[Proposed Rules]
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From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy98-25]
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Part IV
Department of Education
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34 CFR Part 668
Student Assistance General Provisions; Proposed Rule
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DEPARTMENT OF EDUCATION
34 CFR Part 668
RIN 1840-AC52
Student Assistance General Provisions
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the Student Assistance General
Provisions regulations, 34 CFR part 668, to permit a school to appeal
its Direct Loan Program cohort rate or weighted average cohort rate on
the basis of improper servicing or collection of the Direct Loans
included in that rate. The Secretary also proposes to clarify when a
school's rate is considered final.
DATES: Comments must be received by the Department on or before
September 11, 1998.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Kenneth Smith, U.S. Department of Education, P.O. Box
23272, Washington, DC 20026-3272. Comments may also be sent through the
Internet to: cohort__rates@ed.gov.
Comments that concern information collection requirements must be
sent to the Office of Management and Budget at the address listed in
the Paperwork Reduction Act section of this preamble. A copy of those
comments may also be sent to the Department representative named in
this section.
FOR FURTHER INFORMATION CONTACT: Kenneth Smith, U.S. Department of
Education, 600 Independence Avenue, SW., ROB-3, Room 3045, Washington,
DC 20202. 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:
Invitation to Comment
Interested persons are invited to submit comments and
recommendations regarding these proposed regulations.
To ensure that public comments have maximum effect in developing
the final regulations, the Department urges commenters to identify
clearly the specific section or sections of the proposed regulations
that each comment addresses and to arrange comments in the same order
as the proposed regulations.
All comments submitted in response to these proposed regulations
will be available for public inspection, during and after the comment
period, in Room 3045, Regional Office Building 3, 7th and D Streets,
SW., 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.
On request the Department supplies 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 docket for these proposed regulations. An individual with a
disability who wants to schedule an appointment for this type of aid
may call (202) 205-8113 or (202) 260-9895. An individual who uses a TDD
may call the Federal Information Relay Service at 1-800-877-8339,
between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.
To assist the Department in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden, the Secretary invites comments on whether
there may be further opportunities to reduce any regulatory burdens
found in these proposed regulations.
General
On December 1, 1995, the Secretary published final regulations (60
FR 61760) that modified the regulations relating to the default
reduction initiative in the Federal Family Education Loan (FFEL)
Program and implemented default reduction measures in the William D.
Ford Federal Direct Loan (Direct Loan) Program. Those regulations
established the formula for the calculation of rates for schools that
participate in the Direct Loan Program and revised the appeal
procedures and criteria for schools that were subject to a loss of
eligibility to participate in the FFEL Program or the Direct Loan
Program due to high FFEL Program cohort default rates, Direct Loan
Program cohort rates, or weighted average cohort rates.
The Secretary is proposing to amend the appeal procedures and
criteria in these regulations. A discussion of each proposed change is
provided below.
Section 668.17(h) Loan Servicing Appeals
Under the Department's regulations, a school may challenge its FFEL
Program cohort default rate or weighted average cohort rate on the
basis of the improper servicing or collection of the FFEL loans
included in the calculation of that rate. However, a school may not
challenge a Direct Loan Program cohort rate or a weighted average
cohort rate on the basis of the improper servicing or collection of the
Direct Loans included in the calculation of the rate. The procedures
and criteria for loan servicing appeals were made different for the two
programs because the historical and structural problems of the FFEL
Program did not exist in the new Direct Loan Program.
As discussed in the preamble to the final regulations published on
December 1, 1995, Congress' decision to provide schools with an FFEL
Program loan servicing appeal was based, in large measure, on a number
of incidents in which large FFEL Program lenders had failed to comply
with the Department's loan servicing requirements. The lenders' failure
to satisfy FFEL Program loan servicing requirements had a demonstrable
effect on cohort default rates (see 60 FR 61769). However, the detailed
loan servicing regulations in the FFEL Program do not exist in the
Direct Loan Program. Instead, loan servicing in the Direct Loan Program
is controlled by contracts between the Department and its Direct Loan
Servicers.
Nevertheless, to promote parity between the FFEL Program and the
Direct Loan Program, the Secretary is proposing to permit a school to
appeal its Direct Loan Program cohort rate or weighted average cohort
rate on the basis of the improper servicing or collection of defaulted
Direct Loans included in that rate. Just as for an FFEL Program loan
servicing appeal, this type of appeal would only be available to a
school--
* With a Direct Loan Program cohort rate or weighted average
cohort rate that equals or exceeds 20 percent for the most recent year
in which data are available; or
* That becomes subject to a loss of eligibility due to rates
that equal or exceed 25 percent for 3 consecutive years.
