[Federal Register: November 28, 1997 (Volume 62, Number 229)]
[Rules and Regulations]
[Page 63427-63435]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no97-16]
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Part III
Department of Education
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34 CFR Parts 682 and 685
Federal Family Education Loan Program and William D. Ford Federal
Direct Loan Program; Final Rule
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DEPARTMENT OF EDUCATION
34 CFR Parts 682 and 685
RIN 1840-AC45
Federal Family Education Loan Program and William D. Ford Federal
Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL)
Program regulations, 34 CFR Part 682, and the William D. Ford Federal
Direct Loan (Direct Loan) Program regulations, 34 CFR Part 685, to
modify requirements in these programs. These modifications eliminate
certain differences in the requirements of the FFEL and Direct Loan
programs and reduce burden.
DATES: Effective date: These regulations take effect July 1, 1998.
However, affected parties do not have to comply with the information
collection requirement in Sec. 685.212 until the Department of
Education publishes in the Federal Register the control number assigned
by the Office of Management and Budget (OMB) to this information
collection requirement. Publication of the control number notifies the
public that OMB has approved this information collection requirement
under the Paperwork Reduction Act of 1995.
FOR FURTHER INFORMATION CONTACT: Mr. Kenneth Smith, U.S. Department of
Education, 600 Independence Avenue, SW, ROB-3, room 3045, Washington,
DC 20202-5346. Telephone: (202) 708-8242. Individuals who use a
telecommunications device for the deaf (TDD) may call the Federal
Information Relay Service (FIRS) at 1-800-877-8339, between 8 a.m. and
8 p.m., Eastern time, Monday through Friday.
Individuals with disabilities may obtain this document in an
alternate format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding
paragraph.
SUPPLEMENTARY INFORMATION: On September 25, 1997, the Secretary
published a notice of proposed rulemaking (NPRM) for the FFEL Program
and the Direct Loan Program in the Federal Register (62 FR 50462).
The NPRM included a discussion of the major issues surrounding the
proposed changes that will not be repeated here. The following list
summarizes those issues and identifies the pages of the preamble to the
NPRM on which a discussion of those changes can be found:
Sections 682.201 and 685.301 Students with Need of $200 or Less
The Secretary proposed to establish a provision that would allow,
but not require, a school to choose not to originate a Direct
Subsidized Loan for a student with a calculated need of $200 or less.
(page 50462)
Sections 682.202(c)(5), 682.401(b)(10), and 685.202(c)(4) Refund of
FFEL Program Origination Fees and Insurance Premiums and of Direct Loan
Program Loan Fees
The Secretary proposed a new provision that would provide for the
refund of the applicable portion of the origination fee, insurance
premium, or loan fee that is attributable to that portion of loan funds
that are returned by the school in order to comply with the Higher
Education Act of 1965, as amended (HEA) or with applicable regulations.
(page 50463)
Sections 682.402 and 685.212 Discharge of a Loan
The Secretary proposed to provide for the discharge of a borrower's
or endorser's obligation to repay a Direct Consolidation Loan for a
borrower who became totally and permanently disabled (or whose
condition substantially deteriorated, so as to render the borrower
totally and permanently disabled) after applying for all of the
Consolidation Loan's underlying loans. The Secretary also proposed to
clarify FFEL Program regulations that relate to this type of loan
discharge. (page 50463)
Sections 682.604(g)(2) and 685.304(b)(2) Exit Counseling
The Secretary proposed to revise the FFEL and Direct Loan program
regulations that govern exit counseling to allow a school to base the
calculation of a student's ``average anticipated monthly repayments''
upon either the student's individual indebtedness or upon the average
indebtedness of students who have obtained loans for attendance at that
school or in the borrower's program of study. (page 50463)
These final regulations contain changes from the NPRM. These
changes are fully explained in the Analysis of Comments and Changes
elsewhere in this preamble.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, a number of
parties submitted comments on the proposed regulations. An analysis of
the comments and of the changes in the regulations since publication of
the NPRM follows.
Substantive issues are discussed under the section of the
regulations to which they pertain. Technical and other minor changes--
and suggested changes the Secretary is not legally authorized to make
under the applicable statutory authority--generally are not addressed.
General
Comments: The vast majority of commenters strongly supported the
Secretary's efforts to eliminate the differences in the requirements of
the FFEL and Direct Loan programs and to reduce burden. However, three
commenters stated that the changes proposed in the NPRM provide a
benefit to Direct Loan Program participants, but do not provide a
significant benefit to FFEL Program participants. The commenters urged
the Department to review other differences between the Direct Loan and
FFEL Programs and to provide benefits for participants in both
programs. One commenter proposed additional areas for the Secretary to
consider changing to achieve better parity between the requirements in
the two programs.
Discussion: The Secretary believes that FFEL Program participants
will benefit from the changes made in these regulations. For example,
the change to the exit counseling requirements will allow FFEL schools
to use student-specific information to inform students of their
anticipated average monthly repayments. This change will permit schools
to use the most specific information they have in counseling borrowers.
This change will also ensure that borrowers receive the best
information available in planning for their repayment obligations. The
other three revisions will clarify the FFEL Program regulations and
ensure that a student borrowing in the FFEL Program receives the same
terms, conditions, and benefits as a student borrowing in the Direct
Loan Program.
