[Title 34 CFR ]
[Code of Federal Regulations (annual edition) - July 1, 2023 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          Title 34

Education


________________________

Part 680 to End


          
          
          Title 35

                         [Reserved]
                         Revised as of July 1, 2023

          Containing a codification of documents of general 
          applicability and future effect

          As of July 1, 2023
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 34:
    SUBTITLE B--Regulations of the Offices of the Department 
      of Education (Continued)
          Chapter VI--Office of Postsecondary Education, 
          Department of Education (Continued)                        5
          Chapter VII--Office of Educational Research and 
          Improvement, Department of Education [Reserved]
    SUBTITLE C--Regulations Relating to Education
          Chapter XI [Reserved]
          Chapter XII--National Council on Disability              435

  Title 35 [Reserved]
  Finding Aids:
      Table of CFR Titles and Chapters........................     449
      Alphabetical List of Agencies Appearing in the CFR......     469
      List of CFR Sections Affected...........................     479

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 34 CFR 682.100 
                       refers to title 34, part 
                       682, section 100.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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[[Page vi]]

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[[Page vii]]

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    Oliver A. Potts,
    Director,
    Office of the Federal Register
    July 1, 2023







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                               THIS TITLE

    Title 34--Education is composed of four volumes. The parts in these 
volumes are arranged in the following order: Parts 1-299, parts 300-399, 
parts 400-679, and part 680 to end. The contents of these volumes 
represent all regulations codified under this title of the CFR as of 
July 1, 2023.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
John Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                           TITLE 34--EDUCATION




                  (This book contains part 680 to end)

  --------------------------------------------------------------------

 SUBTITLE B--Regulations of the Offices of the Department of Education 
                                (Continued)

                                                                    Part

chapter VI--Office of Postsecondary Education, Department of 
  Education (Continued).....................................         682
chapter VII--Office of Educational Research and Improvement, Department 
  of Education [Reserved]

              SUBTITLE C--Regulations Relating to Education

chapter XI--National Institute for Literacy [Reserved]

chapter XII--National Council on Disability.................        1200

[[Page 3]]

 Subtitle B--Regulations of the Offices of the Department of Education 
                               (Continued)

[[Page 5]]



 CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION 
                               (CONTINUED)




  --------------------------------------------------------------------
Part                                                                Page
681             Health education assistance loan program....           7
682             Federal family education loan (FFEL) program          36
685             William D. Ford Federal direct loan program.         225
686             Teacher education assistance for college and 
                    higher education (TEACH) grant program..         351
690             Federal Pell grant program..................         378
691

[Reserved]

692             Leveraging educational assistance 
                    partnership program.....................         392
694             Gaining Early Awareness and Readiness for 
                    Undergraduate Programs (GEAR UP)........         419

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 PART 681_HEALTH EDUCATION ASSISTANCE LOAN PROGRAM--Table of Contents



                  Subpart A_General Program Description

Sec.
681.1 What is the HEAL program?

                         Subpart B_The Borrower

681.5 Who is an eligible student borrower?
681.6 Who is an eligible nonstudent borrower?
681.7 The loan application process.
681.8 What are the borrower's major rights and responsibilities?

                           Subpart C_The Loan

681.10 How much can be borrowed?
681.11 Terms of repayment.
681.12 Deferment.
681.13 Interest.
681.14 The insurance premium.
681.15 Other charges to the borrower.
681.16 Power of attorney.
681.17 Security and endorsement.
681.18 Consolidation of HEAL loans.
681.19 Forms.
681.20 The Secretary's collection efforts after payment of a default 
          claim.
681.21 Refunds.

                     Subpart D_The Lender and Holder

681.30 Which organizations are eligible to apply to be HEAL lenders and 
          holders?
681.31 The application to be a HEAL lender or holder.
681.32 The HEAL lender or holder insurance contract.
681.33 Making a HEAL loan.
681.34 HEAL loan account servicing.
681.35 HEAL loan collection.
681.36 Consequence of using an agent.
681.37 Forbearance.
681.38 Assignment of a HEAL loan.
681.39 Death and disability claims.
681.40 Procedures for filing claims.
681.41 Determination of amount of loss on claims.
681.42 Records, reports, inspection, and audit requirements for HEAL 
          lenders and holders.
681.43 Limitation, suspension, or termination of the eligibility of a 
          HEAL lender or holder.

                          Subpart E_The School

681.50 Which schools are eligible to be HEAL schools?
681.51 The student loan application.
681.52 The student's loan check.
681.53 Notification to lender or holder of change in enrollment status.
681.54 Payment of refunds by schools.
681.55 Administrative and fiscal procedures.
681.56 Records.
681.57 Reports.
681.58 Federal access to school records.
681.59 Records and Federal access after a school is no longer a HEAL 
          school.
681.60 Limitation, suspension, or termination of the eligibility of a 
          HEAL school.
681.61 Responsibilities of a HEAL school.

    Authority: Sec. 215, Pub. L. 78-410, 58 Stat. 690, as amended, 63 
Stat. 35 (42 U.S.C. 216); secs. 727-739A, Pub. L. 78-410, 90 Stat. 2243, 
as amended, 93 Stat. 582, 99 Stat. 529-532, 102 Stat. 3122-3125 (42 
U.S.C. 294-294l-1); renumbered as secs. 701-720, as amended by 106 Stat. 
1994-2011 (42 U.S.C. 292-292p); sec. 525, Pub. L. 113-76, Division H, 
title V, transferred HEAL to the Secretary of Education effective July 
1, 2014.

    Source: 82 FR 53378, Nov. 15, 2017, unless otherwise noted.



                  Subpart A_General Program Description



Sec.  681.1  What is the HEAL program?

    (a) The Health Education Assistance Loan (HEAL) program is a program 
of Federal insurance of educational loans that were made to graduate 
students in the fields of medicine, osteopathic medicine, dentistry, 
veterinary medicine, optometry, podiatric medicine, pharmacy, public 
health, chiropractic, health administration, and clinical psychology. 
The basic purpose of the program is to encourage lenders to make loans 
to students in these fields who desire to borrow money to pay for their 
educational costs. In addition, certain nonstudents (such as doctors 
serving as interns or residents) could borrow in order to pay the 
current interest charges accruing on earlier HEAL loans. By taking a 
HEAL loan, the borrower is obligated to repay the lender or holder the 
full amount of the money borrowed, plus all interest which accrues on 
the loan.
    (b) HEAL loans were made by schools, banks, credit unions, State 
agencies, and other institutions eligible as lenders under Sec.  681.30. 
HEAL school eligibility is described in Sec.  681.50.
    (c) The Secretary insures each lender or holder for the losses of 
principal and interest it may incur in the event that a borrower dies; 
becomes totally and

[[Page 8]]

permanently disabled; files for bankruptcy under chapter 11 or 13 of the 
Bankruptcy Act; files for bankruptcy under chapter 7 of the Bankruptcy 
Act and files a compliant to determine the dischargeability of the HEAL 
loan; or defaults on his or her loan. In these instances, if the lender 
or holder has complied with all HEAL statutes and regulations and with 
the lender's or holder's insurance contract, then the Secretary pays the 
amount of the loss to the lender or holder and the borrower's loan is 
assigned to the Secretary. Only after assignment does the Secretary 
become the holder of the HEAL loan and the Secretary will use all 
collection methods legally authorized to obtain repayment of the HEAL 
loan, including, but not limited to, reporting the borrower's default on 
the loan to consumer credit reporting agencies, certifying the debt for 
offset in the Treasury Offset Program (TOP), using available methods to 
locate the debtor, utilizing administrative wage garnishment, and 
referring the debt to the Department of Justice for litigation.
    (d) Any person who knowingly makes a false statement or 
misrepresentation in a HEAL loan transaction, bribes or attempts to 
bribe a Federal official, fraudulently obtains a HEAL loan, or commits 
any other illegal action in connection with a HEAL loan is subject to 
possible fine and imprisonment under Federal statute.
    (e) In counting the number of days allowed to comply with any 
provisions of these regulations, Saturdays, Sundays, and holidays are to 
be included. However, if a due date falls on a Saturday, Sunday, or 
Federal holiday, the due date is the next Federal work day.



                         Subpart B_The Borrower



Sec.  681.5  Who is an eligible student borrower?

    To receive a HEAL loan, a student must satisfy the following 
requirements:
    (a) He or she must be a citizen, national, or lawful permanent 
resident of the United States, permanent resident of the Trust Territory 
of the Pacific Islands (the Republic of Palau), the Republic of the 
Marshall Islands, the Federated States of Micronesia, the Commonwealth 
of the Northern Mariana Islands, or American Samoa, or lawful permanent 
resident of the Commonwealth of Puerto Rico, the Virgin Islands or Guam;
    (b) He or she must be enrolled or accepted for enrollment at a HEAL 
school in a course of study that leads to one of the following degrees:
    (1) Doctor of Medicine.
    (2) Doctor of Osteopathic Medicine.
    (3) Doctor of Dentistry or equivalent degree.
    (4) Doctor of Veterinary Medicine or equivalent degree.
    (5) Doctor of Optometry or equivalent degree.
    (6) Doctor of Podiatric Medicine or equivalent degree.
    (7) Bachelor or Master of Science in Pharmacy or equivalent degree.
    (8) Graduate or equivalent degree in Public Health.
    (9) Doctor of Chiropractic or equivalent degree.
    (10) Doctoral degree in Clinical Psychology.
    (11) Masters or doctoral degree in Health Administration.
    (c) He or she must be carrying or plan to carry, during the period 
for which the loan is intended, the normal work load of a full-time 
student, as determined by the school. The student's work load may 
include any combination of courses, work experience, research or special 
studies that the school considers sufficient to classify the student as 
full time.
    (d) If currently enrolled in school, he or she must be in good 
standing, as determined by the school.
    (e)(1) In the case of a pharmacy student, he or she must have 
satisfactorily completed 3 years of training toward the pharmacy degree. 
These 3 years of training may have been taken at the pharmacy school or 
at a different school whose credits are accepted on transfer by the 
pharmacy school.
    (2) The Doctor of Pharmacy degree is considered to be an equivalent 
degree if it is taken in a school that does not require the Bachelor or 
Master of Science in pharmacy as a prerequisite for the Doctor of 
Pharmacy degree.
    (f) In the case of a medical, dental or osteopathic student enrolled 
in a 6-

[[Page 9]]

year program that the student may enter directly from secondary school, 
the student must be enrolled in the last 4 years of the program.
    (g) He or she must agree that all funds received under the proposed 
loan will be used solely for tuition, other reasonable educational 
expenses, including fees, books, supplies and equipment, and laboratory 
expenses, reasonable living expenses, reasonable transportation costs 
(only to the extent that they are directly related to the borrower's 
education), and the HEAL insurance premium.
    (h) He or she must require the loan to pursue the course of study at 
the school. This determination of the maximum amount of the loan will be 
made by the school, applying the considerations in Sec.  681.51(f).
    (i) If required under section 3 of the Military Selective Service 
Act to present himself for and submit to registration under such 
section, he must have presented himself and submitted to registration 
under such section.



Sec.  681.6  Who is an eligible nonstudent borrower?

    To receive a HEAL loan, a person who is not a student must satisfy 
all of the following requirements:
    (a) He or she must have received a HEAL loan prior to August 13, 
1981, for which he or she is required to make payments of interest, but 
not principal, during the period for which the new loan is intended. 
This may be the grace period or a period of internship, residency, or 
deferment.
    (b) He or she must continue to meet the citizenship, nationality, or 
residency qualifications required of student borrowers.
    (c) He or she must agree that all funds received under the proposed 
loan will be used solely for payment of currently accruing interest on 
HEAL loans and the HEAL insurance premium.
    (d) If required under section 3 of the Military Selective Service 
Act to present himself for and submit to registration under such 
section, he must have presented himself and submitted to registration 
under such section.



Sec.  681.7  The loan application process.

    (a)(1)(i) A student seeking a HEAL loan applies to a participating 
lender for a HEAL loan by submitting an application form supplied by the 
school.
    (ii) The applicant must fill out the applicant sections of the form 
completely and accurately.
    (2) The student applicant must have been informed of the Federal 
debt collection policies and procedures in accordance with the Health 
and Human Services (HHS) Claims Collection Regulation (45 CFR part 30) 
prior to the student receiving the loan. The applicant must sign a 
certification statement attesting that the applicant has been notified 
of the actions the Federal Government can take in the event that the 
applicant fails to meet the scheduled payments. This signed statement 
must be maintained by the school and the lender or holder as part of the 
borrower's official record.
    (3) A student applicant must have his or her school complete a 
portion of the application providing information relating to:
    (i) The applicant's eligibility for the loan;
    (ii) The cost of his or her education; and
    (iii) The total financial resources that are actually available to 
the applicant for his or her costs of education for the period covered 
by the proposed HEAL loan, as determined in accordance with Sec.  
681.51(f), and other student aid that the applicant has received or will 
receive for the period covered by the proposed HEAL loan.
    (4) The student applicant must certify on the application that the 
information provided reflects the applicant's total financial resources 
actually available for his or her costs of education for the period 
covered by the proposed HEAL loan and the applicant's total 
indebtedness, and that the applicant has no other financial resources 
that are available to the applicant or that the applicant will receive 
for the period covered by the proposed HEAL loan.
    (5) A student applicant must certify on the application that if 
required under section 3 of the Military Selective Service Act to 
present himself for and submit to registration under such

[[Page 10]]

section, he has presented himself and submitted to registration under 
such section.
    (b) The applicant pursuing a full-time course of study at an 
institution of higher education that is a ``participating school'' in 
the Guaranteed Student Loan Program but is not pursuing a course of 
study listed in Sec.  681.5(b), applies for a HEAL loan as a nonstudent 
under paragraph (c) of this section.
    (c)(1)(i) A nonstudent seeking a HEAL loan applies to a 
participating lender for a HEAL loan by submitting an application form 
supplied by the lender.
    (ii) The applicant must fill out the applicant sections of the form 
completely and accurately.
    (2) The nonstudent applicant must have been informed of the Federal 
debt collection policies and procedures in accordance with HHS' Claims 
Collection Regulation (45 CFR part 30) prior to the nonstudent receiving 
the loan. The applicant must sign a certification statement attesting 
that the applicant has been notified of the actions the Federal 
Government can take in the event that the applicant fails to meet the 
scheduled payments. This signed statement will be maintained by the 
lender or holder as part of the borrower's official record.
    (3) A nonstudent applicant must have his or her employer or 
institution, whichever is relevant, certify on the application that the 
applicant is:
    (i) Enrolled as a full-time student in an eligible school, as 
described in Sec.  681.12;
    (ii) A participant in an accredited internship or residency program, 
as described in Sec.  681.11(a);
    (iii) A member of the Armed Forces of the United States;
    (iv) A Peace Corps volunteer;
    (v) A member of the National Health Service Corps; or
    (vi) A full-time VISTA volunteer under Title I of the Domestic 
Volunteer Service Act of 1973.
    (4) The nonstudent applicant seeking a HEAL loan during the grace 
period applies to the lender directly.
    (5) A nonstudent applicant must certify on the application that if 
required under section 3 of the Military Selective Service Act to 
present himself for and submit to registration under such section, he 
has presented himself and submitted to registration under such section.
    (6) The nonstudent applicant must have certified on the application 
that the information provided reflects the applicant's total financial 
resources and indebtedness.

(Approved by the Office of Management and Budget under control numbers 
0915-0038 and 1845-0125).



Sec.  681.8  What are the borrower's major rights and responsibilities?

    (a) The borrower's rights. (1) Once the terms of the HEAL loan have 
been established, the lender or holder may not change them without the 
borrower's consent.
    (2) The lender must provide the borrower with a copy of the 
completed promissory note when the loan is made. The lender or holder 
must return the original note to the borrower when the loan is paid in 
full.
    (3) A lender must disburse HEAL loan proceeds as described in Sec.  
681.33(f).
    (4) The lender or holder must provide the borrower with a copy of 
the repayment schedule before repayment begins.
    (5) If the loan is sold from one lender or holder to another lender 
or holder, or if the loan is serviced by a party other than the lender 
or holder, the buyer must notify the borrower within 30 days of the 
transaction.
    (6) The borrower does not have to begin repayment until 9 full 
months after leaving school or an accredited internship or residency 
program as described in Sec.  681.11.
    (7) The borrower is entitled to deferment from repayment of the 
principal and interest installments during periods described in Sec.  
681.12.
    (8) The borrower may prepay the whole or any portion of the loan at 
any time without penalty.
    (9) The lender or holder must allow the borrower to repay a HEAL 
loan according to a graduated repayment schedule.
    (10) The borrower's total loan obligation is cancelled in the event 
of death or total and permanent disability.
    (11) To assist the borrower in avoiding default, the lender or 
holder may

[[Page 11]]

grant the borrower forbearance. Forbearance, including circumstances in 
which the lender or holder must grant forbearance, is more fully 
described in Sec.  681.37.
    (12) Any borrower who received a fixed interest rate HEAL loan in 
excess of 12 percent per year could have entered into an agreement with 
the lender which made this loan for the reissuance of the loan in 
accordance with section 739A of the Public Health Service Act (the Act).
    (b) The borrower's responsibilities. (1) The borrower must pay any 
insurance premium that the lender may require as more fully described in 
Sec.  681.14.
    (2) The borrower must pay all interest charges on the loan as 
required by the lender or holder.
    (3) The borrower must immediately notify the lender or holder in 
writing in the event of:
    (i) Change of address;
    (ii) Change of name; or
    (iii) Change of status that authorizes deferment.
    (4) The borrower must repay the loan in accordance with the 
repayment schedule.
    (5) A borrower may not have a HEAL loan discharged in bankruptcy 
during the first 5 years of the repayment period. This prohibition 
against the discharge of a HEAL loan applies to bankruptcy under any 
chapter of the Bankruptcy Act, including Chapter 13. A borrower may have 
a HEAL loan discharged in bankruptcy after the first 5 years of the 
repayment period only upon a finding by the Bankruptcy Court that the 
non-discharge of such debt would be unconscionable and upon the 
condition that the Secretary shall not have waived his or her rights to 
reduce any Federal reimbursements or Federal payments for health 
services under any Federal law in amounts up to the balance of the loan.
    (6) If the borrower fails to make payments on the loan on time, the 
total amount to be repaid by the borrower may be increased by additional 
interest, late charges, attorney's fees, court costs, and other 
collection charges. In addition, the Secretary may offset amounts 
attributable to an unpaid loan from reimbursements or payment for health 
services provided under any Federal law to a defaulted borrower 
practicing his or her profession.

(Approved by the Office of Management and Budget under control number 
1845-0125)



                           Subpart C_The Loan



Sec.  681.10  How much can be borrowed?

    (a) Student borrower. An eligible student may borrow an amount to be 
used solely for expenses, as described in Sec.  681.5(g), incurred or to 
be incurred over a period of up to an academic year and disbursed in 
accordance with Sec.  681.33(f). The maximum amount he or she may 
receive for that period shall be determined by the school in accordance 
with Sec.  681.51(f) within the following limitations:
    (1) A student enrolled in a school of medicine, osteopathic 
medicine, dentistry, veterinary medicine, optometry or podiatric 
medicine may borrow up to $80,000 under this part. The amount received 
may not exceed $20,000 in any academic year.
    (2) A student enrolled in a school of public health, pharmacy, or 
chiropractic, or a graduate program in health administration, clinical 
psychology, or allied health, may borrow up to $50,000 under this part. 
The amount received may not exceed $12,500 per academic year.
    (3) For purposes of this paragraph, an academic year means the 
traditional approximately 9-month September-to-June annual session. For 
the purpose of computing academic year equivalents for students who, 
during a 12-month period, attend for a longer period than the 
traditional academic year, the academic year will be considered to be 9 
months in length.
    (4) The student's estimated cost of attendance shall not exceed the 
estimated cost of attendance of all students in like circumstances 
pursuing a similar curriculum at that school.
    (b) Non-student borrower. An eligible nonstudent may borrow amounts 
under this authority with the following restrictions:
    (1) In no case may an eligible nonstudent borrower receive a loan 
that is greater than the sum of the HEAL insurance premium plus the 
interest that is expected to accrue and must be paid on the borrower's 
HEAL loans during

[[Page 12]]

the period for which the new loan is intended.
    (2) An eligible nonstudent in the field of medicine, osteopathic 
medicine, dentistry, veterinary medicine, optometry, or podiatric 
medicine may borrow up to $80,000 under this part including loans 
obtained while the borrower was a student. The loan amount may not 
exceed $20,000 in any 12-month period.
    (3) An eligible nonstudent in the field of pharmacy, public health, 
chiropractic, health administration, or clinical psychology may borrow 
up to $50,000 under this part including loans obtained while the 
borrower was a student. The loan amount received under this part may not 
exceed $12,500 in any 12-month period.



Sec.  681.11  Terms of repayment.

    (a) Commencement of repayment. (1) The borrower's repayment period 
begins the first day of the 10th month after the month he or she ceases 
to be a full-time student at a HEAL school. The 9-month period before 
the repayment period begins is popularly called the ``grace period.''
    (i) Postponement for internship or residency program. However, if 
the borrower becomes an intern or resident in an accredited program 
within 9 full months after leaving school, then the borrower's repayment 
period begins the first day of the 10th month after the month he or she 
ceases to be an intern or resident. For a borrower who receives his or 
her first HEAL loan on or after October 22, 1985, this postponement of 
the beginning of the repayment period for participation in an internship 
or residency program is limited to 4 years.
    (ii) Postponement for fellowship training or educational activity. 
For any HEAL loan received on or after October 22, 1985, if the borrower 
becomes an intern or resident in an accredited program within 9 full 
months after leaving school, and subsequently enters into a fellowship 
training program or an educational activity, as described in Sec.  
681.12(b)(1) and (2), within 9 months after the completion of the 
accredited internship or residency program or prior to the completion of 
such program, the borrower's repayment period begins on the first day of 
the 10th month after the month he or she ceases to be a participant in 
the fellowship training program or educational activity. Postponement of 
the commencement of the repayment period for either activity is limited 
to 2 years.
    (iii) Non-student borrower. If a nonstudent borrower obtains another 
HEAL loan during the grace period or period of internship, residency, or 
deferment (as defined in Sec.  681.12), the repayment period on this 
loan begins when repayment on the borrower's other HEAL loans begins or 
resumes.
    (2) An accredited internship or residency program must be approved 
by one of the following accrediting agencies:
    (i) Accreditation Council for Graduate Medical Education.
    (ii) Council on Optometric Education.
    (iii) Commission on Accreditation of Dental and Dental Auxiliary 
Programs.
    (iv) American Osteopathic Association.
    (v) Council on Podiatry Education.
    (vi) American Council on Pharmaceutical Education.
    (vii) Council on Education for Public Health.
    (viii) American College of Veterinary Surgeons.
    (ix) Council on Chiropractic Education.
    (b) Length of repayment period. In general, a lender or holder must 
allow a borrower at least 10 years, but not more than 25 years, to repay 
a loan calculated from the beginning of the repayment period. A borrower 
must fully repay a loan within 33 years from the date that the loan is 
made.
    (1) For a HEAL borrower who received any HEAL loan prior to October 
22, 1985, periods of deferment (as described in Sec.  681.12) are not 
included when calculating the 10 to 25 or 33 year limitations.
    (2) For a borrower who receives his or her first HEAL loan on or 
after October 22, 1985, periods of deferment (as described in Sec.  
681.12) are included when calculating the 33 year limitation, but are 
not included when calculating the 10 to 25 year limitation.
    (c) Prepayment. The borrower may prepay the whole or any part of the 
loan at any time without penalty.

[[Page 13]]

    (d) Minimum annual payment. During each year of repayment, a 
borrower's payments to all holders of his or her HEAL loans must total 
the interest that accrues during the year on all of the loans, unless 
the borrower, in the promissory note or other written agreement, agrees 
to make payments during any year or any repayment period in a lesser 
amount.
    (e) Repayment schedule agreement. At least 30 and not more than 60 
days before the commencement of the repayment period, a borrower must 
contact the holder of the loan to establish the precise terms of 
repayment. The borrower may select a monthly repayment schedule with 
substantially equal installment payments or a monthly repayment schedule 
with graduated installment payments that increase in amount over the 
repayment period. If the borrower does not contact the lender or holder 
and does not respond to contacts from the lender or holder, the lender 
or holder may establish a monthly repayment schedule with substantially 
equal installment payments, subject to the terms of the borrower's HEAL 
note.
    (f) Supplemental repayment agreement. (1) A lender or holder and a 
borrower may enter into an agreement supplementing the regular repayment 
schedule agreement. Under a supplemental repayment agreement, the lender 
or holder agrees to consider that the borrower has met the terms of the 
regular repayment schedule as long as the borrower makes payments in 
accordance with the supplemental schedule.
    (2) The purpose of a supplemental repayment agreement is to permit a 
lender or holder, at its option, to offer a borrower a repayment 
schedule based on other than equal or graduated payments. (For example, 
a supplemental repayment agreement may base the amount of the borrower's 
payments on his or her income.)
    (3) The supplemental schedule must contain terms which, according to 
the Secretary, do not unduly burden the borrower and do not extend the 
Secretary's insurance liability beyond the number of years specified in 
paragraph (b) of this section. The supplemental schedule must be 
approved by the Secretary prior to the start of repayment.
    (4) The lender or holder may establish a supplemental repayment 
agreement over the borrower's objection only if the borrower's written 
consent to enter into a supplemental agreement was obtained by the 
lender at the time the loan was made.
    (5) A lender or holder may assign a loan subject to a supplemental 
repayment agreement only if it specifically notifies the buyer of the 
terms of the supplemental agreement. In such cases, the loan and the 
supplemental agreement must be assigned together.
    (6) As authorized by section 525 of the Consolidated Appropriations 
Act, 2014, any repayment plan available under part B of title IV of the 
HEA (the Federal Family Education Loan Program (FFELP)) is available for 
servicing, collecting, or enforcing HEAL loans. Such repayment plans are 
set forth in 34 CFR part 682, and in particular in Sec. Sec.  682.102, 
682.209, and 682.215.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0126)



Sec.  681.12  Deferment.

    (a) After the repayment period has commenced, installments of 
principal and interest need not be paid during any period:
    (1) During which the borrower is pursuing a full-time course of 
study at a HEAL school or at an institution of higher education that is 
a ``participating school'' in the William D. Ford Federal Direct Loan 
Program;
    (2) Up to 4 years during which the borrower is a participant in an 
accredited internship or residency program, as described in Sec.  
681.11(a)(2). For a borrower who receives his or her first HEAL loan on 
or after October 22, 1985, this total of 4 years for an internship or 
residency program includes any period of postponement of the repayment 
period, as described in Sec.  681.11(a)(1);
    (3) Up to 3 years during which the borrower is a member of the Armed 
Forces of the United States;
    (4) Up to 3 years during which the borrower is in service as a 
volunteer under the Peace Corps Act;

[[Page 14]]

    (5) Up to 3 years during which the borrower is a member of the 
National Health Service Corps; or
    (6) Up to 3 years during which the borrower is a full-time volunteer 
under title I of the Domestic Volunteer Service Act of 1973.
    (b) For any HEAL loan received on or after October 22, 1985, after 
the repayment period has commenced, installments of principal and 
interest need not be paid during any period for up to 2 years during 
which the borrower is a participant in:
    (1) A fellowship training program, which:
    (i) Is directly related to the discipline for which the borrower 
received the HEAL loan;
    (ii) Begins within 12 months after the borrower ceases to be a 
participant in an accredited internship or residency program, as 
described in Sec.  681.11(a)(2), or prior to the completion of the 
borrower's participation in such program;
    (iii) Is a full-time activity in research or research training or 
health care policy;
    (iv) Is not a part of, an extension of, or associated with an 
internship or residency program, as described in Sec.  681.11(a)(2);
    (v) Pays no stipend or one which is not more than the annual stipend 
level established by the Public Health Service for the payment of 
uniform levels of financial support for trainees receiving graduate and 
professional training under Public Health Service grants, as in effect 
at the time the borrower requests the deferment; and
    (vi) Is a formally established fellowship program which was not 
created for a specific individual; or
    (2) A full-time educational activity at an institution defined by 
section 435(b) of the HEA which:
    (i) Is directly related to the discipline for which the borrower 
received the HEAL loan;
    (ii) Begins within 12 months after the borrower ceases to be a 
participant in an accredited internship or residency program, as 
described in Sec.  681.11(a)(2), or prior to the completion of the 
borrower's participation in such program;
    (iii) Is not a part of, an extension of, or associated with an 
internship or residency program, as described in Sec.  681.11(a)(2); and
    (iv) Is required for licensure, registration, or certification in 
the State in which the borrower intends to practice the discipline for 
which the borrower received the HEAL loan.
    (c)(1) To receive a deferment, including a deferral of the onset of 
the repayment period (see Sec.  681.11(a)), a borrower must at least 30 
days prior to, but not more than 60 days prior to, the onset of the 
activity and annually thereafter, submit to the lender or holder 
evidence of his or her status in the deferment activity and evidence 
that verifies deferment eligibility of the activity (with the full 
expectation that the borrower will begin the activity). It is the 
responsibility of the borrower to provide the lender or holder with all 
required information or other information regarding the requested 
deferment. If written evidence that verifies eligibility of the activity 
and the borrower for the deferment, including a certification from an 
authorized official (e.g., the director of the fellowship activity, the 
dean of the school, etc.), is received by the lender or holder within 
the required time limit, the lender or holder must approve the 
deferment. The lender or holder may rely in good faith upon statements 
of the borrower and the authorized official, except where those 
statements or other information conflict with information available to 
the lender or holder. When those verification statements or other 
information conflict with information available to the lender or holder, 
to indicate that the applicant fails to meet the requirements for 
deferment, the lender or holder may not approve the deferment until 
those conflicts are resolved.
    (2) For those activities described in paragraphs (b)(1) or (b)(2) of 
this section, the borrower may request that the Secretary review a 
decision by the lender or holder denying the deferment by sending to the 
Secretary copies of the application for deferment and the lender's or 
holder's denial of the request. However, if information submitted to the 
lender or holder conflicts with other information available to the 
lender or holder, to indicate that the

[[Page 15]]

borrower fails to meet the requirements for deferment, the borrower may 
not request a review until such conflicts have been resolved. During the 
review process, the lender or holder must comply with any requests for 
information made by the Secretary. If the Secretary determines that the 
fellowship or educational activity is eligible for deferment and so 
notifies the lender or holder, the lender or holder must approve the 
deferment.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0128)



Sec.  681.13  Interest.

    (a) Rate. At the lender's option, the interest rate on the HEAL loan 
may be calculated on a fixed rate or on a variable rate basis. However, 
whichever method is selected must continue over the life of the loan, 
except where the loan is consolidated with another HEAL loan.
    (1) For all loans made on or after October 22, 1985, for each 
calendar quarter, the Secretary determines the maximum annual HEAL 
interest rate by determining the average of the bond equivalent rates 
reported for the 91-day U.S. Treasury bills auctioned for the preceding 
calendar quarter, adding 3 percentage points, and rounding that amount 
to the next higher one-eighth of 1 percent.
    (2) Interest that is calculated on a fixed rate basis is determined 
for the life of the loan during the calendar quarter in which the loan 
is executed. It may not exceed the rate determined for that quarter by 
the Secretary under paragraph (a)(1) of this section.
    (3) Interest that is calculated on a variable rate basis varies 
every calendar quarter throughout the life of the loan as the market 
price of U.S. Treasury bills changes. For any quarter it may not exceed 
the rate determined by the Secretary under paragraph (a)(1) of this 
section.
    (4) The Secretary announces the rate determined under paragraph 
(a)(1) of this section on a quarterly basis through a notice published 
on the Department's student aid Web site at www.ifap.ed.gov.
    (b) Compounding of interest. Interest accrues from the date the loan 
is disbursed until the loan is paid in full. Unpaid accrued interest 
shall be compounded not more frequently than semiannually and added to 
principal. However, a lender or holder may postpone the compounding of 
interest before the beginning of the repayment period or during periods 
of deferment or forbearance and add interest to principal at the time 
repayment of principal begins or resumes.
    (c) Payment. Repayment of principal and interest is due when the 
repayment period begins. A lender or holder must permit a borrower to 
postpone paying interest before the beginning of the repayment period or 
during a period of deferment or forbearance. In these cases, payment of 
interest begins or resumes on the date repayment of principal begins or 
resumes.
    (d) Usury laws. No provision of any Federal or State law that limits 
the rate or amount of interest payable on loans shall apply to a HEAL 
loan.



Sec.  681.14  The insurance premium.

    (a) General. (1) The Secretary insures each lender or holder for the 
losses of principal and interest it may incur in the event that a 
borrower dies; becomes totally and permanently disabled; files for 
bankruptcy under chapter 11 or 13 of the Bankruptcy Act; files for 
bankruptcy under chapter 7 of the Bankruptcy Act and files a complaint 
to determine the dischargeability of the HEAL loan; or defaults on his 
or her loan. For this insurance, the Secretary charges the lender an 
insurance premium. The insurance premium is due to the Secretary on the 
date of disbursement of the HEAL loan.
    (2) The lender may charge the borrower an amount equal to the cost 
of the insurance premium. The cost of the insurance premium may be 
charged to the borrower by the lender in the form of a one-time special 
charge with no subsequent adjustments required. The lender may bill the 
borrower separately for the insurance premium or may deduct an amount 
attributable to it from the loan proceeds before the loan is disbursed. 
In either case, the lender must clearly identify to the borrower the 
amount of the insurance premium and the method of calculation.

[[Page 16]]

    (3) If the lender does not pay the insurance premium on or before 30 
days after disbursement of the loan, a late fee will be charged on a 
daily basis at the same rate as the interest rate that the lender 
charges for the HEAL loan for which the insurance premium is past due. 
The lender may not pass on this late fee to the borrower.
    (4) HEAL insurance coverage ceases to be effective if the insurance 
premium is not paid within 60 days of the disbursement of the loan.
    (5) Except in cases of error, premiums are not refundable by the 
Secretary, and need not be refunded by the lender to the borrower, even 
if the borrower graduates or withdraws from the school, defaults, dies 
or becomes totally and permanently disabled.
    (b) Rate. The rate of the insurance premium shall not exceed the 
statutory maximum. The Secretary announces changes in the rate of the 
insurance premium through a notice published on the Department's student 
aid Web site: www.ifap.ed.gov.
    (c) Method of calculation--(1) Student borrowers. For loans 
disbursed prior to July 22, 1986, the lender must calculate the 
insurance premium on the basis of the number of months beginning with 
the month following the month in which the loan proceeds are disbursed 
to the student borrower and ending 9 full months after the month of the 
student's anticipated date of graduation. For loans disbursed on or 
after July 22, 1986, the insurance premium shall be calculated as a one-
time flat rate on the principal of the loan at the time of disbursement.
    (2) Non-student borrowers. For loans disbursed prior to July 22, 
1986, the lender must calculate the insurance premium for nonstudent 
borrowers on the basis of the number of months beginning with the month 
following the month in which the loan proceeds are disbursed to the 
borrower and ending at the conclusion of the month preceding the month 
in which repayment of principal is expected to begin or resume on the 
borrower's previous HEAL loans. For loans disbursed on or after July 22, 
1986, the insurance premium shall be calculated as a one-time flat rate 
on the principal of the loan at the time of disbursement.
    (3) Multiple installments. In cases where the lender disburses the 
loan in multiple installments, the insurance premium is calculated for 
each disbursement.



Sec.  681.15  Other charges to the borrower.

    (a) Late charges. If the borrower fails to pay all of a required 
installment payment or fails to provide written evidence that verifies 
eligibility for the deferment of the payment within 30 days after the 
payment's due date, the lender or holder will require that the borrower 
pay a late charge. A late charge must be equal to 5 percent of the 
unpaid portion of the payment due.
    (b) Collection charges. The lender or holder may also require that 
the borrower pay the holder of the note for reasonable costs incurred by 
the holder or its agent in collecting any installment not paid when due. 
These costs may include attorney's fees, court costs, telegrams, and 
long-distance phone calls. The holder may not charge the borrower for 
the normal costs associated with preparing letters and making personal 
and local telephone contacts with the borrower. A service agency's fee 
for normal servicing of a loan may not be passed on to the borrower, 
either directly or indirectly. No charges, other than those authorized 
by this section, may be passed on to the borrower, either directly or 
indirectly, without prior approval of the Secretary.
    (c) Other loan making costs. A lender may not pass on to the 
borrower any cost of making a HEAL loan other than the costs of the 
insurance premium.



Sec.  681.16  Power of attorney.

    Neither a lender nor a school may obtain a borrower's power of 
attorney or other authorization to endorse a disbursement check on 
behalf of a borrower. The borrower must personally endorse the check and 
may not authorize anyone else to endorse it on his or her behalf.



Sec.  681.17  Security and endorsement.

    (a) A HEAL loan must be made without security.

[[Page 17]]

    (b) With one exception, it must also be made without endorsement. If 
a borrower is a minor and cannot under State law create a legally 
binding obligation by his or her own signature, a lender may require an 
endorsement by another person on the borrower's HEAL note. For purposes 
of this paragraph, an ``endorsement'' means a signature of anyone other 
than the borrower who is to assume either primary or secondary liability 
on the note.



Sec.  681.18  Consolidation of HEAL loans.

    HEAL loans may be consolidated as permitted in 34 CFR 685.220.



Sec.  681.19  Forms.

    All HEAL forms are approved by the Secretary and may not be changed 
without prior approval by the Secretary. HEAL forms shall not be signed 
in blank by a borrower, a school, a lender or holder, or an agent of any 
of these. The Secretary may prescribe who must complete the forms, and 
when and to whom the forms must be sent. All HEAL forms must contain a 
statement that any person who knowingly makes a false statement or 
misrepresentation in a HEAL loan transaction, bribes or attempts to 
bribe a Federal official, fraudulently obtains a HEAL loan, or commits 
any other illegal action in connection with a HEAL loan is subject to 
possible fine and imprisonment under Federal statute.



Sec.  681.20  The Secretary's collection efforts after payment of a 
default claim.

    After paying a default claim on a HEAL loan, the Secretary attempts 
to collect from the borrower and any valid endorser in accordance with 
the Federal Claims Collection Standards (4 CFR parts 101 through 105), 
the Office of Management and Budget Circular A-129, issued January 2013, 
and the Department's Claims Collection Regulation (34 CFR parts 30, 31, 
and 34). The Secretary attempts collection of all unpaid principal, 
interest, penalties, administrative costs, and other charges or fees, 
except in the following situations:
    (a) The borrower has a valid defense on the loan. The Secretary 
refrains from collection against the borrower or endorser to the extent 
of any defense that the Secretary concludes is valid. Examples of a 
valid defense include infancy or proof of repayment in part or in full.
    (b) A school owes the borrower a refund for the period covered by 
the loan. In this situation, the Secretary refrains from collection to 
the extent of the unpaid refund if the borrower assigns to the Secretary 
the right to receive the refund.
    (c) The school or lender or holder is the subject of a lawsuit or 
Federal administrative proceeding. In this situation, if the Secretary 
determines that the proceeding involves allegations that, if proven, 
would provide the borrower with a full or partial defense on the loan, 
then the Secretary may suspend collection activity on all or part of a 
loan until the proceeding ends. The Secretary suspends collection 
activity only for so long as the proceeding is being energetically 
prosecuted in good faith and the allegations that relate to the 
borrower's defense are reasonably likely to be proven.
    (d) The borrower dies or becomes totally and permanently disabled. 
In this situation, the Secretary terminates all collection activity 
against the borrower. The Secretary follows the procedures and standards 
in 34 CFR 685.213 and 34 CFR 685.212(a) to determine if the borrower is 
totally and permanently disabled. If the borrower dies or becomes 
totally and permanently disabled, the Secretary also terminates all 
collection activity against any endorser.



Sec.  681.21  Refunds.

    (a) Student authorization. By applying for a HEAL loan, a student 
authorizes a participating school to make payment of a refund that is 
allocable to a HEAL loan directly to the original lender (or to a 
subsequent holder of the loan note, if the school has knowledge of the 
holder's identity).
    (b) Treatment by lenders or holders. (1) A holder of a HEAL loan 
must treat a refund payment received from a HEAL school as a downward 
adjustment in the principal amount of the loan.
    (2) When a lender receives a school refund check for a loan it no 
longer holds, the lender must transfer that payment to the holder of the 
loan and

[[Page 18]]

either inform the borrower about the refund check and where it was sent 
or, if the borrower's address is unknown, notify the current holder that 
the borrower was not informed. The current holder must provide the 
borrower with a written notice of the refund payment.

(Approved by the Office of Management and Budget under control number 
1845-0125)



                     Subpart D_The Lender and Holder



Sec.  681.30  Which organizations are eligible to apply to be HEAL lenders
and holders?

    (a) A HEAL lender may hold loans under the HEAL program.
    (b) The following types of organizations were eligible to apply to 
the Secretary to be HEAL lenders:
    (1) A financial or credit institution (including a bank, savings and 
loan association, credit union, or insurance company) which is subject 
to examination and supervision in its capacity as a lender by an agency 
of the United States or of the State in which it has its principal place 
of business;
    (2) A pension fund approved by the Secretary;
    (3) An agency or instrumentality of a State; and
    (4) A private nonprofit entity, designated by the State, regulated 
by the State, and approved by the Secretary.
    (c) The following types of organizations are eligible to apply to 
the Secretary to be HEAL holders:
    (1) Public entities in the business of purchasing student loans;
    (2) Navient (formerly known as the Student Loan Marketing 
Association, or ``Sallie Mae''); and
    (3) Other eligible lenders.
    (d) HEAL holders must comply with any provisions in the regulations 
required of HEAL lenders including, but not limited to, provisions 
regarding applications, contracts, and due diligence.



Sec.  681.31  The application to be a HEAL lender or holder.

    (a) In order to be a HEAL lender or holder, an eligible organization 
must submit an application to the Secretary annually.
    (b) In determining whether to enter into an insurance contract with 
an applicant and what the terms of that contract should be, the 
Secretary may consider the following criteria:
    (1) Whether the applicant is capable of complying with the 
requirements in the HEAL regulations applicable to lenders and holders;
    (2) The amount and rate of loans which are currently delinquent or 
in default, if the applicant has had prior experience with similar 
Federal or State student loan programs; and
    (3) The financial resources of the applicant.
    (c) The applicant must develop and follow written procedures for 
servicing and collecting HEAL loans. These procedures must be reviewed 
during the biennial audit required by Sec.  681.42(d). If the applicant 
uses procedures more stringent than those required by Sec. Sec.  681.34 
and 681.35 for its other loans of comparable dollar value, on which it 
has no Federal, State, or other third party guarantee, it must include 
those more stringent procedures in its written procedures for servicing 
and collecting its HEAL loans.
    (d) The applicant must submit sufficient materials with his or her 
application to enable the Secretary to fairly evaluate the application 
in accordance with these criteria.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0128)



Sec.  681.32  The HEAL lender or holder insurance contract.

    (a)(1) If the Secretary approves an application to be a HEAL lender 
or holder, the Secretary and the lender or holder must sign an insurance 
contract. Under this contract, the lender or holder agrees to comply 
with all the laws, regulations, and other requirements applicable to its 
participation in the HEAL program and the Secretary agrees to insure 
each eligible HEAL loan held by the lender or holder against the 
borrower's default, death, total and permanent disability, bankruptcy 
under chapter 11 or 13 of the Bankruptcy Act, or bankruptcy under 
chapter 7 of the Bankruptcy Act when the borrower files a complaint to 
determine the dischargeability of the HEAL loan. The Secretary's 
insurance covers 100 percent of the lender's or holder's

[[Page 19]]

losses on both unpaid principal and interest, except to the extent that 
a borrower may have a defense on the loan other than infancy.
    (2) HEAL insurance, however, is not unconditional. The Secretary 
issues HEAL insurance on the implied representations of the lender that 
all the requirements for the initial insurability of the loan have been 
met. HEAL insurance is further conditioned upon compliance by the holder 
of the loan with the HEAL statute and regulations, the lender's or 
holder's insurance contract, and its own loan management procedures set 
forth in writing pursuant to Sec.  681.31(c). The contract may contain a 
limit on the duration of the contract and the number or amount of HEAL 
loans a lender may make or hold. Each HEAL lender has either a standard 
insurance contract or a comprehensive insurance contract with the 
Secretary, as described below.
    (b) Standard insurance contract. A lender with a standard insurance 
contract must submit to the Secretary a borrower's loan application for 
HEAL insurance on each loan that the lender determines to be eligible. 
The Secretary notifies the lender whether the loan is or is not 
insurable, the amount of the insurance, and the expiration date of the 
insurance commitment. A loan which has been disbursed under a standard 
contract of insurance prior to the Secretary's approval of the 
application is considered not to have been insured.
    (c)(1) Comprehensive insurance contract. A lender with a 
comprehensive insurance contract may disburse a loan without submitting 
an individual borrower's loan application to the Secretary for approval. 
All eligible loans made by a lender with this type of contract are 
insured immediately upon disbursement.
    (2) The Secretary will revoke the comprehensive contract of any 
lender who utilizes procedures which are inconsistent with the HEAL 
statute and regulations, the lender's insurance contract, or its own 
loan management procedures set forth in writing pursuant to Sec.  
681.31(c), and require that such lenders disburse HEAL loans only under 
a standard contract. When the Secretary determines that the lender is in 
compliance with the HEAL statute and regulations and its own loan 
management procedures set forth in writing pursuant to Sec.  681.31(c), 
the lender may reapply for a comprehensive contract.
    (3) In providing comprehensive contracts, the Secretary shall give 
priority to eligible lenders that:
    (i) Make loans to students at interest rates below the rates 
prevailing during the period involved; or
    (ii) Make loans under terms that are otherwise favorable to the 
student relative to the terms under which eligible lenders are generally 
making loans during the period involved.

(Approved by the Office of Management and Budget under control number 
1845-0125)



Sec.  681.33  Making a HEAL loan.

    The loan-making process includes the processing of necessary forms, 
the approval of a borrower for a loan, determination of a borrower's 
creditworthiness, the determination of the loan amount (not to exceed 
the amount approved by the school), the explanation to a borrower of his 
or her responsibilities under the loan, the execution of the promissory 
note, and the disbursement of the loan proceeds. A lender may rely in 
good faith upon statements of an applicant and the HEAL school contained 
in the loan application papers, except where those statements are in 
conflict with information obtained from the report on the applicant's 
credit history, or other information available to the lender. Except 
where the statements are in conflict with information obtained from the 
applicant's credit history or other information available to the lender, 
a lender making loans to nonstudent borrowers may rely in good faith 
upon statements by the borrower and authorizing officials of internship, 
residency, or other programs for which a borrower may receive a 
deferment.
    (a) Processing of forms. Before making a HEAL loan, a lender must 
determine that all required forms have been completed by the borrower, 
the HEAL school, the lender, and the authorized official for an 
internship, a residency, or other deferment activity.

[[Page 20]]

    (b) Approval of borrower. A lender may make a HEAL loan only to an 
eligible student or nonstudent borrower.
    (c) Lender determination of the borrower's creditworthiness. The 
lender may make HEAL loans only to an applicant that the lender has 
determined to be creditworthy. This determination must be made at least 
once for each academic year during which the applicant applies for a 
HEAL loan. An applicant will be determined to be ``creditworthy'' if he 
or she has a repayment history that has been satisfactory on any loans 
on which payments have become due. The lender may not determine that an 
applicant is creditworthy if the applicant is currently in default on 
any loan (commercial, consumer, or educational) until the delinquent 
account is made current or satisfactory arrangements are made between 
the affected lender(s) and the HEAL applicant. The lender must obtain 
documentation, such as a letter from the authorized official(s) of the 
affected lender(s) or a corrected credit report indicating that the HEAL 
applicant has taken satisfactory actions to bring the account into good 
standing. It is the responsibility of the HEAL loan applicant to assure 
that the lender receives each such documentation. No loan may be made to 
an applicant who is delinquent on any Federal debt until the delinquent 
account is made current or satisfactory arrangements are made between 
the affected agency and the HEAL applicant. The lender must receive a 
letter from the authorized Federal official of the affected Federal 
agency stating that the borrower has taken satisfactory actions to bring 
the account into good standing. It is the responsibility of the loan 
applicant to assure that the lender has received each such letter. The 
absence of any previous credit, however, is not an indication that the 
applicant is not creditworthy and is not to be used as a reason to deny 
the status of creditworthy to an applicant. The lender must determine 
the creditworthiness of the applicant using, at a minimum, the 
following:
    (1) A report of the applicant's credit history obtained from an 
appropriate consumer credit reporting agency, which must be used in 
making the determinations required by paragraph (c) of this section; and
    (2) For student applicants only, the certification made by the 
applicant's school under Sec.  681.51(e).
    (d) Determination of loan amount. A lender may not make a HEAL loan 
in an amount that exceeds the permissible annual and aggregate maximums 
described in Sec.  681.10.
    (e) Promissory note. (1) Each loan must be evidenced by a promissory 
note approved by the Secretary. A lender must obtain the Secretary's 
prior approval of the note form before it makes a HEAL loan evidenced by 
a promissory note containing any deviation from the provisions of the 
form most currently approved by the Secretary. The lender must give the 
borrower a copy of each executed note.
    (2) The lender must explain to the borrower that the loan must be 
repaid and that the loan proceeds may be applied toward educational 
expenses only.
    (f) Disbursement of HEAL loan. (1) A lender must disburse HEAL loan 
proceeds:
    (i) To a student borrower, by means of a check or draft payable 
jointly to the student borrower and the HEAL school. Except where a 
lender is also a school, a lender must mail the check or draft to the 
school. A lender may not disburse the loan proceeds earlier than is 
reasonably necessary to meet the cost of education for the period for 
which the loan is made.
    (ii) To a nonstudent borrower, by means of a check or draft payable 
to the borrower. However, when a previous loan is held by a different 
lender, the current lender must make the HEAL loan disbursement check or 
draft payable jointly to the borrower and the holder of the previous 
HEAL loan for which interest is payable.
    (2) Effective July 1, 1987, a lender must disburse the HEAL loan 
proceeds in two or more installments unless the loan is intended to 
cover a period of no more than one-half an academic year. The amount 
disbursed at one time must correspond to the borrower's educational 
expenses for the period for which the disbursement is made, and must be 
indicated by the school on the borrower's application. If the loan is

[[Page 21]]

intended for more than one-half an academic year, the school must 
indicate on the borrower's application both the approximate dates of 
disbursement and the amount the borrower will need on each such date. In 
no case may the lender disburse the proceeds earlier than is reasonably 
necessary to meet the costs of education for the period for which the 
disbursement or the loan is made.
    (g) If the lender determines that the applicant is not creditworthy, 
pursuant to paragraph (c) of this section, the lender must not approve 
the HEAL loan request. If the applicant is a student, the lender must 
notify the applicant and the applicant's school named on the application 
form of the denial of a HEAL loan, stating the reason for the denial.
    (h) The lender must report a borrower's HEAL indebtedness to one or 
more national credit bureaus within 120 days of the date the final 
disbursement on the loan is made.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0126)



Sec.  681.34  HEAL loan account servicing.

    HEAL loan account servicing involves the proper maintenance of 
records, and the proper review and management of accounts. Generally 
accepted account servicing standards ensure that collections are 
received and accounted for, delinquent accounts are identified promptly, 
and reports are produced comparing actual results to previously 
established objectives.
    (a) Borrower inquiries. A lender or holder must respond on a timely 
basis to written inquiries and other communications from a borrower and 
any endorser of a HEAL loan.
    (b) Conversion of loan to repayment status. (1) At least 30 and not 
more than 60 days before the commencement of the repayment period, the 
lender or holder must contact the borrower in writing to establish the 
terms of repayment. Lenders or holders may not charge borrowers for the 
additional interest or other charges, penalties, or fees that accrue 
when a lender or holder does not contact the borrower within this time 
period and a late conversion results.
    (2) Terms of repayment are established in a written schedule that is 
made a part of, and subject to the terms of, the borrower's original 
HEAL note.
    (3) The lender or holder may not surrender the original promissory 
note to the borrower until the loan is paid in full. At that time, the 
lender or holder must give the borrower the original promissory note.
    (c) Borrower contacts. The lender or holder must contact each 
borrower to request updated contact information for the borrower and to 
notify the borrower of the balance owed for principal, interest, 
insurance premiums, and any other charges or fees owed to the lender, at 
least every 6 months from the time the loan is disbursed. The lender or 
holder must use this notice to remind the borrower of the option, 
without penalty, to pay all or part of the principal and accrued 
interest at any time.
    (d) Skip-tracing. If, at any time, the lender or holder is unable to 
locate a borrower, the lender or holder must initiate skip-tracing 
procedures as described in Sec.  682.411.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0126)



Sec.  681.35  HEAL loan collection.

    A lender or holder must exercise due diligence in the collection of 
a HEAL loan with respect to both a borrower and any endorser. In order 
to exercise due diligence, a lender or holder must implement the 
following procedures when a borrower fails to honor his or her payment 
obligations:
    (a) When a borrower is delinquent in making a payment, the lender or 
holder must remind the borrower within 15 days of the date the payment 
was due by means of a written contact. If payments do not resume, the 
lender or holder must contact both the borrower and any endorser at 
least 3 more times at regular intervals during the 120-day delinquent 
period following the first missed payment of that 120-day period. The 
second demand notice for a delinquent account must inform the borrower 
that the continued delinquent status of the account will be reported to 
consumer credit reporting agencies

[[Page 22]]

if payment is not made. Each of the required four contacts must consist 
of at least a written contact which has an address correction request on 
the envelope. The last contact must consist of a telephone contact, in 
addition to the required letter, unless the borrower cannot be contacted 
by telephone. The lender or holder may choose to substitute a personal 
contact for a telephone contact. A record must be made of each attempt 
to contact and each actual contact, and that record must be placed in 
the borrower's file. Each contact must become progressively firmer in 
tone. If the lender or holder is unable to locate the borrower and any 
endorser at any time during the period when the borrower is delinquent, 
the lender or holder must initiate the skip-tracing procedures described 
in Sec.  681.34(d).
    (b) When a borrower is 90 days delinquent in making a payment, the 
lender or holder must immediately request preclaim assistance from the 
Department's servicer. The Secretary does not pay a default claim if the 
lender or holder fails to request preclaim assistance.
    (c) Prior to the filing of a default claim, a lender or holder must 
use, at a minimum, collection practices that are at least as extensive 
and effective as those used by the lender or holder in the collection of 
its other loans. These practices must include, but need not be limited 
to:
    (1) Using collection agents, which may include its own collection 
department or other internal collection agents;
    (2) Immediately notifying an appropriate consumer credit reporting 
agency regarding accounts overdue by more than 60 days; and
    (3) Commencing and prosecuting an action for default unless:
    (i) In the determination of the Secretary that:
    (A) The lender or holder has made reasonable efforts to serve 
process on the borrower involved and has been unsuccessful in these 
efforts; or
    (B) Prosecution of such an action would be fruitless because of the 
financial or other circumstances of the borrower;
    (ii) For loans made before November 4, 1988, the loan involved was 
made in an amount of less than $5,000; or
    (iii) For loans made on or after November 4, 1988, the loan involved 
was made in an amount of less than $2,500.
    (d) If the Secretary's preclaim assistance locates the borrower, the 
lender or holder must implement the loan collection procedures described 
in this section. When the Secretary's preclaim assistance is unable to 
locate the borrower, a default claim may be filed by the lender as 
described in Sec.  681.40. The Secretary does not pay a default claim if 
the lender or holder has not complied with the HEAL statute and 
regulations or the lender's or holder's insurance contract.
    (e) If a lender or holder does not sue the borrower, it must send a 
final demand letter to the borrower and any endorser at least 30 days 
before a default claim is filed.
    (f) If a lender or holder sues a defaulted borrower or endorser, it 
may first apply the proceeds of any judgment against its reasonable 
attorney's fees and court costs, whether or not the judgment provides 
for these fees and costs.
    (g) Collection of chapter 7 bankruptcies. (1) If a borrower files 
for bankruptcy under chapter 7 of the Bankruptcy Act and does not file a 
complaint to determine the dischargeability of the HEAL loan, the lender 
or holder is responsible for monitoring the bankruptcy case in order to 
pursue collection of the loan after the bankruptcy proceedings have been 
completed.
    (i) For any loan for which the lender or holder had not begun to 
litigate against the borrower prior to the imposition of the automatic 
stay, the period of the automatic stay is to be considered as an 
extended forbearance authorized by the Secretary, in addition to the 2-
year period of forbearance which lenders and holders are authorized to 
grant without prior approval from the Secretary. Only periods of 
delinquency following the date of receipt (as documented by a date 
stamp) of the discharge of debtor notice (or other written notification 
from the court or the borrower's attorney of the end of the automatic 
stay imposed by the Bankruptcy Court) can be included in

[[Page 23]]

determining default, as described in Sec.  681.40(c)(1)(i). The lender 
or holder must attempt to reestablish repayment terms with the borrower 
in writing no more than 30 days after receipt of the discharge of debtor 
notice (or other written notification from the court or the borrower's 
attorney of the end of the automatic stay imposed by the Bankruptcy 
Court), in accordance with the procedures followed at the end of a 
forbearance period. If the borrower fails to make a payment as 
scheduled, the lender or holder must attempt to obtain repayment through 
written and telephone contacts in accordance with the intervals 
established in paragraph (a)(1) of this section, and must perform the 
other HEAL loan collection activities required in this section, before 
filing a default claim.
    (ii) For any loan for which the lender or holder had begun to 
litigate against the borrower prior to the imposition of the automatic 
stay, the lender or holder must, upon written notification from the 
court or the borrower's attorney that the bankruptcy proceedings have 
been completed, either resume litigation or treat the loan in accordance 
with paragraph (g)(1)(i) of this section.
    (2) If the lender or holder has not received written notification of 
discharge within 12 months of the date that the borrower filed for 
bankruptcy, the lender or holder must contact the court and the 
borrower's attorney (if known) within 30 days to determine if the 
bankruptcy proceedings have been completed. If no response is received 
within 30 days of the date of these contacts, the lender or holder must 
resume its collection efforts, in accordance with paragraph (g)(1) of 
this section. If a written response from the court or the borrower's 
attorney indicates that the bankruptcy proceedings are still underway, 
the lender or holder is not to pursue further collection efforts until 
receipt of written notice of discharge, except that follow-up in 
accordance with this paragraph must be done at least once every 12 
months until the bankruptcy proceedings have been completed. A lender or 
holder may utilize PACER (Public Access to Court Electronic Records) in 
place of contact with the court and/or borrower's attorney.
    (3) If, despite the lender or holder's compliance with required 
procedures, a loan subject to the requirements of paragraph (g)(1) of 
this section is discharged, the lender or holder must file a claim with 
the Secretary within 10 days of the initial date of receipt (as 
documented by a date stamp) of written notification of the discharge 
from the court or the borrower's attorney, in accordance with the 
procedures set forth in Sec.  681.40(c)(4). The lender or holder also 
must file with the bankruptcy court an objection to the discharge of the 
HEAL loan, and must include with the claim documentation showing that 
the bankruptcy proceedings were handled properly and expeditiously 
(e.g., all documents sent to or received from the bankruptcy court, 
including evidence which shows the period of the bankruptcy 
proceedings).

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0127)



Sec.  681.36  Consequence of using an agent.

    The delegation of functions to a servicing agency or other party 
does not relieve a lender or holder of its responsibilities under the 
HEAL program.



Sec.  681.37  Forbearance.

    (a) Forbearance means an extension of time for making loan payments 
or the acceptance of smaller payments than were previously scheduled to 
prevent a borrower from defaulting on his or her payment obligations. A 
lender or holder must notify each borrower of the right to request 
forbearance.
    (1) Except as provided in paragraph (a)(2) of this section, a lender 
or holder must grant forbearance whenever the borrower is temporarily 
unable to make scheduled payments on a HEAL loan and the borrower 
continues to repay the loan in an amount commensurate with his or her 
ability to repay the loan. Any circumstance which affects the borrower's 
ability to repay the loan must be fully documented.
    (2) If the lender or holder determines that the default of the 
borrower is inevitable and that forbearance will be ineffective in 
preventing default, the

[[Page 24]]

lender or holder may submit a claim to the Secretary rather than grant 
forbearance. If the Secretary is not in agreement with the determination 
of the lender or holder, the claim will be returned to the lender or 
holder as disapproved and forbearance must be granted.
    (b) A lender or holder must exercise forbearance in accordance with 
terms that are consistent with the 25- and 33-year limitations on the 
length of repayment (described in Sec.  681.11) if the lender or holder 
and borrower agree in writing to the new terms. Each forbearance period 
may not exceed 6 months.
    (c) A lender or holder may also exercise forbearance for periods of 
up to 6 months in accordance with terms that are inconsistent with the 
minimum annual payment requirement if the lender or holder complies with 
the requirements listed in paragraphs (c)(1) through (4) of this 
section. Subsequent renewals of the forbearance must also be documented 
in accordance with the following requirements:
    (1) The lender or holder must reasonably believe that the borrower 
intends to repay the loan but is currently unable to make payments in 
accordance with the terms of the loan note. The lender or holder must 
state the basis for its belief in writing and maintain that statement in 
its loan file on that borrower.
    (2) Both the borrower and an authorized official of the lender or 
holder must sign a written agreement of forbearance.
    (3) If the agreement between the borrower and lender or holder 
provides for forbearance of all payments, the lender or holder must 
contact the borrower at least every 3 months during the period of 
forbearance in order to remind the borrower of the outstanding 
obligation to repay.
    (4) The total period of forbearance (with or without interruption) 
granted by the lender or holder to any borrower must not exceed 2 years. 
However, when the borrower and the lender or holder believe that there 
are bona fide reasons why this period should be extended, the lender or 
holder may request a reasonable extension beyond the 2-year period from 
the Secretary. This request must document the reasons why the extension 
should be granted. The lender or holder may grant the extension for the 
approved time period if the Secretary approves the extension request.

(Approved by the Office of Management and Budget under control number 
1845-0125)



Sec.  681.38  Assignment of a HEAL loan.

    A HEAL note may not be assigned except to another HEAL lender or 
organization as specified in Sec.  681.30 and except as provided in 
Sec.  681.40. In this section ``seller'' means any kind of assignor and 
``buyer'' means any kind of assignee.
    (a) Procedure. A HEAL note assigned from one lender or holder to 
another must be subject to a blanket endorsement together with other 
HEAL notes being assigned or must individually bear effective words of 
assignment. Either the blanket endorsement or the HEAL note must be 
signed and dated by an authorized official of the seller. Within 30 days 
of the transaction, the buyer must notify the following parties of the 
assignment:
    (1) The Secretary; and
    (2) The borrower. The notice to the borrower must contain a clear 
statement of all the borrower's rights and responsibilities which arise 
from the assignment of the loan, including a statement regarding the 
consequences of making payments to the seller subsequent to receipt of 
the notice.
    (b) Risks assumed by the buyer. Upon acquiring a HEAL loan, a new 
holder assumes responsibility for the consequences of any previous 
violations of applicable statutes, regulations, or the terms of the note 
except for defects under Sec.  681.41(d). A HEAL note is not a 
negotiable instrument, and a subsequent holder is not a holder in due 
course. If the borrower has a valid legal defense that could be asserted 
against the previous holder, the borrower can also assert the defense 
against the new holder. In this situation, if the new holder files a 
default claim on a loan, the Secretary denies the default claim to the 
extent of the borrower's defense. Furthermore, when a new holder files a 
claim on a HEAL loan, it must provide

[[Page 25]]

the Secretary with the same documentation that would have been required 
of the original lender.
    (c) Warranty. Nothing in this section precludes the buyer of a HEAL 
loan from obtaining a warranty from the seller covering certain future 
reductions by the Secretary in computing the amount of insurable loss, 
if any, on a claim filed on the loan. The warranty may only cover 
reductions which are attributable to an act or failure to act of the 
seller or other previous holder. The warranty may not cover matters for 
which the buyer is charged with responsibility under the HEAL 
regulations.
    (d) Bankruptcy. If a lender or holder assigns a HEAL loan to a new 
holder, or a new holder acquires a HEAL loan under 20 U.S.C. 1092a (the 
Combined Payment Plan authority), and the previous holder(s) 
subsequently receives court notice that the borrower has filed for 
bankruptcy, the previous holder(s) must forward the bankruptcy notice to 
the purchaser within 10 days of the initial date of receipt, as 
documented by a date stamp, except that if it is a chapter 7 bankruptcy 
with no complaint for dismissal, the previous holder(s) must file the 
notice with the purchaser within 30 days of the initial date of receipt, 
as documented by a date stamp. The previous holder(s) also must file a 
statement with the court notifying it of the change of ownership. 
Notwithstanding the above, the current holder will not be held 
responsible for any loss due to the failure of the prior holder(s) to 
meet the deadline for giving notice if such failure occurs after the 
current holder purchased the loan.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0128)



Sec.  681.39  Death and disability claims.

    (a) Death. The Secretary will discharge a borrower's liability on 
the loan in accordance with section 738 of the Act upon the death of the 
borrower. The holder of the loan may not attempt to collect on the loan 
from the borrower's estate or any endorser. The holder must secure a 
certification of death or whatever official proof is conclusive under 
State law. The holder must return to the sender any payments in 
accordance with Sec.  685.212(a) received from the estate of the 
borrower or paid on behalf of the borrower after the date of death.
    (b) Disability. The Secretary will discharge a borrower's liability 
on the loan in accordance with 34 CFR 685.213.



Sec.  681.40  Procedures for filing claims.

    (a) A lender or holder must file an insurance claim on a form 
approved by the Secretary. The lender or holder must attach to the claim 
all documentation necessary to litigate a default, including any 
documents required to be submitted by the Federal Claims Collection 
Standards, and which the Secretary may require. Failure to submit the 
required documentation and to comply with the HEAL statute and 
regulations or the lender's or holder's insurance contract will result 
in a claim not being honored. The Secretary may deny a claim that is not 
filed within the period specified in this section. The Secretary 
requires for all claims at least the following documentation:
    (1) The original promissory note;
    (2) An assignment to the United States of America of all right, 
title, and interest of the lender or holder in the note;
    (3) The loan application;
    (4) The history of the loan activities from the date of loan 
disbursement through the date of claim, including any payments made; and
    (5) A Borrower Status Form (HEAL-508), documenting each deferment 
granted under Sec.  681.12 or a written statement from an appropriate 
official stating that the borrower was engaged in an activity for which 
he or she was entitled to receive a deferment at the time the deferment 
was granted.
    (b) The Secretary's payment of a claim is contingent upon receipt of 
all required documentation and an assignment to the United States of 
America of all right, title, and interest of the lender or holder in the 
note underlying the claim. The lender or holder must warrant that the 
loan is eligible for HEAL insurance.
    (c) In addition, the lender or holder must comply with the following 
requirements for the filing of default,

[[Page 26]]

death, disability, and bankruptcy claims:
    (1) Default claims. Default means the persistent failure of the 
borrower to make a payment when due or to comply with other terms of the 
note or other written agreement evidencing a loan under circumstances 
where the Secretary finds it reasonable to conclude that the borrower no 
longer intends to honor the obligation to repay the loan. In the case of 
a loan repayable (or on which interest is payable) in monthly 
installments, this failure must have persisted for 120 days. In the case 
of a loan repayable (or on which interest is payable) in less frequent 
installments, this failure must have persisted for 180 days. If, for a 
particular loan, an automatic stay is imposed on collection activities 
by a Bankruptcy Court, and the lender or holder receives written 
notification of the automatic stay prior to initiating legal proceedings 
against the borrower, the 120- or 180-day period does not include any 
period prior to the end of the automatic stay.
    (i) If a lender or holder determines that it is not appropriate to 
commence and prosecute an action against a default borrower pursuant to 
Sec.  681.35(c)(3), it must file a default claim with the Secretary 
within 30 days after a loan has been determined to be in default.
    (ii) If a lender files suit against a defaulted borrower and does 
not pursue collection of the judgment obtained as a result of the suit, 
it must file a default claim with the Secretary within 60 days of the 
date of issuance of the judgment. If a lender or holder files suit 
against a defaulted borrower, and pursues collection of the judgment 
obtained as a result of the suit, these collection activities must begin 
within 60 days of the date of issuance of the judgment. If the lender or 
holder is unable to collect the full amount of principal and interest 
owed, a claim must be filed within 30 days of completion of the post-
judgment collection activities. In either case, the lender or holder 
must assign the judgment to the Secretary as part of the default claim.
    (iii) In addition to the documentation required for all claims, the 
lender or holder must submit with its default claim at least the 
following:
    (A) Repayment schedule(s);
    (B) A collection history, if any;
    (C) A final demand letter;
    (D) The original or a copy of all correspondence relevant to the 
HEAL loan to or from the borrower (whether received by the original 
lender, a subsequent holder, or an independent servicing agent);
    (E) A claims collection litigation report; and
    (F) If the defaulted borrower filed for bankruptcy under chapter 7 
of the Bankruptcy Act and did not file a complaint to determine the 
dischargeability of the loan, all documents sent to or received from the 
bankruptcy court, including evidence which shows the period of the 
bankruptcy proceedings.
    (iv) If a lender or holder files a default claim on a loan and 
subsequently receives written notice from the court or the borrower's 
attorney that the borrower has filed for bankruptcy under chapter 11 or 
13 of the Bankruptcy Act, or under chapter 7 with a complaint to 
determine the dischargeability of the loan, the lender or holder must 
file that notice with the Secretary within 10 days of the lender or 
holder's initial date of receipt, as documented by a date stamp. If the 
borrower is declaring bankruptcy under chapter 7 of the Bankruptcy Act, 
and has not filed a complaint to determine the dischargeability of the 
loan, the lender or holder must file the written notice with the 
Secretary within 30 days of the lender's or holder's initial date of 
receipt, as documented by a date stamp. If the Secretary has not paid 
the claim at the time the lender or holder receives that notice, upon 
receipt of the notice, the lender or holder must file with the 
bankruptcy court a proof of claim, if applicable, and an objection to 
the discharge or compromise of the HEAL loan. If the Secretary has paid 
the claim, the lender or holder must file a statement with the court 
notifying it that the loan is owned by the Secretary.
    (2) Death claims. A lender or holder must file a death claim with 
the Secretary within 30 days after the lender or holder obtains 
documentation that a borrower is dead. In addition to the documentation 
required for all claims,

[[Page 27]]

the lender or holder must submit with its death claim those documents 
which verify the death, including an official copy of the Death 
Certificate.
    (3) Disability claims. A lender or holder must file a disability 
claim with the Secretary within 30 days after it has been notified that 
the Secretary has determined a borrower to be totally and permanently 
disabled. In addition to the documentation required for all claims, the 
lender or holder must submit with its claim evidence of the Secretary's 
determination that the borrower is totally and permanently disabled.
    (4) Bankruptcy claims. For a bankruptcy under chapter 11 or 13 of 
the Bankruptcy Act, or a bankruptcy under chapter 7 of the Bankruptcy 
Act when the borrower files a complaint to determine the 
dischargeability of the HEAL loan, the current holder must file a claim 
with the Secretary within 10 days of the initial date of receipt of 
court notice or written notice from the borrower's attorney that the 
borrower has filed for bankruptcy under chapter 11 or chapter 13, or has 
filed a complaint to determine the dischargeability of the HEAL loan 
under chapter 7. The initial date of receipt of the written notice must 
be documented by a date stamp. The lender or holder must file with the 
bankruptcy court a proof of claim, if applicable, and an objection to 
the discharge or compromise of the HEAL loan. In addition to the 
documentation required for all claims, with its claim the lender or 
holder must submit to the Secretary at least the following:
    (i) Repayment schedule(s);
    (ii) A collection history, if any;
    (iii) A proof of claim, where applicable;
    (iv) An assignment to the United States of America of its proof of 
claim, where applicable;
    (v) All pertinent documents sent to or received from the bankruptcy 
court;
    (vi) A statement of any facts of which the lender is aware that may 
form the basis for an objection to the bankrupt's discharge or an 
exception to the discharge;
    (vii) The notice of the first meeting or creditors, or an 
explanation as to why this is not included;
    (viii) In cases where there is defective service, a declaration or 
affidavit attesting to the fact that the lender or holder was not 
directly served with the notice of meeting of creditors. This 
declaration or affidavit must also indicate when and how the lender or 
holder learned of the bankruptcy; and
    (ix) In cases where there is defective service due to the borrower's 
failure to list the proper creditor, a copy of the letter sent to the 
borrower at the time of purchase of the HEAL loan by the current holder, 
or a sample letter with documentation indicating when the letter was 
sent to the borrower.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0127)



Sec.  681.41  Determination of amount of loss on claims.

