[Federal Register: June 22, 2000 (Volume 65, Number 121)]
[Proposed Rules]
[Page 38791-38794]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jn00-21]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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[[Page 38791]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Part 537
RIN 3206-AJ12
Repayment of Student Loans
AGENCY: Office of Personnel Management.
ACTION: Proposed rulemaking.
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SUMMARY: The Office of Personnel Management (OPM) is proposing
regulations to implement provisions authorizing Federal agencies to
repay federally insured student loans when necessary to recruit or
retain highly qualified professional, technical, or administrative
personnel.
DATES: Written comments will be considered if received no later than
August 21, 2000.
ADDRESSES: Send or deliver written comments to Carol J. Okin, Associate
Director for Employment, Office of Personnel Management, Room 6500,
1900 E Street, NW., Washington, DC 20415.
FOR FURTHER INFORMATION CONTACT: Michael J. Mahoney, (202) 606-0830
(FAX 202-606-0390).
SUPPLEMENTARY INFORMATION: Public Law 101-510 (National Defense
Authorization Act for Fiscal Year 1991), section 1206, amends
subchapter VII of 5 U.S.C. chapter 53, by adding a new section 5379.
This section authorizes agencies to establish a program under which
they may agree to repay all or part of an outstanding federally insured
student loan to facilitate the recruitment or retention of highly
qualified employees.
The repayment authority is one of several flexibilities made
available to agencies when trying to attract individuals to the Federal
service, or retain those for whom the Government has a special need.
The Federal Employees Pay Comparability Act of 1990 authorized agencies
to pay recruitment and relocation bonuses, retention allowances, and to
set pay above the minimum step of the grade for individuals with
superior qualifications. Under Public Law 101-510, agencies may also
pay for academic training leading to a degree. (Final regulations were
published on May 7, 1992, at 57 FR 19515.) When considering monetary
incentives as a recruitment or retention tool, agencies should
carefully weigh the relative advantages and disadvantages of each of
these pay authorities.
The student loan repayment law specifies that OPM prescribe
regulations containing standards and requirements which would assure
uniformity among agency programs.
The proposed regulations require the head of each agency to
establish an internal plan that designates agency officials with
authority to review and approve payments. This plan must also establish
(1) agency criteria for authorizing payments and determining the amount
of the payment, (2) procedures for making payments to the lender (or
holder of the loan), (3) a system for selecting employees to receive
loan repayment benefits that takes into account merit system
principles, particularly the principle to treat employees and
applicants fairly and equitably, (4) requirements for service
agreements, and (5) documentation and recordkeeping requirements to
support effective internal accountability and external oversight to
ensure that merit principles have been followed. Outlined below are the
key elements of the student loan repayment law and OPM implementation
requirements.
Loans Qualifying for Repayment
The repayment authority is limited to student loans authorized by
the Higher Education Act of 1965 and the Public Health Service Act.
These are federally insured loans made by educational institutions or
banks and other private lenders. The Higher Education Act covers
guaranteed student loan programs such as Stafford Loans, Supplemental
Loans for Students, PLUS loans and Consolidation Loans, as well as
Perkins Loans (formerly called the National Direct Student Loan
Program). Loans covered under the Public Health Service Act include the
Nursing Student Loan Program, the Health Profession Student Loan
Program, and the Health Education Assistance Loan Program.
Employees Covered
Student loan repayment benefits may be offered to candidates to
whom an offer of employment has been made, or to current employees of
the agency. However, employees who are, or will be, occupying positions
outside the General Schedule are excluded from receiving repayment
benefits, as are those in positions excepted from the competitive
service because of their confidential, policy-determining, policy-
making, or policy-advocating character. (These are generally referred
to as Schedule C positions, and positions to which individuals are
appointed by the President.)
Payment Limitations
Repayments from an agency to an individual employee may not exceed
$6,000 in a calendar year, with an overall lifetime maximum of $40,000
per employee. Each agency will make direct lump sum payments on behalf
of the employee to the holder of the loan. The agency will notify the
holder, on behalf of the employee, that the lump sum payment is to be
applied to the unpaid balance. Loan payments may not be considered as
part of basic pay. Agencies may not reimburse employees for payments
the employees made prior to entering into an agreement with the agency.