In addition, a school that participates in both the FFEL and Direct
Loan Programs will derive a significant benefit concerning its
participation in both programs as a result of any change that reduces
the differences between the programs. Elimination of these differences
will make it easier for schools to administer the two programs and
reduces the likelihood of confusion.
This final rule does not reduce benefits in the FFEL Program.
Instead, the regulations help to implement Sec. 455(a) of the HEA,
which generally requires that the FFEL and Direct Loan Programs have
the same terms,
[[Page 63429]]
conditions, and benefits unless otherwise specified.
Changes: None.
Students With Need of $200 or Less (Secs. 682.201 and 685.301)
Comments: Many commenters asked that a paragraph similar to the
proposed Sec. 685.301(a)(6) be included in FFEL Program regulations, to
more clearly state a school's authority to choose not to certify a
Stafford Loan of $200 or less and to include that amount in an
unsubsidized Stafford Loan. One commenter also asked that the
regulations for both programs specify that the authority to include the
amount in an unsubsidized loan is subject to applicable annual and
aggregate loan limits.
Discussion: The result of the changes made to Secs. 682.201(a)(2)
and 685.301 by these regulations will be essentially the same for
schools participating in the FFEL Program as for schools participating
in the Direct Loan Program. Schools in each program will be able to
choose whether or not to certify or originate a subsidized loan for a
student with need of $200 or less. However, fundamental differences
between the two programs preclude making the regulatory text identical.
In the FFEL Program, the ability of a borrower to receive a
subsidized loan of $200 or less rests, ultimately, with the lender, not
with the school. For example, a school may certify a Stafford Loan for
$100 but cannot compel a lender to actually make a loan of this amount
to a borrower. However, in the Direct Loan Program, the school may act
for the Department in determining whether or not a borrower may receive
a subsidized amount of $200 or less.
As for the commenter's request to clarify that the amount of $200
or less that is provided to the student as an unsubsidized loan amount
is subject to the applicable annual and aggregate loan limits, no
change is needed. The FFEL and Direct Loan annual and aggregate
unsubsidized loan limits include both subsidized and unsubsidized loan
amounts. Therefore the unsubsidized amount has already been
incorporated into the determination of the borrower's annual and
aggregate amount. If a borrower is eligible to receive the $200 or less
amount, and the school chooses not to certify or originate a subsidized
loan for the amount, in all cases, the borrower remains eligible to
receive those funds in an unsubsidized loan.
Changes: None.
Comments: Two commenters asked that paragraphs Sec. 682.201(a)(2)
(ii) and (iii) be removed, noting that the requirements in those
paragraphs were specific to loans made under the Supplemental Loans for
Students (SLS) Program, which has been repealed. The commenters
contended that the provisions in the NPRM had made them unnecessary.
Another commenter expressed concern that, in many cases, the
proposed revisions to Sec. 682.201 would remove a dependent student's
eligibility for a ``base'' unsubsidized Stafford Loan amount, as
described at Sec. 682.204(c). For example, the commenter noted that
simply changing ``SLS'' to ``unsubsidized Stafford'' in
Sec. 682.201(a)(3) as proposed in the NPRM would provide that a
dependent undergraduate student would be ineligible for the ``base,''
as well as the ``additional'' unsubsidized amount unless the student's
parents were precluded by exceptional circumstances from borrowing a
PLUS loan.
Discussion: The Secretary agrees with the commenters. Paragraphs
Sec. 682.201(a)(2) (ii) and (iii) are no longer needed. Also, as noted
by the commenter, Sec. 682.201(a)(3) would appear to place a
restriction upon a dependent undergraduate student's eligibility to
receive unsubsidized Stafford loan funds. The Secretary did not intend
to propose such a change, but intended only to clarify a school's
authority to choose not to certify a subsidized Stafford loan for a
student with need of $200 or less.
Changes: Section 682.201(a)(2) has been rewritten to reflect the
elimination of paragraphs (ii) and (iii), and Sec. 682.201(a)(3) is
revised to more accurately describe a dependent undergraduate student's
ability to receive a ``base'' unsubsidized Stafford loan amount.
Refund of FFEL Program Origination Fees and Insurance Premiums and of
Direct Loan Program Loan Fees (Secs. 682.202(c)(5), 682.209(i)(1),
682.401(b)(10), and 685.202(c)(4))
Comments: One commenter asked that the Secretary note in this
Preamble that the purpose of the proposed changes to
Sec. 682.202(c)(5)(i) is to clarify that a refund of the origination
fees must be credited to a student's loan balance by the lender even
after 120 days, if there is an institutional delay in processing the
refund.
Discussion: The commenter notes a valid example in which the refund
of the origination fee would be credited against a borrower's loan
balance. However, the revision to Sec. 682.202(c)(5)(i) is intended to
clarify the conditions under which the fee must be refunded, rather
than the timeframe in which the refund must be made. The revision
clarifies that the fee must be refunded by a credit against the
borrower's loan balance in all cases in which the school is returning
the funds to comply with its responsibilities under the HEA or
applicable regulations.
This means that for a fee to be refunded by a credit under this
provision, the return of funds by the school must be in keeping with
the school's normal responsibilities under the HEA and applicable
regulations, such as when a school is returning or repaying a title IV
refund or overaward amount. The origination fee would not be refunded,
however, if a school returned funds as a prepayment for the borrower
later than 120 days after the date of the loan disbursement.