While the Secretary continues to believe that the structure and
controls inherent in the Direct Loan Program should ensure that Direct
Loans are properly serviced and collected, establishing appeal
provisions for the Direct Loan Program that are similar to those
available in the FFEL Program will address concerns that some schools
have raised about this difference between the two programs.
The procedures for a school's loan servicing challenge in the
Direct Loan
[[Page 37715]]
Program would correspond to those for a school challenging its FFEL
Program cohort default rate on a similar basis. A summary of the
proposed appeals process follows:
* Within 10 working days of receiving notification from the
Secretary that its Direct Loan Program cohort rate or weighted average
cohort rate equals or exceeds 20 percent for the most recent year or
that it is subject to loss of participation in the loan programs based
on its rate, the school notifies the Secretary, in writing, that it is
appealing the calculation of its rate based on allegations of improper
loan servicing or collection.
* Within 15 working days of receiving the school's notice,
the Secretary determines the size of the representative sample of loan
servicing and collection records to be reviewed and notifies the school
of the amount of the fee that it must pay to the Secretary for copying
and providing the documents. Under the proposed regulations, the
Secretary may charge a fee of up to $10 per borrower file in the
sample. The Secretary intends to charge a fee of $10 per borrower file.
* Within 15 working days of receiving the notice of the fee,
the school must pay the fee to the Secretary. If payment is not
received from the school within the required timeframe, the records
will not be provided and the school will have waived its right to
challenge the rate.
* Upon timely receipt of the fee, and within the timelines
provided in the proposed regulations, the Secretary provides the school
with a representative sample of the loan servicing and collection
records relating to borrowers whose Direct Loans were included in the
school's rate.
* After receiving the relevant loan servicing and collection
records from the Secretary (for Direct Loan Program loans included in a
rate) and from the appropriate guaranty agency (for FFEL Program loans
included in a rate), the school has 30 calendar days to file its appeal
with the Secretary.
* If the school is also filing an appeal based upon
allegations that inaccurate data were used to calculate the rate, under
Sec. 668.17(c)(1)(i)(A), the school may delay submitting its loan
servicing appeal until the appeal under Sec. 668.17(c)(1)(i)(A) is
submitted to the Secretary.
Due to fundamental differences between the FFEL and Direct Loan
programs, the proposed regulations for appeals based on loan servicing
and collection in the Direct Loan Program are not exactly the same as
the FFEL Program regulations. One of the most significant differences
is in the scope of an appeal. For both FFEL and Direct Loans, under
Sec. 668.17(h)(3)(v)(B), if the Secretary finds that evidence presented
by the school shows that some loans included in the sample reviewed by
the school should be excluded from the calculation of the rate, the
Secretary reduces the rate to reflect the percentage of defaulted loans
in the sample that should be excluded.
In the FFEL Program, the proportional reduction applies to all of
the FFEL loans included in the school's rate, because an FFEL Program
cohort default rate is a percentage rate of the students whose loans
are in default. However, for some schools, the Direct Loan Program
cohort rate is not limited to the percentage rate of students whose
loans are in default. For proprietary non-degree-granting institutions,
it may also include the percentage rate of borrowers repaying Direct
Loans under the income-contingent repayment (ICR) plan who have
scheduled payments of less than $15 per month, when those amounts
result in negative amortization for a period of 270 days or more (see
Secs. 668.17(e)(1)(ii) and 668.17(f)(1)(ii)).
If borrowers are included in a school's Direct Loan Program cohort
rate because they are repaying under the ICR plan, rather than because
their loans are in default, the improper loan servicing and collection
criteria do not apply. For example, the Direct Loan Servicer would not
mail a final demand letter to a borrower who is making payments under
the ICR plan and is not in default. Therefore, as reflected in the
proposed Sec. 668.17(h)(2)(iii), the proportional reduction of the rate
would apply only to borrowers with defaulted loans who were included in
a school's rate, not to any borrowers who have been included because
they made certain payments under the ICR plan.