    (a) General rule. HEAL insurance covers the unpaid balance of 
principal and interest on an eligible HEAL loan, less the amount of any 
judgment collected pursuant to default proceedings commenced by the 
eligible lender or holder involved. In determining whether to approve an 
insurance claim for payment, the Secretary considers legal defects 
affecting the initial validity or insurability of the loan. The 
Secretary also deducts from a claim any amount that is not a legally 
enforceable obligation of the borrower except to the extent that the 
defense of infancy applies. The Secretary further considers whether all 
holders of the loan have complied with the requirements of the HEAL 
regulations, including those concerned with the making, servicing, and 
collecting of the loan, the timely filing of claims, and the submission 
of documents with a claim.
    (b) Special rules for loans acquired by assignment. If a claim is 
filed by a lender or holder that obtained a loan by assignment, that 
lender or holder is not entitled to any payment under this section 
greater than that to which a previous holder would have been entitled. 
In particular, the Secretary deducts from the claim any amounts that are 
attributable to payments made by the borrower to a prior holder of the 
loan before the borrower received proper notice of the assignment of the 
loan.

[[Page 28]]

    (c) Special rules for loans made by school lenders. (1) If the loan 
for which a claim is filed was originally made by a school and the claim 
is filed by that school, the Secretary deducts from the claim an amount 
equal to any unpaid refund that the school owes the borrower.
    (2) If the loan for which a claim is filed was originally made by a 
school but the claim is filed by another lender of holder that obtained 
the note by assignment, the Secretary deducts from the claim an amount 
equal to any unpaid refund that the school owed the borrower prior to 
the assignment.
    (d) Circumstances under which defects in claims may be cured or 
excused. The Secretary may permit a lender or holder to cure certain 
defects in a specified manner as a condition for payment of a default 
claim. The Secretary may excuse certain defects if the holder submitting 
the default claim satisfies the Secretary that the defect did not 
contribute to the default or prejudice the Secretary's attempt to 
collect the loan from the borrower. The Secretary may also excuse 
certain defects if the defect arose while the loan was held by another 
lender or holder and the holder submitting the default claim satisfies 
the Secretary that the assignment of the loan was an arm's length 
transaction, that the present holder did not know of the defect at the 
time of the sale and that the present holder could not have become aware 
of the defect through an examination of the loan documents.
    (e) Payment of insured interest. The payment on an approved claim 
covers the unpaid principal balance and interest that accrues through 
the date the claim is paid, except:
    (1) If the lender or holder failed to submit a claim within the 
required period after the borrower's default; death; total and permanent 
disability; or filing of a petition in bankruptcy under chapter 11 or 13 
of the Bankruptcy Act, or under chapter 7 where the borrower files a 
complaint to determine the dischargeability of the HEAL loan; the 
Secretary does not pay interest that accrued between the end of that 
period and the date the Secretary received the claim.
    (2) If the Secretary returned the claim to the lender or holder for 
additional documentation necessary for the approval of the claim, the 
Secretary pays interest only for the first 30 days following the return 
of the claim to the lender or holder.



Sec.  681.42  Records, reports, inspection, and audit requirements for
HEAL lenders and holders.

    (a) Records. (1) A lender or holder must keep complete and accurate 
records of each HEAL loan which it holds. The records must be organized 
in a way that permits them to be easily retrievable and allows the ready 
identification of the current status of each loan. The required records 
include:
    (i) The loan application;
    (ii) The original promissory note;
    (iii) The repayment schedule agreement;
    (iv) Evidence of each disbursement of loan proceeds;
    (v) Notices of changes in a borrower's address and status as a full-
time student;
    (vi) Evidence of the borrower's eligibility for a deferment;
    (vii) The borrower's signed statement describing his or her rights 
and responsibilities in connection with a HEAL loan;
    (viii) The documents required for the exercise of forbearance;
    (ix) Documentation of the assignment of the loan; and
    (x) Evidence of a borrower's creditworthiness, including the 
borrower's credit report.
    (2) The lender or holder must maintain for each borrower a payment 
history showing the date and amount of each payment received on the 
borrower's behalf, and the amounts of each payment attributable to 
principal and interest. A lender or holder must also maintain for each 
loan a collection history showing the date and subject of each 
communication with a borrower or endorser for collection of a delinquent 
loan. Furthermore, a lender or holder must keep any additional records 
which are necessary to make any reports required by the Secretary.
    (3) A lender or holder must retain the records required for each 
loan for not less than 5 years following the date the

[[Page 29]]

loan is repaid in full by the borrower. However, in particular cases the 
Secretary may require the retention of records beyond this minimum 
period. A lender or holder must keep the original copy of an unpaid 
promissory note, but may store all other records in microform or 
computer format.
    (4) The lender or holder must maintain accurate and complete records 
on each HEAL borrower and related school activities required by the HEAL 
program. All HEAL records shall be maintained under security and 
protected from fire, flood, water leakage, other environmental threats, 
electronic data system failures or power fluctuations, unauthorized 
intrusion for use, and theft.
    (b) Reports. A lender or holder must submit reports to the Secretary 
at the time and in the manner required by the Secretary.
    (c) Inspections. Upon request, a lender or holder must afford the 
Secretary, the Comptroller General of the United States, and any of 
their authorized representatives access to its records in order to 
assure the correctness of its reports.
    (d) The lender or holder must comply with the Department's biennial 
audit requirements of section 705 of the Act.
    (e) Any lender or holder who has information which indicates 
potential or actual commission of fraud or other offenses against the 
United States, involving these loan funds, must promptly provide this 
information to the appropriate Regional Office of Inspector General for 
Investigations.

(Approved by the Office of Management and Budget under control numbers 
1845-0125 and 1845-0126)



Sec.  681.43  Limitation, suspension, or termination of the eligibility
of a HEAL lender or holder.

    (a) The Secretary may limit, suspend, or terminate the eligibility 
under the HEAL program of an otherwise eligible lender or holder that 
violates or fails to comply with any provision of the Act, these 
regulations, or agreements with the Secretary concerning the HEAL 
program. Prior to terminating a lender or holder's participation in the 
program, the Secretary will provide the entity an opportunity for a 
hearing in accordance with the procedures under paragraph (b) of this 
section.
    (b)(1) The Secretary will provide any lender or holder subject to 
termination with a written notice, sent by certified mail, specifying 
his or her intention to terminate the lender or holder's participation 
in the program and stating that the entity may request, within 30 days 
of the receipt of this notice, a formal hearing. If the entity requests 
a hearing, it must, within 90 days of the receipt of the notice, submit 
material, factual issues in dispute to demonstrate that there is cause 
for a hearing. These issues must be both substantive and relevant. The 
hearing will be held in the Washington, DC metropolitan area. The 
Secretary will deny a hearing if:
    (i) The request for a hearing is untimely (i.e., fails to meet the 
30-day requirement);
    (ii) The lender or holder does not provide a statement of material, 
factual issues in dispute within the 90-day required period; or
    (iii) The statement of factual issues in dispute is frivolous or 
inconsequential.
    (2) In the event that the Secretary denies a hearing, the Secretary 
will send a written denial, by certified mail, to the lender or holder 
setting forth the reasons for denial. If a hearing is denied, or if as a 
result of the hearing, termination is still determined to be necessary, 
the lender or holder will be terminated from participation in the 
program. An entity will be permitted to reapply for participation in the 
program when it demonstrates, and the Secretary agrees, that it is in 
compliance with all HEAL requirements.
    (c) This section does not apply to a determination that a HEAL 
lender fails to meet the statutory definition of an ``eligible lender.''
    (d) This section also does not apply to administrative action by the 
Department of Education based on any alleged violation of:
    (1) Title VI of the Civil Rights Act of 1964, which is governed by 
34 CFR part 100;

[[Page 30]]

    (2) Title IX of the Education Amendments of 1972, which is governed 
by 34 CFR part 106;
    (3) The Family Educational Rights and Privacy Act of 1974 (section 
444 of the General Education Provisions Act, as amended), which is 
governed by 34 CFR part 99; or
    (4) Title XI of the Right to Financial Privacy Act of 1978, Public 
Law 95-630 (12 U.S.C. 3401-3422).

(Approved by the Office of Management and Budget under control number 
0915-0144)



                          Subpart E_The School



Sec.  681.50  Which schools are eligible to be HEAL schools?

    (a) In order to participate in the HEAL program, a school must enter 
into a written agreement with the Secretary. In the agreement, the 
school promises to comply with provisions of the HEAL law and the HEAL 
regulations. For initial entry into this agreement and for the agreement 
to remain in effect, a school must satisfy the following requirements:
    (1)(i) The school must be legally authorized within a State to 
conduct a course of study leading to one of the following degrees:
    (A) Doctor of Medicine.
    (B) Doctor of Osteopathic Medicine.
    (C) Doctor of Dentistry or equivalent degree.
    (D) Bachelor or Master of Science in Pharmacy or equivalent degree.
    (E) Doctor of Optometry or equivalent degree.
    (F) Doctor of Veterinary Medicine or equivalent degree.
    (G) Doctor of Podiatric Medicine or equivalent degree.
    (H) Graduate or equivalent degree in Public Health.
    (I) Doctor of Chiropractic or equivalent degree.
    (J) Doctoral degree of Clinical Psychology.
    (K) Masters or doctoral degree in Health Administration.
    (ii) For the purposes of this section, the term ``State'' includes, 
in addition to the several States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, the Virgin Islands, Guam, American Samoa, the Trust Territory 
of the Pacific Islands (the Republic of Palau), the Republic of the 
Marshall Islands, and the Federated States of Micronesia.
    (2)(i) The school must be accredited by a recognized agency approved 
for that course of study by the Secretary of Education, as described in 
paragraph (a)(2)(ii) of this section, except where a school is not 
eligible for accreditation solely because it is too new. A new school is 
eligible if the Secretary of Education determines that it can reasonably 
expect to be accredited before the beginning of the academic year 
following the normal graduation date of its first entering class. The 
Secretary of Education makes this determination after consulting with 
the appropriate accrediting agency and receiving reasonable assurance to 
that effect.
    (ii) The approved accrediting agencies are:
    (A) Liaison Committee on Medical Education.
    (B) American Osteopathic Association, Bureau of Professional 
Education.
    (C) American Dental Association, Commission on Dental Accreditation.
    (D) American Veterinary Medical Association, Council on Education.
    (E) American Optometric Association, Council on Optometric 
Education.
    (F) American Podiatric Medical Association, Council on Podiatric 
Medical Education.
    (G) Accreditation Council for Pharmacy Education.
    (H) Council on Education for Public Health.
    (I) Council on Chiropractic Education, Commission on Accreditation.
    (J) Accrediting Commission on Accreditation of Healthcare Management 
Education.
    (K) American Psychological Association, Committee on Accreditation.
    (b) If a HEAL school undergoes a change of controlling ownership or 
form of control, its agreement automatically expires at the time of that 
change. The school must enter into a new agreement with the Secretary in 
order to continue its participation in the HEAL program.

[[Page 31]]



Sec.  681.51  The student loan application.

    When the student completes his or her portion of the student loan 
application and submits it to the school, the school must do the 
following:
    (a) Accurately and completely fill out its portion of the HEAL 
application;
    (b) Verify, to the best of its ability, the information provided by 
the student on the HEAL application, including, but not limited to, 
citizenship status and Social Security number. To comply with this 
requirement, the school may request that the student provide a certified 
copy of his or her birth certificate, his or her naturalization papers, 
and an original Social Security card or copy issued by the Federal 
Government, or other documentation that the school may require. The 
school must assure that the applicant's I-151 or I-551 is attached to 
the application, if the applicant is required to possess such 
identification by the United States;
    (c) Certify that the student is eligible to receive a HEAL loan, 
according to the requirements of Sec.  681.5;
    (d) Review the financial aid transcript from each institution 
previously attended by the applicant on at least a half-time basis to 
determine whether the applicant is in default on any loans or owes a 
refund on any grants. The school may not approve the HEAL application or 
disburse HEAL funds if the borrower is in default on any loans or owes a 
refund on any educational grants, unless satisfactory arrangements have 
been made between the borrower and the affected lender or school to 
resolve the default or the refund on the grant. If the financial aid 
transcript has been requested, but has not been received at the time the 
applicant submits his or her first HEAL application, the school may 
approve the application and disburse the first HEAL installment prior to 
receipt of the transcript. Each financial aid transcript must include at 
least the following data:
    (1) Student's name;
    (2) Amounts and sources of loans and grants previously received by 
the student for study at an institution of higher education;
    (3) Whether the student is in default on any of these loans, or owes 
a refund on any grants;
    (4) Certification from each institution attended by the student that 
the student has received no financial aid, if applicable; and
    (5) From each institution attended, the signature of an official 
authorized by the institution to sign such transcripts on behalf of the 
institution;
    (e) State that it has no reason to believe that the borrower may not 
be willing to repay the HEAL loan;
    (f) Make reasonable determinations of the maximum loan amount 
approvable, based on the student's circumstances. The student applicant 
determines the amount he or she wishes to borrow, up to this maximum 
amount. Only then may the school certify an eligible application. In 
determining the maximum loan amount approvable, the school will 
calculate the difference between:
    (1) The total financial resources available to the applicant for his 
or her costs of education for the period covered by the proposed HEAL 
loan, and other student aid that the applicant has received or will 
receive during the period covered by the proposed HEAL loan. To 
determine the total financial resources available to the applicant for 
his or her costs of education for the period covered by the proposed 
HEAL loan (including familial, spousal, or personal income or other 
financial assistance that the applicant has received or will receive), 
the school must consider information provided through one of the 
national need analysis systems or any other procedure approved by the 
Secretary of Education, in addition to any other information which the 
school has regarding the student's financial situation. The school may 
make adjustments to the need analysis information only when necessary to 
accurately reflect the applicant's actual resources, and must maintain 
in the borrower's record documentation to support the basis for any 
adjustments to the need analysis information; and
    (2) The costs reasonably necessary for each student to pursue the 
same or similar curriculum or program within the same class year at the 
school for the period covered by the proposed

[[Page 32]]

HEAL loan, using a standard student budget. The school must maintain in 
its general office records the criteria used to develop each standard 
student budget. Adjustments to the standard student budget may be made 
only to the extent that they are necessary for the student to complete 
his or her education, and documentation must be maintained in the 
borrower's record to support the basis for any adjustments to the 
standard student budget.
    (g) Comply with the requirements of Sec.  681.61.

(Approved by the Office of Management and Budget under control numbers 
1845-0125)



Sec.  681.52  The student's loan check.

    (a) When a school receives from a HEAL lender a loan disbursement 
check or draft payable jointly to the school and to one of its students, 
it must:
    (1) If the school receives the instrument after the student is 
enrolled, obtain the student's endorsement, retain that portion of funds 
due the school, and disburse the remaining funds to the student.
    (2) If the school receives the instrument before the student is 
enrolled, it must, prior to endorsing the instrument, send the 
instrument to the student to endorse and return to the school. The 
school may then retain that portion of funds then due the school but 
must hold the remaining funds for disbursement to the student at the 
time of enrollment. However, if the student is unable to meet other 
educational expenses due before the time of enrollment, the school may 
obtain the student's endorsement and disburse to the student that 
portion of funds required to meet these other educational expenses.
    (b) If a school determines that a student does not plan to enroll, 
the school must return a loan disbursement check or draft to the lender 
within 30 days of this determination.



Sec.  681.53  Notification to lender or holder of change in enrollment
status.

    Each school must notify the holder of a HEAL loan of any change in 
the student's enrollment status within 30 days following the change in 
status. Each notice must contain the student's full name under which the 
loan was received, the student's current name (if different), the 
student's Social Security number, the date of the change in the 
enrollment status, or failure to enroll as scheduled for any academic 
period as a full-time student, the student's latest known permanent and 
temporary addresses, and other information which the school may decide 
is necessary to identify or locate the student. If the school does not 
know the identity of the current holder of the HEAL loan, it must notify 
the HEAL Program Office of a change in the student's enrollment status. 
This notification is not required for vacation periods and leaves of 
absence or other temporary interruptions which do not exceed one 
academic term.

(Approved by the Office of Management and Budget under control number 
1845-0125)



Sec.  681.54  Payment of refunds by schools.

    A participating school must pay that portion of a refund that is 
allocable to a HEAL loan directly to the original lender (or to a 
subsequent holder of the loan note, if the school has knowledge of the 
holder's identity). At the same time, the school must provide to the 
borrower written notice that it is doing so.

(Approved by the Office of Management and Budget under control number 
1845-0125)



Sec.  681.55  Administrative and fiscal procedures.

    Each school must establish and maintain administrative and fiscal 
procedures necessary to achieve the following objectives:
    (a) Proper and efficient administration of the funds received from 
students who have HEAL loans;
    (b) Protection of the rights of students under the HEAL program;
    (c) Protection of the United States from unreasonable risk of loss 
due to defaults; and
    (d) Compliance with applicable requirements for HEAL schools.



Sec.  681.56  Records.

    (a) In addition to complying with the requirements of section 739(b) 
of the

[[Page 33]]

Act, each school must maintain an accurate, complete, and easily 
retrievable record with respect to each student who has a HEAL loan. The 
record must contain all of the following information:
    (1) Student's name, address, academic standing and period of 
attendance;
    (2) Name of the HEAL lender, amount of the loan, and the period for 
which the HEAL loan was intended;
    (3) If a noncitizen, documentation of the student's alien 
registration status;
    (4) Amount and source of other financial assistance received by the 
student during the period for which the HEAL loan was made;
    (5) Date the school receives the HEAL check or draft and the date it 
either gives it to the student or returns it to the lender (if the 
school is not the lender);
    (6) Date the school disburses the loan to a student (if the school 
is the lender);
    (7) Date the school signs the loan check or draft (if the school is 
a copayee);
    (8) Amount of tuition, fees and other charges paid by the student to 
the school for the academic period covered by the loan and the dates of 
payment;
    (9) Photocopy of each HEAL check or draft received by the student;
    (10) Documentation of each entrance interview, including the date of 
the entrance interview and the signature of the borrower indicating that 
the entrance interview was conducted;
    (11) Documentation of the exit interview, including the date of the 
exit interview and the signature of the borrower indicating that the 
exit interview was conducted, or documentation of the date that the 
school mailed exit interview materials to the borrower if the borrower 
failed to report for the exit interview;
    (12) A photocopy made by the school of the borrower's I-151 or I-
551, if the borrower is required to possess such identification by the 
United States, or other documentation, if obtained by the school, to 
verify citizenship status and Social Security number (e.g., a certified 
copy of the borrower's birth certificate or a photocopy made by the 
school of the borrower's original Social Security card or copy issued by 
the Federal Government);
    (13) Documentation of the calculations made which compare the 
financial resources of the applicant with the cost of his or her 
education at the school;
    (14) Copy(s) of the borrower's financial aid transcript(s);
    (15) The standard budget used for the student, and documentation to 
support the basis for any deviations made to the standard budget;
    (16) Copies of all correspondence between the school and the 
borrower or between the school and the lender or its assignee regarding 
the loan;
    (17) Copy of each form used by the school in connection with the 
loan; and
    (18) Expected postgraduate destination of borrower.
    (b) The school must maintain the record for not less than 5 years 
following the date the student graduates, withdraws or fails to enroll 
as a full-time student. The school may store the records in microform or 
computer format.
    (c) The school must comply with the Department's biennial audit 
requirements of section 705 of the Act.
    (d) The school must develop and follow written procedures for the 
receipt, verification of amount, and disbursement of HEAL checks or 
drafts. These procedures must be maintained in the school's policies and 
procedures manuals or other general office records.

(Approved by the Office of Management and Budget under control number 
1845-0125)



Sec.  681.57  Reports.

    A school must submit reports to the Secretary at the times and in 
the manner the Secretary may reasonably prescribe. The school must 
retain a copy of each report for not less than 5 years following the 
report's completion, unless otherwise directed by the Secretary. A 
school must also make available to a HEAL lender or holder, upon the 
lender's or holder's request, the name, address, postgraduate 
destination and other reasonable identifying information for each of the 
school's students who has a HEAL loan.

(Approved by the Office of Management and Budget under control number 
1845-0125)

[[Page 34]]



Sec.  681.58  Federal access to school records.

    For the purposes of audit and examination, a HEAL school must 
provide the Secretary of Education, the Comptroller General of the 
United States, and any of their authorized representatives access to the 
records that the school is required to keep and to any documents and 
records pertinent to the administration of the HEAL program.



Sec.  681.59  Records and Federal access after a school is no longer a
HEAL school.

    In the event a school ceases to participate in the HEAL program, the 
school (or its successor, in the case of a school which undergoes a 
change in ownership) must retain all required HEAL records and provide 
the Secretary of Education, the Comptroller General of the United 
States, and any of their authorized representatives access to them.



Sec.  681.60  Limitation, suspension, or termination of the eligibility
of a HEAL school.

    (a) The Secretary may limit, suspend, or terminate the eligibility 
under the HEAL program of an otherwise eligible school that violates or 
fails to comply with any provision of the Act, these regulations, or 
agreements with the Secretary concerning the HEAL program. Prior to 
terminating a school's participation in the program, the Secretary will 
provide the school an opportunity for a hearing in accordance with the 
procedures under paragraph (b) of this section.
    (b)(1) The Secretary will provide any school subject to termination 
with a written notice, sent by certified mail, specifying his or her 
intention to terminate the school's participation in the program and 
stating that the school may request, within 30 days of the receipt of 
this notice, a formal hearing. If the school requests a hearing, it 
must, within 90 days of the receipt of the notice, submit material, 
factual issues in dispute to demonstrate that there is cause for a 
hearing. These issues must be both substantive and relevant. The hearing 
will be held in the Washington, DC metropolitan area. The Secretary will 
deny a hearing if:
    (i) The request for a hearing is untimely (i.e., fails to meet the 
30-day requirement);
    (ii) The school does not provide a statement of material, factual 
issues in dispute within the 90-day required period; or
    (iii) The statement of factual issues in dispute is frivolous or 
inconsequential.
    (2) In the event that the Secretary denies a hearing, the Secretary 
will send a written denial, by certified mail, to the school setting 
forth the reasons for denial. If a hearing is denied, or if as a result 
of the hearing, termination is still determined to be necessary, the 
school will be terminated from participation in the program. A school 
will be permitted to reapply for participation in the program when it 
demonstrates, and the Secretary agrees, that it is in compliance with 
all HEAL requirements.
    (c) This section does not apply to a determination that a HEAL 
school fails to meet the statutory definition of an ``eligible school.''
    (d) This section does not apply to administrative action by the 
Department of Education based on any alleged violation of the Family 
Educational Rights and Privacy Act of 1974 (section 444 of the General 
Education Provisions Act, as amended), as governed by 34 CFR part 99.

(Approved by the Office of Management and Budget under control number 
0915-0144)



Sec.  681.61  Responsibilities of a HEAL school.

    (a) A HEAL school is required to carry out the following activities 
for each HEAL applicant or borrower:
    (1) Conduct and document an entrance interview with each student 
(individually or in groups) no later than prior to the loan recipient's 
first HEAL disbursement in each academic year that the loan recipient 
obtains a HEAL loan. The school must inform the loan recipient during 
the entrance interview of his or her rights and responsibilities under a 
HEAL loan, including the consequences for noncompliance with those 
responsibilities, and must gather

[[Page 35]]

personal information which would assist in locating the loan recipient 
should he or she depart from the school without receiving an exit 
interview. A school may meet this requirement through correspondence 
where the school determines that a face-to-face meeting is 
impracticable.
    (2) Conduct and document an exit interview with each HEAL loan 
recipient (individually or in groups) within the final academic term of 
the loan recipient's enrollment prior to his or her anticipated 
graduation date or other departure date from the school. The school must 
inform the loan recipient in the exit interview of his or her rights and 
responsibilities under each HEAL loan, including the consequences for 
noncompliance with those responsibilities. The school must also collect 
personal information from the loan recipient which would assist the 
school or the lender or holder in skiptracing activities and to direct 
the loan recipient to contact the lender or holder concerning specific 
repayment terms and options. A copy of the documentation of the exit 
interview, including the personal information collected for skiptracing 
activities, and any other information required by the Secretary 
regarding the exit interview must be sent to the lender or holder of 
each HEAL loan within 30 days of the exit interview. If the loan 
recipient departs from the school prior to the anticipated date or does 
not receive an exit interview, the exit interview information must be 
mailed to the loan recipient by the school within 30 days of the 
school's knowledge of the departure or the anticipated departure date, 
whichever is earlier. The school must request that the loan recipient 
forward any required information (e.g., skiptracing information, request 
for deferment, etc.) to the lender or holder. The school must notify the 
lender or holder of the loan recipient's departure at the same time it 
mails the exit interview material to the loan recipient.
    (3) Verify the accuracy and completeness of information provided by 
each student on the HEAL loan application, particularly in regard to the 
HEAL eligibility requirements, by comparing the information with 
previous loan applications or other records or information provided by 
the student to the school. Notify the potential lender of any 
discrepancies which were not resolved between the school and the 
student.
    (4) Develop and implement procedures relating to check receipt and 
release which keep these functions separate from the application 
preparation and approval process and assure that the amount of the HEAL 
loan check(s) does(do) not exceed the approved total amount of the loan 
and the statutory maximums. Checks must not be cashed without the 
borrower's personal endorsement. Documentation of these procedures and 
their usage shall be maintained by the school.
    (5) Maintain accurate and complete records on each HEAL borrower and 
related school activities required by the HEAL program. All HEAL records 
shall be properly safeguarded and protected from environmental threats 
and unauthorized intrusion for use and theft.
    (6) Maintain documentation of the criteria used to develop the 
school's standard student budgets in the school's general records, 
readily available for audit purposes, and maintain in each HEAL 
borrower's record a copy of the standard budget which was actually used 
in the determination of the maximum loan amount approvable for the 
student, as described in Sec.  681.51.
    (7) Notify the lender or its assignee of any changes in the 
student's name, address, status, or other information pertinent to the 
HEAL loan not more than 30 days after receiving information indicating 
such a change.
    (b) Any school which has information which indicates potential or 
actual commission of fraud or other offenses against the United States 
involving these loan funds must promptly provide this information to the 
appropriate Regional Office of Inspector General for Investigations.
    (c) The school will be considered responsible and the Secretary may 
seek reimbursement from any school for the amount of a loan in default 
on which the Secretary has paid an insurance claim, if the Secretary 
finds that the school did not comply with the applicable HEAL statute 
and regulations, or

[[Page 36]]

its written agreement with the Secretary. The Secretary may excuse 
certain defects if the school satisfies the Secretary that the defect 
did not contribute to the default or prejudice the Secretary's attempt 
to collect the loan from the borrower.
    (d) A school is authorized to withhold services from a HEAL borrower 
who is in default on a HEAL loan received while enrolled in that school, 
except in instances where the borrower has filed for bankruptcy. Such 
services may include, but are not limited to academic transcripts and 
alumni services. Defaulted HEAL borrowers who have filed for bankruptcy 
shall provide court documentation that verifies the filing for 
bankruptcy upon the request of the school. Schools will also supply this 
information to the Secretary upon request. All academic and financial 
aid transcripts that are released on a defaulted HEAL borrower must 
indicate on the transcript that the borrower is in default on a HEAL 
loan. It is the responsibility of the borrower to provide the school 
with documentation from the lender, holder, or Department when a default 
has been satisfactorily resolved, in order to obtain access to services 
that are being withheld, or to have the reference to default removed 
from the academic and financial aid transcripts.

(Approved by the Office of Management and Budget under control number 
1845-0125)



PART 682_FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents



                       Subpart A_Purpose and Scope

Sec.
682.100 The Federal Family Education Loan programs.
682.101 Participation in the FFEL programs.
682.102 Repaying a loan.
682.103 Applicability of subparts.

                      Subpart B_General Provisions

682.200 Definitions.
682.201 Eligible borrowers.
682.202 Permissible charges by lenders to borrowers.
682.203 Responsible parties.
682.204 Maximum loan amounts.
682.205 Disclosure requirements for lenders.
682.206-682.207 [Reserved]
682.208 Due diligence in servicing a loan.
682.209 Repayment of a loan.
682.210 Deferment.
682.211 Forbearance.
682.212 Prohibited transactions.
682.213 Prohibition against the use of the Rule of 78s.
682.214 [Reserved]
682.215 Income-based repayment plan.
682.216 Teacher loan forgiveness program.

      Subpart C_Federal Payments of Interest and Special Allowance

682.300 Payment of interest benefits on Stafford and Consolidation 
          loans.
682.301 Eligibility of borrowers for interest benefits on Stafford and 
          Consolidation loans.
682.302 Payment of special allowance on FFEL loans.
682.303 [Reserved]
682.304 Methods for computing interest benefits and special allowance.
682.305 Procedures for payment of interest benefits and special 
          allowance and collection of origination and loan fees.

 Subpart D_Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency

682.400 Agreements between a guaranty agency and the Secretary.
682.401 Basic program agreement.
682.402 Death, disability, closed school, false certification, unpaid 
          refunds, and bankruptcy payments.
682.403 [Reserved]
682.404 Federal reinsurance agreement.
682.405 Loan rehabilitation agreement.
682.406 Conditions for claim payments from the Federal Fund and for 
          reinsurance coverage.
682.407 Discharge of student loan indebtedness for survivors of victims 
          of the September 11, 2001, attacks.
682.408 [Reserved]
682.409 Mandatory assignment by guaranty agencies of defaulted loans to 
          the Secretary.
682.410 Fiscal, administrative, and enforcement requirements.
682.411 Lender due diligence in collecting guaranty agency loans.
682.412 Consequences of the failure of a borrower or student to 
          establish eligibility.
682.413 Remedial actions.
682.414 Records, reports, and inspection requirements for guaranty 
          agency programs.
682.415 [Reserved]
682.416 Requirements for third-party servicers and lenders contracting 
          with third-party servicers.
682.417 Determination of Federal funds or assets to be returned.

[[Page 37]]

682.418 [Reserved]
682.419 Guaranty agency Federal Fund.
682.420-682.422 [Reserved]
682.423 Guaranty agency Operating Fund.
682.424 Severability.

Subpart E [Reserved]

    Subpart F_Requirements, Standards, and Payments for Schools That 
                    Participated in the FFEL Program

682.600-682.602 [Reserved]
682.603 Certification by a school that participated in the FFEL Program 
          in connection with a loan application.
682.604 Required exit counseling for borrowers.
682.605 Determining the date of a student's withdrawal.
682.606 [Reserved]
682.607 Payment of a refund or a return of title IV, HEA program funds 
          to a lender upon a student's withdrawal.
682.608 [Reserved]
682.609 Remedial actions.
682.610 Administrative and fiscal requirements for schools that 
          participated in the FFEL Program.
682.611 [Reserved]

  Subpart G_Limitation, Suspension, or Termination of Lender or Third-
       Party Servicer Eligibility and Disqualification of Lenders

682.700 Purpose and scope.
682.701 Definitions of terms used in this subpart.
682.702 Effect on participation.
682.703 Informal compliance procedure.
682.704 Emergency action.
682.705 Suspension proceedings.
682.706 Limitation or termination proceedings.
682.707 Appeals in a limitation or termination proceeding.
682.708 Evidence of mailing and receipt dates.
682.709 Reimbursements, refunds, and offsets.
682.710 Removal of limitation.
682.711 Reinstatement after termination.
682.712 Disqualification review of limitation, suspension, and 
          termination actions taken by guarantee agencies against 
          lenders.
682.713 [Reserved]

Subpart H [Reserved]

Appendixes A-C to Part 682 [Reserved]
Appendix D to Part 682--Policy for Waiving the Secretary's Right To 
          Recover or Refuse To Pay Interest Benefits, Special Allowance, 
          and Reinsurance on Stafford, Plus, Supplemental Loans for 
          Students, and Consolidation Program Loans Involving Lenders' 
          Violations of Federal Regulations Pertaining to Due Diligence 
          in Collection or Timely Filing of Claims [Bulletin 88-G-138]

    Authority: 20 U.S.C. 1071-1087-4, unless otherwise noted.
    Section 682.410 also issued under 20 U.S.C. 1078, 1078-1, 1078-2, 
1078-3, 1080a, 1082, 1087, 1091a, and 1099.

    Source: 57 FR 60323, Dec. 18, 1992, unless otherwise noted.



                       Subpart A_Purpose and Scope



Sec.  682.100  The Federal Family Education Loan programs.

    (a) This part governs the following four programs collectively 
referred to in these regulations as ``the Federal Family Education Loan 
(FFEL) programs,'' in which lenders used their own funds prior to July 
1, 2010, to make loans to enable a student or his or her parents to pay 
the costs of the student's attendance at postsecondary schools.
    (1) The Federal Stafford Loan (Stafford) Program, which encouraged 
making loans to undergraduate, graduate, and professional students.
    (2) The Federal Supplemental Loans for Students (SLS) Program, as in 
effect for periods of enrollment that began prior to July 1, 1994, which 
encouraged making loans to graduate, professional, independent 
undergraduate, and certain dependent undergraduate students.
    (3) The Federal PLUS (PLUS) Program, which encouraged making loans 
to parents of dependent undergraduate students. Before October 17, 1986, 
the PLUS Program also provided for making loans to graduate, 
professional, and independent undergraduate students. Before July 1, 
1993, the PLUS Program also provided for making loans to parents of 
dependent graduate students. The PLUS Program also provided for making 
loans to graduate and professional students on or after July 1, 2006 and 
prior to July 1, 2010.
    (4) The Federal Consolidation Loan Program (Consolidation Loan 
Program), which encouraged making loans to borrowers for the purpose of 
consolidating loans: under the Federal Insured Student Loan (FISL), 
Stafford loan,

[[Page 38]]

SLS, ALAS (as in effect before October 17, 1986), PLUS, Perkins Loan 
programs, the Health Professions Student Loan (HPSL) including Loans for 
Disadvantaged Students (LDS) Program authorized by subpart II of part A 
of Title VII of the Public Health Services Act, Health Education 
Assistance Loans (HEAL) authorized by subpart I of Part A of Title VII 
of the Health Services Act, Nursing Student Loan Program loans 
authorized by subpart II of part B of title VIII of the Public Health 
Service Act, and existing loans obtained under the Consolidation Loan 
Program, and William D. Ford Direct Loan (Direct Loan) program loans, if 
the application for the Consolidation loan was received on or after 
November 13, 1997 and prior to July 1, 2010.
    (b)(1) Except for the loans guaranteed directly by the Secretary 
described in paragraph (b)(2) of this section, a guaranty agency 
guarantees a lender against losses due to default by the borrower on a 
FFEL loan. If the guaranty agency meets certain Federal requirements, 
the guaranty agency is reimbursed by the Secretary for all or part of 
the amount of default claims it pays to lenders.
    (2)(i) The Secretary guarantees lenders against losses--
    (A) Within the Stafford Loan Program, on loans made under Federal 
Insured Student Loan (FISL) Program;
    (B) Within the PLUS Program, on loans made under the Federal PLUS 
Program;
    (C) Within the SLS Program, on loans made under the Federal SLS 
Program as in effect for periods of enrollment that began prior to July 
1, 1994; and
    (D) Within the Consolidation Loan Program, on loans made under the 
Federal Consolidation Loan Program.
    (ii) The loan programs listed in paragraph (b)(2)(i) of this section 
collectively are referred to in these regulations as the ``Federal 
Guaranteed Student Loan (GSL) programs.''
    (iii) The Federal GSL programs were authorized to operate in States 
not served by a guaranty agency program. In addition, the FISL and 
Federal SLS (as in effect for periods of enrollment that began prior to 
July 1, 1994) programs were authorized, under limited circumstances, to 
operate in States in which a guaranty agency program did not serve all 
eligible students.

(Authority: 20 U.S.C. 1701 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33348, June 28, 1994; 
59 FR 61215, Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16, 1999; 64 FR 
58952, Nov. 1, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698, Aug. 9, 
2006; 78 FR 65806, Nov. 1, 2013]



Sec.  682.101  Participation in the FFEL programs.

    The following entities and persons participate in the FFEL programs:
    (a) Eligible banks, savings and loan associations, credit unions, 
pension funds, insurance companies, schools, and State and private 
nonprofit agencies made loans prior to July 1, 2010.
    (b) Institutions of higher education, including most colleges, 
universities, graduate and professional schools, and many vocational, 
technical schools participated as schools, enabling an eligible student 
or his or her parents to obtain a loan to pay for the student's cost of 
education.
    (c) Students who met certain requirements, including enrollment at a 
participating school, borrowed under the Stafford Loan Program prior to 
July 1, 2010 and, for periods of enrollment that began prior to July 1, 
1994, the SLS program. Parents of eligible dependent undergraduate 
students borrowed under the PLUS Program prior to July 1, 2010. 
Borrowers with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, 
ALAS, PLUS, or Nursing Student Loan Program loans borrowed under the 
Consolidation Loan Program prior to July 1, 2010. The PLUS Program also 
provided for making loans to graduate and professional students on or 
after July 1, 2006 and prior to July 1, 2010.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 61215, Nov. 29, 1994; 
64 FR 18975, Apr. 16, 1999; 66 FR 34762, June 29, 2001; 71 FR 45698, 
Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 78 FR 65806, Nov. 1, 2013]



Sec.  682.102  Repaying a loan.

    (a) General. Generally, the borrower is obligated to repay the full 
amount of the loan, late fees, collection costs

[[Page 39]]

chargeable to the borrower, and any interest not payable by the 
Secretary. The borrower's obligation to repay is cancelled if the 
borrower dies, becomes totally and permanently disabled, or has that 
obligation discharged in bankruptcy. A parent borrower's obligation to 
repay a PLUS loan is cancelled if the student, on whose behalf the 
parent borrowed, dies. The borrower's or student's obligation to repay 
all or a portion of his or her loan may be cancelled if the student is 
unable to complete his or her program of study because the school closed 
or the borrower's or student's eligibility to borrow was falsely 
certified by the school. The obligation to repay all or a portion of a 
loan may be forgiven for Stafford Loan borrowers who enter certain areas 
of the teaching profession.
    (b) Stafford loan repayment. In the case of a subsidized Stafford 
loan, a borrower is not required to make any principal payments during 
the time the borrower is in school. The Secretary pays the interest on 
the borrower's behalf during the time the borrower is in school. When 
the borrower ceases to be enrolled on at least a half-time basis, a 
grace period begins during which no principal payments are required, and 
the Secretary continues to make interest payments on the borrower's 
behalf. In the case of an unsubsidized Stafford loan, the borrower is 
responsible for interest during these periods. At the end of the grace 
period, the repayment period begins. During the repayment period, for 
the subsidized and unsubsidized Stafford loan, the borrower pays both 
the principal and the interest accruing on the loan.
    (c) SLS loan repayment. Generally, the repayment period for an SLS 
loan begins immediately on the day of the last disbursement of the loan 
proceeds by the lender. The first payment of principal and interest on 
an SLS loan is due from the borrower within 60 days after the loan is 
fully disbursed unless a borrower who is also a Stafford loan borrower, 
but who has not yet entered repayment on the Stafford loan, requests 
that commencement of repayment on the SLS loan be deferred until the 
borrower's grace period on the Stafford loan expires.
    (d) PLUS loan repayment. Generally, the repayment period for a PLUS 
loan begins on the day the loan is fully disbursed by the lender. The 
first payment of principal and interest on a PLUS loan is due from the 
borrower within 60 days after the loan is fully disbursed.
    (e) Consolidation loan repayment. Generally, the repayment period 
for a Consolidation loan begins on the day the loan is disbursed. The 
first payment of principal and interest on a Consolidation loan is due 
from the borrower within 60 days after the borrower's liability on all 
loans being consolidated has been discharged.
    (f) Deferment of repayment. Repayment of principal on a FFEL program 
loan may be deferred under the circumstances described in Sec.  682.210.
    (g) Default. If a borrower defaults on a loan, the guarantor 
reimburses the lender for the amount of its loss. The guarantor then 
collects the amount owed from the borrower.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25744, May 17, 1994; 59 
FR 33348, June 28, 1994; 64 FR 18975, Apr. 16, 1999; 64 FR 58952, Nov. 
1, 1999; 68 FR 75428, Dec. 31, 2003; 71 FR 45698, Aug. 9, 2006; 78 FR 
65806, Nov. 1, 2013]



Sec.  682.103  Applicability of subparts.

    (a) Subpart B of this part contains general provisions that are 
applicable to all participants in the FFEL and Federal GSL programs.
    (b) The administration of the FFEL programs by a guaranty agency is 
subject to subparts C, D, F, and G of this part.
    (c) The Federal FFEL and Federal GSL programs are subject to 
subparts C, F, and G of this part.
    (d) Certain requirements applicable to schools under all the FFEL 
and Federal GSL programs are set forth in subpart F of this part.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18975, Apr. 16, 1999; 
64 FR 58952, Nov. 1, 1999; 78 FR 65806, Nov. 1, 2013]

[[Page 40]]



                      Subpart B_General Provisions



Sec.  682.200  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in the Student Assistance General Provisions, 34 CFR part 668:

Academic year
Campus-based programs
Dependent student
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Work-Study (FWS) Program
Full-time student
Half-time student
Independent student
National of the United States (Referred to as U.S. Citizen or National 
in 34 CFR 668.2)
Payment period
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant Program
TEACH Grant
Undergraduate student

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Federal Family Education Loan Program (formerly known as the Guaranteed 
Student Loan (GSL) Program)
Foreign institution
Institution of higher education (Sec.  600.4)
Nationally recognized accrediting agency
Postsecondary Vocational Institution
Preaccredited
Secretary
State

    (3) The definition for cost of attendance is set forth in section 
472 of the Act, as amended.
    (b) The following definitions also apply to this part:
    Act. The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et 
seq.
    Actual interest rate. The annual interest rate a lender charges on a 
loan, which may be equal to or less than the applicable interest rate on 
that loan.
    Applicable interest rate. The maximum annual interest rate that a 
lender may charge under the Act on a loan.
    Authority. Any private non-profit or public entity that may issue 
tax-exempt obligations to obtain funds to be used for the purchase of 
FFEL loans. The term ``Authority'' also includes any agency, including a 
State postsecondary institution or any other instrumentality of a State 
or local governmental unit, regardless of the designation or primary 
purpose of that agency, that may issue tax-exempt obligations, any party 
authorized to issue those obligations on behalf of a governmental 
agency, and any non-profit organization authorized by law to issue tax-
exempt obligations.
    Borrower. An individual to whom a FFEL Program loan was made.
    Co-Maker: One of two married individuals who jointly borrow a 
Consolidation loan, each of whom are eligible and who are jointly and 
severally liable for repayment of the loan. The term co-maker also 
includes one of two parents who are joint borrowers as previously 
authorized in the PLUS Program.
    Default. The failure of a borrower and endorser, if any, or joint 
borrowers on a PLUS or Consolidation loan, to make an installment 
payment when due, or to meet other terms of the promissory note, the 
Act, or regulations as applicable, if the Secretary or guaranty agency 
finds it reasonable to conclude that the borrower and endorser, if any, 
no longer intend to honor the obligation to repay, provided that this 
failure persists for--
    (1) 270 days for a loan repayable in monthly installments; or
    (2) 330 days for a loan repayable in less frequent installments.
    Disbursement. The transfer of loan proceeds by a lender to a holder, 
in the case of a Consolidation loan, or to a borrower, a school, or an 
escrow agent by issuance of an individual check, a master check or by 
electronic funds transfer that may represent loan amounts for borrowers.
    Disposable income. That part of an individual's compensation from an 
employer and other income from any source, including spousal income, 
that remains after the deduction of any

[[Page 41]]

amounts required by law to be withheld, or any child support or alimony 
payments that are made under a court order or legally enforceable 
written agreement. Amounts required by law to be withheld include, but 
are not limited, to Federal, State, and local taxes, Social Security 
contributions, and wage garnishment payments.
    Endorser. An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Escrow agent. Any guaranty agency or other eligible lender that 
receives the proceeds of a FFEL program loan as an agent of an eligible 
lender for the purpose of transmitting those proceeds to the borrower or 
the borrower's school.
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, or 
other sources, such as, scholarships, grants, the net earnings from 
need-based employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990 (AmeriCorps);
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
    (iii) Any educational benefits paid because of enrollment in a 
postsecondary education institution, or to cover postsecondary education 
expenses;
    (iv) Fellowships or assistantships, except non-need-based employment 
portions of such awards;
    (v) Insurance programs for the student's education; and
    (vi) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of subsidized and unsubsidized Federal 
Stafford Loans or subsidized and unsubsidized Federal Direct Stafford/
Ford Loans, and Federal PLUS or Federal Direct PLUS Loans.
    (2) Estimated financial assistance does not include--
    (i) Those amounts used to replace the expected family contribution, 
including the amounts of any TEACH Grant, unsubsidized Federal Stafford 
or Federal Direct Stafford/Ford Loans, Federal PLUS or Federal Direct 
PLUS Loans, and non-federal non-need-based loans, including private, 
state-sponsored, and institutional loans. However, if the sum of the 
amounts received that are being used to replace the student's EFC exceed 
the EFC, the excess amount must be treated as estimated financial 
assistance;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
student has declined;
    (iii) For the purpose of determining eligibility for a subsidized 
Stafford loan, national service education awards or post-service 
benefits under title I of the National and Community Service Act of 1990 
(AmeriCorps);
    (iv) Any portion of the estimated financial assistance described in 
paragraph (1) of this definition that is included in the calculation of 
the student's expected family contribution (EFC);
    (v) Non-need-based employment earnings;
    (vi) Assistance not received under a title IV, HEA program, if that 
assistance is designated to offset all or a portion of a specific amount 
of the cost of attendance and that component is excluded from the cost 
of attendance as well. If that assistance is excluded from either 
estimated financial assistance or cost of attendance, it must be 
excluded from both;
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);

[[Page 42]]

    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 1981 
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
    Federal GSL programs. The Federal Insured Student Loan Program, the 
Federal Supplemental Loans for Students Program, the Federal PLUS 
Program, and the Federal Consolidation Loan Program.
    Federal Insured Student Loan Program. The loan program authorized by 
title IV-B of the Act under which the Secretary directly insures lenders 
against losses.
    Grace period. The period that begins on the day after a Stafford 
loan borrower ceases to be enrolled as at least a half-time student at 
an institution of higher education and ends on the day before the 
repayment period begins. See also ``Post-deferment grace period.'' For 
an SLS borrower who also has a Federal Stafford loan on which the 
borrower has not yet entered repayment, the grace period is an 
equivalent period after the borrower ceases to be enrolled as at least a 
half-time student at an institution of higher education.
    Guaranty agency. A State or private nonprofit organization that has 
an agreement with the Secretary under which it will administer a loan 
guarantee program under the Act.
    Holder. An eligible lender owning an FFEL Program loan including a 
Federal or State agency or an organization or corporation acting on 
behalf of such an agency and acting as a conservator, liquidator, or 
receiver of an eligible lender.
    Legal guardian. An individual appointed by a court to be a 
``guardian'' of a person and specifically required by the court to use 
his or her financial resources for the support of that person.
    Lender. (1) The term ``eligible lender'' is defined in section 
435(d) of the Act, and in paragraphs (2)-(5) of this definition.
    (2) With respect to a National or State chartered bank, a mutual 
savings bank, a savings and loan association, a stock savings bank, or a 
credit union--
    (i) The phrase ``subject to examination and supervision'' in section 
435(d) of the Act means ``subject to examination and supervision in its 
capacity as a lender'';
    (ii) The phrase ``does not have as its primary consumer credit 
function the making or holding of loans made to students under this 
part'' in section 435(d) of the Act means that the lender does not, or 
in the case of a bank holding company, the company's wholly-owned 
subsidiaries as a group do not at any time, hold FFEL Program loans that 
total more than one-half of the lender's or subsidiaries' combined 
consumer credit loan portfolio, including home mortgages held by the 
lender or its subsidiaries. For purposes of this paragraph, loans held 
in trust by a trustee lender are not considered part of the trustee 
lender's consumer credit function.
    (3) A bank that is subject to examination and supervision by an 
agency

[[Page 43]]

of the United States, making student loans as a trustee, may be an 
eligible lender if it makes loans under an express trust, operated as a 
lender in the FFEL programs prior to January 1, 1975, and met the 
requirements of this paragraph prior to July 23, 1992.
    (4) The corporate parent or other owner of a school that qualifies 
as an eligible lender under section 435(d) of the Act is not an eligible 
lender unless the corporate parent or owner itself qualifies as an 
eligible lender under section 435(d) of the Act.
    (5)(i) The term eligible lender does not include any lender that the 
Secretary determines, after notice and opportunity for a hearing before 
a designated Department official, has, directly or through an agent or 
contractor--
    (A) Except as provided in paragraph (5)(ii) of this definition, 
offered, directly or indirectly, points, premiums, payments (including 
payments for referrals, finder fees or processing fees), or other 
inducements to any school, any employee of a school, or any individual 
or entity in order to secure applications for FFEL loans or FFEL loan 
volume. This includes but is not limited to--
    (1) Payments or offerings of other benefits, including prizes or 
additional financial aid funds, to a prospective borrower or to a school 
or school employee in exchange for applying for or accepting a FFEL loan 
from the lender;
    (2) Payments or other benefits, including payments of stock or other 
securities, tuition payments or reimbursements, to a school, a school 
employee, any school-affiliated organization, or to any other individual 
in exchange for FFEL loan applications, application referrals, or a 
specified volume or dollar amount of loans made, or placement on a 
school's list of recommended or suggested lenders;
    (3) Payments or other benefits provided to a student at a school who 
acts as the lender's representative to secure FFEL loan applications 
from individual prospective borrowers, unless the student is also 
employed by the lender for other purposes and discloses that employment 
to school administrators and to prospective borrowers;
    (4) Payments or other benefits to a loan solicitor or sales 
representative of a lender who visits schools to solicit individual 
prospective borrowers to apply for FFEL loans from the lender;
    (5) Payment to another lender or any other party, including a 
school, a school employee, or a school-affiliated organization or its 
employees, of referral fees, finder fees or processing fees, except 
those processing fees necessary to comply with Federal or State law;
    (6) Compensation to an employee of a school's financial aid office 
or other employee who has responsibilities with respect to student loans 
or other financial aid provided by the school or compensation to a 
school-affiliated organization or its employees, to serve on a lender's 
advisory board, commission or other group established by the lender, 
except that the lender may reimburse the employee for reasonable 
expenses incurred in providing the service;
    (7) Payment of conference or training registration, travel, and 
lodging costs for an employee of a school or school-affiliated 
organization;
    (8) Payment of entertainment expenses, including expenses for 
private hospitality suites, tickets to shows or sporting events, meals, 
alcoholic beverages, and any lodging, rental, transportation, and other 
gratuities related to lender-sponsored activities for employees of a 
school or a school-affiliated organization;
    (9) Philanthropic activities, including providing scholarships, 
grants, restricted gifts, or financial contributions in exchange for 
FFEL loan applications or application referrals, or a specified volume 
or dollar amount of FFEL loans made, or placement on a school's list of 
recommended or suggested lenders;
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform entrance counseling and, as provided in Sec.  682.604(a), exit 
counseling, and may provide services to participating foreign schools at 
the direction of the Secretary, as a third-party servicer; and
    (11) Any type of consulting arrangement or other contract with an 
employee of a financial aid office at a

[[Page 44]]

school, or an employee of a school who otherwise has responsibilities 
with respect to student loans or other financial aid provided by the 
school under which the employee would provide services to the lender.
    (B) Conducted unsolicited mailings, by postal or electronic means, 
of student loan application forms to students enrolled in secondary 
schools or postsecondary institutions or to family members of such 
students, except to a student or borrower who previously has received a 
FFEL loan from the lender;
    (C) Offered, directly or indirectly, a FFEL loan to a prospective 
borrower to induce the purchase of a policy of insurance or other 
product or service by the borrower or other person; or
    (D) Engaged in fraudulent or misleading advertising with respect to 
its FFEL loan activities.
    (ii) Notwithstanding paragraph (5)(i) of this definition, a lender, 
in carrying out its role in the FFEL program and in attempting to 
provide better service, may provide--
    (A) Technical assistance to a school that is comparable to the kinds 
of technical assistance provided to a school by the Secretary under the 
Direct Loan program, as identified by the Secretary in a public 
announcement, such as a notice in the Federal Register;
    (B) Support of and participation in a school's or a guaranty 
agency's student aid and financial literacy-related outreach activities, 
including in-person entrance and exit counseling, as long as the name of 
the entity that developed and paid for any materials is provided to the 
participants and the lender does not promote its student loan or other 
products;
    (C) Meals, refreshments, and receptions that are reasonable in cost 
and scheduled in conjunction with training, meeting, or conference 
events if those meals, refreshments, or receptions are open to all 
training, meeting, or conference attendees;
    (D) Toll-free telephone numbers for use by schools or others to 
obtain information about FFEL loans and free data transmission service 
for use by schools to electronically submit applicant loan processing 
information or student status confirmation data;
    (E) A reduced origination fee in accordance with Sec.  682.202(c);
    (F) A reduced interest rate as provided under the Act;
    (G) Payment of Federal default fees in accordance with the Act;
    (H) Purchase of a loan made by another lender at a premium;
    (I) Other benefits to a borrower under a repayment incentive program 
that requires, at a minimum, one or more scheduled payments to receive 
or retain the benefit or under a loan forgiveness program for public 
service or other targeted purposes approved by the Secretary, provided 
these benefits are not marketed to secure loan applications or loan 
guarantees;
    (J) Items of nominal value to schools, school-affiliated 
organizations, and borrowers that are offered as a form of generalized 
marketing or advertising, or to create good will; and
    (K) Other services as identified and approved by the Secretary 
through a public announcement, such as a notice in the Federal Register.
    (iii) For the purposes of this paragraph (5)--
    (A) The term ``school-affiliated organization'' is defined in Sec.  
682.200.
    (B) The term ``applications'' includes the Free Application for 
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and FFEL 
Consolidation loan application and promissory notes.
    (C) The term ``other benefits'' includes, but is not limited to, 
preferential rates for or access to the lender's other financial 
products, information technology equipment, or non-loan processing or 
non-financial aid-related computer software at below market rental or 
purchase cost, and printing and distribution of college catalogs and 
other materials at reduced or no cost.
    (6) The term eligible lender does not include any lender that--
    (i) Is debarred or suspended, or any of whose principals or 
affiliates (as those terms are defined in 2 CFR parts 180 and 3485) is 
debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 1986 
Comp., p. 189) or the Federal Acquisition Regulation (FAR), 48 CFR part 
9, subpart 9.4;

[[Page 45]]

    (ii) Is an affiliate, as defined in 2 CFR parts 180 and 3485, of any 
person who is debarred or suspended under E.O. 12549 (3 CFR, 1986 Comp., 
p. 189) or the FAR, 48 CFR part 9, subpart 9.4; or
    (iii) Employs a person who is debarred or suspended under E.O. 12549 
(3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4, in a 
capacity that involves the administration or receipt of FFEL Program 
funds.
    (7) An eligible lender may not make or hold a loan as trustee for a 
school, or for a school-affiliated organization as defined in this 
section, unless on or before September 30, 2006--
    (i) The eligible lender was serving as trustee for the school or 
school-affiliated organization under a contract entered into and 
continuing in effect as of that date; and
    (ii) The eligible lender held at least one loan in trust on behalf 
of the school or school-affiliated organization on that date.
    (8) As of January 1, 2007, and for loans first disbursed on or after 
that date under a trustee arrangement, an eligible lender operating as a 
trustee under a contract entered into on or before September 30, 2006, 
and which continues in effect with a school or a school-affiliated 
organization--
    (i) Must not--
    (A) Make a loan to any undergraduate student;
    (B) Make a loan other than a Federal Stafford loan to a graduate or 
professional student; or
    (C) Make a loan to a borrower who is not enrolled at that school;
    (ii) Must offer loans that carry an origination fee or an interest 
rate, or both, that are less than the fee or rate authorized under the 
provisions of the Act; and
    (iii) Must, for any fiscal year beginning on or after July 1, 2006 
in which the school engages in activities as an eligible lender, submit 
an annual compliance audit that satisfies the following requirements:
    (A) With regard to a school that is a governmental entity or a 
nonprofit organization, the audit must be conducted in accordance with 
Sec.  682.305(c)(2)(v) and chapter 75 of title 31, United States Code, 
and in addition, during years when the student financial aid cluster (as 
defined in Office of Management and Budget Circular A-133, Appendix B, 
Compliance Supplement) is not audited as a ``major program'' (as defined 
under 31 U.S.C. 7501) must, without regard to the amount of loans made, 
include in such audit the school's lending activities as a major 
program.
    (B) With regard to a school that is not a governmental entity or a 
nonprofit organization, the audit must be conducted annually in 
accordance with Sec.  682.305(c)(2)(i) through (iii).
    (C) With regard to any school, the audit must include a 
determination that--
    (1) The school used all payments and proceeds (i.e., special 
allowance and interest payments from borrowers, interest subsidy 
payments, proceeds from the sale or other disposition of loans) from the 
loans for need-based grant programs;
    (2) Those need-based grants supplemented, rather than supplanted, 
the institution's use of non-Federal funds for such grants; and
    (3) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
    Master Promissory Note (MPN). A promissory note under which the 
borrower may receive loans for a single period of enrollment or multiple 
periods of enrollment.
    Nationwide consumer reporting agency. A consumer reporting agency 
that compiles and maintains files on consumers on a nationwide basis and 
as defined in 15 U.S.C. 1681a(p).
    Nonsubsidized Stafford loan. A Stafford loan made prior to October 
1, 1992 that does not qualify for interest benefits under Sec.  
682.301(b) or special allowance payments under Sec.  682.302.
    Origination relationship. A special business relationship between a 
school and a lender in which the lender delegates to the school, or to 
an entity or individual affiliated with the school, substantial 
functions or responsibilities normally performed by lenders before 
making FFEL program loans. In this situation, the school is considered 
to have ``originated'' a loan made by the lender.

[[Page 46]]

    Origination fee. A fee that the lender is required to pay the 
Secretary to help defray the Secretary's costs of subsidizing the loan. 
The lender may pass this fee on to the Stafford loan borrower. The 
lender must pass this fee on to the SLS or PLUS borrower.
    Participating school. A school that has in effect a current 
agreement with the Secretary under Sec.  682.600.
    Period of enrollment. The period for which a Stafford, SLS, or PLUS 
loan is intended. The period of enrollment must coincide with one or 
more bona fide academic terms established by the school for which 
institutional charges are generally assessed (e.g., a semester, 
trimester, or quarter in weeks of instructional time, an academic year, 
or the length of the student's program of study in weeks of 
instructional time). The period of enrollment is also referred to as the 
loan period.
    Post-deferment grace period. For a loan made prior to October 1, 
1981, a single period of six consecutive months beginning on the day 
following the last day of an authorized deferment period.
    Repayment period. (1) For a Stafford loan, the period beginning on 
the date following the expiration of the grace period and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from the date the first payment of principal is due from the borrower, 
exclusive of any period of deferment or forbearance.
    (2) For unsubsidized Stafford loans, the period that begins on the 
day after the expiration of the applicable grace period that follows 
after the student ceases to be enrolled on at least a half-time basis 
and ending no later than 10 years or 25 years under an extended 
repayment schedule, from that date, exclusive of any period of deferment 
or forbearance. However, payments of interest are the responsibility of 
the borrower during the in-school and grace period, but may be 
capitalized by the lender.
    (3) For SLS loans, the period that begins on the date the loan is 
disbursed, or if the loan is disbursed in more than one installment, on 
the date the last disbursement is made and ending no later than 10 years 
from that date, exclusive of any period of deferment or forbearance. The 
first payment of principal is due within 60 days after the loan is fully 
disbursed unless a borrower who is also a Stafford loan borrower but 
who, has not yet entered repayment on the Stafford loan requests that 
commencement of repayment on the SLS loan be delayed until the 
borrower's grace period on the Stafford loan expires. Interest on the 
loan accrues and is due and payable from the date of the first 
disbursement of the loan. The borrower is responsible for paying 
interest on the loan during the grace period and periods of deferment, 
but the interest may be capitalized by the lender.
    (4) For Federal PLUS loans, the period that begins on the date the 
loan is disbursed, or if the loan is disbursed in more than one 
installment, on the date the last disbursement is made and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from that date, exclusive of any period of deferment or forbearance. 
Interest on the loan accrues and is due and payable from the date of the 
first disbursement of the loan.
    (5) For Federal Consolidation loans, the period that begins on the 
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25, or 
30 years from that date depending upon the sum of the amount of the 
Consolidation loan, and the unpaid balance on other student loans, 
exclusive of any period of deferment or forbearance.
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under the title IV student financial assistance programs, 
the making of six consecutive, on-time, voluntary full monthly payments 
on a defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) The required full monthly payment amount may not be more than is 
reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are payments made directly by the 
borrower, and do not include payments obtained by income tax off-set, 
garnishment, or income or asset execution. ``On-time'' means a payment 
received by the Secretary or a guaranty agency or its agent within 20 
days of the scheduled due date.

[[Page 47]]

    (3) A borrower has not used the one opportunity to renew eligibility 
for title IV assistance if the borrower makes six consecutive, on-time, 
voluntary, full monthly payments under an agreement to rehabilitate a 
defaulted loan but does not receive additional title IV assistance prior 
to defaulting on that loan again.
    School. (1) An ``institution of higher education'' as that term is 
defined in 34 CFR 600.4.
    (2) For purposes of an in-school deferment, the term includes an 
institution of higher education, whether or not it participates in any 
title IV program or has lost its eligibility to participate in the FFEL 
program because of a high default rate.
    School-affiliated organization. A school-affiliated organization is 
any organization that is directly or indirectly related to a school and 
includes, but is not limited to, alumni organizations, foundations, 
athletic organizations, and social, academic, and professional 
organizations.
    School lender. A school, other than a correspondence school, that 
has entered into a contract of guarantee under this part with the 
Secretary or, a similar agreement with a guaranty agency.
    Stafford Loan Program. The loan program authorized by Title IV-B of 
the Act which encourages the making of subsidized and unsubsidized loans 
to undergraduate, graduate, and professional students and is one of the 
Federal Family Education Loan programs.
    State lender. In any State, a single State agency or private 
nonprofit agency designated by the State that has entered into a 
contract of guarantee under this part with the Secretary, or a similar 
agreement with a guaranty agency.
    Subsidized Stafford Loan: A Stafford loan that qualifies for 
interest benefits under Sec.  682.301(b) and special allowance under 
Sec.  682.302.
    Substantial gainful activity. A level of work performed for pay or 
profit that involves doing significant physical or mental activities, or 
a combination of both.
    Temporarily totally disabled. The condition of an individual who, 
though not totally and permanently disabled, is unable to work and earn 
money or attend school, during a period of at least 60 days needed to 
recover from injury or illness. With regard to a disabled dependent of a 
borrower, this term means a spouse or other dependent who, during a 
period of injury or illness, requires continuous nursing or similar 
services for a period of at least 90 days.
    Third-party servicer. Any State or private, profit or nonprofit 
organization or any individual that enters into a contract with a lender 
or guaranty agency to administer, through either manual or automated 
processing, any aspect of the lender's or guaranty agency's FFEL 
programs required by any statutory provision of or applicable to Title 
IV of the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA that governs the FFEL programs, including, any 
applicable function described in the definition of third-party servicer 
in 34 CFR part 668; originating, guaranteeing, monitoring, processing, 
servicing, or collecting loans; claims submission; or billing for 
interest benefits and special allowance.
    Totally and permanently disabled. The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
    Unsubsidized Stafford loan. A loan made after October 1, 1992, 
authorized under section 428H of the Act for borrowers who do not 
qualify for interest benefits under Sec.  682.301(b) but do qualify for 
special allowance under Sec.  682.302.
    Write-off. Cessation of collection activity on a defaulted FFEL loan 
due to

[[Page 48]]

a determination in accordance with applicable standards that no further 
collection activity is warranted.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to 1087-2, 1088-1098, 1141; 
E.O. 12549 (3 CFR, 1986 Comp., p. 189), E.O. 12689 (3 CFR, 1989 Comp., 
p. 235))

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.200, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.201  Eligible borrowers.