Changes: None.
Comments: Many commenters noted that language proposed in the NPRM
for Sec. 682.202 and Sec. 682.401 would require a lender to refund to
the borrower's account a portion of the origination fee and insurance
premium any time that a payment was made by a borrower within 120 days
of disbursement. The commenters noted that, under the proposed rules,
if a borrower made a prepayment, an interest payment, or a scheduled
payment on a loan within 120 days of disbursement, a lender would be
required to return the applicable portion of the origination fee and
insurance premium. These commenters stated that they believed that the
corresponding Direct Loan Program regulations at Sec. 685.202(c)(4) do
not include this requirement.
The commenters requested that the same rule apply to the FFEL and
Direct Loan Programs. The commenters also suggested that the return of
a portion of the origination fee or insurance premium for a
disbursement only be made when the funds are returned by a school to
comply with the HEA or applicable regulations, and that a borrower
returning funds within 120 days would only receive a refund of an
origination fee or insurance premium when the borrower pays an amount
equal to the full amount of the disbursement.
Discussion: As stated in the footnote in the preamble to the NPRM
(62 FR at 50463), the changes to the FFEL regulations at
Sec. 682.202(c)(5) are a technical correction. The corresponding
changes to Secs. 682.401(b)(10)(vi)(B) and 682.209(i)(1) in this final
rule are made as conforming changes to this technical correction.
The commenters are correct in noting that FFEL regulations require
the return of a portion of the origination fee or
[[Page 63430]]
insurance premium when a borrower repays or returns funds within 120
days of disbursement. The commenters are not correct in claiming that a
Direct Loan borrower must return the full amount of a disbursement in
order to receive a refund of the loan fee. Though the language in the
two regulations is slightly different, the substance of this
requirement is the same in the FFEL and Direct Loan Programs. A
borrower may repay or return a portion of a FFEL or Direct Loan Program
disbursement to receive a partial refund of the fees.
However, the Secretary did not intend that a portion of an
origination fee, insurance premium, or loan fee would be automatically
refunded to a borrower within 120 days of disbursement if the borrower
has a loan that is in repayment unless the borrower specifically
instructs the Secretary or the lender, in writing, to use the payment
to cancel all or a portion of the loan. If a borrower is in repayment
and does not supply written instructions to the contrary, the payment
made by the borrower is applied to the borrower's loan balance as
provided at Sec. 682.209(b) or Sec. 685.211(a).
The regulatory language has been revised to reflect this
clarification. Specifically, it has been revised to provide that,
unless a borrower in repayment status instructs otherwise, any payment
by that borrower is applied in accordance with regular payment
application rules without any effect on the origination fee, insurance
premium, or loan fee. The regulatory language has also been revised to
provide that, unless a borrower who is not in a repayment status
instructs otherwise, any payment by that borrower is applied to cancel
all or a portion of the most recent disbursement, and correspondingly,
all or a portion of the fees are returned.
For example, if a borrower who is in repayment status makes a
regularly scheduled payment on a PLUS loan, within 120 days of the last
disbursement, the fees are not refunded unless the borrower requests,
in writing, that the funds be applied to cancel all or a portion of a
recent disbursement. If the same borrower includes an amount greater
than the scheduled payment amount with the regularly scheduled payment,
the additional amount is applied to the borrower's loan balance under
applicable regulations at Sec. 682.209(b) or Sec. 685.211(a). If the
same borrower mails a check to the lender without including any
instructions at all, the amount is applied to the borrower's loan
balance under regulations at Sec. 682.209(b) or Sec. 685.211(a). In all
cases, a borrower who is in repayment will not receive a proportional
refund of fees unless the borrower requests in writing that the
payment, or a portion of the payment, is intended to be applied to
cancel all or a portion of a recent loan disbursement.
As another example, a borrower who has not yet entered repayment
status on any loans is scheduled to make a payment of accruing interest
on an unsubsidized loan within 120 days of disbursement. If the
borrower does not provide written instructions concerning the
application of the payment (whether on a payment coupon, in a written
note, or in other written form), then a payment made within 120 days of
disbursement is applied as a cancellation of part of the loan, and the
appropriate portion of the fees is refunded to the borrower. If the
borrower does provide written instruction that the payment is to be
applied to the accruing interest (by including the return of a payment
coupon, a written note, etc.), then the payment is applied to the
interest, and no fees are refunded. However, if a borrower who is not
in repayment status is making a payment to be applied to the accruing
interest that includes an amount greater than the amount of the accrued
interest, the excess amount is used to cancel a portion of the loan and
the corresponding portion of the fees is refunded to the borrower.
Changes: The regulations have been revised to clarify that a
borrower in repayment status on any loan must provide written
instructions to prevent a payment made within 120 days of disbursement
from being applied to the debt under the regular application of payment
rules in Sec. 682.209 or Sec. 685.211. A borrower who is not in
repayment status on any loan must provide written instructions to
prevent a payment made within 120 days of a disbursement from being
applied as a cancellation of all or part of the loan.
Also, a change is made in Sec. 682.209(i)(1) to be consistent with
corresponding changes at Secs. 682.202(c)(5) and 682.401(b)(10)(vi)(B).
Additional minor revisions have also been made to clarify this rule.