The most significant remaining differences between the requirements
for a loan servicing appeal in the FFEL Program and those proposed for
the Direct Loan Program are the following:
* For FFEL, the regulations in Sec. 668.17(h)(3)(ii) require
a school to include in its notice of appeal to the guaranty agency a
list of the students included in its rate. No similar requirement is
provided for Direct Loans because the Department already has that
information.
* When sending the school a list of the loans and a
description of how the sample of loans was chosen, a guaranty agency is
required, in Sec. 668.17(h)(3)(ii)(B)(5), to send a copy of the list to
the Secretary. No corresponding action is provided for the Direct Loan
Program because it would be redundant.
* In Sec. 668.17(h)(3)(ii)(B)(6), a guaranty agency is
required to notify a school that has failed to pay a fee that the
school has apparently waived its right to challenge the calculation of
its rate with regard to the loans guaranteed by that agency. The
guaranty agency also notifies the Secretary. The Secretary then
determines whether the guaranty agency's conclusion was correct. No
similar provision is needed for Direct Loans because the Secretary
issues the original notification of the waiver determination.
* For FFEL, a school is required in Sec. 668.17(h)(3)(iv)(C)
to send the Secretary a copy of the lists provided to it by the
guaranty agencies when it is filing an appeal. No similar list is
required for Direct Loans because the Department will have the
information that it provided to the institution.
* Section Sec. 668.17(h)(3)(viii)(C) provides that a
lender's failure to submit a request for preclaims assistance to the
guaranty agency, if required, is a factor in determining whether a
default on an FFEL Program loan may be considered to have been due to
improper servicing or collection. No similar factor is included for
Direct Loans because no similar process exists for the Direct Loan
Servicer. The Direct Loan Servicer services the loan until its transfer
to the Department's Debt Collection Service at 271 days of delinquency,
the date on which the loan is considered, under Sec. 668.17(e)(3), to
be in default for rate calculations purposes.
The revisions in this NPRM would provide the regulatory changes
needed to properly reflect the proposed changes to the appeal process
for Direct Loans. The proposed regulations would not revise the current
regulations for an FFEL Program appeal on the basis of improper
servicing or collection.
Official rates for fiscal year (FY) 1996 are scheduled to be issued
later this year. The Secretary intends to allow a school to appeal its
official Direct Loan Program cohort rate or weighted average cohort
rate for FY 1996 on the basis of the improper servicing or collection
of the Direct Loans included in the rate as defaulted loans. This type
of appeal would be available only to schools with rates of 20 percent
or greater and to schools that are subject to loss of participation in
the loan programs based on their rates.
Section 668.17(i) Finality of a School's Rate
Under Sec. 668.17(a)(2), a school with an FFEL Program cohort
default rate, Direct Loan Program cohort rate, or a weighted
[[Page 37716]]
average cohort rate that is over 40 percent for the most recent fiscal
year for which rates have been calculated may be subject to an action
to limit, suspend, or terminate its participation in all of the Federal
student financial aid programs authorized by Title IV of the Higher
Education Act of 1965, as amended (HEA). If the Secretary initiates
such an action, the school may appeal under 34 CFR part 668, Subpart G.
The Secretary has found, however, that some schools with a rate
over 40 percent do not challenge the rate when they are notified.
Rather, these schools wait to challenge the calculation of that rate
until they have 3 consecutive years of rates over 25 percent. As a
result, the administrative review process provided under Subpart G is
delayed while the school's new appeal is evaluated. The Secretary
believes that some schools wait to appeal in these circumstances solely
to delay a final determination of the limitation, suspension, or
termination action. Because a school may continue to make loans while
the appeal process is pending, any unnecessary delay increases the
likelihood of program abuse.
It was not the intent of the Secretary to permit this type of
delay--which may last a year or more--between the date a school is
notified of its rate and the resolution of the school's appeal of a
sanction resulting from the rate. The Secretary proposes to address the
problem of unnecessary delays in Subpart G proceedings by providing
that once the Secretary initiates a proposed limitation, suspension, or
termination action under Sec. 668.17(a)(2), based on the school's rate,
the school may not challenge that rate.
A school that initiates an appeal of a rate over 40 percent in a
timely manner, within 10 working days of the date that the school is
notified of the rate, would not be affected by this revision. The
Secretary does not initiate an action under Sec. 668.17(a)(2) during
the period in which a school may file a timely appeal of its rate.