    (a) Student Stafford borrower. Except for a refinanced SLS/PLUS 
loan, a student is eligible to receive a Stafford loan, and an 
independent undergraduate student, a graduate or professional student, 
or, subject to paragraph (a)(3) of this section, a dependent 
undergraduate student, is eligible to receive an unsubsidized Stafford 
loan, if the student who is enrolled or accepted for enrollment on at 
least a half-time basis at a participating school meets the requirements 
for an eligible student under 34 CFR part 668, and--
    (1) In the case of an undergraduate student who seeks a Stafford 
loan or unsubsidized Stafford loan for the cost of attendance at a 
school that participates in the Pell Grant Program, has received a final 
determination, or, in the case of a student who has filed an application 
with the school for a Pell Grant, a preliminary determination, from the 
school of the student's eligibility or ineligibility for a Pell Grant 
and, if eligible, has applied for the period of enrollment for which the 
loan is sought;
    (2) In the case of any student who seeks an unsubsidized Stafford 
loan for the cost of attendance at a school that participates in the 
Stafford Loan Program, the student must--
    (i) Receive a determination of need for a subsidized Stafford loan; 
and
    (ii) If the determination of need is in excess of $200, have made a 
request to a lender for a subsidized Stafford loan;
    (3) For purposes of a dependent undergraduate student's eligibility 
for an additional unsubsidized Stafford loan amount, as described at 
Sec.  682.204(d), is a dependent undergraduate student for whom the 
financial aid administrator determines and documents in the school's 
file, after review of the family financial information provided by the 
student and consideration of the student's debt burden, that the 
student's parents likely will be precluded by exceptional circumstances 
(e.g., denial of a PLUS loan to a parent based on adverse credit, the 
student's parent receives only public assistance or disability benefits, 
is incarcerated, or his or her whereabouts are unknown) from borrowing 
under the PLUS Program and the student's family is otherwise unable to 
provide the student's expected family contribution. A parent's refusal 
to borrow a PLUS loan does not constitute an exceptional circumstance;
    (4)(i) Reaffirms any FFEL loan amount on which there has been a 
total cessation of collection activity, including all principal, 
interest, collection costs, court costs, attorney fees, and late charges 
that have accrued on that amount up to the date of reaffirmation.
    (ii) For purposes of paragraph (a)(4) of this section, reaffirmation 
means the acknowledgement of the loan by the borrower in a legally 
binding manner. The acknowledgement may include, but is not limited to, 
the borrower--
    (A) Signing a new promissory note that includes the same terms and 
conditions as the original note signed by the borrower or repayment 
schedule; or
    (B) Making a payment on the loan.
    (5) The suspension of collection activity has been lifted from any 
loan on which collection activity had been suspended based on a 
conditional determination that the borrower was totally and permanently 
disabled.
    (6) In the case of a borrower whose prior loan under title IV of the 
Act or whose TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower must--
    (i) Obtain certification from a physician that the borrower is able 
to engage in substantial gainful activity;

[[Page 49]]

    (ii) Sign a statement acknowledging that the FFEL loan the borrower 
receives cannot be discharged in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates; and
    (iii) If a borrower receives a new FFEL loan, other than a Federal 
Consolidation Loan, within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with Sec.  
682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR 685.213, or 34 CFR 
686.42(b) based on a discharge request received on or after July 1, 
2010, resume repayment on the previously discharged loan in accordance 
with Sec.  682.402(c)(5), 34 CFR 674.61(b)(5), or 34 CFR 685.213(b)(4), 
or acknowledge that he or she is once again subject to the terms of the 
TEACH Grant agreement to serve before receiving the new loan.
    (7) In the case of a borrower whose prior loan under title IV of the 
HEA was conditionally discharged after an initial determination that the 
borrower was totally and permanently disabled based on a discharge 
request received prior to July 1, 2010, the borrower must--
    (i) Comply with the requirements of paragraphs (a)(6)(i) and 
(a)(6)(ii) of this section; and
    (ii) Sign a statement acknowledging that--
    (A) The loan that has been conditionally discharged prior to a final 
determination of total and permanent disability cannot be discharged in 
the future on the basis of any impairment present when the borrower 
applied for a total and permanent disability discharge or when the new 
loan is made unless that impairment substantially deteriorates; and
    (B) Collection activity will resume on any loans in a conditional 
discharge period.
    (8) In the case of any student who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR part 668.32(e).
    (9) Is not serving in a medical internship or residency program, 
except for an internship in dentistry.
    (b) Student PLUS borrower. A graduate or professional student who is 
enrolled or accepted for enrollment on at least a half-time basis at a 
participating school is eligible to receive a PLUS Loan on or after July 
1, 2006, if the student--
    (1) Meets the requirements for an eligible student under 34 CFR 668;
    (2) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6), 
(a)(7), (a)(8), and (a)(9) of this section, if applicable;
    (3) Has received a determination of his or her annual loan maximum 
eligibility under the Federal Subsidized and Unsubsidized Stafford Loan 
Program or under the Federal Direct Subsidized Stafford/Ford Loan 
Program and Federal Direct Unsubsidized Stafford/Ford Loan Program, as 
applicable; and
    (4) Does not have an adverse credit history in accordance with 
paragraphs (c)(2)(i) through (c)(2)(v) of this section, or obtains an 
endorser who has been determined not to have an adverse credit history, 
as provided for in paragraph (c)(1)(vii) of this section.
    (c) Parent PLUS borrower. (1) A parent borrower, is eligible to 
receive a PLUS Program loan, other than a loan made under Sec.  
682.209(e), if the parent--
    (i) Is borrowing to pay for the educational costs of a dependent 
undergraduate student who meets the requirements for an eligible student 
set forth in 34 CFR part 668;
    (ii) Provides his or her and the student's social security number;
    (iii) Meets the requirements pertaining to citizenship and residency 
that apply to the student in 34 CFR 668.33;
    (iv) Meets the requirements concerning defaults and overpayments 
that apply to the student in 34 CFR 668.35 and meets the requirements of 
judgment liens that apply to the student under 34 CFR 668.32(g)(3);
    (v) Except for the completion of a Statement of Selective Service 
Registration Status, complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student in 34 CFR 
part 668;

[[Page 50]]

    (vi) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6), 
and (a)(7) of this section, as applicable; and
    (vii) In the case of a Federal PLUS loan made on or after July 1, 
1993, does not have an adverse credit history or obtains an endorser who 
has been determined not to have an adverse credit history as provided in 
paragraph (c)(2)(ii) of this section.
    (viii) Has completed repayment of any title IV, HEA program 
assistance obtained by fraud, if the parent has been convicted of, or 
has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance.
    (2)(i) For purposes of this section, the lender must obtain a credit 
report on each applicant from at least one national consumer reporting 
agency. The credit report must be secured within a timeframe that would 
ensure the most accurate, current representation of the borrower's 
credit history before the first day of the period of enrollment for 
which the loan is intended.
    (ii) Unless the lender determines that extenuating circumstances 
existed, the lender must consider each applicant to have an adverse 
credit history based on the credit report if--
    (A) The applicant is considered 90 or more days delinquent on the 
repayment of a debt; or
    (B) The applicant has been the subject of a default determination, 
bankruptcy discharge, foreclosure, repossession, tax lien, wage 
garnishment, or write-off of a Title IV debt, during the five years 
preceding the date of the credit report.
    (iii) Nothing in this paragraph precludes the lender from 
establishing more restrictive credit standards to determine whether the 
applicant has an adverse credit history.
    (iv) The absence of any credit history is not an indication that the 
applicant has an adverse credit history and is not to be used as a 
reason to deny a PLUS loan to that applicant.
    (v) The lender must retain a record of its basis for determining 
that extenuating circumstances existed. This record may include, but is 
not limited to, an updated credit report, a statement from the creditor 
that the borrower has made satisfactory arrangements to repay the debt, 
or a satisfactory statement from the borrower explaining any 
delinquencies with outstanding balances of less than $500.
    (3) For purposes of paragraph (c)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
    (d) Consolidation program borrower. (1) An individual is eligible to 
receive a Consolidation loan if the individual--
    (i) On the loans being consolidated--
    (A) Is, at the time of application for a Consolidation loan--
    (1) In a grace period preceding repayment;
    (2) In repayment status;
    (3) In a default status and has either made satisfactory repayment 
arrangements as defined in applicable program regulations or has agreed 
to repay the consolidation loan under the income-sensitive repayment 
plan described in Sec.  682.209(a)(6)(iii) or the income-based repayment 
plan described in Sec.  682.215;
    (B) Not subject to a judgment secured through litigation, unless the 
judgment has been vacated;
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted;
    (D) Not in default status resulting from a claim filed under Sec.  
682.412.
    (ii) Certifies that no other application for a Consolidation loan is 
pending; and
    (iii) Agrees to notify the holder of any changes in address.
    (2) A borrower may not consolidate a loan under this section for 
which the borrower is wholly or partially ineligible.
    (e) A borrower's eligibility to receive a Consolidation loan 
terminates upon receipt of a Consolidation loan except that--
    (1) Eligible loans received prior to the date a Consolidation loan 
was made and loans received during the 180-day period following the date 
a Consolidation loan was made, may be added to the Consolidation loan 
based on the borrower's request received by the lender during the 180-
day period after

[[Page 51]]

the date the Consolidation loan was made;
    (2) A borrower who receives an eligible loan before or after the 
date a Consolidation loan is made may receive a subsequent Consolidation 
loan;
    (3) A Consolidation loan borrower may consolidate an existing 
Consolidation loan if the borrower has at least one other eligible loan 
made before or after the existing Consolidation loan that will be 
consolidated;
    (4) If the consolidation loan is in default or has been submitted to 
the guaranty agency for default aversion, the borrower may obtain a 
subsequent consolidation loan under the Federal Direct Consolidation 
Loan Program for purposes of obtaining an income contingent repayment 
plan or an income-based repayment plan; and
    (5) A FFEL borrower may consolidate his or her loans (including a 
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan 
Program for the purpose of using--
    (i) The Public Service Loan Forgiveness Program; or
    (ii) For FFEL Program loans first disbursed on or after October 1, 
2008 (including Federal Consolidation Loans that repaid FFEL or Direct 
Loan program Loans first disbursed on or after October 1, 2008), the no 
accrual of interest benefit for active duty service members.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and 
1091)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.201, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.202  Permissible charges by lenders to borrowers.

    The charges that lenders may impose on borrowers, either directly or 
indirectly, are limited to the following:
    (a) Interest. The applicable interest rates for FFEL Program loans 
are given in paragraphs (a)(1) through (a)(4) and (a)(8) of this 
section.
    (1) Stafford Loan Program. (i) For loans made prior to July 1, 1994, 
if the borrower, on the date the promissory note evidencing the loan was 
signed, had an outstanding balance of principal or interest on a 
previous Stafford loan, the interest rate is the applicable interest 
rate on that previous Stafford loan.
    (ii) If the borrower, on the date the promissory note evidencing the 
loan was signed, had no outstanding balance on any FFEL Program loan, 
and the first disbursement was made--
    (A) Prior to October 1, 1992, for a loan covering a period of 
instruction beginning on or after July 1, 1988, the interest rate is 8 
percent until 48 months elapse after the repayment period begins, and 10 
percent thereafter; or
    (B) On or after October 1, 1992, and prior to July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (1) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (2) 9 percent.
    (iii) For a Stafford loan for which the first disbursement was made 
before October 1, 1992--
    (A) If the borrower, on the date the promissory note was signed, had 
no outstanding balance on a Stafford loan but had an outstanding balance 
of principal or interest on a PLUS or SLS loan made for a period of 
enrollment beginning before July 1, 1988, or on a Consolidation loan 
that repaid a loan made for a period of enrollment beginning before July 
1, 1988, the interest rate is 8 percent; or
    (B) If the borrower, on the date the promissory note evidencing the 
loan was signed, had an outstanding balance of principal or interest on 
a PLUS or SLS loan made for a period of enrollment beginning on or after 
July 1, 1988, or on a Consolidation loan that repaid a loan made for a 
period of enrollment beginning on or after July 1, 1988, the interest 
rate is 8 percent until 48 months elapse after the repayment period 
begins, and 10 percent thereafter.
    (iv) For a Stafford loan for which the first disbursement was made 
on or after October 1, 1992, but before December 20, 1993, if the 
borrower, on the date the promissory note evidencing the loan was 
signed, had no outstanding balance on a Stafford loan but had an

[[Page 52]]

outstanding balance of principal or interest on a PLUS, SLS, or 
Consolidation loan, the interest rate is 8 percent.
    (v) For a Stafford loan for which the first disbursement was made on 
or after December 20, 1993 and prior to July 1, 1994, if the borrower, 
on the date the promissory note was signed, had no outstanding balance 
on a Stafford loan but had an outstanding balance of principal or 
interest on a PLUS, SLS, or Consolidation loan, the interest rate is the 
rate provided in paragraph (a)(1)(ii)(B) of this section.
    (vi) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1994 and prior to July 1, 1995, for a period of 
enrollment that included or began on or after July 1, 1994, the interest 
rate is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10; or
    (B) 8.25 percent.
    (vii) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1995 and prior to July 1, 1998 the interest rate is 
a variable rate applicable to each July 1-June 30 period, that equals 
the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 2.5 percent during the in-school, grace and 
deferment period and 3.10 percent during repayment; or
    (B) 8.25 percent.
    (viii) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1998, and prior to July 1, 2006, the interest rate 
is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period plus 1.7 percent during the in-school, grace and 
deferment periods and 2.3 percent during repayment; or
    (B) 8.25 percent.
    (ix) For a Stafford loan for which the first disbursement was made 
on or after July 1, 2006, the interest rate is 6.8 percent.
    (x) For a subsidized Stafford loan made to an undergraduate student 
for which the first disbursement was made on or after:
    (A) July 1, 2006 and before July 1, 2008, the interest rate is 6.8 
percent on the unpaid principal balance of the loan.
    (B) July 1, 2008 and before July 1, 2009, the interest rate is 6 
percent on the unpaid principal balance of the loan.
    (C) July 1, 2009 and before July 1, 2010, the interest rate is 5.6 
percent on the unpaid principal balance of the loan.
    (2) PLUS Program. (i) For a combined repayment schedule under Sec.  
682.209(d), the interest rate is the weighted average of the rates of 
all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992, and for any refinanced PLUS loan, the interest rate is 
a variable rate, applicable to each July 1-June 30 period, that equals 
the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992 and prior to 
July 1, 1994, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 10 percent.
    (iv) For a loan for which the first disbursement was made on or 
after July 1, 1994 and prior to July 1, 1998, the interest rate is a 
variable rate applicable to each July 1-June 30 period, that equals the 
lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.

[[Page 53]]

    (v) For a loan for which the first disbursement was made on or after 
July 1, 1998, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.
    (vi)(A) Beginning on July 1, 2001, and prior to July 1, 2006, the 
interest rate on the loans described in paragraphs (a)(2)(ii) through 
(iv) of this section is a variable rate applicable to each July 1-June 
30, as determined on the preceding June 26, and is equal to the weekly 
average 1-year constant maturity Treasury yield, as published by the 
Board of Governors of the Federal Reserve System, for the last calendar 
week ending on or before such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(2)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraphs (a)(2)(iii) and 
(iv) of this section.
    (B) The interest rates calculated under paragraph (a)(2)(vi)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(2)(ii)(B), (a)(2)(iii)(B), and (a)(2)(iv)(B) of this section, as 
applicable.
    (vii) For a PLUS loan first disbursed on or after July 1, 2006, the 
interest rate is 8.5 percent.
    (3) SLS Program. (i) For a combined repayment schedule under Sec.  
682.209(d), the interest rate is the weighted average of the rates of 
all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992, and for any refinance SLS loan, the interest rate is a 
variable rate, applicable to each July 1-June 30 period, that equals the 
lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992, the interest 
rate is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 11 percent.
    (iv)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(3)(ii) and (iii) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(3)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraph (a)(3)(iii) of this 
section.
    (B) The interest rates calculated under paragraph (a)(3)(iv)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(3)(ii)(B) and (a)(3)(iii)(B) of this section, as applicable.
    (4) Consolidation Program. (i) A Consolidation Program loan made 
before July 1, 1994 bears interest at the rate that is the greater of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest whole percent; or
    (B) 9 percent.
    (ii) A Consolidation loan made on or after July 1, 1994, for which 
the loan application was received by the lender before November 13, 
1997, bears interest at the rate that is equal to the weighted average 
of interest rates on the loans consolidated, rounded upward to the 
nearest whole percent.
    (iii) For a Consolidation loan for which the loan application was 
received by the lender on or after November 13, 1997 and before October 
1, 1998, the interest rate for the portion of the loan that consolidated 
loans other than HEAL loans is a variable rate, applicable to each July 
1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction held prior to June 1 of each year plus 3.10 
percent; or

[[Page 54]]

    (B) 8.25 percent.
    (iv) For a Consolidation loan for which the application was received 
by the lender on or after October 1, 1998 and prior to July 1, 2010, the 
interest rate for the portion of the loan that consolidated loans other 
than HEAL loans is a fixed rate that is the lesser of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest higher one-eighth of one percent; 
or
    (B) 8.25 percent.
    (v) For a Consolidation loan for which the application was received 
by the lender on or after November 13, 1997, the annual interest rate 
applicable to the portion of each consolidation loan that repaid HEAL 
loans is a variable rate adjusted annually on July 1 and must be equal 
to the average of the bond equivalent rates of the 91-day Treasury bills 
auctioned for the quarter ending June 30, plus 3 percent. There is no 
maximum rate on this portion of the loan.
    (5) Actual interest rates under the Stafford loan, SLS, PLUS, and 
Consolidation Programs. A lender may charge a borrower an actual rate of 
interest that is less than the applicable interest rate specified in 
paragraphs (a)(1)-(4) of this section.
    (6) Refund of excess interest paid on Stafford loans.
    (i) For a loan with an applicable interest rate of 10 percent made 
prior to July 23, 1992, and for a loan with an applicable interest rate 
of 10 percent made from July 23, 1992 through September 30, 1992, to a 
borrower with no outstanding FFEL Program loans--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.25 percent, is less than 10 percent, the lender shall 
calculate an adjustment and credit the adjustment as specified under 
paragraph (a)(6)(i)(B) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of the 
adjustment for a calendar quarter is equal to--
    (1) 10 percent minus the sum of the average of the bond equivalent 
rates of the 91-day Treasury bills auctioned for the applicable quarter 
plus 3.25 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) No later than 30 calendar days after the end of the calendar 
year, the holder of the loan shall credit any amounts computed under 
paragraph (a)(6)(i)(A) of this section to--
    (1) The Secretary, for amounts paid during any period in which the 
borrower is eligible for interest benefits;
    (2) The borrower's account to reduce the outstanding principal 
balance as of the date the holder adjusts the borrower's account, 
provided that the borrower's account was not more than 30 days 
delinquent on that December 31; or
    (3) The Secretary, for a borrower who on the last day of the 
calendar year is delinquent for more than 30 days.
    (ii) For a fixed interest rate loan made on or after July 23, 1992 
to a borrower with an outstanding FFEL Program loan--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.10 percent, is less than the applicable interest rate, 
the lender shall calculate an adjustment and credit the adjustment to 
reduce the outstanding principal balance of the loan as specified under 
paragraph (a)(6)(ii)(C) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of an adjustment 
for a calendar quarter is equal to--
    (1) The applicable interest rate minus the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for the 
applicable quarter plus 3.10 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) For any quarter or portion thereof that the Secretary was 
obligated to pay interest subsidy on behalf of the borrower, the holder 
of the loan shall refund to the Secretary, no later than

[[Page 55]]

the end of the following quarter, any excess interest calculated in 
accordance with paragraph (a)(6)(ii)(A) of this section;
    (C) For any other quarter, the holder of the loan shall, within 30 
days of the end of the calendar year, reduce the borrower's outstanding 
principal by the amount of excess interest calculated under paragraph 
(a)(6)(ii)(A) of this section, provided that the borrower's account was 
not more than 30 days delinquent as of December 31;
    (D) For a borrower who on the last day of the calendar year is 
delinquent for more than 30 days, any excess interest calculated shall 
be refunded to the Secretary; and
    (E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this 
section, if the loan was disbursed during a quarter, the amount of any 
adjustment refunded to the Secretary or credited to the borrower for 
that quarter shall be prorated accordingly.
    (7) Conversion to Variable Rate.
    (i) A lender or holder shall convert the interest rate on a loan 
under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.
    (ii) The applicable interest rate for each 12-month period beginning 
on July 1 and ending on June 30 preceding each 12-month period is equal 
to the sum of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to June 1; and
    (B) 3.25 percent in the case of a loan described in paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of a loan 
described in paragraph (a)(6)(ii) of this section.
    (iii)(A) In connection with the conversion specified in paragraph 
(a)(7)(i) of this section for any period prior to the conversion for 
which a rebate has not been provided under paragraph (a)(6) of this 
section, a lender or holder shall convert the interest rate to a 
variable rate.
    (B) The interest rate for each period shall be reset quarterly and 
the applicable interest rate for the quarter or portion shall equal the 
sum of--
    (1) The average of the bond equivalent rates of 91-day Treasury 
bills auctioned for the preceding 3-month period; and
    (2) 3.25 percent in the case of loans as specified under paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of loans as 
specified under paragraph (a)(6)(ii) of this section.
    (iv)(A) The holder of a loan being converted under paragraph 
(a)(7)(iii)(A) of this section shall complete such conversion on or 
before January 1, 1995.
    (B) The holder shall, not later than 30 days prior to the 
conversion, provide the borrower with--
    (1) A notice informing the borrower that the loan is being converted 
to a variable interest rate;
    (2) A description of the rate to the borrower;
    (3) The current interest rate; and
    (4) An explanation that the variable rate will provide a 
substantially equivalent benefit as the adjustment otherwise provided 
under paragraph (a)(6) of this section.
    (v) The notice may be provided as part of the disclosure requirement 
as specified under Sec.  682.205.
    (vi) The interest rate as calculated under this paragraph may not 
exceed the maximum interest rate applicable to the loan prior to the 
conversion.
    (8) Applicability of the Servicemembers Civil Relief Act (SCRA) (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(4) of this section, a loan holder must use the official electronic 
database maintained by the Department of Defense to identify all 
borrowers with an outstanding loan who are members of the military 
service, as defined in Sec.  682.208(j)(10) and ensure the interest rate 
on a borrower's qualified loans with an outstanding balance does not 
exceed the six percent maximum interest rate under 50 U.S.C. 527, App. 
section 207(a) on FFEL Program loans made prior to the borrower entering 
military service status. For purposes of this paragraph (a)(8), the 
interest rate includes any other charges or fees applied to the loan.
    (b) Capitalization. (1) Except as provided in Sec.  682.405(b)(4), a 
lender may add accrued interest and unpaid insurance premiums or Federal 
default fees to the borrower's unpaid principal balance in accordance 
with this section. This increase in the principal balance of a loan is 
called ``capitalization.''

[[Page 56]]

    (2) Except as provided in paragraph (b)(4) and (b)(5) of this 
section, a lender may capitalize interest payable by the borrower that 
has accrued--
    (i) For the period from the date the first disbursement was made to 
the beginning date of the in-school period or, for a PLUS loan, for the 
period from the date the first disbursement was made to the date the 
repayment period begins;
    (ii) For the in-school or grace periods, or for a period needed to 
align repayment of an SLS with a Stafford loan, if capitalization is 
expressly authorized by the promissory note (or with the written consent 
of the borrower);
    (iii) For a period of authorized deferment;
    (iv) For a period of authorized forbearance; or
    (v) For the period from the date the first installment payment was 
due until it was made.
    (3) A lender may capitalize accrued interest under paragraphs 
(b)(2)(ii) through (iv) of this section no more frequently than 
quarterly. Capitalization is again permitted when repayment is required 
to begin or resume. A lender may capitalize accrued interest under 
paragraph (b)(2) (i) and (v) of this section only on the date repayment 
of principal is scheduled to begin.
    (4)(i) For unsubsidized Stafford loans disbursed on or after October 
7, 1998 and prior to July 1, 2000, the lender may capitalize the unpaid 
interest that accrues on the loan according to the requirements of 
section 428H(e)(2) of the Act.
    (ii) For Stafford loans first disbursed on or after July 1, 2000, 
the lender may capitalize the unpaid interest--
    (A) When the loan enters repayment;
    (B) At the expiration of a period of authorized deferment;
    (C) At the expiration of a period of authorized forbearance; and
    (D) When the borrower defaults.
    (5) For Consolidation loans, the lender may capitalize interest as 
provided in paragraphs (b)(2) and (b)(3) of this section, except that 
the lender may capitalize the unpaid interest for a period of authorized 
in-school deferment only at the expiration of the deferment.
    (6) For any borrower in an in-school or grace period or the period 
needed to align repayment, deferment, or forbearance status, during 
which the Secretary does not pay interest benefits and for which the 
borrower has agreed to make payments of interest, the lender may 
capitalize past due interest provided that the lender has notified the 
borrower that the borrower's failure to resolve any delinquency 
constitutes the borrower's consent to capitalization of delinquent 
interest and all interest that will accrue through the remainder of that 
period.
    (c) Fees for FFEL Program loans. (1)(i) For Stafford loans first 
disbursed prior to July 1, 2006, a lender may charge a borrower an 
origination fee not to exceed 3 percent of the principal amount of the 
loan.
    (ii) For Stafford loans first disbursed on or after July 1, 2006, 
but before July 1, 2007, a lender may charge a borrower an origination 
fee not to exceed 2 percent of the principal amount of the loan.
    (iii) For Stafford loans first disbursed on or after July 1, 2007, 
but before July 1, 2008, a lender may charge a borrower an origination 
fee not to exceed 1.5 percent of the principal amount of the loan.
    (iv) For Stafford loans first disbursed on or after July 1, 2008, 
but before July 1, 2009, a lender may charge a borrower an origination 
fee not to exceed 1 percent of the principal amount of the loan.
    (v) For Stafford loans first disbursed on or after July 1, 2009, but 
before July 1, 2010, a lender may charge a borrower an origination fee 
not to exceed .5 percent of the principal amount of the loan.
    (vi) Except as provided in paragraph (c)(2) of this section, a 
lender must charge all borrowers the same origination fee.
    (2)(i) A lender may charge a lower origination fee than the amount 
specified in paragraph (c)(1) of this section to a borrower whose 
expected family contribution (EFC), used to determine eligibility for 
the loan, is equal to or less than the maximum qualifying EFC for a 
Federal Pell Grant at the time the loan is certified or to a borrower 
who qualifies for a subsidized Stafford

[[Page 57]]

loan. A lender must charge all such borrowers the same origination fee.
    (ii) With the approval of the Secretary, a lender may use a standard 
comparable to that defined in paragraph (c)(2)(i) of this section.
    (3) If a lender charges a lower origination fee on unsubsidized 
loans under paragraph (c)(1) or (c)(2) of this section, the lender must 
charge the same fee on subsidized loans.
    (4)(i) For purposes of this paragraph (c), a lender is defined as:
    (A) All entities under common ownership, including ownership by a 
common holding company, that make loans to borrowers in a particular 
state; and
    (B) Any beneficial owner of loans that provides funds to an eligible 
lender trustee to make loans on the beneficial owner's behalf in a 
particular state.
    (ii) If a lender as defined in paragraph (c)(4)(i) charges a lower 
origination fee to any borrower in a particular state under paragraphs 
(c)(1) or (c)(2) of this section, the lender must charge all such 
borrowers who reside in that state or attend school in that state the 
same origination fee.
    (5) A lender must charge a borrower an origination fee on a PLUS 
loan of 3 percent of the principal amount of the loan;
    (6) A lender must deduct a pro rata portion of the fee (if charged) 
from each disbursement; and
    (7) A lender must refund by a credit against the borrower's loan 
balance the portion of the origination fee previously deducted from the 
loan that is attributable to any portion of the loan--
    (i) That is returned by a school to a lender in order to comply with 
the Act or with applicable regulations;
    (ii) That is repaid or returned within 120 days of disbursement, 
unless--
    (A) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (B) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec.  682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (iii) For which a loan check has not been negotiated within 120 days 
of disbursement; or
    (iv) For which loan proceeds disbursed by electronic funds transfer 
or master check have not been released from the restricted account 
maintained by the school within 120 days of disbursement.
    (d) Insurance premium and Federal default fee. (1) For loans 
guaranteed prior to July 1, 2006, a lender may charge the borrower the 
amount of the insurance premium paid by the lender to the guarantor (up 
to 1 percent of the principal amount of the loan) if that charge is 
provided for in the promissory note.
    (2) For loans guaranteed on or after July 1, 2006 and prior to July 
1, 2010, a lender may charge the borrower the amount of the Federal 
default fee paid by the lender to the guarantor (up to 1 percent of the 
principal amount of the loan) if that charge is provided for in the 
promissory note.
    (3) If the borrower is charged the insurance premium or the Federal 
default fee, the amount charged must be deducted proportionately from 
each disbursement of the borrower's loan proceeds, if the loan is 
disbursed in more than one installment.
    (4) The lender shall refund the insurance premium or Federal default 
fee paid by the borrower in accordance with the circumstances and 
procedures applicable to the return of origination fees, as described in 
paragraph (c)(7) of this section.
    (e) Late charge. (1) If authorized by the borrower's promissory 
note, the lender may require the borrower to pay a late charge under the 
circumstances described in paragraph (e)(2) of this section. This charge 
may not exceed six cents for each dollar of each late installment.
    (2) The lender may require the borrower to pay a late charge if the 
borrower fails to pay all or a portion of a required installment payment 
within 15 days after it is due.
    (f) Collection charges. (1) If provided for in the borrower's 
promissory note, and notwithstanding any provisions of State law, the 
lender may require that the borrower or any endorser pay costs

[[Page 58]]

incurred by the lender or its agents in collecting installments not paid 
when due, including, but not limited to--
    (i) Attorney fees;
    (ii) Court costs; and
    (iii) Telegrams.
    (2) The costs referred to in paragraph (f)(1) of this section may 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (g) Special allowance. Pursuant to Sec.  682.412(c), a lender may 
charge a borrower the amount of special allowance paid by the Secretary 
on behalf of the borrower.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1087-1, 1091a)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22475, Apr. 29, 1994; 
59 FR 61427, Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996; 62 FR 63434, 
Nov. 28, 1997; 64 FR 18976, Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999; 66 
FR 34762, June 29, 2001; 71 FR 45700, Aug. 9, 2006; 72 FR 62000, Nov. 1, 
2007; 74 FR 55991, Oct. 29, 2009; 78 FR 65807, Nov. 1, 2013; 80 FR 
67236, Oct. 30, 2015; 81 FR 76079, Nov. 1, 2016]



Sec.  682.203  Responsible parties.

    (a) Delegation of functions. A school, lender, or guaranty agency 
may contract or otherwise delegate the performance of its functions 
under the Act and this part to a servicing agency or other party. This 
contracting or other delegation of functions does not relieve the 
school, lender, or guaranty agency of its duty to comply with the 
requirements of the Act and this part.
    (b) Trustee responsibility. A lender that holds a loan in its 
capacity as a trustee assumes responsibility for complying with all 
statutory and regulatory requirements imposed on any other holders of a 
loan.

(Authority: 20 U.S.C. 1082)



Sec.  682.204  Maximum loan amounts.

    (a) Stafford Loan Program annual limits. (1) In the case of an 
undergraduate student who has not successfully completed the first year 
of a program of undergraduate education, the total amount the student 
may borrow for any academic year of study under the Stafford Loan 
Program in combination with the Direct Subsidized Loan Program may not 
exceed the following:
    (i) $2,625, or, for a loan disbursed on or after July 1, 2007, 
$3,500, for a program of study of at least a full academic year in 
length.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $3,500, as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.009

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--

[[Page 59]]

[GRAPHIC] [TIFF OMITTED] TR01NO13.000

    (2) In the case of a student who has successfully completed the 
first year of an undergraduate program but has not successfully 
completed the second year of an undergraduate program, the total amount 
the student may borrow for any academic year of study under the Stafford 
Loan Program in combination with the Direct Subsidized Loan Program may 
not exceed the following:
    (i) $4,500 for a program whose length is at least a full academic 
year in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.011

    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Stafford Loan Program in combination with the 
Direct Subsidized Loan Program may not exceed the following:
    (i) $5,500 for a program whose length is at least an academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.012

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for loans made prior to July 1, 2010 for 
any academic year of study under the Stafford Loan Program, in 
combination with any

[[Page 60]]

amount borrowed under the Direct Subsidized Loan Program, may not exceed 
$8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or certificate, the total 
amount the student may borrow for any academic year of study under the 
Stafford Loan Program in combination with the Direct Subsidized Loan 
Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Stafford Loan Program in combination with the Direct 
Subsidized Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Stafford Loan Program aggregate limits. The aggregate unpaid 
principal amount of all Stafford Loan Program loans in combination with 
loans received by the student under the Direct Subsidized Loan Program, 
but excluding the amount of capitalized interest may not exceed the 
following:
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500, in the case of a graduate or professional student, 
including loans for undergraduate study.
    (c) Unsubsidized Stafford Loan Program. (1) Except for a dependent 
undergraduate student who qualifies for additional Unsubsidized Stafford 
Loan funds because the student's parents are unable to borrow under the 
PLUS Loan Program, as described in paragraph (d) of this section, the 
total amount the dependent undergraduate student may borrow for any 
academic year under the Unsubsidized Stafford Loan Program in 
combination with the Direct Unsubsidized Loan Program is the same amount 
determined under paragraph (a) of this section, less any amount received 
under the Stafford Loan Program or the Direct Subsidized Loan program, 
plus--
    (i) $2,000, for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is at least one academic year or 
more in length with less than a full academic year remaining, the amount 
that is the same ratio to $2,000 as the--

[[Page 61]]

[GRAPHIC] [TIFF OMITTED] TR01NO13.001

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.002

    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in Sec.  682.201(a)(3), the total amount 
the student may borrow for any period of enrollment under the 
Unsubsidized Stafford Loan and Direct Unsubsidized Loan programs may not 
exceed the amounts determined under paragraph (a) of this section less 
any amount received under the Federal Stafford Loan Program or the 
Direct Subsidized Loan Program, in combination with the amounts 
determined under paragraph (d) of this section.
    (d) Additional eligibility under the Unsubsidized Stafford Loan 
Program. An independent undergraduate student, graduate or professional 
student, and certain dependent undergraduate students under the 
conditions specified in Sec.  682.201(a)(3) may borrow amounts under the 
Unsubsidized Stafford Loan Program in addition to any amount borrowed 
under paragraphs (a) and (c) of this section, except as provided in 
paragraph (d)(9) of this section. The additional amount that such a 
student may borrow for any academic year of study under the Unsubsidized 
Stafford Loan Program in combination with the Direct Unsubsidized Loan 
Program, in addition to the amounts allowed under paragraphs (a) and (c) 
of this section, except as provided in paragraph (d)(9) of this section 
for certain dependent undergraduate students--
    (1) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education, may not exceed the 
following:
    (i) $6,000 for a program of study of at least a full academic year.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $6,000 as the--

[[Page 62]]

[GRAPHIC] [TIFF OMITTED] TR01NO99.013

    (iii) For a program of study that is less than a full academic year 
in length, an amount that is the same ratio to $6,000 as the lesser of--
[GRAPHIC] [TIFF OMITTED] TR01NO13.003

    (2) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education may not exceed 
the following:
    (i) $6,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.015

    (3) In the case of a student who has successfully completed the 
second year of a program of undergraduate education, but has not 
completed the remainder of the program, may not exceed the following:
    (i) $7,000 for a program of study of at least a full academic year.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.016

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (d)(3) of this section.
    (5) In the case of a graduate or professional student, may not 
exceed $12,000.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-

[[Page 63]]

month period in a course of study necessary for enrollment in a program 
leading to a degree or a certificate may not exceed the following:
    (i) $6,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $7,000 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (iii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in a program necessary 
for a professional credential or a certification from a State that is 
required for employment as a teacher in an elementary or secondary 
school in that State, $7,000.
    (7) Except as provided in paragraph (d)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (d)(1) of this section.
    (8) Except as provided in paragraph (d)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (d)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (d)(2) of this 
section.
    (9) A dependent undergraduate student who qualifies for the 
additional Unsubsidized Stafford Loan amounts under this section in 
accordance with the conditions specified in Sec.  682.201(a)(3) is not 
eligible to receive the additional Unsubsidized Stafford Loan amounts 
under paragraph (c)(1)(ii) of this section.
    (e) Combined Federal Stafford, SLS and Federal Unsubsidized Stafford 
Loan Program aggregate limits. The aggregate unpaid principal amount of 
Stafford Loans, Direct Subsidized Loans, Unsubsidized Stafford Loans, 
Direct Unsubsidized Loans and SLS Loans, but excluding the amount of 
capitalized interest, may not exceed the following:
    (1) $31,000 for a dependent undergraduate student.
    (2) $57,500 for an independent undergraduate student or a dependent 
undergraduate student under the conditions specified in Sec.  
682.201(a)(3).
    (3) $138,500 for a graduate or professional student.
    (f) SLS Program aggregate limit. The total unpaid principal amount 
of SLS Program loans made to--
    (1) An undergraduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $23,000, for loans for which the first disbursement was made on 
or after July 1, 1993; and
    (2) A graduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $73,000, for loans for which the first disbursement was made on 
or after July 1, 1993 including loans for undergraduate study.
    (g) PLUS Program annual limit. The total amount of all PLUS Program 
loans that a parent or student may borrow for any academic year of study 
may not exceed the student's cost of education minus other estimated 
financial assistance for that student.
    (h) Minimum loan interval. The annual loan limits applicable to a 
student apply to the length of the school's academic year.
    (i) Treatment of Consolidation loans for purposes of determining 
loan limits. The percentage of the outstanding balance on a 
Consolidation loan counted against a borrower's aggregate loan limits 
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford 
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HEAL program 
must equal the percentage of the original amount of the Consolidation 
loan attributable to loans made to the borrower under that program.

[[Page 64]]

    (j) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS 
loan amount exceed the student's estimated cost of attendance for the 
period of enrollment for which the loan is intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) The borrower's expected family contribution for that period, in 
the case of a Stafford loan that is eligible for interest benefits.
    (k) In determining a Stafford loan amount in accordance with Sec.  
682.204 (a), (c) and (d), the school must use the definition of academic 
year in 34 CFR 668.3.
    (l) Any TEACH Grants that have been converted to Direct Unsubsidized 
Loans are not counted against annual or any aggregate loan limits under 
paragraphs (c), (d), and (e) of this section.

(Authority: 20 U.S.C. 1070g, 1078, 1078-2, 1078-3, 1078-8)

[59 FR 33350, June 28, 1994, as amended at 64 FR 18976, Apr. 16, 1999; 
64 FR 58954, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 67 FR 67078, Nov. 
1, 2002; 71 FR 45700, Aug. 9, 2006; 71 FR 64397, Nov. 1, 2006; 73 FR 
35495, June 23, 2008; 73 FR 36793, June 30, 2008; 74 FR 55991, Oct. 29, 
2009; 78 FR 65808, Nov. 1, 2013]



Sec.  682.205  Disclosure requirements for lenders.

    (a) Repayment information-- (1) Disclosures at or prior to 
repayment. The lender must disclose the information described in 
paragraph (a)(2) of this section, in simple and understandable terms, in 
a statement provided to the borrower at or prior to the beginning of the 
repayment period. In the case of a Federal Stafford or Federal PLUS 
loan, the disclosures required by this paragraph must be made not less 
than 30 days nor more than 150 days before the first payment on the loan 
is due from the borrower. If the borrower enters the repayment period 
without the lender's knowledge, the lender must provide the required 
disclosures to the borrower immediately upon discovering that the 
borrower has entered the repayment period.
    (2) The lender shall provide the borrower with--
    (i) The lender's name, a toll-free telephone number accessible from 
within the United States that the borrower can use to obtain additional 
loan information, and the address to which correspondence with the 
lender and payments should be sent;
    (ii) The scheduled date the repayment period is to begin, or a 
deferment under Sec.  682.210(v), if applicable, is to end;
    (iii) The estimated balance, including the estimated amount of 
interest to be capitalized, owed by the borrower as of the date upon 
which the repayment period is to begin, a deferment under Sec.  
682.210(v), if applicable, is to end, or the date of the disclosure, 
whichever is later;
    (iv) The actual interest rate on the loan;
    (v) An explanation of any fees that may accrue or be charged to the 
borrower during the repayment period;
    (vi) The borrower's repayment schedule, including the due date of 
the first installment and the number, amount, and frequency of payments 
based on the repayment schedule selected by the borrower;
    (vii) Except in the case of a Consolidation loan, an explanation of 
any special options the borrower may have for consolidating or 
refinancing the loan and of the availability and terms of such other 
options;
    (viii) The estimated total amount of interest to be paid on the 
loan, assuming that payments are made in accordance with the repayment 
schedule, and if interest has been paid, the amount of interest paid;
    (ix) A statement that the borrower has the right to prepay all or 
part of the loan at any time, without penalty;
    (x) Information on any special loan repayment benefits offered on 
the loan, including benefits that are contingent on repayment behavior, 
and any other special loan repayment benefits for which the borrower may 
be eligible that would reduce the amount or length of repayment; and at 
the request of the borrower, an explanation of the effect of a reduced 
interest rate on the borrower's total payoff amount and time for 
repayment;
    (xi) If the lender provides a repayment benefit, any limitations on 
that benefit, any circumstances in which the borrower could lose that 
benefit,

[[Page 65]]

and whether and how the borrower may regain eligibility for the 
repayment benefit;
    (xii) A description of all the repayment plans available to the 
borrower and a statement that the borrower may change plans during the 
repayment period at least annually;
    (xiii) A description of the options available to the borrower to 
avoid or be removed from default, as well as any fees associated with 
those options; and
    (xiv) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (3) Required disclosures during repayment. In addition to the 
disclosures required in paragraph (a)(1) of this section, the lender 
must provide the borrower of a FFEL loan with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due that includes in simple and understandable terms--
    (i) The original principal amount of the borrower's loan;
    (ii) The borrower's current balance, as of the time of the bill or 
statement;
    (iii) The interest rate on the loan;
    (iv) The total amount of interest for the preceding installment paid 
by the borrower;
    (v) The aggregate amount paid by the borrower on the loan, and 
separately identifying the amount the borrower has paid in interest on 
the loan, the amount of fees the borrower has paid on the loan, and the 
amount paid against the balance in principal;
    (vi) A description of each fee the borrower has been charged for the 
most recent preceding installment time period;
    (vii) The date by which a payment must be made to avoid additional 
fees and the amount of that payment and the fees;
    (viii) The lender's or servicer's address and toll-free telephone 
number for repayment options, payments and billing error purposes; and
    (ix) A reminder that the borrower may change repayment plans, a list 
of all of the repayment plans that are available to the borrower, a link 
to the Department of Education's Web site for repayment plan 
information, and directions on how the borrower may request a change in 
repayment plans from the lender.
    (4) Required disclosures for borrowers having difficulty making 
payments. (i) Except as provided in paragraph (a)(4)(ii) of this 
section, the lender must provide a borrower who has notified the lender 
that he or she is having difficulty making payments with--
    (A) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;
    (B) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (C) A description of the options available to the borrower to avoid 
default and any fees or costs associated with those options.
    (ii) A disclosure under paragraph (a)(4)(i) of this section is not 
required if the borrower's difficulty has been resolved through contact 
with the borrower resulting from an earlier disclosure or other 
communication between the lender and the borrower.
    (5) Required disclosures for borrowers who are 60-days delinquent in 
making payments on a loan. (i) The lender shall provide to a borrower 
who is 60 days delinquent in making required payments a notice of--
    (A) The date on which the loan will default if no payment is made;
    (B) The minimum payment the borrower must make, as of the date of 
the notice, to avoid default, including the payment amount needed to 
bring the loan current or payment in full;
    (C) A description of the options available to the borrower to avoid 
default, including deferment and forbearance and any fees and costs 
associated with those options;
    (D) Any options for discharging the loan that may be available to 
the borrower; and
    (E) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where

[[Page 66]]

the borrower may obtain additional advice and assistance on loan 
repayment.
    (ii) The notice must be sent within five business days of the date 
the borrower becomes 60 days delinquent, unless the lender has sent such 
a notice within the previous 120 days.
    (b) Exception to disclosure requirement. In the case of a Federal 
Unsubsidized Stafford loan or a Federal PLUS loan, the lender is not 
required to provide the information in paragraph (a)(2)(viii) of this 
section if the lender, instead of that disclosure, provides the borrower 
with sample projections of the monthly repayment amounts assuming 
different levels of borrowing and interest accruals resulting from 
capitalization of interest while the borrower or student on whose behalf 
the loan is made is in school. Sample projections must disclose the cost 
to the borrower of principal and interest, interest only, and 
capitalized interest. The lender may rely on the Stafford and PLUS 
promissory notes and associated materials approved by the Secretary for 
purposes of complying with this section.
    (c) Borrower may not be charged for disclosures. The lender must 
provide the information required by this section at no cost to the 
borrower.
    (d) Method of disclosure. Any disclosure of information by a lender 
under this section may be through written or electronic means.
    (e) Notice of availability of income-sensitive and income-based 
repayment options. (1) At the time of offering a borrower a loan and at 
the time of offering a borrower repayment options, the lender must 
provide the borrower with a notice that informs the borrower of the 
availability of income-sensitive and, except for parent PLUS borrowers 
and Consolidation Loan borrowers whose Consolidation Loan paid off one 
or more parent PLUS Loans, income-based repayment plans. This 
information may be provided in a separate notice or as part of the other 
disclosures required by this section. The notice must inform the 
borrower--
    (i) That the borrower is eligible for income-sensitive repayment and 
may be eligible for income-based repayment, including through loan 
consolidation;
    (ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
    (iii) Of where and how the borrower may obtain more information 
concerning income-sensitive and income-based repayment plans.
    (2) The promissory note and associated materials approved by the 
Secretary satisfy the loan origination notice requirements provided for 
in paragraph (e)(1) of this section.
    (f) Disclosure procedures when a borrower's address is not 
available. If a lender receives information indicating it does not know 
the borrower's current address, the lender is excused from providing 
disclosure information under this section unless it receives 
communication indicating a valid borrower address before the 241st day 
of delinquency, at which point the lender must resume providing the 
installment bill or statement, and any other disclosure information 
required under this section not previously provided.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1083(a))

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25745, May 17, 1994; 60 FR 30788, June 12, 1995; 64 FR 18976, Apr. 
16, 1999; 64 FR 58625, Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR 
45700. Aug. 9, 2006; 73 FR 63248, Oct. 23, 2008; 74 FR 55992, Oct. 29, 
2009; 78 FR 65810, Nov. 1, 2013]



Sec. Sec.  682.206-682.207  [Reserved]



Sec.  682.208  Due diligence in servicing a loan.

    (a) The loan servicing process includes reporting to nationwide 
consumer reporting agencies, responding to borrower inquiries, 
establishing the terms of repayment, and reporting a borrower's 
enrollment and loan status information.
    (b)(1) An eligible lender of a FFEL loan shall report to each 
nationwide consumer reporting agency--
    (i) The total amount of FFEL loans the lender has made to the 
borrower, within 90 days of each disbursement;
    (ii) The outstanding balance of the loans;

[[Page 67]]

    (iii) Information concerning the repayment status of the loan, no 
less frequently than every 90 days or quarterly after a change in that 
status from current to delinquent;
    (iv) The date the loan is fully repaid by, or on behalf of, the 
borrower, or discharged by reason of the borrower's death, bankruptcy, 
or total and permanent disability, within 90 days after that date;
    (v) Other information required by law to be reported.
    (2) An eligible lender that has acquired a FFEL loan shall report to 
each nationwide consumer reporting agency the information required by 
paragraph (b)(1)(ii)-(v) of this section within 90 days of its 
acquisition of the loan.
    (3) Upon receipt of a valid identity theft report as defined in 
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or 
notification from a consumer reporting agency that information furnished 
by the lender is a result of an alleged identity theft as defined in 
Sec.  682.402(e)(14), an eligible lender shall suspend consumer 
reporting agency reporting for a period not to exceed 120 days while the 
lender determines the enforceability of a loan.
    (i) If the lender determines that a loan does not qualify for a 
discharge under Sec.  682.402(e)(1)(i)(C), but is nonetheless 
unenforceable, the lender must--
    (A) Notify the consumer reporting agency of its determination; and
    (B) Comply with Sec. Sec.  682.300(b)(2)(ix) and 
682.302(d)(1)(viii).
    (ii) [Reserved]
    (4) If, within 3 years of the lender's receipt of an identity theft 
report, the lender receives from the borrower evidence specified in 
Sec.  682.402(e)(3)(v), the lender may submit a claim and receive 
interest subsidy and special allowance payments that would have accrued 
on the loan.
    (c)(1) A lender shall respond within 30 days after receipt to any 
inquiry from a borrower or any endorser on a loan.
    (2) When a lender learns that a Stafford loan borrower or a student 
PLUS loan borrower is no longer enrolled at an institution of higher 
education on at least a half-time basis, the lender shall promptly 
contact the borrower in order to establish the terms of repayment.
    (3)(i) If the borrower disputes the terms of the loan in writing and 
the lender does not resolve the dispute, the lender's response must 
provide the borrower with an appropriate contact at the guaranty agency 
for the resolution of the dispute.
    (ii) If the guaranty agency does not resolve the dispute, the 
agency's response must provide the borrower with information on the 
availability of the Student Loan Ombudsman's office.
    (d) Subject to the rules regarding maximum duration of a repayment 
period and minimum annual payment described in Sec.  682.209(a)(7), (c), 
and (h), nothing in this part is intended to limit a lender's discretion 
in establishing, or, with the borrower's consent, revising a borrower's 
repayment schedule--
    (1) To provide for graduated or income-sensitive repayment terms. 
The Secretary strongly encourages lenders to provide a graduated or 
income-sensitive repayment schedule to a borrower providing for at least 
the payment of interest charges, unless the borrower requests otherwise, 
in order to make the borrower's repayment burden commensurate with his 
or her projected ability to pay; or
    (2) To provide a single repayment schedule, as authorized and if 
practicable, for all FFEL program loans to the borrower held by the 
lender.
    (e)(1) If the assignment or transfer of ownership interest of a 
Stafford, PLUS, SLS, or Consolidation loan is to result in a change in 
the identity of the party to whom the borrower must send subsequent 
payments, the assignor and assignee of the loan shall, no later than 45 
days from the date the assignee acquires a legally enforceable right to 
receive payment from the borrower on the assigned loan, provide, either 
jointly or separately, a notice to the borrower of--
    (i) The assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party to whom subsequent payments 
or communications must be sent;
    (iv) The telephone numbers of both the assignor and the assignee;

[[Page 68]]

    (v) The effective date of the assignment or transfer of the loan;
    (vi) The date, if applicable, on which the current loan servicer 
will stop accepting payments; and
    (vii) The date on which the new loan servicer will begin accepting 
payments.
    (2) If the assignor and assignee separately provide the notice 
required by paragraph (e)(1) of this section, each notice must indicate 
that a corresponding notice will be sent by the other party to the 
assignment.
    (3) For purposes of this paragraph, the term ``assigned'' is defined 
in Sec.  682.401(b)(8)(ii).
    (4) The assignee, or the assignor on behalf of the assignee, shall 
notify the guaranty agency that guaranteed the loan within 45 days of 
the date the assignee acquires a legally enforceable right to receive 
payment from the borrower on the loan of--
    (i) The assignment; and
    (ii) The name and address of the assignee, and the telephone number 
of the assignee that can be used to obtain information about the 
repayment of the loan.
    (5) The requirements of this paragraph (e), as to borrower 
notification, apply if the borrower is in a grace period or has entered 
the repayment period.
    (f)(1) Notwithstanding an error by the school or lender, a lender 
shall follow the procedures in Sec.  682.412 whenever it receives 
information that can be substantiated that the borrower, or the student 
on whose behalf a parent has borrowed, has been convicted of, or has 
pled nolo contendere or guilty to, a crime involving fraud in obtaining 
title IV, HEA program assistance, provided false or erroneous 
information or took actions that caused the student or borrower--
    (i) To be ineligible for all or a portion of a loan made under this 
part;
    (ii) To receive a Stafford loan subject to payment of Federal 
interest benefits as provided under Sec.  682.301, for which he or she 
was ineligible; or
    (iii) To receive loan proceeds that were not paid to the school or 
repaid to the lender by or on behalf of a registered student who--
    (A) The school notifies the lender under 34 CFR 668.21(a)(2)(ii) has 
withdrawn or been expelled prior to the first day of classes for the 
period of enrollment for which the loan was intended; or
    (B) Failed to attend school during that period.
    (2) For purposes of this section, the term ``guaranty agency'' in 
Sec.  682.412(e) refers to the Secretary in the case of a Federal GSL 
loan.
    (g) If, during a period when the borrower is not delinquent, a 
lender receives information indicating it does not know the borrower's 
address, it may commence the skip-tracing activities specified in Sec.  
682.411(h).
    (h) Notifying the borrower about a servicing change. If an FFEL 
Program loan has not been assigned, but there is a change in the 
identity of the party to whom the borrower must send subsequent payments 
or direct any communications concerning the loan, the holder of the loan 
shall, no later than 45 days after the date of the change, provide 
notice to the borrower of the name, telephone number, and address of the 
party to whom subsequent payments or communications must be sent. The 
requirements of this paragraph apply if the borrower is in a grace 
period or has entered the repayment period.
    (i) A lender shall report enrollment and loan status information, or 
any Title IV loan-related data required by the Secretary, to the 
guaranty agency or to the Secretary, as applicable, by the deadline date 
established by the Secretary.
    (j)(1) Effective July 1, 2016, a loan holder is required to use the 
official electronic database maintained by the Department of Defense, 
to--
    (i) Identify all borrowers who are military servicemembers and who 
are eligible under Sec.  682.202(a)(8); and
    (ii) Confirm the dates of the borrower's military service status and 
begin, extend, or end, as applicable, the use of the SCRA interest rate 
limit of six percent.
    (2) The loan holder must compare its list of borrowers against the 
database maintained by the Department of Defense at least monthly to 
identify servicemembers who are in military service status for the 
purpose of determining eligibility under Sec.  682.202(a)(8).

[[Page 69]]

    (3) A borrower may provide the loan holder with alternative evidence 
of military service status to demonstrate eligibility if the borrower 
believes that the information contained in the Department of Defense 
database is inaccurate or incomplete. Acceptable alternative evidence 
includes--
    (i) A copy of the borrower's military orders; or
    (ii) The certification of the borrower's military service from an 
authorized official using a form approved by the Secretary.
    (4)(i) When the loan holder determines that the borrower is eligible 
under Sec.  682.202(a)(8), the loan holder must ensure the interest rate 
on the borrower's loan does not exceed the SCRA interest rate limit of 
six percent.
    (ii) The loan holder must apply the SCRA interest rate limit of six 
percent for the longest eligible period verified with the official 
electronic database, or alternative evidence of military service status 
received under paragraph (j)(3) of this section, using the combination 
of evidence that provides the borrower with the earliest military 
service start date and the latest military service end date.
    (iii) In the case of a reservist, the loan holder must use the 
reservist's notification date as the start date of the military service 
period.
    (5) When the loan holder applies the SCRA interest rate limit of six 
percent to a borrower's loan, it must notify the borrower in writing 
within 30 days that the interest rate on the loan has been reduced to 
six percent during the borrower's period of military service.
    (6)(i) For PLUS loans with an endorser, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan based on the 
borrower's or endorser's military service status, regardless of whether 
the loan holder is currently pursuing the endorser for repayment of the 
loan.
    (ii) If both the borrower and the endorser are eligible for the SCRA 
interest rate limit of six percent on a loan, the loan holder must use 
the earliest military service start date of either party and the latest 
military service end date of either party to begin, extend, or end, as 
applicable, the SCRA interest rate limit.
    (7)(i) For joint consolidation loans, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan if either of the 
borrowers is eligible for the SCRA interest rate limit under Sec.  
682.202(a)(8).
    (ii) If both borrowers on a joint consolidation loan are eligible 
for the SCRA interest rate limit of six percent on a loan, the loan 
holder must use the earliest military service start date of either party 
and the latest military service end date of either party to begin, 
extend, or end, as applicable, the SCRA interest rate limit.
    (8) If the application of the SCRA interest rate limit of six 
percent results in an overpayment on a loan that is subsequently paid in 
full through consolidation, the underlying loan holder must return the 
overpayment to the holder of the consolidation loan.
    (9) For any other circumstances where application of the SCRA 
interest rate limit of six percent results in an overpayment of the 
remaining balance on the loan, the loan holder must refund the amount of 
that overpayment to the borrower.
    (10) For purposes of this section, the term ``military service'' 
means--
    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active military 
service, at a school designated as a service school by law or by the 
Secretary of the military department concerned. Such term does not 
include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including service 
under a call to active service, which means service on active duty or 
full-time National Guard duty, authorized by the President or the 
Secretary of Defense for a period of more than 30

[[Page 70]]

consecutive days for purposes of responding to a national emergency 
declared by the President and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer of 
the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty on 
account of sickness, wounds, leave, or other lawful cause.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 
1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22476, Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999; 64 FR 58626, Oct. 
29, 1999; 64 FR 58965, Nov. 1, 1999; 71 FR 45701, Aug. 9, 2006; 72 FR 
62000, 62031, Nov. 1, 2007; 74 FR 55993, Oct. 29, 2009; 78 FR 65811, 
Nov. 1, 2013; 80 FR 67237, Oct. 30, 2015]



Sec.  682.209  Repayment of a loan.

    (a) Conversion of a loan to repayment status. (1) For a 
Consolidation loan, the repayment period begins on the date the loan is 
disbursed. The first payment is due within 60 days after the date the 
loan is disbursed.
    (2)(i) For a PLUS loan, the repayment period begins on the date of 
the last disbursement made on the loan. Interest accrues and is due and 
payable from the date of the first disbursement of the loan. The first 
payment is due within 60 days after the date the loan is fully 
disbursed.
    (ii) For an SLS loan, the repayment period begins on the date the 
loan is disbursed, or, if the loan is disbursed in multiple 
installments, on the date of the last disbursement of the loan. Interest 
accrues and is due and payable from the date of the first disbursement 
of the loan. Except as provided in paragraph (a)(2)(iii), (a)(2)(iv), 
and (a)(2)(v) of this section the first payment is due within 60 days 
after the date the loan is fully disbursed.
    (iii) For an SLS borrower who has not yet entered repayment on a 
Stafford loan, the borrower may postpone payment, consistent with the 
grace period on the borrower's Stafford loan.
    (iv) If the lender first learns after the fact that an SLS borrower 
has entered the repayment period, the repayment begins no later than 75 
days after the date the lender learns that the borrower has entered the 
repayment period.
    (v) The lender may establish a first payment due date that is no 
more than an additional 30 days beyond the period specified in 
paragraphs (a)(2)(i)-(a)(2)(iv) of this section in order for the lender 
to comply with the required deadline contained in Sec.  682.205(c)(1).
    (3)(i) Except as provided in paragraph (a)(4) of this section, for a 
Stafford loan the repayment period begins--
    (A) For a borrower with a loan for which the applicable interest 
rate is 7 percent per year, not less than 9 nor more than 12 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an eligible school. The length of this grace 
period is determined by the lender for loans made under the FISL 
Program, and by the guaranty agency for loans guaranteed by the agency;
    (B) For a borrower with a loan for which the initial applicable 
interest rate is 8 or 9 percent per year, the day after 6 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an institution of higher education;
    (C) For a borrower with a loan with a variable interest rate, the 
day after 6 months following the date on which the borrower is no longer 
enrolled on at least a half-time basis at an institution of higher 
education; and
    (D) For a borrower with a loan for which the applicable interest 
rate is fixed at 6.0 percent per year, 5.6 percent per year, or 6.8 
percent per year, the day after 6 months following the date on which the 
borrower is no longer enrolled on at least a half-time basis at an 
institution of higher education.
    (ii) The first payment on a Stafford loan is due on a date 
established by the lender that is no more than--
    (A) 60 days following the first day that the repayment period 
begins;
    (B) 60 days from the expiration of a deferment or forbearance 
period;
    (C) 60 days following the end of the post deferment grace period;
    (D) If the lender first learns after the fact that the borrower has 
entered the

[[Page 71]]

repayment period, no later than 75 days after the date the lender learns 
that the borrower has entered the repayment period; or
    (E) An additional 30 days beyond the periods specified in paragraphs 
(a)(3)(ii)(A)-(a)(3)(ii)(D) of this section in order for the lender to 
comply with the required deadlines contained in Sec.  682.205(a)(1).
    (iii) When determining the date that the student was no longer 
enrolled on at least a half-time basis, the lender must use a new date 
it receives from a school, unless the lender has already disclosed 
repayment terms to the borrower and the new date is within the same 
month and year as the most recent date reported to the lender.
    (4) For a borrower of a Stafford loan who is a correspondence 
student, the grace period specified in paragraph (a)(3)(i) of this 
section begins on the earliest of--
    (i) The day after the borrower completes the program;
    (ii) The day after withdrawal as determined pursuant to 34 CFR 
668.22; or
    (iii) 60 days following the last day for completing the program as 
established by the school.
    (5) For purposes of establishing the beginning of the repayment 
period for Stafford and SLS loans, the grace periods referenced in 
paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period 
during which a borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code is 
called or ordered to active duty for a period of more than 30 days. Any 
single excluded period may not exceed three years and includes the time 
necessary for the borrower to resume enrollment at the next available 
regular enrollment period. Any Stafford or SLS borrower who is in a 
grace period when called or ordered to active duty as specified in this 
paragraph is entitled to a full grace period upon completion of the 
excluded period.
    (6)(i) The repayment schedule may provide for substantially equal 
installment payments or for installment payments that increase or 
decrease in amount during the repayment period. If the loan has a 
variable interest rate that changes annually, the lender may establish a 
repayment schedule that--
    (A) Provides for adjustments of the amount of the installment 
payment to reflect annual changes in the variable interest rate; or
    (B) Contains no provision for an adjustment of the amount of the 
installment payment to reflect annual changes in the variable interest 
rate, but requires the lender to grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 3 years of payments in 
accordance with Sec.  682.211(i)(5) in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term.
    (ii) If a graduated or income-sensitive repayment schedule is 
established, it may not provide for any single installment that is more 
than three times greater than any other installment. An agreement as 
specified in paragraph (c)(1)(ii) of this section is not required if the 
schedule provides for less than the minimum annual payment amount 
specified in paragraph (c)(1)(i) of this section.
    (iii) Not more than six months prior to the date that the borrower's 
first payment is due, the lender must offer the borrower a choice of a 
standard, income-sensitive, income-based, graduated, or, if applicable, 
an extended repayment schedule.
    (iv) Except in the case of an income-based repayment schedule, the 
repayment schedule must require that each payment equal at least the 
interest that accrues during the interval between scheduled payments.
    (v) The lender shall require the borrower to repay the loan under a 
standard repayment schedule described in paragraph (a)(6)(vi) of this 
section if the borrower--
    (A) Does not select an income-sensitive, income-based, graduated, 
or, if applicable, an extended repayment schedule within 45 days after 
being notified by the lender to choose a repayment schedule;
    (B) Chooses an income-sensitive repayment schedule, but does not 
provide the documentation requested by the lender under paragraph 
(a)(6)(viii)(C) of

[[Page 72]]

this section within the time period specified by the lender; or
    (C) Chooses an income-based repayment schedule, but does not provide 
the income documentation requested by the lender under Sec.  
682.215(e)(1)(i) through (e)(1)(iii) within the time period specified by 
the lender.
    (vi) Under a standard repayment schedule, the borrower is scheduled 
to pay either--
    (A) The same amount for each installment payment made during the 
repayment period, except that the borrower's final payment may be 
slightly more or less than the other payments; or
    (B) An installment amount that will be adjusted to reflect annual 
changes in the loan's variable interest rate.
    (vii) Under a graduated repayment schedule--
    (A)(1) The amount of the borrower's installment payment is scheduled 
to change (usually by increasing) during the course of the repayment 
period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(6)(i) of this 
section; and
    (B) An agreement as specified in paragraph (c)(1)(ii) of this 
section is not required if the schedule provides for less than the 
minimum annual payment amount specified in paragraph (c)(1)(i) of this 
section.
    (viii) Under an income-sensitive repayment schedule--
    (A)(1) The amount of the borrower's installment payment is adjusted 
annually, based on the borrower's expected total monthly gross income 
received by the borrower from employment and from other sources during 
the course of the repayment period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(6)(i) of this 
section; and
    (B) In general, the lender shall request the borrower to inform the 
lender of his or her income no earlier than 90 days prior to the due 
date of the borrower's initial installment payment and subsequent annual 
payment adjustment under an income-sensitive repayment schedule. The 
income information must be sufficient for the lender to make a 
reasonable determination of what the borrower's payment amount should 
be. If the lender receives late notification that the borrower has 
dropped below half-time enrollment status at a school, the lender may 
request that income information earlier than 90 days prior to the due 
date of the borrower's initial installment payment;
    (C) If the borrower reports income to the lender that the lender 
considers to be insufficient for establishing monthly installment 
payments that would repay the loan within the applicable maximum 
repayment period, the lender shall require the borrower to submit 
evidence showing the amount of the most recent total monthly gross 
income received by the borrower from employment and from other sources 
including, if applicable, pay statements from employers and 
documentation of any income received by the borrower from other parties;
    (D) The lender shall grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 5 years of payments in 
accordance with Sec.  682.211(i)(5) in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in a loan not being repaid within the maximum 
repayment term; and
    (E) The lender shall inform the borrower that the loan must be 
repaid within the time limits specified under paragraph (a)(7) of this 
section.
    (ix) Under an extended repayment schedule, a new borrower whose 
total outstanding principal and interest in FFEL loans exceed $30,000 
may repay the loan on a fixed annual repayment amount or a graduated 
repayment amount for a period that may not exceed 25 years. For purposes 
of this section, a ``new borrower'' is an individual who has no 
outstanding principal or interest balance on an FFEL Program loan as of 
October 7, 1998, or on the date he or she obtains an FFEL Program loan 
after October 7, 1998.
    (x) Under an income-based repayment schedule, the borrower repays 
the loan in accordance with Sec.  682.215.

[[Page 73]]

    (xi) A borrower may request a change in the repayment schedule on a 
loan. The lender must permit the borrower to change the repayment 
schedule no less frequently than annually, or at any time in the case of 
a borrower in an income-based repayment plan.
    (xii) For purposes of this section, a lender shall, to the extent 
practicable require that all FFEL loans owed by a borrower to the lender 
be combined into one account and repaid under one repayment schedule. In 
that event, the word ``loan'' in this section shall mean all of the 
borrower's loans that were combined by the lender into that account.
    (7)(i) Subject to paragraphs (a)(7)(ii) through (iv) of this 
section, and except as provided in paragraph (a)(6)(ix) a lender shall 
allow a borrower at least 5 years, but not more than 10 years, or 25 
years under an extended repayment plan to repay a Stafford, SLS, or PLUS 
loan, calculated from the beginning of the repayment period. Except in 
the case of a FISL loan for a period of enrollment beginning on or after 
July 1, 1986, the lender shall require a borrower to fully repay a FISL 
loan within 15 years after it is made.
    (ii) If the borrower receives an authorized deferment or is granted 
forbearance, as described in Sec.  682.210 or Sec.  682.211 
respectively, the periods of deferment or forbearance are excluded from 
determinations of the 5-, 10-, and 15- and 25-year periods, and from the 
10-, 12-, 15-, 20-, 25-, and 30-year periods for repayment of a 
Consolidation loan pursuant to Sec.  682.209(h).
    (iii) If the minimum annual repayment required in paragraph (c) of 
this section would result in complete repayment of the loan in less than 
5 years, the borrower is not entitled to the full 5-year period.
    (iv) The borrower may, prior to the beginning of the repayment 
period, request and be granted by the lender a repayment period of less 
than 5 years. Subject to paragraph (a)(7)(iii) of this section, a 
borrower who makes such a request may notify the lender at any time to 
extend the repayment period to a minimum of 5 years.
    (8) If, with respect to the aggregate of all loans held by a lender, 
the total payment made by a borrower for a monthly or similar payment 
period would not otherwise be a multiple of five dollars, except in the 
case of payments made under an income-based repayment plan, the lender 
may round that periodic payment to the next highest whole dollar amount 
that is a multiple of five dollars.
    (b) Payment application and prepayment. (1) Except in the case of 
payments made under an income-based repayment plan, the lender may 
credit the entire payment amount first to any late charges accrued or 
collection costs and then to any outstanding interest and then to 
outstanding principal.
    (2)(i) The borrower may prepay the whole or any part of a loan at 
any time without penalty.
    (ii) If the prepayment amount equals or exceeds the monthly payment 
amount under the repayment schedule established for the loan, the lender 
shall apply the prepayment to future installments by advancing the next 
payment due date, unless the borrower requests otherwise. The lender 
must either inform the borrower in advance using a prominent statement 
in the borrower's coupon book or billing statement that any additional 
full payment amounts submitted without instructions to the lender as to 
their handling will be applied to future scheduled payments with the 
borrower's next scheduled payment due date advanced consistent with the 
number of additional payments received, or provide a notification to the 
borrower after the payments are received informing the borrower that the 
payments have been so applied and the date of the borrower's next 
scheduled payment due date. Information related to next scheduled 
payment due date need not be provided to borrowers making such 
prepayments while in an in-school, grace, deferment, or forbearance 
period when payments are not due.
    (c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii) 
of this section and except as otherwise provided by a graduated, income-
sensitive, extended, or income-based repayment plan selected by the 
borrower, during each year of the repayment period, a borrower's total 
payments to all holders of the borrower's FFEL Program

[[Page 74]]

loans must total at least $600 or the unpaid balance of all loans, 
including interest, whichever amount is less.
    (ii) If the borrower and the lender agree, the amount paid may be 
less.
    (2) The provisions of paragraphs (c)(1) (i) and (ii) of this section 
may not result in an extension of the maximum repayment period unless 
forbearance as described in Sec.  682.211, or deferment described in 
Sec.  682.210, has been approved.
    (d) Combined repayment of a borrower's student PLUS and SLS loans 
held by a lender. (1) A lender may, at the request of a student 
borrower, combine the borrower's, student PLUS and SLS loans held by it 
into a single repayment schedule.
    (2) The repayment period on the loans included in the combined 
repayment schedule must be calculated based on the beginning of 
repayment of the most recent included loan.
    (3) The interest rate on the loans included in the new combined 
repayment schedule must be the weighted average of the rates of all 
included loans.
    (e) Consolidation loans. (1) For a Consolidation loan, the repayment 
period begins on the day of disbursement, with the first payment due 
within 60 days after the date of disbursement.
    (2) If the sum of the amount of the Consolidation loan and the 
unpaid balance on other student loans to the applicant--
    (i) Is less than $7,500, the borrower shall repay the Consolidation 
loan in not more than 10 years;
    (ii) Is equal to or greater than $7,500 but less than $10,000, the 
borrower shall repay the Consolidation loan in not more than 12 years;
    (iii) Is equal to or greater than $10,000 but less than $20,000, the 
borrower shall repay the Consolidation loan in not more than 15 years;
    (iv) Is equal to or greater than $20,000 but less than $40,000, the 
borrower shall repay the Consolidation loan in not more than 20 years;
    (v) Is equal to or greater than $40,000 but less than $60,000, the 
borrower shall repay the Consolidation loan in not more than 25 years; 
or
    (vi) Is equal to or greater than $60,000, the borrower shall repay 
the Consolidation loan in not more than 30 years.
    (3) For the purpose of paragraph (e)(2) of this section, the unpaid 
balance on other student loans--
    (i) May not exceed the amount of the Consolidation loan; and
    (ii) With the exception of the defaulted title IV loans on which the 
borrower has made satisfactory repayment arrangements with the holder of 
the loan, does not include the unpaid balance on any defaulted loans.
    (4) A repayment schedule for a Consolidation loan--
    (i) Must be established by the lender;
    (ii) Except in the case of an income-based repayment schedule, must 
require that each payment equal at least the interest that accrues 
during the interval between scheduled payments.
    (5) Upon receipt of the proceeds of a loan made under paragraph 
(e)(2) of this section, the holder of the underlying loan shall promptly 
apply the proceeds to discharge fully the borrower's obligation on the 
underlying loan, and provide the consolidating lender with the holder's 
written certification that the borrower's obligation on the underlying 
loan has been fully discharged.
    (f) Treatment by a lender of borrowers' title IV, HEA program funds 
received from schools if the borrower withdraws. (1) A lender shall 
treat a refund or a return of title IV, HEA program funds under Sec.  
668.22 when a student withdraws received by the lender from a school as 
a credit against the principal amount owed by the borrower on the 
borrower's loan.
    (2)(i) If a lender receives a refund or a return of title IV, HEA 
program funds under Sec.  668.22 when a student withdraws from a school 
on a loan that is no longer held by that lender, or that has been 
discharged by another lender by refinancing or by a Consolidation loan, 
the lender must transmit the amount of the payment, within 30 days of 
its receipt, to the lender to whom it assigned the loan, or to the 
lender that discharged the prior loan, with an explanation of the source 
of the payment.
    (ii) Upon receipt of a refund or a return of title IV, HEA program 
funds transmitted under paragraph (f)(2)(i) of this section, the holder 
of the loan promptly must provide written notice

[[Page 75]]

to the borrower that the holder has received the return of title IV, HEA 
program funds.
    (g) Any lender holding a loan is subject to all claims and defenses 
that the borrower could assert against the school with respect to that 
loan if--
    (1) The loan was made by the school or a school-affiliated 
organization;
    (2) The lender who made the loan provided an improper inducement, as 
described in paragraph (5)(i) of the definition of Lender in Sec.  
682.200(b), to the school or any other party in connection with the 
making of the loan;
    (3) The school refers borrowers to the lender; or
    (4) The school is affiliated with the lender by common control, 
contract, or business arrangement.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1085)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.209, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.210  Deferment.

