Baccalaureate and Beyond 1993/2003, to project the 
number of Perkins Loan borrowers in each profession among those 
included in the newly expanded cancellation categories. Specific 
estimates by category are shown in the following table.

  Perkins Loan Borrowers Eligible for Expanded Cancellations Annual By
                               Occupation
------------------------------------------------------------------------
                                                            Estimated
                       Occupation                           number of
                                                            borrowers
------------------------------------------------------------------------
ESA Teachers...........................................           20,000
Childcare workers......................................            5,296
Firefighters...........................................            3,240
Speech pathologists....................................            2,968
Law enforcement........................................              770
Librarians.............................................              640
Tribal college faculty.................................               24
                                                        ----------------
    Total..............................................           32,938
------------------------------------------------------------------------

    These benefits all flow directly from statutory changes included in 
the HEOA; they are not materially affected by discretionary choices 
exercised by the Department in developing these proposed regulations. 
As discussed in greater detail under Net Budget Impacts, these proposed 
provisions result in net costs to the government of $71.953 million 
over 2009-2013.
Costs
    Many of the statutory provisions implemented through this NPRM will 
require regulated entities to develop new disclosures and other 
materials, as well as accompanying dissemination processes. In total, 
these changes are estimated to increase burden on entities or 
individuals participating in the student loan programs by 4,636,495 
hours. Of this increased burden, 292 hours are associated with lenders 
and 1,195,769 hours with institutions. An additional 3,440,434 hours--
or 74.2 percent of the total burden associated with the proposed 
regulations--are associated with borrowers. The monetized cost of this 
additional burden, using loaded wage data developed by the Bureau of 
Labor Statistics, is $78.5 million. In estimating the cost of these 
provisions, the Department used wage information from the Bureau of 
Labor Statistics. For lenders, institutions, and guaranty agencies, the 
May 2009 total private non-agricultural average hourly earnings of 
$18.54 was used as the hourly rate to monetize the burden of these 
provisions. For borrowers, the first quarter 2009 median weekly 
earnings for full-time wage and salary workers were used. This was 
weighted to reflect the age profile of the student loan portfolio, with 
half at the $472 per week of the 20 to 24 age bracket and half at the 
$674 per week of the 25 to 34 year old bracket. This resulted in a 
$16.37 hourly wage rate to use in monetizing the burden on borrowers.
    While there is additional burden associated with a range of 
proposed provisions in this NPRM, as noted earlier in this preamble 
nearly three-quarters of this burden is associated with individual 
borrowers. For most provisions, this estimated burden assumes nearly 3 
million borrowers will devote very small amounts of time--often as 
little as five minutes--to review additional disclosures added to 
existing documents or processes such as entrance and exit counseling. 
In the case of private loan borrowers, the Department estimates roughly 
3.3 million borrowers will devote fifteen minutes to reviewing new 
Truth in Lending Act disclosures required under the proposed 
regulations.
    For provisions affecting entities other than borrowers, 92.6 
percent of the burden hours associated with this package--or 1,107,115 
hours--result from new requirements for institutions involving the 
distribution of private education loans. The following discussion 
provides additional detail on the impact of this provision.
    The proposed regulations require a covered institution, or an 
institution-affiliated organization of a covered institution, to 
provide loan disclosures to a prospective borrower private education. 
These disclosures must provide the prospective borrower with the 
information required under section 128(e)(1) of the TILA; and must 
inform the prospective borrower that he or she may qualify for loans or 
other assistance under Title IV of the HEA; and that the terms and 
conditions of Title IV, HEA program loans may be more favorable than 
the provisions of private education loans. The information regarding 
private education loans must be presented in such a manner as to be 
distinct from information regarding Title IV, HEA program loans.
    The proposed regulations require that, upon an enrolled or admitted 
student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in 
written or electronic form, the self-certification form for private 
education loans developed by the Secretary to satisfy the requirements 
of Section 128(e)(3) of the TILA. The institution must also provide the 
information required to complete the form, if the institution possesses 
that information.
    In assessing burden associated with these new requirements, the 
Department estimated 6,264 covered institutions (and their 
institutionally-affiliated organizations) must comply with these 
proposed disclosure regulations to be. Of these, we estimate 1,757 
covered institutions and their institutionally- affiliated 
organizations will be providing private education loans and therefore 
adopting TILA compliant disclosures for all private education loans 
they offer. The burden for the implementation of the TILA compliant 
disclosures is estimated to be 4 hours per institution. We estimate 
3,333,600 borrowers of private education loans and that the average 
amount of burden to provide the TILA disclosures to be .25 hour per 
loan, for a total burden of 7,028 hours.
    The Department will issue a self-certification form for adoption by 
all covered institutions. We estimate that on average, there will be 3 
hours of additional burden per institution for the adoption and 
implementation of the Department's self-certification. Additionally, we 
estimate that 3,333,600 borrowers will receive this new self-

[[Page 37460]]

certification form in their pursuit of a private education loan. We 
estimate the burden to the institution to provide each self-
certification form to be .33 hours per form, for a total burden of 
1,100,008 hours.
    The other provisions that increase burden and associated costs are 
relatively minor, especially when looked at for an individual entity 
rather than in total. To a large extent, the cost of many of these 
requirements can be avoided if institutions choose not to maintain a 
preferred lender arrangement. Given that there is little data 
indicating that the absence of such an agreement imposes a significant 
cost on institutions or their students--particularly given the 
alternative of simply listing all lenders who have provided loans to an 
institution, the Department expects few institutions to enter into 
these arrangements. Other proposed regulations generally would require 
discrete changes in specific parameters associated with existing 
requirements--such as changes to entrance and exit counseling, cohort 
default rates, and Perkins Loan cancellations--rather than wholly new 
requirements. Accordingly, entities wishing to continue to participate 
in the student aid programs have already absorbed most of the 
administrative costs related to implementing these proposed 
regulations. Marginal costs over this baseline are primarily related to 
one-time system changes that, while possibly significant in some cases, 
are an unavoidable cost of continued program participation. In 
assessing the potential impact of these proposed regulations, the 
Department recognizes that certain provisions are likely to increase 
workload for some program participants. In general, the Department 
estimates that it would take institutions 3 hours to implement each of 
these minor provisions. (This additional workload is discussed in more 
detail under the Paperwork Reduction Act of 1995 section of this 
preamble.) Additional workload would normally be expected to result in 
estimated costs associated with either the hiring of additional 
employees or opportunity costs related to the reassignment of existing 
staff from other activities. Given the limited data available, the 
Department is interested in comments and supporting information related 
to possible burden stemming from the proposed regulations. In 
particular, we ask institutions to provide detailed data on actual 
staffing and system costs associated with implementing these proposed 
regulations; data on the implementation of proposed regulations 
regarding private education loans would be especially helpful. 
Estimates included in this notice will be reevaluated based on any 
information received during the public comment period.
Net Budget Impacts
    HEOA provisions implemented by these proposed regulations are 
estimated to have a net budget impact of $12.408 million in 2009 and 
$71.953 million over FY 2009-2013. Consistent with the requirements of 
the Credit Reform Act of 1990, budget cost estimates for the student 
loan programs reflect the estimated net present value of all future 
non-administrative Federal costs associated with a cohort of loans. (A 
cohort reflects all loans originated in a given fiscal year.)
    These estimates were developed using the Office of Management and 
Budget's Credit Subsidy Calculator. (This calculator will also be used 
for 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 proposed regulations. That said, however, in 
developing the following Accounting Statement, the Department consulted 
with OMB on how to integrate our discounting methodology with the 
discounting methodology traditionally used in developing regulatory 
impact analyses.
    Absent evidence on the impact of these proposed regulations on 
student behavior, budget cost estimates were based on behavior as 
reflected in various Department data sets and longitudinal surveys 
listed under Assumptions, Limitations, and Data Sources. Program cost 
estimates were generated by running projected cash flows related to 
each provision through the Department's student loan cost estimation 
model. Student loan cost estimates are developed across five risk 
categories: Proprietary schools, two-year schools, freshmen/sophomores 
at 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 Department estimates no budgetary impact for most of the 
proposed regulations included in this NPRM. There is no data indicating 
that the extensive new requirements for disclosures and codes of 
conduct for student loan program participants will have any impact on 
the volume or composition of Federal student loans. Similarly, changes 
to the cohort default rate calculation are not estimated to affect 
Federal costs, as students are typically assumed to resume their 
education at another school in the event the school they are attending 
loses eligibility to participate in the student loan program. In 
addition, changes to the calculation formula are not estimated to have 
a significant effect on the number of schools that lose eligibility, as 
the impact of adding a third year to the calculation is expected to be 
offset by the higher threshold.
    The Department's analysis indicates that approximately 3 percent of 
schools will be affected by the change to a 3-year cohort default rate 
calculation. In an analysis of 4,241 schools, 83 with 2-year cohort 
default rates below 25 were estimated to have 3-year cohort default 
rates above 30. A total of 133 schools with a 2-year CDR under 25 are 
estimated to have a 3-year CDR between 25 and 30, demonstrating that 
the effect of changing to the calculation period is offset by the 
increased threshold. The small number of schools involved and the 
ability of students to pursue their education at other institutions 
means that this change is not expected to affect aggregate loan volumes 
or Federal costs.
    Perkins Loan Cancellations. The Department estimates the Perkins 
Loan cancellation provisions in these proposed regulations would 
increase the Federal costs by $71.953 million over FY 2009-2013. This 
estimate reflects the cost of additional cancellation benefits for the 
newly eligible borrowers discussed elsewhere in this analysis, under 
Benefits.
Assumptions, Limitations, and Data Sources
    Because these proposed regulations would largely restate statutory 
requirements that would be self-implementing in the absence of 
regulatory action, impact estimates

[[Page 37461]]

provided in the preceding section reflect a pre-statutory baseline in 
which the HEOA changes implemented in these proposed regulations do not 
exist. Costs have been quantified for five years. In general, these 
estimates should be considered preliminary; they will be reevaluated in 
light of any comments or information received by the Department prior 
to the publication of the final regulations. The final regulations will 
incorporate this information in a revised analysis.
    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including especially the Fiscal Operations Report and Application to 
Participate (FISAP); and data from a range of surveys conducted by the 
National Center for Education Statistics such as the 2004 National 
Postsecondary Student Aid Survey, the 1994 National Education 
Longitudinal Study, and the 1996 Beginning Postsecondary Student 
Survey. Data from other sources, such as the U.S. Census Bureau, were 
also used. Data on administrative burden at participating schools, 
lenders, guaranty agencies, and third-party servicers are extremely 
limited; accordingly, as noted earlier in this discussion, the 
Department is particularly interested in receiving comments in this 
area.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.
Accounting Statement
    As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these proposed 
regulations. This table provides our best estimate of the changes in 
Federal student aid payments as a result of these proposed regulations. 
Expenditures are classified as transfers from the Federal government to 
student loan borrowers (for expanded Perkins loan cancellations).

                     Table 2--Accounting Statement: Classification of Estimated Expenditures
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
               Category                                                 Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers........  $90.731.
From Whom to Whom?....................  Federal Government to Student Loan Borrowers.
----------------------------------------------------------------------------------------------------------------

2. Clarity of the Regulations
    Executive Order 12866 and the Presidential memorandum on ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
    <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.  601.30.)
    <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 largely 
associated with the requirements to provide students with new 
disclosures related to preferred lender lists, private loan TILA 
requirements, and other new borrower rights and responsibilities. In 
many cases, these requirements only require one-time changes to 
existing entrance and exit counseling materials and should not 
represent significant new burden. (The Department estimates these 
changes generally require three hours or less to implement.) For other 
requirements, such as those affecting schools choosing to maintain a 
preferred lender list, the Department is providing model disclosure 
forms the adoption of which should minimize institutional burden. In 
addition, FFEL schools meeting the definition of small entities 
generally have difficulty accessing multiple lenders--during the 
negotiated rule-making process, representatives of these schools noted 
that a requirement to include even three lenders on a preferred lender 
list would represent a major problem for them. The proposed regulation, 
however, allows these schools to avoid the burdens associated with 
maintaining such a list by simply providing students with all lenders 
who have provided loans at the schools in the past. This would 
effectively accomplish the same thing as the schools' previous 
preferred lender list without adding significant new burden. To assess 
overall burden imposed on schools meeting the definition of small 
entities, the Department developed a

[[Page 37462]]

methodology using IPEDS data and the percentage of borrowers attending 
these institutions. Using this methodology, the Department estimates 
the proposed regulations will increase total burden hours for these 
schools by 37,723, or roughly 32 hours per institution. (Monetized 
using salary data from the Bureau of Labor Statistics, this burden is 
$699,384 and $593, respectively.) Based on these estimates, the 
Department believes the proposed new requirements do not impose 
significant new costs on these institutions.
    The Department believes few if any lenders participating in the 
FFEL program have revenues of less than $5 million. FFEL program 
activity is highly concentrated among the largest lenders; should an 
extremely small number of lenders that meet the threshold participate 
in the program, they likely are making loans as a service to current 
clients rather than soliciting new business. This type of lender, with 
a tangential relationship to Federal and private student loans, is 
highly unlikely to incur significant new compliance costs as a result 
of the proposed regulation. Accordingly, the Department has determined 
that the proposed regulations do not represent a significant burden on 
small lenders.
    Guaranty agencies are State and private nonprofit entities that act 
as agents of the Federal government, and as such are not considered 
``small entities'' under the Regulatory Flexibility Act. The impact of 
the proposed regulations on individuals is not subject to the 
Regulatory Flexibility Act.
    The Secretary invites comments from small institutions and lenders 
as to whether they believe the proposed changes would have a 
significant economic impact on them and, if so, requests evidence to 
support that belief. In particular, we are interested in detailed 
information on actual staff and systems costs related to implementing 
new disclosure requirements, particularly related to private loans.
Paperwork Reduction Act of 1995
    Proposed Sec. Sec.  601.10, 601.11, 601.20, 601.21, 601.30, 601.40, 
668.16, 668.181, 668.186, 668.190, 668.191, 668.200, 668.202, 668.209, 
668.210, 668.211, 668.212, 668.213, 668.214, 668.217, 674.42, 674.53, 
674.57, 674.58, 674.56, 674.59, 682.604, and 685.304 contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted 
a copy of these sections to the Office of Management and Budget (OMB) 
for its review.
Section 601.10--Preferred Lender Arrangement Disclosures
    Proposed Sec.  601.10(a) would require that a covered institution, 
or an institution-affiliated organization of a covered institution, 
that participates in a preferred lender arrangement disclose the 
maximum amount of Federal grant and loan aid under Title IV of the HEA 
available to students; the information identified on the model 
disclosure form developed by the Secretary for each type of education 
loan that is offered pursuant to a preferred lender arrangement; and a 
statement that the institution is required to process the documents 
required to obtain a loan under the FFEL Program from any eligible 
lender the student selects.
    Proposed Sec.  601.10(a)(2) would require a covered institution, or 
an institution-affiliated organization of a covered institution to 
provide the disclosures required under section 128(e)(11) of the TILA 
for each type of private education loan offered pursuant to a preferred 
lender arrangement.
    Proposed Sec.  601.10(c) would require a covered institution and 
institution-affiliated organization that participates in a preferred 
lender arrangement to provide the disclosure of the maximum amount of 
Federal grant and loan aid available to students, the information 
identified on a model disclosure form developed by the Department, as 
well as a statement indicating to students and parents that the 
institution is required to process the documents required to obtain a 
FFEL loan from any eligible lender the student selects. This 
information would need to be provided to students attending the covered 
institution, or the families of such students, as applicable. The 
information would need to be provided annually and in a manner that 
allows for the students or their families to take the information into 
account before selecting a lender or applying for an education loan.
    Proposed Sec.  601.10(d) would require that if a covered 
institution compiles, maintains, and makes available a preferred lender 
list, the institution must clearly and fully disclose on the preferred 
lender list why the institution participates in a preferred lender 
arrangement with each lender on the preferred lender list, particularly 
with respect to terms and conditions or provisions favorable to the 
borrower; and that the students attending the institution, or the 
families of such students, do not have to borrow from a lender on the 
preferred lender list.
    Proposed Sec.  601.10(d)(2) would require the covered institution 
to ensure, through the use of the list of lender affiliates provided by 
the Secretary, that there are not less than three FFEL lenders that are 
not affiliates of each other included on the preferred lender list and, 
if the institution recommends, promotes, or endorses private education 
loans, that there are not less than two lenders of private education 
loans that are not affiliates of each other included on the preferred 
lender list.
    Proposed Sec.  601.10(d)(1)(ii) would require that the preferred 
lender list must specifically indicate, for each listed lender, whether 
the lender is or is not an affiliate of another lender on the preferred 
lender list; and if a lender is an affiliate of another lender on the 
preferred lender list, must describe the details of such affiliation.
    Proposed Sec.  601.10(d)(3) would require that the preferred lender 
list prominently disclose the method and criteria used by the 
institution in selecting lenders with which to participate in preferred 
lender arrangements to ensure that such lenders are selected on the 
basis of the best interests of the borrowers. These criteria would 
include payment of origination or other fees on behalf of the borrower; 
highly competitive interest rates, or other terms and conditions or 
provisions of Title IV, HEA program loans or private education loans; 
high-quality servicing; or additional benefits beyond the standard 
terms and conditions or provisions for such loans.
    Proposed Sec.  601.10(d)(4)(ii) would require that the covered 
institution exercise a duty of care and a duty of loyalty to compile 
the preferred lender list without prejudice and for the sole benefit of 
the students attending the institution, or the families of such 
students.
    Proposed Sec.  601.10(d)(5) would require a covered institution to 
not deny or otherwise impede the borrower's choice of a lender or cause 
unnecessary delay in certification of a Title IV loan for those 
borrowers who choose a lender that is not included on the preferred 
lender list.
    These proposed regulations would represent an increase in burden. 
The affected entities under the proposed regulations are borrowers, and 
institutions and their institutionally-affiliated organizations. We 
estimate that the burden for borrowers would increase by 323,103 hours 
and the burden for institutions and institutionally-affiliated 
organizations would increase by 12,078 hours, respectively, and we will 
include the total burden of 335,181 hours in OMB Control Number 1845-
XXXA.

[[Page 37463]]

Section 601.11--Private Education Loan Disclosures and Self-
Certification Form
    Proposed Sec.  601.11(a) would require a covered institution, or an 
institution-affiliated organization of a covered institution, to 
provide to a prospective borrower private education loan disclosures. 
The private education loan disclosures required would need to provide 
the prospective borrower with the information required under section 
128(e)(1) of the TILA; and would need to inform the prospective 
borrower that he or she may qualify for loans or other assistance under 
Title IV of the HEA; and that the terms and conditions of Title IV, HEA 
program loans may be more favorable than the provisions of private 
education loans.
    Proposed Sec.  601.11(c) would require the covered institution or 
institution-affiliated organization to ensure that information 
regarding private education loans is presented in such a manner as to 
be distinct from information regarding Title IV, HEA program loans.
    Proposed Sec.  601.11(d) would require that, upon an enrolled or 
admitted student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in 
written or electronic form, the self-certification form for private 
education loans developed by the Secretary to satisfy the requirements 
of section 128(e)(3) of the TILA. The institution also would need to 
provide the information required to complete the form, if the 
institution possesses that information.
    These proposed regulations would represent an increase in burden. 
The affected entities under the proposed regulations are borrowers, and 
institutions and institutionally-affiliated organizations. We estimate 
that burden to borrowers would increase by 833,400 hours and the burden 
to institutions and institutionally-affiliated organizations, 
respectively would increase by 1,107,115 hours and we will include the 
total burden of 1,940,515 hours in OMB Control Number 1845-XXXA.
Section 601.20--Annual Report Due From Covered Institutions and 
Institution-Affiliated Organizations
    Proposed Sec.  601.20(a) would require a covered institution, and 
an institution-affiliated organization, that participates in a 
preferred lender arrangement to prepare and submit to the Secretary an 
annual report, by a date determined by the Secretary. The annual report 
would include, for each lender that participates in a preferred lender 
arrangement with the covered institution or organization, the 
information about preferred lenders arrangements that must also be 
described for students and parents; and a detailed explanation of why 
the covered institution or institution-affiliated organization 
participates in a preferred lender arrangement with the lender. The 
explanation would need to include an explanation of why the terms, 
conditions, and provisions of each type of education loan provided 
pursuant to the preferred lender arrangement are beneficial for 
students attending the institution, or the families of such students, 
as applicable.
    Proposed Sec.  601.20(b) would require a covered institution or 
institution affiliated organization to ensure that the annual report is 
made available to the public and provided to students attending or 
planning to attend the covered institution and the families of such 
students.
    These proposed regulations would represent an increase in burden. 
The affected entities under the proposed regulations are institutions 
and institutionally-affiliated organizations. We estimate that burden 
for institutions and institutionally-affiliated organizations would 
increase by 336 hours in OMB Control Number 1845-XXXA.
Section 601.21--Code of Conduct
    Proposed Sec.  601.21 would require a covered institution that 
participates in a preferred lender arrangement to develop a code of 
conduct with respect to FFEL Program loans and private education loans 
with which the institution's agents must comply to prohibit a conflict 
of interest with the responsibilities of an agent of an institution 
with respect to FFEL Program loans and private education loans.
    Proposed Sec.  601.21(a)(2)(ii) and (iii) would require the 
institution to publish the code of conduct prominently on the 
institution's Web site; and administer and enforce the code by, at a 
minimum, requiring that all of the institution's agents with 
responsibilities with respect to FFEL Program loans or private 
education loans be annually informed of the provisions of the code of 
conduct.
    Proposed Sec.  601.21(b)(1) and (b)(2) would require any 
institution-affiliated organization of a covered institution that 
participates in a preferred lender arrangement to comply with the code 
of conduct developed and published by the covered institution and, if 
the institution-affiliated organization has a Web site, publish the 
code of conduct prominently on the Web site.
    Under proposed Sec.  601.21(b)(3), the institution-affiliated 
organization would be required to administer and enforce the code of 
conduct by, at a minimum, requiring that all of the institution-
affiliated organization's agents with responsibilities with respect to 
FFEL Program loans or private education loans be annually informed of 
the provisions of the code of conduct.
    The code of conduct would apply to agents of an institution who are 
employees of the financial aid office of the institution or who have 
responsibilities with respect to FFEL Program loans or private 
education loans.
    Proposed Sec.  601.21(c) would prescribe the minimum requirements 
of a covered institution's code of conduct. An institution's code of 
conduct must prohibit: Revenue-sharing arrangements with any lender; 
soliciting or accepting gifts from a lender, guarantor, or servicer; 
accepting any fee, payment, or other financial benefit as compensation 
for any type of consulting or any contractual relationship with a 
lender; assigning a first-time borrower's loan to a particular lender 
or refusing to certify, or delaying certification of, any loan based on 
a borrower's selection of a particular lender; requesting offers of 
funds for private education loans, including opportunity pool loans, 
from a lender in exchange for providing the lender with a specified 
number or loan volume of FFEL Program loans or private education loans 
or a preferred lender arrangement; requesting or accepting staffing 
assistance from a lender; and receipt of compensation for serving on an 
advisory board, commission, or group established by a lender, 
guarantor, or group of lenders or guarantors.
    Proposed 601.21(c)(6) would provide exceptions to the ban on 
staffing assistance, such as staffing assistance related to 
professional development or training; providing educational counseling 
materials; or providing short-term, nonrecurring staffing assistance 
during disasters or emergencies.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are institutions and 
institutionally-affiliated organizations. We estimate that burden for 
institutions and institutionally-affiliated organizations, 
respectively, would increase to 4,697 in OMB Control Number 1845-XXXA.
Section 601.30--Duties of Institutions Participating in the William D. 
Ford Direct Loan Program
    Proposed Sec.  601.30 would require a covered institution 
participating in the William D. Ford Direct Loan Program to make the 
information identified in a