Also, if a school does file a timely appeal, the Secretary does not
initiate an action under Sec. 668.17(a)(2) until a determination has
been made on the appeal. Note that current provisions in Sec. 668.17(i)
are not changed other than to number paragraphs and to update
references to types of rates; the only substantive change to the
current Sec. 668.17(i) is in the proposed Sec. 668.17(i)(3).
The proposed revision would help the Department, guaranty agencies,
and institutions to research appeals more efficiently and to resolve
appeals and limitation, suspension, and termination actions promptly.
Ensuring timely appeals and resolutions is particularly important
because schools remain eligible to participate in the FFEL and Direct
Loan programs until the appeal process is complete.
Executive Order 12866
Clarity of the Regulations
Executive Order 12866 requires 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: (1) Are the requirements in the proposed regulations
clearly stated? (2) Do the proposed regulations contain technical terms
or other wording that interferes with their clarity? (3) Does the
format of the proposed regulations (grouping and order of sections, use
of headings, paragraphing, etc.) aid or reduce their clarity? Would the
proposed regulations be easier to understand if they were divided into
more (but shorter) sections? (A ``section'' is preceded by the symbol
``Sec. '' and a numbered heading; for example, Sec. 668.17 Default
reduction and prevention measures.) (4) Is the description of the
proposed regulations in the ``Supplementary Information'' section of
this preamble helpful in understanding the proposed regulations? How
could this description be more helpful in making the proposed
regulations easier to understand? (5) What else could the Department do
to make the proposed regulations easier to understand?
A copy of any comments that concern how the Department could make
these proposed regulations easier to understand should be sent to
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of
Education, 600 Independence Avenue, SW. (room 5121, FB-10), Washington,
DC 20202-2241.
Regulatory Flexibility Act Certification
The Secretary has determined that these proposed regulations would
not have a significant adverse economic impact on a substantial number
of small entities. A Preliminary Regulatory Flexibility Analysis (PRFA)
was performed. The provision that extends the appeals of improper loan
servicing to Direct Loans will provide a positive benefit to schools.
The provision on the finality of appeals was analyzed in more detail.
The PRFA determined that the number of small and large entities
experiencing adverse economic impacts from the appeal finality
provisions is expected to be between one and eight per year, which is
not a substantial number.
Estimate of the Number of Entities Experiencing Adverse Economic
Impacts From Finality of Appeal Provision
Although no school has successfully used the delaying tactic these
regulations would prohibit, 2 schools could have used this tactic for
fiscal year 1994 rates, and it is possible that up to 16 schools could
use this tactic for fiscal year 1995 rates. There is no reason to
believe that this will apply to more schools in the future. Thus, the
estimate of the number of small and large entities to which these
regulations would apply is between 2 and 16 each year. In the year when
two schools could have used this delaying tactic, one school
unsuccessfully attempted to employ it or half of the eligible schools.
The PRFA estimates that about half of the schools to which these
regulations would apply will attempt to employ this delaying tactic, or
between one and eight per year. Thus, the number of small and large
entities to which these regulations would impose adverse economic
impacts is small and not considered a substantial number.
Estimate of the Adverse Economic Impacts of Finality of Appeal
Provision
One school attempted to use this delaying tactic, but that appeal
was denied on technical grounds. Had that school been successful, the
economic impact would have been to delay the school's removal from the
Title IV programs for an estimated six months. During those six months,
the school was estimated to have potentially earned an additional
$135,000 in Title IV revenue. Using a 5 percent profit rate, which is
typical for proprietary schools participating in Title IV programs, the
adverse economic impact on this school would have been to lose about
$6,750 in profit. The PRFA did not address whether this was a
significant economic impact, since it was previously determined that a
full Regulatory Flexibility analysis was not required because of the
small number of entities to which these regulations would apply.
The Secretary particularly invites comments on the impact of these
proposed regulations on small entities.
Paperwork Reduction Act of 1995
Section 668.17 contains information collection requirements. As
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
the Department of Education has submitted a copy of this section to the
Office of Management and Budget (OMB) for its review.
[[Page 37717]]
Collection of Information: Student Assistance General Provisions--
668.17--Default reduction and prevention measures.
The Secretary proposes to provide schools the opportunity to
challenge Direct Loan Program cohort rates or weighted average cohort
rates on the basis of allegations of improper loan servicing or
collection of the Direct Loans included in that rate as defaulted
loans. Annual public reporting burden for the portion of this
collection of information that is attributable to Sec. 668.17(h)
remains unchanged and is estimated to average 128 hours per response
for 160 non-degree-granting school respondents, 96 hours per response
for 20 degree-granting school respondents, and 16 hours per response
for 20 low borrower school respondents, including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. The collection's total estimated annual
recordkeeping and reporting burden hours for this section equals 22,720
hours.
