[Federal Register: July 30, 1999 (Volume 64, Number 146)]
[Proposed Rules]
[Page 41751-41763]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy99-40]
[[Page 41751]]
_______________________________________________________________________
Part VII
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 1845-AA04
Student Assistance General Provisions
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the loan default reduction and
prevention measures in the Student Assistance General Provisions
regulations in 34 CFR part 668. This notice of proposed rulemaking
(NPRM) reflects changes made by the Higher Education Amendments of 1998
to the Higher Education Act of 1965, as amended (HEA).
DATES: We must receive your comments on or before September 15, 1999.
ADDRESSES: Address all comments about these proposed regulations to
Kenneth Smith, U.S. Department of Education, P.O. Box 23272,
Washington, DC 20026-3272. If you prefer to send your comments through
the Internet, use the following address: CDRNPRM@ed.gov
If you want to comment on the information collection requirements
you must send your comments to the Office of Management and Budget at
the address listed in the Paperwork Reduction Act section of this
preamble. You may also send a copy of these comments to the Department
representative named in this section.
FOR FURTHER INFORMATION CONTACT: Kenneth Smith. Telephone: (202) 708-
8242. If you use a telecommunications device for the deaf (TDD), you
may call the Federal Information Relay Service (FIRS) at 1-800-877-
8339.
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
We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
During and after the comment period, you may inspect all public
comments about these proposed regulations 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.
Assistance to Individuals With Disabilities in Reviewing the
Rulemaking Record
On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking docket for these proposed regulations. If you want to
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the Federal
Information Relay Service at 1-800-877-8339.
Background
The Higher Education Amendments of 1998 (Pub. L. 105-244, enacted
October 7, 1998, and referred to in this NPRM as the ``1998
Amendments'') changed some requirements relating to the calculation of
a school's Federal Family Education Loan (FFEL) Program cohort default
rate, William D. Ford Federal Direct Loan (Direct Loan) Program cohort
rate, or weighted average cohort rate. The Secretary is proposing to
revise 34 CFR 668.17 of the Student Assistance General Provisions
regulations to reflect these changes.
Negotiated Rulemaking Process
Section 492 of the HEA requires that, before publishing any
proposed regulations to implement programs under Title IV of the Act,
the Secretary obtain public involvement in the development of the
proposed regulations. After obtaining advice and recommendations, the
Secretary must conduct a negotiated rulemaking process to develop the
proposed regulations. All published proposed regulations must conform
to agreements resulting from the negotiated rulemaking process unless
the Secretary reopens the negotiated rulemaking process or provides a
written explanation to the participants in that process why the
Secretary has decided to depart from the agreements.
To obtain public involvement in the development of the proposed
regulations, we published a notice in the Federal Register (63 FR
59922, November 6, 1998) requesting advice and recommendations from
interested parties concerning what regulations were necessary to
implement Title IV of the HEA. We also invited advice and
recommendations concerning which regulated issues should be subjected
to a negotiated rulemaking process. We further requested advice and
recommendations concerning ways to prioritize the numerous issues in
Title IV, in order to meet statutory deadlines. Additionally, we
requested advice and recommendations concerning how to conduct the
negotiated rulemaking process, given the time available and the number
of regulations that needed to be developed.
In addition to soliciting written comments, we held three public
hearings and several informal meetings to give interested parties an
opportunity to share advice and recommendations with the Department.
The hearings were held in Washington, DC, Chicago, and Los Angeles, and
we posted transcripts of those hearings to the Department's Information
for Financial Aid Professionals' website (http://ifap.ed.gov).
We then published a second notice in the Federal Register (63 FR
71206, December 23, 1998) to announce the Department's intention to
establish four negotiated rulemaking committees to draft proposed
regulations implementing Title IV of the HEA. The notice announced the
organizations or groups believed to represent the interests that should
participate in the negotiated rulemaking process and announced that the
Department would select participants for the process from nominees of
those organizations or groups. We requested nominations for additional
participants from anyone who believed that the organizations or groups
listed did not adequately represent the list of interests outlined in
section 492 of the HEA. Once the four committees were established, they
met to develop proposed regulations over the course of several months,
beginning in January.
The proposed regulations contained in this NPRM reflect the final
consensus of the negotiating committee, which was made up of the
following members:
American Association of Community Colleges
American Association of Cosmetology Schools
American Association of State Colleges and Universities
[[Page 41753]]
American Council on Education
Career College Association
Coalition of Associations of Schools of the Health Professions
Coalition of Higher Education Assistance Organizations
Consumer Bankers Association
Education Financial Council
Education Loan Management Resources
Legal Services Counsel (a coalition)
National Association of College and University Business Officers
National Association for Equal Opportunity in Higher Education
National Association of Graduate/Professional Students
National Association of Independent Colleges and Universities
National Association of State Student Grant and Aid Programs
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators
National Association of Student Loan Administrators
National Council of Higher Education Loan Programs
National Direct Student Loan Coalition
Sallie Mae, Inc
Student Loan Servicing Alliance
The College Board
The College Fund/United Negro College Fund
United States Department of Education
United States Student Association
US Public Interest Research Group
As stated in the committee protocols, consensus means that there
must be no dissent by any member in order for the committee to be
considered to have reached agreement. Consensus was reached on all of
the proposed regulations in this document
Proposed Regulatory Changes
To help readers understand the proposed regulatory changes, we
believe it is appropriate to provide a brief description of the
processes available for schools to challenge or appeal their FFEL
Program cohort default rates, Direct Loan Program cohort rates, or
weighted average cohort rates. To avoid confusion in this NPRM, we use
the word ``rate'' by itself to refer to FFEL Program cohort default
rates, Direct Loan Program cohort rates, and weighted average cohort
rates. We use the complete term if we are referring to another type of
``rate'': an ``economically disadvantaged rate,'' a ``completion
rate,'' a ``placement rate,'' or a ``participation rate.''
Each school receives only one of the three types of rates each
year: an FFEL Program cohort default rate, a Direct Loan Program cohort
rate, or a weighted average cohort rate. However, unless specifically
stated in the regulations, the rules and processes for submitting
appeals and making challenges apply regardless of which rate a school
receives. For example, under the proposed regulations, a school must
notify us within 30 calendar days of its intent to appeal a rate on the
grounds of exceptional mitigating circumstances, regardless of whether
the school's rate is an FFEL Program cohort default rate, a Direct Loan
Program cohort rate, or a weighted average cohort rate.
The rate process begins when we send draft rates to schools
participating in the FFEL or Direct Loan Program. The rates are
accompanied by supporting data, giving detailed information on the
loans included in the calculation of the rate. A school may challenge
the calculation of a draft rate by following the process outlined in
the regulations. In this NPRM we refer to this process as the
``challenge'' process.
After the completion of the draft rate challenge process, we notify
each school of its official rate and publish a listing of all the
rates. This NPRM refers to these rates as ``published rates.'' A school
may file an appeal of any sanctions resulting from published rates by
following the procedures outlined in the regulations. We refer to the
process for contesting published rates as an ``appeal.''
A discussion of each substantive proposed change follows.
1. Challenges and Adjustments to Inaccurate Data Used to Calculate FFEL
Cohort Default Rates, Direct Loan Program Cohort Rates, or Weighted
Average Cohort Rates (Secs. 668.17(a)(1) and 668.17(j))
Why are changes proposed?
Amendments to section 428G of the HEA provide reduced
administrative requirements for schools with FFEL Program cohort
default rates, Direct Loan Program cohort rates, or weighted average
cohort rates that are less than 5 or 10 percent. To help implement
these new provisions, we are proposing to change the process that
schools use to identify and challenge incorrect data.
Before describing the proposed changes, we will describe the
current process used to identify and challenge incorrect data.