[[Page 37464]]

model disclosure form developed by the Secretary available to students 
attending or planning to attend the institution, or the families of 
such students. If the institution provides information regarding a 
private education loan to a prospective borrower, the institution must 
concurrently provide the borrower with the information identified on 
the model disclosure form.
    Proposed Sec.  601.30(b) would allow a covered institution to use a 
comparable form designed by the institution to provide this 
information, instead of the model disclosure form.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers, and 
institutions and their institutionally-affiliated organizations. We 
estimate that burden to borrowers would increase by 56,671 hours and 
1,353 hours for institutions and institutionally-affiliated 
organizations, respectively, and we will include the total burden of 
58,024 hours in OMB Control Number 1845-XXXB.
Section 601.40--Lender Responsibilities
    Proposed Sec.  601.40(a) would require FFEL lenders to provide FFEL 
borrowers the disclosures required under current Sec.  682.205(a) and 
(b). A lender offering private education loans would be required to 
comply with the disclosures required under section 128(e) of the TILA 
for each type of private loan.
    Proposed Sec.  601.40(b) would set forth the information the 
lenders will have to provide to the Secretary on an annual basis 
regarding any reasonable expenses paid or provided to any agent of a 
covered institution who is employed in the financial aid office or has 
responsibilities with respect to education loans or other financial aid 
of the institution for service by the employee on an advisory board, 
commission or group established by a lender or a group of lenders. This 
information also would need to be reported for expenses paid or 
provided to any agent of an institution-affiliated organization 
involved in recommending, promoting or endorsing education loans. 
Lenders would be required to report the amount of the expenses paid and 
the specific instances for which it was paid; the names of the agents 
to whom expenses were paid; and the date and description of each 
activity for which expenses were paid. This section of the regulations 
would also require the lender to submit a certification of compliance 
to the Secretary.
    Proposed Sec.  601.40(c) would require any FFEL lender 
participating in one or more preferred lender arrangements to annually 
certify to the Secretary its compliance with the HEA. Lenders required 
to file an audit under Sec.  682.305(c) would be required to include 
the certification as part of the audit. A lender that is not required 
to submit an audit would need to provide the certification separately.
    Proposed Sec.  601.40(d) would require FFEL lenders with a 
preferred lender arrangement with a covered institution or an 
institution-affiliated organization to annually provide to the 
institution, institution-affiliated organization and the Secretary 
information regarding the FFEL loans the lender will provide to 
students and families pursuant to the preferred lender arrangement for 
the next award year. The information will be prescribed by the 
Secretary, after consultation with the Federal Reserve.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers and 
lenders. We estimate that burden to borrowers would increase by 632,383 
hours and that burden for lenders would increase by 292 hours in OMB 
Control Number 1845-XXXA.
Sections 668.181, 668.200, and 668.202--Three-Year Cohort Default Rates
    The proposed regulations reflected in new proposed subpart N of 
part 668 would incorporate the three-year cohort default method under 
proposed Sec.  668.202. With regard to the transition period for use of 
the current cohort default rate method, proposed Sec. Sec.  668.181 and 
668.200(b) would specify that the Department will issue annually two 
sets of draft and official cohort default rates for fiscal years 2009, 
2010, and 2011.
    These proposed regulations describe the purpose of the 3-year rate 
and explain the calculation and application of the 3-year cohort 
default rate. As a result, the statement of purpose of this subpart and 
the description of how the Department will calculate and apply the 3-
year cohort default rate will not impact the burden in OMB 1845-0022.
Section 668.16--Administrative Capabilities and Cohort Default Rate 
Appeals
    Proposed Sec.  668.16(m)(1)(ii) would apply the current rules for 
administrative capability based on two-year cohort default rates during 
the transition period. Thereafter, a school would be administratively 
capable if two of its three most recent three-year rates are less than 
30 percent. Under proposed Sec.  668.16(m)(2), the current rules for 
provisional certification based on two year cohort default rates of 25 
percent or more but less than 40 percent would continue to apply during 
the transition period. Thereafter, an institution whose three year 
default rates are 30 percent or more, but less than 40 percent, for two 
years would not be provisionally certified based solely on its default 
rates under the following circumstances:
    (1) The institution files timely a request for adjustment or appeal 
from the second such rate under proposed Sec. Sec.  668.209 
(Uncorrected data adjustments), 668.210 (New data adjustments), or 
668.212 (Loan servicing appeals) and the request or appeal is pending 
or succeeds in reducing the institution's three-year rate below 30 
percent.
    (2) The institution files timely an appeal under proposed Sec.  
668.213 (Economically disadvantaged appeals) from the second such rate 
and the appeal is pending or successful. proposed Sec.  668.213 would 
provide that the two rates of 30 percent or more must be successive to 
permit the appeal.
    (3) The institution files a timely participation rate index appeal 
under proposed Sec.  668.214 and the appeal is pending or successful.
    (4) The institution had 30 or fewer borrowers in the three most 
recent cohorts of borrowers used to calculate the institution's rates.
    (5) A three-year rate that would otherwise potentially subject the 
institution to provisional certification was calculated as an average 
rate.
    To avoid provisional certification by invoking exceptions (1), (2) 
or (3), the institution would be required to file a request for 
adjustment or appeal in response to a notice from the Department that 
the institution's second three-year cohort default rate, or second 
successive three-year default rate for an economically disadvantaged 
appeal, is 30 percent or more, but less than 40 percent.
    Under proposed Sec.  668.214, a participation rate index appeal 
could be taken from a loss of eligibility, or potential placement on 
provisional certification, based on three-year cohort default rates if 
the participation rate index for any of the excessive rates was .0625 
or less. The appeal would be taken within 30 days of receiving the 
notice of loss of eligibility with the most recent excessive official 
rate.
    In addition, under proposed Sec.  668.204(c)(1)(iii), an 
institution would be allowed to challenge a potential placement on 
provisional certification because its three-year cohort default rates 
for two of the most recent three years would be 30 percent or more, but

[[Page 37465]]

less than 40 percent, even though the second such rate was available 
only as a draft rate, if its participation rate index was equal to or 
less than 0.0625 for either its draft rate, or its most recent official 
rate equaling or exceeding 30 percent but less than 40 percent. The 
challenge would be taken following notice to the school of its draft 
rate.
    The proposed changes in Sec.  668.16 apply the current rules on 
administrative capability during the transition period. We estimate 
that the proposed regulations will not impact burden in OMB 1845-0022.
Section 668.186, 668.190, 668.191, 668.209, 668.210, 668.211, and 
668.212--Electronic Processes
    Proposed Sec.  668.186 would eliminate the need to request a loan 
record detail report by providing that the report will be sent 
electronically to the institution as part of a package notifying the 
institution of its official cohort default rate. The institution would 
have five business days, from the transmission date of the package as 
posted on the Department's Web site, to report any problem with 
receiving that transmission. If the institution reports a problem 
within the five-day period, and the Department agrees that the 
institution did not cause the problem, we will extend the adjustment, 
challenge, and appeal deadlines and timeframes to account for 
retransmitting the package after the problem is resolved. If no 
problems are reported by the institution, the timeframe associated with 
filing or requesting the adjustment, challenge, or appeal begins on the 
sixth day following the transmission date of the package that is posted 
on the Department's Web site. The timeframes for the adjustments, 
challenges, and appeals are reflected in proposed Sec. Sec.  668.190(b) 
and 668.191(b).
    The subpart M, part 668 provisions reflected in Sec.  668.186, and 
the provisions for adjustments, challenges, and appeals in the related 
sections in subpart M of part 668 would also be reflected in the 
following parallel provisions in subpart N, part 668: Sec. Sec.  
668.209, 668.210, 668.211, and 668.212.
    These proposed regulations represent a decrease in burden. The 
affected entities under these proposed regulations are institutions. We 
estimate that burden would decrease by -725 hours for institutions 
which would be reflected in OMB Control Number 1845-0022.
Sections 682.604 and 685.304--Entrance Counseling
    Proposed Sec.  682.604(f)(3) would require that institutions 
provide initial counseling for Stafford and graduate or professional 
student PLUS Loan borrowers. Comprehensive information on the terms and 
conditions of the loan and on the responsibilities of the borrower with 
respect to the loan would need to be provided. Under this proposed 
regulation, this information may be provided to the borrower during an 
entrance counseling session conducted in person; on a separate written 
form provided to the borrower that the borrower signs and returns to 
the school; or online or by interactive electronic means, with the 
borrower acknowledging receipt of the information.
    Proposed Sec.  682.604(f)(4) would require a school that conducts 
initial counseling online or through interactive electronic means to 
take reasonable steps to ensure that each student borrower receives the 
counseling materials and participates in and completes the initial 
counseling, which may include completion of any interactive program 
that tests the borrower's understanding of the terms and conditions of 
the borrower's loans.
    Proposed Sec.  682.604(f)(6) would require that initial counseling 
for Stafford Loan borrowers: Explain the use of a Master Promissory 
Note; emphasize to the student borrower the seriousness and importance 
of the repayment obligation the student borrower is assuming; describe 
the likely consequences of default, including adverse credit reports, 
delinquent debt collection procedures under Federal law, and 
litigation; in the case of a student borrower (other than a loan made 
or originated by the school), emphasize that the student borrower is 
obligated to repay the full amount of the loan even if the student 
borrower does not complete the program, does not complete the program 
within the regular time for program completion, is unable to obtain 
employment upon completion, or is otherwise dissatisfied with or does 
not receive the educational or other services that the student borrower 
purchased from the school; inform the student borrower of sample 
monthly repayment amounts based on a range of student levels of 
indebtedness of Stafford loan borrowers, or student borrowers with 
Stafford and PLUS loans, depending on the types of loans the borrower 
has obtained--or the average indebtedness of other borrowers in the 
same program at the same school as the borrower; to the extent 
practicable, explain the effect of accepting the loan to be disbursed 
on the eligibility of the borrower for other forms of student financial 
assistance; provide information on how interest accrues and is 
capitalized during periods when the interest is not paid by either the 
borrower or the Secretary; inform the borrower of the option to pay the 
interest on an unsubsidized Stafford Loan while the borrower is in 
school; explain the definition of half-time enrollment at the school, 
during regular terms and summer school, if applicable, and the 
consequences of not maintaining half-time enrollment; explain the 
importance of contacting the appropriate offices at the school if the 
borrower withdraws prior to completing the borrower's program of study 
so that the school can provide exit counseling, including information 
regarding the borrower's repayment options and loan consolidation; 
provide information on NSLDS and how the borrower can access the 
borrower's records; and provide the name of and contact information for 
the individual the borrower may contact if the borrower has any 
questions about the borrower's rights and responsibilities or the terms 
and conditions of the loan.
    Proposed Sec.  682.604(f)(7) would require that initial counseling 
for graduate or professional student PLUS Loan borrowers must: Inform 
the student borrower of sample monthly repayment amounts based on a 
range of student levels of indebtedness of graduate or professional 
student PLUS loan borrowers, or student borrowers with Stafford and 
PLUS loans, depending on the types of loans the borrower has obtained 
or the average indebtedness of other borrowers in the same program at 
the same school as the borrower; inform the borrower of the option to 
pay interest on a PLUS Loan while the borrower is in school; for a 
graduate or professional student PLUS Loan borrower who has received a 
prior FFEL Stafford, or Direct Subsidized or Unsubsidized loan, provide 
the information, specified in Sec.  682.603(d)(1)(i) through 
(d)(1)(iii), that compares Stafford and PLUS Loan interest rates, 
interest accrual periods, and repayment period begin dates; and for a 
graduate or professional student PLUS Loan borrower who has not 
received a prior FFEL Stafford, or Direct Subsidized or Unsubsidized 
loan, provide the Stafford Loan initial counseling information 
specified in proposed Sec.  682.604(f)(6)(i) through (f)(6)(xii).
    Corresponding initial counseling requirements for Direct 
Subsidized, Direct Unsubsidized, and Direct PLUS

[[Page 37466]]

loan borrowers are proposed in Sec.  685.304(a)(1) through (a)(9) of 
the Direct Loan regulations.
    These proposed regulations would represent an increase in burden. 
The affected entities under the proposed regulations are borrowers and 
institutions. We estimate that burden in OMB 1845-0020 would increase 
by 475,152 hours for borrowers and 12,582 hours for institutions; and 
we estimate that burden in OMB 1845-0021 would increase by 217,900 
hours for borrowers and 12,582 hours for institutions for a total of 
487,735 hours which would be reflected in OMB Control Number 1845-0020 
and a total of 230,482 hours in OMB Control Number 1845-0021.
Sections 674.42, 682.604 and 685.304--Exit Counseling
    Proposed Sec. Sec.  674.42(b), 682.604(g) and 685.304(b) would 
continue to require a school to ensure that exit counseling is 
conducted with each Perkins, FFEL Stafford, and Direct Subsidized and 
Unsubsidized Loan borrower. In addition, schools would be required to 
provide exit counseling to graduate or professional student FFEL PLUS 
Loan borrowers and graduate or professional student Direct PLUS Loan 
borrowers.
    Under proposed Sec. Sec.  674.42(b)(1), 682.604(g)(1) and 
685.304(b)(2) and (b)(3), schools would continue to be required to 
conduct exit counseling either in person, by audiovisual presentation, 
or by interactive electronic means. In each case, the school would be 
required to ensure that the exit counseling is conducted shortly before 
the student borrower ceases at least half-time study at the school, and 
that an individual with expertise in the Title IV programs is 
reasonably available shortly after the counseling to answer the student 
borrower's questions. The alternative approach for student borrowers 
enrolled in a correspondence program or a study-abroad program that the 
home institution approves for credit would be maintained in the 
proposed new regulations. The current regulatory procedures for student 
borrowers who withdraw from school without the school's prior knowledge 
or fail to complete an exit counseling session as required also would 
be maintained in the proposed new regulations.
    Proposed Sec. Sec.  674.42(b)(3), 682.604(g)(3) and 685.304(b)(6) 
would continue to require that if exit counseling is conducted by 
electronic interactive means, the school must take reasonable steps to 
ensure that each student borrower receives the counseling materials, 
and participates in and completes the counseling. Proposed Sec. Sec.  
674.42(b)(4), 682.604(g)(4) and 685.304(b)(7) would retain the 
requirement that schools maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    Proposed Sec. Sec.  674.42(b)(2), 682.604(g)(2) and 685.304(b)(4) 
also would require exit counseling for Perkins, FFEL, and Direct Loan 
student borrowers to: Review for the student borrower information on 
the availability of the Student Loan Ombudsman's office; inform the 
student borrower of the availability of Title IV loan information in 
the National Student Loan Data System (NSLDS) and how NSLDS can be used 
to obtain Title IV loan status information; and provide a general 
description of the types of tax benefits that may be available to 
borrowers.
    Additionally, proposed Sec. Sec.  682.604(g)(2)(ii) and 
685.304(b)(4)(ii) would require the exit counseling for FFEL and Direct 
Loan student borrowers to review the available FFEL and Direct Loan 
repayment plan options, including standard, graduated, extended, income 
sensitive and income-based repayment plans, including a description of 
the different features of each plan and sample information showing the 
average anticipated monthly payments, and the difference in interest 
paid and total payments under each plan. The exit counseling also would 
need to inform FFEL and Direct Loan borrowers of their option to change 
repayment plans.
    For Direct Loan borrowers, proposed Sec.  685.304(b)(4)(vi) would 
retain the requirement that schools explain to the student borrower how 
to contact the party servicing the Direct Loan.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers and 
institutions. We estimate that burden would increase by 444,970 hours 
for borrowers and 12,582 hours for institutions for a total of 457,552 
hours which would be reflected in OMB Control Number 1845-0020. We 
estimate that burden would increase by 213,542 hours for borrowers and 
12,582 hours for institutions for a total of 226,124 hours which would 
be reflected in OMB Control Number 1845-0021. We estimate that burden 
would increase by 214,022 hours for borrowers and 5,940 hours for 
institutions for a total of 219,962 hours which would be reflected in 
OMB Control Number 1845.0023.
Sections 674.53, 674.57, and 674.58--Expansion of Teacher, Head Start, 
and Law Enforcement Cancellation Categories
    These proposed regulations would extend the new cancellation 
categories to current Federal Perkins Loan borrowers with outstanding 
balances on loans already in repayment and all new borrowers who 
perform eligible service that includes August 14, 2008, or begins on or 
after that date, regardless of whether information on the expanded 
cancellation categories appears on the borrower's promissory note.
    Proposed Sec.  674.53 would provide that a teacher who is employed 
by an educational service agency, or a full-time special education 
teacher, including teachers of infants, toddlers, children, or youth 
with disabilities, who is working in a system administered by an 
educational service agency, is eligible for cancellation benefits.
    Proposed Sec.  674.57 would be amended such that the cancellation 
provisions for law enforcement or correction officer would include 
borrowers who are employed full-time as an attorney in Federal Public 
Defender Organizations or Community Defender Organizations.
    Proposed Sec.  674.58 of the Head Start cancellation provisions 
would be amended by expanding cancellation benefits to include 
borrowers who are performing qualifying service as full-time staff 
members in a pre-kindergarten or childcare program that is licensed or 
regulated by the State.
    For purposes of determining a borrower's eligibility for 
cancellation benefits, proposed Sec.  674.58(c)(1) and (2) would define 
the terms ``pre-kindergarten program'' and ``childcare program.'' A 
pre-kindergarten program would be defined as a State-funded program 
that serves children from birth through age six and addresses the 
children's cognitive (including language, early literacy, and early 
mathematics), social, emotional, and physical development. A childcare 
program would be defined as a program that is licensed and regulated by 
the State and provides child care services for fewer than 24 hours per 
day per child, unless care in excess of 24 consecutive hours is needed 
due to the nature of the parents' work.
    Proposed Sec.  674.58 also would amend the Head Start cancellation 
provisions by renaming the regulation ``Cancellation for service in an 
early childhood education program'' to reflect the fact that the 
expansion of cancellation benefits available to borrowers under this 
provision are no longer limited to service in early childhood education 
programs authorized by the Head Start Act.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers and 
institutions. We estimate that burden as a result of the

[[Page 37467]]

proposed changes in Sec.  674.53 would increase by 2,290 hours for 
borrowers and 1,145 hours for institutions for a total of 3,435 hours 
which would be reflected in OMB Control Numbers 1845-XXXC. We estimate 
that burden as a result of the proposed changes in Sec.  674.57 would 
increase by 385 hours for borrowers and 193 hours for institutions for 
a total of 578 hours which would be reflected in OMB Control Number 
1845-XXXC. We estimate that burden as a result of the proposed changes 
in Sec.  674.58 would increase by 2,648 hours for borrowers and 1,325 
hours for institutions for a total of 3,973 hours which would be 
reflected in OMB Control Number 1845-XXXC.
Section 674.56--Addition of New Public Service Cancellation Categories
    Proposed Sec.  674.56 would add new public service cancellation 
categories for borrowers in the Federal Perkins Loan program who are 
performing qualifying service as: Full-time faculty members at a Tribal 
College or University; full-time fire fighters who serve a local, 
State, or Federal fire department or fire district; librarians with a 
master's degree in library science who are employed in an elementary or 
secondary school that qualifies for Title I funding, or in a public 
library that serves a geographic area that includes one or more Title 
I-eligible schools; or full-time speech-language pathologists with a 
master's degree who are working exclusively with Title I-eligible 
schools.
    Under these proposed regulations, current borrowers with 
outstanding balances on loans already in repayment and all new 
borrowers who perform eligible service that includes August 14, 2008, 
or begins on or after that date, in these new cancellation categories, 
would qualify for cancellation, regardless of whether the cancellation 
category appears on the borrower's promissory note.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers and 
institutions. We estimate that burden would increase by 3,436 hours for 
borrowers and 1,718 hours for institutions for a total of 5,154 hours 
which would be reflected in OMB Control Number 1845-XXXC.
Section 674.59--Military Service Cancellation
    Proposed Sec.  674.59 would amend the cancellation rate for each 
year of qualifying service for the military service cancellation. 
Borrowers who are serving in areas of hostility are now eligible to 
receive a cancellation of up to 100 percent of the loan for each full 
year of active duty service that includes August 14, 2008, or begins on 
or after that date in the following increments: 15 percent for the 
first and second years of service; 20 percent for the third and fourth 
years of service; and, 30 percent for the fifth year of service.
    These proposed regulations represent an increase in burden. The 
affected entities under the proposed regulations are borrowers and 
institutions. We estimate that burden would increase by 20,532 hours 
for borrowers and 10,266 hours for institutions for a total of 30,798 
hours which would be reflected in OMB Control Number 1845-XXXC.
    Consistent with the discussion in the preceding paragraphs, the 
following chart describes the sections of the proposed regulations 
involving information collections, the information being collected, and 
the collections that the Department will submit to the Office of 
Management and Budget for approval and public comment under the 
Paperwork and Reduction Act.

------------------------------------------------------------------------
      Regulatory section        Information section       Collection
------------------------------------------------------------------------
601.10........................  Proposed Sec.        OMB 1845-XXXA. This
                                 601.10(a) would      will be new
                                 require that a       collection. A
                                 covered              separate 60-day
                                 institution, or an   Federal Register
                                 institution-         notice will be
                                 affiliated           published to
                                 organization of a    solicit comments
                                 covered              on the form.
                                 institution, that
                                 participates in a
                                 preferred lender
                                 arrangement
                                 disclose the
                                 information
                                 identified on the
                                 model disclosure
                                 form developed by
                                 the Secretary and
                                 its preferred
                                 lender list.
601.11........................  Proposed Sec.        OMB 1845-XXXA. This
                                 601.11(a) would      will be new
                                 require a covered    collection. A
                                 institution, or an   separate 60-day
                                 institution-         Federal Register
                                 affiliated           notice will be
                                 organization of a    published to
                                 covered              solicit comments
                                 institution, to      on the form.
                                 provide to a
                                 prospective
                                 borrower private
                                 education loan
                                 disclosures
                                 consistent with
                                 section 128(e)(1)
                                 of the TILA; to
                                 provide a student
                                 who requests a
                                 private education
                                 loan a self-
                                 certification
                                 form; and to
                                 inform the
                                 prospective
                                 borrower that he
                                 or she may qualify
                                 for loans or other
                                 assistance under
                                 Title IV of the
                                 HEA; and to inform
                                 the prospective
                                 borrower that the
                                 terms and
                                 conditions of
                                 Title IV, HEA
                                 program loans may
                                 be more favorable
                                 than the
                                 provisions of
                                 private education
                                 loans.
601.20........................  Proposed Sec.        OMB 1845-XXXA. This
                                 601.20(a) would      will be new
                                 require a covered    collection. A
                                 institution, and     separate 60-day
                                 an institution-      Federal Register
                                 affiliated           notice will be
                                 organization that    published to
                                 participates in a    solicit comments.
                                 preferred lender
                                 arrangement to
                                 prepare and submit
                                 to the Secretary
                                 an annual report.
601.21........................  Proposed Sec.        OMB 1845-XXXA. This
                                 601.21 would         will be new
                                 require a covered    collection. A
                                 institution that     separate 60-day
                                 participates in a    Federal Register
                                 preferred lender     notice will be
                                 arrangement to       published to
                                 develop a code of    solicit comments.
                                 conduct with
                                 respect to FFEL
                                 Program loans and
                                 private education
                                 loans with which
                                 the institution's
                                 agents must comply
                                 to prohibit a
                                 conflict of
                                 interest with the
                                 responsibilities
                                 of an agent of an
                                 institution with
                                 respect to FFEL
                                 Program loans and
                                 private education
                                 loans.