There is no change to the current burden for this collection
because neither the estimated number of respondents nor the amount of
time needed to respond is expected to change. At the time that previous
regulations were published, no rates had been issued that included
Direct Loans; all schools received rates that included only FFEL loans.
A school appealing its rate due to improper loan servicing or
collection, under these proposed regulations, would have been subject
to the same requirements for the appeal of its FFEL Program cohort
default rate.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for U.S.
Department of Education.
The Department considers comments by the public on this proposed
collection of information in--
* Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the
Department, including whether the information will have practical use;
* Evaluating the accuracy of the Department's estimate of
the burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
* Enhancing the quality, usefulness, and clarity of the
information to be collected; and
* Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques of other forms of information technology; e.g., permitting
electronic submission of responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
proposed regulations.
Intergovernmental Review
The Federal Supplemental Educational Opportunity Grant Program and
the State Student Incentive Grant Program are subject to the
requirements of Executive Order 12372 and the regulations in 34 CFR
part 79. The objective of the Executive order is to foster an
intergovernmental partnership and a strengthened federalism by relying
on processes developed by State and local governments for coordination
and review of proposed Federal financial assistance.
In accordance with this order, this document is intended to provide
early notification of the Department's specific plans and actions for
these programs.
The Federal Family Education Loan, Federal Supplemental Loans for
Students, Federal Work-Study, Federal Perkins Loan, Federal Pell Grant,
Income Contingent Loan, and William D. Ford Federal Direct Loan
programs are not subject to the requirements of Executive Order 12372
and the regulations in 34 CFR part 79.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would 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 other Department of
Education documents published in the Federal Register, in text or
portable document format (pdf) on the World Wide Web at the following
sites:
http://ifap.ed.gov/csb__html/fedlreg.htm
http://gcs.ed.gov/fedreg.htm
http://www.ed.gov/news.html
To use the pdf you must have the Adobe Acrobat Reader Program with
Search, which is available free at either of the second and third of
the previously listed sites. If you 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 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.
Dated: July 7, 1998.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Numbers: 84.007: Federal
Supplemental Educational Opportunity Grant Program; 84.032: Federal
Family Education Loan Program; 84.032: Federal PLUS Program; 84.032:
Federal Supplemental Loans for Students Program; 84.033: Federal
Work-Study Program; 84.038: Federal Perkins Loan Program; 84.063:
Federal Pell Grant Program; 84.069: State Student Incentive Grant
Program; 84.226: Income Contingent Loan Program; and 84.268: William
D. Ford Federal Direct Loan Program)
The Secretary proposes to amend Part 668 of Title 34 of the Code of
Federal Regulations as follows:
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
1. The authority citation for part 668 continues to read as
follows:
Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099c, and
1141, unless otherwise noted.
2. Section 668.17 is amended by revising the heading, and
paragraphs (h) and (i) to read as follows:
Sec. 668.17 Default reduction and prevention measures.
* * * * *
(h) Appeal based on allegations of improper loan servicing or
collection--
[[Page 37718]]
(1) General. An institution that is subject to loss of participation in
the FFEL Program or the Direct Loan Program under paragraph (a)(3),
(b)(1), or (b)(2) of this section or that has been notified by the
Secretary that its FFEL Program cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate equals or exceeds
20 percent for the most recent year for which data are available may
include in its appeal of that loss or rate a challenge based on
allegations of improper loan servicing or collection. This challenge
may be raised in addition to other challenges permitted under this
section.
(2) Standard of review. (i) An appeal based on allegations of
improper loan servicing or collection must be submitted to the
Secretary in accordance with the requirements of this paragraph.
(ii) The Secretary excludes any loans from the FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate calculation that, due to improper servicing or collection,
would, as demonstrated by the evidence submitted in support of the
institution's timely appeal to the Secretary, result in an inaccurate
or incomplete calculation of that rate.
(iii) For the purposes of this paragraph, a Direct Loan that has
been included in a Direct Loan Program cohort rate, under paragraph
(e)(1)(ii) of this section, or a weighted average cohort rate, under
paragraph (f)(1)(ii) of this section, because it has been in repayment
under the income-contingent repayment plan for 270 days, with scheduled
payments that are less than $15 per month and with those payments
resulting in negative amortization, is not considered to have been
included in that rate as a defaulted loan. An institution's appeal
under this paragraph does not affect the inclusion of these loans in an
institution's rate.