Comments: Several commenters suggested that the preamble for the
final rule clarify that a lender in the FFEL Program may assume that
any amount returned by a school was being returned pursuant to
Sec. 682.202(c)(5)(i) or Sec. 682.401(b)(10)(vi)(B)(1) unless the
school specifically advised otherwise. The commenters stated that this
approach would provide for a more streamlined exchange of data between
a school and a lender.
Discussion: The Secretary agrees with the commenters. Unless a
school specifically states otherwise, a lender may assume that the
amount being returned by the school is pursuant to
Sec. 682.202(c)(5)(i) or Sec. 682.401(b)(10)(vi)(B)(1).
Changes: None.
Comments: One commenter asked that proposed Sec. 682.202(c)(5)(iii)
be expanded to provide more specific regulations regarding the
standards for the non-delivery of loan funds that will require the
return of an origination fee, similar to requirements provided in
corresponding regulations for an insurance premium, at
Secs. 682.401(b)(10)(vi)(B)(3) and (4). The regulations for insurance
premiums provide for different treatment of these fees depending on the
disbursement method. Another commenter noted the same disparity, but
recommended the opposite action, that Secs. 682.401(b)(10)(vi)(B)(3)
and (4) be revised to conform to the less specific language at
Sec. 682.202(c)(5)(iii).
Discussion: The Secretary agrees that Sec. 682.202(c)(5)(iii)
should be expanded to provide more details concerning when a loan will
be considered to have not been delivered, thus requiring the return of
the origination fee. This language was inadvertently omitted from
previous regulations.
Changes: Section 682.202(c)(5) is revised to more closely
correspond to provisions in paragraphs Secs. 682.401(b)(10)(vi)(B)(3)
and (4).
Discharge of a Loan (Secs. 682.402 and 685.212)
Comments: Many commenters found the text of Secs. 682.402 and
685.212 to be difficult to understand, and asked that it be revised to
state the requirements more directly. Specifically, commenters proposed
language to state more directly that a borrower is eligible for a total
and permanent disability discharge if he or she meets the eligibility
criteria for each of the underlying loans included in the consolidation
loan. Another commenter supported the numbering and lettering format
used, but believed that language currently in Sec. 682.402(c) was
clearer and suggested that this language be retained.
Discussion: The regulations must address the timing of the
disability to the underlying loans, for the purpose of determining
eligibility for the discharge of the consolidation loan, because the
underlying loans no longer exist. Further, Secs. 682.402(c)(1)(iii)(B)
and 685.212(b)(3)(ii) provide criteria for the discharge of an
underlying loan that was made under a federal education loan program
other than the FFEL or Direct Loan Program. For example, the
[[Page 63431]]
proposed requirements at Secs. 682.402(c)(1)(iii)(B) and
685.212(b)(3)(ii) provide for the discharge of a consolidation loan
that includes a Health Professions Student Loan (HPSL). Otherwise, to
discharge a borrower's obligation to repay this consolidation loan, a
separate determination would need to be made under regulations specific
to the HPSL.
In light of the complexity of the issues, the Secretary believes
that the regulations provide the best statement of the rules, but the
Secretary will continue to review the language to determine if simpler
wording can be developed.
Changes: Minor revisions are made to Secs. 682.402(c)(1)(iii) and
685.212(b)(3) to simplify guidance and improve clarity.
Comments: Many commenters noted that changes proposed for
Secs. 682.402(c)(1)(iii)(A) and 685.212(b)(3)(i) require that all of a
consolidation loan's underlying loans be individually dischargeable in
order for a borrower to have an obligation to repay a consolidation
loan discharged due to a total and permanent disability. These
commenters strongly opposed this provision.
The commenters presented two options. The first, and the preferred
option of most commenters, was to provide that a borrower's obligation
to repay a consolidation loan be completely discharged if any one of
the underlying loans meets the criteria for this type of discharge.
Most commenters reasoned that this option would not result in a
significant loss of funds to the government, given the limited number
of borrowers who would meet these discharge criteria. One commenter
reasoned that to do otherwise would punish a borrower for consolidating
loans, would provide a disincentive for consolidating loans, would
create significant servicing problems, and would be neither cost-
efficient nor sensitive to the circumstances of a borrower.
The second option presented by commenters was to discharge a
portion of a borrower's obligation to repay a consolidation loan that
is consistent with the amount of the eligible underlying loan(s). The
commenters noted that discharging a portion of a consolidation loan in
this case would be consistent with rules providing a partial discharge
of a consolidation loan based on a school's closure or a false
certification. One commenter reasoned that the HEA does not preclude a
partial discharge of a loan due to a total and permanent disability.
The commenters also noted that a borrower normally consolidates a
loan as the result of financial difficulties, and in this case,
consolidation would worsen rather than help a borrower's financial
situation. Rather than becoming less likely to default, a borrower
would become more likely to default.
Discussion: Under the proposed rule, (1) a borrower who receives a
consolidation loan and then becomes totally and permanently disabled is
eligible for a discharge of the obligation to repay the consolidation
loan; and (2) a borrower who receives a number of loans and then
becomes totally and permanently disabled, but consolidates those loans
rather than applying for their discharge, is eligible for a discharge
of the obligation to repay the consolidation loan.
In both cases noted above, a borrower is also considered totally
and permanently disabled based on a condition that existed at the time
the borrower applied for the loan if the borrower's condition
substantially deteriorated after the loan was made so as to render the
borrower totally and permanently disabled. In order to determine
whether each loan included in a borrower's consolidation loan is
eligible for a discharge, the borrower's circumstances related to each
loan must be examined individually.