[[Page 37468]]

 
601.30........................  Proposed Sec.        OMB 1845-XXXB. This
                                 601.30 would         will be new
                                 require a covered    collection. A
                                 institution          separate 60-day
                                 participating in     Federal Register
                                 the William D.       notice will be
                                 Ford Direct Loan     published to
                                 Program to make      solicit comments.
                                 the information
                                 identified in a
                                 model disclosure
                                 form developed by
                                 the Secretary
                                 available to
                                 students attending
                                 or planning to
                                 attend the
                                 institution, or
                                 the families of
                                 such students. If
                                 the institution
                                 provides
                                 information
                                 regarding a
                                 private education
                                 loan to a
                                 prospective
                                 borrower, the
                                 institution must
                                 concurrently
                                 provide the
                                 borrower with the
                                 information
                                 identified on the
                                 model disclosure
                                 form.
601.40........................  Proposed Sec.        OMB 1845-XXXA. This
                                 601.40 would set     will be new
                                 forth the            collection. A
                                 information the      separate 60-day
                                 lenders will have    Federal Register
                                 to provide to the    notice will be
                                 Secretary on an      published to
                                 annual basis         solicit comments.
                                 regarding any
                                 reasonable
                                 expenses paid or
                                 provided to any
                                 agent of a covered
                                 institution who is
                                 employed in the
                                 financial aid
                                 office or has
                                 responsibilities
                                 with respect to
                                 education loans or
                                 other financial
                                 aid of the
                                 institution for
                                 service by the
                                 employee on an
                                 advisory board,
                                 commission or
                                 group established
                                 by a lender or a
                                 group of lenders.
668.181, 668.200, & 668.202...  Proposed Sec.  Sec.  OMB 1845-0022.
                                   668.181,          No change in
                                 668.200, and         burden.
                                 668.202 would
                                 provide a new
                                 proposed subpart
                                 N, part 668 to
                                 incorporate the
                                 three-year method
                                 under Sec.
                                 668.202. With
                                 regard to the
                                 transition period,
                                 proposed Sec.
                                 Sec.   668.181 and
                                 668.200(b) would
                                 specify that the
                                 Department will
                                 issue annually two
                                 sets of draft and
                                 official cohort
                                 default rates for
                                 fiscal years 2009,
                                 2010, and 2011. As
                                 a result, the
                                 statement of
                                 purpose of this
                                 subpart and the
                                 description of how
                                 the Department
                                 will calculate and
                                 apply the 3-year
                                 cohort default
                                 rate will not
                                 impact the burden
                                 in OMB 1845-0022.
668.16........................  Proposed Sec.        OMB 1845-0022.
                                 668.16(m) would     No change in
                                 require              burden.
                                 institutions to
                                 have the new three-
                                 year cohort
                                 default rate, and
                                 would incorporate
                                 the transition
                                 rules and the
                                 basis for appeals
                                 for that cohort
                                 default rate. The
                                 proposed changes
                                 in Sec.   668.16
                                 apply the current
                                 rules on
                                 administrative
                                 capability during
                                 the transition
                                 period. We
                                 estimate that the
                                 proposed
                                 regulations will
                                 not impact burden
                                 in OMB 1845-0022.
668.186, 668.190, 668.191,      These proposed       OMB 1845-0022.
 668.209, 668.210, 668.211,      regulations would
 and 668.212.                    eliminate the need
                                 to request a loan
                                 record detail
                                 report from the
                                 Department;
                                 instead an
                                 electronic loan
                                 report would be
                                 sent to each
                                 institution.
682.604 & 685.304.............  Proposed Sec.  Sec.  OMB 1845-0020 and
                                   682.604 and        1845-0021.
                                 685.304 would
                                 require that
                                 institutions
                                 provide initial
                                 counseling for
                                 Stafford and
                                 graduate or
                                 professional
                                 student PLUS Loan
                                 borrowers.
674.42, 682.604, and 685.304..  Proposed Sec.  Sec.  OMB 1845-0020, 1845-
                                   674.42, 682.604    0021, and 1845-
                                 and 685.304 would    0023.
                                 continue to
                                 require a school
                                 to ensure that
                                 exit counseling is
                                 conducted with
                                 each Perkins, FFEL
                                 Stafford, and
                                 Direct Subsidized
                                 and Unsubsidized
                                 Loan borrower. In
                                 addition, schools
                                 would be required
                                 to provide exit
                                 counseling to
                                 graduate or
                                 professional
                                 student FFEL PLUS
                                 Loan borrowers and
                                 graduate or
                                 professional
                                 student Direct
                                 PLUS Loan
                                 borrowers.
674.53, 674.57, and 674.58....  Proposed Sec.  Sec.  OMB 1845-XXXC. This
                                   674.53, 674.57,    will be new
                                 and 674.58 would     collection. A
                                 extend the new       separate 60-day
                                 cancellation         Federal Register
                                 categories to        notice will be
                                 current Federal      published to
                                 Perkins Loan         solicit comments.
                                 borrowers with
                                 outstanding
                                 balances on loans
                                 already in
                                 repayment and all
                                 new borrowers who
                                 perform eligible
                                 service that
                                 includes August
                                 14, 2008, or
                                 begins on or after
                                 that date,
                                 regardless of
                                 whether
                                 information on the
                                 expanded
                                 cancellation
                                 categories appears
                                 on the borrower's
                                 promissory note.

[[Page 37469]]

 
674.56........................  Proposed Sec.        OMB 1845-XXXC. This
                                 674.56 would add     will be new
                                 new public service   collection. A
                                 cancellation         separate 60-day
                                 categories for       Federal Register
                                 borrowers in the     notice will be
                                 Federal Perkins      published to
                                 Loan program who     solicit comments.
                                 are performing
                                 qualifying service
                                 as: Full-time
                                 faculty members at
                                 a Tribal College
                                 or University;
                                 full-time fire
                                 fighters who serve
                                 a local, State, or
                                 Federal fire
                                 department or fire
                                 district;
                                 librarians with a
                                 master's degree in
                                 library science
                                 who are employed
                                 in an elementary
                                 or secondary
                                 school that
                                 qualifies for
                                 Title I funding,
                                 or in a public
                                 library that
                                 serves a
                                 geographic area
                                 that includes one
                                 or more Title I-
                                 eligible schools;
                                 or full-time
                                 speech-language
                                 pathologists with
                                 a master's degree
                                 who are working
                                 exclusively with
                                 Title I-eligible
                                 schools.
674.59........................  Proposed Sec.        OMB 1845-XXXC. This
                                 674.59 would amend   will be new
                                 the cancellation     collection. A
                                 rate for each year   separate 60-day
                                 of qualifying        Federal Register
                                 service for the      notice will be
                                 military service     published to
                                 cancellation.        solicit comments.
                                 Borrowers who are
                                 serving in areas
                                 of hostility are
                                 now eligible to
                                 receive a
                                 cancellation of up
                                 to 100 percent of
                                 the loan for each
                                 full year of
                                 active duty
                                 service that
                                 includes August
                                 14, 2008, or
                                 begins on or after
                                 that date in the
                                 following
                                 increments: 15
                                 percent for the
                                 first and second
                                 years; 20 percent
                                 for the third and
                                 fourth years of
                                 service; and 30
                                 percent for the
                                 fifth year of
                                 service.
------------------------------------------------------------------------

    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#cd82849f8c9289828e8688998da2a0afe3a8a2bde3aaa2bb"><span class="__cf_email__" data-cfemail="84cbcdd6c5dbc0cbc7cfc1d0c4ebe9e6aae1ebf4aae3ebf2">[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.
Intergovernmental Review
    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.
Assessment of Educational Impact
    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
Electronic Access to This Document
    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

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

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

List of Subjects

34 CFR Part 601

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

34 CFR Part 668

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

34 CFR Parts 674, 682 and 685

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

    Dated: July 14, 2009.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend chapter VI of title 34 of the Code of Federal Regulations as 
follows:
    1. Add part 601 to read as follows:

PART 601--INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION 
LOANS

Subpart A--General
Sec.

[[Page 37470]]

601.1 Scope.
601.2 Definitions.
Subpart B--Loan Information To Be Disclosed by Covered Institutions and 
Institution-Affiliated Organizations
601.10 Preferred lender arrangement disclosures.
601.11 Private education loan disclosures and self-certification 
form.
601.12 Use of institution and lender name.
Subpart C--Responsibilities of Covered Institutions and Institution-
Affiliated Organizations
601.20 Annual report.
601.21 Code of conduct.
Subpart D--Loan Information To Be Disclosed by Institutions 
Participating in the William D. Ford Direct Loan Program
601.30 Duties of institutions.
Subpart E--Lender Responsibilities
601.40 Disclosure and reporting requirements for lenders.

    Authority:  20 U.S.C. 1019-1019d, 1021, 1094(a) and (h).

Subpart A--General


Sec.  601.1   Scope.

    This part establishes disclosure and reporting requirements for 
covered institutions, institution-affiliated organizations, and lenders 
that provide, issue, recommend, promote, endorse, or provide 
information relating to education loans. Education loans include loans 
authorized by the Higher Education Act of 1965, as amended (HEA) and 
private education loans.

(Authority: 20 U.S.C. 1019-1019d, 1021, 1094(a)(25) and (e))

Sec.  601.2   Definitions.

    (a) The definitions of the following terms used in this part are 
set forth in the regulations for Institutional Eligibility under the 
Higher Education Act of 1965, as amended, 34 CFR part 600:

Federal Family Education Loan (FFEL) Program
Secretary
Title IV, HEA program

    (b) The following definitions also apply to this part:
    Agent: An officer or employee of a covered institution or an 
institution-affiliated organization.
    Covered institution: Any institution of higher education, 
proprietary institution of higher education, postsecondary vocational 
institution, or institution outside the United States, as these terms 
are defined in 34 CFR part 600, that receives any Federal funding or 
assistance.
    Education loan: Except when used as part of the term ``private 
education loan'',
    (1) Any loan made, insured, or guaranteed under the Federal Family 
Education Loan (FFEL) Program;
    (2) Any loan made under the William D. Ford Federal Direct Loan 
Program; or
    (3) A private education loan.
    Institution-affiliated organization: (1) Any organization that--
    (i) Is directly or indirectly related to a covered institution; and
    (ii) Is engaged in the practice of recommending, promoting, or 
endorsing education loans for students attending such covered 
institution or the families of such students.
    (2) An institution-affiliated organization--
    (i) May include an alumni organization, athletic organization, 
foundation, or social, academic, or professional organization, of a 
covered institution; and
    (ii) Does not include any lender with respect to any education loan 
secured, made, or extended by such lender.
    Lender: (1) An eligible lender in the Federal Family Education Loan 
(FFEL) Program, as defined in 34 CFR 682.200(b);
    (2) The Department in the Direct Loan program;
    (3) In the case of a private educational loan, a private education 
lender as defined in section 140 of the Truth in Lending Act; and
    (4) Any other person engaged in the business of securing, making, 
or extending education loans on behalf of the lender.
    Officer: A director or trustee of a covered institution or 
institution-affiliated organization, if such individual is treated as 
an employee of such covered institution or institution-affiliated 
organization, respectively.
    Preferred lender arrangement: (1) An arrangement or agreement 
between a lender and a covered institution or an institution-affiliated 
organization of such covered institution--
    (i) Under which a lender provides or otherwise issues education 
loans to the students attending such covered institution or the 
families of such students; and
    (ii) That relates to such covered institution or such institution-
affiliated organization recommending, promoting, or endorsing the 
education loan products of the lender.
    (2) A preferred lender arrangement does not include--
    (i) Arrangements or agreements with respect to loans made under the 
William D. Ford Federal Direct Loan Program; or
    (ii) Arrangements or agreements with respect to loans that 
originate through the PLUS Loan auction pilot program under section 
499(b) of the HEA.
    (3) For purpose of this definition, an arrangement or agreement 
does not exist if the private education loan provided or issued to a 
student attending a covered institution is made by the covered 
institution, and the private education loan is--
    (i) Funded by the covered institution's own funds;
    (ii) Funded by donor-directed contributions;
    (iii) Made under title VII or title VIII of the Public Service 
Health Act; or
    (iv) Made under an institutional payment plan of the covered 
institution.
    Private education loan: As the term is defined in section 140 of 
the Truth in Lending Act, a loan provided by a private educational 
lender that is not a title IV loan and that is issued expressly for 
postsecondary education expenses to a borrower, regardless of whether 
the loan is provided through the educational institution that the 
student attends or directly to the borrower from the private 
educational lender. A private education loan does not include an 
extension of credit under an open end consumer credit plan, a reverse 
mortgage transaction, a residential mortgage transaction, or any other 
loan that is secured by real property or a dwelling.

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

Subpart B--Loan Information To Be Disclosed by Covered Institutions 
and Institution-Affiliated Organizations


Sec.  601.10   Preferred lender arrangement disclosures.

    (a) A covered institution, or an institution-affiliated 
organization of such covered institution, that participates in a 
preferred lender arrangement must disclose--
    (1) On such covered institution's or institution-affiliated 
organization's Web site and in all informational materials described in 
paragraph (b) of this section that describe or discuss education 
loans--
    (i) The maximum amount of Federal grant and loan aid under title IV 
of the HEA available to students, in an easy to understand format;
    (ii) The information identified on a model disclosure form 
developed by the Secretary pursuant to section 153(a)(2)(B) of the HEA, 
for each type of education loan that is offered pursuant to a preferred 
lender arrangement of the institution or institution-affiliated 
organization to students of the institution or the families of such 
students; and
    (iii) A statement that such institution is required to process the 
documents required to obtain a loan under the

[[Page 37471]]

Federal Family Education Loan (FFEL) Program from any eligible lender 
the student selects; and
    (2) On such covered institution's or institution-affiliated 
organization's Web site and in all informational materials described in 
paragraph (b) of this section that describe or discuss private 
education loans--
    (i) In the case of a covered institution, the information that the 
Board of Governors of the Federal Reserve System requires to be 
disclosed under section 128(e)(11) of the Truth in Lending Act (15 
U.S.C. 1638(e)(11)), for each type of private education loan offered 
pursuant to a preferred lender arrangement of the institution to 
students of the institution or the families of such students; and
    (ii) In the case of an institution-affiliated organization of a 
covered institution, the information the Board of Governors of the 
Federal Reserve System requires to be disclosed under section 128(e)(1) 
of the Truth in Lending Act (15 U.S.C. 1638(e)(1)), for each type of 
private education loan offered pursuant to a preferred lender 
arrangement of the organization to students of such institution or the 
families of such students.
    (b) The informational materials described in paragraphs (a)(1) and 
(a)(2) of this section are publications, mailings, or electronic 
messages or materials that--
    (1) Are distributed to prospective or current students of a covered 
institution and families of such students; and
    (2) Describe or discuss the financial aid opportunities available 
to students at an institution of higher education.
    (c)(1) Each covered institution and each institution-affiliated 
organization that participates in a preferred lender arrangement must 
provide the information described in paragraph (a)(1)(ii) of this 
section, and the information described in paragraphs (a)(2)(i) and 
(a)(2)(ii) of this section, respectively, for each type of education 
loan offered pursuant to the preferred lender arrangement.
    (2) The information identified in paragraph (c)(1) of this section 
must be provided to students attending the covered institution, or the 
families of such students, as applicable, annually and must be provided 
in a manner that allows for the students or their families to take such 
information into account before selecting a lender or applying for an 
education loan.
    (d) If a covered institution compiles, maintains, and makes 
available a preferred lender list as required under Sec.  
668.14(b)(28), the institution must--
    (1) Clearly and fully disclose on such preferred lender list--
    (i) Not less than the information required to be disclosed under 
section 153(a)(2)(A) of the HEA;
    (ii) Why the institution participates in a preferred lender 
arrangement with each lender on the preferred lender list, particularly 
with respect to terms and conditions or provisions favorable to the 
borrower; and
    (iii) That the students attending the institution, or the families 
of such students, do not have to borrow from a lender on the preferred 
lender list;
    (2) Ensure, through the use of the list of lender affiliates 
provided by the Secretary under section 487(h)(2) of the HEA, that--
    (i) There are not less than three FFEL lenders that are not 
affiliates of each other included on the preferred lender list and, if 
the institution recommends, promotes, or endorses private education 
loans, there are not less than two lenders of private education loans 
that are not affiliates of each other included on the preferred lender 
list; and
    (ii) The preferred lender list under paragraph (d) of this 
section--
    (A) Specifically indicates, for each listed lender, whether the 
lender is or is not an affiliate of each other lender on the preferred 
lender list; and
    (B) If a lender is an affiliate of another lender on the preferred 
lender list, describes the details of such affiliation;
    (3) Prominently disclose the method and criteria used by the 
institution in selecting lenders with which to participate in preferred 
lender arrangements to ensure that such lenders are selected on the 
basis of the best interests of the borrowers, including--
    (i) Payment of origination or other fees on behalf of the borrower;
    (ii) Highly competitive interest rates, or other terms and 
conditions or provisions of Title IV, HEA program loans or private 
education loans;
    (iii) High-quality servicing for such loans; or
    (iv) Additional benefits beyond the standard terms and conditions 
or provisions for such loans;
    (4) Exercise a duty of care and a duty of loyalty to compile the 
preferred lender list under paragraph (d) of this section without 
prejudice and for the sole benefit of the students attending the 
institution, or the families of such students; and
    (5) Not deny or otherwise impede the borrower's choice of a lender 
or cause unnecessary delay in loan certification under title IV of the 
HEA for those borrowers who choose a lender that is not included on the 
preferred lender list.

(Approved by the Office of Management and Budget under control 
number 1845-XXXA)

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

Sec.  601.11  Private education loan disclosures and self-certification 
form.

    (a) A covered institution, or an institution-affiliated 
organization of such covered institution, that provides information 
regarding a private education loan from a lender to a prospective 
borrower must provide private education loan disclosures to the 
prospective borrower, regardless of whether the covered institution or 
institution-affiliated organization participates in a preferred lender 
arrangement.
    (b) The private education loan disclosures must--
    (1) Provide the prospective borrower with the information the Board 
of Governors of the Federal Reserve System requires to be disclosed 
under section 128(e)(1) of the Truth in Lending Act (15 U.S.C. 
1638(e)(1)) for such loan;
    (2) Inform the prospective borrower that--
    (i) The prospective borrower may qualify for loans or other 
assistance under title IV of the HEA; and
    (ii) The terms and conditions of Title IV, HEA program loans may be 
more favorable than the provisions of private education loans.
    (c) The covered institution or institution-affiliated organization 
must ensure that information regarding private education loans is 
presented in such a manner as to be distinct from information regarding 
Title IV, HEA program loans.
    (d) Upon an enrolled or admitted student applicant's request for a 
private education loan self-certification form, an institution must 
provide to the applicant, in written or electronic form--
    (1) The self-certification form for private education loans 
developed by the Secretary in consultation with the Board of Governors 
of the Federal Reserve System, to satisfy the requirements of section 
128(e)(3) of the Truth in Lending Act (15 U.S.C. 1638(e)(3)); and
    (2) The information required to complete the form, to the extent 
the institution possesses such information as specified in 34 CFR 
668.14(b)(29).

(Approved by the Office of Management and Budget under control 
number 1845-XXXA)

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


[[Page 37472]]




Sec.  601.12  Use of institution and lender name.

    A covered institution, or an institution-affiliated organization of 
such covered institution, that participates in a preferred lender 
arrangement with a lender regarding private education loans must--
    (a) Not agree to the lender's use of the name, emblem, mascot, or 
logo of such institution or organization, or other words, pictures, or 
symbols readily identified with such institution or organization, in 
the marketing of private education loans to students attending such 
institution in any way that implies that the loan is offered or made by 
such institution or organization instead of the lender; and
    (b) Ensure that the name of the lender is displayed in all 
information and documentation related to the private education loans 
described in this section.

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

Subpart C--Responsibilities of Covered Institutions and 
Institution-Affiliated Organizations


Sec.  601.20  Annual report.

    Each covered institution, and each institution-affiliated 
organization of such covered institution, that participates in a 
preferred lender arrangement, must--
    (a) Prepare and submit to the Secretary an annual report, by a date 
determined by the Secretary, that includes, for each lender that 
participates in a preferred lender arrangement with such covered 
institution or organization--
    (1) The information described in Sec.  601.10(c); and
    (2) A detailed explanation of why such covered institution or 
institution-affiliated organization participates in a preferred lender 
arrangement with the lender, including why the terms, conditions, and 
provisions of each type of education loan provided pursuant to the 
preferred lender arrangement are beneficial for students attending such 
institution, or the families of such students, as applicable; and
    (b) Ensure that the report required under this section is made 
available to the public and provided to students attending or planning 
to attend such covered institution and the families of such students.

(Approved by the Office of Management and Budget under control 
number 1845-XXXA)

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


Sec.  601.21  Code of conduct.