If a school is not subject to loss of participation, how does it
currently correct data used to calculate its rate?
The current process for correcting data has two steps:
* Challenging draft data. Any school may challenge the
accuracy of any data used to calculate its draft rate. We send
supporting data to schools with draft rates of 20 percent or more, and
any school that does not receive supporting data may request it. The
supporting data reflect the basis for the calculation of a school's
rate. A school compares the information in the supporting data with its
own records and with information obtained from outside sources to
identify possible inaccuracies. A school must challenge any inaccurate
draft data within 30 calendar days of receiving the supporting data.
* Adjustments to published rates. We send supporting data to
schools with published rates of 20 percent or more. Any school that
does not receive supporting data may request it. If corrections
identified during the draft challenge process are not reflected in a
school's published rate, the school may request that its rate be
adjusted to reflect those corrections. Adjustment requests must be made
within 10 working days of receiving the supporting data. A school may
not request an adjustment that is based on data that were changed or
added after the draft rate was calculated. Between the calculation of
the draft and official rates, data may be corrected, changed, or added
by a guaranty agency (for FFEL loans) or the Direct Loan Servicing
Center (for Direct Loans).
How would this process be changed under these proposed regulations?
The proposed regulations would retain the two current steps, with
the following improvements:
* Challenging draft data. We would provide supporting data
to all schools when we notify the schools of their draft rates, and we
would lengthen the period during which a school may challenge the
accuracy of its draft rate from 30 to 45 calendar days.
* Adjustments to published rates. We would provide
supporting data with the notification of published rates sent to all
schools having rates of 10 percent or more. Schools with rates lower
than 10 percent would be able to request supporting data separately.
Will there be other changes to this process?
Yes, we will also make some administrative changes to the process
for reviewing and challenging rates. Since these are administrative
changes, they are not included in these proposed regulations.
The most significant administrative changes will be to the process
for requesting adjustments to a published rate. The period during which
a school may request an adjustment to its published rate will be
extended from 10 working days to 30 calendar days. Also, upon receiving
its published rate, a school will be able to request an adjustment to
any incorrect new data
[[Page 41754]]
that were included after the draft rate was calculated. This ``new data
adjustment'' will be available to schools beginning with receipt of FY
1998 rates, which will be released before September 30, 2000. This new
administrative process will be explained more fully in the FY 1998
Official Cohort Default Rate Guide, which will be sent to a school with
the notification of its published rate for FY 1998.
We will also make the following additional administrative
improvements to this process:
* Electronic supporting data. We will make supporting data
available to schools upon request in an electronic format. This will
help schools prepare their challenges and appeals more quickly and with
less work. We plan to begin this service with the publication of rates
for FY 1998. Initially, it is unlikely that we will be able to send
electronic data with the notifications of the rates themselves.
Instead, we plan to make electronic data available to requesting
schools after the notifications are issued, and for subsequent draft
and published rates.
* Real-time data. Schools will be able to view, year-round,
the loan repayment and default data that will be used to calculate
their rates. By having access to this ``real-time'' data, schools will
be able to identify errors and to correct them, by working with the
data's provider, on a schedule that is compatible with the schools'
ongoing workload. We plan to begin this service by the end of 1999.
2. Deadline for Publishing Rates (Sec. 668.17(b)(3))
What happens if the deadline is missed?
The 1998 Amendments adds a new section 435(m)(4)(D) to the HEA,
which directs the Secretary to issue cohort default rates by September
30 each year. During the negotiated rulemaking process, some
negotiators expressed a concern about the possible consequences for
schools if we issued rates after that date. Under section 435(a)(2) of
the HEA, a school's loss of participation in the loan programs based on
excessive rates continues for the fiscal year (FY) for which the
determination of the loss is made and for the 2 succeeding fiscal
years. Some negotiators were concerned that schools might be subject to
an additional year of ineligibility if we issued rates after September
30.
The committee discussed an example in which a determination issued
before this year's deadline of September 30, 1999, would subject a
school to loss of participation for the remainder of this fiscal year
(FY 1999) and for the 2 following fiscal years (FY 2000 and FY 2001).
By contrast, if the determination was issued after September 30, 1999,
the committee asked whether the school would be subject to loss of
participation for the remainder of that fiscal year (FY 2000) and for
the 2 following fiscal years (FY 2001 and FY 2002).
The Department expects to meet the goal of issuing rates by
September 30 each year. If, however, rates are not issued until after
that date, a school's loss of eligibility in that case would continue
only for the remainder of the fiscal year in which the rates are issued
and for the following fiscal year. As this procedure would be
administrative, it is not reflected in these proposed regulations.
3. Loss of Pell Eligibility (Sec. 668.17(b)(4))
How does a school's rate affect its eligibility to participate in
the Pell program?
These provisions reflect amendments to section 401(j) of the HEA.
Under the amendments, a school becomes ineligible to participate in the
Federal Pell Grant Program when it becomes ineligible to participate in
the FFEL or Direct Loan Program due to excessive rates. A school that
was not participating in the FFEL or Direct Loan Program on October 7,
1998 (the date on which the 1998 Amendments was enacted), is not
subject to this provision unless it subsequently participates in either
of those programs.
What criteria would be used to determine that a school was not
participating in the FFEL or Direct Loan Program on or after October 7,
1998?
Under the proposed regulations, a school would not be considered to
have been participating in the FFEL or Direct Loan Program on or after
October 7, 1998, if the school--
* Was ineligible to participate in those programs before
October 7, 1998, and the school did not regain eligibility;
* Requested in writing, before October 7, 1998, to withdraw
its participation in those programs and did not subsequently re-apply
to participate; or
* Has not certified an FFEL loan or originated a Direct Loan
on or after July 7, 1998.
The deadline date of July 7, 1998, was selected as a compromise and
agreed to by the committee. The Department believes this date is
appropriate because it provides some protection for a school that had
stopped certifying or originating loans, intending to end its
participation in these loan programs, but had not sent a written
request to withdraw its participation. At the same time, we also
believe that this date is appropriate because it provides a sufficient
period of time before the date of enactment to verify the school's
intent not to participate.
4. Liability for Unsuccessful Appeals (Secs. 668.17(b)(5)(ii) and
668.17(b)(6))
What liability would a school assume for loans made while appealing
a loss of participation?
These provisions reflect amendments to section 435(a)(2)(A) of the
HEA that are intended to reduce the likelihood of frivolous appeals by
schools that are subject to loss of eligibility due to excessive rates.
A school that certifies and delivers FFEL Program loans or originates
and disburses Direct Loan Program loans during its appeal would be
required to reimburse the Secretary for an amount equal to the amount
of interest, special allowance, reinsurance, and any related or similar
payments the Secretary makes, or will be obligated to make, on those
loans.
How will the Department determine a school's liability for loans
made during an unsuccessful appeal?
We intend to determine a school's liability using the Department's
``Estimated Loss Formula.'' We currently use this formula to calculate
schools' liabilities in other circumstances related to the loan
programs. In this instance, the formula would use the school's most
recent published rate to estimate the principal amount of the loans
that would be expected to default. In addition, the formula would be
used to estimate costs to the Secretary for interest, special
allowance, and other losses on these loans, using timeframes
appropriate for the type of school.
For example, an estimate of a 2-year public school's liability
would be based on average timeframes for 2-year public schools. To
calculate an estimate of the--
* Interest subsidy, the Department would project the
interest that would accrue on the total principal amount of the
subsidized student loans, during the average number of days, for a 2-
year public school, between the date the loans were disbursed and the
date they entered repayment.
* Special allowance, the Department would project the
special allowance that would accrue on the total principal amount of
the subsidized and unsubsidized student loans and PLUS loans, during
the average number of days, for a 2-year public school, between the
date the loans enter repayment and either the date they default or the
date on which they are paid in full.