(3) Procedures. The following procedures apply to appeals from FFEL
Program cohort default rates, Direct Loan Program cohort rates, and
weighted average cohort rates issued by the Secretary:
(i) Notice of rate. Upon receiving notice from the Secretary that
the institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate exceeds the thresholds
specified in paragraph (a)(3), (b)(1), or (b)(2) of this section or
that its most recent rate equals or exceeds 20 percent, the institution
may appeal the calculation of that rate based on allegations of
improper loan servicing or collection. The Secretary's notice includes
a list of all borrowers included in the calculation of the
institution's rate.
(ii) Appeals for FFEL Program loans. (A) To initiate an appeal
under this paragraph for FFEL Program loans included in the
institution's rate, the institution must notify, in writing, the
Secretary and each guaranty agency that guaranteed loans included in
the institution's FFEL Program cohort default rate or weighted average
cohort rate that it is appealing the calculation of that rate. The
notification must be received by the guaranty agency and the Secretary
within 10 working days of the date the institution received the
Secretary's notification. The institution's notification to the
guaranty agency must include a copy of the list of students provided by
the Secretary to the institution.
(B) Within 15 working days of receiving the notification from an
institution subject to loss of participation in the FFEL or Direct Loan
programs under paragraph (a)(3), (b)(1), or (b)(2) of this section, or
within 30 calendar days of receiving that notification from any other
institution that may file a challenge to its FFEL Program cohort
default rate or weighted average cohort rate under this paragraph, the
guaranty agency shall provide the institution with a representative
sample of the loan servicing and collection records relating to
borrowers whose loans were guaranteed by the guaranty agency and that
were included as defaulted loans in the calculation of the
institution's rate. For purposes of this section, the term loan
servicing and collection records refers only to the records submitted
by the lender to the guaranty agency to support the lender's submission
of a default claim and included in the claim file. In selecting the
representative sample of records, the guaranty agency shall use the
following procedures:
(1) The guaranty agency shall list in social security number order
all loans made to borrowers for attendance at the institution and
guaranteed by the guaranty agency and included as defaulted loans in
the calculation of the FFEL Program cohort default rate or weighted
average cohort rate that is being challenged by the institution.
(2) From the population of loans identified by the guaranty agency,
the guaranty agency shall identify a sample of the loans. The sample
must be of a size such that the universe estimate derived from the
sample is acceptable at a 95 percent confidence level with a plus or
minus 5 percent confidence interval. The sampling procedure must result
in a determination of the number of FFEL Program loans that should be
excluded from the calculation of the FFEL Program cohort default rate
or weighted average cohort rate under this paragraph.
(3) The guaranty agency shall provide a copy of all servicing and
collection records relating to each loan in the sample to the
institution in hard copy format unless the guaranty agency and
institution agree that all or some of the records may be provided in
another format.
(4) The guaranty agency may charge the institution a reasonable fee
for copying and providing the documents, not to exceed $10 per borrower
file.
(5) After compiling the servicing and collection records for the
loans in the sample, the guaranty agency shall send the records, a list
of the loans included in the sample, and a description of how the
sample was chosen to the institution. The guaranty agency shall also
send a copy of the list of the loans included in the sample, listed in
order by social security number, and the description of how the sample
was chosen to the Secretary at the same time the material is sent to
the institution.
(6) If the guaranty agency charges the institution a fee for
copying and providing the documents under paragraph (h)(3)(ii)(B)(4) of
this section, the guaranty agency is not required to provide the
documents to the institution until payment is received by the agency.
If payment of a fee is required, the guaranty agency shall notify the
institution, in writing, within 15 working days of receipt of the
institution's request, of the amount of the fee. If the guaranty agency
does not receive payment of the fee from the institution within 15
working days of the date the institution receives notice of the fee,
the institution shall be considered to have waived its right to
challenge the calculation of its FFEL Program cohort default rate or
weighted average cohort rate based on allegations of improper loan
servicing or collection in regard to the loans guaranteed by that
guaranty agency. The guaranty agency shall notify the institution and
the Secretary, in writing, that the institution has failed to pay the
fee and has apparently waived its right to challenge the calculation of
its rate for this purpose. The Secretary determines that an institution
that does not pay the required fee to the guaranty agency has not met
its burden of proof in regard to the loans insured by that guaranty
agency unless the institution proves that the agency's conclusion that
the institution waived its appeal is incorrect.