    (a)(1) A covered institution that participates in a preferred 
lender arrangement must comply with the code of conduct requirements 
described in this section.
    (2) The covered institution must--
    (i) Develop a code of conduct with respect to FFEL Program loans 
and private education loans with which the institution's agents must 
comply. The code of conduct must--
    (A) Prohibit a conflict of interest with the responsibilities of an 
agent of an institution with respect to FFEL Program loans and private 
education loans; and
    (B) At a minimum, include the provisions specified in paragraph (c) 
of this section;
    (ii) Publish such code of conduct prominently on the institution's 
Web site; and
    (iii) Administer and enforce such code by, at a minimum, requiring 
that all of the institution's agents with responsibilities with respect 
to FFEL Program loans or private education loans be annually informed 
of the provisions of the code of conduct.
    (b) Any institution-affiliated organization of a covered 
institution that participates in a preferred lender arrangement must--
    (1) Comply with the code of conduct developed and published by such 
covered institution under paragraph (a)(1) of this section;
    (2) If such institution-affiliated organization has a Web site, 
publish such code of conduct prominently on the Web site; and
    (3) Administer and enforce such code of conduct by, at a minimum, 
requiring that all of such institution-affiliated organization's agents 
with responsibilities with respect to FFEL Program loans or private 
education loans be annually informed of the provisions of such code of 
conduct.
    (c) A covered institution's code of conduct must prohibit--
    (1) Revenue-sharing arrangements with any lender. The institution 
must not enter into any revenue-sharing arrangement with any lender. 
For purposes of this paragraph, the term revenue-sharing arrangement 
means an arrangement between a covered institution and a lender under 
which--
    (i) A lender provides or issues a FFEL Program loan or private 
education loan to students attending the institution or to the families 
of such students; and
    (ii) The institution recommends the lender or the loan products of 
the lender and in exchange, the lender pays a fee or provides other 
material benefits, including revenue or profit sharing, to the 
institution, an agent;
    (2)(i) Employees of the financial aid office receiving gifts from a 
lender, a guarantor, or a loan servicer. Agents who are employed in the 
financial aid office of the institution or who otherwise have 
responsibilities with respect to FFEL Program loans or private 
education loans, must not solicit or accept any gift from a lender, 
guarantor, or servicer of FFEL Program loans or private education 
loans;
    (ii) For purposes of paragraph (c) of this section, the term gift 
means any gratuity, favor, discount, entertainment, hospitality, loan, 
or other item having a monetary value of more than a de minimus amount. 
The term includes a gift of services, transportation, lodging, or 
meals, whether provided in kind, by purchase of a ticket, payment in 
advance, or reimbursement after the expense has been incurred;
    (iii) The term gift does not include any of the following:
    (A) Standard material, activities, or programs on issues related to 
a loan, default aversion, default prevention, or financial literacy, 
such as a brochure, a workshop, or training.
    (B) Food, refreshments, training, or informational material 
furnished to an agent as an integral part of a training session that is 
designed to improve the service of a lender, guarantor, or servicer of 
FFEL Program loans or private education loans to the institution, if 
such training contributes to the professional development of the agent.
    (C) Favorable terms, conditions, and borrower benefits on a FFEL 
Program loan or private education loan provided to a student employed 
by the institution if such terms, conditions, or benefits are 
comparable to those provided to all students of the institution.
    (D) Entrance and exit counseling services provided to borrowers to 
meet the institution's responsibilities for entrance and exit 
counseling as required by Sec. Sec.  682.604(f) and 682.604(g), as long 
as the institution's staff are in control of the counseling (whether in 
person or via electronic capabilities) and such counseling does not 
promote the products or services of any specific lender.
    (E) Philanthropic contributions to an institution from a lender, 
servicer, or guarantor of FFEL Program loans or private education loans 
that are unrelated to FFEL Program loans or private education loans or 
any contribution from any lender, servicer, or guarantor, that is not 
made in exchange for any advantage related to

[[Page 37473]]

FFEL Program loans or private education loans.
    (F) State education grants, scholarships, or financial aid funds 
administered by or on behalf of a State; and
    (iv) For purposes of paragraph (c) of this section, a gift to a 
family member of an agent, or to any other individual based on that 
individual's relationship with the agent, is considered a gift to the 
agent if--
    (A) The gift is given with the knowledge and acquiescence of the 
agent; and
    (B) The agent has reason to believe the gift was given because of 
the official position of the agent;
    (3) Consulting or other contracting arrangements. An agent who is 
employed in the financial aid office of the institution or who 
otherwise has responsibilities with respect to FFEL Program loans or 
private education loans must not accept from any lender or affiliate of 
any lender any fee, payment, or other financial benefit (including the 
opportunity to purchase stock) as compensation for any type of 
consulting arrangement or other contract to provide services to a 
lender or on behalf of a lender relating to FFEL Program loans or 
private education loans. Nothing in paragraph (c)(3) of this section 
will be construed as prohibiting--
    (i) An agent who is not employed in the institution's financial aid 
office and who does not otherwise have responsibilities with respect to 
FFEL Program loans or private education loans from performing paid or 
unpaid service on a board of directors of a lender, guarantor, or 
servicer of education loans;
    (ii) An agent who is not employed in the institution's financial 
aid office but who has responsibility with respect to FFEL Program 
loans or private education loans from performing paid or unpaid service 
on a board of directors of a lender, guarantor, or servicer of FFEL 
Program loans or private education loans, if the institution has a 
written conflict of interest policy that clearly sets forth that agents 
must recuse themselves from participating in any decision of the board 
regarding FFEL Program loans or private education loans at the 
institution; or
    (iii) An officer, employee, or contractor of a lender, guarantor, 
or servicer of FFEL Program loans or private education loans from 
serving on a board of directors, or serving as a trustee, of an 
institution, if the institution has a written conflict of interest 
policy that the board member or trustee must recuse themselves from any 
decision regarding FFEL Program loans or private education loans at the 
institution;
    (4) Directing borrowers to particular lenders or delaying loan 
certifications. The institution must not--
    (i) For any first-time borrower, assign, through award packaging or 
other methods, the borrower's loan to a particular lender; or
    (ii) Refuse to certify, or delay certification of, any loan based 
on the borrower's selection of a particular lender or guaranty agency;
    (5)(i) Offers of funds for private loans. The institution must not 
request or accept from any lender any offer of funds to be used for 
private education loans, including funds for an opportunity pool loan, 
to students in exchange for the institution providing concessions or 
promises regarding providing the lender with--
    (A) A specified number of FFEL Program loans or private education 
loans;
    (B) A specified loan volume of such loans; or
    (C) A preferred lender arrangement for such loans.
    (ii) For purposes of paragraph (c) of this section, the term 
opportunity pool loan means a private education loan made by a lender 
to a student attending the institution or the family member of such a 
student that involves a payment, directly or indirectly, by such 
institution of points, premiums, additional interest, or financial 
support to such lender for the purpose of such lender extending credit 
to the student or the family;
    (6) Staffing assistance. The institution must not request or accept 
from any lender any assistance with call center staffing or financial 
aid office staffing, except that nothing in this paragraph will be 
construed to prohibit the institution from requesting or accepting 
assistance from a lender related to--
    (i) Professional development training for financial aid 
administrators;
    (ii) Providing educational counseling materials, financial literacy 
materials, or debt management materials to borrowers, provided that 
such materials disclose to borrowers the identification of any lender 
that assisted in preparing or providing such materials; or
    (iii) Staffing services on a short-term, nonrecurring basis to 
assist the institution with financial aid-related functions during 
emergencies, including State-declared or federally declared natural 
disasters, federally declared national disasters, and other localized 
disasters and emergencies identified by the Secretary; and
    (7) Advisory board compensation. Any employee who is employed in 
the financial aid office of the institution, or who otherwise has 
responsibilities with respect to FFEL Program loans or private 
education loans or other student financial aid of the institution, and 
who serves on an advisory board, commission, or group established by a 
lender, guarantor, or group of lenders or guarantors, must not receive 
anything of value from the lender, guarantor, or group of lenders or 
guarantors, except that the employee may be reimbursed for reasonable 
expenses, as that term is defined in Sec.  668.16(d)(2)(ii), incurred 
in serving on such advisory board, commission, or group.

(Approved by the Office of Management and Budget under control 
number 1845-XXXA)

(Authority: 20 U.S.C. 1019b(c)(2)), 1094(a)(25) and (e))

Subpart D--Loan Information To Be Disclosed by Institutions 
Participating in the William D. Ford Direct Loan Program


Sec.  601.30  Duties of institutions.

    (a) Each covered institution participating in the William D. Ford 
Direct Loan Program under part D of title IV of the HEA must--
    (1) Make the information identified in a model disclosure form 
developed by the Secretary pursuant to section 154(a) of the HEA 
available to students attending or planning to attend the institution, 
or the families of such students, as applicable; and
    (2) If the institution provides information regarding a private 
education loan to a prospective borrower, concurrently provide such 
borrower with the information identified on the model disclosure form 
that the Secretary provides to the institution under section 154(a) of 
the HEA.
    (b) In providing the information required under paragraph (a) of 
this section, a covered institution may use a comparable form designed 
by the institution instead of the model disclosure form.

(Approved by the Office of Management and Budget under control 
number 1845-XXXB)

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

Subpart E--Lender Responsibilities


Sec.  601.40  Disclosure and reporting requirements for lenders.

    (a) Disclosures to borrowers. (1) A lender must, at or prior to 
disbursement of a FFEL loan, provide the borrower, in writing 
(including through electronic means), in clear and understandable

[[Page 37474]]

terms, the disclosures required in Sec.  682.205(a) and (b).
    (2) A lender must, for each of its private education loans, comply 
with the disclosure requirements under section 128(e) of the Truth in 
Lending Act (15 U.S.C. 1638(e)).
    (b) Reports to the Secretary. Each FFEL lender must report annually 
to the Secretary--
    (1) Any reasonable expenses paid or provided to any agent of a 
covered institution who is employed in the financial aid office or has 
other responsibilities with respect to education loans or other student 
financial aid of the institution for service on a lender advisory 
board, commission or group established by a lender or group of lenders; 
or
    (2) Any similar expenses paid or provided to any agent of an 
institution-affiliated organization who is involved in recommending, 
promoting, or endorsing education loans.
    (3) The report required by this paragraph must include--
    (i) The amount of expenses paid or provided for each specific 
instance in which the lender provided expenses;
    (ii) The name of any agent described in paragraph (b)(1) of this 
section to whom the expenses were paid or provided;
    (iii) The dates of the activity for which the expenses were paid or 
provided; and
    (iv) A brief description of the activity for which the expenses 
were paid or provided.
    (c) Lender certification of compliance. (1) Any FFEL lender 
participating in one or more preferred lender arrangements must 
annually certify to the Secretary its compliance with the Higher 
Education Act of 1965, as amended; and
    (2) If the lender is required to submit an audit under 34 CFR 
682.305(c), the lender's compliance with the requirements under this 
section must be reported on and attested to annually by the lender's 
auditor.
    (3) A lender may comply with the certification requirements of this 
section if the certifications are provided as part of the annual audit 
required by 34 CFR 682.305(c).
    (4) A lender who is not required to submit an audit must submit the 
required certification at such time and in such manner as directed by 
the Secretary.
    (d) Annual lender report to covered institutions. A FFEL lender 
with a preferred lender arrangement with a covered institution or an 
institution-affiliated organization relating to FFEL loans must 
annually, on a date prescribed by the Secretary, provide to the covered 
institution or the institution-affiliated organization and to the 
Secretary, such information required by the Secretary in relation to 
the FFEL loans the lender plans to offer pursuant to that preferred 
lender arrangement for the next award year.

(Approved by the Office of Management and Budget under control 
number 1845-XXXA)

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

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    2. The authority citation for part 668 continues to read as 
follows:

    Authority:  20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091, 
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.

    3. Section 668.14 is amended by adding new paragraphs (b)(27), 
(b)(28) and (b)(29) as follows:


Sec.  668.14  Program participation agreement.

* * * * *
    (b) * * *
    (27) In the case of an institution participating in a Title IV, HEA 
loan program, the institution--
    (i) Will develop, publish, administer, and enforce a code of 
conduct with respect to loans made, insured or guaranteed under the 
Title IV, HEA loan programs in accordance with 34 CFR 601.21; and
    (ii) Must inform its officers, employees, and agents with 
responsibilities with respect to loans made, insured or guaranteed 
under the Title IV, HEA loan programs annually of the provisions of the 
code required under paragraph (b)(27) of this section;
    (28) For any year in which the institution has a preferred lender 
arrangement (as defined in 34 CFR 601.2(b)), it will at least annually 
compile, maintain, and make available for students attending the 
institution, and the families of such students, a list in print or 
other medium, of the specific lenders for loans made, insured, or 
guaranteed under title IV of the HEA or private education loans that 
the institution recommends, promotes, or endorses in accordance with 
such preferred lender arrangement. In making such a list, the 
institution must comply with the requirements in 34 CFR 682.212(h) and 
34 CFR 601.10;
    (29)(i) It will, upon the request of an enrolled or admitted 
student who is an applicant for a private education loan (as defined in 
34 CFR 601.2(b)), provide to the applicant the self-certification form 
required under 34 CFR 601.11(d) and the information required to 
complete the form, to the extent the institution possesses such 
information, including--
    (A) The applicant's cost of attendance at the institution, as 
determined by the institution under part F of title IV of the HEA;
    (B) The applicant's expected family contribution, for students who 
have completed the Free Application for Federal Student Aid;
    (C) The applicant's estimated financial assistance, as determined 
by the institution in accordance with 34 CFR 682.200;
    (D) The difference between the amounts under paragraphs 
(b)(29)(i)(A) and (29)(i)(C) of this section, as applicable; and
    (E) The sum of the amounts under paragraphs (b)(29)(i)(B) and 
(b)(29)(i)(D) of this section, as applicable.
    (ii) It will, upon the request of the applicant, discuss with the 
applicant the availability of Federal, State, and institutional student 
financial aid;
* * * * *
    4. Section 668.16 is amended by:
    A. Revising paragraph (d).
    B. Revising paragraph (m).
    C. Revising the authority citation that appears at the end of the 
section.
    The revisions read as follows:


Sec.  668.16  Standards of administrative capability.

* * * * *
    (d)(1) Establishes and maintains records required under this part 
and the individual Title IV, HEA program regulations; and
    (2)(i) Reports annually to the Secretary on any reasonable 
reimbursements paid or provided by a private education lender or group 
of lenders as described under section 140(d) of the Truth in Lending 
Act (15 U.S.C. 1631(d)) to any employee who is employed in the 
financial aid office of the institution or who otherwise has 
responsibilities with respect to education loans or other financial aid 
of the institution, including--
    (A) The amount for each specific instance of reasonable expenses 
paid or provided;
    (B) The name of the financial aid official, other employee, or 
agent to whom the expenses were paid or provided;
    (C) The dates of the activity for which the expenses were paid or 
provided; and
    (D) A brief description of the activity for which the expenses were 
paid or provided.
    (ii) Expenses are considered to be reasonable if the expenses--
    (A) Meet the standards of and are paid in accordance with a State 
government reimbursement policy applicable to the entity; or

[[Page 37475]]

    (B) Meet the standards of and are paid in accordance with the 
applicable Federal cost principles for reimbursement, if no State 
policy that is applicable to the entity exists.
    (iii) The policy must be consistently applied to an institution's 
employees reimbursed under this paragraph;
* * * * *
    (m)(1) Has a cohort default rate--
    (i) That is less than 25 percent for each of the three most recent 
fiscal years during which rates have been issued, to the extent those 
rates are calculated under subpart M of this part;
    (ii) On or after 2014, that is less than 30 percent for at least 
two of the three most recent fiscal years during which the Secretary 
has issued rates for the institution under subpart N of this part; and
    (iii) As defined in 34 CFR 674.5, on loans made under the Federal 
Perkins Loan Program to students for attendance at that institution 
that does not exceed 15 percent.
    (2)(i) However, if the Secretary determines that an institution's 
administrative capability is impaired solely because the institution 
fails to comply with paragraph (m)(1) of this section, and the 
institution is not subject to a loss of eligibility under Sec. Sec.  
668.187(a) or 668.206(a), the Secretary allows the institution to 
continue to participate in the Title IV, HEA programs. In such a case, 
the Secretary may provisionally certify the institution in accordance 
with Sec.  668.13(c) except as provided in paragraphs (m)(2)(ii), 
(m)(2)(iii), (m)(2)(iv), and (m)(2)(v) of this section.
    (ii) An institution that fails to meet the standard of 
administrative capability under paragraph (m)(1)(ii) based on two 
cohort default rates that are greater than or equal to 30 percent but 
less than 40 percent is not placed on provisional certification under 
paragraph (m)(2)(i) of this section--
    (A) If it has timely filed a request for adjustment or appeal under 
Sec. Sec.  668.209, 668.210, or 668.212 with respect to the second such 
rate, and the request for adjustment or appeal is either pending or 
succeeds in reducing the rate below 30 percent; or
    (B) If it has timely filed an appeal under Sec. Sec.  668.213 or 
668.214 after receiving the second such rate, and the appeal is either 
pending or successful.
    (iii) The institution may appeal the loss of full participation in 
a Title IV, HEA program under paragraph (m)(2)(i) of this section by 
submitting an erroneous data appeal in writing to the Secretary in 
accordance with and on the grounds specified in Sec. Sec.  668.192 or 
668.211 as applicable;
    (iv) If you have 30 or fewer borrowers in the three most recent 
cohorts of borrowers used to calculate your cohort default rate under 
subpart N of this part, we not provisionally certify you solely based 
on cohort default rates;
    (v) If a rate that would otherwise potentially subject you to 
provisional certification under paragraph (m)(1)(ii) and (m)(2)(i) of 
this section is calculated as an average rate, we will not 
provisionally certify you solely based on cohort default rates;
* * * * *

(Authority: 20 U.S.C. 1082, 1085, 1092, 1094, and 1099c)


    5. Section 668.42 is amended by:
    A. In paragraph (a)(1), removing the word ``student's'' and adding, 
in its place, the word ``students''.
    B. In paragraph (a), adding a new paragraph (4).
    C. In paragraph (c) introductory text, removing the word ``shall'' 
and adding, in its place, the word ``must''.
    D. In paragraph (c)(5), adding the word ``and'' after the 
punctuation ``;''.
    E. In paragraph (c)(6), removing the words ``The institution shall 
provide and collect exit counseling information'' and adding, in their 
place, the words ``The exit counseling the institution provides and 
collects''.
    F. In paragraph (c)(6), removing the punctuation and word ``; and'' 
and adding, in their place, the punctuation ``.''.
    G. In paragraph (c), removing paragraph (7).
    The addition reads as follows:


Sec.  668.42  Financial assistance information.

    (a) * * *
    (4) The institution must describe the terms and conditions of the 
loans students receive under the Federal Family Education Loan Program, 
the William D. Ford Federal Direct Student Loan Program, and the 
Federal Perkins Loan Program.
* * * * *
    6. Revise the subpart heading of subpart M to read as follows:

Subpart M--Two Year Cohort Default Rates

    7. Section 668.181 is revised to read as follows:


Sec.  668.181  Purpose of this subpart.

    (a) General. Your cohort default rate is a measure we use to 
determine your eligibility to participate in various Title IV, HEA 
programs. We may also use it for determining your eligibility for 
exemptions, such as those for certain disbursement requirements under 
the FFEL and Direct Loan Programs. This subpart applies solely to 
cohorts, as defined in Sec. Sec.  668.182(a) and 668.183(b), for fiscal 
years through 2011. For these cohorts, this subpart describes how 
cohort default rates are calculated, some of the consequences of cohort 
default rates, and how you may request changes to your cohort default 
rates or appeal their consequences. Under this subpart, you submit a 
``challenge'' after you receive your draft cohort default rate, and you 
request an ``adjustment'' or ``appeal'' after your official cohort 
default rate is published.
    (b) Cohort Default Rates. Notwithstanding anything to the contrary 
in this subpart, we will issue annually two sets of draft and official 
cohort default rates for fiscal years 2009, 2010, and 2011. For each of 
these years, you will receive one set of draft and official cohort 
default rates under this subpart and another set of draft and official 
cohort default rates under subpart N of this part.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.184  [Amended]

    8. Section 668.184(a)(1) is amended by removing the word ``If'' and 
adding, in its place, the words ``Except as provided under 34 CFR 
600.32(d), if''.
    9. Section 668.185(a)(3) is revised to read as follows:


Sec.  668.185  Draft cohort default rates and your ability to challenge 
before official cohort default rates are issued.

    (a) * * *
    (3) Your draft cohort default rate and the loan record detail 
report are not considered public information and may not be otherwise 
voluntarily released to the public by a data manager.
* * * * *
    10. Section 668.186 is revised to read as follows:


Sec.  668.186  Notice of your official cohort default rate.

    (a) We electronically notify you of your cohort default rate after 
we calculate it, by sending you an eCDR notification package to the 
destination point you designate. After we send our notice to you, we 
publish a list of cohort default rates calculated under this subpart 
for all institutions.
    (b) If you have one or more borrowers entering repayment or are 
subject to sanctions, or if the Department believes you will have an 
official cohort default rate calculated as an average rate, you will 
receive a loan record detail report as part of your eCDR notification 
package.

[[Page 37476]]

    (c) You have five business days, from the transmission date for 
eCDR notification packages as posted on the Department's Web site, to 
report any problem with receipt of the electronic transmission of your 
eCDR notification package.
    (d) Except as provided in paragraph (e) of this section, timelines 
for submitting challenges, adjustments, and appeals begin on the sixth 
business day following the transmission date for eCDR notification 
packages that is posted on the Department's Web site.
    (e) If you timely report a problem with the receipt of the 
electronic transmission of your eCDR notification package under 
paragraph (c) of this section and the Department agrees that the 
problem with transmission was not caused by you, the Department will 
extend the challenge, appeal and adjustment deadlines and timeframes to 
account for a retransmission of your eCDR notification package after 
the technical problem is resolved.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)


    11. Section 668.187 is revised to read as follows:


Sec.  668.187  Consequences of cohort default rates on your ability to 
participate in Title IV, HEA programs.

    (a) End of participation. (1) Except as provided in paragraph (e) 
of this section, you lose your eligibility to participate in the FFEL 
and Direct Loan programs 30 days after you receive our notice that your 
most recent cohort default rate is greater than 40 percent.
    (2) Except as provided in paragraphs (d) and (e) of this section, 
you lose your eligibility to participate in the FFEL, Direct Loan, and 
Federal Pell Grant programs 30 days after you receive our notice that 
your three most recent cohort default rates are each 25 percent or 
greater.
    (b) Length of period of ineligibility. Your loss of eligibility 
under this section continues--
    (1) For the remainder of the fiscal year in which we notify you 
that you are subject to a loss of eligibility; and
    (2) For the next 2 fiscal years.
    (c) Using a cohort default rate more than once. The use of a cohort 
default rate as a basis for a loss of eligibility under this section 
does not preclude its use as a basis for--
    (1) Any concurrent or subsequent loss of eligibility under this 
section; or
    (2) Any other action by us.
    (d) Continuing participation in Pell. If you are subject to a loss 
of eligibility under paragraph (a)(2) of this section, based on three 
cohort default rates of 25 percent or greater, you may continue to 
participate in the Federal Pell Grant Program if we determine that 
you--
    (1) Were ineligible to participate in the FFEL and Direct Loan 
programs before October 7, 1998, and your eligibility was not 
reinstated;
    (2) Requested in writing, before October 7, 1998, to withdraw your 
participation in the FFEL and Direct Loan programs, and you were not 
later reinstated; or
    (3) Have not certified an FFELP loan or originated a Direct Loan 
Program loan on or after July 7, 1998.
    (e) Requests for adjustments and appeals. (1) A loss of eligibility 
under this section does not take effect while your request for 
adjustment or appeal, as listed in Sec.  668.189(a), is pending, 
provided your request for adjustment or appeal is complete, timely, 
accurate, and in the required format.
    (2) Eligibility continued under paragraph (e)(1) of this section 
ends if we determine that none of the requests for adjustments and 
appeals you have submitted qualify you for continued eligibility under 
Sec.  668.189. Loss of eligibility takes effect on the date that you 
receive notice of our determination on your last pending request for 
adjustment or appeal.
    (3) You do not lose eligibility under this section if we determine 
that your request for adjustment or appeal meets all requirements of 
this subpart and qualifies you for continued eligibility under Sec.  
668.189.
    (4) To avoid liabilities you might otherwise incur under paragraph 
(g) of this section, you may choose to suspend your participation in 
the FFEL and Direct Loan programs during the adjustment or appeal 
process.
    (f) Liabilities during the adjustment or appeal process. If you 
continued to participate in the FFEL or Direct Loan Program under 
paragraph (d)(1) of this section, and we determine that none of your 
requests for adjustments or appeals qualify you for continued 
eligibility--
    (1) For any FFEL or Direct Loan Program loan that you certified and 
delivered or originated and disbursed more than 30 days after you 
received the notice of your cohort default rate, we estimate the amount 
of interest, special allowance, reinsurance, and any related or similar 
payments we make or are obligated to make on those loans;
    (2) We exclude from this estimate any amount attributable to funds 
that you delivered or disbursed more than 45 days after you submitted 
your completed appeal to us;
    (3) We notify you of the estimated amount; and
    (4) Within 45 days after you receive our notice of the estimated 
amount, you must pay us that amount, unless--
    (i) You file an appeal under the procedures established in subpart 
H of this part (for the purposes of subpart H of this part, our notice 
of the estimate is considered to be a final program review 
determination); or
    (ii) We permit a longer repayment period.
    (g) Regaining eligibility. If you lose your eligibility to 
participate in a program under this section, you may not participate in 
that program until--
    (1) The period described in paragraph (b) of this section has 
ended;
    (2) You pay any amount owed to us under this section or are meeting 
that obligation under an agreement acceptable to us;
    (3) You submit a new application for participation in the program;
    (4) We determine that you meet all of the participation 
requirements in effect at the time of your application; and
    (5) You and we enter into a new program participation agreement.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)


    12. In Sec.  668.188, the introductory text in paragraph (a) is 
revised to read as follows:


Sec.  668.188   Preventing evasion of the consequences of cohort 
default rates.