Conversely, a borrower would not be eligible for the discharge of
the consolidation loan obligation if the borrower is not considered
totally and permanently disabled for one or more of the underlying
loans or if the borrower's condition did not substantially deteriorate
after each underlying loan was made or after the consolidation loan
itself was made. For example, a borrower who receives a number of
loans, becomes totally and permanently disabled, but then becomes able
to go back to school and receives another loan, and finally
consolidates all of these loans is not eligible to receive a discharge
of the obligation to repay the consolidation loan unless, for each
underlying loan, (1) a condition existing at the time the borrower
applied for the underlying loan substantially deteriorated so as to
render the borrower totally and permanently disabled, or (2) the
borrower had become disabled based on a condition that did not exist at
the time the borrower applied for the underlying loan or the
consolidation loan itself.
This proposed rule is not a change to current FFEL Program
requirements. The requirements proposed in the NPRM, which specify that
all of a borrower's underlying loans must qualify for a discharge in
order for the consolidation loan to be discharged, are consistent with
current Sec. 682.402(c)(1), which provides that ``the borrower must
certify that the condition did not exist prior to the time the borrower
applied for each of the underlying loans.''
The commenters' proposal, that a borrower's obligation to repay a
consolidation loan be completely discharged if one or more of its
underlying loans meet the criteria, would enable a borrower to use the
consolidation process to discharge an obligation to repay a loan that
was not dischargeable prior to consolidation. For example, a borrower
having one loan that is dischargeable and two subsequent loans that are
not dischargeable, would be able to circumvent regulations and
discharge all three loans by consolidating. The Secretary does not
believe that borrowers who take out loans and do not qualify for a
discharge of those loans should get a discharge merely by
consolidating.
As to the commenters' second proposal for a partial discharge of a
consolidation loan, the Secretary notes that partial discharge of a
consolidation loan obligation is authorized due to a school closure or
false certification because, in these cases, either the loan should not
have been made or the borrower did not receive the benefit of the
education or training for which the loan was intended. Thus, the basis
for these types of discharge is the result of the school's action and
beyond the control of the borrower, rather than related to the
borrower's individual condition or actions.
Also, the Secretary notes that the school closure and false
certification discharges were specifically designed to address past
problems in the loan programs. They were enacted in 1992, but applied
to loans made on or after January 1, 1986. The regulations provided for
partial discharges of loans in these cases in recognition of the fact
that borrowers whose loans were now subject to discharge may have taken
out consolidation loans that also repaid other nondischargeable loans
prior to 1992. The same type of situation does not exist in connection
with the disability discharge. Thus, the Secretary declines to change
the longstanding policy against partial discharges in these
circumstances.
The commenter is correct that the proposed revision might provide a
slight disincentive for consolidating loans. However, this disincentive
would only affect borrowers who have loans which are eligible for
discharge. It is in the borrower's best interest to have these loans
discharged, rather than take out a new loan. Given the availability of
[[Page 63432]]
discharge information to borrowers, the Secretary estimates that the
number of borrowers who will be affected by the proposed provision
should be extremely small. That is, most borrowers will be aware of and
will exercise their right to have the loan discharged due to a
disability rather than consolidate the loan. However, the Secretary
will continue to work to ensure that all borrowers are knowledgeable
about their rights to both discharges and deferments. The Secretary
intends to modify the language in the consolidation application
materials to encourage applicants to review their discharge and
deferment options prior to consolidating.
Changes: None.
Comments: Two commenters recommend removing the proposed
requirements at Secs. 682.402(c)(1)(iii)(C) and 685.212(b)(3)(iii),
stating that they are unnecessarily burdensome. These provisions would
require a borrower to supply the disbursement dates of the underlying
loans at the request of the lender or the Secretary in order to receive
a discharge of his or her obligation to repay the consolidation loan.
One commenter notes that in some cases, this requirement may impose a
record retention period upon a borrower that is greater than the
retention period required for a school, a lender, or a guaranty agency,
and asks that, if the information is necessary, it be stored in the
borrower's loan record at the time the consolidation loan is disbursed.
The other commenter proposes that a borrower be allowed to certify that
eligibility requirements have been met rather than requiring the
borrower to document that each underlying loan in the consolidation
loan is eligible for discharge.
Discussion: In order for the Secretary or a lender to determine
whether a borrower's obligation to repay a loan may be discharged due
to a total and permanent disability under Sec. 682.402(c)(1)(ii) or
Sec. 685.212(b)(2), the Secretary or lender must consider the
relationship between the date that the loan was disbursed and the date
that the borrower became totally and permanently disabled. Without that
information, no determination may be made, and the borrower's
obligation may not be discharged.
The Secretary believes that the required information will likely be
available through the National Student Loan Data System (NSLDS), and
that the borrower will not need to supply information about the
underlying loans unless the borrower disputes the NSLDS record.
However, if the Secretary or lender cannot make a determination, it is
in the borrower's best interest to have the opportunity to supply the
information, to assure that his or her request for a discharge may be
processed as quickly as possible. Moreover, it is unclear how a
borrower's burden for providing the disbursement dates differs
significantly from a borrower's burden in certifying that he or she
qualifies for this type of discharge: the borrower must be aware of the
disbursement dates in order to sign the certification.