    (a) General. (1)(i) A borrower is entitled to have periodic 
installment payments of principal deferred during authorized periods 
after the beginning of the repayment period, pursuant to paragraph (b) 
and paragraphs (s) through (v) of this section.
    (ii) With the exception of a deferment authorized under paragraph 
(o) of this section, a borrower may continue to receive a specific type 
of deferment that is limited to a maximum period of time only if the 
total amount of time that the borrower has received the deferment does 
not exceed the maximum time period allowed for the deferment.
    (2)(i) For a loan made before October 1, 1981, the borrower is also 
entitled to have periodic installments of principal deferred during the 
six-month period (post-deferment grace period) that begins after the 
completion of each deferment period or combination of those periods, 
except as provided in paragraph (a)(2)(ii) of this section.
    (ii) Once a borrower receives a post-deferment grace period 
following an unemployment deferment, as described in paragraph (b)(1)(v) 
of this section, the borrower does not qualify for additional post-
deferment grace periods following subsequent unemployment deferments.
    (3)(i) Interest accrues and is paid by--
    (A) The Secretary during the deferment period for a subsidized 
Stafford loan and for all or a portion of a Consolidation loan that 
qualifies for interest benefits under Sec.  682.301; or
    (B) The borrower during the deferment period and, as applicable, the 
post-deferment grace period, on all other loans.
    (ii) A borrower who is responsible for payment of interest during a 
deferment period must be notified by the lender, at or before the time 
the deferment is granted, that the borrower has the option to pay the 
accruing interest or cancel the deferment and continue paying on the 
loan. The lender must also provide information, including an example, on 
the impact of capitalization of accrued, unpaid interest on loan 
principal, and on the total amount of interest to be paid over the life 
of the loan.
    (4) As a condition for receiving a deferment, except for purposes of 
paragraphs (c)(1)(ii), (iii), and (iv) of this section, the borrower, or 
the borrower's representative for purposes of paragraphs (i) and (t) of 
this section, must request the deferment, and provide the lender with 
all information and documents required to establish eligibility for a 
specific type of deferment.
    (5) An authorized deferment period begins on the date that the 
holder determines is the date that the condition entitling the borrower 
to the deferment first existed, except that an initial unemployment 
deferment as described in paragraph (h)(2) of this section cannot begin 
more than 6 months before the date the holder receives a request and 
documentation required for the deferment.
    (6) An authorized deferment period ends on the earlier of--
    (i) The date when the condition establishing the borrower's 
eligibility for the deferment ends;

[[Page 76]]

    (ii) Except as provided in paragraph (a)(6)(iv) of this section, the 
date on which, as certified by an authorized official, the borrower's 
eligibility for the deferment is expected to end;
    (iii) Except as provided in paragraph (a)(6)(iv) of this section, 
the expiration date of the period covered by any certification required 
by this section to be obtained for the deferment;
    (iv) In the case of an in-school deferment, the student's 
anticipated graduation date as certified by an authorized official of 
the school; or
    (v) The date when the condition providing the basis for the 
borrower's eligibility for the deferment has continued to exist for the 
maximum amount of time allowed for that type of deferment.
    (7) A lender may not deny a borrower a deferment to which the 
borrower is entitled, even though the borrower may be delinquent, but 
not in default, in making required installment payments. The 270- or 
330-day period required to establish default does not run during the 
deferment and post-deferment grace periods. Unless the lender has 
granted the borrower forbearance under Sec.  682.211, when the deferment 
and, if applicable, the post-deferment grace period expire, a borrower 
resumes any delinquency status that existed when the deferment period 
began.
    (8) A borrower whose loan is in default is not eligible for a 
deferment on that loan, unless the borrower has made payment 
arrangements acceptable to the lender prior to the payment of a default 
claim by a guaranty agency.
    (9) The borrower promptly must inform the lender when the condition 
entitling the borrower to a deferment no longer exists.
    (10) Authorized deferments are described in paragraph (b) of this 
section. Specific requirements for each deferment are set forth in 
paragraphs (c) through (s) of this section.
    (11) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender shall grant a request for 
deferment if both individuals simultaneously meet the requirements of 
this section for receiving the same, or different deferments.
    (b) Authorized deferments for borrowers prior to July 1, 1993--(1) 
For all borrowers who are not new borrowers on or after July 1, 1993. 
Deferment is authorized for a FFEL borrower during any period when the 
borrower is--
    (i) Except as provided in paragraph (b)(4) of this section, engaged 
in full-time study at a school in accordance with paragraph (c) of this 
section;
    (ii) Engaged in a course of study under an eligible graduate 
fellowship program in accordance with paragraph (d) of this section;
    (iii) Engaged in a rehabilitation training program for disabled 
individuals in accordance with paragraph (e) of this section;
    (iv) Temporarily totally disabled in accordance with paragraph (f) 
of this section, or unable to secure employment because the borrower is 
caring for a spouse or other dependent who is disabled and requires 
continuous nursing or similar services for up to three years in 
accordance with paragraph (g) of this section; or
    (v) Conscientiously seeking, but unable to find, full-time 
employment in the United States, for up to two years, in accordance with 
paragraph (h) of this section.
    (2) For all Stafford and SLS borrowers who are not new borrowers on 
or after July 1, 1993, and for parent PLUS loans made before August 15, 
1983. Deferment is authorized during any period when the borrower is--
    (i) On active duty status in the United States Armed Forces in 
accordance with paragraph (i) of this section, or an officer in the 
Commissioned Corps of the United States Public Health Service in 
accordance with paragraph (j) of this section, for up to three years 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(3)(ii) of this section);
    (ii) A full-time volunteer under the Peace Corps Act, for up to 
three years, in accordance with paragraph (k) of this section;
    (iii) A full-time volunteer under title I of the Domestic Volunteer 
Service Act of 1973 (ACTION programs), for up to three years, in 
accordance with paragraph (l) of this section;

[[Page 77]]

    (iv) A full-time volunteer for a tax-exempt organization, for up to 
three years, in accordance with paragraph (m) of this section; or
    (v) Engaged in an internship or residency program, in accordance 
with paragraph (n) of this section, for up to two years (including any 
period during which the borrower received a deferment authorized under 
paragraph (b)(3)(iv) of this section).
    (3) For new Stafford or SLS borrowers on or after July 1, 1987 but 
before July 1, 1993. Deferment is authorized--
    (i) In accordance with paragraph (o) of this section, if the 
borrower has been enrolled on at least a half-time basis at an 
institution of higher education during the six months preceding the 
beginning of the deferment, for a period of up to six months during 
which the borrower is--
    (A)(1) Pregnant;
    (2) Caring for his or her newborn child; or
    (3) Caring for a child immediately following the placement of the 
child with the borrower before or immediately following adoption; and
    (B) Not attending a school or gainfully employed;
    (ii) During a period when the borrower is on active duty status in 
the National Oceanic and Atmospheric Administration Corps, for up to 
three years, in accordance with paragraph (p) of this section, 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(2)(i) of this section);
    (iii) During a period of up to three years when the borrower is 
serving as a full-time teacher in a public or non-profit private 
elementary or secondary school in a teacher shortage area designated by 
the Secretary under paragraph (q) of this section;
    (iv) During a period when the borrower is engaged in an internship 
or residency program, for up to two years, in accordance with paragraph 
(n) of this section, (including any period during which the borrower 
received a deferment authorized under paragraph (b)(2)(v) of this 
section); or
    (v) When a mother who has preschool-age children (i.e., children who 
have not enrolled in first grade) and who is earning not more than $1 
per hour above the Federal minimum wage, for up to 12 months of 
employment, and who began that full-time employment within one year of 
entering or re-entering the work force, in accordance with paragraph (r) 
of this section. Full-time employment involves at least 30 hours of work 
a week and it is expected to last at least 3 months.
    (4) For new Stafford or SLS borrowers on or after July 1, 1987. 
Deferment is authorized during periods when the borrower is engaged in 
at least half-time study at a school in accordance with paragraph (b) of 
this section.
    (5) For new parent PLUS borrowers on or after July 1, 1987 and 
before July 1, 1993. Deferment is authorized during any period when a 
student on whose behalf the parent borrower received the loan--
    (i) Is not independent as defined in section 480(d) of the Act; and
    (ii) Meets the conditions and provides the required documentation, 
for any of the deferments described in paragraphs (b)(1)(i) through 
(iii) and (b)(4) of this section.
    (6) Definition of a new borrower. For purposes of paragraphs (b)(3), 
(b)(4), and (b)(5) of this section, a ``new borrower'' with respect to a 
loan is a borrower who, on the date he or she signs the promissory note, 
has no outstanding balance on--
    (i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a 
period of enrollment beginning prior to July 1, 1987; or
    (ii) A Consolidation loan that repaid a loan made prior to July 1, 
1987 and for a period of enrollment beginning prior to July 1, 1987.
    (c) In-school deferment. (1) Except as provided in paragraph (c)(5) 
of this section, the lender processes a deferment for full-time study or 
half-time study at a school, when--
    (i) The borrower submits a request and supporting documentation for 
a deferment;
    (ii) The lender receives information from the borrower's school 
about the borrower's eligibility in connection with a new loan;
    (iii) The lender receives student status information from the 
borrower's

[[Page 78]]

school, either directly or indirectly, indicating that the borrower's 
enrollment status supports eligibility for a deferment; or
    (iv) The lender confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested to 
do so by the school the borrower is attending.
    (2) The lender must notify the borrower that a deferment has been 
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section 
and that the borrower has the option to cancel the deferment and 
continue paying on the loan.
    (3) The lender must consider a deferment granted on the basis of a 
certified loan application or other information certified by the school 
to cover the period lasting until the anticipated graduation date 
appearing on the application, and as updated by notice or Student Status 
Confirmation Report update to the lender from the school or guaranty 
agency, unless and until it receives notice that the borrower has ceased 
the level of study (i.e., full-time or half-time) required for the 
deferment.
    (4) In the case of a FFEL borrower, the lender shall treat a 
certified loan application or other form certified by the school or for 
multiple holders of a borrower's loans, shared data from the Student 
Status Confirmation Report, as sufficient documentation for an in-school 
student deferment for any outstanding FFEL loan previously made to the 
borrower that is held by the lender.
    (5) A borrower serving in a medical internship or residency program, 
except for an internship in dentistry, is prohibited from receiving or 
continuing a deferment on a Stafford, or a PLUS (unless based on the 
dependent's status) SLS, or Consolidation loan under paragraph (c) of 
this section.
    (d) Graduate fellowship deferment. (1) To qualify for a deferment 
for study in a graduate fellowship program, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
fellowship program certifying--
    (i) That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
    (ii) That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis into 
an eligible graduate fellowship program; and
    (iii) The borrower's anticipated completion date in the program.
    (2) For purposes of paragraph (d)(1) of this section, an eligible 
graduate fellowship program is a fellowship program that--
    (i) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (ii) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (iii) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (iv) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) To qualify for a 
rehabilitation training program deferment, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
rehabilitation training program certifying that the borrower is either 
receiving, or is scheduled to receive, services under an eligible 
rehabilitation training program for disabled individuals.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
program;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and

[[Page 79]]

    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Temporary total disability deferment. (1) To qualify for a 
temporary total disability deferment, a borrower shall provide the 
lender with a statement from a physician, who is a doctor of medicine or 
osteopathy and is legally authorized to practice, certifying that the 
borrower is temporarily totally disabled as defined in Sec.  682.200(b).
    (2) A borrower is not considered temporarily totally disabled on the 
basis of a condition that existed before he or she applied for the loan, 
unless the condition has substantially deteriorated so as to render the 
borrower temporarily totally disabled, as substantiated by the statement 
required under paragraph (f)(1) of this section, after the borrower 
submitted the loan application.
    (3) A lender may not grant a deferment based on a single 
certification under paragraph (f)(1) of this section beyond the date 
that is six months after the date of certification.
    (g) Dependent's disability deferment. (1) To qualify for a deferment 
given to a borrower whose spouse or other dependent requires continuous 
nursing or similar services for a period of at least 90 days, the 
borrower shall provide the lender with a statement--
    (i) From a physician, who is a doctor of medicine or osteopathy and 
is legally authorized to practice, certifying that the borrower's spouse 
or dependent requires continuous nursing or similar services for a 
period of at least 90 days; and
    (ii) From the borrower, certifying that the borrower is unable to 
secure full-time employment because he or she is providing continuous 
nursing or similar services to the borrower's spouse or other dependent. 
For the purpose of this paragraph, full-time employment involves at 
least 30 hours of work per week and is expected to last at least three 
months.
    (2) A lender may not grant a deferment based on a single 
certification under paragraph (g)(1) of this section beyond the date 
that is six months after the date of the certification.
    (h) Unemployment deferment. (1) A borrower qualifies for an 
unemployment deferment by providing evidence of eligibility for 
unemployment benefits to the lender.
    (2) A borrower also qualifies for an unemployment deferment by 
providing to the lender a written certification, or an equivalent as 
approved by the Secretary, that--
    (i) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (ii) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding 6-month period 
to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (h)(2) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least three months.

[[Page 80]]

    (iv) The initial period of unemployment deferment may be granted for 
a period of unemployment beginning up to 6 months before the date the 
lender receives the borrower's request, and may be granted for up to 6 
months after that date.
    (4) A lender may not grant an unemployment deferment beyond the date 
that is 6 months after the date the borrower provides evidence of the 
borrower's eligibility for unemployment insurance benefits under 
paragraph (h)(1) of this section or the date the borrower provides the 
written certification, or an approved equivalent, under paragraph (h)(2) 
of this section.
    (i) Military deferment. (1) To qualify for a military deferment, a 
borrower or a borrower's representative shall provide the lender with--
    (i) A written statement from the borrower's commanding or personnel 
officer certifying--
    (A) That the borrower is on active duty in the Armed Forces of the 
United States;
    (B) The date on which the borrower's service began; and
    (C) The date on which the borrower's service is expected to end; or
    (ii)(A) A copy of the borrower's official military orders; and
    (B) A copy of the borrower's military identification.
    (2) For the purpose of this section, the Armed Forces means the 
Army, Navy, Air Force, Marine Corps, and the Coast Guard.
    (3) A borrower enlisted in a reserve component of the Armed Forces 
may qualify for a military deferment only for service on a full-time 
basis that is expected to last for a period of at least one year in 
length, as evidenced by official military orders, unless an order for 
national mobilization of reservists is issued.
    (4) A borrower enlisted in the National Guard qualifies for a 
military deferment only while the borrower is on active duty status as a 
member of the U.S. Army or Air Force Reserves, and meets the 
requirements of paragraph (i)(3) of this section.
    (5) A lender that grants a military service deferment based on a 
request from a borrower's representative must notify the borrower that 
the deferment has been granted and that the borrower has the option to 
cancel the deferment and continue to make payments on the loan. The 
lender may also notify the borrower's representative of the outcome of 
the deferment request.
    (j) Public Health Service deferment. To qualify for a Public Health 
Service deferment, the borrower shall provide the lender with a 
statement from an authorized official of the United States Public Health 
Service (USPHS) certifying--
    (1) That the borrower is engaged in full-time service as an officer 
in the Commissioned Corps of the USPHS;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (k) Peace Corps deferment. (1) To qualify for a deferment for 
service under the Peace Corps Act, the borrower shall provide the lender 
with a statement from an authorized official of the Peace Corps 
certifying--
    (i) That the borrower has agreed to serve for a term of at least one 
year;
    (ii) The date on which the borrower's service began; and
    (iii) The date on which the borrower's service is expected to end.
    (2) The lender must grant a deferment for the borrower's full term 
of service in the Peace Corps, not to exceed three years.
    (l) Full-time volunteer service in the ACTION programs. To qualify 
for a deferment as a full-time paid volunteer in an ACTION program, the 
borrower shall provide the lender with a statement from an authorized 
official of the program certifying--
    (1) That the borrower has agreed to serve for a term of at least one 
year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (m) Deferment for full-time volunteer service for a tax-exempt 
organization. To qualify for a deferment as a full-time paid volunteer 
for a tax-exempt organization, a borrower shall provide the lender with 
a statement from an authorized official of the volunteer program 
certifying--
    (1) That the borrower--

[[Page 81]]

    (i) Serves in an organization that has obtained an exemption from 
taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
    (ii) Provides service to low-income persons and their communities to 
assist them in eliminating poverty and poverty-related human, social, 
and environmental conditions;
    (iii) Does not receive compensation that exceeds the rate prescribed 
under section 6 of the Fair Labor Standards Act of 1938 (the Federal 
minimum wage), except that the tax-exempt organization may provide 
health, retirement, and other fringe benefits to the volunteer that are 
substantially equivalent to the benefits offered to other employees of 
the organization;
    (iv) [Reserved]
    (v) Has agreed to serve on a full-time basis for a term of at least 
one year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (n) Internship or residency deferment. (1) To qualify for an 
internship or residency deferment under paragraph (b)(3)(iv) of this 
section, the borrower shall provide the lender with a statement from an 
authorized official of the organization with which the borrower is 
undertaking the internship or residency program certifying--
    (i) That the internship or residency program is a supervised 
training program that requires the borrower to hold at least a 
baccalaureate degree prior to acceptance into the program;
    (ii) That, except for a borrower that provides the statement from a 
State official described in paragraph (n)(2) of this section, the 
internship or residency program leads to a degree or certificate awarded 
by an institution of higher education, a hospital, or a health care 
facility that offers postgraduate training;
    (iii) That the borrower has been accepted into the internship or 
residency program; and
    (iv) The anticipated dates on which the borrower will begin and 
complete the internship or residency program, or, in the case of a 
borrower providing the statement described in paragraph (n)(2) of this 
section, the anticipated date on which the borrower will begin and 
complete the minimum period of participation in the internship program 
that the State requires be completed before an individual may be 
certified for professional practice or service.
    (2) For a borrower who does not provide a statement certifying to 
the matters set forth in paragraph (n)(1)(ii) of this section to qualify 
for an internship deferment under paragraph (b)(3)(iv) of this section, 
the borrower shall provide the lender with a statement from an official 
of the appropriate State licensing agency certifying that the internship 
or residency program, or a portion thereof, is required to be completed 
before the borrower may be certified for professional practice or 
service.
    (o) Parental-leave deferment. (1) To qualify for the parental-leave 
deferment described in paragraph (b)(3)(i) of this section, the borrower 
shall provide the lender with--
    (i) A statement from an authorized official of a participating 
school certifying that the borrower was enrolled on at least a half-time 
basis during the six months preceding the beginning of the deferment 
period;
    (ii) A statement from the borrower certifying that the borrower--
    (A) Is pregnant, caring for his or her newborn child, or caring for 
a child immediately following the placement of the child with the 
borrower in connection with an adoption;
    (B) Is not, and will not be, attending school during the deferment 
period; and
    (C) Is not, and will not be, engaged in full-time employment during 
the deferment period; and
    (iii) A physician's statement demonstrating the existence of the 
pregnancy, a birth certificate, or a statement from the adoption agency 
official evidencing a pre-adoption placement.
    (2) For purposes of paragraph (o)(1)(ii)(C) of this section, full-
time employment involves at least 30 hours of work per week and is 
expected to last at least three months.
    (p) NOAA deferment. To qualify for a National Oceanic and 
Atmospheric Administration (NOAA) deferment, the borrower shall provide 
the lender with a statement from an authorized official of the NOAA 
corps, certifying--

[[Page 82]]

    (1) That the borrower is on active duty service in the NOAA corps;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (q) Targeted teacher deferment. (1) To qualify for a targeted 
teacher deferment under paragraph (b)(3)(iii) of this section, the 
borrower, for each school year of service for which a deferment is 
requested, must provide to the lender--
    (i) A statement by the chief administrative officer of the public or 
nonprofit private elementary or secondary school in which the borrower 
is teaching, certifying that the borrower is employed as a full-time 
teacher; and
    (ii) A certification that he or she is teaching in a teacher 
shortage area designated by the Secretary as provided in paragraphs (q) 
(5) through (7) of this section, as described in paragraph (q)(2) of 
this section.
    (2) In order to satisfy the requirement for certification that a 
borrower is teaching in a teacher shortage area designated by the 
Secretary, a borrower must do one of the following:
    (i) If the borrower is teaching in a State in which the Chief State 
School Officer has complied with paragraph (q)(3) of this section and 
provides an annual listing of designated teacher shortage areas to the 
State's chief administrative officers whose schools are affected by the 
Secretary's designations, the borrower may obtain a certification that 
he or she is teaching in a teacher shortage area from his or her 
school's chief administrative officer.
    (ii) If a borrower is teaching in a State in which the Chief State 
School Officer has not complied with paragraph (q)(3) of this section or 
does not provide an annual listing of designated teacher shortage areas 
to the State's chief administrative officers whose schools are affected 
by the Secretary's designations, the borrower must obtain certification 
that he or she is teaching in a teacher shortage area from the Chief 
State School Officer for the State in which the borrower is teaching.
    (3) In the case of a State in which borrowers wish to obtain 
certifications as provided for in paragraph (q)(2)(i) of this section, 
the State's Chief State School Officer must first have notified the 
Secretary, by means of a one-time written assurance, that he or she 
provides annually to the State's chief administrative officers whose 
schools are affected by the Secretary's designations and the guaranty 
agency for that State, a listing of the teacher shortage areas 
designated by the Secretary as provided for in paragraphs (q) (5) 
through (7) of this section.
    (4) If a borrower who receives a deferment continues to teach in the 
same teacher shortage area as that in which he or she was teaching when 
the deferment was originally granted, the borrower shall, at the 
borrower's request, continue to receive the deferment for those 
subsequent years, up to the three-year maximum deferment period, even if 
his or her position does not continue to be within an area designated by 
the Secretary as a teacher shortage area in those subsequent years. To 
continue to receive the deferment in a subsequent year under this 
paragraph, the borrower shall provide the lender with a statement by the 
chief administrative officer of the public or nonprofit private 
elementary or secondary school that employs the borrower, certifying 
that the borrower continues to be employed as a full-time teacher in the 
same teacher shortage area for which the deferment was received for the 
previous year.
    (5) For purposes of this section a teacher shortage area is--
    (i)(A) A geographic region of the State in which there is a shortage 
of elementary or secondary school teachers; or
    (B) A specific grade level or academic, instructional, subject-
matter, or discipline classification in which there is a statewide 
shortage of elementary or secondary school teachers; and
    (ii) Designated by the Secretary under paragraphs (q)(6) or (q)(7) 
of this section.
    (6)(i) In order for the Secretary to designate one or more teacher 
shortage areas in a State for a school year, the Chief State School 
Officer shall by January 1 of the calendar year in which the school year 
begins, and in accordance with objective written standards, propose 
teacher shortage

[[Page 83]]

areas to the Secretary for designation. With respect to private 
nonprofit schools included in the recommendation, the Chief State School 
Officer shall consult with appropriate officials of the private 
nonprofit schools in the State prior to submitting the recommendation.
    (ii) In identifying teacher shortage areas to propose for 
designation under paragraph (q)(6)(i) of this section, the Chief State 
School Officer shall consider data from the school year in which the 
recommendation is to be made, unless that data is not yet available, in 
which case he or she may use data from the immediately preceding school 
year, with respect to--
    (A) Teaching positions that are unfilled;
    (B) Teaching positions that are filled by teachers who are certified 
by irregular, provisional, temporary, or emergency certification; and
    (C) Teaching positions that are filled by teachers who are 
certified, but who are teaching in academic subject areas other than 
their area of preparation.
    (iii) If the total number of unduplicated full-time equivalent (FTE) 
elementary or secondary teaching positions identified under paragraph 
(q)(6)(ii) of this section in the shortage areas proposed by the State 
for designation does not exceed 5 percent of the total number of FTE 
elementary and secondary teaching positions in the State, the Secretary 
designates those areas as teacher shortage areas.
    (iv) If the total number of unduplicated FTE elementary and 
secondary teaching positions identified under paragraph (q)(6)(ii) of 
this section in the shortage areas proposed by the State for designation 
exceeds 5 percent of the total number of elementary and secondary FTE 
teaching positions in the State, the Chief State School Officer shall 
submit, with the list of proposed areas, supporting documentation 
showing the methods used for identifying shortage areas, and an 
explanation of the reasons why the Secretary should nevertheless 
designate all of the proposed areas as teacher shortage areas. The 
explanation must include a ranking of the proposed shortage areas 
according to priority, to assist the Secretary in determining which 
areas should be designated. The Secretary, after considering the 
explanation, determines which shortage areas to designate as teacher 
shortage areas.
    (7) A Chief State School Officer may submit to the Secretary for 
approval an alternative written procedure to the one described in 
paragraph (q)(6) of this section, for the Chief State School Officer to 
use to select the teacher shortage areas recommended to the Secretary 
for designation, and for the Secretary to use to choose the areas to be 
designated. If the Secretary approves the proposed alternative 
procedure, in writing, that procedure, once approved, may be used 
instead of the procedure described in paragraph (q)(6) of this section 
for designation of teacher shortage areas in that State.
    (8) For purposes of paragraphs (q)(1) through (7) of this section--
    (i) The definition of the term school in Sec.  682.200(b) does not 
apply;
    (ii) Elementary school means a day or residential school that 
provides elementary education, as determined under State law;
    (iii) Secondary school means a day or residential school that 
provides secondary education, as determined under State law. In the 
absence of applicable State law, the Secretary may determine, with 
respect to that State, whether the term ``secondary school'' includes 
education beyond the twelfth grade;
    (iv) Teacher means a professional who provides direct and personal 
services to students for their educational development through classroom 
teaching;
    (v) Chief State School Officer means the highest ranking educational 
official for elementary and secondary education for the State;
    (vi) School year means the period from July 1 of a calendar year 
through June 30 of the following calendar year;
    (vii) Teacher shortage area means an area of specific grade, subject 
matter, or discipline classification, or a geographic area in which the 
Secretary determines that there is an inadequate supply of elementary or 
secondary school teachers; and
    (viii) Full-time equivalent means the standard used by a State in 
defining

[[Page 84]]

full-time employment, but not less than 30 hours per week. For purposes 
of counting full-time equivalent teacher positions, a teacher working 
part of his or her total hours in a position that is designated as a 
teacher shortage area is counted on a pro rata basis corresponding to 
the percentage of his or her working hours spent in such a position.
    (r) Working-mother deferment. (1) To qualify for the working-mother 
deferment described in paragraph (b)(3)(v) of this section, the borrower 
shall provide the lender with a statement certifying that she--
    (i) Is the mother of a preschool-age child;
    (ii) Entered or reentered the workforce not more than one year 
before the beginning date of the period for which the deferment is being 
sought;
    (iii) Is currently engaged in full-time employment; and
    (iv) Does not receive compensation that exceeds $1 per hour above 
the rate prescribed under section 6 of the Fair Labor Standards Act of 
1938 (the Federal minimum wage).
    (2) In addition to the certification required under paragraph (r)(1) 
of this section, the borrower shall provide to the lender documents 
demonstrating the age of her child (e.g., a birth certificate) and the 
rate of her compensation (e.g., a pay stub showing her hourly rate of 
pay).
    (3) For purposes of this paragraph--
    (i) A preschool-age child is one who has not yet enrolled in first 
grade or a higher grade in elementary school; and
    (ii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least 3 months.
    (s) Deferments for new borrowers on or after July 1, 1993--(1) 
General. (i) A new borrower who receives an FFEL Program loan first 
disbursed on or after July 1, 1993 is entitled to receive deferments 
under paragraphs (s)(2) through (s)(6) of this section. For purposes of 
paragraphs (s)(2) through (s)(6) of this section, a ``new borrower'' is 
an individual who has no outstanding principal or interest balance on an 
FFEL Program loan as of July 1, 1993 or on the date he or she obtains a 
loan on or after July 1, 1993. This term also includes a borrower who 
obtains a Federal Consolidation Loan on or after July 1, 1993 if the 
borrower has no other outstanding FFEL Program loan when the 
Consolidation Loan was made.
    (ii) As a condition for receiving a deferment, except for purposes 
of paragraph (s)(2) of this section, the borrower must request the 
deferment and provide the lender with all information and documents 
required to establish eligibility for the deferment.
    (iii) After receiving a borrower's written or verbal request, a 
lender may grant a deferment under paragraphs (s)(3) through (s)(6) of 
this section if the lender is able to confirm that the borrower has 
received a deferment on another FFEL loan or on a Direct Loan for the 
same reason and the same time period. The lender may grant the deferment 
based on information from the other FFEL loan holder or the Secretary or 
from an authoritative electronic database maintained or authorized by 
the Secretary that supports eligibility for the deferment for the same 
reason and the same time period.
    (iv) A lender may rely in good faith on the information it receives 
under paragraph (s)(1)(iii) of this section when determining a 
borrower's eligibility for a deferment unless the lender, as of the date 
of the determination, has information indicating that the borrower does 
not qualify for the deferment. A lender must resolve any discrepant 
information before granting a deferment under paragraph (s)(1)(iii) of 
this section.
    (v) A lender that grants a deferment under paragraph (s)(1)(iii) of 
this section must notify the borrower that the deferment has been 
granted and that the borrower has the option to pay interest that 
accrues on an unsubsidized FFEL loan or to cancel the deferment and 
continue to make payments on the loan.
    (2) In-school deferment. An eligible borrower is entitled to a 
deferment based on the borrower's at least half-time study in accordance 
with the rules prescribed in Sec.  682.210(c).
    (3) Graduate fellowship deferment. An eligible borrower is entitled 
to a graduate fellowship deferment in accordance with the rules 
prescribed in Sec.  682.210(d).

[[Page 85]]

    (4) Rehabilitation training program deferment. An eligible borrower 
is entitled to a rehabilitation training program deferment in accordance 
with the rules prescribed in Sec.  682.210(e).
    (5) Unemployment deferment. An eligible borrower is entitled to an 
unemployment deferment in accordance with the rules prescribed in Sec.  
682.210(h) for periods that, collectively, do not exceed 3 years.
    (6) Economic hardship deferment. An eligible borrower is entitled to 
an economic hardship deferment for periods of up to one year at a time 
that, collectively, do not exceed 3 years (except that a borrower who 
receives a deferment under paragraph (s)(6)(iv) of this section is 
entitled to an economic hardship deferment for the lesser of the 
borrower's full term of service in the Peace Corps or the borrower's 
remaining period of economic hardship deferment eligibility under the 3-
year maximum), if the borrower provides documentation satisfactory to 
the lender showing that the borrower is within any of the categories 
described in paragraphs (s)(6)(i) through (s)(6)(iv) of this section.
    (i) Has been granted an economic hardship deferment under either the 
Direct Loan or Federal Perkins Loan Programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her FFEL loan.
    (ii) Is receiving payment under a Federal or State public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or State general public assistance.
    (iii) Is working full-time and has a monthly income that does not 
exceed the greater of (as calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size as published annually by the 
Department of Health and Human Services pursuant to 42 U.S.C. 9902(2). 
If a borrower is not a resident of a State identified in the poverty 
guidelines, the poverty guideline to be used for the borrower is the 
poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (iv) Is serving as a volunteer in the Peace Corps.
    (v) For an initial period of deferment granted under paragraph 
(s)(6)(iii) of this section, the lender must require the borrower to 
submit evidence showing the amount of the borrower's monthly income.
    (vi) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraph (s)(6)(iii) of this section, the lender must require the 
borrower to submit evidence showing the amount of the borrower's monthly 
income or a copy of the borrower's most recently filed Federal income 
tax return.
    (vii) For purposes of paragraph (s)(6) of this section, a borrower's 
monthly income is the gross amount of income received by the borrower 
from employment and from other sources, or one-twelfth of the borrower's 
adjusted gross income, as recorded on the borrower's most recently filed 
Federal income tax return.
    (viii) For purposes of paragraph (s)(6) of this section, a borrower 
is considered to be working full-time if the borrower is expected to be 
employed for at least three consecutive months at 30 hours per week.
    (ix) For purposes of paragraph (s)(6)(iii)(B) of this section, 
family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from the 
borrower. A borrower's family size includes other individuals if, at the 
time the borrower requests the economic hardship deferment, the other 
individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.

[[Page 86]]

    (t) Military service deferments. (1) A borrower who receives a FFEL 
Program loan may receive a military service deferment for such loan for 
any period during which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency; or
    (ii) Performing qualifying National Guard duty during a war or other 
military operation or national emergency.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of service described 
in paragraph (t)(1)(i) and (t)(1)(ii) of this section.
    (3) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (i) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304 or 12306;
    (ii) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (iii) Any other member of an Armed Force on active duty in 
connection with such emergency or subsequent actions or conditions who 
has been assigned to a duty station at a location other than the 
location at which member is normally assigned.
    (4) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard on 
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5), under 
a call to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days under 32 U.S.C. 
502(f) in connection with a war, other military operation, or national 
emergency declared by the President and supported by Federal funds.
    (5) Payments made by or on behalf of a borrower during a period for 
which the borrower qualified for a military service deferment are not 
refunded.
    (6) As used in this paragraph--
    (i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1) 
except that it does not include active duty for training or attendance 
at a service school;
    (ii) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (iii) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (7) To receive a military service deferment, the borrower, or the 
borrower's representative, must request the deferment and provide the 
lender with all information and documents required to establish 
eligibility for the deferment, except that a lender may grant a borrower 
a military service deferment under the procedures specified in 
paragraphs (s)(1)(iii) through (s)(1)(v) of this section.
    (8) A lender that grants a military service deferment based on a 
request from a borrower's representative must notify the borrower that 
the deferment has been granted and that the borrower has the option to 
cancel the deferment and continue to make payments on the loan. The 
lender may also notify the borrower's representative of the outcome of 
the deferment request.
    (9) Without supporting documentation, a military service deferment 
may be granted to an otherwise eligible borrower for a period not to 
exceed the initial 12 months from the date the qualifying eligible 
service began based on a request from the borrower or the borrower's 
representative.
    (u) Post-active duty student deferment. (1) Effective October 1, 
2007, a borrower who receives a FFEL Program loan and is serving on 
active duty on that date, or begins serving on or after that date, is 
entitled to receive a post-active duty student deferment for 13 months 
following the conclusion of the borrower's active duty military service 
and any applicable grace period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and

[[Page 87]]

    (ii) The borrower was enrolled, on at least a half-time basis, in a 
program of instruction at an eligible institution at the time, or within 
six months prior to the time, the borrower was called to active duty.
    (2) As used in paragraph (u)(1) of this section, ``active duty'' 
means active duty as defined in section 101(d)(1) of title 10, United 
States Code for at least a 30-day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard personnel 
based on State statute or policy and the activities of the National 
Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the U.S. 
Secretary of Defense, to order a member to State active duty and the 
activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed in 
such a position is reassigned to active duty under paragraph (u)(2)(i) 
of this section or full-time National Guard duty under paragraph 
(u)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status, on at least 
a half-time basis, during the 13-month deferment period, the deferment 
expires at the time the borrower returns to enrolled student status, on 
at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (5) To receive a post-active duty student deferment, the borrower 
must request the deferment and provide the lender with all information 
and documents required to establish eligibility for the deferment, 
except that a lender may grant a borrower a post-active duty student 
deferment under the procedures specified in paragraphs (s)(1)(iii) 
through (s)(1)(v) of this section.
    (v) In-school deferments for PLUS loan borrowers with loans first 
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is 
entitled to a deferment on a PLUS loan first disbursed on or after July 
1, 2008 during the 6-month period that begins on the day after the 
student ceases to be enrolled on at least a half-time basis at an 
eligible institution.
    (ii) If a lender grants an in-school deferment to a student PLUS 
borrower based on Sec.  682.210(c)(1)(ii), (iii), or (iv), the deferment 
period for a PLUS loan first disbursed on or after July 1, 2008 includes 
the 6-month post-enrollment period described in paragraph (v)(1)(i) of 
this section. The notice required by Sec.  682.210(c)(2) must inform the 
borrower that the in-school deferment on a PLUS loan first disbursed on 
or after July 1, 2008 will end six months after the day the borrower 
ceases to be enrolled on at least a half-time basis.
    (2) Upon the request of the borrower, an eligible parent PLUS 
borrower must be granted a deferment on a PLUS loan first disbursed on 
or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained ceases to be 
enrolled on at least a half-time basis or, if the parent borrower is 
also a student, the day after the parent borrower ceases to be enrolled 
on at least a half-time basis.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1085)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.210, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.211  Forbearance.

    (a)(1) The Secretary encourages a lender to grant forbearance for 
the benefit of a borrower or endorser in order

[[Page 88]]

to prevent the borrower or endorser from defaulting on the borrower's or 
endorser's repayment obligation, or to permit the borrower or endorser 
to resume honoring that obligation after default. Forbearance means 
permitting the temporary cessation of payments, allowing an extension of 
time for making payments, or temporarily accepting smaller payments than 
previously were scheduled.
    (2) Subject to paragraph (g) of this section, a lender may grant 
forbearance of payments of principal and interest under paragraphs (b), 
(c), and (d) of this section only if--
    (i) The lender reasonably believes, and documents in the borrower's 
file, that the borrower or endorser intends to repay the loan but, due 
to poor health or other acceptable reasons, is currently unable to make 
scheduled payments; or
    (ii) The borrower's payments of principal are deferred under Sec.  
682.210 and the Secretary does not pay interest benefits on behalf of 
the borrower under Sec.  682.301.
    (3) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender may grant forbearance on 
repayment of the loan only if the ability of both individuals to make 
scheduled payments has been impaired based on the same or differing 
conditions.
    (4) Except as provided in paragraph (f)(11) of this section, if 
payments of interest are forborne, they may be capitalized as provided 
in Sec.  682.202(b).
    (b) A lender may grant forbearance if--
    (1) The lender and the borrower or endorser agree to the terms of 
the forbearance and, unless the agreement was in writing, the lender 
sends, within 30 days, a notice to the borrower or endorser confirming 
the terms of the forbearance and records the terms of the forbearance in 
the borrower's file; or
    (2) In the case of forbearance of interest during a period of 
deferment, if the lender informs the borrower at the time the deferment 
is granted that interest payments are to be forborne.
    (c) Except as provided in paragraph (d)(2) of this section, a lender 
may grant forbearance for a period of up to one year at a time if both 
the borrower or endorser and an authorized official of the lender agree 
to the terms of the forbearance. If the borrower or endorser requests 
the forbearance orally and the lender and the borrower or endorser agree 
to the terms of the forbearance orally, the lender must notify the 
borrower or endorser of the terms within 30 days of that agreement.
    (d)(1) A guaranty agency may authorize a lender to grant forbearance 
to permit a borrower or endorser to resume honoring the agreement to 
repay the debt after default but prior to claim payment. The forbearance 
agreement in this situation must include a new agreement to repay the 
debt signed by the borrower or endorser or a written or oral affirmation 
of the borrower's or endorser's obligation to repay the debt.
    (2) If the forbearance is based on the borrower's or endorser's oral 
request and affirmation of the obligation to repay the debt--
    (i) The forbearance period is limited to a period of 120 days;
    (ii) Such a forbearance cannot be granted consecutively;
    (iii) The lender must orally review with the borrower the terms and 
conditions of the forbearance, including the consequences of interest 
capitalization, and all other repayment options available to the 
borrower; and
    (iv) The lender must--
    (A) Send a notice to the borrower or endorser, as provided in 
paragraph (c) of this section, that confirms the terms of the 
forbearance and the borrower's or endorser's affirmation of the 
obligation to repay the debt, and includes information on all other 
repayment options available to the borrower, and
    (B) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (3) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (i) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (ii) Oral acknowledgment and agreement to repay the debt documented 
by

[[Page 89]]

the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or
    (iii) A payment made on the loan by the borrower or endorser.
    (e)(1) At the time of granting a borrower or endorser a forbearance, 
the lender must provide the borrower or endorser with information to 
assist the borrower or endorser in understanding the impact of 
capitalization of interest on the loan principal and total interest to 
be paid over the life of the loan; and
    (2) At least once every 180 days during the period of forbearance, 
the lender must contact the borrower or endorser to inform the borrower 
or endorser of--
    (i) The outstanding obligation to repay;
    (ii) The amount of the unpaid principal balance and any unpaid 
interest that has accrued on the loan since the last notice provided to 
the borrower or endorser under this paragraph;
    (iii) The fact that interest will accrue on the loan for the full 
term of the forbearance;
    (iv) The amount of interest that will be capitalized, as of the date 
of the notice, and the date capitalization will occur;
    (v) The option of the borrower or endorser to pay the interest that 
has accrued before the interest is capitalized; and
    (vi) The borrower's or endorser's option to discontinue the 
forbearance at any time.
    (f) A lender may grant forbearance, upon notice to the borrower or 
if applicable, the endorser, with respect to payments of interest and 
principal that are overdue or would be due--
    (1) For a properly granted period of deferment for which the lender 
learns the borrower did not qualify;
    (2) Upon the beginning of an authorized deferment period under Sec.  
682.210, or an authorized period of forbearance;
    (3) For the period beginning when the borrower entered repayment 
without the lender's knowledge until the first payment due date was 
established;
    (4) For the period prior to the borrower's filing of a bankruptcy 
petition as provided in Sec.  682.402(f);
    (5) For the periods described in Sec.  682.402(c) in regard to the 
borrower's total and permanent disability;
    (6) Upon receipt of a valid identity theft report as defined in 
section 603(q)(4) of the Fair Credit Reporting Act (15 U.S.C. 1681a) or 
notification from a consumer reporting agency that information furnished 
by the lender is a result of an alleged identity theft as defined in 
Sec.  682.402(e)(14), for a period not to exceed 120 days necessary for 
the lender to determine the enforceability of the loan. If the lender 
determines that the loan does not qualify for discharge under Sec.  
682.402(e)(1)(i)(C), but is nonetheless unenforceable, the lender must 
comply with Sec. Sec.  682.300(b)(2)(ix) and 682.302(d)(1)(viii).
    (7) For a period not to exceed an additional 60 days after the 
lender has suspended collection activity for the initial 60-day period 
required pursuant to Sec.  682.211(i)(6) and Sec.  682.402(b)(3), when 
the lender receives reliable information that the borrower (or student 
on whose behalf a parent has borrowed a PLUS Loan) has died;
    (8) For periods necessary for the Secretary or guaranty agency to 
determine the borrower's eligibility for discharge of the loan because 
of an unpaid refund, attendance at a closed school or false 
certification of loan eligibility, pursuant to Sec.  682.402(d) or (e), 
or the borrower's or, if applicable, endorser's bankruptcy, pursuant to 
Sec.  682.402(f);
    (9) For a period of delinquency at the time a loan is sold or 
transferred, if the borrower or endorser is less than 60 days delinquent 
on the loan at the time of sale or transfer;
    (10) For a period of delinquency that may remain after a borrower 
ends a period of deferment or mandatory forbearance until the next due 
date, which can be no later than 60 days after the period ends;
    (11) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's request for 
a deferment, forbearance, change in repayment plan, or consolidation 
loan. Interest that accrues during this period is not capitalized;
    (12) For a period not to exceed 3 months when the lender determines

[[Page 90]]

that a borrower's ability to make payments has been adversely affected 
by a natural disaster, a local or national emergency as declared by the 
appropriate government agency, or a military mobilization;
    (13) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's eligibility 
for loan forgiveness under the income-based repayment program. The 
lender must notify the borrower that the requirement to make payments on 
the loans for which forgiveness was requested has been suspended pending 
approval of the forgiveness by the guaranty agency;
    (14) For a period of delinquency at the time a borrower makes a 
change to the repayment plan; or
    (15) For PLUS loans first disbursed before July 1, 2008, to align 
repayment with a borrower's PLUS loans that were first disbursed on or 
after July 1, 2008, or with Stafford Loans that are subject to a grace 
period under Sec.  682.209(a)(3). The notice specified in paragraph (f) 
introductory text of this section must inform the borrower that the 
borrower has the option to cancel the forbearance and continue paying on 
the loan; or
    (16) For the periods described in Sec.  682.215(e)(9) in regard to 
the income-based repayment plan.
    (g) In granting a forbearance under this section, except for a 
forbearance under paragraph (i)(5) of this section, a lender shall grant 
a temporary cessation of payments, unless the borrower chooses another 
form of forbearance subject to paragraph (a)(1) of this section.
    (h) Mandatory forbearance--(1) Medical or dental interns or 
residents. Upon receipt of a request and sufficient supporting 
documentation, as described in Sec.  682.210(n), from a borrower serving 
in a medical or dental internship or residency program, a lender shall 
grant forbearance to the borrower in yearly increments (or a lesser 
period equal to the actual period during which the borrower is eligible) 
if the borrower has exhausted his or her eligibility for a deferment 
under Sec.  682.210(n), or the borrower's promissory note does not 
provide for such a deferment--
    (i) For the length of time remaining in the borrower's medical or 
dental internship or residency that must be successfully completed 
before the borrower may begin professional practice or service; or
    (ii) For the length of time that the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training.
    (2) Borrowers who are not medical or dental interns or residents, 
and endorsers. Upon receipt of a request and sufficient supporting 
documentation from an endorser (if applicable), or from a borrower 
(other than a borrower who is serving in a medical or dental internship 
or residency described in paragraph (h)(1) of this section), a lender 
shall grant forbearance--
    (i) In increments up to one year, for periods that collectively do 
not exceed three years, if--
    (A) The borrower or endorser is currently obligated to make payments 
on Title IV loans; and
    (B) The amount of those payments each month (or a proportional share 
if the payments are due less frequently than monthly) is collectively 
equal to or greater than 20 percent of the borrower's or endorser's 
total monthly income;
    (ii) In yearly increments (or a lesser period equal to the actual 
period during which the borrower is eligible) for as long as a 
borrower--
    (A) Is serving in a national service position for which the borrower 
receives a national service educational award under the National and 
Community Service Trust Act of 1993;
    (B) Is performing the type of service that would qualify the 
borrower for a partial repayment of his or her loan under the Student 
Loan Repayment Programs administered by the Department of Defense under 
10 U.S.C. 2171, 2173, 2174 or any other student loan repayment programs 
administered by the Department of Defense; or
    (C) Is performing the type of service that would qualify the 
borrower for loan forgiveness and associated forbearance under the 
requirements of the

[[Page 91]]

teacher loan forgiveness program in Sec.  682.216; and
    (iii) In yearly increments (or a lesser period equal to the actual 
period for which the borrower is eligible) when a member of the National 
Guard who qualifies for a post-active duty student deferment, but does 
not qualify for a military service deferment or other deferment, is 
engaged in active State duty as defined in Sec.  682.210(u)(2)(i) and 
(ii) for a period of more than 30 consecutive days, beginning--
    (A) On the day after the grace period expires for a Stafford loan 
that has not entered repayment; or
    (B) On the day after the borrower ceases at least half-time 
enrollment, for a FFEL loan in repayment.
    (3) Forbearance agreement. After the lender determines the 
borrower's or endorser's eligibility, and the lender and the borrower or 
endorser agree to the terms of the forbearance granted under this 
section, the lender sends, within 30 days, a notice to the borrower or 
endorser confirming the terms of the forbearance and records the terms 
of the forbearance in the borrower's file.
    (4) Documentation. (i) Before granting a forbearance to a borrower 
or endorser under paragraph (h)(2)(i) of this section, the lender shall 
require the borrower or endorser to submit at least the following 
documentation:
    (A) Evidence showing the amount of the most recent total monthly 
gross income received by the borrower or endorser from employment and 
from other sources; and
    (B) Evidence showing the amount of the monthly payments owed by the 
borrower or endorser to other entities for the most recent month for the 
borrower's or endorser's Title IV loans.
    (ii) Before granting a forbearance to a borrower or endorser under 
paragraph (h)(2)(ii)(B) of this section, the lender shall require the 
borrower or endorser to submit documentation showing the beginning and 
ending dates that the Department of Defense considers the borrower to be 
eligible for a partial repayment of his or her loan under the Student 
Loan Repayment Programs.
    (iii) Before granting a forbearance to a borrower under paragraph 
(h)(2)(ii)(C) of this section, the lender must require the borrower to--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and anticipated ending dates that the 
borrower is expected to perform, for that year, the type of service 
described in Sec.  682.216(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec.  682.216(c).
    (i) Mandatory administrative forbearance. (1) The lender shall grant 
a mandatory administrative forbearance for the periods specified in 
paragraph (i)(2) of this section until the lender is notified by the 
Secretary or a guaranty agency that the forbearance period no longer 
applies. The lender may not require a borrower who is eligible for a 
forbearance under paragraph (i)(2)(ii) of this section to submit a 
request or supporting documentation, but shall require a borrower (or 
endorser, if applicable) who requests forbearance because of a military 
mobilization to provide documentation showing that he or she is subject 
to a military mobilization as described in paragraph (i)(4) of this 
section.
    (2) The lender is not required to notify the borrower (or endorser, 
if applicable) at the time the forbearance is granted, but shall grant a 
forbearance to a borrower or endorser during a period, and the 30 days 
following the period, when the lender is notified by the Secretary 
that--
    (i) Exceptional circumstances exist, such as a local or national 
emergency or military mobilization; or
    (ii) The geographical area in which the borrower or endorser resides 
has been designated a disaster area by the president of the United 
States or Mexico, the Prime Minister of Canada, or by a Governor of a 
State.
    (3) As soon as feasible, or by the date specified by the Secretary, 
the lender shall notify the borrower (or endorser, if applicable) that 
the lender has granted a forbearance and the date that payments should 
resume. The lender's notification shall state that the borrower or 
endorser--
    (i) May decline the forbearance and continue to be obligated to make 
scheduled payments; or

[[Page 92]]

    (ii) Consents to making payments in accordance with the lender's 
notification if the forbearance is not declined.
    (4) For purposes of paragraph (i)(2)(i) of this section, the term 
``military mobilization'' shall mean a situation in which the Department 
of Defense orders members of the National Guard or Reserves to active 
duty under sections 688, 12301(a), 12301(g), 12302, 12304, and 12306 of 
title 10, United States Code. This term also includes the assignment of 
other members of the Armed Forces to duty stations at locations other 
than the locations at which they were normally assigned, only if the 
military mobilization involved the activation of the National Guard or 
Reserves.
    (5) The lender shall grant a mandatory administrative forbearance to 
a borrower (or endorser, if applicable) during a period when the 
borrower (or endorser, if applicable) is making payments for a period 
of--
    (i) Up to 3 years of payments in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term; or
    (ii) Up to 5 years of payments in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in the loan not being repaid within the maximum 
repayment term.
    (6) The lender shall grant a mandatory administrative forbearance to 
a borrower for a period not to exceed 60 days after the lender receives 
reliable information indicating that the borrower (or student in the 
case of a PLUS loan) has died, until the lender receives documentation 
of death pursuant to Sec.  682.402(b)(3).
    (7) The lender must grant a mandatory administrative forbearance to 
a borrower upon being notified by the Secretary that the borrower has 
made a borrower defense claim related to a loan that the borrower 
intends to consolidate into the Direct Loan Program for the purpose of 
seeking relief in accordance with Sec.  685.212(k). The mandatory 
administrative forbearance shall be granted in yearly increments or for 
a period designated by the Secretary until the loan is consolidated or 
until the lender is notified by the Secretary to discontinue the 
forbearance.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080, 1082)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.211, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.212  Prohibited transactions.

    (a) No points, premiums, payments, or additional interest of any 
kind may be paid or otherwise extended to any eligible lender or other 
party in order to--
    (1) Secure funds for making loans; or
    (2) Induce a lender to make loans to either the students or the 
parents of students of a particular school or particular category of 
students or their parents.
    (b) The following are examples of transactions that, if entered into 
for the purposes described in paragraph (a) of this section, are 
prohibited:
    (1) Cash payments by or on behalf of a school made to a lender or 
other party.
    (2) The maintaining of a compensating balance by or on behalf of a 
school with a lender.
    (3) Payments by or on behalf of a school to a lender of servicing 
costs on loans that the school does not own.
    (4) Payments by or on behalf of a school to a lender of unreasonably 
high servicing costs on loans that the school does own.
    (5) Purchase by or on behalf of a school of stock of the lender.
    (6) Payments ostensibly made for other purposes.
    (c) Except when purchased by an agency of any State functioning as a 
secondary market or in any other circumstances approved by the 
Secretary, notes, or any interest in notes, may not be sold or otherwise 
transferred at discount if the underlying loans were made--
    (1) By a school; or
    (2) To students or parents of students attending a school by a 
lender having common ownership with that school.

[[Page 93]]

    (d) Except to secure a loan from an agency of a State functioning as 
a secondary market or in other circumstances approved by the Secretary, 
a school or lender (with respect to a loan made to a student, or a 
parent of a student, attending a school having common ownership with 
that lender), may not use a loan made under the FFEL programs as 
collateral for any loan bearing aggregate interest and other charges in 
excess of the sum of the interest rate applicable to the loan plus the 
rate of the most recently prescribed special allowance under Sec.  
682.302.
    (e) The prohibitions described in paragraphs (a), (b), (c), and (d) 
of this section apply to any school, lender, or other party that would 
participate in a proscribed transaction.
    (f) This section does not preclude a buyer of loans made by a school 
from obtaining from the loan seller a warranty that--
    (1) Covers future reductions by the Secretary or a guaranty agency 
in computing the amount of loss payable on default claims filed on the 
loans, if the reductions are attributable to an act, or failure to act, 
on the part of the seller or previous holder; and
    (2) Does not cover matters for which a purchaser is charged with 
responsibility under this part, such as due diligence in collecting 
loans.
    (g) Section 490(c) of the Act provides that any person who knowingly 
and willfully makes an unlawful payment to an eligible lender as an 
inducement to make, or to acquire by assignment, a FFEL loan shall, upon 
conviction thereof, be fined not more than $10,000 or imprisoned not 
more than one year, or both.
    (h) A school may, at its option, make available a list of 
recommended or suggested lenders, in print or any other medium or form, 
for use by the school's students or their parents provided that such 
list complies with the requirements in 34 CFR 601.10 and 668.14(a)(28).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 72 FR 62002, Nov. 1, 2007; 74 
FR 55664, Oct. 28, 2009]



Sec.  682.213  Prohibition against the use of the Rule of 78s.

    For purposes of the calculations required by this part, a lender may 
not use the Rule of 78s to calculate the outstanding principal balance 
of a loan, except for a loan made to a borrower who entered repayment 
before June 26, 1987 and who was informed in the promissory note that 
interest on the loan would be calculated using the Rule of 78s. For 
those loans, the Rule of 78s must be used for the life of the loan.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 68 FR 75429, Dec. 31, 2003]



Sec.  682.214  [Reserved]



Sec.  682.215  Income-based repayment plan.

    (a) Definitions. As used in this section--
    (1) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income.
    (2) Eligible loan means any outstanding loan made to a borrower 
under the FFEL and Direct Loan programs except for a defaulted loan, a 
FFEL or Direct PLUS Loan made to a parent borrower, or a FFEL or Direct 
Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a 
parent borrower.
    (3) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, at 
the time the borrower certifies family size, the other individuals--
    (i) Live with the borrower; and
    (ii) Receive more than half their support from the borrower and will 
continue to receive this support from the

[[Page 94]]

borrower for the year the borrower certifies family size. Support 
includes money, gifts, loans, housing, food, clothes, car, medical and 
dental care, and payment of college costs.
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment plan 
based on a 10-year repayment period, using the greater of the amount due 
at the time the borrower initially entered repayment or at the time the 
borrower elects the income-based repayment plan, exceeds 15 percent of 
the difference between the borrower's AGI and 150 percent of the poverty 
guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse elects 
the income-based repayment plan, exceeds 15 percent of the difference 
between the borrower's and spouse's AGI, and 150 percent of the poverty 
guideline for the borrower's family size.
    (5) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (b) Repayment plan. (1) A borrower may elect the income-based 
repayment plan only if the borrower has a partial financial hardship. 
The borrower's aggregate monthly loan payments are limited to no more 
than 15 percent of the amount by which the borrower's AGI exceeds 150 
percent of the poverty line income applicable to the borrower's family 
size, divided by 12. The loan holder adjusts the calculated monthly 
payment if--
    (i) Except for borrowers provided for in paragraph (b)(1)(ii) of 
this section, the total amount of the borrower's eligible loans includes 
loans not held by the loan holder, in which case the loan holder 
determines the borrower's adjusted monthly payment by multiplying the 
calculated payment by the percentage of the total outstanding principal 
amount of the borrower's eligible loans that are held by the loan 
holder;
    (ii) Both the borrower and the borrower's spouse have eligible loans 
and filed a joint Federal tax return, in which case the loan holder 
determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(1)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly payment by multiplying the payment 
determined in paragraph (b)(1)(ii)(B) of this section by the percentage 
of the total outstanding principal amount of the borrower's eligible 
loans that are held by the loan holder;
    (iii) The calculated amount under paragraph (b)(1), (b)(1)(i), or 
(b)(1)(ii) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (iv) The calculated amount under paragraph (b)(1), (b)(1)(i), or 
(b)(1)(ii) of this section is equal to or greater than $5.00 but less 
than $10.00, in which case the borrower's monthly payment is $10.00.
    (2) A borrower with eligible loans held by two or more loan holders 
must request income-based repayment from each loan holder if the 
borrower wants to repay all of his or her eligible loans under the 
income-based repayment plan. Each loan holder must apply the payment 
calculation rules in paragraphs (b)(1)(iii) and (iv) of this section to 
loans they hold.
    (3) If a borrower elects the income-based repayment plan on or after 
July

[[Page 95]]

1, 2013, the loan holder must, unless the borrower has some loans that 
are eligible for repayment under the income-based repayment plan and 
other loans that are not eligible for repayment under that plan, require 
that all eligible loans owed by the borrower to that holder be repaid 
under the income-based repayment plan.
    (4) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's subsidized Stafford Loans or 
the subsidized portion of the borrower's Federal Consolidation loan, the 
Secretary pays to the holder the remaining accrued interest for a period 
not to exceed three consecutive years from the established repayment 
period start date on each loan repaid under the income-based repayment 
plan. On a Consolidation Loan that repays loans on which the Secretary 
has paid accrued interest under this section, the three-year period 
includes the period for which the Secretary paid accrued interest on the 
underlying loans. The three-year period does not include any period 
during which the borrower receives an economic hardship deferment.
    (5) Except as provided in paragraph (b)(4) of this section, accrued 
interest is capitalized at the time the borrower chooses to leave the 
income-based repayment plan or no longer has a partial financial 
hardship.
    (6) If the borrower's monthly payment amount is not sufficient to 
pay any principal due, the payment of that principal is postponed until 
the borrower chooses to leave the income-based repayment plan or no 
longer has a partial financial hardship.
    (7) The special allowance payment to a lender during the period in 
which the borrower has a partial financial hardship under the income-
based repayment plan is calculated on the principal balance of the loan 
and any accrued interest unpaid by the borrower.
    (8) The repayment period for a borrower under the income-based 
repayment plan may be greater than 10 years.
    (c) Payment application and prepayment. (1) The loan holder shall 
apply any payment made under the income-based repayment plan in the 
following order:
    (i) Accrued interest.
    (ii) Collection costs.
    (iii) Late charges.
    (iv) Loan principal.
    (2) The borrower may prepay the whole or any part of a loan at any 
time without penalty.
    (3) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the loan holder shall apply the prepayment consistent with the 
requirements of Sec.  682.209(b)(2)(ii).
    (4) If the prepayment amount exceeds the monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the loan 
holder shall apply the prepayment consistent with the requirements of 
paragraph (c)(1) of this section.
    (d) Changes in the payment amount. (1) If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the income-based repayment plan but the loan holder must 
recalculate the borrower's monthly payment. The loan holder also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as a result of the 
recalculation--
    (i) The maximum monthly amount that the loan holder requires the 
borrower to repay is the amount the borrower would have paid under the 
FFEL standard repayment plan based on a 10-year repayment period using 
the amount of the borrower's eligible loans that was outstanding at the 
time the borrower began repayment on the loans with that holder under 
the income-based repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the FFEL standard repayment 
plan and the loan holder recalculates the borrower's monthly payment 
based on--
    (i) Except as provided in paragraph (d)(2)(ii) of this section, the 
time remaining under the maximum 10-year repayment period and the amount 
of

[[Page 96]]

the borrower's loans that was outstanding at the time the borrower 
discontinued paying under the income-based repayment plan; or
    (ii) For a Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under Sec.  
682.209(h)(2) and the total amount of that loan that was outstanding at 
the time the borrower discontinued paying under the income-based 
repayment plan.
    (3) A borrower who no longer wishes to repay under the income-based 
repayment plan and who is required to repay under the FFEL standard 
repayment plan in accordance with paragraph (d)(2) of this section may 
request a change to a different repayment plan after making one monthly 
payment under the FFEL standard repayment plan. For this purpose, a 
monthly payment may include one payment made under a forbearance that 
provides for temporarily accepting smaller payments than previously 
scheduled, in accordance with Sec.  682.211(a)(1).
    (e) Eligibility documentation, verification, and notifications. (1) 
The loan holder determines whether a borrower has a partial financial 
hardship to qualify for the income-based repayment plan for the year the 
borrower elects the plan and for each subsequent year that the borrower 
remains on the plan. To make this determination, the loan holder 
requires the borrower to--
    (i) Provide documentation, acceptable to the loan holder, of the 
borrower's AGI;
    (ii) If the borrower's AGI is not available, or the loan holder 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, provide other documentation to verify 
income;
    (iii) If the spouse of a married borrower who files a joint Federal 
tax return has eligible loans and the loan holder does not hold at least 
one of the spouse's eligible loans--
    (A) Ensure that the borrower's spouse has provided consent for the 
loan holder to obtain information about the spouse's eligible loans from 
the National Student Loan Data System; or
    (B) Provide other documentation, acceptable to the loan holder, of 
the spouse's eligible loan information; and
    (iv) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the loan holder must assume a family size 
of one for that year.
    (2) After making a determination that a borrower has a partial 
financial hardship to qualify for the income-based repayment plan for 
the year the borrower initially elects the plan and for any subsequent 
year that the borrower has a partial financial hardship, the loan holder 
must send the borrower a written notification that provides the borrower 
with--
    (i) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (b)(1) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (ii) Information about the requirement for the borrower to annually 
provide the information described in paragraph (e)(1) of this section, 
if the borrower chooses to remain on the income-based repayment plan 
after the initial year on the plan, and an explanation that the borrower 
will be notified in advance of the date by which the loan holder must 
receive this information;
    (iii) An explanation of the consequences, as described in paragraphs 
(e)(1)(iv) and (e)(7) of this section, if the borrower does not provide 
the required information;
    (iv) An explanation of the consequences if the borrower no longer 
wishes to repay under the income-based repayment plan; and
    (v) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the loan 
holder recalculate the borrower's monthly payment amount if the 
borrower's financial circumstances have changed and the income amount 
that was used to calculate the borrower's current monthly payment no 
longer reflects the borrower's current income. If the loan holder 
recalculates the borrower's monthly payment amount based on the 
borrower's request, the loan holder must send the borrower a written 
notification that includes the information described in paragraphs 
(e)(2)(i) through (e)(2)(v) of this section.

[[Page 97]]

    (3) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the income-based repayment plan, 
the loan holder must notify the borrower in writing of the requirements 
in paragraph (e)(1) of this section no later than 60 days and no earlier 
than 90 days prior to the date specified in paragraph (e)(3)(i) of this 
section. The notification must provide the borrower with--
    (i) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the loan holder must receive 
all of the information described in paragraph (e)(1) of this section 
(annual deadline); and
    (ii) The consequences if the loan holder does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (d)(1) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (b)(5) of 
this section.
    (4) Each time a loan holder makes a determination that a borrower no 
longer has a partial financial hardship for a subsequent year that the 
borrower wishes to remain on the plan, the loan holder must send the 
borrower a written notification that provides the borrower with--
    (i) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (d)(1) of this section;
    (ii) An explanation that unpaid accrued interest will be capitalized 
in accordance with paragraph (b)(5) of this section; and
    (iii) Information about the borrower's option to request, at any 
time, that the loan holder redetermine whether the borrower has a 
partial financial hardship, if the borrower's financial circumstances 
have changed and the income amount used to determine that the borrower 
no longer has a partial financial hardship does not reflect the 
borrower's current income, and an explanation that the borrower will be 
notified annually of this option. If the loan holder determines that the 
borrower again has a partial financial hardship, the loan holder must 
recalculate the borrower's monthly payment in accordance with paragraph 
(b)(1) of this section and send the borrower a written notification that 
includes the information described in paragraphs (e)(2)(i) through 
(e)(2)(v) of this section.
    (5) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the income-based repayment 
plan, the loan holder must send the borrower a written notification that 
includes the information described in paragraph (e)(4)(iii) of this 
section.
    (6) If a borrower who is currently repaying under another repayment 
plan selects the income-based repayment plan but does not provide the 
documentation described in paragraphs (e)(1)(i) through (e)(1)(iii) of 
this section, or if the loan holder determines that the borrower does 
not have a partial financial hardship, the borrower remains on his or 
her current repayment plan.
    (7) The loan holder designates the repayment option described in 
paragraph (d)(1) of this section if a borrower who is currently repaying 
under the income-based repayment plan remains on the plan for a 
subsequent year but the loan holder does not receive the information 
described in paragraphs (e)(1)(i) through (e)(1)(iii) of this section 
within 10 days of the specified annual deadline, unless the loan holder 
is able to determine the borrower's new monthly payment amount before 
the end of the borrower's current annual payment period.
    (8) If the loan holder receives the information described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section within 10 days 
of the specified annual deadline--
    (i) The loan holder must promptly determine the borrower's new 
monthly payment amount.
    (ii) If the loan holder does not determine the new monthly payment 
amount by the end of the borrower's current annual payment period, the 
loan holder must prevent the borrower's monthly payment amount from

[[Page 98]]

being recalculated in accordance with paragraph (d)(1) of this section 
and maintain the borrower's current scheduled monthly payment amount 
until the loan holder determines the new monthly payment amount.
    (A) If the new monthly payment amount is less than the borrower's 
previously calculated income-based monthly payment amount, the loan 
holder must make the appropriate adjustment to the borrower's account to 
reflect any payments at the previously calculated amount that the 
borrower made after the end of the most recent annual payment period. 
Notwithstanding the requirements of Sec.  682.209(b)(2)(ii), unless the 
borrower requests otherwise the loan holder applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of paragraph (c)(1) of this section.
    (B) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated income-based monthly payment 
amount, the loan holder does not make any adjustments to the borrower's 
account.
    (iii) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (9) If the loan holder receives the documentation described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph (d)(1) of 
this section, the loan holder may grant forbearance with respect to 
payments that are overdue or would be due at the time the new calculated 
income-based monthly payment amount is determined, if the new monthly 
payment amount is $0.00 or is less than the borrower's previously 
calculated income-based monthly payment amount. Interest that accrues 
during the portion of this forbearance period that covers payments that 
are overdue after the end of the prior annual payment period is not 
capitalized.
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years, the borrower must have participated in the income-based repayment 
plan and satisfied at least one of the following conditions during that 
period--
    (i) Made reduced monthly payments under a partial financial hardship 
as provided in paragraph (b)(1) of this section, including a monthly 
payment amount of $0.00, as provided in paragraph (b)(1)(iii) of this 
section;
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d)(1) of this section;
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the FFEL standard repayment plan 
described in Sec.  682.209(a)(6)(vi) with a 10-year repayment period for 
the amount of the borrower's loans that were outstanding at the time the 
loans initially entered repayment;
    (iv) Made monthly payments under the FFEL standard repayment plan 
described in Sec.  682.209(a)(6)(vi) based on a 10-year repayment 
period; or
    (v) Received an economic hardship deferment on eligible FFEL loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary repays any outstanding balance of principal and accrued 
interest on FFEL loans for which the borrower qualifies for forgiveness 
if the guaranty agency determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, including 
a monthly amount of $0.00 as provided in paragraph (b)(1)(ii) of this 
section; and
    (ii)(A) The borrower made those monthly payments each year for a 25-
year period; or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower made the equivalent of 25 years of payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the beginning date for the 25-year period is--
    (i) For a borrower who has an eligible FFEL Consolidation Loan, the 
date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for 
income-based repayment.