Loan repayments are discontinued if the terms of the service agreement
are not met. OPM has received a ruling from the Internal Revenue
Service (IRS) addressing the employee's tax liability for the loan
payments. According to the IRS, loan payments must be reported as
taxable income and applicable taxes withheld at the time each or any
payment is made. These withholdings could have a significant impact on
an employee's paycheck during the pay period in which the loan
repayment is made. Agencies should make employees aware of their tax
obligation at the outset. Agencies are required to report the amount of
the loan repayments, as well as any FICA related taxes or income taxes
that have been withheld, on a Form W-2. Agencies should contact the
IRS, Assistant Chief Counsel for Income Tax and Accounting for more
specifics regarding the tax implications of loan payments. OPM will be
working with IRS to develop further guidance relating to the
implementation of student loan repayments prior to the approval of the
final regulations.
[[Page 38792]]
Employee Service Requirement
An employee selected to receive repayment benefits must agree in
writing to remain with the agency for a specified period, not less than
3 years, unless involuntarily separated. If used as a recruitment
incentive, the specified period for service requirement begins when the
employee enters on duty. If used for retention purposes, the agency
must specify when the period is to begin. In either case, the service
requirement must be stated in the service agreement. If the involuntary
separation is for misconduct, or the employee leaves voluntarily prior
to satisfying the service agreement, the employee must repay the agency
which had been paying the benefit the amount of any benefits received.
The law further stipulates how this money will be recovered when the
employee fails to repay the required amount and how agencies will
credit the money to their appropriation accounts. Repayment by the
employee may not be required if the employee leaves voluntarily to
enter into the service of another agency, unless the losing agency
informs the employee that payments must be returned. The agency may
also waive its right of recovery in the interest of equity.
Selection Procedures
Agencies must select employees to receive benefits in accordance
with merit principles.
E.O. 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with Executive Order 12866.
Regulatory Flexibility Act
I certify that this regulation will not have a significant economic
impact on a substantial number of small entities because it affects
only certain Federal employees.
List of Subjects in 5 CFR Part 537
Administrative practice and procedure, Government employees, Wages.
Office of Personnel Management.
Janice R. Lachance,
Director.
Accordingly, OPM proposes to add part 537 to Title 5, Code of
Federal Regulations, as follows:
PART 537--REPAYMENT OF STUDENT LOANS
Sec.
537.101 Purpose.
537.102 Definitions.
537.103 Agency loan repayment plans; higher level review and
approval.
537.104 Employee eligibility.
537.105 Criteria for payment.
537.106 Procedures for making loan payments.
537.107 Service agreements.
537.108 Loss of eligibility for loan payment benefits.
537.109 Employee reimbursements to the Government.
537.110 Records.
Authority: 5 U.S.C. 5379
Sec. 537.101 Purpose.
This part provides regulations to implement 5 U.S.C. 5379, which
authorizes agencies to establish a program under which they may agree
to repay all or part of any outstanding federally insured student loan
or loans previously taken out by a candidate to whom an offer of
employment has been made, or a current employee of the agency, in order
to recruit or retain highly qualified professional, technical, or
administrative personnel.
Sec. 537.102 Definitions.
In this part:
Agency has the meaning given that term in 5 U.S.C. 4101(l)
subparagraph (A), (B), (C), (D), or (E).
Employee has the meaning given that term in 5 U.S.C. 2105, except
it does not include an employee occupying a position which--
(a) Is excepted from the competitive service because of its
confidential, policy-determining, policy-making, or policy advocating
character; or
(b) Is not subject to the General Schedule established under 5
U.S.C. chapter 53, subchapter III.
Head of agency means the head of an agency or an official who has
been delegated the authority to act for the head of the agency in the
matter concerned.
Rate of basic pay means the rate of pay fixed by law for the
position to which the employee will be newly appointed, or is currently
holding (or in the case of an employee entitled to grade or pay
retention, the employee's retained rate of pay), before deductions and
exclusive of additional pay of any kind, such as locality-based
comparability payments under 5 U.S.C. 5304 or law enforcement
geographic adjustments under section 404 of the Federal Employees Pay
Comparability Act of 1990 (Pub. L. 101-509).
Service agreement means a written agreement between an agency and
an employee under which the employee agrees to a specified period of
employment with the agency of not less than 3 years, in return for
payments toward a student loan previously taken out by the employee.