Changes: None.
Comments: Many commenters noted that language in FFEL regulations
requiring a borrower to provide information about underlying loans ``if
the lender does not possess that information'' is not included in
regulations for Direct Loans. Most commenters proposed that the
language be added to Direct Loan regulations, for consistency. However,
one commenter proposed that the language be removed from FFEL
regulations, for both consistency and to ensure that lenders may make
determinations based on the most accurate information.
Discussion: The proposed Sec. 682.402(c)(1)(iii)(C) prevents a
lender from requesting information that it already possesses and also
clarifies that it is the responsibility of the borrower to provide the
necessary documentation if the lender does not have the information
needed to determine eligibility for the discharge. This is not a change
from current FFEL requirements.
A similar provision is not included at Sec. 685.212(b)(3)(iii)
because it is not necessary for the Secretary to regulate internal
agency processes. However, the Secretary does not intend to request
this documentation from the borrower unless the information is not
contained in the Secretary's records.
Changes: None.
Exit Counseling (Secs. 682.604(g)(2) and 685.304(b)(2))
Comments: Fourteen commenters supported the flexibility that would
be provided by the revisions proposed to the exit counseling
requirements. Most noted that supplying individualized information to a
borrower would allow the borrower to make a more informed choice of a
repayment plan, but felt that the flexibility and simplification of the
exit counseling rules better served the needs of schools and borrowers.
These commenters noted that adequate individualized information was
available to a borrower from the Direct Loan Servicer or from the FFEL
Program lender.
Three commenters argued that allowing a Direct Loan school to base
information that a school provides to a borrower during exit counseling
upon an average indebtedness would not provide timely or adequate
information for a Direct Loan borrower to select a repayment plan or to
request a deferment or forbearance. One of these commenters noted that
the average indebtedness for students at a school or in a program may
bear little relation to an individual borrower's loan balance. Two of
these commenters recommended that the current requirement for
individualized information be maintained in the Direct Loan Program and
that the FFEL Program regulations be amended to require the use of
individualized information for exit counseling.
One of these two commenters also recommended that this
individualized information be provided to a borrower on an on-going
basis. For example, the commenter reasoned that individualized
information about a borrower's debt should be available each time a
borrower considers applying for a loan, so that the borrower could make
an informed decision. The third commenter recommended that the
Secretary work to provide easy access to the individualized information
to schools, and when that has been accomplished, to require a school to
provide counseling based on this individualized information.
Discussion: The Secretary agrees with the commenters that it is
important for borrowers to receive individualized information regarding
their debt. However, the Secretary notes that the HEA only requires the
dissemination of average information during exit counseling, and that
individualized information is readily available to borrowers from a
number of sources. Therefore, the exit counseling session may not be
the most efficient method of providing this information.
In the Direct Loan Program, the Direct Loan Servicing Center
provides specific repayment information to borrowers during the grace
period. This information is mailed to borrowers along with documents
they need to select a repayment plan. A borrower may also call the
Direct Loan Servicer's toll-free telephone number and request
information regarding the repayment amounts for that borrower under
each of the Direct Loan repayment plans. If a borrower later decides
that a different repayment plan better suits the borrower's needs, the
borrower can generally change to another plan at any time.
[[Page 63433]]
Also, Sec. 685.304(b)(2) (ii) and (iii) require schools to review
available repayment options with a borrower and to provide the borrower
with options concerning debt-management strategies. As was noted in the
NPRM, to comply with Sec. 685.304(b)(2) (ii) and (iii), a school that
chooses not to provide the individualized repayment information to a
student is expected to advise the student of the availability of the
individualized repayment information at the student's Direct Loan
servicer and of its usefulness in selecting the most appropriate
repayment plan.
Further, the Department expects to begin to allow Direct Loan
borrowers electronic access to their individual account information
(last payment, account balance, etc.) via the Direct Loan Web site very
soon. Initially, individual repayment option calculations will not be
available, but borrowers may use their specific account information at
the Department's new Direct Loan repayment calculator Web site. The
repayment calculator enables borrowers to estimate repayment amounts
under each repayment plan for any loan amount. Borrowers may use this
information to decide whether to switch plans or even to estimate the
amount they would repay based on how much they may plan to borrow
during the course of their postsecondary education.
In the FFEL Program, most borrowers may receive this same type of
individualized information from their lenders. Most lenders or loan
servicers have developed processes like those in Direct Lending to
provide FFEL borrowers with individualized loan repayment information
by telephone, electronically, and by other means.
Given the current availability of borrower-specific repayment
information through a number of resources, it would be unnecessarily
burdensome to require a school participating in the Direct Loan Program
or in the FFEL Program to provide individualized information during
exit counseling. Rather, the Secretary believes that it is appropriate
to allow a school the flexibility to choose the repayment counseling
option that best meets its capabilities and the needs of its students.
Changes: None.
Comments: Several commenters noted that they assumed that a school
would disclose to a student whether the repayment information provided
was based on the student's actual indebtedness or upon an average.
Discussion: To ``inform'' a student, and thus to comply with the
regulations, a school must provide the information to a student in a
format that is understandable. If a school does not disclose whether
the repayment information that it provides is based on the student's
actual indebtedness or upon an average, then a student cannot
understand or use the information properly, and the school has not
complied with the provision.