[[Page 41755]]
How could a school appeal its loss of participation without
incurring a liability?
Any school may stop certifying and delivering FFEL Program loans or
originating and disbursing Direct Loan Program loans by ending its
participation in the program. Also, under the proposed regulations, a
school could prevent the possibility of incurring a liability during an
appeal by temporarily not certifying and delivering FFEL Program loans
and originating and disbursing Direct Loan Program loans during the
appeal. This suspension would be at the discretion of the school, and
the school would not be required to notify or seek the approval of the
Secretary.
5. Participation Rate Index (Secs. 668.17(c)(1)(ii)(A) and
668.17(j)(4))
What changes would be made to a school's ability to appeal on the
basis of its participation rate index (PRI)?
The proposed regulations reflect the provisions of section
435(a)(6) of the HEA. These provisions are similar in many respects to
the Department's regulatory requirements for an appeal on the basis of
a school's PRI under 34 CFR 668.17(c)(1)(ii)(A). However, unlike those
regulatory requirements, under which a school files a PRI appeal after
it receives its published rate, the 1998 Amendments provides for a PRI
challenge that is made after a school receives its draft rate. Also,
the provisions of the 1998 Amendments allow a school to base its PRI
calculation on the fiscal year of the school's draft rate or either of
its two most recent published rates, rather than the school's most
recent published rate only.
What if a school's published rate isn't the same as its draft rate,
and the newly published rate would make its PRI lower than 0.0375?
The proposed regulations retain the opportunity for a school to
appeal its published rate on the basis of a PRI lower than 0.0375. (The
process that occurs after the draft rate is a ``challenge,'' but the
process that occurs after the published rate is an ``appeal.'') Because
a school's draft rate is not always the same as its published rate,
there may be cases in which a school's challenge based on its draft
rate would be denied, but an appeal based on the school's published
rate would be accepted.
For example, a school with a draft rate of 38 percent and with 10
percent of its students receiving loans would have a PRI of .0380 (0.38
multiplied by 0.10 is .0380). Since the school's PRI would be greater
than .0375, its challenge would be denied. However, if the school's
published rate were calculated 1 percent lower, as 37 percent, the same
school would then have a PRI of .0370 (0.37 multiplied by 0.10 is
.0370). Since this PRI meets the criterion, the school's appeal would
be accepted.
Once a school's PRI challenge or appeal is accepted, would the
school need to challenge or appeal again the following year?
A school's successful PRI challenge to the draft rate or appeal of
the published rate would not apply to a future loss of participation
unless the rate upon which the challenge or appeal was originally based
was a rate that could also be used as a basis for the subsequent
challenge or appeal. For example, a school that is subject to a loss of
participation based on its rates for FY 1999, FY 1998, and FY 1997 may
challenge or appeal the loss using a PRI based on any of the following
rates:
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PRI based on rate for...
Upon receipt of... -----------------------------------------------
FY 1999 FY 1998 FY 1997
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Draft rate...................................................... Draft Published Published
Published rate.................................................. Published Published Published
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The school files a successful challenge or appeal but is again
subject to loss of participation the following year, based on its rates
for FY 2000, FY 1999, and FY 1998. At that time, the school may
challenge or appeal using a PRI based on any of the following rates:
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PRI based on rate for...
Upon receipt of... -----------------------------------------------
FY 2000 FY 1999 FY 1998
----------------------------------------------------------------------------------------------------------------
Draft rate...................................................... Draft Published Published
Published rate.................................................. Published Published Published
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The only rates that appear in both tables are the school's published
rates for FY 1999 and FY 1998. If the school's successful original
challenge or appeal was based on the--
* Published rate for FY 1999 or FY 1998, then the school
would not need to file another challenge or appeal in order to continue
participating.
* Draft rate for FY 1999 or the published rate for FY 1997,
then the school would need to file another successful PRI, or other
type of appeal, in order to continue participating.
6. Mitigating Circumstances Appeals (Secs. 668.17(c)(1)(ii)(B) and
668.17(c)(7))
What changes would there be to appeals made on the basis of
mitigating circumstances?
These provisions reflect the amendments to section 435(a)(2)(A)(ii)
of the HEA and add the provisions of new section 435(a)(4) of the HEA.
The amended and new provisions are similar to the current regulatory
requirements for an appeal due to mitigating circumstances (see 34 CFR
668.17(c)(1)(ii)(B)). However, the 1998 Amendments makes several
substantive modifications to the regulatory requirements:
* The criterion based on a school's economically
disadvantaged rate is reduced from a minimum of 70 percent to a minimum
of two-thirds.
* The criterion based on a school's placement rate is
reduced from a minimum of 50 percent to a minimum of 44 percent.
* The groups of students used in the calculations that
determine the school's appeal are re-defined.
* An independent auditor must agree, in a written opinion
included with the appeal, that the school meets the appeal's criteria.
[[Page 41756]]
How would the modified requirement for an independent auditor's
opinion be implemented under the proposed regulations?
The following process is proposed to incorporate the modified
requirement for an auditor's opinion:
* Within 30 days of being notified that its participation
will end due to excessive FFEL Program cohort default rates, Direct
Loan Program cohort rates, or weighted average cohort rates, or that a
prior loss of participation will be extended, the school must notify us
that it is appealing under these provisions.
* Within 60 days of being notified that its participation
will end due to excessive rates, or that a prior loss of participation
will be extended, the school must send us the independent auditor's
report. The report must include the school's written assertions and be
in a format prescribed by us.
* We consider the auditor's report and compare the
assertions in the report with the information we maintain.
* If the independent auditor's opinion supports the school's
position, and the report's documentation or our data do not contradict
the opinion, then the appeal is approved.
* If the independent auditor's opinion does not support the
school's assertion, or if the report's documentation or our data
contradict the opinion, the appeal is denied.
We rely upon the opinion of the independent auditor in determining
whether a school meets the mitigating circumstance criteria. However,
it would not be appropriate for us to decide that a school meets the
criteria if an auditor's opinion is contradicted by data in the report
itself or by data that we maintain.
As agreed during negotiated rulemaking, the data that we would use
to evaluate a report's acceptability would be limited to data that the
school has supplied to us for other reasons or data that is otherwise
available to the school. For example, when making a determination, we
may compare data in the report to the data maintained in the Federal
Pell Grant Program payment systems, the National Student Loan Data
System (NSLDS), the Integrated Postsecondary Education Data System
(IPEDS), or other data sources.
We would not typically investigate a school's assertions in making
our determination. For example, we would not routinely contact the
employers of the school's former students to gather additional
information to use in evaluating their placement rate assertions. If
improprieties are suspected in a school's appeal, an investigation
would be pursued under other legal authority.
How would the groups of students used to calculate economically
disadvantaged, completion, and placement rates be re-defined?
The 1998 Amendments changes the definitions of the groups of
students used to calculate economically disadvantaged rates, completion
rates, and placement rates:
* A student is considered economically disadvantaged if the
student is eligible to receive a Federal Pell Grant award that is at
least equal to one-half the maximum Federal Pell Grant award for which
the student would be eligible based on the student's enrollment status.
The previous regulatory criterion considered a student with an expected
family contribution (EFC) of zero to be economically disadvantaged.
* A student is considered to have completed a program or to
have been placed if the student enters active duty in the Armed Forces
of the United States.
Additional changes are included in these proposed regulations.
Currently, the economically disadvantaged rates, completion rates, and
placement rates used to determine a school's eligibility for this type
of appeal are calculated as percentages of all of the school's regular
students. The proposed regulations limit the groups of students for
whom the percentages are calculated to include only students who are
enrolled in programs eligible for Title IV aid.