(iii) Appeals for Direct Loan Program loans. (A) To initiate an
appeal under
[[Page 37719]]
this paragraph for Direct Loans included in the institution's rate, the
institution must notify the Secretary, in writing, that it is appealing
the calculation of its Direct Loan Program cohort rate or weighted
average cohort rate. The notification must be received by the Secretary
within 10 working days of the date the institution received the
Secretary's notification.
(B) Within 15 working days of receiving the notification from an
institution subject to loss of participation in the FFEL or Direct Loan
Program under paragraph (a)(3), (b)(1), or (b)(2) of this section, or
within 30 calendar days of receiving that notification from any other
institution that may file a challenge to its Direct Loan Program cohort
rate or weighted average cohort rate under this paragraph, the
Secretary provides the institution with a representative sample of the
loan servicing and collection records relating to borrowers whose
Direct Loans were included as defaulted loans in the calculation of the
institution's rate. For purposes of this section, the term ``loan
servicing and collection records'' refers only to the records
maintained by the Department's Direct Loan Servicer with respect to the
servicing and collecting of delinquent loans prior to the default. In
selecting the representative sample of records, the Secretary uses the
following procedures:
(1) The Secretary lists in social security number order all Direct
Loans made to borrowers for attendance at the institution and included
as defaulted loans in the calculation of the Direct Loan Program cohort
rate or weighted average cohort rate that is being challenged by the
institution.
(2) From the population of loans identified by the Secretary, the
Secretary identifies a sample of the loans. The sample is of a size
such that the universe estimate derived from the sample is acceptable
at a 95 percent confidence level with a plus or minus 5 percent
confidence interval. The sampling procedure must result in a
determination of the number of Direct Loans included in the rate as
defaulted loans that should be excluded from the calculation of the
Direct Loan Program cohort rate or weighted average cohort rate under
this paragraph.
(3) The Secretary provides a copy of all servicing and collection
records relating to each loan in the sample to the institution in hard
copy format unless the Secretary and institution agree that all or some
of the records may be provided in another format.
(4) The Secretary may charge the institution a reasonable fee for
copying and providing the documents, not to exceed $10 per borrower
file.
(5) After compiling the servicing and collection records for the
loans in the sample, the Secretary sends the records, a list of the
loans included in the sample, and a description of how the sample was
chosen to the institution.
(6) If the Secretary charges the institution a fee for copying and
providing the documents under paragraph (h)(3)(iii)(B)(4) of this
section, the Secretary does not provide the documents to the
institution until payment is received by the Secretary. If payment of a
fee is required, the Secretary notifies the institution, in writing,
within 15 working days of receipt of the institution's request, of the
amount of the fee. If the Secretary does not receive payment of the fee
from the institution within 15 working days of the date the institution
receives notice of the fee, the institution shall be considered to have
waived its right to challenge the calculation of its Direct Loan
Program cohort rate or weighted average cohort rate based on
allegations of improper loan servicing or collection in regard to the
Direct Loans included in that rate. The Secretary shall notify the
institution, in writing, that the institution has failed to pay the fee
and has waived its right to challenge the calculation of its rate on
the basis of those allegations.
(iv) Procedures for filing an appeal. After receiving the relevant
loan servicing and collection records from the Secretary (for defaulted
Direct Loan Program loans included in a Direct Loan Program cohort rate
or weighted average cohort rate) and from all of the guaranty agencies
that insured loans included in the institution's FFEL Program cohort
default rate or weighted average cohort rate calculation (for defaulted
FFEL Program loans included in a rate), the institution has 30 calendar
days to file its appeal with the Secretary. An appeal is considered
filed when it is received by the Secretary. If the institution is also
filing an appeal under paragraph (c)(1)(i) of this section, the
institution may delay submitting its appeal under this paragraph until
the appeal under paragraph (c)(1)(i) of this section is submitted to
the Secretary. As part of the appeal, the institution shall submit the
following information to the Secretary:
(A) A list of the loans that the institution alleges would, due to
improper loan servicing or collection, result in an inaccurate or
incomplete calculation of the rate.