Changes: None.
Executive Order 12866
These final regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order, the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those determined by the
Secretary as necessary for administering these programs effectively and
efficiently. Burdens specifically associated with information
collection requirements, if any, were identified and explained in the
preamble to the NPRM.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, the Secretary has
determined that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
The potential costs and benefits of these final regulations were
discussed in the preamble to the NPRM (62 FR 50462).
Assessment of Educational Impact
In the NPRM, the Secretary requested comments on whether the
proposed regulations would require transmission of information that is
being gathered by or is available from any other agency or authority of
the United States.
Based on the response to the NPRM and on its own review, the
Department has determined that the regulations in this document do not
require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
Electronic Access to This Document
Anyone may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or
portable document format (pdf) on the World Wide Web at either of the
following sites:
http://gcs.ed.gov/fedreg.htm
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To use the pdf you must have the Adobe Acrobat Reader Program with
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have questions about using the pdf, call the U.S. Government Printing
Office toll free at 1-888-293-6498.
Anyone may also view these documents in text copy only on an
electronic bulletin board of the Department. Telephone: (202) 219-1511
or, toll free, 1-800-222-4922. The documents are located under Option
G--Files/Announcements, Bulletins and Press Releases.
Note: The official version of this document is the document
published in the Federal Register.
List of Subjects in 34 CFR Parts 682 and 685
Administrative practice and procedure, Colleges and universities,
Loan programs-education, Reporting and recordkeeping requirements,
Student aid, Vocational education.
Dated: November 21, 1997.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Stafford Loan Program; 84.032 Federal PLUS Program; 84.032 Federal
Supplemental Loans for Students Programs; 84.033 and 84.268 Federal
Direct Student Loan Program)
The Secretary amends Parts 682 and 685 of Title 34 of the Code of
Federal Regulations as follows:
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
1. The authority citation for Part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
2. Section 682.201 is amended by removing the words ``receive an
SLS loan'' in the introductory language of paragraph (a) and adding, in
their place, ``receive an unsubsidized Stafford loan''; by removing the
acronym ``SLS'' in paragraph (a)(1) and adding, in its place,
``unsubsidized Stafford''; by revising paragraph (a)(2); and by
removing the words ``SLS loan'' in paragraph (a)(3) and adding, in
their place, ``additional unsubsidized Stafford loan amount, as
described at Sec. 682.204(d)'' to read as follows:
Sec. 682.201 Eligible borrowers.
* * * * *
(a) * * *
(2) In the case of any student who seeks an unsubsidized Stafford
loan for the cost of attendance at a school that
[[Page 63434]]
participates in the Stafford Loan Program, the student must have
received a determination of need for a subsidized Stafford loan, and if
determined to have need in excess of $200, have filed an application
with a lender for a subsidized Stafford loan;
* * * * *
3. Section 682.202 is amended by revising paragraph (c)(5) to read
as follows:
Sec. 682.202 Permissible charges by lenders to borrowers.
* * * * *
(c) * * *
(5) Shall refund by a credit against the borrower's loan balance
the portion of the origination fee previously deducted from the loan
that is attributable to any portion of the loan--
(i) That is returned by a school to a lender in order to comply
with the Act or with applicable regulations;
(ii) That is repaid or returned within 120 days of disbursement,
unless--
(A) The borrower has no FFEL Program loans in repayment status and
has requested, in writing, that the repaid or returned funds be used
for a different purpose; or
(B) The borrower has a FFEL Program loan in repayment status, in
which case the payment is applied in accordance with Sec. 682.209(b)
unless the borrower has requested, in writing, that the repaid or
returned funds be applied as a cancellation of all or part of the loan;
(iii) For which a loan check has not been negotiated within 120
days of disbursement; or
(iv) For which loan proceeds disbursed by electronic funds transfer
or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C)
have not been released from the restricted account maintained by the
school within 120 days of disbursement.
* * * * *
4. Section 682.209 is amended by revising paragraph (i)(1) to read
as follows:
Sec. 682.209 Repayment of a loan.
* * * * *
(i) * * *
(1) A lender shall treat a payment of a borrower's refund of
tuition or other institutional charges received by the lender from a
school as a credit against the borrower's loan balance consistent with
the requirements of Secs. 682.202 and 682.401.
* * * * *
5. Section 682.401 is amended by removing the word ``account'' in
the introductory language of paragraph (b)(10)(vi)(B) and adding, in
its place, ``loan balance'', and by revising paragraphs
(b)(10)(vi)(B)(1) and (b)(10)(vi)(B)(2) to read as follows:
Sec. 682.401 Basic program agreement.
* * * * *
(b) * * *
(10) * * *
(vi) * * *
(B) * * *
(1) The loan or a portion of the loan is returned by the school to
the lender in order to comply with the Act or with applicable
regulations;
(2) Within 120 days of disbursement, the loan or a portion of the
loan is repaid or returned, unless--
(i) the borrower has no FFEL Program loans in repayment status and
has requested, in writing, that the repaid or returned funds be used
for a different purpose; or
(ii) the borrower has a FFEL Program loan in repayment status, in
which case the payment is applied in accordance with Sec. 682.209(b)
unless the borrower has requested, in writing, that the repaid or
returned funds be applied as a cancellation of all or part of the loan;
* * * * *
6. Section 682.402 is amended by revising paragraph (c)(1) and by
removing the words ``become totally and permanently disabled since
applying for the Consolidation loan'' in paragraph (k)(2)(iii) and
adding, in their place, ``is determined to be totally and permanently
disabled under Sec. 682.402(c)'', to read as follows:
Sec. 682.402 Death, disability, closed school, false certification,
and bankruptcy payments.