This change is proposed at the request of some of the non-Federal
negotiators, in consideration of the types of student records needed by
a school to calculate its eligibility for this appeal and of the
likelihood that these records may not be maintained by schools for
students who were not enrolled in Title IV eligible programs. We
especially request comments on the benefit or harm that this proposed
change might cause schools.
7. Other Mitigating Circumstances Appeals (Secs. 668.17(c)(1)(ii)(A),
(C), and (D))
Why are additional mitigating circumstances proposed?
These provisions are based on the authority given to the Secretary
under new section 435(a)(2)(iii) of the HEA. Under this section, the
Secretary may identify mitigating circumstances, in addition to those
identified in the HEA, that make the consequences of FFEL Program
cohort default rates, Direct Loan Program cohort rates, or weighted
average cohort rates inequitable. Schools meeting the criteria for
these additional mitigating circumstances may be allowed to continue
participating in the FFEL and Direct Loan programs.
What additional mitigating circumstances are proposed?
The proposed regulations include the following additional
mitigating circumstances for a school to use in appealing a loss of
participation based on three consecutive rates of 25 percent or
greater:
* A successful appeal, based on a school's participation
rate index, that is made upon receipt of the school's published rate
rather than its draft rate. The proposed regulations retain and modify
previous regulatory requirements. (See the previous discussion of
``Participation Rate Index.'')
* The total number of a school's borrowers entering
repayment in the 3 most recent fiscal years for which data are
available is 30 or fewer. For example, if the number of a school's
borrowers entering repayment in FY 1996 was 6, in FY 1997 was 10, and
in FY 1998 was 8, then the total number of a school's borrowers
entering repayment during those 3 fiscal years is 24 (6+10+8=24). The
school in the example would be eligible for an appeal of a loss of
participation based on the rates for those 3 fiscal years, because the
total number of its borrowers entering repayment (24) is 30 or fewer.
This additional mitigating circumstance was developed by the
committee and based on the reasoning that schools that make very few
loans only pose a minimal financial risk to the taxpayers. The
aggregate amount of the funds used to make these few loans is small.
The committee was of the view that it was inequitable to subject these
schools to loss of participation in the FFEL and Direct Loan programs,
and especially to loss of participation in the Federal Pell Grant
Program.
* At least two of the three rates upon which a school's loss
of participation is based are calculated as ``average'' rates
(``average'' rates are calculated for schools with fewer than 30
borrowers in a fiscal year, on the basis of combined data for 3 fiscal
years) and would be less than 25 percent if calculated using data
specific to each fiscal year.
As an example of this appeal, data for a sample school are provided
below:
[[Page 41757]]
----------------------------------------------------------------------------------------------------------------
Rate based on . . .
-------------------------
FY Students Default 3 years of 1 year of
data data
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
FY 1994..................................................... 25 7 ........... 28.0
FY 1995..................................................... 25 6 ........... 24.0
FY 1996..................................................... 25 10 30.7 40.0
FY 1997..................................................... 25 4 26.7 16.0
FY 1998..................................................... 25 5 25.3 20.0
----------------------------------------------------------------------------------------------------------------
In the example, a school's rates for FY 1996, FY 1997, and FY 1998, as
calculated under 34 CFR 668.17(d)(1)(i)(B) (in the ``3 Years of Data''
column), are 30.7 percent, 26.7 percent, and 25.3 percent. Since
calculations for FY 1997 and FY 1998, using data unique to each of
those fiscal years (in the ``1 Year of Data'' column), are both less
than 25 percent, the school in the example would meet the criteria for
this mitigating circumstance.
The proposed regulations include this mitigating circumstance
because we believe such an approach is consistent with the legislative
intent of section 435(m)(1)(C) of the HEA, which provides for the
calculation of ``average'' rates, the rates that are applicable to
schools with fewer than 30 borrowers entering repayment during a fiscal
year. In providing for a calculation based on an ``average'' rate, we
believe that the legislative intent of the HEA is to reduce the effects
of volatile rates on schools with fewer than 30 borrowers entering
repayment in a fiscal year. However, as shown in the preceding example,
using an ``average'' rate may have the opposite effect in some cases:
data for a single fiscal year (in the example, FY 1996) may raise a
school's subsequent rates and, absent this proposed mitigating
circumstance, could cause the school to lose its eligibility to
participate.
8. Definition of ``Default'' (Secs. 668.17(e), 668.17(f), and
668.17(h)(2)(iii))
Why are changes to the definition of ``default'' included in these
proposed regulations?
These provisions would conform 34 CFR 668.17 to an amendment to
section 435(l) of the HEA, which changes the definition of ``default''
from 180 days to 270 days for borrowers who first became delinquent on
or after October 7, 1998.
How would the change in the definition of ``default'' affect a
school's rate?
For purposes of calculating a school's rate, an FFEL Program
borrower is generally considered to be in default if a claim for
insurance is paid on the borrower's loan before the end of the fiscal
year that immediately follows the fiscal year in which the loan entered
repayment. For Direct Loan Program loans, specific timeframes are
included in regulations to determine whether a Direct Loan is
considered to be in default for purposes of the Direct Loan Program
cohort rate or weighted average cohort rate.
Since there is generally a 90-day delay between the date that an
FFEL Program loan defaults and the date that an insurance claim is
paid, a corresponding 90-day period is provided in the timeframe used
for Direct Loans. Thus, since the timeframe for considering a borrower
in default on an FFEL Program loan is changing from 270 days to 360
days, the proposed regulations would change, from 270 days to 360
days--
* The number of days of delinquency after which a borrower
would be considered in default on a Direct Loan, if the borrower's
delinquency began on or after October 7, 1998; and
* The number of days of repayment on a Direct Loan, under
the income-contingent repayment plan, after which a borrower would be
included in a school's rate under Sec. 668.17 (e) or (f).
9. Loan Servicing Calculation (Sec. 668.17(h)(2)(ii))
What changes would there be to the calculation of a school's rate
after a loan servicing appeal?
These provisions reflect amendments to section 435(m)(1)(B) of the
HEA. The section specifies that a loan is removed from both the
numerator and denominator of a rate's calculation if the loan is
determined to have been improperly serviced or collected. This is not a
change from the current method used to calculate a school's rate for
this purpose. The new language in the proposed regulations is included
only to reflect the changes to the statute.
10. Definition of ``Loan Servicing Records'' (Secs. 668.17(h)(3)(ii)(B)
and 668.17(h)(3)(iii)(B))
Why is the definition of ``loan servicing records'' changing?
These provisions reflect amendments to section 435(a)(3) of the
HEA. The section clarifies the definition of the loan servicing records
that guaranty agencies and the Direct Loan Servicer provide to schools
during appeals on the basis of improper loan servicing or collection.
How would the definition of ``loan servicing records'' change?
The definition of ``loan servicing records'' would remain
essentially the same for both the FFEL and Direct Loan programs:
* FFEL Program loan servicing records are the collection and
payment history records used by a guaranty agency to determine whether
to pay a claim on a defaulted loan.
* Direct Loan Program loan servicing records are the
collection and payment history records that we use to determine a
school's Direct Loan Program cohort rate or weighted average cohort
rate.
These revisions do not reflect a change in our current procedures.
The proposed regulations provide clarification to reflect more closely
the language in the 1998 Amendments.
11. Special Institutions (Sec. 668.17(k) and Appendix H)
How would a special institution's eligibility to participate be
affected by the proposed regulations?
These provisions reflect amendments to section 435(a)(2)(C) of the
HEA and add the provisions of the new section 435(a)(5) of the HEA. The
1998 Amendments extends, from July 1, 1998, to July 1, 1999, the date
on which the consequences of excessive rates are applicable to
historically black colleges or universities, tribally controlled
community colleges, and Navajo community colleges. In certain cases,
the Secretary may treat one of these special institutions that is
subject to loss of participation due to excessive rates as an eligible
institution during the 1-year periods beginning on July 1, 1999, 2000,
and 2001. The proposed regulations include the requirements under which
these schools may maintain eligibility during the 1-year periods.