    (a) General. You are subject to a loss of eligibility that has 
already been imposed against another institution as a result of cohort 
default rates if--
* * * * *
    13. Section 668.190 is revised to read as follows:


Sec.  668.190   Uncorrected data adjustments.

    (a) Eligibility. You may request an uncorrected data adjustment for 
your most recent cohort of borrowers, used to calculate your most 
recent official cohort default rate, if in response to your challenge 
under Sec.  668.185(b), a data manager agreed correctly to change the 
data, but the changes are not reflected in your official cohort default 
rate.
    (b) Deadlines for requesting an uncorrected data adjustment. You 
must send us a request for an uncorrected data adjustment, including 
all supporting documentation, within 30 days after you receive your 
loan record detail report from us.
    (c) Determination. We recalculate your cohort default rate, based 
on the

[[Page 37477]]

corrected data, and electronically correct the rate that is publicly 
released, if we determine that--
    (1) In response to your challenge under Sec.  668.185(b), a data 
manager agreed to change the data;
    (2) The changes described in paragraph (c)(1) of this section are 
not reflected in your official cohort default rate; and
    (3) We agree that the data are incorrect.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)


    14. Section 668.191 is revised to read as follows:


Sec.  668.191   New data adjustments.

    (a) Eligibility. You may request a new data adjustment for your 
most recent cohort of borrowers, used to calculate your most recent 
official cohort default rate, if--
    (1) A comparison of the loan record detail reports that we provide 
to you for the draft and official cohort default rates shows that the 
data have been newly included, excluded, or otherwise changed; and
    (2) You identify errors in the data described in paragraph (a)(1) 
of this section that are confirmed by the data manager.
    (b) Deadlines for requesting a new data adjustment. (1) You must 
send to the relevant data manager, or data managers, and us a request 
for a new data adjustment, including all supporting documentation, 
within 15 days after you receive your loan record detail report from 
us.
    (2) Within 20 days after receiving your request for a new data 
adjustment, the data manager must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation used to support the data manager's 
position.
    (3) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for a new data adjustment for that loan. We respond to 
your request as set forth under paragraph (b)(3) of this section.
    (4) Within 15 days after receiving incomplete or illegible records 
or data from a data manager, you must send a request for replacement 
records or clarification of data to the data manager and us.
    (5) Within 20 days after receiving your request for replacement 
records or clarification of data, the data manager must--
    (i) Replace the missing or illegible records;
    (ii) Provide clarifying information; or
    (iii) Notify you and us that no clarifying information or 
additional or improved records are available.
    (6) You must send us your completed request for a new data 
adjustment, including all supporting documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request or requests; or
    (ii) If you are also filing an erroneous data appeal or a loan 
servicing appeal, by the latest of the filing dates required in 
paragraph (b)(7)(i) of this section or in Sec.  668.192(b)(6)(i) or 
Sec.  668.193(c)(10)(i).
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data and electronically correct the rate that 
is publicly released.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)


    15. Section 668.192(c) is revised to read as follows:


Sec.  668.192   Erroneous data appeals.

* * * * *
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data and electronically correct the rate that 
is publicly released.
* * * * *
    16. Section 668.193(f)(2) is revised to read as follows:


Sec.  668.193   Loan servicing appeals.

* * * * *
    (2) Based on our determination, we use a statistically valid 
methodology to exclude the corresponding percentage of borrowers from 
both the numerator and denominator of the calculation of your cohort 
default rate, and electronically correct the rate that is publicly 
released.
* * * * *
    17. Section 668.196(c) is revised to read as follows:


Sec.  668.196   Average rates appeals.

* * * * *
    (c) Determination. You do not lose eligibility under Sec.  668.187 
if we determine that you meet the requirements for an average rates 
appeal. In such a case, we electronically correct the rate that is 
publicly released.
* * * * *


Sec.  668.198   [Removed]

    18. Section 668.198 is removed.
    19. Part 668, subpart M, is amended by:
    A. Removing appendix A.
    B. Redesignating appendix B as appendix A.
    20. Part 668 is amended by adding new subpart N to read as follows:
Subpart N--Cohort Default Rates
Sec.
668.200 Purpose of this subpart.
668.201 Definitions of terms used in this subpart.
668.202 Calculating and applying cohort default rates.
668.203 Determining cohort default rates for institutions that have 
undergone a change in status.
668.204 Draft cohort default rates and your ability to challenge 
before official cohort default rates are issued.
668.205 Notice of your official cohort default rate.
668.206 Consequences of cohort default rates on your ability to 
participate in Title IV, HEA programs.
668.207 Preventing evasion of the consequences of cohort default 
rates.
668.208 General requirements for adjusting official cohort default 
rates and for appealing their consequences.
668.209 Uncorrected data adjustments.
668.210 New data adjustments.
668.211 Erroneous data appeals.
668.212 Loan servicing appeals.
668.213 Economically disadvantaged appeals.
668.214 Participation rate index appeals.
668.215 Average rates appeals.
668.216 Thirty-or-fewer borrowers appeals.
668.217 Default prevention plans.
Appendix A to Subpart N of Part 668--Sample Default Prevention Plan

Subpart N--Cohort Default Rates


Sec.  668.200   Purpose of this subpart.

    (a) General. Your cohort default rate is a measure we use to 
determine your eligibility to participate in various Title IV, HEA 
programs. We may also use it for determining your eligibility for 
exemptions, such as those for certain disbursement requirements under 
the FFEL and Direct Loan Programs. This subpart applies solely to 
cohorts, as defined in Sec. Sec.  668.201(a) and 668.202(b), for fiscal 
years 2009 and later. For these cohorts, this subpart describes how 
cohort default rates are calculated, some of the consequences of cohort 
default rates, and how you may request changes to your cohort default 
rates or appeal their consequences. Under this subpart, you submit a 
``challenge'' after you receive your draft cohort default rate, and you 
request an ``adjustment'' or ``appeal'' after your official cohort 
default rate is published.
    (b) Cohort Default Rates. Notwithstanding anything to the

[[Page 37478]]

contrary in this subpart, we will issue annually two sets of draft and 
official cohort default rates for fiscal years 2009, 2010, and 2011. 
For each of these years, you will receive one set of draft and official 
cohort default rates under this subpart and another set of draft and 
official cohort default rates under subpart M of this part.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.201   Definitions of terms used in this subpart.

    We use the following definitions in this subpart:
    (a) Cohort. Your cohort is a group of borrowers used to determine 
your cohort default rate. The method for identifying the borrowers in a 
cohort is provided in Sec.  668.202(b).
    (b) Data manager. (1) For FFELP loans held by a guaranty agency or 
lender, the guaranty agency is the data manager.
    (2) For FFELP loans that we hold, we are the data manager.
    (3) For Direct Loan Program loans, the Direct Loan Servicer, as 
defined in 34 CFR 685.102, is the data manager.
    (c) Days. In this subpart, ``days'' means calendar days.
    (d) Default. A borrower is considered to be in default for cohort 
default rate purposes under the rules in Sec.  668.202(c).
    (e) Draft cohort default rate. Your draft cohort default rate is a 
rate we issue, for your review, before we issue your official cohort 
default rate. A draft cohort default rate is used only for the purposes 
described in Sec.  668.204.
    (f) Entering repayment. (1) Except as provided in paragraphs (f)(2) 
and (f)(3) of this section, loans are considered to enter repayment on 
the dates described in 34 CFR 682.200 (under the definition of 
``repayment period'') and in 34 CFR 685.207.
    (2) A Federal SLS loan is considered to enter repayment--
    (i) At the same time the borrower's Federal Stafford loan enters 
repayment, if the borrower received the Federal SLS loan and the 
Federal Stafford loan during the same period of continuous enrollment; 
or
    (ii) In all other cases, on the day after the student ceases to be 
enrolled at an institution on at least a half-time basis in an 
educational program leading to a degree, certificate, or other 
recognized educational credential.
    (3) For the purposes of this subpart, a loan is considered to enter 
repayment on the date that a borrower repays it in full, if the loan is 
paid in full before the loan enters repayment under paragraphs (f)(1) 
or (f)(2) of this section.
    (g) Fiscal year. A fiscal year begins on October 1 and ends on the 
following September 30. A fiscal year is identified by the calendar 
year in which it ends.
    (h) Loan record detail report. The loan record detail report is a 
report that we produce. It contains the data used to calculate your 
draft or official cohort default rate.
    (i) Official cohort default rate. Your official cohort default rate 
is the cohort default rate that we publish for you under Sec.  668.205. 
Cohort default rates calculated under this subpart are not related in 
any way to cohort default rates that are calculated for the Federal 
Perkins Loan Program.
    (j) We. We are the Department, the Secretary, or the Secretary's 
designee.
    (k) You. You are an institution.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.202   Calculating and applying cohort default rates.

    (a) General. This section describes the four steps that we follow 
to calculate and apply your cohort default rate for a fiscal year:
    (1) First, under paragraph (b) of this section, we identify the 
borrowers in your cohort for the fiscal year. If the total number of 
borrowers in that cohort is fewer than 30, we also identify the 
borrowers in your cohorts for the 2 most recent prior fiscal years.
    (2) Second, under paragraph (c) of this section, we identify the 
borrowers in the cohort (or cohorts) who are considered to be in 
default by the end of the second fiscal year following the fiscal year 
those borrowers entered repayment. If more than one cohort will be used 
to calculate your cohort default rate, we identify defaulted borrowers 
separately for each cohort.
    (3) Third, under paragraph (d) of this section, we calculate your 
cohort default rate.
    (4) Fourth, we apply your cohort default rate to all of your 
locations--
    (i) As you exist on the date you receive the notice of your 
official cohort default rate; and
    (ii) From the date on which you receive the notice of your official 
cohort default rate until you receive our notice that the cohort 
default rate no longer applies.
    (b) Identify the borrowers in a cohort. (1) Except as provided in 
paragraph (b)(3) of this section, your cohort for a fiscal year 
consists of all of your current and former students who, during that 
fiscal year, entered repayment on any Federal Stafford loan, Federal 
SLS loan, Direct Subsidized loan, or Direct Unsubsidized loan that they 
received to attend your institution, or on the portion of a loan made 
under the Federal Consolidation Loan Program or the Federal Direct 
Consolidation Loan Program (as defined in 34 CFR 685.102) that is used 
to repay those loans.
    (2) A borrower may be included in more than one of your cohorts and 
may be included in the cohorts of more than one institution in the same 
fiscal year.
    (3) A TEACH Grant that has been converted to a Federal Direct 
Unsubsidized Loan is not considered for the purpose of calculating and 
applying cohort default rates.
    (c) Identify the borrowers in a cohort who are in default. (1) 
Except as provided in paragraph (c)(2) of this section, a borrower in a 
cohort for a fiscal year is considered to be in default if, before the 
end of the second fiscal year following the fiscal year the borrower 
entered repayment--
    (i) The borrower defaults on any FFELP loan that was used to 
include the borrower in the cohort or on any Federal Consolidation Loan 
Program loan that repaid a loan that was used to include the borrower 
in the cohort (however, a borrower is not considered to be in default 
unless a claim for insurance has been paid on the loan by a guaranty 
agency or by us);
    (ii) The borrower fails to make an installment payment, when due, 
on any Direct Loan Program loan that was used to include the borrower 
in the cohort or on any Federal Direct Consolidation Loan Program loan 
that repaid a loan that was used to include the borrower in the cohort, 
and the borrower's failure persists for 360 days (or for 270 days, if 
the borrower's first day of delinquency was before October 7, 1998); or
    (iii) You or your owner, agent, contractor, employee, or any other 
affiliated entity or individual make a payment to prevent a borrower's 
default on a loan that is used to include the borrower in that cohort.
    (2) A borrower is not considered to be in default based on a loan 
that is, before the end of the second fiscal year following the fiscal 
year in which it entered repayment--
    (i) Rehabilitated under 34 CFR 682.405 or 34 CFR 685.211(e); or
    (ii) Repurchased by a lender because the claim for insurance was 
submitted or paid in error.
    (d) Calculate the cohort default rate. Except as provided in Sec.  
668.203, if there are--
    (1)(i) Thirty or more borrowers in your cohort for a fiscal year, 
your cohort default rate is the percentage that is calculated by--
    (ii) Dividing the number of borrowers in the cohort who are in 
default, as determined under paragraph (c) of this

[[Page 37479]]

section by the number of borrowers in the cohort, as determined under 
paragraph (b) of this section.
    (2)(i) Fewer than 30 borrowers in your cohort for a fiscal year, 
your cohort default rate is the percentage that is calculated by--
    (ii) Dividing the total number of borrowers in that cohort and in 
the two most recent prior cohorts who are in default, as determined for 
each cohort under paragraph (c) of this section by the total number of 
borrowers in that cohort and the two most recent prior cohorts, as 
determined for each cohort under paragraph (b) of this section.

(Authority: 20 U.S.C. 1070g, 1082, 1085, 1094, 1099c)

Sec.  668.203  Determining cohort default rates for institutions that 
have undergone a change in status.

    (a) General. (1) Except as provided under 34 CFR 600.32(d), if you 
undergo a change in status identified in this section, your cohort 
default rate is determined under this section.
    (2) In determining cohort default rates under this section, the 
date of a merger, acquisition, or other change in status is the date 
the change occurs.
    (3) A change in status may affect your eligibility to participate 
in Title IV, HEA programs under Sec.  668.206 or Sec.  668.207.
    (4) If another institution's cohort default rate is applicable to 
you under this section, you may challenge, request an adjustment, or 
submit an appeal for the cohort default rate under the same 
requirements that would be applicable to the other institution under 
Sec. Sec.  668.204 and 668.208.
    (b) Acquisition or merger of institutions. If your institution 
acquires, or was created by the merger of, one or more institutions 
that participated independently in the Title IV, HEA programs 
immediately before the acquisition or merger--
    (1) For the cohort default rates published before the date of the 
acquisition or merger, your cohort default rates are the same as those 
of your predecessor that had the highest total number of borrowers 
entering repayment in the two most recent cohorts used to calculate 
those cohort default rates; and
    (2) Beginning with the first cohort default rate published after 
the date of the acquisition or merger, your cohort default rates are 
determined by including the applicable borrowers from each institution 
involved in the acquisition or merger in the calculation under Sec.  
668.202.
    (c) Acquisition of branches or locations. If you acquire a branch 
or a location from another institution participating in the Title IV, 
HEA programs--
    (1) The cohort default rates published for you before the date of 
the change apply to you and to the newly acquired branch or location;
    (2) Beginning with the first cohort default rate published after 
the date of the change, your cohort default rates for the next 3 fiscal 
years are determined by including the applicable borrowers from your 
institution and the other institution (including all of its locations) 
in the calculation under Sec.  668.202;
    (3) After the period described in paragraph (c)(2) of this section, 
your cohort default rates do not include borrowers from the other 
institution in the calculation under Sec.  668.202; and
    (4) At all times, the cohort default rate for the institution from 
which you acquired the branch or location is not affected by this 
change in status.
    (d) Branches or locations becoming institutions. If you are a 
branch or location of an institution that is participating in the Title 
IV, HEA programs, and you become a separate, new institution for the 
purposes of participating in those programs--
    (1) The cohort default rates published before the date of the 
change for your former parent institution are also applicable to you;
    (2) Beginning with the first cohort default rate published after 
the date of the change, your cohort default rates for the next 3 fiscal 
years are determined by including the applicable borrowers from your 
institution and your former parent institution (including all of its 
locations) in the calculation under Sec.  668.202; and
    (3) After the period described in paragraph (d)(2) of this section, 
your cohort default rates do not include borrowers from your former 
parent institution in the calculation under Sec.  668.202.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.204  Draft cohort default rates and your ability to challenge 
before official cohort default rates are issued.

    (a) General. (1) We notify you of your draft cohort default rate 
before your official cohort default rate is calculated. Our notice 
includes the loan record detail report for the draft cohort default 
rate.
    (2) Regardless of the number of borrowers included in your cohort, 
your draft cohort default rate is always calculated using data for that 
fiscal year alone, using the method described in Sec.  668.202(d)(1).
    (3) Your draft cohort default rate and the loan record detail 
report are not considered public information and may not be otherwise 
voluntarily released to the public by a data manager.
    (4) Any challenge you submit under this section and any response 
provided by a data manager must be in a format acceptable to us. This 
acceptable format is described in the ``Cohort Default Rate Guide'' 
that we provide to you. If your challenge does not comply with the 
requirements in the ``Cohort Default Rate Guide,'' we may deny your 
challenge.
    (b) Incorrect data challenges. (1) You may challenge the accuracy 
of the data included on the loan record detail report by sending a 
challenge to the relevant data manager, or data managers, within 45 
days after you receive the data. Your challenge must include--
    (i) A description of the information in the loan record detail 
report that you believe is incorrect; and
    (ii) Documentation that supports your contention that the data are 
incorrect.
    (2) Within 30 days after receiving your challenge, the data manager 
must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation that supports the data manager's 
position.
    (3) If your data manager concludes that draft data in the loan 
record detail report are incorrect, and we agree, we use the corrected 
data to calculate your cohort default rate.
    (4) If you fail to challenge the accuracy of data under this 
section, you cannot contest the accuracy of those data in an 
uncorrected data adjustment, under Sec.  668.209, or in an erroneous 
data appeal, under Sec.  668.211.
    (c) Participation rate index challenges. (1)(i) You may challenge 
an anticipated loss of eligibility under Sec.  668.206(a)(1), based on 
one cohort default rate over 40 percent, if your participation rate 
index for that cohort's fiscal year is equal to or less than 0.06015.
    (ii) You may challenge an anticipated loss of eligibility under 
Sec.  668.206(a)(2), based on three cohort default rates of 30 percent 
or greater, if your participation rate index is equal to or less than 
0.0625 for any of those three cohorts' fiscal years.
    (iii) You may challenge a potential placement on provisional 
certification under Sec.  668.16(m)(2)(i), based on two cohort default 
rates that fail to satisfy the standard of administrative capability in 
Sec.  668.16(m)(1)(ii), if your participation rate index is equal to or 
less than 0.0625 for either of the two cohorts' fiscal years.
    (2) For a participation rate index challenge, your participation 
rate index

[[Page 37480]]

is calculated as described in Sec.  668.214(b), except that--
    (i) The draft cohort default rate is considered to be your most 
recent cohort default rate; and
    (ii) If the cohort used to calculate your draft cohort default rate 
included fewer than 30 borrowers, you may calculate your participation 
rate index for that fiscal year using either your most recent draft 
cohort default rate or the average rate that would be calculated for 
that fiscal year, using the method described in Sec.  668.202(d)(2).
    (3) You must send your participation rate index challenge, 
including all supporting documentation, to us within 45 days after you 
receive your draft cohort default rate.
    (4) We notify you of our determination on your participation rate 
index challenge before your official cohort default rate is published.
    (5) If we determine that you qualify for continued eligibility or 
full certification based on your participation rate index challenge, 
you will not lose eligibility under Sec.  668.206 or be placed on 
provisional certification under Sec.  668.16(m)(2)(i) when your next 
official cohort default rate is published. A successful challenge that 
is based on your draft cohort default rate does not excuse you from any 
other loss of eligibility or placement on provisional certification. 
However, if your successful challenge under paragraph (c)(1)(ii) or 
(c)(1)(iii) of this section is based on a prior, official cohort 
default rate, and not on your draft cohort default rate, we also excuse 
you from any subsequent loss of eligibility, under Sec.  668.206(a)(2) 
or placement on provisional certification, under Sec.  668.16(m)(2)(i), 
that would be based on that official cohort default rate.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.205  Notice of your official cohort default rate.

    (a) We electronically notify you of your cohort default rate after 
we calculate it, by sending you an eCDR notification package to the 
destination point you designate. After we send our notice to you, we 
publish a list of cohort default rates for all institutions.
    (b) If you had one or more borrowers entering repayment in the 
fiscal year for which the rate is calculated, or are subject to 
sanctions, or if the Department believes you will have an official 
cohort default rate calculated as an average rate, you will receive a 
loan record detail report as part of your eCDR notification package.
    (c) You have five business days, from the transmission date for 
eCDR notification packages as posted on the Department's Web site, to 
report any problem with receipt of the electronic transmission of your 
eCDR notification package.
    (d) Except as provided in paragraph (e) of this section, timelines 
for submitting challenges, adjustments, and appeals begin on the sixth 
business day following the announced transmission date.
    (e) If you timely report a problem with transmission of your eCDR 
notification package under paragraph (c) of this section and the 
Department agrees that the problem with transmission was not caused by 
you, the Department will extend the challenge, appeal and adjustment 
deadlines and timeframes to account for a retransmission of your eCDR 
notification package after the technical problem is resolved.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.206  Consequences of cohort default rates on your ability to 
participate in Title IV, HEA programs.