(B) Copies of all of the loan servicing or collection records and
any other evidence relating to a loan that the institution believes has
been subject to improper servicing or collection. The records must be
in hard copy or microfiche format.
(C) For FFEL Program loans, a copy of the lists provided by the
guaranty agencies under paragraph (h)(3)(ii)(B) of this section.
(D) An explanation of how the alleged improper servicing or
collection resulted in an inaccurate or incomplete calculation of the
institution's rate.
(E) A summary of the institution's appeal listing the following:
(1) For FFEL Program cohort default rates, the number of loans
insured by each guaranty agency that were included as defaulted loans
in the calculation of the institution's rate and the number of loans
that would be excluded from the calculation of that rate by application
of the results of the review of the sample of loans provided to the
institution to the population of loans for each guaranty agency.
(2) For Direct Loan Program cohort rates, the number of Direct
Loans that were included as defaulted loans in the calculation of the
institution's rate and the number of loans that would be excluded from
the calculation of that rate by application of the results of the
review of the sample of loans provided to the institution to the
population of loans serviced by the Secretary.
(3) For weighted average cohort rates----
(i) The number of FFEL Program loans insured by each guaranty
agency that were included as defaulted loans in the calculation of the
institution's rate and the number of loans that would be excluded from
the calculation of that rate by application of the results of the
review of the sample of loans provided to the institution to the
population of loans for each guaranty agency; and
(ii) The number of Direct Loans that were included as defaulted
loans in the calculation of the institution's rate and the number of
loans that would be excluded from the calculation of that rate by
application of the results of the review of the sample of loans
provided to the institution to the population of loans serviced by the
Secretary.
(F) A certification by an authorized official of the institution
that all information provided by the institution in the appeal is true
and correct.
(v) Decision. The Secretary or the Secretary's designee reviews the
information submitted by the institution and issues a decision.
(A) In making a decision under this paragraph, the Secretary
presumes that the information provided to the institution by the
guaranty agency or Secretary under paragraphs (h)(3)(ii)(B)
[[Page 37720]]
and (iii)(B) of this section is correct unless the institution provides
substantial evidence showing that the information is not correct.
(B) If the Secretary finds that the evidence presented by the
institution shows that some of the loans included in the sample of loan
records reviewed by the institution should be excluded from calculation
of the FFEL Program cohort default rate, Direct Loan Program cohort
rate, or weighted average cohort rate under paragraph (h)(2) of this
section, the Secretary reduces the institution's rate, in accordance
with a statistically valid methodology, to reflect the percentage of
defaulted loans in the sample that should be excluded.
(vi) Notification. The Secretary notifies the institution, in
writing, of the decision.
(vii) Seeking judicial review. An institution may not seek judicial
review of the Secretary's determination of the institution's FFEL
Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate until the Secretary or the Secretary's
designee issues the decision under paragraph (h)(3)(v) of this section.
(viii) Improper loan servicing or collection criteria. For purposes
of this paragraph, a default is considered to have been due to improper
servicing or collection only if the borrower did not make a payment on
the loan and the institution proves that the lender (for an FFEL
Program loan) or the Direct Loan Servicer (for a Direct Loan Program
loan) failed to perform one or more of the following activities, if
that activity was required:
(A) Send at least one letter (other than the final demand letter)
urging the borrower or endorser to make payments on the loan.
(B) Attempt at least one phone call to the borrower or endorser.
(C) For an FFEL Program loan, submit a request for preclaims
assistance to the guaranty agency.
(D) Send a final demand letter to the borrower.
(E)(1) For an FFEL Program loan, submit a certification (or other
evidence) that skip tracing was performed; or
(2) For a Direct Loan Program loan, document that skip tracing was
performed.
(i) Effect of decision. (1) An institution may challenge the
calculation of an FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate under this section no more
than once. The Secretary's determination of an institution's appeal of
the calculation of such a rate is binding on any future appeal by the
institution.
(2) An institution that fails to challenge the calculation of an
FFEL Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate under this section within 10 working days
of receiving notice of the determination of that rate is prohibited
from challenging that rate in any other proceeding before the
Department.
(3) If the Secretary has initiated an action under paragraph (a)(2)
of this section, the institution may not challenge the calculation of
the FFEL Program cohort default rate, Direct Loan Program cohort rate,
or weighted average cohort rate on which the action is based.
* * * * *
[FR Doc. 98-18514 Filed 7-10-98; 8:45 am]
BILLING CODE 4000-01-P