During negotiations, the committee had extensive discussions about
the amount of procedural detail needed in these regulations for special
institutions. The Department's initial position was that these
regulations should provide only the most general requirements, so
[[Page 41758]]
that the process would be flexible enough to account for changes in
circumstances and for experiences gained in administering the
requirements. Negotiators for special institutions were of the view
that it was more important to emphasize the consequences of the
requirements and to ensure stricter, more consistent requirements
throughout the process, so that schools could devote appropriate
resources to the task of reducing rates and would not be subject to
changing requirements. The committee came to consensus on this proposed
draft.
We note that proposed Sec. 668.17(k)(2)(iii) and the introduction
to proposed Appendix H use the word ``should'' rather than the word
``must,'' which is used throughout the rest of this NPRM. The word
``should'' was included by agreement during the negotiated rulemaking
process, and we chose not to change it at this stage of the process.
Although the meaning of this word may differ in different
circumstances, we want to emphasize that the term ``should'' in this
particular case is intended to mean ``must,'' and commenters should use
this interpretation in developing their comments. We intend to change
this section in the final regulations to use the word ``must,'' instead
of ``should,'' unless commenters indicate a substantial reason to keep
the word ``should.''
Executive Order 12866
1. Potential Costs and Benefits
Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those determined to be
necessary for the effective and efficient administration of the Title
IV programs.
In assessing the potential costs and benefits of this regulatory
action--both quantitative and qualitative--we have determined that the
benefits would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
We note that, as these proposed regulations were subject to
negotiated rulemaking, the costs and benefits of the various
requirements were discussed thoroughly by negotiators. The resultant
consensus reached on a particular requirement generally reflected
agreement on the best possible approach to that requirement in terms of
cost and benefit.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comments
on whether there may be further opportunities to reduce any potential
costs or to increase any potential benefits resulting from these
proposed regulations without impeding the effective and efficient
administration of the title IV, HEA programs.
2. Clarity of the Regulations
Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``Plain Language in Government Writing'' require each agency to
write regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
* Are the requirements in the proposed regulations clearly
stated?
* Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
* 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
we divided them 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.)
* Could the description of the proposed regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
* What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESS section of the preamble.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. Entities affected by these regulations are institutions of
higher education that participate in the title IV, HEA programs and
individual recipients of title IV, HEA program funds. Institutions are
defined as small entities, according to the U.S. Small Business
Administration, if they are for-profit or nonprofit entities with total
revenue of $5,000,000 or less, or entities controlled by governmental
entities with populations of 50,000 or less. Individuals are not
considered small entities for this purpose. These proposed regulations,
which generally reduce operational burden and offer institutions
additional ways to maintain their eligibility to participate in the
Title IV aid programs, would not have a significant economic impact on
small institutions.
The Secretary invites comments from small institutions as to
whether the proposed changes would have a significant economic impact
on them.
Paperwork Reduction Act of 1995
Section 668.17 contains an information collection requirement.
Under 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.
Collection of Information: Student Assistance General Provisions--
668.17--Default reduction and prevention measures.
Under the proposed regulations, a historically black college or
university, tribally controlled community college, or Navajo community
college may continue to participate in the FFEL or Direct Loan Program
even though it is subject to loss of participation due to excessive
rates. This continued participation may only occur during the 1-year
periods beginning on July 1, 1999, 2000, and 2001, and depends upon the
Secretary's determination of the school's compliance with the proposed
regulations.
To make this determination, we need to collect information from
schools. Each school is required to submit a default management plan on
or before July 1, 1999. On or before July 1, 2000 and 2001, each school
is required to submit evidence of the implementation of its plan and of
improvement in the preceding 1-year period. Some schools may be
required to submit revised default management plans.
Fourteen schools submitted this collection in 1999. We estimate
that 8 schools will submit this collection in 2000 and 4 schools will
submit this collection in 2001. We estimate a burden of 200 hours per
school to create/revise a default management plan, and an additional
burden of 200 hours per school to submit evidence of their plan's
implementation and of improvement in the preceding 1-year period.
As calculated in the table below, the annual burden is estimated to
be 2534 hours:
[[Page 41759]]
----------------------------------------------------------------------------------------------------------------
Default Evidence
plan hours hours Total hours
Year Number of (Schools x (Schools x (Default
schools 200 hrs) 200 hrs) plan +
evidence)
----------------------------------------------------------------------------------------------------------------
1999........................................................ 14 2800 N/A 2800
2000........................................................ 8 1600 1600 3200
2001........................................................ 4 800 800 1600
------------
Total (2800+3200+1600) =................................ ........... ........... ........... 7600
Average (Total/3) =..................................... ........... ........... ........... 2534
----------------------------------------------------------------------------------------------------------------
If you want to comment on the information collection requirements,
please send your comments 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. You
may also send a copy of these comments to the Department representative
named in the ADDRESSES section of this preamble.
We consider your comments on this proposed collection of
information in--
* Deciding whether the proposed collection is necessary for
the proper performance of our functions, including whether the
information will have practical use;
* Evaluating the accuracy of our estimate of the burden of
the proposed collection, including the validity of our methodology and
assumptions;
* Enhancing the quality, usefulness, and clarity of the
information we collect; and
* Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives your comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.
Intergovernmental Review
The Federal Supplemental Educational Opportunity Grant Program and
the State Student Incentive Grant Program are subject to Executive
Order 12372 and the regulations in 34 CFR part 79. One of the
objectives of the Executive order is to foster an intergovernmental
partnership and a strengthened federalism. The Executive order relies
on processes developed by State and local governments for coordination
and review of proposed Federal financial assistance.
This document provides early notification of our 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 Executive Order 12372 and the regulations
in 34 CFR part 79.
Assessment of Educational Impact
The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.
Electronic Access to This Document
You may view this document in text or Adobe Portable Document
Format (PDF) on the Internet at the following sites:
http://ocfo.ed.gov/fedreg.htm
http://ifap.ed.gov/csb__html/fedlreg.htm
http://www.ed.gov/legislation/HEA/rulemaking/
To use the PDF you must have the Adobe Acrobat Reader Program with
Search, which is available free at the first of the previous sites. If
you have questions about using the PDF, call the U.S. Government
Printing Office (GPO), toll free, at 1-888-293-6498; or in the
Washington, DC, area at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html
(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)
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 27, 1999.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, 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 to read as follows by--
A. Revising paragraph (a)(1).
B. In the introductory language for paragraph (b)(3), removing the
word ``institution's'' and adding, in its place, ``institution whose'';
removing the word ``respectively''; and removing the words ``section
and continuing'' and adding, in their place, ``section. The loss of
participation continues''.
C. Revising paragraphs (b)(4) through (b)(6).
D. In the introductory text for paragraph (c)(1), after ``except
that an institution may submit an appeal under'', removing the word
``section'' and adding, in its place, ``paragraph''; removing the words
``the information required by paragraph (c)(7) may be submitted in
accordance with that paragraph'' and adding, in their place, ``an
institution submits an appeal under paragraph (c)(1)(ii)(B) of this
section in accordance with paragraph (c)(7) of this section''; and
removing the sentence, ``The additional 30-day period specified
[[Page 41760]]
in paragraph (c)(7) of this section is an extension for the submission
of the auditor's statement only and does not affect the date by which
the appeal data must be submitted.''
E. Revising paragraphs (c)(1)(ii), (c)(2), and (c)(7).
F. In paragraphs (e)(1)(ii)(A), (e)(1)(ii)(B), (f)(1)(ii)(A), and
(f)(1)(ii)(B), removing the number ``270'' and adding, in its place,
``360''.