[[Page 99]]

The beginning date is the date the borrower made the payment or received 
the deferment, but no earlier than July 1, 2009;
    (ii) For a borrower who has one or more other eligible FFEL loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower made 
that payment or received the deferment on that loan, but no earlier than 
July 1, 2009;
    (iii) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph (f)(3)(i) or 
(ii) of this section, the date the borrower made a payment under the 
income-based repayment plan on the loan; or
    (iv) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the FFEL Consolidation Loan that met 
the conditions in paragraph (f)(1) of this section.
    (4) If a borrower satisfies the loan forgiveness requirements, the 
Secretary repays the outstanding balance and accrued interest on the 
FFEL Consolidation Loan described in paragraph (f)(3)(i), (iii), or (iv) 
of this section or other eligible FFEL loans described in paragraph 
(f)(3)(ii) or (iv) of this section.
    (5) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 25-year 
forgiveness period.
    (g) Loan forgiveness processing and payment. (1) The loan holder 
determines when a borrower has met the loan forgiveness requirements 
under paragraph (f) of this section and does not require the borrower to 
submit a request for loan forgiveness. No later than six months prior to 
the anticipated date that the borrower will meet the loan forgiveness 
requirements, the loan holder must send the borrower a written notice 
that includes--
    (i) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (ii) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (iii) General information on the current treatment of the 
forgiveness amount for tax purposes, and instructions for the borrower 
to contact the Internal Revenue Service for more information.
    (2) No later than 60 days after the loan holder determines that a 
borrower qualifies for loan forgiveness, the loan holder must request 
payment from the guaranty agency.
    (3) If the loan holder requests payment from the guaranty agency 
later than the period specified in paragraph (g)(2) of this section, 
interest that accrues on the discharged amount after the expiration of 
the 60-day filing period is ineligible for reimbursement by the 
Secretary, and the holder must repay all interest and special allowance 
received on the discharged amount for periods after the expiration of 
the 60-day filing period. The holder cannot collect from the borrower 
any interest that is not paid by the Secretary under this paragraph.
    (4)(i) Within 45 days of receiving the holder's request for payment, 
the guaranty agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness under this section and must notify the 
holder of its determination.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period required under paragraph (g)(4)(i) of this 
section, pay the holder the amount of the forgiveness.
    (5) After being notified by the guaranty agency of its determination 
of the eligibility of the borrower for loan forgiveness, the holder 
must, within 30 days--
    (i) Inform the borrower of the determination and, if appropriate, 
that the borrower's repayment obligation on the loans is satisfied; and
    (ii) Provide the borrower with the information described in 
paragraph (g)(1)(iii) of this section.
    (6)(i) The holder must apply the payment from the guaranty agency 
under paragraph (g)(4)(ii) of this section to satisfy the outstanding 
balance on those loans subject to income-based forgiveness; or
    (ii) If the forgiveness amount exceeds the outstanding balance on 
the eligible

[[Page 100]]

loans subject to forgiveness, the loan holder must refund the excess 
amount to the guaranty agency.
    (7) If the guaranty agency does not pay the forgiveness claim, the 
lender will continue the borrower in repayment on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date the borrower's repayment obligation was suspended until a 
new payment due date is established. Unless the denial of the 
forgiveness claim was due to an error by the lender, the lender may 
capitalize any interest accrued and not paid during this period, in 
accordance with Sec.  682.202(b).
    (8) The loan holder must promptly return to the sender any payment 
received on a loan after the guaranty agency pays the loan holder the 
amount of loan forgiveness.

(Approved by the Office of Management and Budget under control number 
1845-NEWA)


(Authority: 20 U.S.C. 1098e)

[73 FR 63249, Oct. 23, 2008, as amended at 74 FR 55995, Oct. 29, 2009; 
77 FR 66128, Nov. 1, 2012]



Sec.  682.216  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended to 
encourage individuals to enter and continue in the teaching profession. 
For new borrowers, the Secretary repays the amount specified in this 
paragraph on the borrower's subsidized and unsubsidized Federal Stafford 
Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and in 
certain cases, Federal Consolidation Loans or Direct Consolidation 
Loans. The forgiveness program is only available to a borrower who has 
no outstanding loan balance under the FFEL Program or the Direct Loan 
Program on October 1, 1998 or who has no outstanding loan balance on the 
date he or she obtains a loan after October 1, 1998.
    (2)(i) The borrower must have been employed at an eligible 
elementary or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required 
five years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or an 
eligible educational service agency.
    (ii) Teaching at an eligible elementary or secondary school may be 
counted toward the required five consecutive complete academic years 
only if at least one year of teaching was after the 1997-1998 academic 
year.
    (iii) Teaching for an educational service agency may be counted 
toward the required five consecutive complete academic years only if the 
consecutive five-year period includes qualifying service at an eligible 
educational service agency performed after the 2007-2008 academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan Program 
loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or for an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must have 
been made prior to the end of the borrower's fifth year of qualifying 
teaching service.
    (b) Definitions. The following definitions apply to this section:
    Academic year means one complete school year at the same school, or 
two complete and consecutive half years at different schools, or two 
complete and consecutive half years from different school years at 
either the same school or different schools. Half years exclude summer 
sessions and generally fall within a twelve-month period. For schools 
that have a year-round program of instruction, a minimum of nine months 
is considered an academic year.

[[Page 101]]

    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
    Elementary school means a public or nonprofit private school that 
provides elementary education as determined by State law or the 
Secretary if that school is not in a State.
    Full-time means the standard used by a State in defining full-time 
employment as a teacher. For a borrower teaching in more than one 
school, the determination of full-time is based on the combination of 
all qualifying employment.
    Highly qualified means highly qualified as defined in section 9101 
of the Elementary and Secondary Education Act of 1965, as amended.
    Secondary school means a public or nonprofit private school that 
provides secondary education as determined by State law or the Secretary 
if the school is not in a State.
    Teacher means a person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom setting, including Special 
Education teachers.
    (c) Borrower eligibility. (1) A borrower who has been employed at an 
elementary or secondary school or for an educational service agency as a 
full-time teacher for five consecutive complete academic years may 
obtain loan forgiveness under this program if the elementary or 
secondary school or educational service agency--
    (i) Is in a school district that qualifies for funds under title I 
of the Elementary and Secondary Education Act of 1965, as amended;
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's or educational service 
agency's total enrollment is made up of children who qualify for 
services provided under title I; and
    (iii) Is listed in the Annual Directory of Designated Low-Income 
Schools for Teacher Cancellation Benefits. If this directory is not 
available before May 1 of any year, the previous year's directory may be 
used.
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
    (3) If the school or educational service agency at which the 
borrower is employed meets the requirements specified in paragraph 
(c)(1) of this section for at least one year of the borrower's five 
consecutive complete academic years of teaching and fails to meet those 
requirements in subsequent years, those subsequent years of teaching 
qualify for purposes of this section for that borrower.
    (4) In the case of a borrower whose five consecutive complete years 
of qualifying teaching service began before October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower--
    (A) Demonstrated knowledge and teaching skills in reading, writing, 
mathematics, and other areas of the elementary school curriculum, as 
certified by the chief administrative officer of the eligible elementary 
school or educational service agency where the borrower was employed; or
    (B) Taught in a subject area that is relevant to the borrower's 
academic major as certified by the chief administrative officer of the 
eligible secondary school or educational service agency where the 
borrower was employed.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science to secondary 
school students on a full-time basis for an eligible educational service 
agency, and was a highly qualified mathematics or science teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or an educational service agency and was a highly qualified special 
education teacher whose special education training corresponded to the 
children's disabilities and who has demonstrated knowledge

[[Page 102]]

and teaching skills in the content areas of the elementary or secondary 
school curriculum.
    (iii) Teaching service performed for an eligible educational service 
agency may be counted toward the required five years of teaching only if 
the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (5) In the case of a borrower whose five consecutive years of 
qualifying teaching service began on or after October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower 
taught full time at an eligible elementary or secondary school or for an 
educational service agency and was a highly qualified elementary or 
secondary school teacher.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science on a full-
time basis to secondary school students for an eligible educational 
service agency, and was a highly qualified mathematics or science 
teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or for an educational service agency and was a highly qualified special 
education teacher whose special education training corresponded to the 
children's disabilities and who has demonstrated knowledge and teaching 
skills in the content areas of the elementary or secondary school 
curriculum.
    (iii) Teaching service performed for an eligible educational service 
agency may be counted toward the required five years of teaching only if 
the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (6) To qualify for loan forgiveness as a highly qualified teacher, 
the teacher must have been a highly qualified teacher for all five years 
of eligible teaching service.
    (7) For teacher loan forgiveness applications received by the loan 
holder on or after July 1, 2006, a teacher in a private, non-profit 
elementary or secondary school who is exempt from State certification 
requirements (unless otherwise applicable under State law) may qualify 
for loan forgiveness under paragraphs (c)(3)(ii) or (c)(4) of this 
section if--
    (i) The private school teacher is permitted to and does satisfy 
rigorous subject knowledge and skills tests by taking competency tests 
in applicable grade levels and subject areas;
    (ii) The competency tests are recognized by 5 or more States for the 
purposes of fulfilling the highly qualified teacher requirements under 
section 9101 of the Elementary and Secondary Education Act of 1965; and
    (iii) The private school teacher achieves a score on each test that 
equals or exceeds the average passing score for those 5 states.
    (8) The academic year may be counted as one of the borrower's five 
consecutive complete academic years if the borrower completes at least 
one-half of the academic year and the borrower's employer considers the 
borrower to have fulfilled his or her contract requirements for the 
academic year for the purposes of salary increases, tenure, and 
retirement if the borrower is unable to complete an academic year due 
to--
    (i) A return to postsecondary education, on at least a half-time 
basis, that is directly related to the performance of the service 
described in this section;
    (ii) A condition that is covered under the Family and Medical Leave 
Act of 1993 (FMLA) (29 U.S.C. 2601, et seq.); or
    (iii) A call or order to active duty status for more than 30 days as 
a member of a reserve component of the Armed Forces named in section 
10101 of title 10, United States Code.
    (9) A borrower's period of postsecondary education, qualifying FMLA 
condition, or military active duty as described in paragraph (c)(7) of 
this section, including the time necessary for the borrower to resume 
qualifying teaching no later than the beginning of the next regularly 
scheduled academic year, does not constitute a break in the required 
five consecutive years of qualifying teaching service.

[[Page 103]]

    (10) A borrower who was employed as a teacher at more than one 
qualifying school, for more than one qualifying educational service 
agency, or at a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-time, 
as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
    (11) A borrower is not eligible for teacher loan forgiveness on a 
defaulted loan unless the borrower has made satisfactory repayment 
arrangements to re-establish title IV eligibility, as defined in Sec.  
682.200.
    (12) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) Subtitle D of title I of the National and Community Service Act 
of 1990;
    (ii) 34 CFR 685.219; or
    (iii) Section 428K of the Act.
    (d) Forgiveness amount. (1) A qualified borrower is eligible for 
forgiveness of up to $5,000, or up to $17,500 if the borrower meets the 
requirements of paragraph (c)(4)(ii) or (c)(5)(ii) of this section. The 
forgiveness amount is deducted from the aggregate amount of the 
borrower's subsidized or unsubsidized Federal Stafford or Federal 
Consolidation Loan obligation that is outstanding after the borrower 
completes his or her fifth consecutive complete academic year of 
teaching as described in paragraph (c) of this section. Only the 
outstanding portion of the consolidation loan that was used to repay an 
eligible subsidized or unsubsidized Federal Stafford Loan, an eligible 
Direct Subsidized Loan, or an eligible Direct Unsubsidized Loan 
qualifies for loan forgiveness under this section.
    (2) A borrower may not receive more than a total of $5,000, or 
$17,500 if the borrower meets the requirements of paragraph (c)(4)(ii) 
or (c)(5)(ii) of this section, in loan forgiveness for outstanding 
principal and accrued interest under both this section and under section 
34 CFR 685.217.
    (3) The holder does not refund payments that were received from or 
on behalf of a borrower who qualifies for loan forgiveness under this 
section.
    (e) Authorized forbearance during qualifying teaching service and 
forgiveness processing. (1) A holder grants a forbearance--
    (i) Under Sec.  682.211(h)(2)(ii)(C) and (h)(4)(iii), in annual 
increments for each of the years of qualifying teaching service, if the 
holder believes, at the time of the borrower's annual request, that the 
expected cancellation amount will satisfy the anticipated remaining 
outstanding balance on the loan at the time of the expected 
cancellation;
    (ii) For a period not to exceed 60 days while the holder is awaiting 
a completed teacher loan forgiveness application from the borrower; and
    (iii) For the period beginning on the date the holder receives a 
completed loan forgiveness application to the date the holder receives 
either a denial of the request or the loan forgiveness amount from the 
guaranty agency, in accordance with paragraph (f) of this section.
    (2) At the conclusion of a forbearance authorized under paragraph 
(e)(1) of this section, the holder must resume collection activities and 
may capitalize any interest accrued and not paid during the forbearance 
period in accordance with Sec.  682.202(b).
    (3) Nothing in paragraph (e) of this section restricts holders from 
offering other forbearance options to borrowers who do not meet the 
requirements of paragraph (e)(1)(i) of this section.
    (f) Application and processing. (1) A borrower, after completing the 
qualifying teaching service, requests loan forgiveness from the holder 
of the loan on a form approved by the Secretary.
    (2)(i) The holder must file a request for payment with the guaranty 
agency on a teacher loan forgiveness amount no later than 60 days after 
the receipt, from the borrower, of a completed teacher loan forgiveness 
application.
    (ii) When filing a request for payment on a teacher loan 
forgiveness, the holder must provide the guaranty agency with the 
completed loan forgiveness application submitted by the borrower and any 
required supporting documentation.

[[Page 104]]

    (iii) If the holder files a request for payment later than 60 days 
after the receipt of the completed teacher loan forgiveness application 
form, interest that accrued on the loan forgiveness amount after the 
expiration of the 60-day filing period is ineligible for reimbursement 
by the Secretary, and the holder must repay all interest and special 
allowance received on the loan forgiveness amount for periods after the 
expiration of the 60-day filing period. The holder cannot collect from 
the borrower any interest that is not paid by the Secretary under this 
paragraph.
    (3)(i) Within 45 days of receiving the holder's request for payment, 
the guaranty agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness under this section and must notify the 
holder of its determination of the borrower's eligibility for loan 
forgiveness under this section.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period, pay the holder the amount of the laon 
forgiveness, up to $17,500, subject to paragraphs (c)(11), (d)(1), 
(d)(2) and (f)(2)(iii) of this section.
    (4) After being notified by the guaranty agency of its determination 
of the eligibility of the borrower for the loan forgiveness, the holder 
must, within 30 days, inform the borrower of the determination. If the 
loan forgiveness is approved, the holder must also provide the borrower 
with information regarding any new repayment terms of remaining loan 
balances.
    (5) Unless otherwise instructed by the borrower, the holder must 
apply the proceeds of the teacher forgiveness first to any outstanding 
unsubsidized Federal Stafford loan balances, next to any outstanding 
subsidized Federal Stafford loan balances, then to any eligible 
outstanding Federal Consolidation loan balances.
    (g) Claims for reimbursement from the Secretary on loans held by 
guaranty agencies. In the case of a teacher loan forgiveness applied to 
a defaulted loan held by the guaranty agency, the Secretary pays the 
guaranty agency a percentage of the amount forgiven that is equal to the 
complement of the reinsurance percentage paid on the loan. The payment 
of up to $5,000, or up to $17,500, may also include interest that 
accrues on the forgiveness amount during the period from the date on 
which the guaranty agency received payment from the Secretary on a 
default claim to the date on which the guaranty agency determines that 
the borrower is eligible for the teacher loan forgiveness.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-10)

[65 FR 65627, Nov. 1, 2000, as amended at 66 FR 34763, June 29, 2001; 71 
FR 45702, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 35495, June 23, 
2008. Redesignated at 73 FR 63249, Oct. 23, 2008; 74 FR 55995, Oct. 29, 
2009; 78 FR 65813, Nov. 1, 2013]



      Subpart C_Federal Payments of Interest and Special Allowance



Sec.  682.300  Payment of interest benefits on Stafford and Consolidation loans.

    (a) General. The Secretary pays a lender, on behalf of a borrower, a 
portion of the interest on a subsidized Stafford loan and on all or a 
portion of a qualifying Consolidation loan that meets the requirements 
under Sec.  682.301. This payment is known as interest benefits.
    (b) Covered interest. (1) The Secretary pays a lender the interest 
that accrues on an eligible Stafford loan--
    (i) During all periods prior to the beginning of the repayment 
period, except as provided in paragraphs (b)(2) and (c) of this section.
    (ii) During any period when the borrower has an authorized 
deferment, and, if applicable, a post-deferment grace period;
    (iii) During the repayment period for loans described in paragraph 
(d)(2) of this section; and
    (iv) During a period that does not exceed three consecutive years 
from the established repayment period start date on each loan under the 
income-based repayment plan and that excludes any period during which 
the borrower receives an economic hardship deferment, if the borrower's 
monthly payment amount under the plan is not sufficient to pay the 
accrued interest

[[Page 105]]

on the borrower's loan or on the qualifying portion of the borrower's 
Consolidation Loan.
    (2) The Secretary's obligation to pay interest benefits on an 
otherwise eligible loan terminates on the earliest of--
    (i) The date the borrower's loan is repaid;
    (ii) The date the disbursement check is returned uncashed to the 
lender, or the 120th day after the date of that disbursement if--
    (A) The check for the disbursement has not been cashed on or before 
that date; or
    (B) The proceeds of the disbursement made by electronic funds 
transfer or master check have not been released from the account 
maintained by the school on or before that date;
    (iii) The date of default by the borrower;
    (iv) The date the lender receives payment of a claim for loss on the 
loan;
    (v) The date the borrower's loan is discharged in bankruptcy;
    (vi) The date the lender determines that the borrower has died or 
has become totally and permanently disabled;
    (vii) The date the loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor;
    (viii) The date the lender determines that the borrower is eligible 
for loan discharge under Sec.  682.402(d), (e), or (l);
    (ix) The date on which the lender determines the loan is legally 
unenforceable based on the receipt of an identity theft report under 
Sec.  682.208(b)(3); or
    (x) The date the borrower's payment under the income-based repayment 
plan is sufficient to pay the accrued interest on the borrower's loan or 
the qualifying portion of the borrower's Consolidation Loan.
    (3) Section 682.412 sets forth circumstances under which a lender 
may be required to repay interest benefits received on a loan guaranteed 
by a guaranty agency.
    (c) Interest not covered. The Secretary does not pay--
    (1) Interest for which the borrower is not otherwise liable; or
    (2) Interest paid on behalf of the borrower by a guaranty agency.
    (d) Rate. (1) Except as provided in paragraph (d)(2) of this 
section, the Secretary pays the lender at the actual interest rate on a 
loan provided that the actual interest rate does not exceed the 
applicable interest rate.
    (2) For a loan disbursed prior to December 15, 1968, or subject to a 
binding commitment made prior to that date, the Secretary pays an amount 
during the repayment period equivalent to 3 percent per year of the 
unpaid principal amount of the loan.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33352, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58959, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 71 FR 
45703, Aug. 9, 2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23, 
2008; 78 FR 65813, Nov. 1, 2013]



Sec.  682.301  Eligibility of borrowers for interest benefits on
Stafford and Consolidation loans.

    (a) General. (1) To qualify for benefits on a Stafford loan, a 
borrower must demonstrate financial need in accordance with Part F of 
the Act.
    (2) A Consolidation loan borrower qualifies for interest benefits 
during authorized periods of deferment on the portion of the loan that 
does not represent HEAL loans if the loan application was received by 
the lender--
    (i) On or after January 1, 1993 but prior to August 10, 1993;
    (ii) On or after August 10, 1993, but prior to November 13, 1997 if 
the loan consolidates only subsidized Stafford loans; and
    (iii) On or after November 13, 1997, for the portion of the loan 
that repaid subsidized FFEL loans and Direct Subsidized Loans.
    (b) Application for interest benefits. To apply for interest 
benefits on a Stafford loan, the student, or the school at the direction 
of the student, must submit a statement to the lender pursuant to Sec.  
682.603. The student must qualify for interest benefits if the eligible 
institution has determined and documented the student's amount of need

[[Page 106]]

for a loan based on the student's estimated cost of attendance, 
estimated financial assistance, and expected family contribution as 
determined under part F of the Act.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33352, June 28, 1994; 64 FR 18978, Apr. 16, 1999; 64 FR 58959, Nov. 
1, 1999; 78 FR 65813, Nov. 1, 2013; 85 FR 49821, Aug. 14, 2020]



Sec.  682.302  Payment of special allowance on FFEL loans.

    (a) General. The Secretary pays a special allowance to a lender on 
an eligible FFEL loan. The special allowance is a percentage of the 
average unpaid principal balance of a loan, including capitalized 
interest computed in accordance with paragraphs (c) and (f) of this 
section. Special allowance is also paid on the unpaid accrued interest 
of a loan covered by Sec.  682.215(b)(7) computed in the same manner as 
in paragraphs (c) and (f), as applicable, except for this purpose the 
applicable interest rate shall be deemed to be zero.
    (b) Eligible loans. (1) Except for non-subsidized Federal Stafford 
loans disbursed on or after October 1, 1981, for periods of enrollment 
beginning prior to October 1, 1992, or as provided in paragraphs (b)(2), 
(b)(3), or (e)(1) of this section, FFEL loans that otherwise meet 
program requirements are eligible for special allowance payments.
    (2) For a loan made under the Federal SLS or Federal PLUS Program on 
or after July 1, 1987 and prior to July 1, 1994, and for any Federal 
PLUS loan made on or after July 1, 1998 or on or after January 1, 2000 
for any period prior to April 1, 2006, or under Sec.  682.209(e) or (f), 
no special allowance is paid for any period for which the interest rate 
calculated prior to applying the interest rate maximum for that loan 
does not exceed--
    (i) 12 percent in the case of a Federal SLS or PLUS loan made prior 
to October 1, 1992;
    (ii) 11 percent in the case of a Federal SLS loan made on or after 
October 1, 1992;
    (iii) 10 percent in the case of a Federal PLUS loan made on or after 
October 1, 1992; or
    (iv) 9 percent in the case of a Federal PLUS loan made on or after 
July 1, 1998.
    (3) In the case of a subsidized Stafford loan disbursed on or after 
October 1, 1992 and prior to July 1, 2010, the Secretary does not pay 
special allowance on a disbursement if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
restricted account maintained by the school before that date.
    (c) Rate. (1) Except as provided in paragraph (c)(2), (c)(3), or (e) 
of this section, the special allowance rate for an eligible loan during 
a 3-month period is calculated by--
    (i) Determining the average of the bond equivalent rates of--
    (A) The quotes of the 3-month commercial paper (financial) rates in 
effect for each of the days in such quarter as reported by the Federal 
Reserve in Publication H-15 (or its successor) for such 3-month period 
for a loan for which the first disbursement is made on or after January 
1, 2000; or
    (B) The 91-day Treasury bills auctioned during the 3-month period 
for a loan for which the first disbursement is made prior to January 1, 
2000;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A)(1) 2.34 percent to the resulting percentage for a Federal 
Stafford loan for which the first disbursement is made on or after 
January 1, 2000;
    (2) 2.64 percent to the resulting percentage for a Federal PLUS loan 
for which the first disbursement is made on or after January 1, 2000;
    (3) 2.64 percent to the resulting percentage for a Federal 
Consolidation

[[Page 107]]

Loan that was made based on an application received by the lender on or 
after January 1, 2000;
    (4) 1.74 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after January 1, 
2000 during the borrower's in-school, grace, and authorized period of 
deferment;
    (5) 2.8 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1998 
and prior to January 1, 2000;
    (6) 2.2 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1998 
and prior to January 1, 2000, during the borrower's in-school, grace, 
and authorized period of deferment;
    (7) 2.5 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1995 
and prior to July 1, 1998 for interest that accrues during the 
borrower's in-school, grace, and authorized period of deferment;
    (B) 3.1 percent to the resulting percentage for--
    (1) A Federal Stafford Loan made on or after October 1, 1992 and 
prior to July 1, 1998, except as provided in paragraph (c)(1)(iii)(A)(7) 
of this section;
    (2) A Federal SLS Loan made on or after October 1, 1992;
    (3) A Federal PLUS Loan made on or after October 1, 1992 and prior 
to July 1, 1998;
    (4) A Federal PLUS Loan made on or after July 1, 1998 and prior to 
October 1, 1998, except that no special allowance shall be paid any 
quarter unless the rate determined under Sec.  682.202(a)(2)(v)(A) 
exceeds 9 percent;
    (5) A Federal PLUS loan made on or after October 1, 1998 and prior 
to January 1, 2000, except that no special allowance shall be paid 
during any quarter unless the rate determined under Sec.  
682.202(a)(2)(v)(A) exceeds 9 percent;
    (6) A Federal Consolidation Loan for which the application was 
received by the lender prior to January 1, 2000, except that no special 
allowance shall be paid during any quarter on a loan for which the 
application was received on or after October 1, 1998 unless the average 
of the bond equivalent rate of the 91-day Treasury bills auctioned 
during that quarter, plus 3.1 percent, exceeds the rate determined under 
Section 682.202(a)(4)(iv);
    (C) 3.25 percent to the resulting percentage, for a loan made on or 
after November 16, 1986, but prior to October 1, 1992;
    (D) 3.25 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but prior to November 16, 1986, for a period of 
enrollment beginning on or after November 16, 1986;
    (E) 3.5 percent to the resulting percentage, for a loan made prior 
to October 17, 1986, or a loan described in paragraph (c)(2) of this 
section; or
    (F) 3.5 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but prior to November 16, 1986, for a period of 
enrollment beginning prior to November 16, 1986;
    (iv) Rounding the result upward to the nearest one-eighth of 1 
percent, for a loan made prior to October 1, 1981; and
    (v) Dividing the resulting percentage by 4.
    (2) The special allowance rate determined under paragraph 
(c)(1)(iii)(E) of this section applies to loans made or purchased from 
funds obtained from the issuance of an obligation of the--
    (i) Maine Educational Loan Marketing Corporation to the Student Loan 
Marketing Association pursuant to an agreement entered into on January 
31, 1984; or
    (ii) South Carolina Student Loan Corporation to the South Carolina 
National Bank pursuant to an agreement entered into on July 30, 1986.
    (3)(i) Subject to paragraphs (c)(3)(iii), (c)(3)(iv), and (e) of 
this section, the special allowance rate is that provided in paragraph 
(c)(3)(ii) of this section for a loan made or guaranteed on or after 
October 1, 1980 that was made or purchased with funds obtained by the 
holder from--
    (A) The proceeds of tax-exempt obligations originally issued prior 
to October 1, 1993;
    (B) Collections or payments by a guarantor on a loan that was made 
or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;

[[Page 108]]

    (C) Interest benefits or special allowance payments on a loan that 
was made or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;
    (D) The sale of a loan that was made or purchased with funds 
obtained by the holders from obligations described in paragraph 
(c)(3)(i)(A) of this section; or
    (E) The investment of the proceeds of obligations described in 
paragraph (c)(3)(i)(A) of this section.
    (ii) The special allowance rate for a loan described in paragraph 
(c)(3)(i) is one-half of the rate calculated under paragraph (c)(1) of 
this section, except that in applying paragraph (c)(1)(iii), 3.5 percent 
is substituted for the percentages specified therein.
    (iii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made prior to October 1, 
1992, may not be less than--
    (A) 2.5 percent per year on eligible loans for which the applicable 
interest rate is 7 percent;
    (B) 1.5 percent per year on eligible loans for which the applicable 
interest rate is 8 percent; or
    (C) One-half of 1 percent per year on eligible loans for which the 
applicable rate is 9 percent.
    (iv) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made on or after October 1, 
1992, may not be less than 9.5 percent minus the applicable interest 
rate.
    (4) Loans made or purchased with funds obtained by the holder from 
the issuance of tax-exempt obligations originally issued on or after 
October 1, 1993, and loans made with funds derived from default 
reimbursement collections, interest, or other income related to eligible 
loans made or purchased with those tax-exempt funds, do not qualify for 
the minimum special allowance rate specified in paragraph (c)(3)(iii) or 
(iv) of this section, and are not subject to the 50 percent limitation 
on the maximum rate otherwise applicable to loans made with tax-exempt 
funds.
    (5) For purposes of paragraphs (c)(3) and (c)(4), a loan is 
purchased with funds described in those paragraphs when the loan is 
refinanced in consideration of those funds.
    (d) Termination of special allowance payments on a loan. (1) The 
Secretary's obligation to pay special allowance on a loan terminates on 
the earliest of--
    (i) The date a borrower's loan is repaid;
    (ii) The date a borrower's loan check is returned uncashed to the 
lender;
    (iii) The date a lender receives payment on a claim for loss on the 
loan;
    (iv) The date a loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor;
    (v) The 60th day after the borrower's default on the loan, unless 
the lender files a claim for loss on the loan with the guarantor 
together with all required documentation, on or before the 60th day;
    (vi) The 120th day after the date of disbursement, if--
    (A) The loan check has not been cashed on or before that date; or
    (B) The loan proceeds disbursed by electronic funds transfer or 
master check have not been released from the restricted account 
maintained by the school on or before that date;
    (vii) The 30th day after the date the lender received a returned 
claim from the guaranty agency on a loan submitted by the deadline 
specified in (d)(1)(v) of this section for loss on the loan to the 
lender due solely to inadequate documentation unless the lender files a 
claim for loss on the loan with the guarantor, together with all 
required documentation, prior to the 30th day; or
    (viii) The date on which the lender determines the loan is legally 
unenforceable based on the receipt of an identity theft report under 
Sec.  682.208(b)(3).
    (2) In the case of a loan disbursed on or after October 1, 1992 and 
prior to July 1, 2010, the Secretary does not pay special allowance on a 
loan if--
    (i) The disbursement check is returned uncashed to the lender or the

[[Page 109]]

lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the account 
maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
account maintained by the school before that date.
    (3) Section 682.413 sets forth the circumstances under which a 
lender may be required to repay the special allowance received on a loan 
guaranteed by a guaranty agency.
    (e) Limits on special allowance payments on loans made or purchased 
with funds derived from tax-exempt obligations--(1) General. (i) The 
Secretary pays a special allowance on a loan described in paragraph 
(c)(3) or (c)(4) of this section that is held by or on behalf of an 
Authority only if the loan meets the requirements of section 438(e) of 
the Act.
    (ii) The Secretary pays a special allowance at the rate prescribed 
in paragraph (c)(1) or (c)(3) of this section on a loan described in 
paragraph (c)(3)(i) of this section that is held by or on behalf of an 
Authority in accordance with paragraphs (e)(2) through (e)(5) of this 
section, as applicable. References to ``loan'' or ``loans'' in 
paragraphs (e)(2) through (e)(5) include only loans described in 
paragraph (c)(3)(i).
    (2) Effect of Refinancing on Special Allowance Payments. Except as 
provided in paragraphs (e)(3) through (e)(5) of this section--
    (i) The Secretary pays a special allowance at the rate prescribed in 
paragraph (c)(3) of this section to an Authority that holds a legal or 
equitable interest in the loan that is pledged or otherwise transferred 
in consideration of--
    (A) Funds listed in paragraph (c)(3)(i) of this section;
    (B) Proceeds of a tax-exempt refunding obligation that refinances a 
debt that--
    (1) Was first incurred pursuant to a tax-exempt obligation 
originally issued prior to October 1, 1993;
    (2) Has been financed continuously by tax-exempt obligation.
    (ii) The Secretary pays a special allowance to an Authority that 
holds a legal or equitable interest in the loan that is pledged or 
otherwise transferred in consideration of funds other than those 
specified in paragraph (e)(2)(i) of this section either--
    (A) At the rate prescribed in paragraph (c)(1) of this section, if--
    (1) The prior tax-exempt obligation is retired; or
    (2) The prior tax-exempt obligation is defeased by means of 
obligations that the Authority certifies in writing to the Secretary 
bears a yield that does not exceed the yield restrictions of section 148 
of the Internal Revenue Code and the regulations thereunder, or
    (B) At the rate prescribed in paragraph (c)(3) of this section.
    (3) Loans affected by transactions or events after September 30, 
2004. The Secretary pays a special allowance to an Authority at the rate 
prescribed in paragraph (c)(1) of this section if, after September 30, 
2004--
    (i) The loan is refinanced with funds other than those listed in 
paragraph (e)(2)(i) of this section;
    (ii) The loan is sold or transferred to any other holder; or
    (iii)(A) The loan is financed by a tax-exempt obligation included in 
the sources in paragraph (e)(2)(i), and
    (B) That obligation matures, is refunded, is defeased, or is 
retired, whichever occurs earliest.
    (4) Loans Affected by Transactions After February 7, 2006. Except as 
provided in paragraph (e)(5) or (f) of this section, the Secretary pays 
a special allowance at the rate prescribed in paragraph (c)(1) of this 
section on any loan--
    (i) That was made or purchased on or after February 8, 2006, or
    (ii) That was not earning, on February 8, 2006, a quarterly rate of 
special allowance determined under paragraph (c)(3) of this section.
    (5) Loans affected by transactions after December 30, 2010. (i) The 
Secretary pays a special allowance to a holder described in paragraph 
(e)(5)(ii) of this section at the rate prescribed in paragraph (c)(3) of 
this section only on a loan--

[[Page 110]]

    (A) That was made or purchased prior to December 31, 2010, or
    (B) That was earning, before December 31, 2010, a quarterly rate of 
special allowance determined under paragraph (c)(3) of this section.
    (ii) A holder for purposes of this paragraph is an entity that--
    (A) On February 8, 2006 and during the quarter for which special 
allowance is determined under this paragraph--
    (1) Is a unit of State or local government or a private nonprofit 
entity, and
    (2) Is not owned or controlled by, or under common ownership or 
control by, a for-profit entity; and
    (B) In the most recent quarterly special allowance payment prior to 
September 30, 2005, held, directly or through any subsidiary, affiliate, 
or trustee, a total unpaid balance of principal of $100,000,000 or less 
for which special allowance was determined and paid under paragraph 
(c)(3) of this section.
    (f) Special allowance rates for loans made on or after October 1, 
2007. With respect to any loan for which the first disbursement of 
principal is made on or after October 1, 2007, other than a loan 
described in paragraph (e)(5) of this section, the special allowance 
rate for an eligible loan made during a 3-month period is calculated 
according to the formulas described in paragraphs (f)(1) and (f)(2) of 
this section.
    (1) Except as provided in paragraph (f)(2) of this section, the 
special allowance formula shall be computed by--
    (i) Determining the average of the bond equivalent rates of the 
quotes of the 3-month commercial paper (financial) rates in effect for 
each of the days in such quarter as reported by the Federal Reserve in 
Publication H-15 (or its successor) for such 3-month period;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A) 1.79 percent to the resulting percentage for a Federal Stafford 
loan;
    (B) 1.19 percent to the resulting percentage for a Federal Stafford 
Loan during the borrower's in-school period, grace period and authorized 
period of deferment;
    (C) 1.79 percent to the resulting percentage for a Federal PLUS 
loan; and
    (D) 2.09 percent to the resulting percentage for a Federal 
Consolidation loan; and
    (iv) Dividing the resulting percentage by 4.
    (2) For loans held by an eligible not-for-profit holder as defined 
in paragraph (f)(3) of this section, the special allowance formula shall 
be computed by--
    (i) Determining the average of the bond equivalent rates of the 
quotes of the 3-month commercial paper (financial) rates in effect for 
each of the days in such quarter as reported by the Federal Reserve in 
Publication H-15 (or its successor) for such 3-month period;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A) 1.94 percent to the resulting percentage for a Federal Stafford 
loan;
    (B) 1.34 percent to the resulting percentage for a Federal Stafford 
Loan during the borrower's in-school period, grace period and authorized 
period of deferment;
    (C) 1.94 percent to the resulting percentage for a Federal PLUS 
loan; and
    (D) 2.24 percent to the resulting percentage for a Federal 
Consolidation loan; and
    (iv) Dividing the resulting percentage by 4.
    (3) Eligible Not-for-Profit Holder. (i) For purposes of this 
section, the term ``eligible not-for-profit holder'' means an eligible 
lender under section 435(d) of the Act (except an eligible institution) 
that requests special allowance payments from the Secretary and that 
is--
    (A) A State, or a political subdivision, authority, agency, or other 
instrumentality thereof, including such entities that are eligible to 
issue bonds described in 26 CFR 1.103-1, or section 144(b) of the 
Internal Revenue Code of 1986;
    (B) An entity described in section 150(d)(2) of the Internal Revenue 
Code of 1986 that has not made the election described in section 
150(d)(3) of that Code;
    (C) An entity described in section 501(c)(3) of the Internal Revenue 
Code of 1986; or
    (D) A trustee acting as an eligible lender on behalf of an entity 
that is

[[Page 111]]

not an eligible institution and that is a State or non-profit entity or 
a special purpose entity for a State or non-profit entity.
    (ii) For purposes of paragraph (f)(3) of this section--
    (A) The term ``State or non-profit entity'' means an entity 
described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or (f)(3)(i)(C) of 
this section, regardless of whether such entity is an eligible lender 
under section 435(d) of that Act.
    (B) The term ``special purpose entity'' means an entity established 
for the limited purpose of financing the acquisition of loans from or at 
the direction of a State or non-profit entity, or servicing and 
collecting such loans, and that is--
    (1) An entity established by such State or non-profit entity, or
    (2) An entity established by an entity described in paragraph 
(f)(3)(ii)(B)(1) of this section.
    (C) A special purpose entity is a ``related special purpose entity'' 
with respect to a State or non-profit entity if it holds any interest in 
loans acquired from or at the direction of that State or non-profit 
entity or from a special purpose entity established by that State or 
non-profit entity.
    (iii) An entity that otherwise qualifies under paragraph (f)(3)(i) 
of this section shall not be considered an eligible not-for-profit 
holder unless such entity--
    (A) Was a State or non-profit entity and an eligible lender under 
section 435(d) of the Act, other than a school lender, and on or before 
September 27, 2007 had made or acquired a FFEL loan, unless the State 
waives this requirement under paragraph (f)(3)(iv) of this section; or
    (B) Is acting as an eligible lender trustee on behalf of a State or 
non-profit entity that was the sole beneficial owner of a loan eligible 
for a special allowance payment on September 27, 2007.
    (iv) Subject to the provisions of section 435(d)(1)(D) of the Act, a 
State may waive the requirement of paragraph (f)(3)(iii)(A) of this 
section to identify a new eligible not-for-profit holder pursuant to a 
written application filed in accordance with paragraph (f)(3)(x) of this 
section, for the purposes of carrying out a public purpose of the State, 
except that a State may not designate a trustee for this purpose.
    (v) A State or non-profit entity, and a trustee to the extent acting 
on behalf of such an entity or its related special purpose entity, shall 
not be an eligible not-for-profit holder if the State or non-profit 
entity or its related special purpose entity is owned or controlled, in 
whole or in part, by a for-profit entity. For purposes of this 
paragraph, a for-profit entity has ownership and control of a State or 
non-profit entity, or its related special purpose entity, if--
    (A) The for-profit entity is a member or shareholder of a State or 
non-profit entity or related special purpose entity that is a membership 
or stock corporation, and the for-profit entity has sufficient power to 
control the State or non-profit entity or its special purpose entity;
    (B) The for-profit-entity employs or appoints individuals that 
together constitute a majority of the State, non-profit, or special 
purpose entity's board of trustees or directors, or a majority of such 
board's audit committee, executive committee, or compensation committee; 
or
    (C) For a State, non-profit, or special purpose entity that has no 
board of trustees or directors and associated committees of such, the 
for-profit entity is authorized by law, agreement, or otherwise to 
approve decisions by the entity regarding its audits, investments, 
hiring, retention, or compensation of officials, unless the Secretary 
determines that the particular authority to approve such decisions is 
not likely to affect the integrity of those decisions.
    (vi) For purposes of paragraph (f)(3) of this section--
    (A) A for-profit entity has sufficient power to control a State or 
non-profit entity or its related special purpose entity, if it possesses 
directly, or represents, either alone or together with other persons, 
under a voting trust, power of attorney, proxy, or similar agreement, 
one or more persons who hold, individually or in combination with the 
other person represented or

[[Page 112]]

the persons representing them, a sufficient voting percentage of the 
membership interests or voting securities to direct or cause the 
direction of the management and policies of the State or non-profit 
entity or its related special purpose entity.
    (B) An individual is deemed to be employed or appointed by a for-
profit entity if the for-profit entity employs a family member, as 
defined in Sec.  600.21(f), of that individual, unless the Secretary 
determines that the particular nature of the family member's employment 
is not likely to affect the integrity of decisions made by the board or 
committee member.
    (C) ``Beneficial owner'' (including ``beneficial ownership'' and 
``owner of a beneficial interest'') means the entity that has those 
rights with respect to the loan or income from the loan that are the 
normal incidents of ownership, including the right to receive, possess, 
use, and sell or otherwise exercise control over the loan and the income 
from the loan, subject to any rights granted and limitations imposed in 
connection with or related to the granting of a security interest 
described in paragraph (f)(3)(ix) of this section, and subject to any 
limitations on such rights under the Act as a result of such entity not 
qualifying as an eligible lender or holder under the Act.
    (D) ``Sole owner'' means the entity that has all the rights 
described in paragraph (f)(3)(vi)(C) of this section, which may be 
subject to the rights and limitations described in paragraph 
(f)(3)(vi)(C), to the exclusion of any other entity, with respect both 
to a loan and the income from a loan.
    (vii)(A) No State or non-profit entity, and no trustee to the extent 
acting on behalf of such a State or non-profit entity or its related 
special purpose entity, shall be an eligible not-for-profit holder with 
respect to any loan or income from any loan on which payment is claimed 
at the rate established under paragraph (f)(2) of this section, unless 
such State or non-profit entity or its related special purpose entity is 
the sole owner of the beneficial interest in such loan and the income 
from such loan.
    (B) A State or non-profit entity that had sole ownership of the 
beneficial interest in a loan and the income from such loan is 
considered to retain that sole ownership for purposes of paragraph 
(f)(3)(vii)(A) of this section if such entity transferred beneficial 
interest in the loan to its related special purpose entity and no party 
other than that State or non-profit entity or its related special 
purpose entity owns any beneficial interest or residual ownership 
interest in the loan or income from the loan.
    (viii)(A) A trustee described in paragraph (f)(3)(i)(D) of this 
section shall not receive compensation as consideration for acting as an 
eligible lender on behalf of a State or non-profit entity or its related 
special purpose entity in excess of reasonable and customary fees paid 
for providing the particular service or services that the trustee 
undertakes to provide to such entity.
    (B) Fees are reasonable and customary for purposes of paragraph 
(f)(3)(viii) of this section, if they do not exceed the amounts received 
by the trustee for similar services with regard to similar portfolios of 
loans of that State or non-profit entity or its related special purpose 
entity that are not eligible to receive special allowance at the rate 
established under paragraph (f)(2) of this section, or if they do not 
exceed an amount as determined by such other method requested by the 
State or non-profit entity that the Secretary considers reliable.
    (C) Loans owned by the State or non-profit entity or a related 
special purpose entity for which the trustee receives fees in excess of 
the amount permitted by paragraph (f)(3)(viii) of this section cease to 
qualify for a special allowance payment at the rate prescribed under 
paragraph (f)(2) of this section.
    (ix) For purposes of paragraph (f)(3) of this section, if a State or 
non-profit entity, its related special purpose entity, or a trustee 
acting on behalf of any of these entities, grants a security interest 
in, or otherwise pledges as collateral, a loan, or the income from a 
loan, to secure a debt obligation for which such State or non-profit 
entity, or its related special purpose entity, is the issuer of that 
debt obligation, none of these entities shall, by such action--

[[Page 113]]

    (A) Be deemed to be owned or controlled, in whole or in part, by a 
for-profit entity; or
    (B) Lose its status as the sole owner of a beneficial interest in a 
loan and the income from a loan.
    (x) Not-for-Profit Holder Eligibility Determination. A State or non-
profit entity that seeks to qualify as an eligible not-for-profit 
holder, either in its own right or through a trust agreement with an 
eligible lender trustee, must provide to the Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer (CEO) 
which--
    (1) States the basis upon which the entity qualifies as a State or 
non-profit entity;
    (2) Includes documentation establishing its status as a State or 
non-profit entity;
    (3) Includes the name and lender identification number(s) of the 
entities for which designation is being certified;
    (4) Includes the name of any related special purpose entities that 
hold any interest in any loan on which special allowance is claimed 
under paragraph (f)(2)of this section, describes the role of such entity 
with respect to the loans, and provides with respect to that entity the 
certifications and documentation described in paragraph (f)(3)(x)(A) and 
(B) of this section; and
    (5) For an entity establishing status under section 150(d) of the 
Internal Revenue Code of 1986, includes copies of the requests of the 
State or political subdivision or subdivisions thereof or requirements 
described in section 150(d)(2) of the Internal Revenue Code and the 
CEO's additional certification that the entity has not elected under 
section 150(d)(3) of the Internal Revenue Code to cease its status as a 
qualified scholarship funding corporation.
    (B) A separately submitted certification or opinion by the State or 
non-profit entity's external legal counsel or the office of the attorney 
general of the State, with supporting documentation that shows that the 
State or non-profit entity--
    (1) Is constituted a State entity by operation of specific State 
law;
    (2) Has been designated by the State or one or more political 
subdivisions of the State to serve as a qualified scholarship funding 
corporation under section 150(d) of the Internal Revenue Code, has not 
made the election described under section 150(d)(3) of the Internal 
Revenue Code, and is incorporated under State law as a not-for-profit 
organization;
    (3) Is incorporated under State law as a not-for-profit organization 
or is an entity described in section 501(c)(3) of the Internal Revenue 
Code; or
    (4) Has in effect a relationship with an eligible lender under which 
the lender is acting as trustee on behalf of the State or non-profit 
entity.
    (xi) Annual Certification by Eligible Not-for-Profit Holder. A State 
or non-profit entity that seeks to retain its eligibility as an eligible 
not-for-profit holder, either in its own right or through a trust 
agreement with an eligible lender trustee, must annually provide to the 
Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer (CEO) 
which--
    (1) Includes the name and lender identification number(s) of the 
entities for which designation is being recertified;
    (2) States that the State or non-profit entity has not altered its 
status as a State or non-profit entity since its prior certification to 
the Secretary, or, if it has altered its status, describes any such 
alterations; and
    (3) States that the State or non-profit entity continues to satisfy 
the requirements of an eligible not-for-profit holder, either in its own 
right or through a trust agreement with an eligible lender trustee; and
    (B) A copy of its IRS Form 990, if applicable, and that of any 
related special purpose entity that holds an interest in loans on which 
it seeks to claim special allowance at the rate provided under paragraph 
(f)(2) of this section, at the same time these returns are filed with 
the Internal Revenue Service.
    (xii) Not-for-Profit Holder Change of Status. Within 10 business 
days of becoming aware of the occurrence of a change that may result in 
a State or

[[Page 114]]

non-profit entity that has been designated an eligible not-for-profit 
holder, either directly or through an eligible lender trustee, losing 
that eligibility, the State or non-profit entity must--
    (A) Submit details of the change to the Secretary; and
    (B) Cease billing for special allowance at the rate established 
under paragraph (f)(2) of this section for the period from the date of 
the change that may result in it no longer being eligible for the rate 
established under paragraph (f)(2) of this section to the date of the 
Secretary's determination that such entity has not lost its eligibility 
as a result of such change; provided, however, that in the quarter 
following the Secretary's determination that such eligible not-for-
profit holder has not lost its eligibility, the eligible not-for-profit 
holder may submit a billing for special allowance during the period from 
the date of the change to the date of the Secretary's determination 
equal to the difference between special allowance at the rate 
established under paragraph (f)(2) of this section and the amount it 
actually billed at the rate established under paragraph (f)(1) of this 
section.
    (xiii) In the case of a loan for which the special allowance payment 
is calculated under paragraph (f)(2) of this section and that is sold by 
the eligible not-for-profit holder holding the loan to an entity that is 
not an eligible not-for-profit holder, the special allowance payment for 
such loan shall, beginning on the date of the sale, no longer be 
calculated under paragraph (f)(2) and shall be calculated under 
paragraph (f)(1) of this section instead.
    (4) In the case of a loan for which the special allowance payment is 
calculated under paragraph (f)(2) of this section and that is sold by 
the eligible not-for-profit holder holding the loan to an entity that is 
not an eligible not-for-profit holder, the special allowance payment for 
such loan shall, beginning on the date of the sale, no longer be 
calculated under paragraph (f)(2) and shall be calculated under 
paragraph (f)(1) of this section instead.
    (g) For purposes of this section--
    (1) A tax-exempt obligation is an obligation the income of which is 
exempt from taxation under the Internal Revenue Code of 1986 (26 
U.S.C.);
    (2) The date on which an obligation is considered to be ``originally 
issued'' is determined under Sec.  682.302(f)(2)(i) or (ii), as 
applicable.
    (i) An obligation issued to obtain funds to make loans, or to 
purchase a legal or equitable interest in loans, including by pledge as 
collateral for that obligation, is considered to be originally issued on 
the date issued.
    (ii) A tax-exempt obligation that refunds, or is one of a series of 
tax-exempt refundings with respect to a tax-exempt obligation described 
in Sec.  682.302(f)(2)(i), is considered to be originally issued on the 
date on which the obligation described in Sec.  682.302(f)(2)(i) was 
issued.
    (3) A loan is refinanced when an Authority that has pledged the loan 
as collateral for an obligation of that Authority retains an interest in 
the loan, but causes the loan to be released from the lien of that 
obligation and pledged as collateral for a different obligation of that 
Authority.
    (4) References to an Authority include a successor entity that may 
not qualify as an Authority under Sec.  682.200(b).
    (h) Calculation of special allowance payments for loans subject to 
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For 
FFEL Program loans first disbursed on or after July 1, 2008 that are 
subject to the interest rate limit under the Servicemembers Civil Relief 
Act, special allowance is calculated in accordance with paragraphs (c) 
and (f) of this section, except the applicable interest rate for this 
purpose shall be 6 percent.

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58626, Oct. 29, 1999; 66 FR 34763, June 29, 2001; 68 FR 
75429, Dec. 31, 2003; 71 FR 45703, Aug. 9, 2006; 71 FR 64398, Nov. 1, 
2006; 72 FR 62002, Nov. 1, 2007; 73 FR 63252, Oct. 23, 2008; 74 FR 
55996, Oct. 29, 2009; 78 FR 65813, Nov. 1, 2013]

[[Page 115]]



Sec.  682.303  [Reserved]



Sec.  682.304  Methods for computing interest benefits and special allowance.

    (a) General. The Secretary pays a lender interest benefits and 
special allowance on eligible loans on a quarterly basis. These calendar 
quarters end on March 31, June 30, September 30, and December 31 of each 
year. A lender may use either the average daily balance method or the 
actual accrual method to determine the amount of interest benefits 
payable on a lender's loans. A lender shall use the average daily 
balance method to determine the balance on which the Secretary computes 
the amount of special allowance payable on its loans.
    (b) Average daily balance method for interest benefits. (1) Under 
this method, the lender adds the unpaid principal balance outstanding on 
all loans qualifying for interest benefits at each actual interest rate 
for each day of the quarter, divides the sum by the number of days in 
the quarter, and rounds the result to the nearest whole dollar. The 
resulting figure is the average daily balance for qualified loans 
outstanding at each actual interest rate.
    (2) The Secretary computes the interest benefits due on all 
qualified loans at each actual interest rate by multiplying the average 
daily balance thereof by the actual interest rate, multiplying this 
result by the number of days in the quarter, and then dividing this 
result by the actual number of days in the year.
    (c) Actual accrual method for interest benefits. (1) Under this 
method, the lender computes the total unpaid principal balance 
outstanding on all qualified loans at each actual interest rate on each 
day of the quarter, multiplies this result by the actual interest rate, 
and divides this result by the actual number of days in the year, or, 
alternatively, 365.25 days. A lender who chooses to divide by 365.25 
days must do so for four consecutive years.
    (2) The interest benefits due for a quarter equal the sum of the 
daily interest benefits due, computed under paragraph (c)(1) of this 
section, for each day of the quarter.
    (d) Average daily balance method for special allowance. (1) To 
compute the average daily balance outstanding for purposes of special 
allowance, the lender adds the unpaid principal balance outstanding on 
all qualified loans at each applicable interest rate for each day of the 
quarter, divides this sum by the number of days in the quarter, and 
rounds the result to the nearest whole dollar. The resulting figure is 
the average daily balance for the quarter for qualifying loans at each 
applicable interest rate.
    (2) To compute the average daily balance of unpaid accrued interest 
for purposes of special allowance on loans covered by Sec.  
682.215(b)(7), the lender adds the unpaid accrued interest on such loans 
for each eligible day of the quarter, divides this sum by the number of 
days in the quarter, and rounds the result to the nearest whole dollar. 
The resulting figure is the average daily balance for the quarter for 
qualifying loans at the applicable interest rate.
    (3) The Secretary computes the special allowance payable to a lender 
based upon the average daily balance computed by the lender under 
paragraphs (d)(1) and (2) of this section.

(Authority: 20 U.S.C. 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 73 FR 63254, Oct. 23, 2008]



Sec.  682.305  Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.

    (a) General. (1) If a lender owes origination fees or loan fees 
under paragraph (a) of this section, it must submit quarterly reports to 
the Secretary on a form provided or prescribed by the Secretary, even if 
the lender is not owed, or does not wish to receive, interest benefits 
or special allowance from the Secretary.
    (2) The lender shall report, on the quarterly report required by 
paragraph (a)(1) of this section, the amount of origination fees it was 
authorized to collect and the amount of those fees refunded to borrowers 
during the quarter covered by the report.
    (3)(i)(A) The Secretary reduces the amount of interest benefits and 
special allowance payable to the lender by--
    (1) The amount of origination fees the lender was authorized to 
collect during the quarter under Sec.  682.202(c),

[[Page 116]]

whether or not the lender actually collected that amount; and
    (2) The amount of lender fees payable under paragraph (a)(3)(ii) of 
this section; and
    (3) The amount of excess interest, as calculated in accordance with 
paragraph (d) of this section.
    (B) The Secretary increases the amount of interest benefits and 
special allowance payable to the lender by the amount of origination 
fees refunded to borrowers during the quarter under Sec.  682.202(c).
    (ii)(A) For any FFEL loan made on or after October 1, 1993, a lender 
shall pay the Secretary a loan fee equal to 0.50% of the principal 
amount of the loan.
    (B) For any FFEL loan made on or after October 1, 2007 and prior to 
July 1, 2010, a lender shall pay the Secretary a loan fee equal to 1.0 
percent of the principal amount of the loan.
    (iii) The Secretary collects from an originating lender the amount 
of origination fees the originating lender was authorized to collect 
from borrowers during the quarter whether or not the originating lender 
actually collected those fees. The Secretary also collects the fees the 
originating lender is required to pay under paragraph (a)(3)(ii) of this 
section. Generally, the Secretary collects the fees from the originating 
lender by offsetting the amount of interest benefits and special 
allowance payable to the originating lender in a quarter, and, if 
necessary, the amount of interest benefits and special allowance payable 
in subsequent quarters may be offset until the total amount of fees has 
been recovered.
    (iv) If the full amount of the fees cannot be collected within two 
quarters by reducing interest and special allowance payable to the 
originating lender, the Secretary may collect the unpaid amount directly 
from the originating lender.
    (v) If the full amount of the fees cannot be collected within two 
quarters from the originating lender in accordance with paragraphs 
(a)(3)(iii) and (iv) of this section and if the originating lender has 
transferred the loan to a subsequent holder, the Secretary may, 
following written notice, collect the unpaid amount from the holder by 
using the same steps described in paragraphs (a)(3)(iii) and (iv) of 
this section, with the term ``holder'' substituting for the term 
``originating lender''.
    (4) If an originating lender sells or otherwise transfers a loan to 
a new holder, the originating lender remains liable to the Secretary for 
payment of the origination fees. The Secretary will not pay interest 
benefits or special allowance to the new holder or pay reinsurance to 
the guaranty agency until the origination fees are paid to the 
Secretary.
    (b) Penalty interest. (1)(i) If the Secretary does not pay interest 
benefits or the special allowance within 30 days after the Secretary 
receives an accurate, timely, and complete request for payment from a 
lender, the Secretary pays the lender penalty interest.
    (ii) The payment of interest benefits or special allowance is deemed 
to occur, for purposes of this paragraph, when the Secretary--
    (A) Authorizes the Treasury Department to pay the lender;
    (B) Credits the payment due the lender against a debt that the 
Secretary determines is owed the Secretary by the lender; or
    (C) Authorizes the Treasury Department to pay the amount due by the 
lender to another Federal agency for credit against a debt that the 
Federal agency has determined the lender owes.
    (2) Penalty interest is an amount that accrues daily on interest 
benefits and special allowance due to the lender. The penalty interest 
is computed by--
    (i) Multiplying the daily interest rate applicable to loans on which 
payment for interest benefits was requested, by the amount of interest 
benefits due on those loans for each interest rate;
    (ii) Multiplying the daily special allowance rate applicable to 
loans on which special allowance was requested by the amount of special 
allowance due on those loans for each interest rate and special 
allowance category;
    (iii) Adding the results of paragraphs (b)(2)(i) and (ii) of this 
section to determine the gross penalty interest to be paid for each day 
that penalty interest is due;
    (iv) Dividing the results of paragraph (b)(2)(iii) of this section 
by the gross

[[Page 117]]

amount of interest benefits and special allowance due to obtain the 
average penalty interest rate;
    (v) Multiplying the rate obtained in paragraph (b)(2)(iv) of this 
section by the total amount of reduction to gross interest benefits and 
special allowance due (e.g., origination fees or other debts owed to the 
Federal Government);
    (vi) Subtracting the amount calculated in paragraph (b)(2)(v) of 
this section from the amount calculated under paragraph (b)(2)(iii) of 
this section to obtain the net amount of penalty interest due per day; 
and
    (vii) Multiplying the amount calculated in paragraph (b)(2)(vi) of 
this section by the number of days calculated under paragraph (b)(3) of 
this section.
    (3) The Secretary pays penalty interest for the period--
    (i) Beginning on the later of--
    (A) The 31st day after the final day of the quarter covered by the 
request for payment; or
    (B) The 31st day after the Secretary's receipt of an accurate, 
timely, and complete request for payment from the lender; and
    (ii) Ending on the day the Secretary pays the interest benefits and 
the special allowance at issue, in accordance with paragraph (b)(1)(ii) 
of this section.
    (4) A request for interest benefits and special allowance is 
considered timely only if it is received by the Secretary within 90 days 
following the end of the quarter to which the request pertains.
    (5) A request for interest benefits and special allowance is not 
considered accurate and complete if it--
    (i) Requests payments to which the lender is not entitled under 
Sec. Sec.  682.300 through 682.302;
    (ii) Includes loans that the Secretary, in writing, has directed 
that the lender exclude from the request;
    (iii) Does not contain all information required by the Secretary or 
contains conflicting information; or
    (iv) Is not provided and certified on the form and in the manner 
prescribed by the Secretary.
    (c) Independent audits. (1)(i) A lender holding more than $5 million 
in FFEL loans during its fiscal year must submit an independent annual 
compliance audit for that year, conducted by a qualified independent 
organization or person.
    (ii) The Secretary may, following written notice, suspend the 
payment of interest benefits and special allowance to a lender that does 
not submit its audit within the time period prescribed in paragraph 
(c)(2) of this section.
    (2) The audit required under paragraph (c)(1) of this section must--
    (i) Examine the lender's compliance with the Act and applicable 
regulations;
    (ii) Examine the lender's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Government Auditing Standards. Procedures for audits are contained in an 
audit guide developed by and available from the Office of the Inspector 
General of the Department;
    (iv) Be conducted at least annually and be submitted to the 
Secretary within six months of the end of the audit period. The initial 
audit must be of the lender's first fiscal year that begins after July 
23, 1992, and must be submitted within six months of the end of the 
audit period. Each subsequent audit must cover the lender's activities 
for the period beginning no later than the end of the period covered by 
the preceding audit; and
    (v) A lender must conduct the audit required by this paragraph in 
accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart F--Audit 
Requirements.\1\
---------------------------------------------------------------------------

    \1\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------

    (3) The Secretary may determine that a lender has met the 
requirements of paragraph (c) of this section if the lender has been 
audited in accordance with 31 U.S.C. 7502 for other purposes, the lender 
submits the results of the audit to the Office of Inspector General, and 
the Secretary determines that the audit meets the requirements of this 
paragraph.
    (d) Recovery of excess interest paid by the Secretary. (1) For any 
loan for which

[[Page 118]]

the first disbursement of principal is made on or after April 1, 2006, 
the Secretary collects the amount of excess interest paid to a lender on 
a quarterly basis when the applicable interest rate on a loan for each 
quarter exceeds the special allowance support level in paragraph (d)(2) 
of this section for the loan. Excess interest is calculated and 
recovered each quarter by subtracting the special allowance support 
level from the applicable interest rate, multiplying the result by the 
average daily principal balance of the loan (not including unearned 
interest added to principal) during the quarter, and dividing by four.
    (2) The term special allowance support level means a number 
expressed as a percentage equal to the sum of--
    (i) The average of the bond equivalent rates of the quotes of the 3-
month commercial paper (financial) rates in effect for each of the days 
in such quarter as reported by the Federal Reserve in Publication H-15 
(or its successor) for such 3-month period; plus
    (ii) 2.34 percent for a Federal Stafford loan in repayment;
    (iii) 1.74 percent for a Federal Stafford loan during the in-school, 
grace, and deferment periods; or
    (iv) 2.64 percent for a Federal PLUS or Consolidation Loan.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 61428, Nov. 30, 1994; 60 FR 31411, June 15, 1995; 64 FR 18978, Apr. 
16, 1999; 64 FR 58627, Oct. 29, 1999; 71 FR 45705, Aug. 9, 2006; 71 FR 
64398, Nov. 1, 2006; 72 FR 62003, Nov. 1, 2007; 74 FR 55996, Oct. 29, 
2009; 78 FR 65814, Nov. 1, 2013; 79 FR 76105, Dec. 19, 2014]



 Subpart D_Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency



Sec.  682.400  Agreements between a guaranty agency and the Secretary.

    (a) The Secretary enters into agreements with a guaranty agency 
whose loan guarantee program meets the requirements of this subpart. The 
agreements enable the guaranty agency to participate in the FFEL 
programs and to receive the various payments and benefits related to 
that participation.
    (b) There are four agreements:
    (1) Basic program agreement. In order to participate in the FFEL 
programs, a guaranty agency must have a basic program agreement. Under 
this agreement--
    (i) Borrowers whose Stafford or Consolidation loans are guaranteed 
by the agency may qualify for interest benefits that are paid to the 
lender on the borrower's behalf under Sec.  682.301; and
    (ii) Lenders under the guaranty agency program may receive special 
allowance payments from the Secretary and have death, disability, 
bankruptcy, closed school and false certification discharge claims paid 
by the Secretary through the guaranty agency.
    (2) Federal advances for claim payments agreement. A guaranty agency 
must have an agreement for Federal advances for claim payments to 
receive and use Federal advances to pay default claims.
    (3) Reinsurance agreement. A guaranty agency must have a reinsurance 
agreement to receive reimbursement from the Secretary for its losses on 
default claims.
    (4) Loan Rehabilitation Agreement. A guaranty agency must have an 
agreement for rehabilitating a loan for which the Secretary has made a 
reinsurance payment under section 428(c)(1) of the Act.
    (c) The Secretary's execution of an agreement does not indicate 
acceptance of any current or past standards or procedures used by the 
agency.
    (d) All of the agreements are subject to subsequent changes in the 
Act, in other applicable Federal statutes, and in regulations that apply 
to the FFEL programs.

(Authority: 20 U.S.C. 1072, 1078-1, 1078-2, 1078-3, 1082, 1087, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33353, June 28, 1994; 
64 FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999; 78 FR 65814, 
Nov. 1, 2013]



Sec.  682.401  Basic program agreement.

    (a) General. In order to participate in the FFEL programs, a 
guaranty agency shall enter into a basic agreement with the Secretary.