    (a) End of participation. (1) Except as provided in paragraph (e) 
of this section, you lose your eligibility to participate in the FFEL 
and Direct Loan programs 30 days after you receive our notice that your 
most recent cohort default rate for fiscal year 2011 or later is 
greater than 40 percent.
    (2) Except as provided in paragraphs (d) and (e) of this section, 
you lose your eligibility to participate in the FFEL, Direct Loan, and 
Federal Pell Grant programs 30 days after you receive our notice that 
your three most recent cohort default rates are each 30 percent or 
greater.
    (b) Length of period of ineligibility. Your loss of eligibility 
under this section continues--
    (1) For the remainder of the fiscal year in which we notify you 
that you are subject to a loss of eligibility; and
    (2) For the next 2 fiscal years.
    (c) Using a cohort default rate more than once. The use of a cohort 
default rate as a basis for a loss of eligibility under this section 
does not preclude its use as a basis for--
    (1) Any concurrent or subsequent loss of eligibility under this 
section; or
    (2) Any other action by us.
    (d) Continuing participation in Pell. If you are subject to a loss 
of eligibility under paragraph (a)(2) of this section, based on three 
cohort default rates of 30 percent or greater, you may continue to 
participate in the Federal Pell Grant Program if we determine that 
you--
    (1) Were ineligible to participate in the FFEL and Direct Loan 
programs before October 7, 1998, and your eligibility was not 
reinstated;
    (2) Requested in writing, before October 7, 1998, to withdraw your 
participation in the FFEL and Direct Loan programs, and you were not 
later reinstated; or
    (3) Have not certified an FFELP loan or originated a Direct Loan 
Program loan on or after July 7, 1998.
    (e) Requests for adjustments and appeals. (1) A loss of eligibility 
under this section does not take effect while your request for 
adjustment or appeal, as listed in Sec.  668.208(a), is pending, 
provided your request for adjustment or appeal is complete, timely, 
accurate, and in the required format.
    (2) Eligibility continued under paragraph (e)(1) of this section 
ends if we determine that none of the requests for adjustments and 
appeals you have submitted qualify you for continued eligibility under 
Sec.  668.208. Loss of eligibility takes effect on the date that you 
receive notice of our determination on your last pending request for 
adjustment or appeal.
    (3) You do not lose eligibility under this section if we determine 
that your request for adjustment or appeal meets all requirements of 
this subpart and qualifies you for continued eligibility under Sec.  
668.208.
    (4) To avoid liabilities you might otherwise incur under paragraph 
(f) of this section, you may choose to suspend your participation in 
the FFEL and Direct Loan programs during the adjustment or appeal 
process.
    (f) Liabilities during the adjustment or appeal process. If you 
continued to participate in the FFEL or Direct Loan Program under 
paragraph (e)(1) of this section, and we determine that none of your 
requests for adjustments or appeals qualify you for continued 
eligibility--
    (1) For any FFEL or Direct Loan Program loan that you certified and 
delivered or originated and disbursed more than 30 days after you 
received the notice of your cohort default rate, we estimate the amount 
of interest, special allowance, reinsurance, and any related or similar 
payments we make or are obligated to make on those loans;
    (2) We exclude from this estimate any amount attributable to funds 
that you delivered or disbursed more than 45 days after you submitted 
your completed appeal to us;
    (3) We notify you of the estimated amount; and
    (4) Within 45 days after you receive our notice of the estimated 
amount, you must pay us that amount, unless--
    (i) You file an appeal under the procedures established in subpart 
H of this part (for the purposes of subpart H

[[Page 37481]]

of this part, our notice of the estimate is considered to be a final 
program review determination); or
    (ii) We permit a longer repayment period.
    (g) Regaining eligibility. If you lose your eligibility to 
participate in a program under this section, you may not participate in 
that program until--
    (1) The period described in paragraph (b) of this section has 
ended;
    (2) You pay any amount owed to us under this section or are meeting 
that obligation under an agreement acceptable to us;
    (3) You submit a new application for participation in the program;
    (4) We determine that you meet all of the participation 
requirements in effect at the time of your application; and
    (5) You and we enter into a new program participation agreement.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.207  Preventing evasion of the consequences of cohort default 
rates.

    (a) General. You are subject to a loss of eligibility that has 
already been imposed against another institution as a result of cohort 
default rates if--
    (1) You and the ineligible institution are both parties to a 
transaction that results in a change of ownership, a change in control, 
a merger, a consolidation, an acquisition, a change of name, a change 
of address, any change that results in a location becoming a 
freestanding institution, a purchase or sale, a transfer of assets, an 
assignment, a change of identification number, a contract for services, 
an addition or closure of one or more locations or branches or 
educational programs, or any other change in whole or in part in 
institutional structure or identity;
    (2) Following the change described in paragraph (a)(1) of this 
section, you offer an educational program at substantially the same 
address at which the ineligible institution had offered an educational 
program before the change; and
    (3) There is a commonality of ownership or management between you 
and the ineligible institution, as the ineligible institution existed 
before the change.
    (b) Commonality of ownership or management. For the purposes of 
this section, a commonality of ownership or management exists if, at 
each institution, the same person (as defined in 34 CFR 600.31) or 
members of that person's family, directly or indirectly--
    (1) Holds or held a managerial role; or
    (2) Has or had the ability to affect substantially the 
institution's actions, within the meaning of 34 CFR 600.21.
    (c) Teach-outs. Notwithstanding paragraph (b)(1) of this section, a 
commonality of management does not exist if you are conducting a teach-
out under a teach-out agreement as defined in 34 CFR 602.3 and 
administered in accordance with 34 CFR 602.24(c), and--
    (1)(i) Within 60 days after the change described in this section, 
you send us the names of the managers for each facility undergoing the 
teach-out as it existed before the change and for each facility as it 
exists after you believe that the commonality of management has ended; 
and
    (ii) We determine that the commonality of management, as described 
in paragraph (b)(1) of this section, has ended; or
    (2)(i) Within 30 days after you receive our notice that we have 
denied your submission under paragraph (c)(1)(i) of this section, you 
make the management changes we request and send us a list of the names 
of the managers for each facility undergoing the teach-out as it exists 
after you make those changes; and
    (ii) We determine that the commonality of management, as described 
in paragraph (b)(1) of this section, has ended.
    (d) Initial determination. We encourage you to contact us before 
undergoing a change described in this section. If you write to us, 
providing the information we request, we will provide a written initial 
determination of the anticipated change's effect on your eligibility.
    (e) Notice of accountability. (1) We notify you in writing if, in 
response to your notice or application filed under 34 CFR 600.20 or 
600.21, we determine that you are subject to a loss of eligibility, 
under paragraph (a) of this section, that has been imposed against 
another institution.
    (2) Our notice also advises you of the scope and duration of your 
loss of eligibility. The loss of eligibility applies to all of your 
locations from the date you receive our notice until the expiration of 
the period of ineligibility applicable to the other institution.
    (3) If you are subject to a loss of eligibility under this section 
that has already been imposed against another institution, you may only 
request an adjustment or submit an appeal for the loss of eligibility 
under the same requirements that would be applicable to the other 
institution under Sec.  668.208.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.208   General requirements for adjusting official cohort 
default rates and for appealing their consequences.

    (a) Remaining eligible. You do not lose eligibility under Sec.  
668.206 if--
    (1) We recalculate your cohort default rate, and it is below the 
percentage threshold for the loss of eligibility as the result of--
    (i) An uncorrected data adjustment submitted under this section and 
Sec.  668.209;
    (ii) A new data adjustment submitted under this section and Sec.  
668.210;
    (iii) An erroneous data appeal submitted under this section and 
Sec.  668.211; or
    (iv) A loan servicing appeal submitted under this section and Sec.  
668.212; or
    (2) You meet the requirements for--
    (i) An economically disadvantaged appeal submitted under this 
section and Sec.  668.213;
    (ii) A participation rate index appeal submitted under this section 
and Sec.  668.214;
    (iii) An average rates appeal submitted under this section and 
Sec.  668.215; or
    (iv) A thirty-or-fewer borrowers appeal submitted under this 
section and Sec.  668.216.
    (b) Limitations on your ability to dispute your cohort default 
rate. (1) You may not dispute the calculation of a cohort default rate 
except as described in this subpart or in Sec.  668.16(m)(2).
    (2) You may not request an adjustment or appeal a cohort default 
rate, under Sec.  668.209, Sec.  668.210, Sec.  668.211, or Sec.  
668.212, more than once.
    (3) You may not request an adjustment or appeal a cohort default 
rate, under Sec.  668.209, Sec.  668.210, Sec.  668.211, or Sec.  
668.212, if you previously lost your eligibility to participate in a 
Title IV, HEA program, under Sec.  668.206, or were placed on 
provisional certification under Sec.  668.16(m)(2)(i), based entirely 
or partially on that cohort default rate.
    (c) Content and format of requests for adjustments and appeals. We 
may deny your request for adjustment or appeal if it does not meet the 
following requirements:
    (1) All appeals, notices, requests, independent auditor's opinions, 
management's written assertions, and other correspondence that you are 
required to send under this subpart must be complete, timely, accurate, 
and in a format acceptable to us. This acceptable format is described 
in the ``Cohort Default Rate Guide'' that we provide to you.
    (2) Your completed request for adjustment or appeal must include--

[[Page 37482]]

    (i) All of the information necessary to substantiate your request 
for adjustment or appeal; and
    (ii) A certification by your chief executive officer, under penalty 
of perjury, that all the information you provide is true and correct.
    (d) Our copies of your correspondence. Whenever you are required by 
this subpart to correspond with a party other than us, you must send us 
a copy of your correspondence within the same time deadlines. However, 
you are not required to send us copies of documents that you received 
from us originally.
    (e) Requirements for data managers' responses. (1) Except as 
otherwise provided in this subpart, if this subpart requires a data 
manager to correspond with any party other than us, the data manager 
must send us a copy of the correspondence within the same time 
deadlines.
    (2) If a data manager sends us correspondence under this subpart 
that is not in a format acceptable to us, we may require the data 
manager to revise that correspondence's format, and we may prescribe a 
format for that data manager's subsequent correspondence with us.
    (f) Our decision on your request for adjustment or appeal. (1) We 
determine whether your request for an adjustment or appeal is in 
compliance with this subpart.
    (2) In making our decision for an adjustment, under Sec.  668.209 
or Sec.  668.210, or an appeal, under Sec.  668.211 or Sec.  668.212--
    (i) We presume that the information provided to you by a data 
manager is correct unless you provide substantial evidence that shows 
the information is not correct; and
    (ii) If we determine that a data manager did not provide the 
necessary clarifying information or legible records in meeting the 
requirements of this subpart, we presume that the evidence that you 
provide to us is correct unless it is contradicted or otherwise proven 
to be incorrect by information we maintain.
    (3) Our decision is based on the materials you submit under this 
subpart. We do not provide an oral hearing.
    (4) We notify you of our decision--
    (i) If you request an adjustment or appeal because you are subject 
to a loss of eligibility under Sec.  668.206 or potential placement on 
provisional certification under Sec.  668.16(m)(2)(i) or file an 
economically disadvantaged appeal under Sec.  668.213(a)(2), within 45 
days after we receive your completed request for an adjustment or 
appeal; or
    (ii) In all other cases, except for appeals submitted under Sec.  
668.211(a) following placement on provisional certification, before we 
notify you of your next official cohort default rate.
    (5) You may not seek judicial review of our determination of a 
cohort default rate until we issue our decision on all pending requests 
for adjustments or appeals for that cohort default rate.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.209   Uncorrected data adjustments.

    (a) Eligibility. You may request an uncorrected data adjustment for 
your most recent cohort of borrowers, used to calculate your most 
recent official cohort default rate, if in response to your challenge 
under Sec.  668.204(b), a data manager agreed correctly to change the 
data, but the changes are not reflected in your official cohort default 
rate.
    (b) Deadlines for requesting an uncorrected data adjustment. You 
must send us a request for an uncorrected data adjustment, including 
all supporting documentation, within 30 days after you receive your 
loan record detail report from us.
    (c) Determination. We recalculate your cohort default rate, based 
on the corrected data, and electronically correct the rate that is 
publicly released if we determine that--
    (1) In response to your challenge under Sec.  668.204(b), a data 
manager agreed to change the data;
    (2) The changes described in paragraph (c)(1) of this section are 
not reflected in your official cohort default rate; and
    (3) We agree that the data are incorrect.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.210   New data adjustments.

    (a) Eligibility. You may request a new data adjustment for your 
most recent cohort of borrowers, used to calculate your most recent 
official cohort default rate, if--
    (1) A comparison of the loan record detail reports that we provide 
to you for the draft and official cohort default rates shows that the 
data have been newly included, excluded, or otherwise changed; and
    (2) You identify errors in the data described in paragraph (a)(1) 
of this section that are confirmed by the data manager.
    (b) Deadlines for requesting a new data adjustment. (1) You must 
send to the relevant data manager, or data managers, and us a request 
for a new data adjustment, including all supporting documentation, 
within 15 days after you receive your loan record detail report from 
us.
    (2) Within 20 days after receiving your request for a new data 
adjustment, the data manager must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation used to support the data manager's 
position.
    (3) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for a new data adjustment for that loan. We respond to 
your request as set forth under paragraph (b)(2) of this section.
    (4) Within 15 days after receiving incomplete or illegible records 
or data from a data manager, you must send a request for replacement 
records or clarification of data to the data manager and us.
    (5) Within 20 days after receiving your request for replacement 
records or clarification of data, the data manager must--
    (i) Replace the missing or illegible records;
    (ii) Provide clarifying information; or
    (iii) Notify you and us that no clarifying information or 
additional or improved records are available.
    (6) You must send us your completed request for a new data 
adjustment, including all supporting documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request or requests; or
    (ii) If you are also filing an erroneous data appeal or a loan 
servicing appeal, by the latest of the filing dates required in 
paragraph (b)(7)(i) of this section or in Sec.  668.211(b)(6)(i) or 
Sec.  668.212(c)(10)(i).
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data and make electronic corrections to the 
rate that is publicly released.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.211   Erroneous data appeals.

    (a) Eligibility. Except as provided in Sec.  668.208(b), you may 
appeal the calculation of a cohort default rate upon which a loss of 
eligibility, under

[[Page 37483]]

Sec.  668.206, or provisional certification, under Sec.  668.16(m), is 
based if--
    (1) You dispute the accuracy of data that you previously challenged 
on the basis of incorrect data, under Sec.  668.204(b); or
    (2) A comparison of the loan record detail reports that we provide 
to you for the draft and official cohort default rates shows that the 
data have been newly included, excluded, or otherwise changed, and you 
dispute the accuracy of that data.
    (b) Deadlines for submitting an appeal. (1) You must send a request 
for verification of data errors to the relevant data manager, or data 
managers, and to us within 15 days after you receive the notice of your 
loss of eligibility or provisional certification. Your request must 
include a description of the information in the cohort default rate 
data that you believe is incorrect and all supporting documentation 
that demonstrates the error.
    (2) Within 20 days after receiving your request for verification of 
data errors, the data manager must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation used to support the data manager's 
position.
    (3) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for verification of that loan's data errors. Your request 
must include a description of the information in the cohort default 
rate data that you believe is incorrect and all supporting 
documentation that demonstrates the error. We respond to your request 
as set forth under paragraph (b)(2) of this section.
    (4) Within 15 days after receiving incomplete or illegible records 
or data, you must send a request for replacement records or 
clarification of data to the data manager and us.
    (5) Within 20 days after receiving your request for replacement 
records or clarification of data, the data manager must--
    (i) Replace the missing or illegible records;
    (ii) Provide clarifying information; or
    (iii) Notify you and us that no clarifying information or 
additional or improved records are available.
    (6) You must send your completed appeal to us, including all 
supporting documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request; or
    (ii) If you are also requesting a new data adjustment or filing a 
loan servicing appeal, by the latest of the filing dates required in 
paragraph (b)(6)(i) of this section or in Sec.  668.210(b)(6)(i) or 
Sec.  668.212(c)(10)(i).
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data and electronically correct the rate that 
is publicly released.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.212   Loan servicing appeals.

    (a) Eligibility. Except as provided in Sec.  668.208(b), you may 
appeal, on the basis of improper loan servicing or collection, the 
calculation of--
    (1) Your most recent cohort default rate; or
    (2) Any cohort default rate upon which a loss of eligibility under 
Sec.  668.206 is based.
    (b) Improper loan servicing. For the purposes of this section, a 
default is considered to have been due to improper loan servicing or 
collection only if the borrower did not make a payment on the loan and 
you prove that the FFEL Program lender or the Direct Loan Servicer, as 
defined in 34 CFR 685.102, failed to perform one or more of the 
following activities, if that activity applies to the loan:
    (1) Send at least one letter (other than the final demand letter) 
urging the borrower to make payments on the loan.
    (2) Attempt at least one phone call to the borrower.
    (3) Send a final demand letter to the borrower.
    (4) For a Direct Loan Program loan only, document that skip tracing 
was performed if the Direct Loan Servicer determined that it did not 
have the borrower's current address.
    (5) For an FFELP loan only--
    (i) Submit a request for preclaims or default aversion assistance 
to the guaranty agency; and
    (ii) Submit a certification or other documentation that skip 
tracing was performed to the guaranty agency.
    (c) Deadlines for submitting an appeal. (1) If the loan record 
detail report was not included with your official cohort default rate 
notice, you must request it within 15 days after you receive the notice 
of your official cohort default rate.
    (2) You must send a request for loan servicing records to the 
relevant data manager, or data managers, and to us within 15 days after 
you receive your loan record detail report from us. If the data manager 
is a guaranty agency, your request must include a copy of the loan 
record detail report.
    (3) Within 20 days after receiving your request for loan servicing 
records, the data manager must--
    (i) Send you and us a list of the borrowers in your representative 
sample, as described in paragraph (d) of this section (the list must be 
in social security number order, and it must include the number of 
defaulted loans included in the cohort for each listed borrower);
    (ii) Send you and us a description of how your representative 
sample was chosen; and
    (iii) Either send you copies of the loan servicing records for the 
borrowers in your representative sample and send us a copy of its cover 
letter indicating that the records were sent, or send you and us a 
notice of the amount of its fee for providing copies of the loan 
servicing records.
    (4) The data manager may charge you a reasonable fee for providing 
copies of loan servicing records, but it may not charge more than $10 
per borrower file. If a data manager charges a fee, it is not required 
to send the documents to you until it receives your payment of the fee.
    (5) If the data manager charges a fee for providing copies of loan 
servicing records, you must send payment in full to the data manager 
within 15 days after you receive the notice of the fee.
    (6) If the data manager charges a fee for providing copies of loan 
servicing records, and--
    (i) You pay the fee in full and on time, the data manager must send 
you, within 20 days after it receives your payment, a copy of all loan 
servicing records for each loan in your representative sample (the 
copies are provided to you in hard copy format unless the data manager 
and you agree that another format may be used), and it must send us a 
copy of its cover letter indicating that the records were sent; or
    (ii) You do not pay the fee in full and on time, the data manager 
must notify you and us of your failure to pay the fee and that you have 
waived your right to challenge the calculation of your cohort default 
rate based on the data manager's records. We accept that determination 
unless you prove that it is incorrect.
    (7) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for the loan servicing records for that loan. We respond 
to your request under paragraph (c)(3) of this section.
    (8) Within 15 days after receiving incomplete or illegible records, 
you

[[Page 37484]]

must send a request for replacement records to the data manager and us.
    (9) Within 20 days after receiving your request for replacement 
records, the data manager must either--
    (i) Replace the missing or illegible records; or
    (ii) Notify you and us that no additional or improved copies are 
available.
    (10) You must send your appeal to us, including all supporting 
documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request for loan servicing records; or
    (ii) If you are also requesting a new data adjustment or filing an 
erroneous data appeal, by the latest of the filing dates required in 
paragraph (c)(10)(i) of this section or in Sec.  668.210(b)(6)(i) or 
Sec.  668.211(b)(6)(i).
    (d) Representative sample of records. (1) To select a 
representative sample of records, the data manager first identifies all 
of the borrowers for whom it is responsible and who had loans that were 
considered to be in default in the calculation of the cohort default 
rate you are appealing.
    (2) From the group of borrowers identified under paragraph (d)(1) 
of this section, the data manager identifies a sample that is large 
enough to derive an estimate, acceptable at a 95 percent confidence 
level with a plus or minus 5 percent confidence interval, for use in 
determining the number of borrowers who should be excluded from the 
calculation of the cohort default rate due to improper loan servicing 
or collection.
    (e) Loan servicing records. Loan servicing records are the 
collection and payment history records--
    (1) Provided to the guaranty agency by the lender and used by the 
guaranty agency in determining whether to pay a claim on a defaulted 
loan; or
    (2) Maintained by our Direct Loan Servicer that are used in 
determining your cohort default rate.
    (f) Determination. (1) We determine the number of loans, included 
in your representative sample of loan servicing records, that defaulted 
due to improper loan servicing or collection, as described in paragraph 
(b) of this section.
    (2) Based on our determination, we use a statistically valid 
methodology to exclude the corresponding percentage of borrowers from 
both the numerator and denominator of the calculation of your cohort 
default rate, and electronically correct the rate that is publicly 
released.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.213  Economically disadvantaged appeals.

    (a) General. As provided in this section you may appeal--
    (1) A notice of a loss of eligibility under Sec.  668.206; or
    (2) A notice of a second successive official cohort default rate 
calculated under this subpart that is equal to or greater than 30 
percent but less than or equal to 40 percent, potentially subjecting 
you to provisional certification under Sec.  668.16(m)(2)(i).
    (b) Eligibility. You may appeal under this section if an 
independent auditor's opinion certifies that your low income rate is 
two-thirds or more and--
    (1) You offer an associate, baccalaureate, graduate, or 
professional degree, and your completion rate is 70 percent or more; or
    (2) You do not offer an associate, baccalaureate, graduate, or 
professional degree, and your placement rate is 44 percent or more.
    (c) Low income rate. (1) Your low income rate is the percentage of 
your students, as described in paragraph (c)(2) of this section, who--
    (i) For an award year that overlaps the 12-month period selected 
under paragraph (c)(2) of this section, have an expected family 
contribution, as defined in 34 CFR 690.2, that is equal to or less than 
the largest expected family contribution that would allow a student to 
receive one-half of the maximum Federal Pell Grant award, regardless of 
the student's enrollment status or cost of attendance; or
    (ii) For a calendar year that overlaps the 12-month period selected 
under paragraph (c)(2) of this section, have an adjusted gross income 
that, when added to the adjusted gross income of the student's parents 
(if the student is a dependent student) or spouse (if the student is a 
married independent student), is less than the amount listed in the 
Department of Health and Human Services poverty guidelines for the size 
of the student's family unit.
    (2) The students who are used to determine your low income rate 
include only students who were enrolled on at least a half-time basis 
in an eligible program at your institution during any part of a 12-
month period that ended during the 6 months immediately preceding the 
cohort's fiscal year.
    (d) Completion rate. (1) Your completion rate is the percentage of 
your students, as described in paragraph (d)(2) of this section, who--
    (i) Completed the educational programs in which they were enrolled;
    (ii) Transferred from your institution to a higher level 
educational program;
    (iii) Remained enrolled and are making satisfactory progress toward 
completion of their educational programs at the end of the same 12-
month period used to calculate the low income rate; or
    (iv) Entered active duty in the Armed Forces of the United States 
within 1 year after their last date of attendance at your institution.
    (2) The students who are used to determine your completion rate 
include only regular students who were--
    (i) Initially enrolled on a full-time basis in an eligible program; 
and
    (ii) Originally scheduled to complete their programs during the 
same 12-month period used to calculate the low income rate.
    (e) Placement rate. (1) Except as provided in paragraph (e)(2) of 
this section, your placement rate is the percentage of your students, 
as described in paragraphs (e)(3) and (e)(4) of this section, who--
    (i) Are employed, in an occupation for which you provided training, 
on the date following 1 year after their last date of attendance at 
your institution;
    (ii) Were employed for at least 13 weeks, in an occupation for 
which you provided training, between the date they enrolled at your 
institution and the first date that is more than a year after their 
last date of attendance at your institution; or
    (iii) Entered active duty in the Armed Forces of the United States 
within 1 year after their last date of attendance at your institution.
    (2) For the purposes of this section, a former student is not 
considered to have been employed based on any employment by your 
institution.
    (3) The students who are used to determine your placement rate 
include only former students who--
    (i) Were initially enrolled in an eligible program on at least a 
half-time basis;
    (ii) Were originally scheduled, at the time of enrollment, to 
complete their educational programs during the same 12-month period 
used to calculate the low income rate; and
    (iii) Remained in the program beyond the point at which a student 
would have received a 100 percent tuition refund from you.
    (4) A student is not included in the calculation of your placement 
rate if that student, on the date that is 1 year after the student's 
originally scheduled completion date, remains enrolled in the same 
program and is making satisfactory progress.
    (f) Scheduled to complete. In calculating a completion or placement

[[Page 37485]]

rate under this section, the date on which a student is originally 
scheduled to complete a program is based on--
    (1) For a student who is initially enrolled full-time, the amount 
of time specified in your enrollment contract, catalog, or other 
materials for completion of the program by a full-time student; or
    (2) For a student who is initially enrolled less than full-time, 
the amount of time that it would take the student to complete the 
program if the student remained at that level of enrollment throughout 
the program.
    (g) Deadline for submitting an appeal. (1) Within 30 days after you 
receive the notice of your loss of eligibility, you must send us your 
management's written assertion, as described in the Cohort Default Rate 
Guide.
    (2) Within 60 days after you receive the notice of your loss of 
eligibility, you must send us the independent auditor's opinion 
described in paragraph (h) of this section.
    (h) Independent auditor's opinion. (1) The independent auditor's 
opinion must state whether your management's written assertion, as you 
provided it to the auditor and to us, meets the requirements for an 
economically disadvantaged appeal and is fairly stated in all material 
respects.
    (2) The engagement that forms the basis of the independent 
auditor's opinion must be an examination-level compliance attestation 
engagement performed in accordance with--
    (i) The American Institute of Certified Public Accountants' (AICPA) 
Statement on Standards for Attestation Engagements, Compliance 
Attestation (AICPA, Professional Standards, vol. 1, AT sec. 500), as 
amended (these standards may be obtained by calling the AICPA's order 
department, at 1-888-777-7077); and
    (ii) Government Auditing Standards issued by the Comptroller 
General of the United States.
    (i) Determination. You do not lose eligibility under Sec.  668.206, 
and we do not provisionally certify you under Sec.  668.16(m)(2)(i), 
if--
    (1) Your independent auditor's opinion agrees that you meet the 
requirements for an economically disadvantaged appeal; and
    (2) We determine that the independent auditor's opinion and your 
management's written assertion--
    (i) Meet the requirements for an economically disadvantaged appeal; 
and
    (ii) Are not contradicted or otherwise proven to be incorrect by 
information we maintain, to an extent that would render the independent 
auditor's opinion unacceptable.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.214  Participation rate index appeals.