G. In paragraphs (e)(3) and (f)(3), removing ``270 days'' and
adding, in its place, ``360 days (or for 270 days, if the borrower's
delinquency began before October 7, 1998)''.
H. In paragraph (h)(2)(ii), adding, at the end of the paragraph,
``In excluding loans from the calculations of these rates, the
Secretary removes them from both the number of students who entered
repayment and the number of students who defaulted.''
I. In paragraph (h)(2)(iii), removing the number ``270'' and
adding, in its place, ``360''.
J. In the introductory language for paragraph (h)(3)(ii)(B),
removing the words ``with a representative sample'' and adding, in
their place, ``with access, for a reasonable period of time not to
exceed 30 days, to a representative sample''; and removing the words
``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''
and adding, in their place, ``collection and payment history records
provided to the guaranty agency by the lender and used by the guaranty
agency in determining whether to pay a claim on a defaulted loan''.
K. In the introductory language for paragraph (h)(3)(iii)(B),
removing the words ``with a representative sample'' and adding, in
their place, ``with access, for a reasonable period of time not to
exceed 30 days, to a representative sample''; and removing the words
``records maintained by the Department's Direct Loan Servicer with
respect to the servicing and collecting of delinquent loans prior to
the default'' and adding, in their place, ``collection and payment
history records maintained by the Department's Direct Loan Servicer
that are used in determining an institution's Direct Loan Program
cohort rate or weighted average cohort rate''.
L. Revising paragraph (j)(1)(ii).
M. Removing paragraph (j)(1)(iii).
N. Redesignating paragraphs (j)(2), (j)(3), (j)(4), (j)(5), and
(j)(7) as paragraphs (j)(3)(i), (j)(3)(ii), (j)(3)(iii), (j)(3)(iv),
and (j)(3)(v), respectively.
O. Redesignating paragraph (j)(6) as (j)(2).
P. In the redesignated paragraph (j)(2), removing the cross-
reference ``(h)(1)'' and adding, in its place, ``(j)(1)''.
Q. In the redesignated paragraph (j)(3)(i), removing the number
``30'' and adding, in its place, ``45''.
R. In the redesignated paragraph (j)(3)(ii), removing the citation
``(h)(2)'' and adding, in its place, ``(j)(3)(i)''.
S. In the redesignated paragraph (j)(3)(v), removing the citation
``(d)(1)'' and adding, in its place, ``(c)(1)(i)''; removing the word
``preliminary'' and adding, in its place, ``draft''; and removing the
citation ``(h)'' and adding, in its place, ``(j)(3)''.
T. Adding a new paragraph (j)(4).
U. Adding a new paragraph (k).
Sec. 668.17 Default reduction and prevention measures.
(a) * * *
(1)(i) If the Secretary calculates an FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
for an institution, the Secretary notifies the institution of that
rate.
(ii) If an institution has an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate of 10
percent or more, the Secretary includes a copy of the supporting data
used in the calculation of the rate with the notice of the rate.
(iii) An institution with an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate of
less than 10 percent may request a copy of the supporting data used in
the calculation of the rate. The institution's request must be sent to
the Secretary within 10 working days of receiving the Secretary's
notice. Upon receiving the institution's request, the Secretary sends a
copy of the data to the institution.
* * * * *
(b) * * *
(4) If an institution loses eligibility to participate in the FFEL
or Direct Loan Program under this section, it also loses eligibility to
participate in the Federal Pell Grant Program for the same period of
time, except that the institution may continue to participate in the
Federal Pell Grant Program if the Secretary determines that the
institution--
(i) Was ineligible to participate in the FFEL and Direct Loan
programs before October 7, 1998, and the institution's eligibility was
not reinstated;
(ii) Requested in writing, before October 7, 1998, to withdraw its
participation in the FFEL and Direct Loan programs, and the institution
did not subsequently re-apply to participate; or
(iii) Has not certified an FFEL loan or originated a Direct Loan on
or after July 7, 1998.
(5) An institution whose participation in the FFEL, Direct Loan, or
Federal Pell Grant Program ends under paragraph (a)(3), (b)(1), (b)(2),
or (b)(4) of this section may not participate in that program until the
institution--
(i) Demonstrates to the Secretary that it meets all requirements
for participation in the FFEL, Direct Loan, or Federal Pell Grant
Program;
(ii) Has paid any amount owed to the Secretary under paragraph
(b)(6)(ii)(B) of this section or is meeting that obligation under an
agreement satisfactory to the Secretary; and
(iii) Executes a new agreement with the Secretary for participation
in that program following the period described in paragraph (b)(3) of
this section.
(6)(i) An institution may, notwithstanding 34 CFR 668.26, continue
to participate in the FFEL, Direct Loan, and Federal Pell Grant
programs until the Secretary issues a decision on the institution's
appeal if the Secretary receives an appeal that is complete, accurate,
and timely in accordance with paragraph (c) of this section; or it may
suspend its participation during the appeal.
(ii) If an institution continues to participate in the FFEL or
Direct Loan Program under paragraph (b)(6)(i) of this section, and the
institution's appeal of its loss of participation is unsuccessful--
(A) The Secretary estimates the amount of interest, special
allowance, reinsurance, and any related or similar payments made by the
Secretary (or which the Secretary is obligated to make) on any FFEL or
Direct Loan Program loan for which the institution certified and
delivered or originated and disbursed funds during the period in which
the institution would have been otherwise ineligible to certify and
deliver or originate and disburse those funds, if it had not appealed;
(B) The Secretary excludes from the estimate calculated under
paragraph (b)(6)(ii)(A) of this section any amount that is attributable
to funds delivered or disbursed by the institution more than 45
calendar days after the date on which the institution submitted its
completed appeal to the Secretary; and
(C) The institution must pay the Secretary the amount estimated
under paragraph (b)(6)(ii) of this section within 45 days of the date
of the Secretary's notification, unless--
(1) The institution files an appeal under the procedures
established in subpart H of this part; or
[[Page 41761]]
(2) The Secretary permits a longer repayment period.
(iii) An institution may also continue to participate in the FFEL
Program or Direct Loan Program if it is in compliance with paragraph
(k) of this section.
(c) * * *
(1) * * *
(ii) The institution meets one of the following exceptional
mitigating circumstances:
(A)(1) The institution's participation rate index, as determined
under paragraph (c)(1)(ii)(A)(2) of this section, is equal to or less
than 0.0375 for any of the 3 most recent fiscal years for which data
are available.
(2) For the purpose of (c)(1)(ii)(A)(1) of this section, an
institution's participation rate index for a fiscal year is determined
by multiplying its FFEL Program cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate for that fiscal
year by the percentage of its regular students, as defined in 34 CFR
600.2, who--
(i) Were enrolled on at least a half-time basis during any part of
a 12-month period ending during the 6 months immediately preceding the
fiscal year for which the cohort of borrowers (used to calculate the
institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate) is determined; and
(ii) Received an FFEL or Direct Loan for attendance at the
institution for a loan period that coincides with any part of the same
12-month period.
(B)(1) If in the opinion of an independent auditor, as submitted
under paragraph (c)(7) of this section, the institution's economically
disadvantaged rate is two-thirds or more, as determined under paragraph
(c)(1)(ii)(B)(2) of this section; and
(i) If it offers an associate, baccalaureate, graduate or
professional degree, the institution's completion rate is 70 percent or
more, as determined under paragraph (c)(1)(ii)(B)(3) of this section;
or
(ii) If it does not offer an associate, baccalaureate, graduate or
professional degree, the institution's placement rate is 44 percent or
more, as determined under paragraph (c)(1)(ii)(B)(4) of this section.