[[Page 119]]

    (b) Terms of agreement. In the basic agreement, the guaranty agency 
shall agree to ensure that its loan guarantee program meets the 
following requirements at all times:
    (1) Reinstatement of borrower eligibility. Except as provided in 
Sec.  668.35(b) for a borrower with a defaulted loan on which a judgment 
has been obtained and Sec.  668.35(i) for a borrower who fraudulently 
obtained title IV, HEA program assistance, reinstatement of Title IV 
eligibility for a borrower with a defaulted loan must be in accordance 
with this paragraph (b)(1). For a borrower's loans held by a guaranty 
agency on which a reinsurance claim has been paid by the Secretary, the 
guaranty agency must afford a defaulted borrower, upon the borrower's 
request, renewed eligibility for Title IV assistance once the borrower 
has made satisfactory repayment arrangements as that term is defined in 
Sec.  682.200.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include consideration of the borrower's and spouse's disposable 
income and necessary expenses including, but not limited to, housing, 
utilities, food, medical costs, dependent care costs, work-related 
expenses and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination, if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater.
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not limited to--
    (1) Evidence of current income (e.g. proof of welfare benefits, 
Social Security benefits, Supplemental Security Income, Workers' 
Compensation, child support, veterans' benefits, two most recent pay 
stubs, most recent copy of U.S. income tax return, State Department of 
Labor reports);
    (2) Evidence of current expenses (e.g. a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
upon providing the documentation specified in paragraph (b)(4)(i)(C) of 
this section.
    (iii) A guaranty agency must provide the borrower with a written 
statement of the reasonable and affordable payment amount required for 
the reinstatement of the borrower's eligibility for Title IV student 
assistance, and provide the borrower with an opportunity to object to 
those terms.
    (iv) A guaranty agency must provide the borrower with written 
information regarding the possibility of loan rehabilitation if the 
borrower makes three additional reasonable and affordable monthly 
payments after making payments to regain eligibility for Title IV 
assistance and the consequences of loan rehabilitation.
    (v) A guaranty agency must inform the borrower that he or she may 
only obtain reinstatement of borrower eligibility under this section 
once.
    (2) Lender eligibility. (i) An eligible lender may participate in 
the program of the agency under reasonable criteria established by the 
guaranty agency except to the extent that--
    (A) The lender's eligibility has been limited, suspended, or 
terminated by the Secretary under subpart G of this part or by the 
agency under standards and procedures that are substantially the same as 
those in subpart G of this part; or
    (B) The lender is disqualified by the Secretary under sections 
432(h)(1), 432(h)(2), 435(d)(3), or 435(d)(5) of the Act or Sec.  
682.712; or
    (C) There is a State constitutional prohibition affecting the 
lender's eligibility.
    (ii) The agency may not guarantee a loan made by a school lender 
that is not located in the geographical area that the agency serves.
    (iii) The guaranty agency may refuse to guarantee loans made by a 
school on

[[Page 120]]

behalf of students not attending that school.
    (iv) The guaranty agency may, in determining whether to enter into a 
guarantee agreement with a lender, consider whether the lender has had 
prior experience in a similar Federal, State, or private nonprofit 
student loan program and the amount and percentage of loans that are 
currently delinquent or in default under that program.
    (3) Insurance premiums and Federal default fees. (i) Except for a 
Consolidation Loan or refinanced SLS or PLUS loans, a guaranty agency:
    (A) May charge the lender an insurance premium for Stafford, SLS, or 
PLUS loans it guarantees prior to July 1, 2006; and
    (B) Must collect, either from the lender or by payment from any 
other non-Federal source, a Federal default fee for any Stafford or PLUS 
loans it guarantees on or after July 1, 2006, to be deposited into the 
Federal Fund under Sec.  682.419.
    (ii) The guaranty agency may not use the Federal default fee for 
incentive payments to lenders, and may only use the insurance premium or 
the Federal default fee for costs incurred in guaranteeing loans or in 
the administration of the agency's loan guarantee program, as specified 
in Sec.  682.410(a)(2) or Sec.  682.419(c).
    (iii) If a lender charges the borrower an insurance premium or 
Federal default fee, the lender must deduct the charge proportionately 
from each disbursement of the borrower's loan proceeds.
    (iv) The amount of the insurance premium or Federal default fee, as 
applicable--
    (A) May not exceed 3 percent of the principal balance for a loan 
disbursed on or before June 30, 1994;
    (B) May not exceed 1 percent of the principal balance for a loan 
disbursed on or after July 1, 1994;
    (C) Shall be 1 percent of the principal balance of a loan guaranteed 
on or after July 1, 2006 and prior to July 1, 2010.
    (v) If the circumstances specified in paragraph (vi) exist, the 
guaranty agency shall refund to the lender any insurance premium or 
Federal default fee paid by the lender.
    (vi) The lender shall refund to the borrower by a credit against the 
borrower's loan balance the insurance premium or Federal default fee 
paid by the borrower on a loan under the following circumstances:
    (A) The insurance premium or Federal default fee attributable to 
each disbursement of a loan must be refunded if the loan check is 
returned uncashed to the lender.
    (B) The insurance premium or Federal default fee, or an appropriate 
prorated amount of the premium or fee, must be refunded by application 
to the borrower's loan balance if--
    (1) The loan or a portion of the loan is returned by the school to 
the lender in order to comply with the Act or with applicable 
regulations;
    (2) Within 120 days of disbursement, the loan or a portion of the 
loan is repaid or returned, unless--
    (i) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (ii) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec.  682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (3) Within 120 days of disbursement, the loan check has not been 
negotiated; or
    (4) Within 120 days of disbursement, the loan proceeds disbursed by 
electronic funds transfer or master check have not been released from 
the restricted account maintained by the school.
    (4) Inquiries. The agency must be able to receive and respond to 
written, electronic, and telephone inquiries.
    (5) Guaranty liability. The guaranty agency shall guarantee--
    (i) 100 percent of the unpaid principal balance of each loan 
guaranteed for loans disbursed before October 1, 1993;
    (ii) Not more than 98 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on

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or after October 1, 1993 and before July 1, 2006; and
    (iii) Not more than 97 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after July 1, 2006.
    (6) Guaranty agency verification of default data. A guaranty agency 
must meet the requirements and deadlines provided for it in subpart M 
and N of 34 CFR part 668 for the cohort default rate process.
    (7) Guaranty agency administration. In the case of a State loan 
guarantee program administered by a State government, the program must 
be administered by a single State agency, or by one or more private 
nonprofit institutions or organizations under the supervision of a 
single State agency. For this purpose, ``supervision'' includes, but is 
not limited to, setting policies and procedures, and having full 
responsibility for the operation of the program.
    (8) Loan assignment. (i) Except as provided in paragraph (b)(8)(iii) 
of this section, the guaranty agency must allow a loan to be assigned 
only if the loan is fully disbursed and is assigned to--
    (A) An eligible lender;
    (B) A guaranty agency, in the case of a borrower's default, death, 
total and permanent disability, or filing of a bankruptcy petition, or 
for other circumstances approved by the Secretary, such as a loan made 
for attendance at a school that closed or a false certification claim;
    (C) An educational institution, whether or not it is an eligible 
lender, in connection with the institution's repayment to the agency or 
to the Secretary of a guarantee or a reinsurance claim payment made on a 
loan that was ineligible for the payment;
    (D) A Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender; or
    (E) The Secretary.
    (ii) For the purpose of this paragraph, ``assigned'' means any kind 
of transfer of an interest in the loan, including a pledge of such an 
interest as security.
    (iii) The guaranty agency must allow a loan to be assigned under 
paragraph (b)(8)(i) of this section, following the first disbursement of 
the loan if the assignment does not result in a change in the identity 
of the party to whom payments must be made.
    (9) Transfer of guarantees. Except in the case of a transfer of 
guarantee requested by a borrower seeking a transfer to secure a single 
guarantor, the guaranty agency may transfer its guarantee obligation on 
a loan to another guaranty agency, only with the approval of the 
Secretary, the transferee agency, and the holder of the loan.
    (10) Standards and procedures. (i) The guaranty agency shall 
establish, disseminate to concerned parties, and enforce standards and 
procedures for--
    (A) Ensuring that all lenders in its program meet the definition of 
``eligible lender'' in section 435(d) of the Act and have a written 
lender agreement with the agency;
    (B) Lender participation in its program;
    (C) Limitation, suspension, termination of lender participation;
    (D) Emergency action against a participating lender;
    (E) The exercise of due diligence by lenders in making, servicing, 
and collecting loans; and
    (F) The timely filing by lenders of default, death, disability, 
bankruptcy, closed school, false certification unpaid refunds, identity 
theft, and ineligible loan claims.
    (ii) The guaranty agency shall ensure that its program and all 
participants in its program at all times meet the requirements of 
subparts B, C, D, and F of this part.
    (11) Monitoring student enrollment. The guaranty agency shall 
monitor the enrollment status of a FFEL program borrower or student on 
whose behalf a parent has borrowed that includes, at a minimum, 
reporting to the current holder of the loan within 35 days of any change 
in the student's enrollment status reported that triggers--
    (i) The beginning of the borrower's grace period; or
    (ii) The beginning or resumption of the borrower's immediate 
obligation to make scheduled payments.
    (12) Submission of interest and special allowance information. Upon 
the Secretary's request, the guaranty agency

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shall submit, or require its lenders to submit, information that the 
Secretary deems necessary for determining the amount of interest 
benefits and special allowance payable on the agency's guaranteed loans.
    (13) Submission of information for reports. The guaranty agency 
shall require lenders to submit to the agency the information necessary 
for the agency to complete the reports required by Sec.  682.414(b).
    (14) Guaranty agency transfer of information. (i) A guaranty agency 
from which another guaranty agency requests information regarding 
Stafford and SLS loans made after January 1, 1987, to students who are 
residents of the State for which the requesting agency is the principal 
guaranty agency shall provide--
    (A) The name and social security number of the student; and
    (B) The annual loan amount and the cumulative amount borrowed by the 
student in loans under the Stafford and SLS programs guaranteed by the 
responding agency.
    (ii) The reasonable costs incurred by an agency in fulfilling a 
request for information made under paragraph (b)(14)(i) of this section 
must be paid by the guaranty agency making the request.
    (15) Information on defaults. The guaranty agency shall, upon the 
request of a school, furnish information with respect to students, 
including the names and addresses of such students, who were enrolled at 
that school and who are in default on the repayment of any loan 
guaranteed by that agency.
    (16) Information on loan sales or transfers. The guaranty agency 
must, upon the request of a school, furnish to the school last attended 
by the student, information with respect to the sale or transfer of a 
borrower's loan prior to the beginning of the repayment period, 
including--
    (i) Notice of assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party by which contact may be made 
with the holder concerning repayment of the loan; and
    (iv) The telephone number of the assignee or, if the assignee uses a 
lender servicer, another appropriate number for borrower inquiries.
    (17) Third-party servicers. The guaranty agency may not enter into a 
contract with a third-party servicer that the Secretary has determined 
does not meet the financial and compliance standards under Sec.  
682.416. The guaranty agency shall provide the Secretary with the name 
and address of any third-party servicer with which the agency enters 
into a contract and, upon request by the Secretary, a copy of that 
contract.
    (18) Consolidation of defaulted FFEL loans. (i) A guaranty agency 
may charge collection costs in an amount not to exceed 18.5 percent of 
the outstanding principal and interest on a defaulted FFEL Program loan 
that is paid off by a Direct Consolidation loan.
    (ii) On or after October 1, 2006, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan, a guaranty agency 
that charged the borrower collection costs must remit an amount that 
equals the lesser of the actual collection costs charged or 8.5 percent 
of the outstanding principal and interest of the loan.
    (iii) On or after October 1, 2009, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan that is paid off 
with excess consolidation proceeds as defined in paragraph (b)(18)(iv) 
of this section, a guaranty agency must remit the entire amount of 
collection costs repaid through the consolidation loan.
    (iv) The term excess consolidation proceeds means, for any Federal 
fiscal year beginning on or after October 1, 2009, the amount of 
Consolidation Loan proceeds received for defaulted loans under the FFEL 
Program that exceed 45 percent of the agency's total collections on 
defaulted loans in that Federal fiscal year.
    (19) Change in agency's records system. The agency shall provide 
written notification to the Secretary at least 30 days prior to placing 
its new guarantees or converting the records relating to its existing 
guaranty portfolio to an information or computer system that is owned 
by, or otherwise under the control of, an entity that is different than 
the party that owns or controls the agency's existing information or

[[Page 123]]

computer system. If the agency is soliciting bids from third parties 
with respect to a proposed conversion, the agency shall provide written 
notice to the Secretary as soon as the solicitation begins. The 
notification described in this paragraph must include a concise 
description of the agency's conversion project and the actual or 
estimated cost of the project.
    (20) Plans to Reduce Consolidation of defaulted loans. A guaranty 
agency shall establish and submit to the Secretary for approval, 
procedures to ensure that consolidation loans are not an excessive 
proportion of the guaranty agency's recoveries on defaulted loans.
    (c) Review of forms and procedures. (1) The guaranty agency shall 
submit to the Secretary its write-off criteria and procedures. The 
agency may not use these materials until the Secretary approves them.
    (2) The guaranty agency shall promptly submit to the Secretary its 
regulations, statements of procedures and standards, agreements, and 
other materials that substantially affect the operation of the agency's 
program, and any proposed changes to those materials. Except as provided 
in paragraph (c)(1) of this section, the agency may use these materials 
unless and until the Secretary disapproves them.
    (3) The guaranty agency must use common application forms, 
promissory notes, Master Promissory Notes (MPN), and other common forms 
approved by the Secretary. Each loan made under an MPN is enforceable in 
accordance with the terms of the MPN and is eligible for claim payment 
based on a true and exact copy of such MPN.
    (4) The guaranty agency must develop and implement appropriate 
procedures that provide for the granting of a student deferment as 
specified in Sec.  682.210(a)(6)(iv) and (c)(3) and require their 
lenders to use these procedures.
    (5) The guaranty agency shall ensure that all program materials meet 
the requirements of Federal and State law, including, but not limited 
to, the Act and the regulations in this part and part 668.
    (d) College Access Initiative. (1) A guaranty agency shall establish 
a plan to promote access to postsecondary education by--
    (i) Providing the Secretary and the public with information on 
Internet web links and a comprehensive listing of postsecondary 
education opportunities, programs, publications and other services 
available in the State, or States for which the guaranty agency serves 
as the designated guaranty agency;
    (ii) Promoting and publicizing information for students and 
traditionally underrepresented populations on college planning, career 
preparation, and paying for college in coordination with other entities 
that provide or distribute such information in the State, or States for 
which the guaranty agency serves as the designated guaranty agency;
    (2) The activities required by this section may be funded from the 
guaranty agency's Operating Fund in accordance with Sec.  
682.423(c)(1)(vii) or from funds remaining in restricted accounts 
established pursuant to section 422(h)(4) of the Act.
    (3) The guaranty agency shall ensure that the information required 
by this subsection is available to the public by November 5, 2006 and 
is--
    (i) Free of charge; and
    (ii) Available in print.
    (e)(1) A guaranty agency must work with schools that participated in 
its program to develop and make available high-quality educational 
materials and programs that provide training to students and their 
families in budgeting and financial management, including debt 
management and other aspects of financial literacy, such as the cost of 
using high-interest loans to pay for postsecondary education, and how 
budgeting and financial management relate to the title IV student loan 
programs.
    (2) The materials and programs described in paragraph (e)(1) of this 
section must be in formats that are simple and understandable to 
students and their families, and must be made available to students and 
their families by the guaranty agency before, during, and after a 
student's enrollment at an institution of higher education.
    (3) A guaranty agency may provide similar programs and materials to 
an

[[Page 124]]

institution that participates only in the William D. Ford Federal Direct 
Loan Program.
    (4) A lender or loan servicer may also provide an institution with 
outreach and financial literacy information consistent with the 
requirements of paragraphs (e)(1) and (2) of this section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.401, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.402  Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.

    (a) General. (1) Rules governing the payment of claims based on 
filing for relief in bankruptcy, and discharge of loans due to death, 
total and permanent disability, attendance at a school that closes, 
false certification by a school of a borrower's eligibility for a loan, 
and unpaid refunds by a school are set forth in this section.
    (2) If a Consolidation loan was obtained jointly by a married 
couple, the amount of the Consolidation loan that is discharged if one 
of the borrowers dies or becomes totally and permanently disabled is 
equal to the portion of the outstanding balance of the Consolidation 
loan, as of the date the borrower died or became totally and permanently 
disabled, attributable to any of that borrower's loans that would have 
been eligible for discharge.
    (3) If a PLUS loan was obtained by two parents as co-makers, and 
only one of the borrowers dies, becomes totally and permanently 
disabled, has collection of his or her loan obligation stayed by a 
bankruptcy filing, or has that obligation discharged in bankruptcy, the 
other borrower remains obligated to repay the loan unless that borrower 
would qualify for discharge of the loan under these regulations.
    (4) Except for a borrower's loan obligation discharged by the 
Secretary under the false certification discharge provision of 
paragraphs (e)(1)(ii) or (iii) of this section, a loan qualifies for 
payment under this section and as provided in paragraph (h)(1)(iv) of 
this section, only to the extent that the loan is legally enforceable 
under applicable law by the holder of the loan.
    (5) For purposes of this section--
    (i) The legal enforceability of a loan is conclusively determined on 
the basis of a ruling by a court or administrative tribunal of competent 
jurisdiction with respect to that loan, or a ruling with respect to 
another loan in a judgment that collaterally estops the holder from 
contesting the enforceability of the loan;
    (ii) A loan is conclusively determined to be legally unenforceable 
to the extent that the guarantor determines, pursuant to an objection 
presented in a proceeding conducted in connection with consumer 
reporting agency reporting, tax refund offset, wage garnishment, or in 
any other administrative proceeding, that the loan is not legally 
enforceable; and
    (iii) If an objection has been raised by the borrower or another 
party about the legal enforceability of the loan and no determination 
has been made under paragraph (a)(5) (i) or (ii) of this section, the 
Secretary may authorize the payment of a claim under this section under 
conditions the Secretary considers appropriate. If the Secretary 
determines in that or any other case that a claim was paid under this 
section with respect to a loan that was not a legally enforceable 
obligation of the borrower, the recipient of that payment must refund 
that amount of the payment to the Secretary.
    (b) Death. (1) If an individual borrower dies, or the student for 
whom a parent received a PLUS loan dies, the obligation of the borrower 
and any endorser to make any further payments on the loan is discharged.
    (2)(i) A discharge of a loan based on the death of the borrower (or 
student in the case of a PLUS loan) must be based on--
    (A) An original or certified copy of the death certificate;
    (B) An accurate and complete photocopy of the original or certified 
copy of the death certificate;
    (C) An accurate and complete original or certified copy of the death 
certificate that is scanned and submitted

[[Page 125]]

electronically or sent by facsimile transmission; or
    (D) Verification of the borrower's or student's death through an 
authoritative Federal or State electronic database approved for use by 
the Secretary.
    (ii) Under exceptional circumstances and on a case-by-case basis, 
the chief executive officer of the guaranty agency may approve a 
discharge based upon other reliable documentation of the borrower's or 
student's death.
    (3) After receiving reliable information indicating that the 
borrower (or student) has died, the lender must suspend any collection 
activity against the borrower and any endorser for up to 60 days and 
promptly request the documentation described in paragraph (b)(2) of this 
section. If additional time is required to obtain the documentation, the 
period of suspension of collection activity may be extended up to an 
additional 60 days. If the lender is not able to obtain an original or 
certified copy of the death certificate, or an accurate and complete 
photocopy of the original or certified copy of the death certificate or 
other documentation acceptable to the guaranty agency, under the 
provisions of paragraph (b)(2) of this section, during the period of 
suspension, the lender must resume collection activity from the point 
that it had been discontinued. The lender is deemed to have exercised 
forbearance as to repayment of the loan during the period when 
collection activity was suspended.
    (4) Once the lender has determined under paragraph (b)(2) of this 
section that the borrower (or student) has died, the lender may not 
attempt to collect on the loan from the borrower's estate or from any 
endorser.
    (5) The lender shall return to the sender any payments received from 
the estate or paid on behalf of the borrower after the date of the 
borrower's (or student's) death.
    (6) In the case of a Federal Consolidation Loan that includes a 
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died, 
the obligation of the borrower or any endorser to make any further 
payments on the portion of the outstanding balance of the Consolidation 
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged 
as of the date of the dependent's death.
    (c)(1) Total and permanent disability. (i) A borrower's loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  682.200(b), and satisfies the eligibility requirements 
in this section.
    (ii) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraphs (c)(2) through (c)(8) of this section.
    (iii) For a veteran who is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c)(9) of this section.
    (iv) For purposes of this paragraph (c)--
    (A) A borrower's representative or a veteran's representative is a 
member of the borrower's family, the borrower's attorney, or another 
individual authorized to act on behalf of the borrower in connection 
with the borrower's total and permanent disability discharge 
application. References to a ``borrower'' or a ``veteran'' include, if 
applicable, the borrower's representative or the veteran's 
representative for purposes of applying for a total and permanent 
disability discharge, providing notifications or information to the 
Secretary, and receiving notifications from the Secretary;
    (B) References to ``the lender'' mean the guaranty agency if the 
guaranty agency is the holder of the loan at the time the borrower 
applies for a total and permanent disability discharge, except that the 
total and permanent disability discharge claim filing requirements 
applicable to a lender do not apply to the guaranty agency; and
    (C) References to ``the applicable guaranty agency'' mean the 
guaranty agency that guarantees the loan.
    (2) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). (i) If the borrower notifies the lender 
that the borrower claims to be totally

[[Page 126]]

and permanently disabled as described in paragraph (1) of the definition 
of that term in Sec.  682.200(b), the lender must direct the borrower to 
notify the Secretary of the borrower's intent to submit an application 
for total and permanent disability discharge and provide the borrower 
with the information needed for the borrower to notify the Secretary.
    (ii) If the borrower notifies the Secretary of the borrower's intent 
to apply for a total and permanent disability discharge, the Secretary--
    (A) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the borrower and notifies 
the lenders of the borrower's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
borrower for a period not to exceed 120 days; and
    (D) Informs the borrower that the suspension of collection activity 
described in paragraph (c)(2)(ii)(C) of this section will end after 120 
days and collection will resume on the loans if the borrower does not 
submit a total and permanent disability discharge application to the 
Secretary within that time;
    (iii) If the borrower fails to submit an application for a total and 
permanent disability discharge to the Secretary within 120 days, 
collection resumes on the borrower's title IV loans, and the lender is 
deemed to have exercised forbearance of principal and interest from the 
date it suspended collection activity. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period, except that if the lender is a guaranty agency it 
may not capitalize accrued interest.
    (iv) The borrower must submit to the Secretary an application for a 
total and permanent disability discharge on a form approved by the 
Secretary. The application must contain--
    (A) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b);
    (B) A certification by a nurse practitioner or physician assistant 
licensed by a State, or a licensed or certified psychologist at the 
independent practice level, that the borrower is totally and permanently 
disabled as described in paragraph (1) of the definition of that term in 
Sec.  682.200(b); or
    (C) An SSA Benefit Planning Query (BPQY) or an SSA notice of award 
or other documentation deemed acceptable by the Secretary, indicating 
that--
    (1) The borrower qualifies for Social Security Disability Insurance 
(SSDI) benefits or Supplemental Security Income (SSI) based on 
disability and the borrower's next continuing disability has been 
scheduled between 5 and 7 years;
    (2) The borrower qualifies for SSDI benefits or SSI based on 
disability and the borrower's next continuing disability review has been 
scheduled at 3 years;
    (3) The borrower has an established onset date for SSDI or SSI of at 
least 5 years prior or has been receiving SSDI benefits or SSI based on 
disability for at least 5 years prior to the application for a 
disability discharge;
    (4) The borrower qualifies for SSDI benefits or SSI based on a 
compassionate allowance; or
    (5) For a borrower who is currently receiving SSA retirement 
benefits, documentation that, prior to the borrower qualifying for SSA 
retirement benefits, the borrower met any of the requirements in 
paragraph (c)(2)(iv)(C) of this section.
    (v) The borrower must submit the application described in paragraph 
(c)(2)(iv) of this section to the Secretary within 90 days of the date 
the physician, nurse practitioner, physician assistant, or psychologist 
certifies the application, if applicable.
    (vi) After the Secretary receives the application described in 
paragraph (c)(2)(iv) of this section, the Secretary notifies the holders 
of the borrower's title IV loans that the Secretary has received a total 
and permanent disability discharge application from the borrower. The 
holders of the loans must notify the applicable guaranty

[[Page 127]]

agency that the total and permanent disability discharge application has 
been received.
    (vii) If the application is incomplete, the Secretary notifies the 
borrower of the missing information and requests the missing information 
from the borrower or the physician, nurse practitioner, physician 
assistant, or psychologist who provided the certification, as 
appropriate. The Secretary does not make a determination of eligibility 
until the application is complete.
    (viii) The lender notification described in paragraph (c)(2)(vi) of 
this section directs the borrower's loan holders to suspend collection 
activity or maintain the suspension of collection activity on the 
borrower's title IV loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the borrower that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the borrower that the borrower's lenders will suspend 
collection activity or maintain the suspension of collection activity on 
the borrower's title IV loans while the Secretary reviews the borrower's 
application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (3) Secretary's review of total and permanent disability discharge 
application. (i) If, after reviewing the borrower's completed 
application, the Secretary determines that the data described in 
paragraph (c)(2)(iv) of this section supports the conclusion that the 
borrower is totally and permanently disabled, as described in paragraph 
(1) of the definition of that term in Sec.  682.200(b), the borrower is 
considered totally and permanently disabled--
    (A) As of the date the physician, nurse practitioner, physician 
assistant, or psychologist certified the borrower's application; or
    (B) As of the date the Secretary received the SSA data described in 
paragraph (c)(2)(iv)(C) of this section.
    (ii) If the Secretary determines that the borrower's application 
does not support the conclusion that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b) the Secretary may require the borrower to 
submit additional medical evidence. As part of the Secretary's review of 
the borrower's discharge application, the Secretary may require and 
arrange for an additional review of the borrower's condition by an 
independent physician or other medical professional identified by the 
Secretary at no expense to the borrower.
    (iii) After determining that the borrower is totally and permanently 
disabled as described in paragraph (1) of the definition of that term in 
Sec.  682.200(b), the Secretary notifies the borrower and the borrower's 
lenders that the application for a disability discharge has been 
approved. With this notification, the Secretary provides the date the 
physician, nurse practitioner, physician assistant, or psychologist 
certified the borrower's loan discharge application or the date the 
Secretary received the SSA data described in paragraph (c)(2)(iv)(C) of 
this section and directs each lender to submit a disability claim to the 
guaranty agency so the loan can be assigned to the Secretary. The 
Secretary returns any payment received by the Secretary after the date 
the physician, nurse practitioner, physician assistant, or psychologist 
certified the borrower's loan discharge application or received the SSA 
data described in paragraph (c)(2)(iv)(C) of this section to the person 
who made the payment.
    (iv) After the loan is assigned, the Secretary discharges the 
borrower's obligation to make further payments on the loan and notifies 
the borrower and the lender that the loan has been discharged. The 
notification to the borrower explains the terms and conditions under 
which the borrower's obligation to repay the loan will be reinstated, as 
specified in paragraph (c)(6)(i) of this section.
    (v) If the Secretary determines that the physician, nurse 
practitioner, physician assistant, or psychologist certification or SSA 
data described in paragraph (c)(2)(iv)(C) of this section does not 
support the conclusion that the borrower is totally and permanently 
disabled as described in paragraph (1) of the definition of that term

[[Page 128]]

in Sec.  682.200(b), the Secretary notifies the borrower and the lender 
that the application for a disability discharge has been denied. The 
notification includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the lender under 
the terms of the promissory note and that the loan will return to the 
status that would have existed had the total and permanent disability 
discharge application not been received;
    (C) A statement that the lender will notify the borrower of the date 
the borrower must resume making payments on the loan;
    (D) An explanation that the borrower is not required to submit a new 
total and permanent disability discharge application if the borrower 
requests that the Secretary re-evaluate the application for discharge by 
providing, within 12 months of the date of the notification, additional 
information that supports the borrower's eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12 
months of the date of the notification, the borrower must submit a new 
total and permanent disability discharge application to the Secretary if 
the borrower wishes the Secretary to re-evaluate the borrower's 
eligibility for a total and permanent disability discharge.
    (vi) If the borrower requests re-evaluation in accordance with 
paragraph (c)(3)(v)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(c)(3)(v)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for a total and 
permanent disability discharge.
    (4) Treatment of disbursements made during the period from the date 
of the physician, nurse practitioner, physician assistant, or 
psychologist certification or the date the Secretary received the SSA 
data described in paragraph (c)(2)(iv)(C) of this section until the date 
of discharge. If a borrower received a title IV loan or TEACH Grant 
before the date the physician, nurse practitioner, physician assistant, 
or psychologist certified the borrower's discharge application or before 
the date the Secretary received the SSA data described in paragraph 
(c)(2)(iv)(C) of this section and a disbursement of that loan or grant 
is made during the period from the date of the physician, nurse 
practitioner, physician assistant, or psychologist certification or the 
Secretary's receipt of the SSA data described in paragraph (c)(2)(iv)(C) 
of this section until the date the Secretary grants a discharge under 
this section, the processing of the borrower's loan discharge request 
will be suspended until the borrower ensures that the full amount of the 
disbursement has been returned to the loan holder or to the Secretary, 
as applicable.
    (5) Receipt of new title IV loans or TEACH Grants after the date of 
the physician, nurse practitioner, physician assistant, or psychologist 
certification or after the date the Secretary received the SSA data 
described in paragraph (c)(2)(iv)(C) of this section. If a borrower 
receives a disbursement of a new title IV loan or receives a new TEACH 
Grant made on or after the date the physician, nurse practitioner, 
physician assistant, or psychologist certified the borrower's discharge 
application or the date the Secretary received the SSA data described in 
paragraph (c)(2)(iv)(C) of this section and before the date the 
Secretary grants a discharge under this section, the Secretary denies 
the borrower's discharge request and collection resumes on the 
borrower's loans.
    (6) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with (c)(3)(iii) of this section if, within 3 years after the date the 
Secretary granted the discharge, the borrower receives a new TEACH Grant 
or a new loan under the Direct Loan Program, except for a Direct 
Consolidation Loan that includes loans that were not discharged.

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    (ii) If the borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed if the 
total and permanent disability discharge application had not been 
received; and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (c)(6)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 90 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if the 
borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (7) Lender and guaranty agency actions. (i) If the Secretary 
approves the borrower's total and permanent disability discharge 
application--
    (A) The lender must submit a disability claim to the guaranty 
agency, in accordance with paragraph (g)(1) of this section;
    (B) If the claim satisfies the requirements of paragraph (g)(1) of 
this section and Sec.  682.406, the guaranty agency must pay the claim 
submitted by the lender;
    (C) After receiving a claim payment from the guaranty agency, the 
lender must return to the sender any payments received by the lender 
after the date the physician, nurse practitioner, physician assistant, 
or psychologist certified the borrower's loan discharge application or 
after the date the Secretary received the SSA data described in 
paragraph (c)(2)(iv)(C) of this section as well as any payments received 
after claim payment from or on behalf of the borrower;
    (D) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender; 
and
    (E) The guaranty agency must assign the loan to the Secretary within 
45 days of the date the guaranty agency pays the disability claim and 
receives the reimbursement payment, or within 45 days of the date the 
guaranty agency receives the notice described in paragraph (c)(3)(iii) 
of this section if a guaranty agency is the lender.
    (ii) If the Secretary does not approve the borrower's total and 
permanent disability discharge request, the lender must resume 
collection of the loan and is deemed to have exercised forbearance of 
payment of both principal and interest from the date collection activity 
was suspended. The lender may capitalize, in accordance with Sec.  
682.202(b), any interest accrued and not paid during that period, except 
if the lender is a guaranty agency it may not capitalize accrued 
interest.
    (8) Lender and guaranty agency actions. (i) If the Secretary 
approves the borrower's total and permanent disability discharge 
application--
    (A) The lender must submit a disability claim to the guaranty 
agency, in accordance with paragraph (g)(1) of this section;
    (B) If the claim satisfies the requirements of paragraph (g)(1) of 
this section and Sec.  682.406, the guaranty agency must pay the claim 
submitted by the lender;
    (C) After receiving a claim payment from the guaranty agency, the 
lender must return to the sender any payments received by the lender 
after the date the physician certified the borrower's loan discharge 
application or after the date the Secretary received the SSA notice of 
award for SSDI or SSI benefits as well as any payments received after 
claim payment from or on behalf of the borrower;
    (D) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender; 
and
    (E) The guaranty agency must assign the loan to the Secretary within 
45 days of the date the guaranty agency pays the disability claim and 
receives the reimbursement payment, or within 45 days of the date the 
guaranty agency receives the notice described in

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paragraph (c)(3)(iii) of this section if a guaranty agency is the 
lender.
    (ii) If the Secretary does not approve the borrower's total and 
permanent disability discharge request, the lender must resume 
collection of the loan and is deemed to have exercised forbearance of 
payment of both principal and interest from the date collection activity 
was suspended. The lender may capitalize, in accordance with Sec.  
682.202(b), any interest accrued and not paid during that period, except 
if the lender is a guaranty agency it may not capitalize accrued 
interest.
    (9) Discharge without an application. The Secretary will discharge a 
loan under this section without an application or any additional 
documentation from the borrower if the Secretary--
    (i) Obtains data from the Department of Veterans Affairs (VA) 
showing that the borrower is unemployable due to a service-connected 
disability; or
    (ii) Obtains data from the Social Security Administration (SSA) 
described in paragraph (c)(2)(iv)(C) of this section.
    (10) Notifications and return of payments. (i) After determining 
that a borrower qualifies for a total and permanent disability discharge 
under paragraph (c)(9) of this section, the Secretary sends a 
notification to the borrower informing the borrower that the Secretary 
will discharge the borrower's title IV loans unless the borrower 
notifies the Secretary, by a date specified in the Secretary's 
notification, that the borrower does not wish to receive the loan 
discharge.
    (ii) Unless the borrower notifies the Secretary that the borrower 
does not wish to receive the discharge, the Secretary notifies the 
borrower's loan holders that the borrower has been approved for a 
disability discharge. With this notification the Secretary provides the 
effective date of the determination by VA or the date the Secretary 
received the SSA data described in paragraph (c)(2)(iv)(C) of this 
section and directs the holder of each FFEL Program loan made to the 
borrower to submit a disability claim to the guaranty agency in 
accordance with paragraph (g)(1) of this section.
    (iii) If the claim meets the requirements of paragraph (g)(1) of 
this section and Sec.  682.406, the guaranty agency pays the claim and 
must--
    (A) Discharge the loan, in the case of a discharge based on data 
from VA; or
    (B) Assign the loan to the Secretary, in the case of a discharge 
based on data from the SSA.
    (iv) The Secretary reimburses the guaranty agency for a disability 
claim after the agency pays the claim to the lender.
    (v) Upon receipt of the claim payment from the guaranty agency, the 
loan holder returns to the person who made the payments any payments 
received on or after--
    (A) The effective date of the determination by VA that the borrower 
is unemployable due to a service-connected disability; or
    (B) The date the Secretary received the SSA data described in 
paragraph (c)(2)(iv)(C) of this section.
    (vi) For a loan that is assigned to the Secretary for discharge 
based on data from the SSA, the Secretary discharges the loan in 
accordance with paragraph (c)(3)(iv) of this section.
    (vii) If the borrower notifies the Secretary that they do not wish 
to receive the discharge, the borrower will remain responsible for 
repayment of the borrower's loans in accordance with the terms and 
conditions of the promissory notes that the borrower signed.
    (d) Closed school--(1) General. (i) The Secretary reimburses the 
holder of a loan received by a borrower on or after January 1, 1986, and 
discharges the borrower's obligation with respect to the loan in 
accordance with the provisions of paragraph (d) of this section, if the 
borrower (or the student for whom a parent received a PLUS loan) could 
not complete the program of study for which the loan was intended 
because the school at which the borrower (or student) was enrolled 
closed, or the borrower (or student) withdrew from the school not more 
than 180 days prior to the date the school closed. The Secretary may 
extend the 180-day period if the Secretary determines that exceptional 
circumstances, as described in paragraph (d)(9) of this section, justify 
an extension.
    (ii) For purposes of the closed school discharge authorized by this 
section--

[[Page 131]]

    (A) If a school has closed, the school's closure date is the earlier 
of: the date, determined by the Secretary, that the school ceased to 
provide educational instruction in programs in which most students at 
the school were enrolled, or a date determined by the Secretary that 
reflects when the school ceased to provide educational instruction for 
all of its students;
    (B) The term ``borrower'' includes all endorsers on a loan;
    (C) A ``school'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered title IV eligible, and
    (D) ``Program'' means the credential defined by the level and 
Classification of Instructional Program code in which a student is 
enrolled, except that the Secretary may define a borrower's program as 
multiple levels or Classification of Instructional Program codes if--
    (1) The enrollment occurred at the same school in closely proximate 
periods;
    (2) The school granted a credential in a program while the student 
was enrolled in a different program; or
    (3) The programs must be taken in a set order or were presented as 
necessary for borrowers to complete in order to succeed in the relevant 
field of employment
    (2) Relief available pursuant to discharge. (i) Discharge under this 
paragraph (d) relieves the borrower of any existing or past obligation 
to repay the loan and any charges imposed or costs incurred by the 
holder with respect to the loan that the borrower is or was otherwise 
obligated to pay.
    (ii) A discharge of a loan under this paragraph (d) qualifies the 
borrower for reimbursement of amounts paid voluntarily or through 
enforced collection on a loan obligation discharged under this paragraph 
(d).
    (iii) A borrower who has defaulted on a loan discharged under this 
paragraph (d) is not regarded as in default on the loan after discharge, 
and is eligible to receive assistance under the title IV, HEA programs.
    (iv) A discharge of a loan under this paragraph (d) must be reported 
by the loan holder to all consumer reporting agencies to which the 
holder previously reported the status of the loan, so as to delete all 
adverse credit history assigned to the loan.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (d)(8) of this section, to qualify for a discharge of a loan 
under this paragraph (d), a borrower must submit a completed closed 
school discharge application on a form approved by the Secretary and the 
factual assertions in the application must be true and must be made 
under penalty of perjury. The application explains the procedures and 
eligibility criteria for obtaining a discharge and requires the borrower 
to state that the borrower (or the student on whose behalf a parent 
borrowed)--
    (i) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986, to attend a school;
    (ii) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 180 calendar days before the 
school closed. The Secretary may extend the 180-day period if the 
Secretary determines that exceptional circumstances, as described in 
paragraph (d)(9) of this section, justify an extension;
    (iii) On or after July 1, 2023, state that the borrower did not 
complete the program at another branch or location of the school or 
through a teach-out agreement at another school, approved by the 
school's accrediting agency and, if applicable, the school's State 
authorizing agency; and
    (iv) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary or the Secretary's designee 
upon request other documentation reasonably available to the borrower 
that demonstrates that the borrower meets the qualifications for 
discharge under this section; and
    (B) Agrees to cooperate with the Secretary or the Secretary's 
designee in enforcement actions in accordance with paragraph (d)(4) of 
this section and to transfer any right to recovery against a third party 
to the Secretary in accordance with paragraph (d)(5) of this section.

[[Page 132]]

    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(d) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (d) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with respect to those representations and any sworn statement required 
by the Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.
    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (d) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (d) of this section apply 
notwithstanding any provision of State law that would otherwise restrict 
transfer of such rights by the borrower (or student), limit or prevent a 
transferee from exercising those rights, or establish procedures or a 
scheme of distribution that would prejudice the Secretary's ability to 
recover on those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Guaranty agency responsibilities--(i) Procedures applicable if a 
school closed on or after January 1, 1986, but prior to June 13, 1994. 
(A) If a borrower received a loan for attendance at a school with a 
closure date on or after January 1, 1986, but prior to June 13, 1994, 
the loan may be discharged in accordance with the procedures specified 
in paragraph (d)(6)(i) of this section.
    (B) If a loan subject to paragraph (d) of this section was 
discharged in part in accordance with the Secretary's ``Closed School 
Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty 
agency shall initiate the discharge of the remaining balance of the loan 
not later than August 13, 1994.
    (C) A guaranty agency shall review its records and identify all 
schools that appear to have closed on or after January 1, 1986 and prior 
to June 13, 1994, and shall identify the loans made to any borrower (or 
student) who appears to have been enrolled at the school on the school 
closure date or who withdrew not more than 120 days prior to the closure 
date.
    (D) A guaranty agency shall notify the Secretary immediately if it 
determines that a school not previously known to have closed appears to 
have closed, and, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was 
made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 120

[[Page 133]]

days prior to the date the school appears to have closed. Within 30 days 
after receiving confirmation of the date of a school's closure from the 
Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the sworn statement (which may be combined) to all 
borrowers who may be eligible for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 120 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the sworn 
statement (which may be combined) to the borrower. The application shall 
inform the borrower of the procedures and eligibility criteria for 
obtaining a discharge.
    (E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, by June 13, 
1995, further refine the list of borrowers whose loans are potentially 
subject to discharge under paragraph (d) of this section by consulting 
with representatives of the closed school, the school's licensing 
agency, accrediting agency, and other appropriate parties. Upon learning 
the new address of a borrower who would still be considered potentially 
eligible for a discharge, the guaranty agency shall, within 30 days 
after learning the borrower's new address, mail to the borrower a 
discharge application that meets the requirements of paragraph 
(d)(6)(i)(E) of this section.
    (G) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (H) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it within 30 days after the date the 
agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;
    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 120 days after the borrower (or student) 
withdrew from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application and sworn 
statement.
    (I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this 
section fails to submit the written request and sworn statement 
described in paragraph (d)(3) of this section within 60 days of being 
notified of that option, the guaranty agency shall resume collection and 
shall be deemed to have exercised forbearance of payment of principal 
and interest from the date it suspended collection activity. The agency 
may capitalize, in accordance with Sec.  682.202(b), any interest 
accrued and not paid during that period.
    (J) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.

[[Page 134]]

    (ii) Procedures applicable if a school closed on or after June 13, 
1994. (A) A guaranty agency shall notify the Secretary immediately 
whenever it becomes aware of reliable information indicating a school 
may have closed. The designated guaranty agency in the state in which 
the school is located shall promptly investigate whether the school has 
closed and, within 30 days after receiving information indicating that 
the school may have closed, report the results of its investigation to 
the Secretary concerning the date of the school's closure and whether a 
teach-out of the closed school's program was made available to students.
    (B) If a guaranty agency determines that a school appears to have 
closed, it shall, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was 
made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 180 days prior to the date the school appears 
to have closed. Within 30 days after receiving confirmation of the date 
of a school's closure from the Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the application to all borrowers who may be eligible 
for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 180 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the application 
to the borrower. The application shall inform the borrower of the 
procedures and eligibility criteria for obtaining a discharge.
    (C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, within one year 
after identifying the borrower, attempt to locate the borrower and 
further determine the borrower's potential eligibility for a discharge 
under paragraph (d) of this section by consulting with representatives 
of the closed school, the school's licensing agency, accrediting agency, 
and other appropriate parties. Upon learning the new address of a 
borrower who would still be considered potentially eligible for a 
discharge, the guaranty agency shall, within 30 days after learning the 
borrower's new address, mail to the borrower a discharge application 
that meets the requirements of paragraph (d)(6)(ii)(B) of this section.
    (E) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (F) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it, the opportunity for review by the 
Secretary, and how to request such a review within 30 days after the 
date the agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;

[[Page 135]]

    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 120 days after the borrower (or student) 
withdrew from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application.
    (G) Upon receipt of a closed school discharge claim filed by a 
lender, the agency shall review the borrower's completed application in 
light of information available from the records of the agency and from 
other sources, including other guaranty agencies, state authorities, and 
cognizant accrediting associations, and shall take the following 
actions--
    (1) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (d) of this section, it shall 
pay the claim in accordance with Sec.  682.402(h) not later than 90 days 
after the agency received the claim; or
    (2) If the agency determines that the borrower does not qualify for 
a discharge, the agency shall, not later than 90 days after the agency 
received the claim, return the claim to the lender with an explanation 
of the reasons for its determination.
    (H) If a borrower described in paragraph (d)(6)(ii)(E) or (F) of 
this section fails to submit the completed application within 90 days of 
being notified of that option, the lender or guaranty agency shall 
resume collection.
    (I) Upon resuming collection on any affected loan, the lender or 
guaranty agency provides the borrower another discharge application and 
an explanation of the requirements and procedures for obtaining a 
discharge.
    (J) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.
    (K)(1) Within 30 days after receiving the borrower's request for 
review under paragraph (d)(6)(ii)(F) of this section, the agency shall 
forward the borrower's discharge request and all relevant documentation 
to the Secretary for review.
    (2) The Secretary notifies the agency and the borrower of the 
determination upon review. If the Secretary determines that the borrower 
is not eligible for a discharge under paragraph (d) of this section, 
within 30 days after being so informed, the agency shall take the 
actions described in paragraph (d)(6)(ii)(H) or (I) of this section, as 
applicable.
    (3) If the Secretary determines that the borrower meets the 
requirements for a discharge under paragraph (d) of this section, the 
agency shall, within 30 days after being so informed, take actions 
required under paragraphs (d)(6)(ii)(E) and (d)(6)(ii)(G)(1) of this 
section, and the lender shall take the actions described in paragraph 
(d)(7)(iv) of this section, as applicable.
    (7) Lender responsibilities. (i) A lender shall comply with the 
requirements prescribed in paragraph (d) of this section. In the absence 
of specific instructions from a guaranty agency or the Secretary, if a 
lender receives information from a source it believes to be reliable 
indicating that an existing or former borrower may be eligible for a 
loan discharge under paragraph (d) of this section, the lender shall 
immediately notify the guaranty agency, and suspend any efforts to 
collect from the borrower on any loan received for the program of study 
for which the loan was made (but may continue to receive borrower 
payments).
    (ii) If the borrower fails to submit a completed application 
described in paragraph (d)(3) of this section within 90 days of being 
notified of that option, the lender shall resume collection and shall be 
deemed to have exercised forbearance of payment of principal and 
interest from the date the lender suspended collection activity. The 
lender may capitalize, in accordance with Sec.  682.202(b), any interest 
accrued and not paid during that period. Upon resuming collection, the 
lender provides the borrower with another discharge application and an 
explanation of the requirements and procedures for obtaining a 
discharge.
    (iii) The lender shall file a closed school claim with the guaranty 
agency in accordance with Sec.  682.402(g) no later than 60 days after 
the lender receives a completed application described in

[[Page 136]]

paragraph (d)(3) of this section from the borrower, or notification from 
the agency that the Secretary approved the borrower's appeal in 
accordance with paragraph (d)(6)(ii)(K)(3) of this section.
    (iv) Within 30 days after receiving reimbursement from the guaranty 
agency for a closed school claim, the lender shall notify the borrower 
that the loan obligation has been discharged, and request that all 
consumer reporting agencies to which it previously reported the status 
of the loan delete all adverse credit history assigned to the loan.
    (v) Within 30 days after being notified by the guaranty agency that 
the borrower's request for a closed school discharge has been denied, 
the lender shall resume collection and notify the borrower of the 
reasons for the denial. The lender shall be deemed to have exercised 
forbearance of payment of principal and interest from the date the 
lender suspended collection activity, and may capitalize, in accordance 
with Sec.  682.202(b), any interest accrued and not paid during that 
period.
    (8) Discharge without an application. (i) A borrower's obligation to 
repay a FFEL Program loan will be discharged without an application from 
the borrower if the--
    (A) Borrower received a discharge on a loan pursuant to Sec.  
674.33(g) of this chapter under the Federal Perkins Loan Program, or 
Sec.  685.214 of this chapter under the William D. Ford Federal Direct 
Loan Program; or
    (B) The Secretary or the guaranty agency, with the Secretary's 
permission, determines that the borrower qualifies for a discharge under 
sections (d)(3)(i), (ii) and (iii) based on information in the Secretary 
or guaranty agency's possession. The Secretary or guaranty agency 
discharges the loan without an application or any statement from the 
borrower 1 year after the institution's closure date if the borrower did 
not complete the program at another branch or location of the school or 
through a teach-out agreement at another school, approved by the 
school's accrediting agency and, if applicable, the school's State 
authorizing agency.
    (ii) If the borrower accepts but does not complete a continuation of 
the program at another branch of location of the school or a teach-out 
agreement at another school, approved by the school's accrediting agency 
and, if applicable, the school's State authorizing agency, then the 
Secretary or guaranty agency discharges the loan 1 year after the 
borrower's last date of attendance in the teach-out program.
    (9) Exceptional circumstances. For purposes of this section, 
exceptional circumstances include, but are not limited to--
    (i) The revocation or withdrawal by an accrediting agency of the 
school's institutional accreditation;
    (ii) The school is or was placed on probation or issued a show-cause 
order, or placed on an accreditation status that poses an equivalent or 
greater risk to its accreditation, by its accrediting agency for failing 
to meet one or more of the agency's standards;
    (iii) The revocation or withdrawal by the State authorization or 
licensing authority to operate or to award academic credentials in the 
State;
    (iv) The termination by the Department of the school's participation 
in a title IV, HEA program;
    (v) A finding by a State or Federal government agency that the 
school violated State or Federal law related to education or services to 
students;
    (vi) A State or Federal court judgment that a School violated State 
or Federal law related to education or services to students;
    (vii) The teach-out of the student's educational program exceeds the 
180-day look back period for a closed school discharge;
    (viii) The school responsible for the teach-out of the student's 
educational program fails to perform the material terms of the teach-out 
plan or agreement, such that the student does not have a reasonable 
opportunity to complete his or her program of study;
    (ix) The school discontinued a significant share of its academic 
programs.
    (x) The school permanently closed all or most of its ground-based or 
in-person locations while maintaining online programs.

[[Page 137]]

    (xi) The school was placed on the heightened cash monitoring payment 
method as defined in Sec.  668.162(d)(2).
    (e) False certification by a school of a student's eligibility to 
borrow and unauthorized disbursements--(1) General. (i) The Secretary 
reimburses the holder of a loan received by a borrower on or after 
January 1, 1986, and discharges a current or former borrower's 
obligation with respect to the loan in accordance with the provisions of 
this paragraph (e), if the borrower's (or the student for whom a parent 
received a PLUS loan) eligibility to receive the loan was falsely 
certified by an eligible school. On or after July 1, 2006, the Secretary 
reimburses the holder of a loan, and discharges a borrower's obligation 
with respect to the loan in accordance with the provisions of this 
paragraph (e), if the borrower's eligibility to receive the loan was 
falsely certified as a result of a crime of identity theft. For purposes 
of a false certification discharge, the term ``borrower'' includes all 
endorsers on a loan.
    (ii) A student's or other individual's eligibility to borrow will be 
considered to have been falsely certified by the school if the school--
    (A) Certified the eligibility for a FFEL Program loan of a student 
who--
    (1) Reported not having a high school diploma or its equivalent; and
    (2) Did not satisfy the alternative to graduation from high school 
requirements in 34 CFR 668.32(e) and section 484(d) of the Act that were 
in effect at the time the loan was certified, as applicable;
    (B) Certified the eligibility of a student who is not a high school 
graduate based on--
    (1) A high school graduation status falsified by the school; or
    (2) A high school diploma falsified by the school or a third party 
to which the school referred the borrower;
    (C) Certified the eligibility of the student who, because of a 
physical or mental condition, age, criminal record, or other reason 
accepted by the Secretary, would not meet State requirements for 
employment (in the student's State of residence when the loan was 
certified) in the occupation for which the training program supported by 
the loan was intended;
    (D) Signed the borrower's name without authorization by the borrower 
on the loan application or promissory note; or
    (E) Certified the eligibility of an individual for a FFEL Program 
loan as a result of the crime of identity theft committed against the 
individual, as that crime is defined in paragraph (e)(14) of this 
section.
    (iii) The Secretary discharges the obligation of a borrower with 
respect to a loan disbursement for which the school, without the 
borrower's authorization, endorsed the borrower's loan check or 
authorization for electronic funds transfer, unless the student for whom 
the loan was made received the proceeds of the loan either by actual 
delivery of the loan funds or by a credit in the amount of the contested 
disbursement applied to charges owed to the school for that portion of 
the educational program completed by the student. However, the Secretary 
does not reimburse the lender with respect to any amount disbursed by 
means of a check bearing an unauthorized endorsement unless the school 
also executed the application or promissory note for that loan for the 
named borrower without that individual's consent.
    (iv) If a loan was made as a result of the crime of identity theft 
that was committed by an employee or agent of the lender, or if at the 
time the loan was made, an employee or agent of the lender knew of the 
identity theft of the individual named as the borrower--
    (A) The Secretary does not pay reinsurance, and does not reimburse 
the holder, for any amount disbursed on the loan; and
    (B) Any amounts received by a holder as interest benefits and 
special allowance payments with respect to the loan must be refunded to 
the Secretary, as provided in paragraphs (e)(8)(ii)(B)(4) and 
(e)(10)(ii)(D) of this section.
    (2) Relief available pursuant to discharge. (i) Discharge under 
paragraph (e)(1)(i) of this section relieves the borrower of an existing 
or past obligation to repay the loan certified by the school, and any 
charges imposed or costs incurred by the holder with respect to the loan 
that the borrower is, or was, otherwise obligated to pay.

[[Page 138]]

    (ii) A discharge of a loan under paragraph (e) of this section 
qualifies the borrower for reimbursement of amounts paid voluntarily or 
through enforced collection on a loan obligation discharged under 
paragraph (e) of this section.
    (iii) A borrower who has defaulted on a loan discharged under 
paragraph (e) of this section is not regarded as in default on the loan 
after discharge, and is eligible to receive assistance under the Title 
IV, HEA programs.
    (iv) A discharge of a loan under paragraph (e) of this section is 
reported by the loan holder to all credit reporting agencies to which 
the holder previously reported the status of the loan, so as to delete 
all adverse or inaccurate credit history assigned to the loan.
    (v) Discharge under paragraph (e)(1)(iii) of this section qualifies 
the borrower for relief only with respect to the amount of the 
disbursement discharged.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (e)(15) of this section, to qualify for a discharge of a loan 
under this paragraph (e), the borrower must submit to the holder of the 
loan an application for discharge on a form approved by the Secretary. 
The application need not be notarized, but must be made by the borrower 
under penalty of perjury, and, in the application, the borrower must--
    (i) State whether the student has made a claim with respect to the 
school's false certification with any third party, such as the holder of 
a performance bond or a tuition recovery program, and if so, the amount 
of any payment received by the borrower (or student) or credited to the 
borrower's loan obligation;
    (ii) In the case of a borrower requesting a discharge based on not 
having had a high school diploma and not having met the alternative to 
graduation from high school eligibility requirements in 34 CFR 668.32(e) 
and under section 484(d) of the Act applicable when the loan was 
certified, and the school or a third party to which the school referred 
the borrower falsified the student's high school diploma, the borrower 
must state in the application that the borrower (or the student for whom 
a parent received a PLUS loan)--
    (A) Received, on or after January 1, 1986, the proceeds of any 
disbursement of a loan disbursed, in whole or in part, on or after 
January 1, 1986, to attend a school;
    (B) Reported not having a valid high school diploma or its 
equivalent when the loan was certified; and
    (C) Did not satisfy the alternative to graduation from high school 
statutory or regulatory eligibility requirements identified on the 
application form and applicable when the loan was certified.
    (iii) In the case of a borrower requesting a discharge based on a 
condition that would disqualify the borrower from employment in the 
occupation that the training program for which the borrower received the 
loan was intended, the borrower must state in the application that the 
borrower (or student for whom a parent received a PLUS loan) did not 
meet State requirements for employment in the student's State of 
residence in the occupation that the training program for which the 
borrower received the loan was intended because of a physical or mental 
condition, age, criminal record, or other reason accepted by the 
Secretary.
    (iv) In the case of a borrower requesting a discharge because the 
school signed the borrower's name on the loan application or promissory 
note without the borrower's authorization state that he or she did not 
sign the document in question or authorize the school to do so.
    (v) In the case of a borrower requesting a discharge because the 
school, without authorization of the borrower, endorsed the borrower's 
name on the loan check or signed the authorization for electronic funds 
transfer or master check, the borrower must--
    (A) State that he or she did not endorse the loan check or sign the 
authorization for electronic funds transfer or master check, or 
authorize the school to do so; and
    (B) State that the proceeds of the contested disbursement were not 
received either through actual delivery of the loan funds or by a credit 
in the amount of the contested disbursement applied to charges owed to 
the school for that portion of the educational program completed by the 
student.

[[Page 139]]

    (vi) In the case of an individual whose eligibility to borrow was 
falsely certified because he or she was a victim of the crime of 
identity theft and is requesting a discharge--
    (A) Certify that the individual did not sign the promissory note, or 
that any other means of identification used to obtain the loan was used 
without the authorization of the individual claiming relief;
    (B) Certify that the individual did not receive or benefit from the 
proceeds of the loan with knowledge that the loan had been made without 
the authorization of the individual; and
    (C) Provide a statement of facts and supporting evidence that 
demonstrate, to the satisfaction of the Secretary, that the individual's 
eligibility for the loan in question was falsely certified as a result 
of identity theft committed against that individual. Supporting evidence 
may include--
    (1) A judicial determination of identity theft relating to the 
individual;
    (2) A Federal Trade Commission identity theft affidavit;
    (3) A police report alleging identity theft relating to the 
individual;
    (4) Documentation of a dispute of the validity of the loan due to 
identity theft filed with at least three major consumer reporting 
agencies; and
    (5) Other evidence acceptable to the Secretary.
    (vii) That the borrower agrees to provide upon request by the 
Secretary or the Secretary's designee, other documentation reasonably 
available to the borrower, that demonstrates, to the satisfaction of the 
Secretary or the Secretary's designee, that the student meets the 
qualifications in this paragraph (e); and
    (viii) That the borrower agrees to cooperate with the Secretary or 
the Secretary's designee in enforcement actions in accordance with 
paragraph (e)(4) of this section, and to transfer any right to recovery 
against a third party in accordance with paragraph (e)(5) of this 
section.
    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(e) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (e) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with respect to those representations and any sworn statement required 
by the Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.
    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (e) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (e) of this section apply 
notwithstanding any provision of state law that would otherwise restrict 
transfer of such rights by the borrower (or student), limit or prevent a 
transferee from exercising

[[Page 140]]

those rights, or establish procedures or a scheme of distribution that 
would prejudice the Secretary's ability to recover on those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Discharge procedures--general. (i) If the holder of the 
borrower's loan determines that a borrower's FFEL Program loan may be 
eligible for a discharge under this section, the holder provides the 
borrower the application described in paragraph (e)(3) of this section 
and an explanation of the qualifications and procedures for obtaining a 
discharge. The holder also promptly suspends any efforts to collect from 
the borrower on any affected loan. The holder may continue to receive 
borrower payments.
    (ii) If the borrower fails to submit the application for discharge 
and supporting information described in paragraph (e)(3) of this section 
within 60 days of the holder providing the application, the holder 
resumes collection and grants forbearance of principal and interest for 
the period in which collection activity was suspended.
    (iii) If the borrower submits an application for discharge that the 
holder determines is incomplete, the holder notifies the borrower of 
that determination and allows the borrower an additional 30-days to 
amend their application and provide supplemental information. If the 
borrower does not amend their application within 30 days of receiving 
the notification from the holder the borrower's application is closed as 
incomplete and the holder resumes collection of the loan and grants 
forbearance of principal and interest for the period in which collection 
activity was suspended.
    (iv) If the borrower submits a complete application described in 
paragraph (e)(3) of this section, the holder files a claim with the 
guaranty agency no later than 60 days after the holder receives the 
borrower's complete application.
    (v) The guaranty agency determines whether the available evidence 
supports the claim for discharge. Available evidence includes evidence 
provided by the borrower and any other relevant information from the 
guaranty agency's records or gathered by the guaranty agency from other 
sources, including the Secretary, other guaranty agencies, Federal 
agencies, State authorities, test publishers, independent test 
administrators, school records, and cognizant accrediting associations.
    (vi) The guaranty agency issues a decision that explains the reasons 
for any adverse determination on the application, describes the evidence 
on which the decision was made, and provides the borrower, upon request, 
copies of the evidence. The guaranty agency considers any response from 
the borrower and any additional information from the borrower and 
notifies the borrower whether the determination is changed.
    (vii) If the guaranty agency determines that the borrower meets the 
applicable requirements for a discharge under this paragraph (e), the 
guaranty agency notifies the borrower in writing of that determination.
    (viii) If the guaranty agency determines that the borrower does not 
qualify for a discharge, the guaranty agency notifies the borrower in 
writing of that determination and the reasons for the determination.
    (ix) If the guaranty agency determines that the borrower does not 
qualify for a discharge, the borrower may request that the Secretary 
review the guaranty agency's decision.
    (x) A borrower is not precluded from re-applying for a discharge 
under this paragraph (e) if the discharge request is closed as 
incomplete, or if the guaranty agency or Secretary determines that the 
borrower does not qualify for a discharge if the borrower provides 
additional supporting evidence.
    (7) Guaranty agency responsibilities--general. (i) A guaranty agency 
will notify the Secretary immediately whenever it becomes aware of 
reliable information indicating that a school may have falsely certified 
a student's eligibility or caused an unauthorized disbursement of loan 
proceeds, as described in paragraph (e)(3) of this section. The 
designated guaranty agency

[[Page 141]]

in the State in which the school is located will promptly investigate 
whether the school has falsely certified a student's eligibility and, 
within 30 days after receiving information indicating that the school 
may have done so, report the results of its preliminary investigation to 
the Secretary.
    (ii) If the guaranty agency receives information it believes to be 
reliable indicating that a borrower whose loan is held by the agency may 
be eligible for a discharge under this paragraph (e), the agency will 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments) and inform the borrower of the 
procedures for requesting a discharge.
    (iii) If the borrower fails to submit the Secretary's approved 
application described in paragraph (e)(3) of this section within 60 days 
of being notified of that option, the guaranty agency will resume 
collection and will be deemed to have exercised forbearance of payment 
of principal and interest from the date it suspended collection 
activity.
    (iv) If the borrower submits an application for discharge that the 
guaranty agency determines is incomplete, the guaranty agency notifies 
the borrower of that determination and allows the borrower an additional 
30-days to amend their application and provide supplemental information. 
If the borrower does not amend their application within 30 days of 
receiving the notification from the guaranty agency the borrower's 
application is closed as incomplete and the guaranty agency resumes 
collection of the loan and grants forbearance of principal and interest 
for the period in which collection activity was suspended.
    (v) Upon receipt of a discharge claim filed by a lender or a 
complete application submitted by a borrower with respect to a loan held 
by the guaranty agency, the agency will have up to 90 days to determine 
whether the discharge should be granted. The agency will review the 
borrower's application in light of information available from the 
records of the agency and from other sources, including other guaranty 
agencies, State authorities, and cognizant accrediting associations.
    (vi) A borrower's application for discharge may not be denied solely 
on the basis of failing to meet any time limits set by the lender, the 
Secretary or the guaranty agency.
    (8) Guaranty agency responsibilities with respect to a claim filed 
by a lender. (i) The agency will evaluate the borrower's application and 
consider relevant information it possesses and information available 
from other sources, and follow the procedures described in this 
paragraph (e)(8).
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under this paragraph (e), it will, not later 
than 30 days after the agency makes that determination, pay the claim in 
accordance with paragraph (h) of this section and--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the loan has been discharged, and that the lender has been 
informed of the actions required under paragraph (e)(8)(ii)(C) of this 
section;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Notify the lender that the borrower's liability with respect to 
the amount of the loan has been discharged, and that the lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan amount and any charges 
imposed or costs incurred by the lender related to the discharged loan 
amount that the borrower is, or was, otherwise obligated to pay; and
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan; and
    (D) Within 30 days, demand payment in full from the perpetrator of 
the identity theft committed against the individual, and if payment is 
not received, pursue collection action thereafter against the 
perpetrator.

[[Page 142]]

    (iii) If the agency determines that the borrower does not qualify 
for a discharge, it will, within 30 days after making that 
determination--
    (A) Notify the lender that the borrower's liability on the loan is 
not discharged and that, depending on the borrower's decision under 
paragraph (e)(8)(iii)(B) of this section, the loan will either be 
returned to the lender or paid as a default claim; and
    (B) Notify the borrower that the borrower does not qualify for 
discharge and state the reasons for that conclusion. The agency will 
advise the borrower that he or she remains obligated to repay the loan 
and warn the borrower of the consequences of default, and explain that 
the borrower will be considered to be in default on the loan unless the 
borrower submits a written statement to the agency within 30 days 
stating that the borrower--
    (1) Acknowledges the debt and, if payments are due, will begin or 
resume making those payments to the lender; or
    (2) Requests the Secretary to review the agency's decision.
    (iv) Within 30 days after receiving the borrower's written statement 
described in paragraph (e)(8)(iii)(B)(1) of this section, the agency 
will return the claim file to the lender and notify the lender to resume 
collection efforts if payments are due.
    (v) Within 30 days after receiving the borrower's request for review 
by the Secretary, the agency will forward the claim file to the 
Secretary for his review and take the actions required under paragraph 
(e)(12) of this section.
    (vi) The agency will pay a default claim to the lender within 30 
days after the borrower fails to return either of the written statements 
described in paragraph (e)(8)(iii)(B) of this section.
    (9) Guaranty agency responsibilities with respect to a claim filed 
by a lender based only on the borrower's assertion that he or she did 
not sign the loan check or the authorization for the release of loan 
funds via electronic funds transfer or master check. (i) The agency will 
evaluate the borrower's request and consider relevant information it 
possesses and information available from other sources, and follow the 
procedures described in this paragraph (e)(9).
    (ii) If the agency determines that a borrower who asserts that he or 
she did not endorse the loan check satisfies the requirements for 
discharge under paragraph (e)(3)(v) of this section, it will, within 30 
days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender has been informed of the actions 
required under paragraph (e)(9)(ii)(B) of this section;
    (B) Notify the lender that the borrower's liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan amount and any charges 
imposed or costs incurred by the lender related to the discharged loan 
amount that the borrower is, or was, otherwise obligated to pay;
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan;
    (3) Refund to the borrower, within 30 days, all amounts paid by the 
borrower with respect to the loan disbursement that was discharged, 
including any charges imposed or costs incurred by the lender related to 
the discharged loan amount; and
    (4) Refund to the Secretary, within 30 days, all interest benefits 
and special allowance payments received from the Secretary with respect 
to the loan disbursement that was discharged; and
    (C) Transfer to the lender the borrower's written assignment of any 
rights the borrower may have against third parties with respect to a 
loan disbursement that was discharged because the borrower did not sign 
the loan check.
    (iii) If the agency determines that a borrower who asserts that he 
or she did not sign the electronic funds transfer or master check 
authorization satisfies the requirements for discharge under paragraph 
(e)(3)(v) of this section, it will, within 30 days after making that

[[Page 143]]

determination, pay the claim in accordance with paragraph (h) of this 
section and--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender has been informed of the actions 
required under paragraph (e)(9)(iii)(C) of this section;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Notify the lender that the borrower's liability with respect to 
the contested disbursement of the loan has been discharged, and that the 
lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan amount and any charges 
imposed or costs incurred by the lender related to the discharged loan 
amount that the borrower is, or was, otherwise obligated to pay; and
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (iv) If the agency determines that the borrower does not qualify for 
a discharge, it will, within 30 days after making that determination--
    (A) Notify the lender that the borrower's liability on the loan is 
not discharged and that, depending on the borrower's decision under 
paragraph (e)(9)(iv)(B) of this section, the loan will either be 
returned to the lender or paid as a default claim; and
    (B) Notify the borrower that the borrower does not qualify for 
discharge and state the reasons for that conclusion. The agency will 
advise the borrower that he or she remains obligated to repay the loan 
and warn the borrower of the consequences of default, and explain that 
the borrower will be considered to be in default on the loan unless the 
borrower submits a written statement to the agency within 30 days 
stating that the borrower--
    (1) Acknowledges the debt and, if payments are due, will begin or 
resume making those payments to the lender; or
    (2) Requests the Secretary to review the agency's decision.
    (v) Within 30 days after receiving the borrower's written statement 
described in paragraph (e)(9)(iv)(B)(1) of this section, the agency will 
return the claim file to the lender and notify the lender to resume 
collection efforts if payments are due.
    (vi) Within 30 days after receiving the borrower's request for 
review by the Secretary, the agency will forward the claim file to the 
Secretary for his review and take the actions required under paragraph 
(e)(12) of this section.
    (vii) The agency will pay a default claim to the lender within 30 
days after the borrower fails to return either of the written statements 
described in paragraph (e)(9)(iv)(B) of this section.
    (10) Guaranty agency responsibilities in the case of a loan held by 
the agency for which a discharge request is submitted by a borrower. (i) 
The agency will evaluate the borrower's application and consider 
relevant information it possesses and information available from other 
sources, and follow the procedures described in this paragraph (e)(10).
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (e)(3) of this section, it 
will immediately terminate any collection efforts against the borrower 
with respect to the discharged loan amount and any charges imposed or 
costs incurred by the agency related to the discharged loan amount that 
the borrower is, or was otherwise obligated to pay and, not later than 
30 days after the agency makes the determination that the borrower 
satisfies the requirements for discharge--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the loan has been discharged;
    (B) Report to all credit reporting agencies to which the agency 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan;
    (C) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to

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the discharged loan amount, including any late fees or collection 
charges imposed by the lender or agency related to the discharged loan 
amount; and
    (D) Within 30 days, demand payment in full from the perpetrator of 
the identity theft committed against the individual, and if payment is 
not received, pursue collection action thereafter against the 
perpetrator.
    (iii) If the agency determines that the borrower does not qualify 
for a discharge, it will, within 30 days after making that 
determination, notify the borrower that the borrower's liability with 
respect to the amount of the loan is not discharged, state the reasons 
for that conclusion, and if the borrower is not then making payments in 
accordance with a repayment arrangement with the agency on the loan, 
advise the borrower of the consequences of continued failure to reach 
such an arrangement, and that collection action will resume on the loan 
unless within 30 days the borrower--
    (A) Acknowledges the debt and, if payments are due, reaches a 
satisfactory arrangement to repay the loan or resumes making payments 
under such an arrangement to the agency; or
    (B) Requests the Secretary to review the agency's decision.
    (iv) Within 30 days after receiving the borrower's request for 
review by the Secretary, the agency will forward the borrower's 
discharge request and all relevant documentation to the Secretary for 
his review and take the actions required under paragraph (e)(12) of this 
section.
    (v) The agency will resume collection action if within 30 days of 
giving notice of its determination the borrower fails to seek review by 
the Secretary or agree to repay the loan.
    (11) Guaranty agency responsibilities in the case of a loan held by 
the agency for which a discharge request is submitted by a borrower 
based only on the borrower's assertion that he or she did not sign the 
loan check or the authorization for the release of loan proceeds via 
electronic funds transfer or master check. (i) The agency will evaluate 
the borrower's application and consider relevant information it 
possesses and information available from other sources, and follow the 
procedures described in this paragraph (e)(11).
    (ii) If the agency determines that a borrower who asserts that he or 
she did not endorse the loan check satisfies the requirements for 
discharge under paragraph (e)(3)(v) of this section, it will refund to 
the Secretary the amount of reinsurance payment received with respect to 
the amount discharged on that loan less any repayments made by the 
lender under paragraph (e)(11)(ii)(D)(2) of this section, and within 30 
days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged;
    (B) Report to all credit reporting agencies to which the agency 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan;
    (C) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount;
    (D) Notify the lender to whom a claim payment was made that the 
lender must refund to the Secretary, within 30 days--
    (1) All interest benefits and special allowance payments received 
from the Secretary with respect to the loan disbursement that was 
discharged; and
    (2) The amount of the borrower's payments that were refunded to the 
borrower by the guaranty agency under paragraph (e)(11)(ii)(C) of this 
section that represent borrower payments previously paid to the lender 
with respect to the loan disbursement that was discharged;
    (E) Notify the lender to whom a claim payment was made that the 
lender must, within 30 days, reimburse the agency for the amount of the 
loan that was discharged, minus the amount of borrower payments made to 
the lender that were refunded to the borrower by the guaranty agency 
under paragraph (e)(11)(ii)(C) of this section; and
    (F) Transfer to the lender the borrower's written assignment of any 
rights the borrower may have against

[[Page 145]]

third parties with respect to the loan disbursement that was discharged.
    (iii) In the case of a borrower who requests a discharge because he 
or she did not sign the electronic funds transfer or master check 
authorization, if the agency determines that the borrower meets the 
conditions for discharge, it will immediately terminate any collection 
efforts against the borrower with respect to the discharged loan amount 
and any charges imposed or costs incurred by the agency related to the 
discharged loan amount that the borrower is, or was, otherwise obligated 
to pay, and within 30 days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Report to all credit reporting agencies to which the lender 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan.
    (iv) The agency will take the actions required under paragraphs 
(e)(10)(iii) through (v) of this section if the agency determines that 
the borrower does not qualify for a discharge.
    (12) Guaranty agency responsibilities if a borrower requests a 
review by the Secretary. (i) Within 30 days after receiving the 
borrower's request for review under paragraph (e)(8)(iii)(B)(2), 
(e)(9)(iv)(B)(2), (e)(10)(iii)(B), or (e)(11)(iv) of this section, the 
agency will forward the borrower's discharge application and all 
relevant documentation to the Secretary for review.
    (ii) The Secretary notifies the agency and the borrower of a 
determination on review. If the Secretary determines that the borrower 
is not eligible for a discharge under this paragraph (e), within 30 days 
after being so informed, the agency will take the actions described in 
paragraphs (e)(9)(iv) through (vii) or (e)(10)(iii) through (v) of this 
section, as applicable.
    (iii) If the Secretary determines that the borrower meets the 
requirements for a discharge under paragraph (e) of this section, the 
agency will, within 30 days after being so informed, take the actions 
required under paragraph (e)(8)(ii), (e)(9)(ii) or (iii), (e)(10)(ii), 
or (e)(11)(ii) or (iii) of this section, as applicable.
    (13) Lender responsibilities. (i) If the lender is notified by a 
guaranty agency or the Secretary, or receives information it believes to 
be reliable from another source indicating that a current or former 
borrower may be eligible for a discharge under this paragraph (e), the 
lender will immediately suspend any efforts to collect from the borrower 
on any loan received for the program of study for which the loan was 
made (but may continue to receive borrower payments) and, within 30 days 
of receiving the information or notification, inform the borrower of the 
procedures for requesting a discharge.
    (ii) If the borrower fails to submit the Secretary's approved 
application within 60 days of being notified of that option, the lender 
will resume collection and will be deemed to have exercised forbearance 
of payment of principal and interest from the date the lender suspended 
collection activity on the loan. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (iii) If the borrower submits an application for discharge that the 
lender determines is incomplete, the lender notifies the borrower of 
that determination and allows the borrower an additional 30-days to 
amend their application and provide supplemental information. If the 
borrower does not amend their application within 30 days of receiving 
the notification from the lender the borrower's application is closed as 
incomplete and the lender resumes collection of the loan and grants 
forbearance of principal and interest for the period in which collection 
activity was suspended.
    (iv) The lender will file a claim with the guaranty agency in 
accordance with paragraph (g) of this section no later than 60 days 
after the lender receives the borrower's complete application described 
in paragraph (e)(3) of

[[Page 146]]

this section. If a lender receives a payment made by or on behalf of the 
borrower on the loan after the lender files a claim on the loan with the 
guaranty agency, the lender will forward the payment to the guaranty 
agency within 30 days of its receipt. The lender will assist the 
guaranty agency and the borrower in determining whether the borrower is 
eligible for discharge of the loan.
    (v) The lender will comply with all instructions received from the 
Secretary or a guaranty agency with respect to loan discharges under 
this paragraph (e).
    (vi) The lender will review a claim that the borrower did not 
endorse and did not receive the proceeds of a loan check. The lender 
will take the actions required under paragraphs (e)(9)(ii)(A) and (B) of 
this section if it determines that the borrower did not endorse the loan 
check, unless the lender secures persuasive evidence that the proceeds 
of the loan were received by the borrower or the student for whom the 
loan was made, as provided in paragraph (e)(1)(iii) of this section. If 
the lender determines that the loan check was properly endorsed or the 
proceeds were received by the borrower or student, the lender may 
consider the borrower's objection to repayment as a statement of 
intention not to repay the loan and may file a claim with the guaranty 
agency for reimbursement on that ground but will not report the loan to 
consumer reporting agencies as in default until the guaranty agency, or, 
as applicable, the Secretary, reviews the claim for relief. By filing 
such a claim, the lender will be deemed to have agreed to the 
following--
    (A) If the guarantor or the Secretary determines that the borrower 
endorsed the loan check or the proceeds of the loan were received by the 
borrower or the student, any failure to satisfy due diligence 
requirements by the lender prior to the filing of the claim that would 
have resulted in the loss of reinsurance on the loan in the event of 
default will be waived by the Secretary; and
    (B) If the guarantor or the Secretary determines that the borrower 
did not endorse the loan check and that the proceeds of the loan were 
not received by the borrower or the student, the lender will comply with 
the requirements specified in paragraph (e)(9)(ii)(B) of this section.
    (vii) Within 30 days after being notified by the guaranty agency 
that the borrower's request for a discharge has been denied, the lender 
will notify the borrower of the reasons for the denial and, if payments 
are due, resume collection against the borrower. The lender will be 
deemed to have exercised forbearance of payment of principal and 
interest from the date the lender suspended collection activity, and may 
capitalize, in accordance with Sec.  682.202(b), any interest accrued 
and not paid during that period.
    (14) Definition of identity theft. (i) For purposes of this section, 
identity theft is defined as the unauthorized use of the identifying 
information of another individual that is punishable under 18 U.S.C. 
1028, 1028A, 1029, or 1030, or substantially comparable State or local 
law.
    (ii) Identifying information includes, but is not limited to--
    (A) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, and employer or 
taxpayer identification number;
    (B) Unique biometric data, such as fingerprints, voiceprint, retina 
or iris image, or unique physical representation;
    (C) Unique electronic identification number, address, or routing 
code; or
    (D) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
    (15) Discharge without an application. A borrower's obligation to 
repay all or a portion of an FFEL Program loan may be discharged without 
an application from the borrower if the Secretary, or the guaranty 
agency with the Secretary's permission, determines based on information 
in the Secretary's or the guaranty agency's possession that the borrower 
qualifies for a discharge. Such information includes, but is not limited 
to, evidence that the school has falsified the Satisfactory Academic 
Progress of its students, as described in Sec.  668.34 of this chapter.

