U.S. Secretary of Education Margaret Spellings today announced final regulations for student loans, Academic Competitiveness (AC) and National Science and Mathematics Access to Retain Talent (SMART) grants. Published in the Federal Register today, the regulations will increase transparency and protect borrower choice in the federal financial aid program.

The new loan regulations respond to the Secretary's August 2006 call to clarify the relationships between lenders and institutions. The new loan regulations address numerous issues including preferred lender lists, prohibited inducements, Perkins loans and total and permanent disability discharge.

The AC and National SMART grants regulations predominantly clarify existing regulations for the programs.

"I am pleased to see the long and deliberative negotiated rulemaking process produce final regulations that are a major step forward in improving the transparency of the student loan programs, ensuring borrower choice and restoring confidence in the federal financial aid programs," said Secretary Spellings. "But the job is not finished. I will continue to press forward and to accomplish the goals outlined by the Commission on the Future of Higher Education to make college more accessible, affordable and accountable for our nation's families."

In 2006, in the absence of reauthorization of the Higher Education Act (HEA), Secretary Spellings exercised her regulatory authority to begin the congressionally mandated negotiated rulemaking process. Following a series of regional public hearings and negotiating sessions, the Department issued a proposed rule for public comment. After carefully considering the public input, the Department issued the final regulations.

The final regulations reflect the following major policies:

• Preferred Lender Lists

  • Requires that if an institution elects to use a preferred lender list, it must include no less than three lenders on the list, and must disclose the criterion upon which placement was based
  • Prohibits lenders from seeking placement on a list in exchange for payments, gifts or benefits made to the institution, its representatives or affiliated organizations

• Prohibited Inducements

  • Clarifies existing regulations regarding allowable and prohibited relationships between lenders, guarantee agencies and institutions
  • Provides examples of prohibited inducements
  • Provides examples of allowable activities

• Perkins Loans

  • Includes mandatory assignment of defaulted Perkins loans to reclaim over $400 million that have been in default for seven years, which borrowers have made no payment for more than one year

• Total and Permanent Disability (TPD) Discharge

  • Simplifies the TPD process for borrowers that are disabled, specifically those suffering from degenerative conditions where an onset date can be difficult to document
  • Provides relief from loan payments during a three-year conditional discharge period
  • Allows the borrower to earn a minimal income in an attempt to return to work during the conditional discharge period
  • Enables the Secretary to minimize fraudulent claims by requesting a secondary medical opinion to validate medical evidence

The AC grant regulations respond to the growing number of States and local educational agencies that are trying to increase students' access to rigorous classes in high school. The package includes a new provision that allows state and local educational agencies to submit rigorous curriculum for approval beyond the following year. Other provisions clarify how to account for Advanced Placement (AP), International Baccalaureate (IB) and dual enrollment credits, and how to determine GPAs for students who attend schools or institutions that do not issue numeric or letter grades.

The National SMART grant regulations include a new provision explaining how an institution can submit petitions to have additional majors included as SMART-eligible majors. Other provisions clarify the existing regulations that require SMART recipients to be enrolled in and making progress toward a SMART-eligible major.

Also published this week, Secretary Spellings announced the General Provisions regulations package that aligns payment periods among all Title IV disbursements, defines independent study, creates new rules for check writing and electronic transfer of funds, and provides guidance on the return of funds to students who have withdrawn.

For more information please visit http://www.ed.gov/news/fedregister/finrule/index.html.

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