* * * * *
(c) Total and permanent disability. (1) (i) If a lender determines
that an individual borrower has become totally and permanently
disabled, the obligation of the borrower and any endorser to make any
further payments on the loan is discharged.
(ii) Except as provided in paragraph (c)(1)(iii)(A) of this
section, a borrower is not considered totally and permanently disabled
based on a condition that existed at the time the borrower applied for
the loan unless the borrower's condition substantially deteriorated
after the loan was made so as to render the borrower totally and
permanently disabled.
(iii)(A) For a Consolidation Loan, a borrower is considered totally
and permanently disabled if he or she would be considered totally and
permanently disabled under paragraphs (c)(1) (i) and (ii) of this
section for all of the loans that were included in the Consolidation
Loan if those loans had not been consolidated.
(B) For the purposes of discharging a loan under paragraph
(c)(1)(iii)(A) of this section, provisions in paragraphs (c)(1) (i) and
(ii) of this section apply to each loan included in the Consolidation
Loan, even if the loan is not a FFEL Program loan.
(C) If requested, a borrower seeking to discharge a loan obligation
under paragraph (c)(1)(iii)(A) of this section must provide the lender
with the disbursement dates of the underlying loans if the lender does
not possess that information.
* * * * *
7. Section 682.604 is amended by revising paragraph (g)(2)(i) to
read as follows:
Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.
* * * * *
(g) * * *
(2) * * *
(i) Inform the student of the average anticipated monthly repayment
amount based on the student's indebtedness or on the average
indebtedness of students who have obtained Stafford or SLS loans for
attendance at that school or in the borrower's program of study.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
8. The authority citation for Part 685 continues to read as
follows:
Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.
9. Section 685.202 is amended by revising paragraph (c)(4) to read
as follows:
Sec. 685.202 Charges for which Direct Loan Program borrowers are
responsible.
* * * * *
(c) * * *
(4) Applies to a borrower's loan balance the portion of the loan
fee previously deducted from the loan that is attributable to any
portion of the loan that is--
(i) Repaid or returned within 120 days of disbursement, unless--
(A) The borrower has no Direct Loans in repayment status and has
requested, in writing, that the repaid or returned funds be used for a
different purpose; or
(B) The borrower has a Direct Loan in repayment status, in which
case the payment is applied in accordance with Sec. 685.211(a) unless
the borrower has requested, in writing, that the repaid or returned
funds be applied as a cancellation of all or part of the loan; or
(ii) Returned by a school in order to comply with the Act or with
applicable regulations.
[[Page 63435]]
10. Section 685.212 is amended by revising paragraph (b) to read as
follows:
Sec. 685.212 Discharge of a loan obligation.
* * * * *
(b) Total and permanent disability. (1) If the Secretary receives
acceptable documentation that a borrower has become totally and
permanently disabled, the Secretary discharges the obligation of the
borrower and any endorser to make any further payments on the loan.
(2) Except as provided in paragraph (b)(3)(i) of this section, a
borrower is not considered totally and permanently disabled based on a
condition that existed at the time the borrower applied for the loan
unless the borrower's condition substantially deteriorated after the
loan was made so as to render the borrower totally and permanently
disabled.
(3)(i) For a Direct Consolidation Loan, a borrower is considered
totally and permanently disabled if he or she would be considered
totally and permanently disabled under paragraphs (b) (1) and (2) of
this section for all of the loans that were included in the Direct
Consolidation Loan if those loans had not been consolidated.
(ii) For the purposes of discharging a loan under paragraph
(b)(3)(i) of this section, provisions in paragraphs (b) (1) and (2) of
this section apply to each loan included in the Direct Consolidation
Loan, even if the loan is not a Direct Loan Program loan.
(iii) If requested, a borrower seeking to discharge a loan
obligation under paragraph (b)(3)(i) of this section must provide the
Secretary with the disbursement dates of the underlying loans.
* * * * *
11. Section 685.301 is amended by redesignating paragraphs (a)(6)
and (a)(7) as paragraphs (a)(7) and (a)(8), respectively, and by adding
a new paragraph (a)(6) to read as follows:
Sec. 685.301 Origination of a loan by a Direct Loan Program school.
* * * * *
(a) * * *
(6) If a student has received a determination of need for a Direct
Subsidized Loan that is $200 or less, a school may choose not to
originate a Direct Subsidized Loan for that student and to include the
amount as part of a Direct Unsubsidized Loan.
* * * * *
12. Section 685.304 is amended by revising paragraph (b)(2)(i) to
read as follows:
Sec. 685.304 Counseling borrowers.
* * * * *
(b) * * *
(2) * * *
(i) Inform the student of the average anticipated monthly repayment
amount based on the student's indebtedness or on the average
indebtedness of students who have obtained Direct Subsidized or Direct
Unsubsidized Loans for attendance at that school or in the borrower's
program of study.
* * * * *
[FR Doc. 97-31212 Filed 11-26-97; 8:45 am]
BILLING CODE 4000-01-P