Student loan means--
(a) A loan made, insured, or guaranteed under parts B and E of
title IV of the Higher Education Act of 1965; or
(b) A health education assistance loan made or insured under part C
of title VII of the Public Health Service Act, or under part B of title
VIII of that Act.
Sec. 537.103 Agency loan repayment plans; higher level review and
approval.
(a) Agency loan repayment plans. Before repaying any student loans
under this part, the head of an agency must establish a student loan
repayment plan. This plan must include the following elements:
(1) The designation of officials with authority to review and
approve student loan repayments;
(2) The situations in which the loan repayment authority may be
used;
(3) Criteria that must be met or considered in authorizing loan
repayments, including criteria for determining the size of a payment;
(4) Procedures for making loan payments;
(5) A system for selecting employees to receive repayment benefits
that ensures fair and equitable treatment;
(6) Requirements for service agreements (including a basis for
determining the length of service to be required if greater than the
statutory minimum) and provisions for recovering any amount outstanding
from an employee who fails to complete the period of employment
established under a service agreement and for waiving such amount; and
(7) Documentation and recordkeeping requirements sufficient to
allow reconstruction of the action taken in each case.
(b) Higher level review and approval.
(1) Except as provided in paragraph (b)(2) of this section, each
determination to repay all or part of a student loan, including the
amount to be paid, must be reviewed and approved by an official of the
agency who is at a higher level than the official who made the initial
decision, unless there is no official at a higher level in the agency.
(2) When necessary to make a timely offer of employment, a higher
level official may establish criteria in advance based on
identification of qualifications typically possessed by high quality
candidates for a specific position or other similar positions, and
authorize the recommending official to offer loan repayment benefits
(in an amount within a pre-established range) to any high quality
candidate without further review or approval.
[[Page 38793]]
Sec. 537.104 Employee eligibility.
In accordance with the other provisions of this part and 5 U.S.C.
5379, an agency may authorize loan repayments to recruit or retain--
(a) Temporary employees who are serving on appointments leading to
conversion to term or permanent appointments; or
(b) Term employees with at least 3 years left on their appointment
; or
(c) Permanent employees.
Sec. 537.105 Criteria for payment.
(a) Written determination. Loan payments made under this part must
be based on a written determination that, in the absence of such
payments, the agency would encounter difficulty either in filling the
position with a highly qualified candidate, or retaining a highly
qualified employee in that position. All determinations must be made on
a case-by-case basis.
(b) Determination for recruitment. Each determination for
recruitment purposes (including the amount to be paid) must be made
before the employee actually enters on duty in the position for which
he or she was recruited.
(c) Determination for retention. Payments authorized in order to
retain an employee must be based upon a written determination that the
high or unique qualifications of the employee or special need of the
agency for the employee's services makes it essential to retain the
employee, and that, in the absence of such payments, the employee would
be likely to leave for employment outside the Federal service. This
determination must be based on a written description of the extent to
which the employee's departure would affect the agency's ability to
carry out an activity or perform a function that is deemed essential to
the agency's mission.
(d) Factors to be considered. In determining whether student loan
repayments should be authorized, and in determining the amount of such
payments, an agency must consider the following factors, as applicable
in the case at hand:
(1) The success of recent efforts to recruit high quality
candidates for similar positions (or those with qualifications similar
to the ones possessed by the employee), including indicators such as
offer acceptance rates, the proportion of positions filled, and the
length of time required to fill similar positions;
(2) Labor market factors that may affect the ability of the agency
to recruit high quality candidates for similar positions now or in the
future;
(3) Special qualifications or education needed for the position;
(4) The cost of training already given the employee and of training
that would be needed by a new employee; and
(5) The practicality of using other recruitment and retention
incentives such as the superior qualifications appointment authority
provided by Sec. 531.203(b) of this chapter, the authority to pay a
recruitment bonus under part 575, subpart A of this chapter, or
retention allowances under part 575, subpart C of this chapter.
(e) Selecting employees. When selecting employees to receive loan
repayment benefits, agencies must adhere to merit system principles and
take into consideration the need to maintain a balanced workforce in
which women and members of racial and ethnic minority groups are
appropriately represented in Government service.
Sec. 537.106 Procedures for making loan payments.
(a) Conditions for payments. Payments will be at the discretion of
the agency and are subject to such terms, limitations, or conditions as
may be mutually agreed to by the agency and employee concerned.