    (a) Eligibility. (1) You may appeal a notice of a loss of 
eligibility under Sec.  668.206(a)(1), based on one cohort default rate 
over 40 percent, if your participation rate index for that cohort's 
fiscal year is equal to or less than 0.06015.
    (2) You may appeal a notice of a loss of eligibility under Sec.  
668.206(a)(2), based on three cohort default rates of 30 percent or 
greater, if your participation rate index is equal to or less than 
0.0625 for any of those three cohorts' fiscal years.
    (3) You may appeal potential placement on provisional certification 
under Sec.  668.16(m)(2)(i) based on two cohort default rates that fail 
to satisfy the standard of administrative capability in Sec.  
668.16(m)(1)(ii) if your participation rate index is equal to or less 
than 0.0625 for either of the two cohorts' fiscal years.
    (b) Calculating your participation rate index. (1) Except as 
provided in paragraph (b)(2) of this section, your participation rate 
index for a fiscal year is determined by multiplying your cohort 
default rate for that fiscal year by the percentage that is derived by 
dividing--
    (i) The number of students who received an FFELP or a Direct Loan 
Program loan to attend your institution during a period of enrollment, 
as defined in 34 CFR 682.200 or 685.102, that overlaps any part of a 
12-month period that ended during the 6 months immediately preceding 
the cohort's fiscal year, by
    (ii) The number of regular students who were enrolled at your 
institution on at least a half-time basis during any part of the same 
12-month period.
    (2) If your cohort default rate for a fiscal year is calculated as 
an average rate under Sec.  668.202(d)(2), you may calculate your 
participation rate index for that fiscal year using either that average 
rate or the cohort default rate that would be calculated for the fiscal 
year alone using the method described in Sec.  668.202(d)(1).
    (c) Deadline for submitting an appeal. You must send us your appeal 
under this section, including all supporting documentation, within 30 
days after you receive--
    (1) Notice of your loss of eligibility; or
    (2) Notice of a second cohort default rate that equals or exceeds 
30 percent but is less than 40 percent and that, in combination with an 
earlier rate, potentially subjects you to provisional certification 
under Sec.  668.16(m)(2)(i).
    (d) Determination. (1) You do not lose eligibility under Sec.  
668.206 and we do not place you on provisional certification, if we 
determine that you meet the requirements for a participation rate index 
appeal.
    (2) If we determine that your participation rate index for a fiscal 
year is equal to or less than 0.06015 or 0.0625, under paragraph (d)(1) 
of this section, we also excuse you from any subsequent loss of 
eligibility under Sec.  668.206(a)(2) or placement on provisional 
certification under Sec.  668.16(m)(2)(i) that would be based on the 
official cohort default rate for that fiscal year.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.215  Average rates appeals.

    (a) Eligibility. (1) You may appeal a notice of a loss of 
eligibility under Sec.  668.206(a)(1), based on one cohort default rate 
over 40 percent, if that cohort default rate is calculated as an 
average rate under Sec.  668.202(d)(2).
    (2) You may appeal a notice of a loss of eligibility under Sec.  
668.206(a)(2), based on three cohort default rates of 30 percent or 
greater, if at least two of those cohort default rates--
    (i) Are calculated as average rates under Sec.  668.202(d)(2); and
    (ii) Would be less than 30 percent if calculated for the fiscal 
year alone using the method described in Sec.  668.202(d)(1).
    (b) Deadline for submitting an appeal. (1) Before notifying you of 
your official cohort default rate, we make an initial determination 
about whether you qualify for an average rates appeal. If we determine 
that you qualify, we notify you of that determination at the same time 
that we notify you of your official cohort default rate.
    (2) If you disagree with our initial determination, you must send 
us your average rates appeal, including all supporting documentation, 
within 30 days after you receive the notice of your loss of 
eligibility.
    (c) Determination. You do not lose eligibility under Sec.  668.206 
if we determine that you meet the requirements for an average rates 
appeal. In such a case, we electronically correct the rate that is 
publicly released.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.216   Thirty-or-fewer borrowers appeals.

    (a) Eligibility. You may appeal a notice of a loss of eligibility 
under Sec.  668.206 if 30 or fewer borrowers, in total, are included in 
the 3 most recent cohorts of borrowers used to calculate your cohort 
default rates.

[[Page 37486]]

    (b) Deadline for submitting an appeal. (1) Before notifying you of 
your official cohort default rate, we make an initial determination 
about whether you qualify for a thirty-or-fewer borrowers appeal. If we 
determine that you qualify, we notify you of that determination at the 
same time that we notify you of your official cohort default rate.
    (2) If you disagree with our initial determination, you must send 
us your thirty-or-fewer borrowers appeal, including all supporting 
documentation, within 30 days after you receive the notice of your loss 
of eligibility.
    (c) Determination. You do not lose eligibility under Sec.  668.206 
if we determine that you meet the requirements for a thirty-or-fewer 
borrowers appeal.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec.  668.217   Default prevention plans.

    (a) First year. (1) If your cohort default rate is equal to or 
greater than 30 percent you must establish a default prevention task 
force that prepares a plan to--
    (i) Identify the factors causing your cohort default rate to exceed 
the threshold;
    (ii) Establish measurable objectives and the steps you will take to 
improve your cohort default rate;
    (iii) Specify the actions you will take to improve student loan 
repayment, including counseling students on repayment options; and
    (iv) Submit your default prevention plan to us.
    (2) We will review your default prevention plan and offer technical 
assistance intended to improve student loan repayment.
    (b) Second year. (1) If your cohort default rate is equal to or 
greater than 30 percent for two consecutive fiscal years, you must 
revise your default prevention plan and submit it to us for review.
    (2) We may require you to revise your default prevention plan or 
specify actions you need to take to improve student loan repayment.

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Appendix A to Subpart N of Part 668--Sample Default Prevention Plan

    This appendix is provided as a sample plan for those 
institutions developing a default prevention plan in accordance with 
Sec.  668.199(a)(1). It describes some measures you may find helpful 
in reducing the number of students that default on federally funded 
loans. These are not the only measures you could implement when 
developing a default prevention plan.

I. Core Default Reduction Strategies

    1. Establish your default prevention team by engaging your chief 
executive officer and relevant senior executive officials and 
enlisting the support of representatives from offices other than the 
financial aid office. Consider including individuals and 
organizations independent of your institution that have experience 
in preventing title IV loan defaults.
    2. Consider your history, resources, dollars in default, and 
targets for default reduction to determine which activities will 
result in the most benefit to you and your students.
    3. Define evaluation methods and establish a data collection 
system for measuring and verifying relevant default prevention 
statistics, including a statistical analysis of the borrowers who 
default on their loans.
    4. Identify and allocate the personnel, administrative, and 
financial resources appropriate to implement the default prevention 
plan.
    5. Establish annual targets for reductions in your rate.
    6. Establish a process to ensure the accuracy of your rate.

II. Additional Default Reduction Strategies

    1. Enhance the borrower's understanding of his or her loan 
repayment responsibilities through counseling and debt management 
activities.
    2. Enhance the enrollment retention and academic persistence of 
borrowers through counseling and academic assistance.
    3. Maintain contact with the borrower after he or she leaves 
your institution by using activities such as skip tracing to locate 
the borrower.
    4. Track the borrower's delinquency status by obtaining reports 
from data managers and FFEL Program lenders.
    5. Enhance student loan repayments through counseling the 
borrower on loan repayment options and facilitating contact between 
the borrower and the data manager or FFEL Program lender.
    6. Assist a borrower who is experiencing difficulty in finding 
employment through career counseling, job placement assistance, and 
facilitating unemployment deferments.
    7. Identify and implement alternative financial aid award 
policies and develop alternative financial resources that will 
reduce the need for student borrowing in the first 2 years of 
academic study.

III. Statistics for Measuring Progress

    1. The number of students enrolled at your institution during 
each fiscal year.
    2. The average amount borrowed by a student each fiscal year.
    3. The number of borrowers scheduled to enter repayment each 
fiscal year.
    4. The number of enrolled borrowers who received default 
prevention counseling services each fiscal year.
    5. The average number of contacts that you or your agent had 
with a borrower who was in deferment or forbearance or in repayment 
status during each fiscal year.
    6. The number of borrowers at least 60 days delinquent each 
fiscal year.
    7. The number of borrowers who defaulted in each fiscal year.
    8. The type, frequency, and results of activities performed in 
accordance with the default prevention plan.

PART 674--FEDERAL PERKINS LOAN PROGRAM

    21. The authority citation for part 674 is revised to read as 
follows:

    Authority:  20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise 
noted.

    22. Section 674.42 is amended by revising paragraph (b) to read as 
follows:


Sec.  674.42  Contact with the borrower.

* * * * *
    (b) Exit interview. (1) An institution must ensure that exit 
counseling is conducted with each borrower either in person, by 
audiovisual presentation, or by interactive electronic means. The 
institution must ensure that exit counseling is conducted shortly 
before the borrower ceases at least half-time study at the institution. 
As an alternative, in the case of a student enrolled in a 
correspondence program or a study-abroad program that the institution 
approves for credit, the borrower may be provided with written 
counseling material by mail within 30 days after the borrower completes 
the program. If a borrower withdraws from the institution without the 
institution's prior knowledge or fails to complete an exit counseling 
session as required, the institution must ensure that exit counseling 
is provided through either interactive electronic means or by mailing 
counseling materials to the borrower at the borrower's last known 
address within 30 days after learning that the borrower has withdrawn 
from the institution or failed to complete exit counseling as required.
    (2) The exit counseling must--
    (i) Inform the student as to the average anticipated monthly 
repayment amount based on the student's indebtedness or on the average 
indebtedness of students who have obtained Perkins loans for attendance 
at the institution or in the borrower's program of study;
    (ii) Explain to the borrower the options to prepay each loan and 
pay each loan on a shorter schedule;
    (iii) Review for the borrower the option to consolidate a Federal 
Perkins Loan, including the consequences of consolidating a Perkins 
Loan. Information on the consequences of loan consolidation must 
include, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan

[[Page 37487]]

forgiveness, cancellation, and deferment opportunities;
    (C) The options of the borrower to prepay the loan or to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different 
lenders;
    (iv) Include debt-management strategies that are designed to 
facilitate repayment;
    (v) Explain the use of a Master Promissory Note;
    (vi) Emphasize to the borrower the seriousness and importance of 
the repayment obligation the borrower is assuming;
    (vii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (viii) Emphasize that the borrower is obligated to repay the full 
amount of the loan even if the borrower has not completed the program, 
has not completed the program within the regular time for program 
completion, is unable to obtain employment upon completion, or is 
otherwise dissatisfied with or did not receive educational or other 
services that the borrower purchased from the institution;
    (ix) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or cancellation of 
principal and interest, defer repayment of principal or interest, or be 
granted an extension of the repayment period or a forbearance on a 
title IV loan; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (x) Require the borrower to provide current information concerning 
name, address, social security number, references, and driver's license 
number, the borrower's expected permanent address, the address of the 
borrower's next of kin, as well as the name and address of the 
borrower's expected employer;
    (xi) Review for the borrower information on the availability of the 
Student Loan Ombudsman's office;
    (xii) Inform the borrower of the availability of title IV loan 
information in the National Student Loan Data System (NSLDS) and how 
NSLDS can be used to obtain title IV loan status information; and
    (xiii) A general description of the types of tax benefits that may 
be available to borrowers.
    (3) If exit counseling is conducted through interactive electronic 
means, the institution must take reasonable steps to ensure that each 
student borrower receives the counseling materials, and participates in 
and completes the exit counseling.
    (4) The institution must maintain documentation substantiating the 
institution's compliance with this section for each borrower.
* * * * *
    23. Section 674.51 is amended by:
    A. Revising paragraph (d).
    B. Redesignating paragraphs (e) through (s) as follows:

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

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


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 3006A(g)(2)(B) of title 18, 
United States Code.
* * * * *
    (g) Educational service agency: A regional public multi-service 
agency authorized by State law to develop, manage, and provide services 
or programs to local educational agencies as defined in section 9101 of 
the Elementary and Secondary Education Act of 1965, as amended.
* * * * *
    (i) Faculty member at a Tribal College or University: An educator 
or tenured individual who is employed by a Tribal College or 
University, as that term is defined in section 316 of the HEA, to 
teach, research, or perform administrative functions. For purposes of 
this definition an educator may be an instructor, lecturer, lab 
faculty, assistant professor, associate professor, full professor, 
dean, or academic department head.
    (j) Federal public defender organization: A defender organization 
established in accordance with section 3006A(g)(2)(A) of title 18, 
United States Code.
    (k) Firefighter: A firefighter is an individual who is employed by 
a Federal, State, or local firefighting agency to extinguish 
destructive fires; or provide firefighting related services such as--
    (1) Providing community disaster support and, as a first responder, 
providing emergency medical services;
    (2) Conducting search and rescue; or
    (3) Providing hazardous materials mitigation (HAZMAT).
* * * * *
    (n) Infant or toddler with a disability: An infant or toddler from 
birth to age 2, inclusive, who need early intervention services for 
specified reasons, as defined in section 632(5)(A) of the Individuals 
with Disabilities Education Act.
    (o) Librarian with a master's degree: A librarian with a master's 
degree is an information professional trained in library or information 
science who has obtained a postgraduate academic degree in library 
science awarded after the completion of an academic program of up to 
six years in duration, excluding a doctorate or professional degree.
* * * * *
    (v) Speech language pathologist with a master's degree: An 
individual who evaluates or treats disorders that affect a person's 
speech, language, cognition, voice, swallowing and the rehabilitative 
or corrective treatment of physical or cognitive deficits/disorders 
resulting in difficulty with communication, swallowing, or both and has 
obtained a postgraduate academic degree awarded after the completion of 
an academic program of up to six years in duration, excluding a 
doctorate or professional degree.
    (x) Substantial gainful activity: A level of work performed for pay 
or profit that involves doing significant physical

[[Page 37488]]

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).
* * * * *
    24. Section 674.53 is amended by:
    A. Adding new paragraph (a)(1)(iii).
    B. Revising paragraphs (a)(2)(i) and (a)(2)(ii).
    C. Revising paragraph (a)(3).
    D. Revising paragraphs (a)(4)(i) and (a)(4)(ii).
    E. Removing paragraph (a)(4)(iii).
    F. Revising paragraph (a)(6).
    G. Adding new paragraph (b)(3).
    H. In paragraph (d)(1), removing the word ``shall'' and adding, in 
its place, the word ``must''.
    I. Revising paragraph (e).
    The revisions and additions read as follows:


Sec.  674.53  Teacher cancellation--Federal Perkins, NDSL and Defense 
loans.

* * * * *
    (a) * * *
    (1) * * *
    (iii) An institution must cancel up to 100 percent of the 
outstanding balance of a Federal Perkins, NDSL, or Defense loan for 
teaching service that includes August 14, 2008, or begins on or after 
that date, at an educational service agency.
* * * * *
    (2) * * *
    (i) Is in a school district that qualified for funds, in that year, 
under part A of title I of the Elementary and Secondary Education Act 
of 1965, as amended; and
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's or educational service 
agency's total enrollment is made up of title I children.
    (3) For each academic year, the Secretary notifies participating 
institutions of the schools and educational service agencies selected 
under paragraph (a) of this section.
    (4)(i) The Secretary selects schools and educational service 
agencies under paragraph (a)(1) of this section based on a ranking by 
the State education agency.
    (ii) The State education agency must base its ranking of the 
schools and educational service agencies on objective standards and 
methods. These standards must take into account the numbers and 
percentages of title I children attending those schools and educational 
service agencies.
* * * * *
    (6) A teacher, who performs service in a school or educational 
service agency that meets the requirement of paragraph (a)(1) of this 
section in any year and in a subsequent year fails to meet these 
requirements, may continue to teach in that school or educational 
service agency and will be eligible for loan cancellation pursuant to 
paragraph (a) of this section in subsequent years.
* * * * *
    (b) * * *
    (3) An institution must cancel up to 100 percent of the outstanding 
balance on a borrower's Federal Perkins, NDSL, or Defense loan for a 
borrower's service that includes August 14, 2008, or begins on or after 
that date, as a full-time special education teacher of infants, 
toddlers, children, or youth with disabilities, in an educational 
service agency.
* * * * *
    (e) Teaching in a school system. The Secretary considers a borrower 
to be teaching in a public or other nonprofit elementary or secondary 
school system or an educational service agency only if the borrower is 
directly employed by the school system.
* * * * *
    25. Section 674.56 is amended by:
    A. Revising paragraph (c)(1).
    B. Redesignating paragraph (d) as paragraph (h).
    C. Adding paragraphs (d), (e), (f), and (g), respectively.
    C. Revising newly redesignated paragraph (h).
    The revisions and additions read as follows:


Sec.  674.56  Employment cancellation--Federal Perkins, NDSL, and 
Defense loans.

* * * * *
    (c) * * * (1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or NDSL made on or 
after July 23, 1992, for the borrower's service as a full-time 
qualified professional provider of early intervention services in a 
public or other nonprofit program under public supervision by the lead 
agency as authorized in section 632 of the Individuals with 
Disabilities Education Act.
* * * * *
    (d) Cancellation for full-time employment as a firefighter to a 
local, State, or Federal fire department or fire district. An 
institution must cancel up to 100 percent of the outstanding balance on 
a borrower's Federal Perkins, NDSL, or Defense loan for service that 
includes August 14, 2008, or begins on or after that date, as a full-
time firefighter.
    (e) Cancellation for full-time employment as a faculty member at a 
Tribal College or University. An institution must cancel up to 100 
percent of the outstanding balance on a borrower's Federal Perkins, 
NDSL, or Defense loan for service that includes August 14, 2008, or 
begins on or after that date, as a full-time faculty member at a Tribal 
College or University.
    (f) Cancellation for full-time employment as a librarian with a 
master's degree. (1) An institution must cancel up to 100 percent of 
the outstanding balance on a borrower's Federal Perkins Loan, NDSL, or 
Defense loan for service that includes August 14, 2008, or begins on or 
after that date, as a full-time librarian, provided that the 
individual--
    (i) Is a librarian with a master's degree; and
    (ii) Is employed in an elementary school or secondary school that 
is eligible for assistance under part A of title I of the Elementary 
and Secondary Education Act of 1965, as amended; or
    (iii) Is employed by a public library that serves a geographic area 
that contains one or more schools eligible for assistance under part A 
of title I of the Elementary and Secondary Education Act of 1965, as 
amended.
    (2) For the purposes of paragraph (f) of this section, the term 
geographic area is defined as the area served by the local school 
district.
    (g) Cancellation for full-time employment as a speech pathologist 
with a master's degree. An institution must cancel up to 100 percent of 
the outstanding balance on a borrower's Federal Perkins Loan, NDSL, or 
Defense loan for full-time employment that includes August 14, 2008, or 
begins on or after that date, as a speech pathologist

[[Page 37489]]

with a master's degree who is working exclusively with schools eligible 
for funds under part A of title I of the Elementary and Secondary 
Education Act of 1965, as amended.
    (h) Cancellation rates. (1) To qualify for cancellation under 
paragraphs (a), (b), (c), (d), (e), (f), and (g) of this section, a 
borrower must work full-time for 12 consecutive months.
* * * * *
    26. Section 674.57 is revised to read as follows:


Sec.  674.57  Cancellation for law enforcement or corrections officer 
service--Federal Perkins, NDSL, and Defense loans.

    (a)(1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or NDSL made on or 
after November 29, 1990, for full-time service as a law enforcement or 
corrections officer for an eligible employing agency.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL, or Defense loan made prior to 
November 29, 1990, for law enforcement or correction officer service 
performed on or after October 7, 1998, if the cancellation benefits 
provided under this section are not included in the terms of the 
borrower's promissory note.
    (3) An eligible employing agency is an agency--
    (i) That is a local, State, or Federal law enforcement or 
corrections agency;
    (ii) That is public-funded; and
    (iii) The principal activities of which pertain to crime 
prevention, control, or reduction or the enforcement of the criminal 
law.
    (4) Agencies that are primarily responsible for enforcement of 
civil, regulatory, or administrative laws are ineligible employing 
agencies.
    (5) A borrower qualifies for cancellation under this section only 
if the borrower is--
    (i) A sworn law enforcement or corrections officer; or
    (ii) A person whose principal responsibilities are unique to the 
criminal justice system.
    (6) To qualify for a cancellation under this section, the 
borrower's service must be essential in the performance of the eligible 
employing agency's primary mission.
    (7) The agency must be able to document the employee's functions.
    (8) A borrower whose principal official responsibilities are 
administrative or supportive does not qualify for cancellation under 
this section.
    (b) An institution must cancel up to 100 percent of the outstanding 
balance of a borrower's Federal Perkins, NDSL, or Defense loan for 
service that includes August 14, 2008, or begins on or after that date, 
as a full-time attorney employed in Federal public defender 
organizations or community defender organizations, established in 
accordance with section 3006A(g)(2) of title 18, U.S.C.
    (c)(1) To qualify for cancellation under paragraph (a) of this 
section, a borrower must work full-time for 12 consecutive months.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time 
employment;
    (ii) 20 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time 
employment; and
    (iii) 30 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time employment.

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


    27. Section 674.58 is amended by:
    A. Revising the section heading.
    B. Redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) 
and (a)(5), respectively.
    C. Adding new paragraph (a)(3).
    D. Revising newly redesignated paragraph (a)(4).
    E. Revising newly redesignated paragraph (a)(5).
    F. Redesignating paragraph (c)(2) as paragraph (c)(4).
    G. Adding new paragraphs (c)(2) and (c)(3).
    H. Revising newly redesignated paragraph (c)(4).
    The revisions and additions read as follows:


Sec.  674.58  Cancellation for service in an early childhood education 
program.