(2) For the purpose of (c)(1)(ii)(B)(1) of this section, an
institution's economically disadvantaged rate is the percentage of its
students, enrolled on at least a half-time basis in an eligible program
at the institution during any part of a 12-month period that ended
during the 6 months immediately preceding the fiscal year for which the
cohort of borrowers (used to calculate the institution's FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate) is determined, who--
(i) Are eligible to receive a Federal Pell Grant award of at least
one-half the maximum Federal Pell Grant award for which the student
would be eligible based on the student's enrollment status; or
(ii) Have an adjusted gross income that, if added to the adjusted
gross income of the student's parents (unless the student is an
independent student), is less than the poverty level as determined by
the Department of Health and Human Services.
(3) For the purpose of (c)(1)(ii)(B)(1) of this section, an
institution's completion rate is the percentage of its regular
students, initially enrolled on a full-time basis in an eligible
program and scheduled to complete their programs, as described in
paragraph (c)(2) of this section, during the same 12-month period used
to determine its economically disadvantaged rate under paragraph
(c)(1)(ii)(B)(2) of this section, who--
(i) Completed the educational programs in which they were enrolled;
(ii) Transferred from the institution to a higher level educational
program;
(iii) Remained enrolled and making satisfactory progress toward
completion of the student's educational programs at the end of the 12-
month period; or
(iv) Entered active duty in the Armed Forces of the United States
within 1 year after their last day of attendance at the institution.
(4)(i) Except as provided in paragraph (c)(1)(ii)(B)(4)(ii) of this
section, for the purpose of (c)(1)(ii)(B)(1) of this section, an
institution's placement rate is the percentage of its former students,
as described in paragraph (c)(1)(ii)(B)(4)(iii) of this section, who
are employed, in an occupation for which the institution provided
training, on the date following 1 year after their last date of
attendance at the institution; were employed, in an occupation for
which the institution provided training, for at least 13 weeks before
the date following 1 year after their last date of attendance at the
institution; or entered active duty in the Armed Forces of the United
States within 1 year after their last date of attendance at the
institution.
(ii) If a former student's employer is the institution, the student
is not considered employed for the purposes of paragraph (c)(1)(ii)(B)
of this section.
(iii) The former students who are used to determine an
institution's placement rate under paragraph (c)(1)(ii)(B)(4) of this
section include only students who were initially enrolled in eligible
programs on at least a half-time basis; were originally scheduled, at
the time of enrollment, to complete their educational programs during
the same 12-month period used to determine the institution's
economically disadvantaged rate under paragraph (c)(1)(ii)(B)(2) of
this section; and remained in the program beyond the point at which a
student would have received a 100 percent tuition refund from the
institution. A student is not included in the calculation of the
placement rate if that student, on the date that is 1 year after the
student's scheduled completion date, remains enrolled in the same
program at the institution and is making satisfactory progress.
(C) At least two of the rates that result in a loss of eligibility
under paragraph (a)(3), (b)(1), or (b)(2) of this section--
(1) Are calculated using data for the 3 most recent fiscal years,
pursuant to paragraph (d)(1)(i)(B), (e)(1)(i)(B), (e)(1)(ii)(B),
(f)(1)(i)(B), or (f)(1)(ii)(B) of this section; and
(2) Would be less than 25 percent if calculated using data for only
the fiscal year for which the institution received its rate, pursuant
to paragraph (d)(1)(i)(A), (e)(1)(i)(A), (e)(1)(ii)(A), (f)(1)(i)(A),
or (f)(1)(ii)(A) of this section, respectively.
(D) During the 3 most recent fiscal years for which the Secretary
has determined the institution's rate, a total of thirty or fewer
borrowers entered repayment on a loan or loans included in a
calculation of the institution's rate.
(2) For the purposes of the completion rate and placement rate
described in paragraphs (c)(1)(ii)(B)(3) and (4) of this section, a
student is scheduled to complete an educational program on the date on
which--
(i) If the student is initially enrolled full-time, the student
will have been enrolled in the program for the amount of time specified
in the institution's enrollment contract, catalog, or other materials,
for completion of the program by a full-time student; or
(ii) If the student is initially enrolled less than full-time, the
student will have been enrolled in the program for the amount of time
that it would take the student to complete the program if the student
remained enrolled at that level of enrollment throughout the program.
* * * * *
(7)(i) An institution that appeals on the grounds that it meets the
exceptional mitigating circumstances criteria in paragraph
(c)(1)(ii)(B) of this section must submit to the Secretary--
(A) Within 30 calendar days of the date that it was notified of its
loss of
[[Page 41762]]
participation, notice of its intent to appeal under that paragraph, in
a format prescribed by the Secretary; and
(B) Within 60 calendar days of the date that it was notified of its
loss of participation, the independent auditor's compliance attestation
report, as described in paragraph (c)(7)(ii) of this section, including
the specific institution's management's written assertions for which
the independent auditor opines, all in a format prescribed by the
Secretary.
(ii)(A) The report of the independent auditor, required for an
institution's appeal under paragraph (c)(1)(ii)(B) of this section,
must state whether, in the auditor's opinion, the institution's
management's assertion met the exceptional mitigating circumstances
criteria specified in paragraph (c)(1)(ii)(B) of this section, as
provided to the auditor to examine, and is fairly stated in all
material respects.
(B) The engagement that forms the basis of the independent
auditor's opinion must be an examination-level compliance attestation
engagement performed in accordance with the American Institute of
Certified Public Accountant's (AICPA) Statement on Standards for
Attestation Engagements, Compliance Attestation (AICPA, Professional
Standards, vol. 1, AT sec. 500), as amended, and Government Auditing
Standards issued by the Comptroller General of the United States.
(iii) The Secretary denies an institution's appeal under paragraph
(c)(1)(ii)(B) of this section if--
(A) The independent auditor does not opine that the institution
meets the criteria for the appeal; or
(B) The Secretary determines that the independent auditor's report
or institution's management's assertion described in paragraph
(c)(7)(i) of this section--
(1) Demonstrates that the independent auditor's report or
examination does not meet the requirements of this section; or
(2) Is contradicted or otherwise refuted, to an extent that would
render the auditor's report unacceptable, by information maintained by
the Secretary.
* * * * *
(j) * * *
(1) * * *
(ii) The Secretary's notice to an institution of its draft cohort
default rate includes a copy of the supporting data used in the
calculation of that draft rate.
* * * * *
(4)(i) Within 30 calendar days of receiving the draft default rate
information from the Secretary, an institution may challenge an
anticipated loss of participation under (a)(3), (b)(1), or (b)(2) of
this section using the criteria in Sec. 668.17(c)(1)(ii)(A).
(ii) In meeting the requirements of Sec. 668.17(c)(1)(ii)(A) during
a challenge under this paragraph, the institution's draft rate is
considered to be its most recent rate.
(iii) The Secretary notifies an institution of the determination on
its challenge before the institution's FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
is published.
(k) Special institutions. (1) Applicability of requirements. For
each 1-year period beginning on July 1 of 1999, 2000, or 2001, the
Secretary may determine that the provisions of paragraph (a)(3),
(b)(1), or (b)(2) of this section and the provisions of 34 CFR
668.16(m) do not apply to a historically black college or university
within the meaning of section 322(2) of the HEA, a tribally controlled
community college within the meaning of section 2(a)(4) of the Tribally
Controlled Community College Assistance Act of 1978, or a Navajo
community college under the Navajo Community College Act if the
institution submits to the Secretary--
(i) By July 1, 1999--
(A) A default management plan; and
(B) A certification that the institution has engaged an independent
third party, as described in paragraph (k)(3) of this section; and
(ii) By July 1, 2000 and 2001--
(A) Evidence that it has implemented its default management plan
during the preceding 1-year period;
(B) Evidence that it has made substantial improvement in the
preceding 1-year period in the institution's FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate; and
(C) A certification that it continues to engage an independent
third party, as described in paragraph (k)(3) of this section.