Payments may be applied only to the indebtedness outstanding at the
time the agency and the employee enter into an agreement, and may not
begin before the employee enters on duty with the agency. Repayment
benefits must be in addition to basic pay and any other form of
compensation otherwise payable to the employee involved.
(b) Loans to be repaid. Before authorizing loan payments, an agency
must verify with the holder of the loan that the employee has an
outstanding student loan that qualifies for repayment under this part.
An agency may repay more than one loan as long as the loan payments do
not exceed the limits set forth in paragraph (c) of this section.
(c) Size of payments. In determining the size of the loan payments,
an agency should take into consideration the value the employee has to
the agency, and how far in advance the agency can commit funds. If
budgetary considerations are an issue, agencies may pay a specified
amount for the first year, with the option of renewing this commitment
in subsequent years, funds permitting. This type of arrangement should
be part of the initial agreement with the employee. The amount paid by
the agency is subject to all the following maximum limits:
(1) $6,000 per employee per calendar year; and
(2) A lifetime aggregate of $40,000 per employee.
(d) Employee responsibility. The employee will be responsible for
making loan payments on the portion of the loan(s) that continues to be
the responsibility of the employee. The employee will also be
responsible for any income tax obligations resulting from the loan
payments.
Sec. 537.107 Service agreements.
(a) Before any loan payments may be made, an agency must require
that the employee sign a written agreement to complete a specified
period of employment with the agency and to repay loan benefits as
required by Sec. 537.109. This agreement may also specify any other
conditions of employment the agency feels is appropriate, such as, but
not limited to, the employee's position and the duties they are
expected to perform, work schedule, or level of performance.
(b) The minimum period of employment to be established under a
service agreement must be 3 years, regardless of the amount of loan
repayment authorized.
Sec. 537.108 Loss of eligibility for loan payment benefits.
(a) An employee receiving loan payment benefits from an agency will
be ineligible for continued benefits from that agency if the employee:
(1) Separates from the agency; or
(2) Does not maintain an acceptable level of performance, as
determined under standards and procedures prescribed by the head of the
agency; or
(3) Violates any of the conditions of the service agreement.
(b) For the purpose of applying paragraph (a) of this section in
the case of an employee covered by an appraisal system established
under part 430, subpart B, of this chapter, the employee's most recent
rating of record must be at least level 3 (``Fully Successful'').
Sec. 537.109 Employee reimbursements to the Government.
(a) Except as provided in paragraph (d) of this section, an
employee who fails to complete the period of employment established
under a service agreement will be indebted to the Federal Government
and must repay the amount of any student loan repayment benefits the
employee received from the agency.
(b) Failure to complete the period of employment established under
a service agreement occurs when the employee's service with the agency
terminates before the employee completes the
[[Page 38794]]
period of employment specified in the service agreement because:
(1) The employee is separated involuntarily on account of
misconduct; or
(2) The employee leaves the agency voluntarily.
(c) If an employee fails to reimburse the agency for the amount
owed under paragraph (a) of this section, a sum equal to the amount
outstanding must be recovered from the employee under the agency's
regulations for collection by offset from an indebted Government
employee under 5 U.S.C. 5514 and Subpart K of part 550 of this chapter,
or through the appropriate provisions governing debt collection if the
individual is no longer a Federal employee.
(d) Paragraph (a) of this section does not apply when the employee
fails to complete a period of employment established under a service
agreement because:
(1) The employee is involuntarily separated for reasons other than
misconduct; or
(2) The employee leaves the agency voluntarily to enter into the
service of any other agency, unless repayment is otherwise specified in
the service agreement.
(e) The head of an agency may waive, in whole or in part, a right
of recovery of an employee's debt if he or she determines that recovery
would be against equity and good conscience or against the public
interest.
(f) Any amount repaid, or recovered from, an employee under this
section will be credited to the appropriation account from which the
amount involved was originally paid. Any amount so credited will be
merged with other sums in such account and will be available for the
same purposes and period, and subject to the same limitations (if any),
as the sums with which merged.
Sec. 537.110 Records.
Each agency must keep a record of each determination made under
this part and make such records available for review upon request from
OPM. These records may be destroyed after 3 years or after the program
has been formally evaluated by OPM (whichever comes first).
[FR Doc. 00-15842 Filed 6-21-00; 8:45 am]
BILLING CODE 6325-01-P