* * * * *
    (a) * * *
    (3) An institution must cancel up to 100 percent of the outstanding 
balance of a borrower's NDSL, Defense, or Federal Perkins loan for 
service that includes August 14, 2008, or begins on or after that date, 
as a full-time staff member of a pre-kindergarten or childcare program 
that is licensed or regulated by the State.
    (4) The Head Start, pre-kindergarten or child care program in which 
the borrower serves must operate for a complete academic year, or its 
equivalent.
    (5) In order to qualify for cancellation, the borrower's salary may 
not exceed the salary of a comparable employee working in the local 
educational agency of the area served by the local Head Start, pre-
kindergarten or child care program.
* * * * *
    (c) * * *
    (2) A pre-kindergarten program is a State-funded program that 
serves children from birth through age six and addresses the children's 
cognitive (including language, early literacy, and early mathematics), 
social, emotional, and physical development.
    (3) A child care program is a program that is licensed and 
regulated by the State and provides child care services for fewer than 
24 hours per day per child, unless care in excess of 24 consecutive 
hours is needed due to the nature of the parents' work.
    (4) ``Full-time staff member'' is a person regularly employed in a 
full-time professional capacity to carry out the educational part of a 
Head Start, pre-kindergarten or child care program.
* * * * *
    28. Section 674.59 is amended by:
    a. Revising the section heading.
    b. Removing in paragraph (a)(1) the word ``shall'' and adding, in 
its place, the word ``must''.
    c. Revising paragraph (b)(1).
    d. Adding new paragraph (c).
    e. Redesignating paragraph (b)(3) as paragraph (d).
    f. Revising the authority citation that appears at the end of the 
section.
    The addition and revisions read as follows:


Sec.  674.59  Cancellation for military service.

* * * * *
    (b) * * * (1) An institution must cancel up to 50 percent of the 
outstanding balance on an NDSL or Perkins loan for active duty service 
that ended before August 14, 2008, as a member of the U.S. Army, Navy, 
Air Force, Marine Corps, or Coast Guard in an area of hostilities that 
qualifies for special pay under section 310 of title 37 of the United 
States Code.
* * * * *
    (c)(1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or NDSL loan for a 
borrower's full year of active duty service that includes August 14, 
2008, or begins on or after that date, as a member of the U.S. Army, 
Navy, Air Force, Marine Corps, or Coast Guard in an area of hostilities 
that qualifies for special pay under section 310 of title 37 of the 
United States Code.
    (2) The cancellation rate is 15 percent for the first and second 
year of

[[Page 37490]]

qualifying service, 20 percent for the third and fourth year of 
qualifying service, and 30 percent for the fifth year of qualifying 
service.
* * * * *

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

Sec.  674.61  [Amended]

    29. Section 674.61 is amended by removing the citation ``Sec.  
674.51(s)'' each time it appears and adding, in its place, the citation 
``Sec.  674.51(aa)''.

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

    30. The authority citation for part 682 is revised to read as 
follows:

    Authority:  20 U.S.C. 1070g, 1071 to 1087-2, unless otherwise 
noted.

    31. Paragraph (h) of Sec.  682.212 is revised to read as follows:


Sec.  682.212  Prohibited transactions.

* * * * *
    (h) A school may, at its option, make available a list of 
recommended or suggested lenders, in print or any other medium or form, 
for use by the school's students or their parents provided that such 
list complies with the requirements in 34 CFR 601.10 and 668.14(a)(28).
* * * * *
    32. Section 682.604 is amended by revising paragraphs (c)(5), 
(c)(8), (f), and (g) to read as follows:


Sec.  682.604   Processing the borrower's loan proceeds and counseling 
borrowers.

* * * * *
    (c) * * *
    (5) A school may not release the first installment of a Stafford 
loan for endorsement to a student who is enrolled in the first year of 
an undergraduate program of study and who has not previously received a 
Stafford, SLS, Direct Subsidized, or Direct Unsubsidized loan until 30 
days after the first day of the student's program of study unless--
    (i) Except as provided in paragraph (c)(5)(ii) of this section, the 
school in which the student is enrolled has a cohort default rate, 
calculated under subpart M of 34 CFR part 668, of less than 10 percent 
for each of the three most recent fiscal years for which data are 
available; or
    (ii) For loans first disbursed on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668 of 
less than 15 percent for each of the three most recent fiscal years for 
which data are available; or
    (iii) The school is an eligible home institution certifying a loan 
to cover the student's cost of attendance in a study abroad program and 
has a cohort default rate, calculated under either subpart M or subpart 
N of 34 CFR part 668, of less than 5 percent for the single most recent 
fiscal year for which data are available.
* * * * *
    (8) Notwithstanding the requirements of paragraphs (c)(6) through 
(c)(9) of this section, a school is not required to deliver loan 
proceeds in more than one installment if--
    (i)(A) The student's loan period is not more than one semester, one 
trimester, one quarter, or, for non term-based schools or schools with 
non-standard terms, 4 months; and
    (B)(1) Except as provided in paragraph (c)(8)(i)(B)(2) of this 
section, the school in which the student is enrolled has a cohort 
default rate, calculated under subpart M of 34 CFR part 668, of less 
than 10 percent for each of the three most recent fiscal years for 
which data are available; or
    (2) For loan disbursements made on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668 of 
less than 15 percent for each of the three most recent fiscal years for 
which data are available; or
    (ii) The school is an eligible home institution certifying a loan 
to cover the student's cost of attendance in a study abroad program and 
has a cohort default rate, calculated under subpart M or subpart N of 
34 CFR part 668, of less than 5 percent for the single most recent 
fiscal year for which data are available.
* * * * *
    (f) Initial counseling. (1) A school must ensure that initial 
counseling is conducted with each Stafford loan borrower prior to its 
release of the first disbursement, unless the student borrower has 
received a prior Federal Stafford, Federal SLS, or Direct subsidized or 
unsubsidized loan.
    (2) A school must ensure that initial counseling is conducted with 
each graduate or professional student PLUS loan borrower prior to its 
release of the first disbursement, unless the student has received a 
prior Federal PLUS loan or Direct PLUS loan.
    (3) Initial counseling for Stafford and graduate or professional 
student PLUS Loan borrowers must provide comprehensive information on 
the terms and conditions of the loan and on the responsibilities of the 
borrower with respect to the loan. This information may be provided to 
the borrower--
    (i) During an entrance counseling session conducted in person;
    (ii) On a separate written form provided to the borrower that the 
borrower signs and returns to the school; or
    (iii) Online or by interactive electronic means, with the borrower 
acknowledging receipt of the information.
    (4) If initial counseling is conducted online or through 
interactive electronic means, the school must take reasonable steps to 
ensure that each student borrower receives the counseling materials, 
and participates in and completes the initial counseling, which may 
include completion of any interactive program that tests the borrower's 
understanding of the terms and conditions of the borrower's loans.
    (5) A school must ensure that an individual with expertise in the 
title IV programs is reasonably available shortly after the counseling 
to answer the student borrower's questions regarding those programs. As 
an alternative, prior to releasing the proceeds of a loan, in the case 
of a student borrower enrolled in a correspondence program or a student 
borrower enrolled in a study-abroad program that the home institution 
approves for credit, the counseling may be provided through written 
materials.
    (6) Initial counseling for Stafford Loan borrowers must--
    (i) Explain the use of a Master Promissory Note;
    (ii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the student borrower is 
assuming;
    (iii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (iv) In the case of a student borrower (other than a loan made or 
originated by the school), emphasize that the student borrower is 
obligated to repay the full amount of the loan even if the student 
borrower does not complete the program, does not complete the program 
within the regular time for program completion, is unable to obtain 
employment upon completion, or is otherwise dissatisfied with or does 
not receive the educational or other services that the student borrower 
purchased from the school;
    (v) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels of indebtedness of Stafford loan 
borrowers, or student borrowers with Stafford and PLUS loans, depending 
on the types of loans the borrower has obtained; or

[[Page 37491]]

    (B) The average indebtedness of other borrowers in the same program 
at the same school as the borrower;
    (vi) To the extent practicable, explain the effect of accepting the 
loan to be disbursed on the eligibility of the borrower for other forms 
of student financial assistance;
    (vii) Provide information on how interest accrues and is 
capitalized during periods when the interest is not paid by either the 
borrower or the Secretary;
    (viii) Inform the borrower of the option to pay the interest on an 
unsubsidized Stafford Loan while the borrower is in school;
    (ix) Explain the definition of half-time enrollment at the school, 
during regular terms and summer school, if applicable, and the 
consequences of not maintaining half-time enrollment;
    (x) Explain the importance of contacting the appropriate offices at 
the school if the borrower withdraws prior to completing the borrower's 
program of study so that the school can provide exit counseling, 
including information regarding the borrower's repayment options and 
loan consolidation;
    (xi) Provide information on the National Student Loan Data System 
and how the borrower can access the borrower's records; and
    (xii) Provide the name of and contact information for the 
individual the borrower may contact if the borrower has any questions 
about the borrower's rights and responsibilities or the terms and 
conditions of the loan.
    (7) Initial counseling for graduate or professional student PLUS 
Loan borrowers must--
    (i) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels of indebtedness of graduate or 
professional student PLUS loan borrowers, or student borrowers with 
Stafford and PLUS loans, depending on the types of loans the borrower 
has obtained; or
    (B) The average indebtedness of other borrowers in the same program 
at the same school as the borrower;
    (ii) Inform the borrower of the option to pay interest on a PLUS 
Loan while the borrower is in school;
    (iii) For a graduate or professional student PLUS Loan borrower who 
has received a prior FFEL Stafford, or Direct subsidized or 
unsubsidized loan, provide the information specified in Sec.  
682.603(d)(1)(i) through Sec.  682.603(d)(1)(iii); and
    (iv) For a graduate or professional student PLUS Loan borrower who 
has not received a prior FFEL Stafford, or Direct subsidized or 
unsubsidized loan, provide the information specified in paragraph 
(f)(6)(i) through (f)(6)(xii) of this section.
    (8) A school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (g) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Stafford loan borrower and graduate or 
professional student PLUS Loan borrower either in person, by 
audiovisual presentation, or by interactive electronic means. In each 
case, the school must ensure that this counseling is conducted shortly 
before the student borrower ceases at least half-time study at the 
school, and that an individual with expertise in the title IV programs 
is reasonably available shortly after the counseling to answer the 
student borrower's questions. As an alternative, in the case of a 
student borrower enrolled in a correspondence program or a study-abroad 
program that the home institution approves for credit, written 
counseling materials may be provided by mail within 30 days after the 
student borrower completes the program. If a student borrower withdraws 
from school without the school's prior knowledge or fails to complete 
an exit counseling session as required, the school must ensure that 
exit counseling is provided through either interactive electronic means 
or by mailing written counseling materials to the student borrower at 
the student borrower's last known address within 30 days after learning 
that the student borrower has withdrawn from school or failed to 
complete the exit counseling as required.
    (2) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Stafford 
loans, PLUS Loans, or student borrowers who have obtained both Stafford 
and PLUS loans, depending on the types of loans the student borrower 
has obtained, for attendance at the same school or in the same program 
of study at the same school;
    (ii) Review for the student borrower available repayment plan 
options, including standard, graduated, extended, income sensitive and 
income-based repayment plans, including a description of the different 
features of each plan and sample information showing the average 
anticipated monthly payments, and the difference in interest paid and 
total payments under each plan;
    (iii) Explain to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provide information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities;
    (C) The options of the borrower to prepay the loan and to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different 
lenders;
    (v) Include debt-management strategies that are designed to 
facilitate repayment;
    (vi) Include the matters described in paragraph (f)(6)(i), 
(f)(6)(ii), and (f)(6)(iv) of this section;
    (vii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (viii) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of 
principal and interest, defer repayment of principal or interest, or be 
granted forbearance on a title IV loan, including forgiveness benefits 
or discharge benefits available to a FFEL borrower who consolidates his 
or her loan into the Direct Loan program; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (ix) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known). The school must ensure that 
this information is provided to the guaranty agency or agencies listed 
in the student borrower's records within 60 days after the student 
borrower provides the information;
    (x) Review for the student borrower information on the availability 
of the Student Loan Ombudsman's office;
    (xi) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS) and 
how

[[Page 37492]]

NSLDS can be used to obtain title IV loan status information; and
    (xii) A general description of the types of tax benefits that may 
be available to borrowers.
    (3) If exit counseling is conducted by electronic interactive 
means, the school must take reasonable steps to ensure that each 
student borrower receives the counseling materials, and participates in 
and completes the counseling.
    (4) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
* * * * *

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

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

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

    34. Section 685.301(b)(6) is amended by:
    A. Revising paragraph (b)(6)(i).
    B. In paragraph (b)(6)(ii), removing the reference to ``Paragraphs 
(b)(8)(i)(A) and (B) of this section'' and adding, in its place, a 
reference to ``Paragraphs (b)(6)(i)(A) and (B) of this section''.
    C. In paragraph (b)(6)(ii), adding the words ``or subpart N'' after 
the words ``under subpart M''.
    D. In paragraph (b)(6)(iii), removing the reference to ``Paragraph 
(b)(8)(i)(B) of this section'' and adding, in its place, a reference to 
``Paragraph (b)(6)(i)(B) of this section''.
    E. In paragraph (b)(6)(iii), adding the words ``or subpart N'' 
after the words ``under subpart M''.
    The revision reads as follows:


Sec.  685.301   Origination of a loan by a Direct Loan Program school.

* * * * *
    (b) * * *
    (6)(i) A school is not required to make more than one disbursement 
if--
    (A)(1) The loan period is not more than one semester, one 
trimester, one quarter, or, for non term-based schools or schools with 
non-standard terms, 4 months; and
    (2)(i) Except as provided in paragraph (b)(6)(i)(A)(2)(ii) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668 of less than 10 percent for each of the three most 
recent fiscal years for which data are available;
    (ii) For loan disbursements made on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668 of 
less than 15 percent for each of the three most recent fiscal years, 
for which data are available.
    (B) The school is an eligible home institution originating a loan 
to cover the cost of attendance in a study abroad program and has a 
cohort default rate, calculated under subpart M or subpart N of 34 part 
668, of less than 5 percent for the single most recent fiscal year for 
which data are available; or
    (C) The school is not in a State.
* * * * *
    35. Section 685.303(b)(4) is amended by:
    A. Revising paragraph (b)(4)(i)(A).
    B. In paragraph (b)(4)(ii), adding the words ``or subpart N'' after 
the words ``under subpart M''.
    C. In paragraph (b)(4)(iii), removing the words ``Subpart M'' and 
adding in their place the words ``subpart M or subpart N''.
    The revision reads as follows:


Sec.  685.303  Processing loan proceeds.

* * * * *
    (b) * * *
    (4) * * *
    (i) * * *
    (A)(1) Except as provided in paragraph (b)(4)(i)(A)(2) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668, or weighted average cohort rate of less than 10 
percent for each of the three most recent fiscal years for which data 
are available; or
    (2) For loans first disbursed on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or N of 34 CFR part 668 of less than 
15 percent for each of the three most recent fiscal years for which 
data are available;
* * * * *
    36. Section 685.304 is revised to read as follows:


Sec.  685.304  Counseling borrowers.

    (a) Initial counseling. (1) Except as provided in paragraph (a)(8) 
of this section, a school must ensure that initial counseling is 
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan 
student borrower prior to making the first disbursement of the proceeds 
of a loan to a student borrower unless the student borrower has 
received a prior Direct Subsidized, Direct Unsubsidized, Federal 
Stafford, or Federal SLS Loan.
    (2) Except as provided in paragraph (a)(8) of this section, a 
school must ensure that initial counseling is conducted with each 
graduate or professional student Direct PLUS Loan borrower prior to 
making the first disbursement of the loan unless the student borrower 
has received a prior Direct PLUS Loan or Federal PLUS Loan.
    (3) Initial counseling for Direct Subsidized Loan, Direct 
Unsubsidized Loan, and graduate or professional student Direct PLUS 
Loan borrowers must provide the borrower with comprehensive information 
on the terms and conditions of the loan and on the responsibilities of 
the borrower with respect to the loan. This information may be provided 
to the borrower--
    (i) During an entrance counseling session, conducted in person;
    (ii) On a separate written form provided to the borrower that the 
borrower signs and returns to the school; or
    (iii) Online or by interactive electronic means, with the borrower 
acknowledging receipt of the information.
    (4) If initial counseling is conducted online or through 
interactive electronic means, the school must take reasonable steps to 
ensure that each student borrower receives the counseling materials, 
and participates in and completes the initial counseling, which may 
include completion of any interactive program that tests the borrower's 
understanding of the terms and conditions of the borrower's loans.
    (5) A school must ensure that an individual with expertise in the 
title IV programs is reasonably available shortly after the counseling 
to answer the student borrower's questions. As an alternative, in the 
case of a student borrower enrolled in a correspondence program or a 
study-abroad program approved for credit at the home institution, the 
student borrower may be provided with written counseling materials 
before the loan proceeds are disbursed.
    (6) Initial counseling for Direct Subsidized Loan and Direct 
Unsubsidized Loan borrowers must--
    (i) Explain the use of a Master Promissory Note (MPN);
    (ii) Emphasize to the borrower the seriousness and importance of 
the repayment obligation the student borrower is assuming;
    (iii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (iv) Emphasize that the student borrower is obligated to repay the 
full amount of the loan even if the student borrower does not complete 
the program, does not complete the program within the regular time for 
program completion, is unable to obtain employment upon completion, or 
is otherwise dissatisfied with or does not

[[Page 37493]]

receive the educational or other services that the student borrower 
purchased from the school;
    (v) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels of indebtedness of Direct Subsidized 
Loan and Direct Unsubsidized Loan borrowers, or student borrowers with 
Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans depending 
on the types of loans the borrower has obtained; or
    (B) The average indebtedness of other borrowers in the same program 
at the same school as the borrower;
    (vi) To the extent practicable, explain the effect of accepting the 
loan to be disbursed on the eligibility of the borrower for other forms 
of student financial assistance;
    (vii) Provide information on how interest accrues and is 
capitalized during periods when the interest is not paid by either the 
borrower or the Secretary;
    (viii) Inform the borrower of the option to pay the interest on a 
Direct Unsubsidized Loan while the borrower is in school;
    (ix) Explain the definition of half-time enrollment at the school, 
during regular terms and summer school, if applicable, and the 
consequences of not maintaining half-time enrollment;
    (x) Explain the importance of contacting the appropriate offices at 
the school if the borrower withdraws prior to completing the borrower's 
program of study so that the school can provide exit counseling, 
including information regarding the borrower's repayment options and 
loan consolidation;
    (xi) Provide information on the National Student Loan Data System 
and how the borrower can access the borrower's records; and
    (xii) Provide the name of and contact information for the 
individual the borrower may contact if the borrower has any questions 
about the borrower's rights and responsibilities or the terms and 
conditions of the loan.
    (7) Initial counseling for graduate or professional student Direct 
PLUS Loan borrowers must--
    (i) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels or indebtedness of graduate or 
professional student PLUS loan borrowers, or student borrowers with 
Direct PLUS Loans and Direct Subsidized Loans or Direct Unsubsidized 
Loans, depending on the types of loans the borrower has obtained; or
    (B) The average indebtedness of other borrowers in the same program 
at the same school;
    (ii) Inform the borrower of the option to pay interest on a PLUS 
Loan while the borrower is in school;
    (iii) For a graduate or professional student PLUS Loan borrower who 
has received a prior FFEL Stafford, or Direct Subsidized or 
Unsubsidized Loan, provide the information specified in Sec.  
685.301(a)(3)(i)(A) through Sec.  685.301(a)(3)(i)(C); and
    (iv) For a graduate or professional student PLUS Loan borrower who 
has not received a prior FFEL Stafford, or Direct Subsidized or Direct 
Unsubsidized Loan, provide the information specified in paragraph 
(a)(6)(i) through paragraph (a)(6)(xii) of this section.
    (8) A school may adopt an alternative approach for initial 
counseling as part of the school's quality assurance plan described in 
Sec.  685.300(b)(9). If a school adopts an alternative approach, it is 
not required to meet the requirements of paragraphs (a)(1) through 
(a)(7) of this section unless the Secretary determines that the 
alternative approach is not adequate for the school. The alternative 
approach must--
    (i) Ensure that each student borrower subject to initial counseling 
under paragraph (a)(1) or (a)(2) of this section is provided written 
counseling materials that contain the information described in 
paragraphs (a)(6)(i) through (a)(6)(v) of this section;
    (ii) Be designed to target those student borrowers who are most 
likely to default on their repayment obligations and provide them more 
intensive counseling and support services; and
    (iii) Include performance measures that demonstrate the 
effectiveness of the school's alternative approach. These performance 
measures must include objective outcomes, such as levels of borrowing, 
default rates, and withdrawal rates.
    (9) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (b) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Direct Subsidized Loan or Direct Unsubsidized 
Loan borrower and graduate or professional student Direct PLUS Loan 
borrower shortly before the student borrower ceases at least half-time 
study at the school.
    (2) The exit counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that an individual with expertise in the title IV 
programs is reasonably available shortly after the counseling to answer 
the student borrower's questions. As an alternative, in the case of a 
student borrower enrolled in a correspondence program or a study-abroad 
program approved for credit at the home institution, the student 
borrower may be provided with written counseling materials within 30 
days after the student borrower completes the program.
    (3) If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete the exit counseling as 
required, exit counseling must be provided either through interactive 
electronic means or by mailing written counseling materials to the 
student borrower at the student borrower's last known address within 30 
days after the school learns that the student borrower has withdrawn 
from school or failed to complete the exit counseling as required.
    (4) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Direct 
Subsidized Loans and Direct Unsubsidized Loans, student borrowers who 
have obtained only Direct PLUS Loans, or student borrowers who have 
obtained Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans, 
depending on the types of loans the student borrower has obtained, for 
attendance at the same school or in the same program of study at the 
same school;
    (ii) Review for the student borrower available repayment plan 
options including the standard repayment, extended repayment, graduated 
repayment, income contingent repayment plans, and income-based 
repayment plans, including a description of the different features of 
each plan and sample information showing the average anticipated 
monthly payments, and the difference in interest paid and total 
payments under each plan;
    (iii) Explain to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provide information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities;

[[Page 37494]]

    (C) The options of the borrower to prepay the loan and to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different 
lenders;
    (v) Include debt-management strategies that are designed to 
facilitate repayment;
    (vi) Explain to the student borrower how to contact the party 
servicing the student borrower's Direct Loans;
    (vii) Meet the requirements described in paragraphs (a)(6)(i), 
(a)(6)(ii), and (a)(6)(iv) of this section;
    (viii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (ix) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of 
principal and interest, defer repayment of principal or interest, or be 
granted forbearance on a title IV loan; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (x) Review for the student borrower information on the availability 
of the Department's Student Loan Ombudsman's office;
    (xi) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS) and 
how NSLDS can be used to obtain title IV loan status information;
    (xii) A general description of the types of tax benefits that may 
be available to borrowers; and
    (xiii) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known).
    (5) The school must ensure that the information required in 
paragraph (b)(4)(xiii) of this section is provided to the Secretary 
within 60 days after the student borrower provides the information.
    (6) If exit counseling is conducted through interactive electronic 
means, a school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the exit counseling.
    (7) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.

(Approved by the Office of Management and Budget under control 
number 1845-0021)

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


[FR Doc. E9-17119 Filed 7-27-09; 8:45 am]
BILLING CODE 4000-01-P


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