[[Page 147]]

    (16) Application for a group discharge from a State Attorney General 
or nonprofit legal services representative. A State Attorney General or 
nonprofit legal services representative may submit to the Secretary an 
application for a group discharge under this section.
    (f) Bankruptcy--(1) General. If a borrower files a petition for 
relief under the Bankruptcy Code, the Secretary reimburses the holder of 
the loan for unpaid principal and interest on the loan in accordance 
with paragraphs (h) through (k) of this section.
    (2) Suspension of collection activity. (i) If the lender is notified 
that a borrower has filed a petition for relief in bankruptcy, the 
lender must immediately suspend any collection efforts outside the 
bankruptcy proceeding against the borrower and--
    (A) Must suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief under Chapters 12 or 13 of 
the Bankruptcy Code; or
    (B) May suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief under Chapters 7 or 11 of 
the Bankruptcy Code.
    (ii) If the lender is notified that a co-maker or endorser has filed 
a petition for relief in bankruptcy, the lender must immediately suspend 
any collection efforts outside the bankruptcy proceeding against the co-
maker or endorser and--
    (A) Must suspend collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 12 or 13 of the Bankruptcy Code; or
    (B) May suspend any collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 7 or 11 of the Bankruptcy Code.
    (3) Determination of filing. The lender must determine that a 
borrower has filed a petition for relief in bankruptcy on the basis of 
receiving a notice of the first meeting of creditors or other proof of 
filing provided by the debtor's attorney or the bankruptcy court.
    (4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii) 
of this section, the holder of the loan shall file a proof of claim with 
the bankruptcy court within--
    (A) 30 days after the holder receives a notice of first meeting of 
creditors unless, in the case of a proceeding under chapter 7, the 
notice states that the borrower has no assets; or
    (B) 30 days after the holder receives a notice from the court 
stating that a chapter 7 no-asset case has been converted to an asset 
case.
    (ii) A guaranty agency that is a state guaranty agency, and on that 
basis may assert immunity from suit in bankruptcy court, and that does 
not assign any loans affected by a bankruptcy filing to another guaranty 
agency--
    (A) Is not required to file a proof of claim on a loan already held 
by the guaranty agency; and
    (B) May direct lenders not to file proofs of claim on loans 
guaranteed by that agency.
    (5) Filing of bankruptcy claim with the guaranty agency. (i) The 
lender shall file a bankruptcy claim on the loan with the guaranty 
agency in accordance with paragraph (g) of this section, if--
    (A) The borrower has filed a petition for relief under chapters 12 
or 13 of the Bankruptcy Code; or
    (B) The borrower has filed a petition for relief under chapters 7 or 
11 of the Bankruptcy Code before October 8, 1998 and the loan has been 
in repayment for more than seven years (exclusive of any applicable 
suspension of the repayment period) from the due date of the first 
payment until the date of the filing of the petition for relief; or
    (C) The borrower has begun an action to have the loan obligation 
determined to be dischargeable on grounds of undue hardship.
    (ii) In cases not described in paragraph (f)(5)(i) of this section, 
the lender shall continue to hold the loan notwithstanding the 
bankruptcy proceeding. Once the bankruptcy proceeding is completed or 
dismissed, the lender shall treat the loan as if the lender had 
exercised forbearance as to repayment of principal and interest accrued 
from the date of the borrower's filing of the bankruptcy petition until 
the date the lender is notified that the

[[Page 148]]

bankruptcy proceeding is completed or dismissed.
    (g) Claim procedures for a loan held by a lender--(1) Documentation. 
A lender shall provide the guaranty agency with the following 
documentation when filing a death, disability, closed school, false 
certification, or bankruptcy claim:
    (i) The original or a true and exact copy of the promissory note.
    (ii) The loan application, if a separate loan application was 
provided to the lender.
    (iii) In the case of a death claim, an original or certified death 
certificate, or other documentation supporting the discharge request 
that formed the basis for the determination of death.
    (iv) In the case of a disability claim, a copy of the notification 
described in paragraph (c)(3)(iii) or (c)(9)(ix) of this section in 
which the Secretary notifies the lender that the borrower is totally and 
permanently disabled.
    (v) In the case of a bankruptcy claim--
    (A) Evidence that a bankruptcy petition has been filed, all 
pertinent documents sent to or received from the bankruptcy court by the 
lender, and an assignment to the guaranty agency of any proof of claim 
filed by the lender regarding the loan; and
    (B) A statement of any facts of which the lender is aware that may 
form the basis for an objection or exception to the discharge of the 
borrower's loan obligation in bankruptcy and all documents supporting 
those facts.
    (vi) In the case of a closed school claim, the documentation 
described in paragraph (d)(3) of this section, or any other 
documentation as the Secretary may require;
    (vii) In the case of a false certification claim, the documentation 
described in paragraph (e)(3) of this section.
    (2) Filing deadlines. A lender shall file a death, disability, 
closed school, false certification, or bankruptcy claim within the 
following periods:
    (i) Within 60 days of the date on which the lender determines that a 
borrower (or the student on whose behalf a parent obtained a PLUS loan) 
has died.
    (ii) Within 60 days of the date the lender received notification 
from the Secretary that the borrower is totally and permanently 
disabled, in accordance with paragraphs (c)(3)(iii) or (c)(9)(ix) of 
this section.
    (iii) In the case of a closed school claim, the lender shall file a 
claim with the guaranty agency no later than 60 days after the borrower 
submits to the lender the written request and sworn statement described 
in paragraph (d)(3) of this section or after the lender is notified by 
the Secretary or the Secretary's designee or by the guaranty agency to 
do so.
    (iv) In the case of a false certification claim, the lender shall 
file a claim with the guaranty agency no later than 60 days after the 
borrower submits to the lender the written request and sworn statement 
described in paragraph (e)(3) of this section or after the lender is 
notified by the Secretary or the Secretary's designee or by the guaranty 
agency to do so.
    (v) A lender shall file a bankruptcy claim with the guaranty agency 
by the earlier of--
    (A) 30 days after the date on which the lender receives notice of 
the first meeting of creditors or other information described in 
paragraph (f)(3) of this section; or
    (B) 15 days after the lender is served with a complaint or motion to 
have the loan determined to be dischargeable on grounds of undue 
hardship, or, if the lender secures an extension of time within which an 
answer may be filed, 25 days before the expiration of that extended 
period, whichever is later.
    (h) Payment of death, disability, closed school, false 
certification, and bankruptcy claims by the guaranty agency--(1) 
General. (i) Except as provided in paragraph (h)(1)(v) of this section, 
the guaranty agency shall review a death, disability, bankruptcy, closed 
school, or false certification claim promptly and shall pay the lender 
on an approved claim the amount of loss in accordance with paragraphs 
(h)(2) and (h)(3) of this section--
    (A) Not later than 45 days after the claim was filed by the lender 
for death, disability, and bankruptcy claims; and

[[Page 149]]

    (B) Not later than 90 days after the claim was filed by the lender 
for closed school or false certification claims.
    (ii) In the case of a bankruptcy claim, the guaranty agency shall, 
upon receipt of the claim from the lender, immediately take those 
actions required under paragraph (i) of this section to oppose the 
discharge of the loan by the bankruptcy court.
    (iii) In the case of a closed school claim or a false certification 
claim based on the determination that the borrower did not sign the loan 
application, the promissory note, or the authorization for the 
electronic transfer of loan funds, or that the school failed to test, or 
improperly tested, the student's ability to benefit, the guaranty agency 
shall document its determination that the borrower is eligible for 
discharge under paragraphs (d) or (e) of this section and pay the 
borrower or the holder the amount determined under paragraph (h)(2) of 
this section.
    (iv) In reviewing a claim under this section, the issue of 
confirmation of subsequent loans under an MPN will not be reviewed and a 
claim will not be denied based on the absence of any evidence relating 
to confirmation in a particular loan file. However, if a court rules 
that a loan is unenforceable solely because of the lack of evidence of 
the confirmation process or processes, insurance benefits must be 
repaid.
    (v) In the case of a disability claim based on a veteran's discharge 
application processed in accordance with paragraph (c)(9) of this 
section, the guaranty agency must review the claim promptly and not 
later than 45 days after the claim was filed by the lender pay the claim 
or return the claim to the lender in accordance with paragraph 
(c)(9)(xi)(B) of this section.
    (2)(i) The amount of loss payable--
    (A) On a death or disability claim is equal to the sum of the 
remaining principal balance and interest accrued on the loan, collection 
costs incurred by the lender and applied to the borrower's account 
within 30 days of the date those costs were actually incurred, and 
unpaid interest up to the date the lender should have filed the claim.
    (B) On a bankruptcy claim is equal to the unpaid balance of 
principal and interest determined in accordance with paragraph (h)(3) of 
this section.
    (ii) The amount of loss payable to a lender on a closed school claim 
or on a false certification claim is equal to the sum of the remaining 
principal balance and interest accrued on the loan, collection costs 
incurred by the lender and applied to the borrower's account within 30 
days of the date those costs were actually incurred, and unpaid interest 
determined in accordance with paragraph (h)(3) of this section.
    (iii) In the case of a closed school or false certification claim 
filed by a lender on an outstanding loan owed by the borrower, on the 
same date that the agency pays a claim to the lender, the agency shall 
pay the borrower an amount equal to the amount paid on the loan by or on 
behalf of the borrower, less any school tuition refunds or payments 
received by the holder or the borrower from a tuition recovery fund, 
performance bond, or other third-party source.
    (iv) In the case of a claim filed by a lender based on a request 
received from a borrower whose loan had been repaid in full by, or on 
behalf of the borrower to the lender, on the same date that the agency 
notifies the lender that the borrower is eligible for a closed school or 
false certification discharge, the agency shall pay the borrower an 
amount equal to the amount paid on the loan by or on behalf of the 
borrower, less any school tuition refunds or payments received by the 
holder or the borrower from a tuition recovery fund, performance bond, 
or other third-party source.
    (v) In the case of a loan that has been included in a Consolidation 
Loan, the agency shall pay to the holder of the borrower's Consolidation 
Loan, an amount equal to--
    (A) The amount paid on the loan by or on behalf of the borrower at 
the time the loan was paid through consolidation;
    (B) The amount paid by the consolidating lender to the holder of the 
loan when it was repaid through consolidation; minus
    (C) Any school tuition refunds or payments received by the holder or 
the borrower from a tuition recovery fund, performance bond, or other 
third-party

[[Page 150]]

source if those refunds or payments were--
    (1) Received by the borrower or received by the holder and applied 
to the borrower's loan balance before the date the loan was repaid 
through consolidation; or
    (2) Received by the borrower or received by the Consolidation Loan 
holder on or after the date the consolidating lender made a payment to 
the former holder to discharge the borrower's obligation to that former 
holder.
    (3) Payment of interest. If the guarantee covers unpaid interest, 
the amount payable on an approved claim includes the unpaid interest 
that accrues during the following periods:
    (i) During the period before the claim is filed, not to exceed the 
period provided for in paragraph (g)(2) of this section for filing the 
claim.
    (ii) During a period not to exceed 30 days following the receipt 
date by the lender of a claim returned by the guaranty agency for 
additional documentation necessary for the claim to be approved by the 
guaranty agency.
    (iii) During the period required by the guaranty agency to approve 
the claim and to authorize payment or to return the claim to the lender 
for additional documentation not to exceed--
    (A) 45 days for death, disability, or bankruptcy claims; or
    (B) 90 days for closed school or false certification claims.
    (i) Guaranty agency participation in bankruptcy proceedings--(1) 
Undue hardship claims. (i) In response to a petition filed prior to 
October 8, 1998 with regard to any bankruptcy proceeding by the borrower 
for discharge under 11 U.S.C. 523(a)(8) on the grounds of undue 
hardship, the guaranty agency must, on the basis of reasonably available 
information, determine whether the first payment on the loan was due 
more than 7 years (exclusive of any applicable suspension of the 
repayment period) before the filing of that petition and, if so, process 
the claim.
    (ii) In all other cases, the guaranty agency must determine whether 
repayment under either the current repayment schedule or any adjusted 
schedule authorized under this part would impose an undue hardship on 
the borrower and his or her dependents.
    (iii) If the guaranty agency determines that repayment would not 
constitute an undue hardship, the guaranty agency must then determine 
whether the expected costs of opposing the discharge petition would 
exceed one-third of the total amount owed on the loan, including 
principal, interest, late charges, and collection costs. If the guaranty 
agency has determined that the expected costs of opposing the discharge 
petition will exceed one-third of the total amount of the loan, it may, 
but is not required to, engage in the activities described in paragraph 
(i)(1)(iv) of this section.
    (iv) The guaranty agency must use diligence and may assert any 
defense consistent with its status under applicable law to avoid 
discharge of the loan. Unless discharge would be more effectively 
opposed by not taking the following actions, the agency must--
    (A) Oppose the borrower's petition for a determination of 
dischargeability; and
    (B) If the borrower is in default on the loan, seek a judgment for 
the amount owed on the loan.
    (v) In opposing a petition for a determination of dischargeability 
on the grounds of undue hardship, a guaranty agency may agree to 
discharge of a portion of the amount owed on a loan if it reasonably 
determines that the agreement is necessary in order to obtain a judgment 
on the remainder of the loan.
    (2) Response by a guaranty agency to plans proposed under Chapters 
11, 12, and 13. The guaranty agency shall take the following actions 
when a petition for relief in bankruptcy under Chapters 11, 12, or 13 is 
filed:
    (i) The agency is not required to respond to a proposed plan that--
    (A) Provides for repayment of the full outstanding balance of the 
loan;
    (B) Makes no provision with regard to the loan or to general 
unsecured claims.
    (ii) In any other case, the agency shall determine, based on a 
review of its own records and documents filed by the debtor in the 
bankruptcy proceeding--

[[Page 151]]

    (A) What part of the loan obligation will be discharged under the 
plan as proposed;
    (B) Whether the plan itself or the classification of the loan under 
the plan meets the requirements of 11 U.S.C. 1129, 1225, or 1325, as 
applicable; and
    (C) Whether grounds exist under 11 U.S.C. 1112, 1208, or 1307, as 
applicable, to move for conversion or dismissal of the case.
    (iii) If the agency determines that grounds exist to challenge the 
proposed plan, the agency shall, as appropriate, object to the plan or 
move to dismiss the case, if--
    (A) The costs of litigation of these actions are not reasonably 
expected to exceed one-third of the amount of the loan to be discharged 
under the plan; and
    (B) With respect to an objection under 11 U.S.C. 1325, the 
additional amount that may be recovered under the plan if an objection 
is successful can reasonably be expected to equal or exceed the cost of 
litigating the objection.
    (iv) The agency shall monitor the debtor's performance under a 
confirmed plan. If the debtor fails to make payments required under the 
plan or seeks but does not demonstrate entitlement to discharge under 11 
U.S.C. 1328(b), the agency shall oppose any requested discharge or move 
to dismiss the case if the costs of litigation together with the costs 
incurred for objections to the plan are not reasonably expected to 
exceed one-third of the amount of the loan to be discharged under the 
plan.
    (j) Mandatory purchase by a lender of a loan subject to a bankruptcy 
claim. (1) The lender shall repurchase from the guaranty agency a loan 
held by the agency pursuant to a bankruptcy claim paid to that lender, 
unless the guaranty agency sells the loan to another lender, promptly 
after the earliest of the following events:
    (i) The entry of an order denying or revoking discharge or 
dismissing a proceeding under any chapter.
    (ii) A ruling in a proceeding under chapter 7 or 11 that the loan is 
not dischargeable under 11 U.S.C. 523(a)(8) or other applicable law.
    (iii) The entry of an order granting discharge under chapter 12 or 
13, or confirming a plan of arrangement under chapter 11, unless the 
court determined that the loan is dischargeable under 11 U.S.C. 
523(a)(8) on grounds of undue hardship.
    (2) The lender may capitalize all outstanding interest accrued on a 
loan purchased under paragraph (j) of this section to cover any periods 
of delinquency prior to the bankruptcy action through the date the 
lender purchases the loan and receives the supporting loan documentation 
from the guaranty agency.
    (k) Claims for reimbursement from the Secretary on loans held by 
guarantee agencies. (1)(i) The Secretary reimburses the guaranty agency 
for its losses on bankruptcy claims paid to lenders after--
    (A) A determination by the court that the loan is dischargeable 
under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under 
chapter 7 or chapter 11; or
    (B) With respect to any other loan, after the agency pays the claim 
to the lender.
    (ii) The guaranty agency shall refund to the Secretary the full 
amount of reimbursement received from the Secretary on a loan that a 
lender repurchases under this section.
    (2) The Secretary pays a death, disability, bankruptcy, closed 
school, or false certification claim in an amount determined under Sec.  
682.402(k)(5) on a loan held by a guaranty agency after the agency has 
paid a default claim to the lender thereon and received payment under 
its reinsurance agreement. The Secretary reimburses the guaranty agency 
only if--
    (i) The Secretary determines that the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled since 
applying for the loan, or the guaranty agency determines that the 
borrower (or the student for whom a parent obtained a PLUS loan or each 
of the co-makers of a PLUS loan) has died, or has filed for relief in 
bankruptcy, in accordance with the procedures in paragraph (b), (c), or 
(f) of this section, or the student was unable to complete an 
educational program because the school closed, or

[[Page 152]]

the borrower's eligibility to borrow (or the student's eligibility in 
the case of a PLUS loan) was falsely certified by an eligible school. 
For purposes of this paragraph, references to the ``lender'' and 
``guaranty agency'' in paragraphs (b) through (f) of this section mean 
the guaranty agency and the Secretary respectively;
    (ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary 
determines that the borrower (or each of the co-makers of a PLUS loan) 
has become totally and permanently disabled since applying for the loan, 
the guaranty agency determines that the borrower (or the student for 
whom a parent obtained a PLUS loan, or each of the co-makers of a PLUS 
loan) has died, or has filed the petition for relief in bankruptcy 
within 10 years of the date the borrower entered repayment, exclusive of 
periods of deferment or periods of forbearance granted by the lender 
that extended the 10-year maximum repayment period, or the borrower (or 
the student for whom a parent received a PLUS loan) was unable to 
complete an educational program because the school closed, or the 
borrower's eligibility to borrow (or the student's eligibility in the 
case of a PLUS loan) was falsely certified by an eligible school;
    (iii) In the case of a Consolidation loan, the borrower (or one of 
the co-makers) has died, is determined by the Secretary to be totally 
and permanently disabled under Sec.  682.402(c), or has filed the 
petition for relief in bankruptcy within the maximum repayment period 
described in Sec.  682.209(h)(2), exclusive of periods of deferment or 
periods of forbearance granted by the lender that extended the maximum 
repayment period;
    (iv) The guaranty agency has not written off the loan in accordance 
with the procedures established by the agency under Sec.  
682.410(b)(6)(x), except for closed school and false certification 
discharges; and
    (v) The guaranty agency has exercised due diligence in the 
collection of the loan in accordance with the procedures established by 
the agency under Sec.  682.410(b)(6)(x), until the borrower (or the 
student for whom a parent obtained a PLUS loan, or each of the co-makers 
of a PLUS loan) has died, or the borrower (or each of the co-makers of a 
PLUS loan) has become totally and permanently disabled or filed a 
Chapter 12 or Chapter 13 petition, or had the loan discharged in 
bankruptcy, or for closed school and false certification claims, the 
guaranty agency receives a request for discharge from the borrower or 
another party.
    (3) [Reserved]
    (4) Within 30 days of receiving reimbursement for a closed school or 
false certification claim, the guaranty agency shall pay--
    (i) The borrower an amount equal to the amount paid on the loan by 
or on behalf of the borrower, less any school tuition refunds or 
payments received by the holder, guaranty agency, or the borrower from a 
tuition recovery fund, performance bond, or other third-party source; or
    (ii) The amount determined under paragraph (h)(2)(iv) of this 
section to the holder of the borrower's Consolidation Loan.
    (5) The Secretary pays the guaranty agency a percentage of the 
outstanding principal and interest that is equal to the complement of 
the reinsurance percentage paid on the loan. This interest includes 
interest that accrues during--
    (i) For death or bankruptcy claims, the shorter of 60 days or the 
period from the date the guaranty agency determines that the borrower 
(or the student for whom a parent obtained a PLUS loan, or each of the 
co-makers of a PLUS loan) died, or filed a petition for relief in 
bankruptcy until the Secretary authorizes payment;
    (ii) For disability claims, the shorter of 60 days or the period 
from the date the Secretary makes a determination that the borrower 
became totally and permanently disabled until the Secretary authorizes 
payment; or
    (iii) For closed school or false certification claims, the period 
from the date on which the guaranty agency received payment from the 
Secretary on a default claim to the date on which the Secretary 
authorizes payment of the closed school or false certification claim.
    (l) Unpaid refund discharge--(1) Unpaid refunds in closed school 
situations. In the case of a school that has closed,

[[Page 153]]

the Secretary reimburses the guarantor of a loan and discharges a former 
or current borrower's (and any endorser's) obligation to repay that 
portion of an FFEL Program loan (disbursed, in whole or in part on or 
after January 1, 1986) equal to the refund that should have been made by 
the school under applicable Federal law and regulations, including this 
section. Any accrued interest and other charges (late charges, 
collection costs, origination fees, and insurance premiums or Federal 
default fees) associated with the unpaid refund are also discharged.
    (2) Unpaid refunds in open school situations. In the case of a 
school that is open, the guarantor discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of an 
FFEL loan (disbursed, in whole or in part, on or after January 1, 1986) 
equal to the amount of the refund that should have been made by the 
school under applicable Federal law and regulations, including this 
section, if--
    (i) The borrower (or the student on whose behalf a parent borrowed) 
is not attending the school that owes the refund; and
    (ii) The guarantor receives documentation regarding the refund and 
the borrower and guarantor have been unable to resolve the unpaid refund 
within 120 days from the date the guarantor receivesa complete 
application in accordance with paragraph (l)(4) of this section. Any 
accrued interest and other charges (late charges, collection costs, 
origination fees, and insurance premiums or Federal default fees) 
associated with the amount of the unpaid refund amount are also 
discharged.
    (3) Relief to borrower (and any endorser) following discharge. (i) 
If a borrower receives a discharge of a portion of a loan under this 
section, the borrower is reimbursed for any amounts paid in excess of 
the remaining balance of the loan (including accrued interest, late 
charges, collection costs, origination fees, and insurance premiums or 
Federal default fees) owed by the borrower at the time of discharge.
    (ii) The holder of the loan reports the discharge of a portion of a 
loan under this section to all credit reporting agencies to which the 
holder of the loan previously reported the status of the loan.
    (4) Borrower qualification for discharge. To receive a discharge of 
a portion of a loan under this section, a borrower must submit a written 
application to the holder or guaranty agency except as provided in 
paragraph (l)(5)(iv) of this section. The application requests the 
information required to calculate the amount of the discharge and 
requires the borrower to sign a statement swearing to the accuracy of 
the information in the application. The statement need not be notarized 
but must be made by the borrower under penalty of perjury. In the 
statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not attend, withdrew, or was terminated from the school 
within a timeframe that entitled the borrower to a refund; and
    (C) Did not receive the benefit of a refund to which the borrower 
was entitled either from the school or from a third party, such as a 
holder of a performance bond or a tuition recovery program.
    (ii) State whether the borrower has any other application for 
discharge pending for this loan; and
    (iii) State that the borrower--
    (A) Agrees to provide upon request by the Secretary or the 
Secretary's designee other documentation reasonably available to the 
borrower that demonstrates that the borrower meets the qualifications 
for an unpaid refund discharge under this section; and
    (B) Agrees to cooperate with the Secretary or the Secretary's 
designee in enforcement actions in accordance with paragraph (e) of this 
section and to transfer any right to recovery against a third party to 
the Secretary in accordance with paragraph (d) of this section.
    (5) Unpaid refund discharge procedures. (i) Except for the 
requirements of paragraph (l)(5)(iv) of this section related to an open 
school, if the holder or guaranty agency learns that a school did not 
pay a refund of loan proceeds owed

[[Page 154]]

under applicable law and regulations, the holder or the guaranty agency 
sends the borrower a discharge application and an explanation of the 
qualifications and procedures for obtaining a discharge. The holder of 
the loan also promptly suspends any efforts to collect from the borrower 
on any affected loan.
    (ii) If the borrower returns the application, specified in paragraph 
(l)(4) of this section, the holder or the guaranty agency must review 
the application to determine whether the application appears to be 
complete. In the case of a loan held by a lender, once the lender 
determines that the application appears complete, it must provide the 
application and all pertinent information to the guaranty agency 
including, if available, the borrower's last date of attendance. If the 
borrower returns the application within 60 days, the lender must extend 
the period during which efforts to collect on the affected loan are 
suspended to the date the lender receives either a denial of the request 
or the unpaid refund amount from the guaranty agency. At the conclusion 
of the period during which the collection activity was suspended, the 
lender may capitalize any interest accrued and not paid during that 
period in accordance with Sec.  682.202(b).
    (iii) If the borrower fails to return the application within 60 
days, the holder of the loan resumes collection efforts and grants 
forbearance of principal and interest for the period during which the 
collection activity was suspended. The holder may capitalize any 
interest accrued and not paid during that period in accordance with 
Sec.  682.202(b).
    (iv) The guaranty agency may, with the approval of the Secretary, 
discharge a portion of a loan under this section without an application 
if the guaranty agency determines, based on information in the guaranty 
agency's possession, that the borrower qualifies for a discharge.
    (v) If the holder of the loan or the guaranty agency determines that 
the information contained in its files conflicts with the information 
provided by the borrower, the guaranty agency must use the most reliable 
information available to it to determine eligibility for and the 
appropriate payment of the refund amount.
    (vi) If the holder of the loan is the guaranty agency and the agency 
determines that the borrower qualifies for a discharge of an unpaid 
refund, the guaranty agency must suspend any efforts to collect on the 
affected loan and, within 30 days of its determination, discharge the 
appropriate amount and inform the borrower of its determination. Absent 
documentation of the exact amount of refund due the borrower, the 
guaranty agency must calculate the amount of the unpaid refund using the 
unpaid refund calculation defined in paragraph (o) of this section.
    (vii) If the guaranty agency determines that a borrower does not 
qualify for an unpaid refund discharge, (or, if the holder is the lender 
and is informed by the guarantor that the borrower does not qualify for 
a discharge)--
    (A) Within 30 days of the guarantor's determination, the agency must 
notify the borrower in writing of the reason for the determination and 
of the borrower's right to request a review of the agency's 
determination. The guaranty agency must make a determination within 30 
days of the borrower's submission of additional documentation supporting 
the borrower's eligibility that was not considered in any prior 
determination. During the review period, collection activities must be 
suspended; and
    (B) The holder must resume collection if the determination remains 
unchanged and grant forbearance of principal and interest for any period 
during which collection activity was suspended under this section. The 
holder may capitalize any interest accrued and not paid during these 
periods in accordance with Sec.  682.202(b).
    (viii) If the guaranty agency determines that a current or former 
borrower at an open school may be eligible for a discharge under this 
section, the guaranty agency must notify the lender and the school of 
the unpaid refund allegation. The notice to the school must include all 
pertinent facts available to the guaranty agency regarding the alleged 
unpaid refund. The school

[[Page 155]]

must, no later than 60 days after receiving the notice, provide the 
guaranty agency with documentation demonstrating, to the satisfaction of 
the guarantor, that the alleged unpaid refund was either paid or not 
required to be paid.
    (ix) In the case of a school that does not make a refund or provide 
sufficient documentation demonstrating the refund was either paid or was 
not required, within 60 days of its receipt of the allegation notice 
from the guaranty agency, relief is provided to the borrower (and any 
endorser) if the guaranty agency determines the relief is appropriate. 
The agency must forward documentation of the school's failure to pay the 
unpaid refund to the Secretary.
    (m) Unpaid refund discharge procedures for a loan held by a lender. 
In the case of an unpaid refund discharge request, the lender must 
provide the guaranty agency with documentation related to the borrower's 
qualification for discharge as specified in paragraph (l)(4) of this 
section.
    (n) Payment of an unpaid refund discharge request by a guaranty 
agency--(1) General. The guaranty agency must review an unpaid refund 
discharge request promptly and must pay the lender the amount of loss as 
defined in paragraphs (l)(1) and (l)(2) of this section, related to the 
unpaid refund not later than 45 days after a properly filed request is 
made.
    (2) Determination of the unpaid refund discharge amount to the 
lender. The amount of loss payable to a lender on an unpaid refund 
includes that portion of an FFEL Program loan equal to the amount of the 
refund required under applicable Federal law and regulations, including 
this section, and including any accrued interest and other charges (late 
charges, collection costs, origination fees, and insurance premiums or 
Federal default fees) associated with the unpaid refund.
    (o)(1) Determination of amount eligible for discharge. The guaranty 
agency determines the amount eligible for discharge based on information 
showing the refund amount or by applying the appropriate refund formula 
to information that the borrower provides or that is otherwise available 
to the guaranty agency. For purposes of this section, all unpaid refunds 
are considered to be attributed to loan proceeds.
    (2) If the information in paragraph (o)(1) of this section is not 
available, the guaranty agency uses the following formulas to determine 
the amount eligible for discharge:
    (i) In the case of a student who fails to attend or whose withdrawal 
or termination date is before October 7, 2000 and who completes less 
than 60 percent of the loan period, the guaranty agency discharges the 
lesser of the institutional charges unearned or the loan amount. The 
guaranty agency determines the amount of the institutional charges 
unearned by--
    (A) Calculating the ratio of the amount of time in the loan period 
after the student's last day of attendance to the actual length of the 
loan period; and
    (B) Multiplying the resulting factor by the institutional charges 
assessed the student for the loan period.
    (ii) In the case of a student who fails to attend or whose 
withdrawal or termination date is on or after October 7, 2000 and who 
completes less than 60 percent of the loan period, the guaranty agency 
discharges the loan amount unearned. The guaranty agency determines the 
loan amount unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan period after the student's last day of attendance to the actual 
length of the loan period; and
    (B) Multiplying the resulting factor by the total amount of title IV 
grants and loans received by the student, or if unknown, the loan 
amount.
    (iii) In the case of a student who completes 60 percent or more of 
the loan period, the guaranty agency does not discharge any amount 
because a student who completes 60 percent or more of the loan period is 
not entitled to a refund.
    (p) Requests for reimbursement from the Secretary on loans held by 
guaranty agencies. The Secretary reimburses the guaranty agency for its 
losses on unpaid refund request payments to lenders or borrowers in an 
amount that is equal to the amount specified in paragraph (n)(2) of this 
section.

[[Page 156]]

    (q) Payments received after the guaranty agency's payment of an 
unpaid refund request. (1) The holder must promptly return to the sender 
any payment on a fully discharged loan, received after the guaranty 
agency pays an unpaid refund request unless the sender is required to 
pay (as in the case of a tuition recovery fund) in which case, the 
payment amount must be forwarded to the Secretary. At the same time that 
the holder returns the payment, it must notify the borrower that there 
is no obligation to repay a loan fully discharged.
    (2) If the holder has returned a payment to the borrower, or the 
borrower's representative, with the notice described in paragraph (q)(1) 
of this section, and the borrower (or representative) continues to send 
payments to the holder, the holder must remit all of those payments to 
the Secretary.
    (3) If the loan has not been fully discharged, payments must be 
applied to the remaining debt.
    (r) Payments received after the Secretary's payment of a death, 
disability, closed school, false certification, or bankruptcy claim (1) 
If the guaranty agency receives any payments from or on behalf of the 
borrower on or attributable to a loan that has been discharged in 
bankruptcy on which the Secretary previously paid a bankruptcy claim, 
the guaranty agency must return 100 percent of these payments to the 
sender. The guaranty agency must promptly return, to the sender, any 
payment on a cancelled or discharged loan made by the sender and 
received after the Secretary pays a closed school or false certification 
claim. At the same time that the agency returns the payment, it must 
notify the borrower that there is no obligation to repay a loan 
discharged on the basis of death, bankruptcy, false certification, or 
closing of the school.
    (2) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that has been assigned to 
the Secretary based on the determination that the borrower is eligible 
for a total and permanent disability discharge, the guaranty agency must 
promptly return these payments to the sender. At the same time that the 
agency returns the payments, it must notify the borrower that there is 
no obligation to make payments on the loan after it has been discharged 
due to a total and permanent disability, unless the loan is reinstated 
in accordance with paragraph (c) of this section, or the Secretary 
directs the borrower otherwise.
    (3) When the Secretary discharges the loan, the Secretary returns to 
the sender any payments received by the Secretary on the loan after the 
date the borrower became totally and permanently disabled.
    (4) The guaranty agency shall remit to the Secretary all payments 
received from a tuition recovery fund, performance bond, or other third 
party with respect to a loan on which the Secretary previously paid a 
closed school or false certification claim.
    (5) If the guaranty agency has returned a payment to the borrower, 
or the borrower's representative, with the notice described in 
paragraphs (r)(1) or (r)(2) of this section, and the borrower (or 
representative) continues to send payments to the guaranty agency, the 
agency must remit all of those payments to the Secretary.
    (s) Applicable suspension of the repayment period. For purposes of 
this section and 11 U.S.C. 523(a)(8)(A) with respect to loans guaranteed 
under the FFEL Program, an applicable suspension of the repayment 
period--
    (1) Includes any period during which the lender does not require the 
borrower to make a payment on the loan.
    (2) Begins on the date on which the borrower qualifies for the 
requested deferment as provided in Sec.  682.210(a)(5) or the lender 
grants the requested forbearance;
    (3) Closes on the later of the date on which--
    (i) The condition for which the requested deferment or forbearance 
was received ends; or
    (ii) The lender receives notice of the end of the condition for 
which the requested deferment or forbearance was received, if the 
condition ended earlier than represented by the borrower at the time of 
the request and the borrower did not notify timely the lender of the 
date on which the condition actually ended;

[[Page 157]]

    (4) Includes the period between the end of the borrower's grace 
period and the first payment due date established by the lender in the 
case of a borrower who entered repayment without the knowledge of the 
lender;
    (5) Includes the period between the filing of the petition for 
relief and the date on which the proceeding is completed or dismissed, 
unless payments have been made during that period in amounts sufficient 
to meet the amount owed under the repayment schedule in effect when the 
petition was filed.

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.402, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.403  [Reserved]



Sec.  682.404  Federal reinsurance agreement.

    (a) General. (1) The Secretary may enter into a reinsurance 
agreement with a guaranty agency that has a basic program agreement. 
Except as provided in paragraph (b) of this section, under a reinsurance 
agreement, the Secretary reimburses the guaranty agency for--
    (i) 95 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made on or after October 1, 
1998;
    (ii) 98 percent of its losses on default claim payments to lenders 
for loans for which the first disbursement is made on or after October 
1, 1993, and before October 1, 1998; or
    (iii) 100 percent of its losses on default claim payments to 
lenders--
    (A) For loans for which the first disbursement is made prior to 
October 1, 1993;
    (B) For loans made under an approved lender-of-last-resort program;
    (C) For loans transferred under a plan approved by the Secretary 
from an insolvent guaranty agency or a guaranty agency that withdraws 
its participation in the FFEL Program;
    (D) For loans that meet the definition of exempt claims in paragraph 
(a)(2)(iii) of this section;
    (E) For a guaranty agency that entered into a basic program 
agreement under section 428(b) of the Act after September 30, 1976, or 
was not actively carrying on a loan guarantee program covered by a basic 
program agreement on October 1, 1976 for five consecutive fiscal years 
beginning with the first year of its operation.
    (2) For purposes of this section--
    (i) Losses means the amount of unpaid principal and accrued interest 
the agency paid on a default claim filed by a lender on a reinsured 
loan, minus payments made by or on behalf of the borrower after default 
but before the Secretary reimburses the agency;
    (ii) Default aversion assistance means the activities of a guaranty 
agency that are designed to prevent a default by a borrower who is at 
least 60 days delinquent and that are directly related to providing 
collection assistance to the lender.
    (iii) Exempt claims means claims with respect to loans for which it 
is determined that the borrower (or student on whose behalf a parent has 
borrowed), without the lender's or the institution's knowledge at the 
time the loan was made, provided false or erroneous information or took 
actions that caused the borrower or the student to be ineligible for all 
of a portion of the loan or for interest benefits on the loan.
    (3) A guaranty agency's loss on a loan that was outstanding when a 
reinsurance agreement was executed is covered by the reinsurance 
agreement only if the default on the loan occurs after the effective 
date of the agreement.
    (4) If a lender has requested default aversion assistance as 
described in paragraph (a)(2)(ii) of this section, the agency must, upon 
request of the school at which the borrower received the loan, notify 
the school of the lender's request. The guaranty agency may not charge 
the school or the school's agent for providing this notification and 
must accept a blanket request from the school to be notified whenever 
any of the school's current or former students are the subject of a 
default aversion assistance request. The agency must notify schools 
annually of the option to make this blanket request.
    (b) Reduction in reinsurance rate. (1) If the total of reinsurance 
claims paid by

[[Page 158]]

the Secretary to a guaranty agency during any fiscal year reaches 5 
percent of the amount of loans in repayment at the end of the preceding 
fiscal year, the Secretary's reinsurance payment on a default claim 
subsequently paid by the guaranty agency during that fiscal year 
equals--
    (i) 90 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 88 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 85 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (2) If the total of reinsurance claims paid by the Secretary to a 
guaranty agency during any fiscal year reaches 9 percent of the amount 
of loans in repayment at the end of the preceding fiscal year, the 
Secretary's reinsurance payment on a default claim subsequently paid by 
the guaranty agency during that fiscal year equals--
    (i) 80 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 78 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 75 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (3) For purposes of this section, the total of reinsurance claims 
paid by the Secretary to a guaranty agency during any fiscal year does 
not include amounts paid on claims by the guaranty agency--
    (i) On loans considered in default under Sec.  682.412(e);
    (ii) Under a policy established by the agency that addresses 
instances in which, for a non-school originated loan, a lender learns 
that the school terminated its teaching activities while a student was 
enrolled during the academic period covered by the loan;
    (iii) That were filed by lenders at the direction of the Secretary; 
or
    (iv) On loans made under a guaranty agency's approved lender-of-
last-resort program.
    (4) For purposes of this section, amount of loans in repayment 
means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was canceled;
    (B) The loan guarantee was transferred to another agency;
    (C) The borrower has not yet reached the repayment period;
    (D) Payment in full has been made by the borrower;
    (E) The borrower was in deferment status at the time repayment was 
scheduled to begin and remains in deferment status;
    (F) Reinsurance coverage has been lost and cannot be regained; and
    (G) The agency paid claims, excluding the amount of those claims--
    (1) Paid under Sec.  682.412(e);
    (2) Paid under a policy established by the agency that addresses the 
condition identified in paragraph (b)(3)(ii) of this section; or
    (3) Paid at the direction of the Secretary.
    (c) Submission of reinsurance rate base data. The guaranty agency 
shall submit to the Secretary the quarterly report required by the 
Secretary for the previous quarter ending September 30 containing 
complete and accurate data in order for the Secretary to calculate the 
amount of loans in repayment at the end of the preceding fiscal year. 
The Secretary does not pay a reinsurance claim to the guaranty agency 
after the date the guarterly report is

[[Page 159]]

due until the quaranty agency submits a complete and accurate report.
    (d) Reinsurance fee. (1) Except for loans that were refinanced 
pursuant to section 428B(e)(2) and (3) of the Act, and all loans 
guaranteed on or after October 1, 1993, a guaranty agency shall pay to 
the Secretary during each fiscal year in quarterly installments a 
reinsurance fee equal to--
    (i) 0.25 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year; or
    (ii) 0.5 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year if the agency's reinsurance claims paid reach the 
amount described in paragraph (b)(1) of this section at any time during 
that fiscal year.
    (2) The agency that is the original guarantor of a loan shall pay 
the reinsurance fee to the Secretary even if the guaranty agency 
transfers its guarantee obligation on the loan to another guaranty 
agency.
    (3) The guaranty agency shall pay the reinsurance fee required by 
paragraph (d)(1) of this section due the Secretary for each calendar 
quarter ending March 31, June 30, September 30, and December 31, within 
90 days after the end of the applicable quarter or within 30 days after 
receiving written notice from the Secretary that the fees are due, 
whichever is earlier.
    (e) Initiation or extension of agreements. In deciding whether to 
enter into or extend a reinsurance agreement, or, if an agreement has 
been terminated, whether to enter into a new agreement, the Secretary 
considers the adequacy of--
    (1) Efforts by the guaranty agency and the lenders to which it 
provides guarantees to collect outstanding loans as required by Sec.  
682.410(b) (6) or (7), and Sec.  682.411;
    (2) Efforts by the guaranty agency to make FFEL loans available to 
all eligible borrowers; and
    (3) Other relevant aspects of the guaranty agency's program 
operations.
    (f) Application of borrower payments. A payment made to a guaranty 
agency by a borrower on a defaulted loan must be applied first to the 
collection costs incurred to collect that amount and then to other 
incidental charges, such as late charges, then to accrued interest and 
then to principal.
    (g) Share of borrower payments returned to the Secretary. (1) After 
an agency pays a default claim to a holder using assets of the Federal 
Fund, the agency must pay to the Secretary the portion of payments 
received on those defaulted loans remaining after--
    (i) The agency deposits into the Federal Fund the amount of those 
payments equal to the applicable complement of the reinsurance 
percentage that was in effect at the time the claim was paid; and
    (ii) The agency has deducted an amount equal to--
    (A) 30 percent of borrower payments received before October 1, 1993;
    (B) 27 percent of borrower payments received on or after October 1, 
1993, and before October 1, 1998;
    (C) 24 percent of borrower payments received on or after October 1, 
1998, and before October 1, 2003; and
    (D) 23 percent of borrower payments received on or after October 1, 
2003.
    (E) 16 percent of borrower payments received on or after October 1, 
2007.
    (2) Unless the Secretary approves otherwise, the guaranty agency 
must pay to the Secretary the Secretary's share of borrower payments 
within 45 days of its receipt of the payments.
    (h) Account maintenance fee. A guaranty agency is paid an account 
maintenance fee based on the original principal amount of outstanding 
FFEL Program loans insured by the agency. For fiscal years 1999 and 
2000, the fee is 0.12 percent of the original principal amount of 
outstanding loans. For fiscal years 2000 through 2007, the fee is 0.10 
percent of the original principal amount of outstanding loans. After 
fiscal year 2007, the fee is 0.06 percent of the original principal 
amount of outstanding loans.
    (i) Loan processing and issuance fee. A guaranty agency is paid a 
loan processing and issuance fee based on the principal amount of FFEL 
Program loans originated during a fiscal year that are insured by the 
agency. The fee is paid quarterly. No payment is made

[[Page 160]]

for loans for which the disbursement checks have not been cashed or for 
which electronic funds transfers have not been completed. For fiscal 
years 1999 through 2003, the fee is 0.65 percent of the principal amount 
of loans originated. Beginning October 1, 2003, the fee is 0.40 percent.
    (j) Default aversion fee--(1) General. If a guaranty agency performs 
default aversion activities on a delinquent loan in response to a 
lender's request for default aversion assistance on that loan, the 
agency receives a default aversion fee. The fee may not be paid more 
than once on any loan. The lender's request for assistance must be 
submitted to the guaranty agency no earlier than the 60th day and no 
later than the 120th day of the borrower's delinquency. A guaranty 
agency may not restrict a lender's choice of the date during this period 
on which the lender submits a request for default aversion assistance.
    (2) Amount of fees transferred. No more frequently than monthly, a 
guaranty agency may transfer default aversion fees from the Federal Fund 
to its Operating Fund. The amount of the fees that may be transferred is 
equal to--
    (i) One percent of the unpaid principal and accrued interest owed on 
loans that were submitted by lenders to the agency for default aversion 
assistance; minus
    (ii) One percent of the unpaid principal and accrued interest owed 
by borrowers on default claims that--
    (A) Were paid by the agency for the same time period for which the 
agency transferred default aversion fees from its Federal Fund; and
    (B) For which default aversion fees have been received by the 
agency.
    (3) Calculation of fee. (i) For purposes of calculating the one 
percent default aversion fee described in paragraph (j)(2)(i) of this 
section, the agency must use the total unpaid principal and accrued 
interest owed by the borrower as of the date the default aversion 
assistance request is submitted by the lender.
    (ii) For purposes of paragraph (j)(2)(ii) of this section, the 
agency must use the total unpaid principal and accrued interest owed by 
the borrower as of the date the agency paid the default claim.
    (4) Prohibition against conflicts. If a guaranty agency contracts 
with an outside entity to perform any default aversion activities, that 
outside entity may not--
    (i) Hold or service the loan; or
    (ii) Perform collection activities on the loan in the event of 
default within 3 years of the claim payment date.
    (k) Other terms. The reinsurance agreement contains other terms and 
conditions that the Secretary finds necessary to--
    (1) Promote the purposes of the FFEL programs and to protect the 
United States from unreasonable risks of loss;
    (2) Ensure proper and efficient administration of the loan guarantee 
program; and
    (3) Ensure that due diligence will be exercised in the collection of 
loans.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 61429, Nov. 30, 1994; 60 FR 31411, June 
15, 1995; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58628, Oct. 29, 1999; 71 FR 45707, Aug. 9, 2006; 72 FR 62006, Nov. 1, 
2007; 78 FR 65815, Nov. 1, 2013]



Sec.  682.405  Loan rehabilitation agreement.

    (a) General. (1) A guaranty agency that has a basic program 
agreement must enter into a loan rehabilitation agreement with the 
Secretary. The guaranty agency must establish a loan rehabilitation 
program for all borrowers with an enforceable promissory note for the 
purpose of rehabilitating defaulted loans, except for loans for which a 
judgment has been obtained, loans on which a default claim was filed 
under Sec.  682.412, and loans on which the borrower has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance, so that the loan may be 
purchased, if practicable, by an eligible lender and removed from 
default status.
    (2) A loan is considered to be rehabilitated only after--
    (i) The borrower has made and the guaranty agency has received nine 
of

[[Page 161]]

the ten qualifying payments required under a monthly repayment 
agreement.
    (A) A qualifying payment is--
    (1) Made voluntarily;
    (2) In the full amount required; and
    (3) Received within 20 days of the due date for the payment, and
    (B) All nine payments are received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month, and
    (ii) The loan has been sold to an eligible lender or assigned to the 
Secretary.
    (3)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the guaranty agency 
must continue collecting the loan by administrative wage garnishment 
until the borrower makes five qualifying monthly payments under the 
rehabilitation agreement, unless the guaranty agency is otherwise 
precluded from doing so under Sec.  682.410(b)(9).
    (ii) After the borrower makes the fifth qualifying monthly payment, 
the guaranty agency must, unless otherwise directed by the borrower, 
suspend the garnishment order issued to the borrower's employer.
    (iii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
    (4) After the loan has been rehabilitated, the borrower regains all 
benefits of the program, including any remaining deferment eligibility 
under section 428(b)(1)(M) of the Act, from the date of the 
rehabilitation. Effective for any loan that is rehabilitated on or after 
August 14, 2008, the borrower cannot rehabilitate the loan again if the 
loan returns to default status following the rehabilitation.
    (b) Terms of agreement. In the loan rehabilitation agreement, the 
guaranty agency agrees to ensure that its loan rehabilitation program 
meets the following requirements at all times:
    (1) A borrower may request rehabilitation of the borrower's 
defaulted loan held by the guaranty agency. In order to be eligible for 
rehabilitation of the loan, the borrower must voluntarily make at least 
9 of the 10 payments required under a monthly repayment agreement.
    (i) Each payment must be--
    (A) Made voluntarily;
    (B) For the full amount required;
    (C) Received within 20 days of the due date for the payment; and
    (D) Reasonable and affordable.
    (ii) All 9 payments must be received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month.
    (iii) The guaranty agency initially considers the borrower's 
reasonable and affordable payment amount to be an amount equal to 15 
percent of the amount by which the borrower's Adjusted Gross Income 
(AGI) exceeds 150 percent of the poverty guideline amount applicable to 
the borrower's family size and State, divided by 12, except that if this 
amount is less than $5, the borrower's monthly rehabilitation payment is 
$5.
    (iv) The guaranty agency or its agents may calculate the payment 
amount based on information provided orally by the borrower or the 
borrower's representative and provide the borrower with a rehabilitation 
agreement using that amount. The guaranty agency must request 
documentation from the borrower to confirm the borrower's AGI and family 
size. If the borrower does not provide the guaranty agency or its agents 
with any documentation requested by the guaranty agency to calculate or 
confirm the reasonable and affordable payment amount, within a 
reasonable time deadline set by the guaranty agency or its agent, the 
rehabilitation agreement provided is null and void.
    (v) The reasonable and affordable payment amount calculated under 
this section must not be--
    (A) A required minimum loan payment amount (e.g., $50) if the agency 
determines that a smaller amount is reasonable and affordable;
    (B) A percentage of the borrower's total loan balance; or

[[Page 162]]

    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (vi) Within 15 business days of its determination of the borrower's 
loan rehabilitation payment amount, the guaranty agency must provide the 
borrower with a written rehabilitation agreement which includes the 
borrower's payment amount calculated under paragraph (b)(1)(iii), a 
prominent statement that the borrower may object orally or in writing to 
the payment amount, with the method and timeframe for raising such an 
objection, and an explanation of any other terms and conditions 
applicable to the required series of payments that must be made before 
the borrower's account can be considered for repurchase by an eligible 
lender or assignment to the Secretary (i.e., rehabilitated). To accept 
the agreement, the borrower must sign and return the agreement or accept 
the agreement electronically under a process provided by the agency. The 
agency may not impose any conditions unrelated to the amount or timing 
of the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement must inform the borrower--
    (A) Of the effects of having the loans rehabilitated (e.g., removal 
of the record of default from the borrower's credit history and return 
to normal repayment);
    (B) Of the amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is sold to an eligible lender or 
assigned to the Secretary, which may not exceed 16 percent of the unpaid 
principal and accrued interest on the loan at the time of the sale or 
assignment; and
    (C) That the rehabilitation agreement is null and void if the 
borrower fails to provide the documentation required to confirm the 
monthly payment calculated under paragraph (b)(1)(iii) of this section.
    (vii) If the borrower objects to the monthly payment amount 
determined under paragraph (b)(1)(iii) of this section, the guaranty 
agency or its agents must recalculate the payment amount based solely on 
information provided on a form approved by the Secretary and, if 
requested, supporting documentation from the borrower and other sources, 
and must consider--
    (A) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (B) Family size as defined in Sec.  682.215(a)(3); and
    (C) Reasonable and necessary expenses, which include--
    (1) Food;
    (2) Housing;
    (3) Utilities;
    (4) Basic communication expenses;
    (5) Necessary medical and dental costs;
    (6) Necessary insurance costs;
    (7) Transportation costs;
    (8) Dependent care and other work-related expenses;
    (9) Legally required child and spousal support;
    (10) Other title IV and non-title IV student loan payments; and
    (11) Other expenses approved by the Secretary.
    (viii) The guaranty agency must provide the borrower with a new 
written rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount within the timeframe specified 
in paragraph (b)(1)(vii) of this section. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the agency.
    (ix) The agency must include any payment made under Sec.  
682.401(b)(1) in determining whether the 9 out of 10 payments required 
under paragraph (b)(1) of this section have been made.
    (x) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
only upon providing the documentation specified in paragraph (b)(1)(vii) 
of this section.
    (xi) Except as provided in paragraph (c) of this section, during the 
rehabilitation period, the guaranty agency must limit contact with the 
borrower

[[Page 163]]

on the loan being rehabilitated to collection activities that are 
required by law or regulation and to communications that support the 
rehabilitation.
    (2)(i) For the purposes of this section, payment in the full amount 
required means payment of an amount that is reasonable and affordable, 
based on the borrower's total financial circumstances, as agreed to by 
the borrower and the agency. Voluntary payments are those made directly 
by the borrower and do not include payments obtained by Federal offset, 
garnishment, income or asset execution, or after a judgment has been 
entered on a loan. A guaranty agency must attempt to secure a lender to 
purchase the loan at the end of the 9- or 10-month payment period as 
applicable.
    (ii) If the guaranty agency has been unable to sell the loan, the 
guaranty agency must assign the loan to the Secretary.
    (3) Upon the sale of a rehabilitated loan to an eligible lender or 
assignment to the Secretary--
    (i) The guaranty agency must, within 45 days of the sale or 
assignment--
    (A) Provide notice to the prior holder of such sale or assignment, 
and
    (B) Request that any consumer reporting agency to which the default 
was reported remove the record of default from the borrower's credit 
history.
    (ii) The prior holder of the loan must, within 30 days of receiving 
the notification from the guaranty agency, request that any consumer 
reporting agency to which the default claim payment or other equivalent 
record was reported remove such record from the borrower's credit 
history.
    (4)(i) An eligible lender purchasing a rehabilitated loan must 
establish a repayment schedule that meets the same requirements that are 
applicable to other FFEL Program loans of the same loan type as the 
rehabilitated loan and must permit the borrower to choose any 
statutorily available repayment plan for that loan type. The lender must 
treat the first payment made under the nine payments as the first 
payment under the applicable maximum repayment term, as defined under 
Sec.  682.209(a) or (e). For Consolidation loans, the maximum repayment 
term is based on the balance outstanding at the time of loan 
rehabilitation.
    (ii) The lender must not consider the purchase of a rehabilitated 
loan as entry into repayment or resumption of repayment for the purposes 
of interest capitalization under Sec.  682.202(b).
    (c) A guaranty agency must make available to the borrower--
    (1) During the loan rehabilitation period, information about 
repayment plans, including the income-based repayment plan, that may be 
available to the borrower upon rehabilitating the defaulted loan and how 
the borrower can select a repayment plan after the loan is purchased by 
an eligible lender or assigned to the Secretary; and
    (2) After the successful completion of the loan rehabilitation 
period, financial and economic education materials, including debt 
management information.

(Authority: 20 U.S.C. 1078-6)

(Approved by the Office of Management and Budget under control number 
1845-0020)

[59 FR 33355, June 28, 1994, as amended at 60 FR 30788, June 12, 1995; 
64 FR 18980, Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR 
45707, Aug. 9, 2006; 71 FR 64398, Nov. 1, 2006; 73 FR 63254, Oct. 23, 
2008; 74 FR 56000, Oct. 29, 2009; 78 FR 65815, Nov. 1, 2013; 80 FR 
67237, Oct. 30, 2015; 81 FR 76080, Nov. 1, 2016]



Sec.  682.406  Conditions for claim payments from the Federal Fund and 
for reinsurance coverage.

    (a) A guaranty agency may make a claim payment from the Federal Fund 
and receive a reinsurance payment on a loan only if--
    (1) The lender exercised due diligence in making, disbursing, and 
servicing the loan as prescribed by the rules of the agency;
    (2) With respect to the reinsurance payment on the portion of a loan 
represented by a single disbursement of loan proceeds--
    (i) The check for the disbursement was cashed within 120 days after 
disbursement; or
    (ii) The proceeds of the disbursement made by electronic funds 
transfer or master check have been released from the restricted account 
maintained by

[[Page 164]]

the school within 120 days after disbursement;
    (3) The lender provided an accurate collection history and an 
accurate payment history to the guaranty agency with the default claim 
filed on the loan showing that the lender exercised due diligence in 
collecting the loan through collection efforts meeting the requirements 
of Sec.  682.411, including collection efforts against each endorser;
    (4) The loan was in default before the agency paid a default claim 
filed thereon;
    (5) The lender filed a default claim thereon with the guaranty 
agency within 90 days of default;
    (6) The lender resubmitted a properly documented default claim to 
the guaranty agency not later than 60 days from the date the agency had 
returned that claim due solely to inadequate documentation, except that 
interest accruing beyond the 30th day after the date the guaranty agency 
returned the claim is not reinsured unless the lender files a claim for 
loss on the loan with the guarantor together with all required 
documentation, prior to the 30th day;
    (7) The lender satisfied all conditions of guarantee coverage set by 
the agency, unless the agency reinstated guarantee coverage on the loan 
following the lender's failure to satisfy such a condition pursuant to 
written policies and procedures established by the agency;
    (8) The agency paid or returned to the lender for additional 
documentation a default claim thereon filed by the lender within 90 days 
of the date the lender filed the claim or, if applicable, the additional 
documentation, except that interest accruing beyond the 60th day after 
the date the lender originally filed the claim is not reinsured;
    (9) The agency submitted a request for the payment on a form 
required by the Secretary no later than 30 days following payment of a 
default claim to the lender;
    (10) The loan was legally enforceable by the lender when the agency 
paid a claim on the loan to the lender;
    (11) The agency exercised due diligence in collection of the loan in 
accordance with Sec.  682.410(b)(6);
    (12) The agency and lender, if applicable, complied with all other 
Federal requirements with respect to the loan including--
    (i) Payment of origination fees;
    (ii) For Consolidation loans disbursed on or after October 1, 1993, 
and prior to October 1, 1998, payment on a monthly basis, of an interest 
payment rebate fee calculated on an annual basis and equal to 1.05 
percent of the unpaid principal and accrued interest on the loan;
    (iii) For Consolidation loans for which the application was received 
by the lender on or after October 1, 1998 and prior to February 1, 1999, 
payment on a monthly basis, of an interest payment rebate fee calculated 
on an annual basis and equal to 0.62 percent of the unpaid principal and 
accrued interest on the loan;
    (iv) For Consolidation loans disbursed on or after February 1, 1999 
and prior to July 1, 2010, payment of an interest payment rebate fee in 
accordance with paragraph (a)(12)(ii) of this section; and
    (v) Compliance with all default aversion assistance requirements in 
Sec.  682.404(a)(2)(ii).
    (13) The agency assigns the loan to the Secretary, if so directed, 
in accordance with the requirements of Sec.  682.409; and
    (14) The guaranty agency certifies to the Secretary that diligent 
attempts have been made by the lender and the guaranty agency under 
Sec.  682.411(h) to locate the borrower through the use of effective 
skip-tracing techniques, including contact with the schools the student 
attended.
    (b) Notwithstanding paragraph (a) of this section, the Secretary may 
waive his right to refuse to make or require repayment of a reinsurance 
payment if, in the Secretary's judgment, the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of paragraph (a)(3) or (a)(5) of this section is set forth in appendix D 
to this part.
    (c) In evaluating a claim for insurance or reinsurance, the issue of 
confirmation of subsequent loans under an MPN will not be reviewed and a 
claim will not be denied based on the absence of any evidence relating 
to confirmation in a particular loan file. However,

[[Page 165]]

if a court rules that a loan is unenforceable solely because of the lack 
of evidence of a confirmation process or processes, insurance and 
reinsurance benefits must be repaid.
    (d) A guaranty agency may not make a claim payment from the Federal 
Fund or receive a reinsurance payment on a loan if the agency determines 
or is notified by the Secretary that the lender offered or provided an 
improper inducement as described in paragraph (5)(i) of the definition 
of lender in Sec.  682.200(b).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33356, June 28, 1994; 59 FR 61429, Nov. 
30, 1994; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58629, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 65 FR 65620, Nov. 1, 
2000; 66 FR 34764, June 29, 2001; 71 FR 45708, Aug. 9, 2006; 72 FR 
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]



Sec.  682.407  Discharge of student loan indebtedness for survivors of
victims of the September 11, 2001, attacks.

    (a) Definition of terms. As used in this section--
    (1) Eligible public servant means an individual who--
    (i) Served as a police officer, firefighter, other safety or rescue 
personnel, or as a member of the Armed Forces; and
    (ii)(A) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001; or
    (B) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001.
    (2) Eligible victim means an individual who died due to injuries 
suffered in the terrorist attacks on September 11, 2001 or became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001.
    (3) Eligible parent means the parent of an eligible victim if--
    (i) The parent owes a FFEL PLUS Loan incurred on behalf of an 
eligible victim; or
    (ii) The parent owes a FFEL Consolidation Loan that was used to 
repay a FFEL or Direct Loan PLUS Loan incurred on behalf of an eligible 
victim.
    (4) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001 means the individual was present at the World Trade 
Center in New York City, New York, at the Pentagon in Virginia, or at 
the Shanksville, Pennsylvania site at the time of or in the immediate 
aftermath of the terrorist-related aircraft crashes on September 11, 
2001, and the individual died as a direct result of these crashes.
    (5) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001 means the individual was 
present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of or in the immediate aftermath of the terrorist-related aircraft 
crashes on September 11, 2001 and the individual became permanently and 
totally disabled as a direct result of these crashes.
    (i) An individual is considered permanently and totally disabled 
if--
    (A) The disability is the result of a physical injury to the 
individual that was treated by a medical professional within 72 hours of 
the injury having been sustained or within 72 hours of the rescue;
    (B) The physical injury that caused the disability is verified by 
contemporaneous medical records created by or at the direction of the 
medical professional who provided the medical care; and
    (C) The individual is unable to work and earn money due to the 
disability and the disability is expected to continue indefinitely or 
result in death.
    (ii) If the injuries suffered due to the terrorist-related aircraft 
crashes did not make the individual permanently and totally disabled at 
the time of or in the immediate aftermath of the attacks, the individual 
may be considered to be permanently and totally disabled for purposes of 
this section if the individual's medical condition has deteriorated to 
the extent that the individual is permanently and totally disabled.

[[Page 166]]

    (6) Immediate aftermath means, except in the case of an eligible 
public servant, the period of time from the aircraft crashes until 12 
hours after the crashes. With respect to eligible public servants, the 
immediate aftermath includes the period of time from the aircraft 
crashes until 96 hours after the crashes.
    (7) Present at the World Trade Center in New York City, New York, at 
the Pentagon in Virginia, or at the Shanksville, Pennsylvania site means 
physically present at the time of the terrorist-related aircraft crashes 
or in the immediate aftermath--
    (i) In the buildings portions of the buildings that were destroyed 
as a result of the terrorist-related aircraft crashes;
    (ii) In any area contiguous to the crash site that was sufficiently 
close to the site that there was a demonstrable risk of physical harm 
resulting from the impact of the aircraft or any subsequent fire, 
explosions, or building collapses. Generally, this includes the 
immediate area in which the impact occurred, fire occurred, portions of 
buildings fell, or debris fell upon and injured persons; or
    (iii) On board American Airlines flights 11 or 77 or United Airlines 
flights 93 or 175 on September 11, 2001.
    (b) September 11 survivors discharge. (1) The obligation of a 
borrower and any endorser to make any further payments on an eligible 
FFEL Program Loan is discharged if the borrower was, at the time of the 
terrorist attacks on September 11, 2001, and currently is, the spouse of 
an eligible public servant, unless the eligible public servant has died. 
If the eligible public servant has died, the borrower must have been the 
spouse of the eligible public servant at the time of the terrorist 
attacks on September 11, 2001 and until the date the eligible public 
servant died.
    (2) The obligation of a borrower to make any further payments 
towards the portion of a joint FFEL Consolidation Loan incurred on 
behalf of an eligible victim is discharged if the borrower was, at the 
time of the terrorist attacks on September 11, 2001, and currently is, 
the spouse of an eligible victim, unless the eligible victim has died. 
If the eligible victim has died, the borrower must have been the spouse 
of the eligible victim at the time of the terrorist attacks on September 
11, 2001 and until the date the eligible victim died.
    (3) If the borrower is an eligible parent--
    (i) The obligation of a borrower and any endorser to make any 
further payments on a FFEL PLUS Loan incurred on behalf of an eligible 
victim is discharged.
    (ii) The obligation of the borrower to make any further payments 
towards the portion of a FFEL Consolidation Loan that repaid a FFEL or 
Direct Loan PLUS Loan incurred on behalf of an eligible victim is 
discharged.
    (4) The parent of an eligible public servant may qualify for a 
discharge of a FFEL PLUS loan incurred on behalf of the eligible public 
servant, or the portion of a FFEL Consolidation Loan that repaid a FFEL 
or Direct PLUS Loan incurred on behalf of the eligible public servant, 
under the procedures, eligibility criteria, and documentation 
requirements described in this section for an eligible parent applying 
for a discharge of a loan incurred on behalf of an eligible victim.
    (c) Applying for discharge. (1) In accordance with the procedures in 
paragraphs (c)(2) through (c)(13) of this section, a discharge may be 
granted on--
    (i) A FFEL Program Loan owed by the spouse of an eligible public 
servant;
    (ii) A FFEL PLUS Loan incurred on behalf of an eligible victim;
    (iii) The portion of a FFEL Consolidation Loan that repaid a PLUS 
loan incurred on behalf of an eligible victim; and
    (iv) The portion of a joint Consolidation Loan incurred on behalf of 
an eligible victim.
    (2) After being notified by the borrower that the borrower claims to 
qualify for a discharge under this section, the lender shall suspend 
collection activity on the borrower's eligible FFEL Program Loan and 
promptly request that the borrower submit a request for discharge on a 
form approved by the Secretary.
    (3) If the lender determines that the borrower does not qualify for 
a discharge under this section, or the lender

[[Page 167]]

does not receive the completed discharge request form from the borrower 
within 60 days of the borrower notifying the lender that the borrower 
claims to qualify for a discharge, the lender shall resume collection 
and shall be deemed to have exercised forbearance of payment of both 
principal and interest from the date the lender was notified by the 
borrower. The lender must notify the borrower that the application for 
the discharge has been denied, provide the basis for the denial, and 
inform the borrower that the lender will resume collection on the loan. 
The lender may capitalize, in accordance with Sec.  682.202(b), any 
interest accrued and not paid during this period.
    (4) If the lender determines that the borrower qualifies for a 
discharge under this section, the lender shall provide the guaranty 
agency with the following documentation--
    (i) The loan application, if a separate loan application was 
provided to the lender; and
    (ii) The completed discharge form, and all accompanying 
documentation supporting the discharge request that formed the basis for 
the determination that the borrower qualifies for a discharge.
    (5) The lender must file a discharge claim within 60 days of the 
date on which the lender determines that the borrower qualifies for a 
discharge.
    (6) The guaranty agency must review a discharge claim under this 
section promptly.
    (7) If the guaranty agency determines that the borrower does not 
qualify for a discharge under this section, the guaranty agency must 
return the claim to the lender with an explanation of the basis for the 
agency's denial of the claim. Upon receipt of the returned claim, the 
lender must notify the borrower that the application for the discharge 
has been denied, provide the basis for the denial, and inform the 
borrower that the lender will resume collection on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date collection activity was suspended until the next payment 
due date. The lender may capitalize, in accordance with Sec.  
682.202(b), any interest accrued and not paid during this period.
    (8) If the guaranty agency determines that the borrower qualifies 
for a discharge, the guaranty agency pays the lender on an approved 
claim the amount of loss required under paragraph (c)(9) of this 
section. The guaranty agency shall pay the claim not later than 90 days 
after the claim was filed by the lender.
    (9) The amount of loss payable on a discharge claim is--
    (i) An amount equal to the sum of the remaining principal balance 
and interest accrued on the loan, unpaid collection costs incurred by 
the lender and applied to the borrower's account within 30 days of the 
date those costs were actually incurred, and unpaid interest up to the 
date the lender should have filed the claim; or
    (ii) In the case of a partial discharge of a Consolidation Loan, the 
amount specified in paragraph (c)(9)(i) of this section for the portion 
of the Consolidation Loan incurred on behalf of the eligible victim.
    (10) The amount payable on an approved claim includes the unpaid 
interest that accrues during the following periods:
    (i) During the period before the claim is filed, not to exceed 60 
days from the date the lender determines that the borrower qualifies for 
a discharge under this section.
    (ii) During a period not to exceed 30 days following the date the 
lender receives a claim returned by the guaranty agency for additional 
documentation necessary for the claim to be approved by the guaranty 
agency.
    (iii) During the period required by the guaranty agency to approve 
the claim and to authorize payment or to return the claim to the lender 
for additional documentation, not to exceed 90 days.
    (11) After being notified that the guaranty agency has paid a 
discharge claim, the lender shall notify the borrower that the loan has 
been discharged or, in the case of a partial discharge of a 
Consolidation Loan, partially discharged. Except in the case of a 
partial discharge of a Consolidation Loan, the lender shall return to 
the sender any payments received by the lender after the date the 
guaranty agency paid the discharge claim.