(2) Default management plan. (i) An institution's default
management plan must provide reasonable assurance that it will, no
later than July 1, 2002, have an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate that
is less than 25 percent. Measures that an institution must take to
provide this assurance include but are not limited to--
(A) Establishing a default management team by engaging the chief
executive officer and relevant senior executive officials of the
institution and enlisting the support of representatives from offices
other than the financial aid office;
(B) Identifying and allocating the personnel, administrative, and
financial resources appropriate to implement the default management
plan;
(C) Defining the roles and responsibilities of the independent
third party;
(D) Defining evaluation methods and establishing a data collection
system for measuring and verifying relevant default management
statistics, including a statistical analysis of the borrowers who
default on their loans;
(E) Establishing annual targets for reductions in the institution's
rate; and
(F) Establishing a process to ensure the accuracy of the
institution's rate.
(ii) An institution's default management plan must be acceptable to
the Secretary, after consideration of that institution's history,
resources, dollars in default, and targets for default reduction.
(iii) If the Secretary determines that an institution's proposed
default management plan is unacceptable, the institution should consult
with the Secretary to develop a revised plan, and the institution must
submit the revised plan to the Secretary within 30 calendar days of
notice from the Secretary that the plan is unacceptable.
(iv) If the Secretary determines, based on evidence submitted under
paragraph (k)(1)(ii) of this section, that an institution's default
management plan is no longer acceptable, the institution must develop a
revised plan in consultation with the Secretary, and it must submit the
revised plan to the Secretary within 60 calendar days of notice from
the Secretary.
(v) A sample default management plan is provided in appendix H to
this part. The sample is included to illustrate additional components
of an acceptable default management plan. Because institutions' family
income profiles, student borrowing patterns, histories, resources,
dollars in default, and targets for default reduction are different, an
institution must consider its own, individual circumstances in
developing and submitting its plan.
(3) Independent third party. (i) An independent third party may be
any individual or entity that--
(A) Provides technical assistance in developing and implementing
the institution's default management plan; and
(B) Is not substantially controlled by a person who also exercises
substantial control over the institution.
(ii) An independent third party need not be paid by the institution
for its services.
[[Page 41763]]
(iii) The services of a lender, guaranty agency, or secondary
market as an independent third party under paragraph (k) of this
section are not considered to be inducements under Sec. 682.200 or
Sec. 682.401(e).
(4) Substantial improvement.
(i) For purposes of this section, an institution's substantial
improvement is determined based upon--
(A) A reduction in the institution's most recent draft or published
FFEL Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate;
(B) An increase in the percentage of delinquent borrowers who avoid
default by using deferments, forbearances, and job placement
assistance;
(C) An increase in the academic persistence of student borrowers;
(D) An increase in the percentage of students pursuing graduate or
professional study;
(E) An increase in the percentage of borrowers for whom a current
address is known;
(F) An increase in the percentage of delinquent borrowers contacted
by the institution;
(G) The implementation of alternative financial aid award policies
and development of financial resources that reduce the need for student
borrowing; or
(H) An increase in the percentage of accurate and timely enrollment
status changes submitted by the institution to the National Student
Loan Data System (NSLDS) on the Student Status Confirmation Report
(SSCR).
(ii) When making a determination of an institution's substantial
improvement, the Secretary considers the institution's performance in
light of--
(A) Its history, resources, dollars in default, targets for default
reduction;
(B) Its level of effort in meeting the terms of its approved
default management plan during the previous 1-year period; and
(C) Any other mitigating circumstance at the institution during the
1-year period.
(5) Secretary's determination. (i) If the Secretary determines that
an institution is in compliance with paragraph (k) of this section,
then the provisions of paragraph (a)(3), (b)(1), or (b)(2) of this
section and the provisions of 34 CFR 668.16(m) do not apply to the
institution for that 1-year period, beginning on July 1 of 1999, 2000,
or 2001.
(ii) If the Secretary determines that an institution is not in
compliance with paragraph (k) of this section, the institution is
subject to the provisions of paragraph (a)(3), (b)(1), or (b)(2) of
this section and the provisions of 34 CFR 668.16(m). The institution's
participation in the FFEL and Direct Loan programs ends on the date
that the institution receives notice of the Secretary's determination.
3. A new appendix H is added to part 668 to read as follows:
Appendix H to Part 668--Default Management Plans for Special
Institutions
This appendix is provided as a sample plan for those schools
developing a default management plan in accordance with 34 CFR
668.17(k). It describes some measures schools may find helpful in
reducing the number of students that default on federally funded
loans. These are not the only measures a school could implement when
developing a default management plan. In developing a default
management plan, each school should consider its own history,
resources, dollars in default, and targets for default reduction to
determine which activities will result in the most benefit to the
students and the school.
Core Default Reduction Strategies (from Sec. 668.17(k)(2)(i))
(1) Establish a default management team by engaging the chief
executive officer and relevant senior executive officials of the
school and enlisting the support of representatives from offices
other than the financial aid office.
(2) Identify and allocate the personnel, administrative, and
financial resources appropriate to implement the default management
plan.
(3) Define the roles and responsibilities of the independent
third party.
(4) Define evaluation methods and establish a data collection
system for measuring and verifying relevant default management
statistics, including a statistical analysis of the borrowers who
default on their loans.
(5) Establish annual targets for reductions in the school's
rate.
(6) Establish a process to ensure the accuracy of the school's
rate.
Additional Default Reduction Strategies
(1) Enhance the borrower's understanding of his or her loan
repayment responsibilities through counseling and debt management
activities.
(2) Enhance the enrollment retention and academic persistence of
borrowers through counseling and academic assistance.
(3) Maintain contact with the borrower after he or she leaves
the school by using activities such as skip-tracing to locate the
borrower.
(4) Track the borrower's delinquency status by obtaining reports
from lenders and guaranty agencies for FFEL Program loans and from
the Secretary for Direct Loan Program loans.
(5) Enhance student loan repayments through counseling the
borrower on loan repayment options and facilitating contact between
the borrower and lender for FFEL Program loans and the borrower and
the Secretary for Direct Loan Program loans.
(6) Assist a borrower who is experiencing difficulty in finding
employment through career counseling, job placement assistance, and
facilitating unemployment deferments.
(7) Identify and implement alternative financial aid award
policies and develop alternative financial resources that will
reduce the need for student borrowing in the first 2 years of
academic study.
(8) Familiarize the parent, or other adult relative or guardian,
with the student's debt profile, repayment obligations, and loan
status by increasing, whenever possible, the communication and
contact with the parent or adult relative or guardian.
Defining the Roles and Responsibilities of Independent Third Party
(1) Specifically define the role of the independent third party.
(2) Specify the scope of work to be performed by the independent
third party.
(3) Tie the receipt of payments, if required, to the performance
of specific tasks.
(4) Assure that all the required work is satisfactorily
completed.
Statistics for Measuring Progress
(1) The number of students enrolled at the school during each
fiscal year.
(2) The average amount borrowed by a student each fiscal year.
(3) The number of borrowers scheduled to enter repayment each
fiscal year.
(4) The number of enrolled borrowers that received default
prevention counseling services each fiscal year.
(5) The average number of contacts the school or its agent had
with a borrower who was in deferment/forbearance or repayment status
during each fiscal year.
(6) The number of borrowers at least 60 days delinquent each
fiscal year.
(7) The number of borrowers who defaulted in each fiscal year.
(8) The type, frequency, and results of activities performed in
accordance with the default management plan.
[FR Doc. 99-19518 Filed 7-29-99; 8:45 am]
BILLING CODE 4000-01-U