[[Page 168]]

    (12) The Secretary reimburses the guaranty agency for a discharge 
claim paid to the lender under this section after the agency pays the 
lender. Any failure by the lender to satisfy due diligence requirements 
prior to the filing of the claim that would have resulted in the loss of 
reinsurance on the loan in the event of default are waived by the 
Secretary, provided the loan was held by an eligible loan holder at all 
times.
    (13) Except in the case of a partial discharge of a Consolidation 
Loan, the guaranty agency shall promptly return to the sender any 
payment on a discharged loan made by the sender and received after the 
Secretary pays a discharge claim. At the same time that the agency 
returns the payment it shall notify the borrower that the loan has been 
discharged and that there is no further obligation to repay the loan.
    (14) A FFEL Program Loan owed by an eligible public servant or an 
eligible victim may be discharged under the procedures in Sec.  682.402 
for a discharge based on the death or total and permanent disability of 
the eligible public servant or eligible victim.
    (d) Documentation that an eligible public servant or eligible victim 
died due to injuries suffered in the terrorist attacks on September 11, 
2001. (1) Documentation that an eligible public servant died due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces, or was employed as a police officer, 
firefighter, or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes; and
    (ii) The inclusion of the individual on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001.
    (2) If the individual is not included on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001, the 
borrower must provide--
    (i) The certification described in paragraph (d)(1)(i) of this 
section;
    (ii) An original or certified copy of the individual's death 
certificate; and
    (iii) A certification from a physician or a medical examiner that 
the individual died due to injuries suffered in the terrorist attacks on 
September 11, 2001.
    (3) If the individual owed a FFEL Program Loan, a Direct Loan, or a 
Perkins Loan at the time of the terrorist attacks, documentation that 
the individual's loans were discharged by the lender, the Secretary, or 
the institution due to death may be substituted for the original or 
certified copy of a death certificate.
    (4) Documentation that an eligible victim died due to injuries 
suffered in the terrorist attacks on September 11, 2001 is the inclusion 
of the individual on an official list of the individuals who died in the 
terrorist attacks on September 11, 2001.
    (5) If the eligible victim is not included on an official list of 
the individuals who died in the terrorist attacks on September 11, 2001, 
the borrower must provide--
    (i) The documentation described in paragraphs (d)(2)(ii) or (d)(3), 
and (d)(2)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (6) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL 
Program Loan held by another FFEL lender because the eligible public 
servant died due to injuries suffered in the terrorist attacks on 
September 11, 2001, documentation of the discharge may be used as an 
alternative to the documentation in paragraphs (d)(1) through (d)(3) of 
this section.
    (7) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on a Direct Loan or on a FFEL Program 
Loan held

[[Page 169]]

by another FFEL lender because the eligible victim died due to injuries 
suffered in the terrorist attacks on September 11, 2001, documentation 
of the discharge may be used as an alternative to the documentation in 
paragraphs (d)(4) and (d)(5) of this section.
    (8) Under exceptional circumstances and on a case-by-case basis, the 
determination that an eligible public servant or an eligible victim died 
due to injuries suffered in the terrorist attacks on September 11, 2001 
may be based on other reliable documentation approved by the chief 
executive officer of the guaranty agency.
    (e) Documentation that an eligible public servant or eligible victim 
became permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001. (1) Documentation that an 
eligible public servant became permanently and totally disabled due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces or was employed as a police officer, 
firefighter or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes;
    (ii) Copies of contemporaneous medical records created by or at the 
direction of a medical professional who provided medical care to the 
individual within 72 hours of the injury having been sustained or within 
24 hours of the rescue; and
    (iii) A certification by a physician, who is a doctor of medicine or 
osteopathy and legally authorized to practice in a state, that the 
individual became permanently and totally disabled due to injuries 
suffered in the terrorist attacks on September 11, 2001.
    (2) Documentation that an eligible victim became permanently and 
totally disabled due to injuries suffered in the terrorist attacks on 
September 11, 2001 must include--
    (i) The documentation described in paragraphs (e)(1)(ii) and 
(e)(1)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (3) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on a Perkins Loan, a Direct Loan, or a FFEL 
Program Loan held by another FFEL lender because the eligible public 
servant became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001, documentation of the 
discharge may be used as an alternative to the documentation in 
paragraph (e)(1) of this section.
    (4) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on a Direct Loan or on a FFEL Program 
Loan held by another FFEL lender because the eligible victim became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001, documentation of the discharge 
may be used as an alternative to the documentation in paragraph (e)(2) 
of this section.
    (f) Additional information. (1) A lender or guaranty agency may 
require the borrower to submit additional information that the lender or 
guaranty agency deems necessary to determine the borrower's eligibility 
for a discharge under this section.
    (2) To establish that the eligible public servant or eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site, such 
additional information may include but is not limited to--
    (i) Records of employment;
    (ii) Contemporaneous records of a federal, state, city, or local 
government agency;
    (iii) An affidavit or declaration of the eligible public servant's 
or eligible victim's employer; and

[[Page 170]]

    (iv) A sworn statement (or an unsworn statement complying with 28 
U.S.C. 1746) regarding the presence of the eligible public servant or 
eligible victim at the site.
    (3) To establish that the disability of the eligible public servant 
or eligible victim is due to injuries suffered in the terrorist attacks 
on September 11, 2001, such additional information may include but is 
not limited to--
    (i) Contemporaneous medical records of hospitals, clinics, 
physicians, or other licensed medical personnel;
    (ii) Registries maintained by federal, state, or local governments; 
or
    (iii) Records of all continuing medical treatment.
    (4) To establish the borrower's relationship to the eligible public 
servant or eligible victim, such additional information may include but 
is not limited to--
    (i) Copies of relevant legal records including court orders, letters 
of testamentary or similar documentation;
    (ii) Copies of wills, trusts, or other testamentary documents; or
    (iii) Copies of approved joint Consolidation Loan applications or 
approved FFEL or Direct Loan PLUS loan applications.
    (g) Limitations on discharge. (1) Only outstanding Federal SLS 
Loans, Federal Stafford Loans, Federal PLUS Loans, and Federal 
Consolidation Loans for which amounts were owed on September 11, 2001, 
or outstanding Federal Consolidation Loans incurred to pay off loan 
amounts that were owed on September 11, 2001, are eligible for discharge 
under this section.
    (2)(i) Eligibility for a discharge under this section does not 
qualify a borrower for a refund of any payments made on the borrower's 
loan prior to the date the loan was discharged.
    (ii) A borrower may apply for a partial discharge of a joint 
Consolidation loan due to death or total and permanent disability under 
the procedures in Sec.  682.402(b) or (c). If the borrower is granted a 
partial discharge under the procedures in Sec.  682.402(b) or (c) the 
borrower may qualify for a refund of payments in accordance with Sec.  
682.402(b)(5) or Sec.  682.402(c)(1)(i).
    (iii) A borrower may apply for a discharge of a PLUS loan due to the 
death of the student for whom the borrower received the PLUS loan under 
the procedures in Sec.  682.402(b). If a borrower is granted a discharge 
under the procedures in Sec.  682.402(b), the borrower may qualify for a 
refund of payments in accordance with Sec.  682.402(b)(5).
    (3) A determination by a lender or a guaranty agency that an 
eligible public servant or an eligible victim became permanently and 
totally disabled due to injuries suffered in the terrorist attacks on 
September 11, 2001 for purposes of this section does not qualify the 
eligible public servant or the eligible victim for a discharge based on 
a total and permanent disability under Sec.  682.402.
    (4) The spouse of an eligible public servant or eligible victim may 
not receive a discharge under this section if the eligible public 
servant or eligible victim has been identified as a participant or 
conspirator in the terrorist-related aircraft crashes on September 11, 
2001. An eligible parent may not receive a discharge on a FFEL PLUS Loan 
or on a Consolidation Loan that was used to repay a FFEL or Direct Loan 
PLUS Loan incurred on behalf of an individual who has been identified as 
a participant or conspirator in the terrorist-related aircraft crashes 
on September 11, 2001.

[71 FR 78080, Dec. 28, 2006, as amended at 72 FR 55053, Sept. 28, 2007; 
78 FR 65816, Nov. 1, 2013]



Sec.  682.408  [Reserved]



Sec.  682.409  Mandatory assignment by guaranty agencies of defaulted
loans to the Secretary.

    (a)(1) If the Secretary determines that action is necessary to 
protect the Federal fiscal interest, the Secretary directs a guaranty 
agency to promptly assign to the Secretary any loans held by the agency 
on which the agency has received payment under Sec.  682.402(f), 
682.402(k), or 682.404. The collection of unpaid loans owed by Federal 
employees by Federal salary offset is, among other things, deemed to be 
in the Federal fiscal interest. Unless the Secretary notifies an agency, 
in writing, that other loans must be assigned to the Secretary, an 
agency must assign

[[Page 171]]

any loan that meets all of the following criteria as of April 15 of each 
year:
    (i) The unpaid principal balance is at least $100.
    (ii) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the loan, and any other loans 
held by the agency for that borrower, have been held by the agency for 
at least four years; for any subsequent fiscal year such loan must have 
been held by the agency for at least five years.
    (iii) A payment has not been received on the loan in the last year.
    (iv) A judgment has not been entered on the loan against the 
borrower.
    (2) If the agency fails to meet a fiscal year recovery rate standard 
under paragraph (a)(2)(ii) of this section for a loan type, and the 
Secretary determines that additional assignments are necessary to 
protect the Federal fiscal interest, the Secretary may require the 
agency to assign in addition to those loans described in paragraph 
(a)(1) of this section, loans in amounts needed to satisfy the 
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
    (i) Calculation of fiscal year loan type recovery rate. A fiscal 
year loan type recovery rate for an agency is determined by dividing the 
amount collected on defaulted loans, including collections by Federal 
Income Tax Refund Offset, for each loan program (i.e., the Stafford, 
PLUS, SLS, and Consolidation loan programs) by the agency for loans of 
that program (including payments received by the agency on loans under 
Sec.  682.401(b)(1) and Sec.  682.409 and the amounts of any loans 
purchased from the guaranty agency by an eligible lender) during the 
most recent fiscal year for which data are available by the total of 
principal and interest owed to an agency on defaulted loans for each 
loan program at the beginning of the same fiscal year, less accounts 
permanently assigned to the Secretary through the most recent fiscal 
year.
    (ii) Fiscal year loan type recovery rates standards. (A) If, in each 
of the two fiscal years following the fiscal year in which these 
regulations are effective, the fiscal year loan type recovery rate for a 
loan program for an agency is below 80 percent of the average recovery 
rate of all active guaranty agencies in each of the same two fiscal 
years for that program type, and the Secretary determines that 
additional assignments are necessary to protect the Federal fiscal 
interest, the Secretary may require the agency to make additional 
assignments in accordance with paragraph (a)(2)(iii) of this section.
    (B) In any subsequent fiscal year the loan type recovery rate 
standard for a loan program must be 90 percent of the average recovery 
rate of all active guaranty agencies.
    (iii) Non-achievement of loan type recovery rate standards. (A) 
Unless the Secretary determines under paragraph (a)(2)(iv) of this 
section that protection of the Federal fiscal interest requires that a 
lesser amount be assigned, upon notice from the Secretary, an agency 
with a fiscal year loan type recovery rate described in paragraph 
(a)(2)(ii) of this section must promptly assign to the Secretary a 
sufficient amount of defaulted loans, in addition to loans to be 
assigned in accordance with paragraph (a)(1) of this section, to cause 
the fiscal year loan type recovery rate of the agency that fiscal year 
to equal or exceed the average rate of all agencies described in 
paragraph (a)(2)(ii) of this section when recalculated to exclude from 
the denominator of the agency's fiscal year loan type recovery rate the 
amount of these additional loans.
    (B) The Secretary, in consultation with the guaranty agency, may 
require the amount of loans to be assigned under paragraph (a)(2) of 
this section to include particular categories of loans that share 
characteristics that make the performance of the agency fall below the 
appropriate percentage of the loan type recovery rate as described in 
paragraph (a)(2)(ii) of this section.
    (iv) Calculation of loan type recovery rate standards. The 
Secretary, within 30 days after the date for submission of the second 
quarterly report from all agencies, makes available to all agencies a 
mid-year report, showing the recovery rate for each agency and the 
average recovery rate of all active guaranty agencies for each loan 
type. In addition, the Secretary, within 120 days after the beginning of 
each fiscal year,

[[Page 172]]

makes available a final report showing those rates and the average rate 
for each loan type for the preceding fiscal year.
    (3)(i) Determination that the protection of the Federal fiscal 
interest requires assignments. Upon petition by an agency submitted 
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of 
this section, the Secretary may determine that protection of the Federal 
fiscal interest does not require assignment of all loans described in 
paragraph (a)(1) of this section or of loans in the full amount 
described in paragraph (a)(2)(iii) of this section only after review of 
the agency's petition. In making this determination, the Secretary 
considers all relevant information available to him (including any 
information and documentation obtained by the Secretary in reviews of 
the agency or submitted to the Secretary by the agency) as follows:
    (A) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the Secretary considers 
information presented by an agency with a fiscal year loan type recovery 
rate above the average rate of all active agencies to demonstrate that 
the protection of the Federal fiscal interest will be served if any 
amounts of loans of the loan type required to be assigned to the 
Secretary under paragraph (a)(1) of this section are retained by that 
agency. For any subsequent fiscal year, the Secretary considers 
information presented by an agency with a fiscal year recovery rate 10 
percent above the average rate of all active agencies.
    (B) The Secretary considers information presented by an agency that 
is required to assign loans under paragraph (a)(2) of this section to 
demonstrate that the protection of the Federal fiscal interest will be 
served if the agency demonstrates that its compliance with Sec.  
682.401(b)(1) and Sec.  682.405 has reduced substantially its fiscal 
year loan type recovery rate or rates or if the agency is not required 
to assign amounts of loans that would otherwise have to be assigned.
    (C) The information provided by an agency pursuant to paragraphs 
(a)(3)(i)(A) and (B) of this section may include, but is not limited to 
the following:
    (1) The fiscal year loan type recovery rate within such school 
sectors as the Secretary may designate for the agency, and for all 
agencies.
    (2) The fiscal year loan type recovery rate for loans for the agency 
and for all agencies categorized by age of the loans as the Secretary 
may determine.
    (3) The performance of the agency, and all agencies, in default 
aversion.
    (4) The agency's performance on judgment enforcement.
    (5) The existence and use of any state or guaranty agency-specific 
collection tools.
    (6) The agency's level of compliance with Sec. Sec.  682.409 and 
682.410(b)(6).
    (7) Other factors that may affect loan repayment such as State or 
regional unemployment and natural disasters.
    (ii) Denial of an agency's petition. If the Secretary does not 
accept the agency's petition, the Secretary provides, in writing, to the 
agency the Secretary's reasons for concluding that the Federal fiscal 
interest is best protected by requiring the assignment.
    (b)(1) A guaranty agency that assigns a defaulted loan to the 
Secretary under this section thereby releases all rights and title to 
that loan. The Secretary does not pay the guaranty agency any 
compensation for a loan assigned under this section.
    (2) The guaranty agency does not share in any amounts received by 
the Secretary on a loan assigned under this section, regardless of the 
reinsurance percentage paid on the loan or the agency's previous 
collection costs.
    (c)(1) A guaranty agency must assign a loan to the Secretary under 
this section at the time, in the manner, and with the information and 
documentation that the Secretary requires. The agency must submit this 
information and documentation in the form (including magnetic media) and 
format specified by the Secretary.
    (2) The guaranty agency must execute an assignment to the United 
States of America of all right, title, and interest in the promissory 
note or judgment evidencing a loan assigned under this section. If more 
than one loan is made under an MPN, the assignment of the note only 
applies to the

[[Page 173]]

loan or loans being assigned to the Secretary.
    (3) If the agency does not provide the required information and 
documentation in the form and format required by the Secretary, the 
Secretary may, at his option--
    (i) Allow the agency to revise the agency's submission to include 
the required information and documentation in the specified form and 
format;
    (ii) In the case of an improperly formatted computer tape, reformat 
the tape and assess the cost of the activity against the agency;
    (iii) Reorganize the material submitted and assess the cost of that 
activity against the agency; or
    (iv) Obtain from other agency records and add to the agency's 
submission any information from the original submission, and assess the 
cost of that activity against the agency.
    (4) For each loan assigned, the agency shall submit to the Secretary 
the following documents associated for each loan, assembled in the order 
listed below:
    (i) The original or a true and exact copy of the promissory note.
    (ii) Any documentation of a judgment entered on the loan.
    (iii) A written assignment of the loan or judgment, unless this 
assignment is affixed to the promissory note.
    (iv) The loan application, if a separate application was provided to 
the lender.
    (v) A payment history for the loan, as described in Sec.  
682.414(a)(1)(ii)(C).
    (vi) A collection history for the loan, as described in Sec.  
682.414(a)(1)(ii)(D).
    (vii) The record of the lender's disbursement of Stafford and PLUS 
loan funds to the school for delivery to the borrower.
    (viii) If the MPN or promissory note was signed electronically, the 
name and location of the entity in possession of the original electronic 
MPN or promissory note.
    (5) The agency may submit copies of required documents in lieu of 
originals.
    (6) The Secretary may accept the assignment of a loan without all of 
the documents listed in paragraph (c)(4) of this section. If directed to 
do so, the agency must retain these documents for submission to the 
Secretary at some future date.
    (d)(1) If the Secretary determines that the agency has not submitted 
a document or record required by paragraph (c) of this section, and the 
Secretary decides to allow the agency an additional opportunity to 
submit the omitted document under paragraph (c)(3)(i) of this section, 
the Secretary notifies the agency and provides a reasonable period of 
time for the agency to submit the omitted record or document.
    (2) If the omitted document is not submitted within the time 
specified by the Secretary, the Secretary determines whether that 
omission impairs the Secretary's ability to collect the loan.
    (3) If the Secretary determines that the ability to collect the loan 
has been impaired under paragraph (d)(2) of this section, the Secretary 
assesses the agency the amount paid to the agency under the reinsurance 
agreement and accrued interest at the rate applicable to the borrower 
under Sec.  682.410(b)(3).
    (4) The Secretary reassigns to the agency that portion of the loan 
determined to be unenforceable by the Department.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33356, June 28, 1994; 60 FR 30788, June 12, 1995; 64 FR 18980, Apr. 
16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 72 FR 
62006, Nov. 1, 2007; 78 FR 65816, Nov. 1, 2013]



Sec.  682.410  Fiscal, administrative, and enforcement requirements.

    (a) Fiscal requirements--(1) Reserve fund assets. A guaranty agency 
shall establish and maintain a reserve fund to be used solely for its 
activities as a guaranty agency under the FFEL Program (``guaranty 
activities''). The guaranty agency shall credit to the reserve fund--
    (i) The total amount of insurance premiums and Federal default fees 
collected;

[[Page 174]]

    (ii) Funds received from a State for the agency's guaranty 
activities, including matching funds under section 422(a) of the Act;
    (iii) Federal advances obtained under sections 422(a) and (c) of the 
Act;
    (iv) Federal payments for default, bankruptcy, death, disability, 
closed schools, and false certification claims;
    (v) Supplemental preclaims assistance payments;
    (vi) Transitional support payments received under section 458(a) of 
the Act;
    (vii) Funds collected by the guaranty agency on FFEL Program loans 
on which a claim has been paid;
    (viii) Investment earnings on the reserve fund; and
    (ix) Other funds received by the guaranty agency from any source for 
the agency's guaranty activities.
    (2) Uses of reserve fund assets. A guaranty agency may use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay only--
    (i) Insurance claims;
    (ii) Costs that are reasonable, as defined under Sec.  
682.410(a)(11)(iii), and that are ordinary and necessary for the agency 
to fulfill its responsibilities under the HEA, including costs of 
collecting loans, providing default aversion assistance, monitoring 
enrollment and repayment status, and carrying out any other guaranty 
activities. Those costs must be--
    (A) Allocable to the FFEL Program;
    (B) Not higher than the agency would incur under established 
policies, regulations, and procedures that apply to any comparable non-
Federal activities of the guaranty agency;
    (C) Not included as a cost or used to meet cost sharing or matching 
requirements of any other federally supported activity, except as 
specifically provided by Federal law;
    (D) Net of all applicable credits; and
    (E) Documented in accordance with applicable legal and accounting 
standards;
    (iii) The Secretary's equitable share of collections;
    (iv) Federal advances and other funds owed to the Secretary;
    (v) Reinsurance fees;
    (vi) Insurance premiums and Federal default fees related to 
cancelled loans;
    (vii) Borrower refunds, including those arising out of student or 
other borrower claims and defenses;
    (viii) (A) The repayment, on or after December 29, 1993, of amounts 
credited under paragraphs (a)(1)(ii) or (a)(1)(ix) of this section, if 
the agency provides the Secretary 30 days prior notice of the repayment 
and demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation specifying that receipt was on 
a temporary basis only;
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved; and
    (3) Repayment of these amounts would not cause the agency to fail to 
comply with the minimum reserve levels provided by paragraph (a)(10) of 
this section, except that the Secretary may, for good cause, provide 
written permission for a payment that meets the other requirements of 
this paragraph (a)(2)(ix)(A).
    (B) The repayment, prior to December 29, 1993, of amounts credited 
under paragraphs (a)(1)(ii) or (a)(1)(ix) of this section, if the agency 
demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation that receipt was on a 
temporary basis only; and
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved.
    (ix) Any other costs or payments ordinary and necessary to perform 
functions directly related to the agency's responsibilities under the 
HEA and for their proper and efficient administration;
    (x) Notwithstanding any other provision of this section, any other 
payment that was allowed by law or regulation at the time it was made, 
if the agency acted in good faith when it made the payment or the agency 
would otherwise be unfairly prejudiced by the nonallowability of the 
payment at a later time; and
    (xi) Any other amounts authorized or directed by the Secretary.

[[Page 175]]

    (3) Accounting basis. Except as approved by the Secretary, a 
guaranty agency shall credit the items listed in paragraph (a)(1) of 
this section to its reserve fund upon their receipt, without any 
deferral for accounting purposes, and shall deduct the items listed in 
paragraph (a)(2) of this section from its reserve fund upon their 
payment, without any accrual for accounting purposes.
    (4) Accounting records. (i) The accounting records of a guaranty 
agency must reflect the correct amount of sources and uses of funds 
under paragraph (a) of this section.
    (ii) A guaranty agency may reverse prior credits to its reserve fund 
if--
    (A) The agency gives the Secretary prior notice setting forth a 
detailed justification for the action;
    (B) The Secretary determines that such credits were made erroneously 
and in good faith; and
    (C) The Secretary determines that the action would not unfairly 
prejudice other parties.
    (iii) A guaranty agency shall correct any other errors in its 
accounting or reporting as soon as practicable after the errors become 
known to the agency.
    (iv) If a general reconstruction of a guaranty agency's historical 
accounting records is necessary to make a change under paragraphs 
(a)(4)(ii) and (a)(4)(iii) of this section or any other retroactive 
change to its accounting records, the agency may make this 
reconstruction only upon prior approval by the Secretary and without any 
deduction from its reserve fund for the cost of the reconstruction.
    (5) Investments. The guaranty agency shall exercise the level of 
care required of a fiduciary charged with the duty of investing the 
money of others when it invests the assets of the reserve fund described 
in paragraph (a)(1) of this section. It may invest these assets only in 
low-risk securities, such as obligations issued or guaranteed by the 
United States or a State.
    (6) Development of assets. (i) If the guaranty agency uses in a 
substantial way for purposes other than the agency's guaranty activities 
any funds required to be credited to the reserve fund under paragraph 
(a)(1) of this section or any assets derived from the reserve fund to 
develop an asset of any kind and does not in good faith allocate a 
portion of the cost of developing and maintaining the developed asset to 
funds other than the reserve fund, the Secretary may require the agency 
to--
    (A) Correct this allocation under paragraph (a)(4)(iii) of this 
section; or
    (B) Correct the recorded ownership of the asset under paragraph 
(a)(4)(iii) of this section so that--
    (1) If, in a transaction with an unrelated third party, the agency 
sells or otherwise derives revenue from uses of the asset that are 
unrelated to the agency's guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a percentage of the sale proceeds or revenue equal to the fair 
percentage of the total development cost of the asset paid with the 
reserve fund monies or provided by assets derived from the reserve fund; 
or
    (2) If the agency otherwise converts the asset, in whole or in part, 
to a use unrelated to its guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a fair percentage of the fair market value or, in the case of a 
temporary conversion, the rental value of the portion of the asset 
employed for the unrelated use.
    (ii) If the agency uses funds or assets described in paragraph 
(a)(6)(i) of this section in the manner described in that paragraph and 
makes a cost and maintenance allocation erroneously and in good faith, 
it shall correct the allocation under paragraph (a)(4)(iii) of this 
section.
    (7) Third-party claims. If the guaranty agency has any claim against 
any other party to recover funds or other assets for the reserve fund, 
the claim is the property of the United States.
    (8) Related-party transactions. All transactions between a guaranty 
agency and a related organization or other person that involve funds 
required to be credited to the agency's reserve fund under paragraph 
(a)(1) of this section or assets derived from the reserve fund must be 
on terms that are not less advantageous to the reserve fund than would 
have been negotiated on an

[[Page 176]]

arm's-length basis by unrelated parties.
    (9) Scope of definition. The provisions of this Sec.  682.410(a) 
define reserve funds and assets for purposes of sections 422 and 428 of 
the Act. These provisions do not, however, affect the Secretary's 
authority to use all funds and assets of the agency pursuant to section 
428(c)(9)(F)(vi) of the Act.
    (10) Minimum reserve fund level. The guaranty agency must maintain a 
current minimum reserve level of not less than--
    (i) .5 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1993;
    (ii) .7 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1994;
    (iii) .9 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1995; and
    (iv) 1.1 percent of the amount of loans outstanding, for each fiscal 
year of the agency that begins on or after January 1, 1996.
    (11) Definitions. For purposes of this section--
    (i) Reserve fund level means--
    (A) The total of reserve fund assets as defined in paragraph (a)(1) 
of this section;
    (B) Minus the total amount of the reserve fund assets used in 
accordance with paragraphs (a)(2) and (a)(3) of this section; and
    (ii) Amount of loans outstanding means--
    (A) The sum of--
    (1) The original principal amount of all loans guaranteed by the 
agency; and
    (2) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (B) Minus the original principal amount of all loans on which--
    (1) The loan guarantee was cancelled;
    (2) The loan guarantee was transferred to another agency;
    (3) Payment in full has been made by the borrower;
    (4) Reinsurance coverage has been lost and cannot be regained; and
    (5) The agency paid claims.
    (iii) Reasonable cost means a cost that, in its nature and amount, 
does not exceed that which would be incurred by a prudent person under 
the circumstances prevailing at the time the decision was made to incur 
the cost. The burden of proof is upon the guaranty agency, as a 
fiduciary under its agreements with the Secretary, to establish that 
costs are reasonable. In determining reasonableness of a given cost, 
consideration must be given to--
    (A) Whether the cost is of a type generally recognized as ordinary 
and necessary for the proper and efficient performance and 
administration of the guaranty agency's responsibilities under the HEA;
    (B) The restraints or requirements imposed by factors such as sound 
business practices, arms-length bargaining, Federal, State, and other 
laws and regulations, and the terms and conditions of the guaranty 
agency's agreements with the Secretary; and
    (C) Market prices of comparable goods or services.
    (b) Administrative requirements--(1) Independent audits. The 
guaranty agency shall arrange for an independent financial and 
compliance audit of the agency's FFEL program as follows:
    (i) [Reserved]
    (ii) A guaranty agency must conduct an audit in accordance with 31 
U.S.C. 7502 and 2 CFR part 200, subpart F--Audit Requirements.\2\ If a 
nonprofit guaranty agency meets the criteria in 2 CFR part 200, subpart 
F--Audit Requirements to have a program specific audit, and chooses that 
option, the program-specific audit must meet the following requirements:
---------------------------------------------------------------------------

    \2\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------

    (2) Collection charges. (i) Whether or not provided for in the 
borrower's promissory note and subject to any limitation on the amount 
of those costs in that note, the guaranty agency

[[Page 177]]

may charge a borrower an amount equal to the reasonable costs incurred 
by the agency in collecting a loan on which the agency has paid a 
default or bankruptcy claim unless, within the 60-day period after the 
guaranty agency sends the initial notice described in paragraph 
(b)(6)(ii) of this section, the borrower enters into an acceptable 
repayment agreement, including a rehabilitation agreement, and honors 
that agreement, in which case the guaranty agency must not charge a 
borrower any collection costs.
    (ii) An acceptable repayment agreement may include an agreement 
described in Sec.  682.200(b) (Satisfactory repayment arrangement), 
Sec.  682.405, or paragraph (b)(5)(ii)(D) of this section. An acceptable 
repayment agreement constitutes a repayment arrangement or agreement on 
repayment terms satisfactory to the guaranty agency, under this section.
    (iii) The costs under this paragraph (b)(2) include, but are not 
limited to, all attorneys' fees, collection agency charges, and court 
costs. Except as provided in Sec. Sec.  682.401(b)(18)(i) and 
682.405(b)(1)(vi)(B), the amount charged a borrower must equal the 
lesser of--
    (A) The amount the same borrower would be charged for the cost of 
collection under the formula in 34 CFR 30.60; or
    (B) The amount the same borrower would be charged for the cost of 
collection if the loan was held by the U.S. Department of Education.
    (3) Interest charged by guaranty agencies. (i) Except as provided in 
paragraph (b)(3)(ii) of this section, the guaranty agency shall charge 
the borrower interest on the amount owed by the borrower after the 
capitalization required under paragraph (b)(4) of this section has 
occurred at a rate that is the greater of--
    (A) The rate established by the terms of the borrower's original 
promissory note; or
    (B) In the case of a loan for which a judgment has been obtained, 
the rate provided for by State law.
    (ii) If the guaranty agency determines that the borrower is eligible 
for the interest rate limit of six percent under Sec.  682.202(a)(8), 
the interest rate described in paragraph (b)(3)(i) shall not exceed six 
percent.
    (4) Capitalization of unpaid interest. The guaranty agency shall 
capitalize any unpaid interest due the lender from the borrower at the 
time the agency pays a default claim to the lender, but shall not 
capitalize any unpaid interest thereafter.
    (5) Reports to consumer reporting agencies. (i) After the completion 
of the procedures in paragraph (b)(5)(ii) of this section, the guaranty 
agency shall, after it has paid a default claim, report promptly, but 
not less than sixty days after completion of the procedures in paragraph 
(b)(6)(ii) of this section, and on a regular basis, to all nationwide 
consumer reporting agencies--
    (A) The total amount of loans made to the borrower and the remaining 
balance of those loans;
    (B) The date of default;
    (C) Information concerning collection of the loan, including the 
repayment status of the loan;
    (D) Any changes or corrections in the information reported by the 
agency that result from information received after the initial report; 
and
    (E) The date the loan is fully repaid by or on behalf of the 
borrower or discharged by reason of the borrower's death, bankruptcy, 
total and permanent disability, or closed school or false certification.
    (ii) The guaranty agency, after it pays a default claim on a loan 
but before it reports the default to a consumer reporting agency or 
assesses collection costs against a borrower, shall, within the 
timeframe specified in paragraph (b)(6)(ii) of this section, provide the 
borrower with--
    (A) Written notice that meets the requirements of paragraph 
(b)(5)(vi) of this section regarding the proposed actions;
    (B) An opportunity to inspect and copy agency records pertaining to 
the loan obligation;
    (C) An opportunity for an administrative review of the legal 
enforceability or past-due status of the loan obligation; and
    (D) An opportunity to enter into a repayment agreement on terms 
satisfactory to the agency.

[[Page 178]]

    (iii) The procedures set forth in 34 CFR 30.20-30.33 (administrative 
offset) satisfy the requirements of paragraph (b)(5)(ii) of this 
section.
    (iv)(A) In response to a request submitted by a borrower, after the 
deadlines established under agency rules, for access to records, an 
administrative review, or for an opportunity to enter into a repayment 
agreement, the agency shall provide the requested relief but may 
continue reporting the debt to consumer reporting agencies until it 
determines that the borrower has demonstrated that the loan obligation 
is not legally enforceable or that alternative repayment arrangements 
satisfactory to the agency have been made with the borrower.
    (B) The deadline established by the agency for requesting 
administrative review under paragraph (b)(5)(ii)(C) of this section must 
allow the borrower at least 60 days from the date the notice described 
in paragraph (b)(5)(ii)(A) of this section is sent to request that 
review.
    (v) An agency may not permit an employee, official, or agent to 
conduct the administrative review required under this paragraph if that 
individual is--
    (A) Employed in an organizational component of the agency or its 
agent that is charged with collection of loan obligations; or
    (B) Compensated on the basis of collections on loan obligations.
    (vi) The notice sent by the agency under paragraph (b)(5)(ii)(A) of 
this section must--
    (A) Advise the borrower that the agency has paid a default claim 
filed by the lender and has taken assignment of the loan;
    (B) Identify the lender that made the loan and the school for 
attendance at which the loan was made;
    (C) State the outstanding principal, accrued interest, and any other 
charges then owing on the loan;
    (D) Demand that the borrower immediately begin repayment of the 
loan;
    (E) Explain the rate of interest that will accrue on the loan, that 
all costs incurred to collect the loan will be charged to the borrower, 
the authority for assessing these costs, and the manner in which the 
agency will calculate the amount of these costs;
    (F) Notify the borrower that the agency will report the default to 
all nationwide consumer reporting agencies to the detriment of the 
borrower's credit rating;
    (G) Explain the opportunities available to the borrower under agency 
rules to request access to the agency's records on the loan, to request 
an administrative review of the legal enforceability or past-due status 
of the loan, and to reach an agreement on repayment terms satisfactory 
to the agency to prevent the agency from reporting the loan as defaulted 
to consumer reporting agencies and provide deadlines and method for 
requesting this relief;
    (H) Unless the agency uses a separate notice to advise the borrower 
regarding other proposed enforcement actions, describe specifically any 
other enforcement action, such as offset against Federal or state income 
tax refunds or wage garnishment that the agency intends to use to 
collect the debt, and explain the procedures available to the borrower 
prior to those other enforcement actions for access to records, for an 
administrative review, or for agreement to alternative repayment terms;
    (I) Describe the grounds on which the borrower may object that the 
loan obligation as stated in the notice is not a legally enforceable 
debt owed by the borrower;
    (J) Describe any appeal rights available to the borrower from an 
adverse decision on administrative review of the loan obligation;
    (K) Describe any right to judicial review of an adverse decision by 
the agency regarding the legal enforceability or past-due status of the 
loan obligation;
    (L) Describe the collection actions that the agency may take in the 
future if those presently proposed do not result in repayment of the 
loan obligation, including the filing of a lawsuit against the borrower 
by the agency and assignment of the loan to the Secretary for the filing 
of a lawsuit against the borrower by the Federal Government; and
    (M) Inform the borrower of the options that are available to the 
borrower to remove the loan from default, including an explanation of 
the fees

[[Page 179]]

and conditions associated with each option.
    (vii) As part of the guaranty agency's response to a borrower who 
appeals an adverse decision resulting from the agency's administrative 
review of the loan obligation, the agency must provide the borrower with 
information on the availability of the Student Loan Ombudsman's office.
    (6) Collection efforts on defaulted loans. (i) A guaranty agency 
must engage in reasonable and documented collection activities on a loan 
on which it pays a default claim filed by a lender. For a non-paying 
borrower, the agency must perform at least one activity every 180 days 
to collect the debt, locate the borrower (if necessary), or determine if 
the borrower has the means to repay the debt.
    (ii) Within 45 days after paying a lender's default claim, the 
agency must send a notice to the borrower that contains the information 
described in paragraph (b)(5)(ii) of this section. During this time 
period, the agency also must notify the borrower, either in the notice 
containing the information described in paragraph (b)(5)(ii) of this 
section, or in a separate notice, that if he or she does not make 
repayment arrangements acceptable to the agency, the agency will 
promptly initiate procedures to collect the debt. The agency's 
notification to the borrower must state that the agency may 
administratively garnish the borrower's wages, file a civil suit to 
compel repayment, offset the borrower's State and Federal income tax 
refunds and other payments made by the Federal Government to the 
borrower, assign the loan to the Secretary in accordance with Sec.  
682.409, and take other lawful collection means to collect the debt, at 
the discretion of the agency. The agency's notification must include a 
statement that borrowers may have certain legal rights in the collection 
of debts, and that borrowers may wish to contact counselors or lawyers 
regarding those rights.
    (iii) Within a reasonable time after all of the information 
described in paragraph (b)(6)(ii) of this section has been sent, the 
agency must send at least one notice informing the borrower that the 
default has been reported to all nationwide consumer reporting agencies 
and that the borrower's credit rating may thereby have been damaged.
    (iv) The agency must send a notice informing the borrower of the 
options that are available to remove the loan from default, including an 
explanation of the fees and conditions associated with each option. This 
notice must be sent within a reasonable time after the end of the period 
for requesting an administrative review as specified in paragraph 
(b)(5)(iv)(B) of this section or, if the borrower has requested an 
administrative review, within a reasonable time following the conclusion 
of the administrative review.
    (v) A guaranty agency must attempt an annual Federal offset against 
all eligible borrowers. If an agency initiates proceedings to offset a 
borrower's State or Federal income tax refunds and other payments made 
by the Federal Government to the borrower, it may not initiate those 
proceedings sooner than 60 days after sending the notice described in 
paragraph (b)(5)(ii)(A) of this section.
    (vi) A guaranty agency must initiate administrative wage garnishment 
proceedings against all eligible borrowers, except as provided in 
paragraph (b)(6)(vii) of this section, by following the procedures 
described in paragraph (b)(9) of this section.
    (vii) A guaranty agency may file a civil suit against a borrower to 
compel repayment only if the borrower has no wages that can be garnished 
under paragraph (b)(9) of this section, or the agency determines that 
the borrower has sufficient attachable assets or income that is not 
subject to administrative wage garnishment that can be used to repay the 
debt, and the use of litigation would be more effective in collection of 
the debt.
    (viii) Upon notification by the Secretary that the borrower has made 
a borrower defense claim related to a loan that the borrower intends to 
consolidate into the Direct Loan Program for the purpose of seeking 
relief in accordance with Sec.  685.212(k), the guaranty agency must 
suspend all collection activities on the affected loan for the period 
designated by the Secretary.
    (7) Special conditions for agency payment of a claim. (i) A guaranty 
agency

[[Page 180]]

may adopt a policy under which it pays a claim to a lender on a loan 
under the condition described in Sec.  682.404(b)(3)(ii).
    (ii) Upon the payment of a claim under a policy described in 
paragraph (b)(7)(i) of this section, the guaranty agency shall--
    (A) Perform the loan servicing functions required of a lender under 
Sec.  682.208, except that the agency is not required to follow the 
consumer reporting agency reporting requirements of that section;
    (B) Perform the functions of the lender during the repayment period 
of the loan, as required under Sec.  682.209;
    (C) If the borrower is delinquent in repaying the loan at the time 
the agency pays a claim thereon to the lender or becomes delinquent 
while the agency holds the loan, exercise due diligence in accordance 
with Sec.  682.411 in attempting to collect the loan from the borrower 
and any endorser or co-maker; and
    (D) After the date of default on the loan, if any, comply with 
paragraph (b)(6) of this section with respect to collection activities 
on the loan, with the date of default treated as the claim payment date 
for purposes of those paragraphs.
    (8) Preemption of State law. The provisions of paragraphs (b)(2), 
(5), and (6) of this section preempt any State law, including State 
statutes, regulations, or rules, that would conflict with or hinder 
satisfaction of the requirements of these provisions.
    (9) Administrative garnishment. (i) If a guaranty agency decides to 
garnish the disposable pay of a borrower who is not making payments on a 
loan held by the agency, on which the Secretary has paid a reinsurance 
claim, it must do so in accordance with the following procedures:
    (A) At least 30 days before the initiation of garnishment 
proceedings, the guaranty agency must mail to the borrower's last known 
address, a written notice described in paragraph (b)(9)(i)(B) of this 
section.
    (B) The notice must describe--
    (1) The nature and amount of the debt;
    (2) The intention of the agency to collect the debt through 
deductions from disposable pay;
    (3) An explanation of the borrower's rights;
    (4) The deadlines by which a borrower must exercise those rights; 
and
    (5) The consequences of failure to exercise those rights in a timely 
manner.
    (C) The guaranty agency must offer the borrower an opportunity to 
inspect and copy agency records related to the debt.
    (D) The guaranty agency must offer the borrower an opportunity to 
enter into a written repayment agreement with the agency under terms 
agreeable to the agency.
    (E)(1) The guaranty agency must offer the borrower an opportunity 
for a hearing in accordance with paragraphs (b)(9)(i)(F) through (J) of 
this section and other guidance provided by the Secretary, for any 
objection regarding the existence, amount, or enforceability of the 
debt, and any objection that withholding from the borrower's disposable 
pay in the amount or at the rate proposed in the notice would cause 
financial hardship to the borrower.
    (2) The borrower must request a hearing in writing. At the 
borrower's option, the hearing may be oral or written. The time and 
location of the hearing is established by the guaranty agency. An oral 
hearing may, at the borrower's option, be conducted either in-person or 
by telephone conference. The agency notifies the borrower of the process 
for arranging the time and location of an oral hearing. All telephonic 
charges are the responsibility of the agency. All travel expenses 
incurred by the borrower in connection with an in-person oral hearing 
are the responsibility of the borrower.
    (F)(1) If the borrower submits a written request for a hearing on 
the existence, amount, or enforceability of the debt--
    (i) The guaranty agency must provide evidence of the existence of 
the debt. If the agency provides evidence of the existence of the debt, 
the borrower must prove by the preponderance of the evidence that no 
debt exists, the debt is not enforceable under applicable law, the 
amount the guaranty agency claims the borrower owes is incorrect, 
including that any amount of collection costs assessed to the borrower 
exceeds the limits established under

[[Page 181]]

Sec.  682.410(b)(2), or the debt is not delinquent; and
    (ii) The borrower may raise any of the objections described in 
paragraph (b)(9)(i)(F)(1)(i) of this section not raised in the written 
request, but must do so before a hearing is completed. For purposes of 
this paragraph, a hearing is completed when the record is closed and the 
hearing official notifies the parties that no additional evidence or 
objections will be accepted.
    (2) If the borrower submits a written request for a hearing on an 
objection that withholding in the amount or at the rate that the agency 
proposed in its notice would cause financial hardship to the borrower 
and the borrower's spouse and dependents--
    (i) The borrower bears the burden of proving the claim of financial 
hardship by a preponderance of the credible evidence by providing 
credible documentation that the amount of wages proposed in the notice 
would leave the borrower unable to meet basic living expenses of the 
borrower, the borrower's spouse, and the borrower's dependents. The 
documentation must show the amount of the costs incurred for basic 
living expenses and the income available from any source to meet those 
expenses;
    (ii) The borrower's claim of financial hardship must be evaluated by 
comparing the amounts that the borrower proves are being incurred for 
basic living expenses against the amounts spent for basic living 
expenses by families of the same size as the borrower's. For the 
purposes of this section, the standards published by the Internal 
Revenue Service under 26 U.S.C. 7122(d)(2) (the ''Collection Financial 
Standards'') establish the average amounts spent for basic living 
expenses for families of the same size as the borrower's family;
    (iii) The amount that the borrower proves is incurred for a type of 
basic living expense is considered to be reasonable to the extent that 
the amount does not exceed the amount spent for that expense by families 
of the same size according to the Collection Financial Standards. If the 
borrower claims an amount for any basic living expense that exceeds the 
amount in the Collection Financial Standards, the borrower must prove 
that the amount claimed is reasonable and necessary;
    (iv) If the borrower's objection to the rate or amount proposed in 
the notice is upheld in part, the garnishment must be ordered at a 
lesser rate or amount, that is determined will allow the borrower to 
meet basic living expenses proven to be reasonable and necessary. If 
this financial hardship determination is made after a garnishment order 
is already in effect, the guaranty agency must notify the borrower's 
employer of any change required by the determination in the amount to be 
withheld or the rate of withholding under that order; and
    (v) A determination by a hearing official that financial hardship 
would result from garnishment is effective for a period not longer than 
six months after the date of the finding. After this period, the 
guaranty agency may require the borrower to submit current information 
regarding the borrower's family income and living expenses. If the 
borrower fails to submit current information within 30 days of this 
request, or the guaranty agency concludes from a review of the available 
evidence that garnishment should now begin or the rate or the amount of 
an outstanding withholding should be increased, the guaranty agency must 
notify the borrower and provide the borrower with an opportunity to 
contest the determination and obtain a hearing on the objection under 
the procedures in paragraph (b)(9)(i) of this section.
    (G) If the borrower's written request for a hearing is received by 
the guaranty agency on or before the 30th day following the date of the 
notice described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency may not issue a withholding order until the borrower has been 
provided the requested hearing and a decision has been rendered. The 
guaranty agency must provide a hearing to the borrower in sufficient 
time to permit a decision, in accordance with the procedures that the 
agency may prescribe, to be rendered within 60 days.
    (H) If the borrower's written request for a hearing is received by 
the guaranty agency after the 30th day following the date of the notice 
described in paragraph (b)(9)(i)(B) of this section,

[[Page 182]]

the guaranty agency must provide a hearing to the borrower in sufficient 
time that a decision, in accordance with the procedures that the agency 
may prescribe, may be rendered within 60 days, but may not delay 
issuance of a withholding order unless the agency determines that the 
delay in filing the request was caused by factors over which the 
borrower had no control, or the agency receives information that the 
agency believes justifies a delay or cancellation of the withholding 
order. If a decision is not rendered within 60 days following receipt of 
a borrower's written request for a hearing, the guaranty agency must 
suspend the order beginning on the 61st day after the hearing request 
was received until a hearing is provided and a decision is rendered.
    (I) The hearing official appointed by the agency to conduct the 
hearing may be any qualified individual, including an administrative law 
judge. Under no circumstance may the hearing official be under the 
supervision or control of the head of the guaranty agency or of a third-
party servicer or collection contractor employed by the agency. Payment 
of compensation by the guaranty agency, third-party servicer, or 
collection contractor employed by the agency to the hearing official for 
service as a hearing official does not constitute impermissible 
supervision or control under this paragraph. The guaranty agency must 
ensure that, except as needed to arrange for administrative matters 
pertaining to the hearing, including the type of hearing requested by 
the borrower, the time, place, and manner of conducting an oral hearing, 
and post-hearing matters such as issuance of a hearing decision, all 
oral communications between the hearing official and any representative 
of the guaranty agency or with the borrower are made within the hearing 
of the other party, and that copies of any written communication with 
either party are promptly provided to the other party. This paragraph 
does not preclude a hearing in the absence of one of the parties if the 
borrower is given proper notice of the hearing, both parties have agreed 
on the time, place, and manner of the hearing, and one of the parties 
fails to attend.
    (J) The hearing official must conduct any hearing as an informal 
proceeding, require witnesses in an oral hearing to testify under oath 
or affirmation, and maintain a summary record of any hearing. The 
hearing official must issue a final written decision at the earliest 
practicable date, but not later than 60 days after the guaranty agency's 
receipt of the borrower's hearing request. However--
    (1) The borrower may request an extension of that deadline for a 
reasonable period, as determined by the hearing official, for the 
purpose of submitting additional evidence or raising a new objection 
described in paragraph (b)(9)(i)(F)(1)(ii) of this section; and
    (2) The agency may request, and the hearing official must grant, a 
reasonable extension of time sufficient to enable the guaranty agency to 
evaluate and respond to any such additional evidence or any objections 
raised pursuant to paragraph (b)(9)(i)(F)(1)(ii) of this section.
    (K) An employer served with a garnishment order from the guaranty 
agency with respect to a borrower whose wages are not then subject to a 
withholding order of any kind must deduct and pay to the agency from a 
borrower's disposable pay an amount that does not exceed the smallest 
of--
    (1) The amount specified in the guaranty agency order;
    (2) The amount permitted by section 488A(a)(1) of the Act, which is 
15 percent of the borrower's disposable pay; or
    (3) The amount permitted by 15 U.S.C. 1673(a)(2), which is the 
amount by which the borrower's disposable pay exceeds 30 times the 
minimum wage.
    (L) If a borrower's pay is subject to more than one garnishment 
order--
    (1) Unless other Federal law requires a different priority, the 
employer must pay the agency the amount calculated under paragraph 
(b)(9)(i)(K) of this section before the employer complies with any later 
garnishment orders, except a family support withholding order;
    (2) If an employer is withholding from a borrower's pay based on a 
garnishment order served on the employer before the guaranty agency's 
order, or if a withholding order for family support is served on an 
employer at any

[[Page 183]]

time, the employer must comply with the agency's garnishment order by 
withholding an amount that is the lesser of--
    (i) The amount specified in the guaranty agency order; or
    (ii) The amount calculated under paragraph (b)(9)(i)(L)(3) of this 
section less the amount or amounts withheld under the garnishment order 
or orders that have priority over the agency's order; and
    (3) The cumulative withholding for all garnishment orders issued by 
guaranty agencies may not exceed, for an individual borrower, the amount 
permitted by 15 U.S.C. 1673, which is the lesser of 25 percent of the 
borrower's disposable pay or the amount by which the borrower's 
disposable pay exceeds 30 times the minimum wage. If a borrower owes 
debts to one or more guaranty agencies, each agency may issue a 
garnishment order to enforce each of those debts, but no single agency 
may order a total amount exceeding 15 percent of the disposable pay of a 
borrower to be withheld. The employer must honor these orders as 
provided in paragraphs (b)(9)(i)(L)(1) and (2) of this section.
    (M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) of this section, 
an employer may withhold and pay a greater amount than required under 
the order if the borrower gives the employer written consent.
    (N) A borrower may, at any time, raise an objection to the amount or 
the rate of withholding specified in the guaranty agency's order to the 
borrower's employer on the ground of financial hardship. However, the 
guaranty agency is not required to consider such an objection and 
provide the borrower with a hearing until at least six months after the 
agency issued the most recent garnishment order, either one for which 
the borrower did not request a hearing or one that was issued after a 
hardship-related hearing determination. The agency may provide a hearing 
in extraordinary circumstances earlier than six months if the borrower's 
request for review shows that the borrower's financial circumstances 
have substantially changed after the garnishment notice because of an 
event such as injury, divorce, or catastrophic illness.
    (O) A garnishment order is effective until the guaranty agency 
rescinds the order or the agency has fully recovered the amounts owed by 
the borrower, including interest, late fees, and collections costs. If 
an employer is unable to honor a garnishment order because the amount 
available for garnishment is insufficient to pay any portion of the 
amount stated in the order, the employer must notify the agency and 
comply with the order when sufficient disposable pay is available. Upon 
full recovery of the debt, the agency must send the borrower's employer 
notification to stop wage withholding.
    (P) The guaranty agency must sue any employer for any amount that 
the employer, after receipt of the withholding order provided by the 
agency under paragraph (b)(9)(i)(R) of this section, fails to withhold 
from wages owed and payable to an employee under the employer's normal 
pay and disbursement cycle.
    (Q) The guaranty agency may not garnish the wages of a borrower whom 
it knows has been involuntarily separated from employment until the 
borrower has been reemployed continuously for at least 12 months. The 
borrower has the burden of informing the guaranty agency of the 
circumstances surrounding the borrower's involuntary separation from 
employment.
    (R) Unless the guaranty agency receives information that the agency 
believes justifies a delay or cancellation of the withholding order, it 
must send a withholding order to the employer within 20 days after the 
borrower fails to make a timely request for a hearing, or, if a timely 
request for a hearing is made by the borrower, within 20 days after a 
final decision is made by the agency to proceed with garnishment.
    (S) The notice given to the employer under paragraph (b)(9)(i)(R) of 
this section must contain only the information as may be necessary for 
the employer to comply with the withholding order and to ensure proper 
credit for payments received. At a minimum, the notice given to the 
employer includes the borrower's name, address, and Social Security 
Number, as well as instructions for withholding and information

[[Page 184]]

as to where the employer must send payments.
    (T)(1) A guaranty agency may use a third-party servicer or 
collection contractor to perform administrative activities associated 
with administrative wage garnishment, but may not allow such a party to 
conduct required hearings or to determine that a withholding order is to 
be issued. Subject to the limitations of paragraphs (b)(9)(i)(T)(2) and 
(3) of this section, administrative activities associated with 
administrative wage garnishment may include but are not limited to--
    (i) Identifying to the agency suitable candidates for wage 
garnishment pursuant to agency standards;
    (ii) Obtaining employment information for the purposes of 
garnishment;
    (iii) Sending candidates selected for garnishment by the agency 
notices prescribed by the agency;
    (iv) Negotiating alternative repayment arrangements with borrowers;
    (v) Responding to inquiries from notified borrowers;
    (vi) Receiving garnishment payments on behalf of the agency;
    (vii) Arranging for the retention of hearing officials and for the 
conduct of hearings on behalf of the agency;
    (viii) Providing information to borrowers or hearing officials on 
the process or conduct of hearings; and
    (ix) Sending garnishment orders and other communications to 
employers on behalf of the agency.
    (2) Only an authorized official of the agency may determine that an 
individual withholding order is to be issued. The guarantor must record 
the official's determination for each order it issues, including any 
order which it causes to be prepared or mailed by a third-party servicer 
or collection contractor. The guarantor must evidence the official's 
approval, either by including the official's signature on the order or, 
if the agency uses a form of withholding order that does not provide for 
execution by signature, by retaining in the agency's records the 
identity of the approving official, the date of the approval, the amount 
or rate of the order, the name and address of the employer to whom the 
order was issued, and the debt for which the order was issued.
    (3) The withholding order must identify the guaranty agency as the 
holder of the debt, as the issuer of the order, and as the sole party 
legally authorized to issue the withholding order. If a guaranty agency 
uses a third-party servicer or collection contractor to prepare and mail 
a withholding order that includes the name of the servicer or contractor 
that prepared or mailed the order, the guaranty agency must also ensure 
that the order contains no captions or representations that the servicer 
or contractor is the party that issued, or was empowered by Federal law 
or by the agency to issue, the withholding order.
    (U) As specified in section 488A(a)(8) of the Act, the borrower may 
seek judicial relief, including punitive damages, if the employer 
discharges, refuses to employ, or takes disciplinary action against the 
borrower due to the issuance of a withholding order.
    (V) A guaranty agency is required to suspend a garnishment order 
when the agency receives a borrower's fifth qualifying payment under a 
loan rehabilitation agreement with the agency, unless otherwise directed 
by the borrower, in accordance with Sec.  682.405(a)(3).
    (ii) For purposes of paragraph (b)(9) of this section--
    (A) ``Borrower'' includes all endorsers on a loan;
    (B) ``Day'' means calendar day;
    (C) ``Disposable pay'' means that part of a borrower's compensation 
for personal services, whether or not denominated as wages from an 
employer, that remains after the deduction of health insurance premiums 
and any amounts required by law to be withheld, and includes, but is not 
limited to, salary, bonuses, commissions, or vacation pay. ``Amounts 
required by law to be withheld'' include amounts for deductions such as 
Social Security taxes and withholding taxes, but do not include any 
amount withheld under a court order or other withholding order. All 
references to an amount of disposable pay refer to disposable pay 
calculated for a single week;
    (D) ``Employer'' means a person or entity that employs the services 
of another and that pays the latter's wages or salary and includes, but 
is not limited to, State and local governments,

[[Page 185]]

but does not include an agency of the Federal Government;
    (E) ``Financial hardship'' means an inability to meet basic living 
expenses for goods and services necessary for the survival of the 
borrower and the borrower's spouse and dependents;
    (F) ``Garnishment'' means the process of withholding amounts from an 
employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order; and
    (G) ``Withholding order'' means any order for withholding or 
garnishment of pay issued by the guaranty agency and may also be 
referred to as ``wage garnishment order'' or ``garnishment order.''
    (10) Conflicts of interest. (i) A guaranty agency shall maintain and 
enforce written standards of conduct governing the performance of its 
employees, officers, directors, trustees, and agents engaged in the 
selection, award, and administration of contracts or agreements. The 
standards of conduct must, at a minimum, require disclosure of financial 
or other interests and must mandate disinterested decision-making. The 
standards must provide for appropriate disciplinary actions to be 
applied for violations of the standards by employees, officers, 
directors, trustees, or agents of the guaranty agency, and must include 
provisions to--
    (A) Prohibit any employee, officer, director, trustee, or agent from 
participating in the selection, award, or decision-making related to the 
administration of a contract or agreement supported by the reserve fund 
described in paragraph (a) of this section, if that participation would 
create a conflict of interest. Such a conflict would arise if the 
employee, officer, director, trustee, or agent, or any member of his or 
her immediate family, his or her partner, or an organization that 
employs or is about to employ any of those parties has a financial or 
ownership interest in the organization selected for an award or would 
benefit from the decision made in the administration of the contract or 
agreement. The prohibitions described in this paragraph do not apply to 
employees of a State agency covered by codes of conduct established 
under State law;
    (B) Ensure sufficient separation of responsibility and authority 
between its lender claims processing as a guaranty agency and its 
lending or loan servicing activities, or both, within the guaranty 
agency or between that agency and one or more affiliates, including 
independence in direct reporting requirements and such management and 
systems controls as may be necessary to demonstrate, in the independent 
audit required under Sec.  682.410(b)(1), that claims filed by another 
arm of the guaranty agency or by an affiliate of that agency receive no 
more favorable treatment than that accorded the claims filed by a lender 
or servicer that is not an affiliate or part of the guaranty agency; and
    (C) Prohibit the employees, officers, directors, trustees, and 
agents of the guaranty agency, his or her partner, or any member of his 
or her immediate family, from soliciting or accepting gratuities, 
favors, or anything of monetary value from contractors or parties to 
agreements, except that nominal and unsolicited gratuities, favors, or 
items may be accepted.
    (ii) Guaranty agency restructuring. If the Secretary determines that 
action is necessary to protect the Federal fiscal interest because of an 
agency's failure to meet the requirements of Sec.  682.410(b)(10)(i), 
the Secretary may require the agency to comply with any additional 
measures that the Secretary believes are appropriate, including the 
total divestiture of the agency's non-FFEL functions and the agency's 
interests in any affiliated organization.
    (c) Enforcement requirements. A guaranty agency shall take such 
measures and establish such controls as are necessary to ensure its 
vigorous enforcement of all Federal, State, and guaranty agency 
requirements, including agreements, applicable to its loan guarantee 
program, including, at a minimum, the following:
    (1) Conducting comprehensive biennial on-site program reviews, using 
statistically valid techniques to calculate liabilities to the Secretary 
that each review indicates may exist, of at least--
    (i)(A) Each participating lender whose dollar volume of FFEL loans

[[Page 186]]

held by the lender and guaranteed by the agency in the preceding year--
    (1) Equaled or exceeded two percent of the total of all loans 
guaranteed by the agency;
    (2) Was one of the ten largest lenders whose loans were guaranteed 
by the agency; or
    (3) Equaled or exceeded $10 million in the most recent fiscal year;
    (B) Each lender described in section 435(d)(1)(D) or (J) of the Act 
that is located in any State in which the agency is the principal 
guarantor, and, at the option of each guaranty agency, the Student Loan 
Marketing Association; and
    (C) Each school that participated in the guaranty agency's program, 
located in a State for which the guaranty agency is the principal 
guaranty agency, that has a cohort default rate, as described in subpart 
M of 34 CFR part 668, that includes FFEL Program loans, for either of 
the 2 immediately preceding fiscal years, as defined in 34 CFR 668.182, 
that exceeds 20 percent, unless the school is under a mandate from the 
Secretary under subpart M of 34 CFR part 668 to take specific default 
reduction measures or if the total dollar amount of loans entering 
repayment in each fiscal year on which the cohort default rate of over 
20 percent is based does not exceed $100,000; or
    (ii) The schools and lenders selected by the agency as an 
alternative to the reviews required by paragraphs (c)(1)(i)(A)-(C) of 
this section if the Secretary approves the agency's proposed alternative 
selection methodology.
    (2) Demanding prompt repayment by the responsible parties to 
lenders, borrowers, the agency, or the Secretary, as appropriate, of all 
funds found in those reviews to be owed by the participants with regard 
to loans guaranteed by the agency, whether or not the agency holds the 
loans, and monitoring the implementation by participants of corrective 
actions, including these repayments, required by the agency as a result 
of those reviews.
    (3) Referring to the Secretary for further enforcement action any 
case in which repayment of funds to the Secretary is not made in full 
within 60 days of the date of the agency's written demand to the school, 
lender, or other party for payment, together with all supporting 
documentation, any correspondence, and any other documentation submitted 
by that party regarding the repayment.
    (4) Undertaking or arranging with State or local law enforcement 
agencies for the prompt and thorough investigation of all allegations 
and indications of criminal or other programmatic misconduct by its 
program participants, including violations of Federal law or 
regulations.
    (5) Promptly referring to appropriate State and local regulatory 
agencies and to nationally recognized accrediting agencies and 
associations for investigation information received by the guaranty 
agency that may affect the retention or renewal of the license or 
accreditation of a program participant.
    (6) Promptly reporting all of the allegations and indications of 
misconduct having a substantial basis in fact, and the scope, progress, 
and results of the agency's investigations thereof to the Secretary.
    (7) Referring appropriate cases to State or local authorities for 
criminal prosecution or civil litigation.
    (8) Promptly notifying the Secretary of--
    (i) Any action it takes affecting the FFEL program eligibility of a 
participating lender or title IV eligibility of a school;
    (ii) Information it receives regarding an action affecting the FFEL 
program eligibility of a participating lender or title IV eligibility of 
a school taken by a nationally recognized accrediting agency, 
association, or a State licensing agency;
    (iii) Any judicial or administrative proceeding relating to the 
enforceability of FFEL loans guaranteed by the agency or in which 
tuition obligations of a school's students are directly at issue, other 
than a proceeding relating to a single borrower or student; and
    (iv) Any petition for relief in bankruptcy, application for 
receivership, or corporate dissolution proceeding brought by or against 
a school or lender participating in its loan guarantee program.

[[Page 187]]

    (9) Cooperating with all program reviews, investigations, and audits 
conducted by the Secretary relating to the agency's loan guarantee 
program.
    (10) Taking prompt action to protect the rights of borrowers and the 
Federal fiscal interest respecting loans that the agency has guaranteed 
when the agency learns that a school that participated in the FFEL 
Program or a holder of loans participating in the program is 
experiencing problems that threaten the solvency of the school or 
holder, including--
    (i) Conducting on-site program reviews;
    (ii) Providing training and technical assistance, if appropriate;
    (iii) Filing a proof of claim with a bankruptcy court for recovery 
of any funds due the agency and any refunds due to borrowers on FFEL 
loans that it has guaranteed when the agency learns that a school has 
filed a bankruptcy petition;
    (iv) Promptly notifying the Secretary that the agency has determined 
that a school or holder of loans is experiencing potential solvency 
problems; and
    (v) Promptly notifying the Secretary of the results of any actions 
taken by the agency to protect Federal funds involving such a school or 
holder.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.410, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.411  Lender due diligence in collecting guaranty agency loans.

    (a) General. In the event of delinquency on an FFEL Program loan, 
the lender must engage in at least the collection efforts described in 
paragraphs (c) through (n) of this section, except that in the case of a 
loan made to a borrower who is incarcerated, residing outside a State, 
Mexico, or Canada, or whose telephone number is unknown, the lender may 
send a forceful collection letter instead of each telephone effort 
required by this section.
    (b) Delinquency. (1) For purposes of this section, delinquency on a 
loan begins on the first day after the due date of the first missed 
payment that is not later made. The due date of the first payment is 
established by the lender but must occur by the deadlines specified in 
Sec.  682.209(a) or, if the lender first learns after the fact that the 
borrower has entered the repayment period, no later than 75 days after 
the day the lender so learns, except as provided in Sec.  
682.209(a)(2)(v) and (a)(3)(ii)(E). If a payment is made late, the first 
day of delinquency is the day after the due date of the next missed 
payment that is not later made. A payment that is within five dollars of 
the amount normally required to advance the due date may nevertheless 
advance the due date if the lender's procedures allow for that 
advancement.
    (2) At no point during the periods specified in paragraphs (c), (d), 
and (e) of this section may the lender permit the occurrence of a gap in 
collection activity, as defined in paragraph (j) of this section, of 
more than 45 days (60 days in the case of a transfer).
    (3) As part of one of the collection activities provided for in this 
section, the lender must provide the borrower with information on the 
availability of the Student Loan Ombudsman's office.
    (c) 1-15 days delinquent. Except in the case in which a loan is 
brought into this period by a payment on the loan, expiration of an 
authorized deferment or forbearance period, or the lender's receipt from 
the drawee of a dishonored check submitted as a payment on the loan, the 
lender during this period must send at least one written notice or 
collection letter to the borrower informing the borrower of the 
delinquency and urging the borrower to make payments sufficient to 
eliminate the delinquency. The notice or collection letter sent during 
this period must include, at a minimum, a lender or servicer contact, a 
telephone number, and a prominent statement informing the borrower that 
assistance may be available if he or she is experiencing difficulty in 
making a scheduled repayment.
    (d) 16-180 days delinquent (16-240 days delinquent for a loan 
repayable in installments less frequently than monthly). (1) Unless 
exempted under paragraph (d)(4) of this section, during this period the

[[Page 188]]

lender must engage in at least four diligent efforts to contact the 
borrower by telephone and send at least four collection letters urging 
the borrower to make the required payments on the loan. At least one of 
the diligent efforts to contact the borrower by telephone must occur on 
or before, and another one must occur after, the 90th day of 
delinquency. Collection letters sent during this period must include, at 
a minimum, information for the borrower regarding deferment, 
forbearance, income-sensitive repayment, income-based repayment and loan 
consolidation, and other available options to avoid default.
    (2) At least two of the collection letters required under paragraph 
(d)(1) of this section must warn the borrower that, if the loan is not 
paid, the lender will assign the loan to the guaranty agency that, in 
turn, will report the default to each nationwide consumer reporting 
agency, and that the agency may institute proceedings to offset the 
borrower's State and Federal income tax refunds and other payments made 
by the Federal Government to the borrower or to garnish the borrower's 
wages, or to assign the loan to the Federal Government for litigation 
against the borrower.
    (3) Following the lender's receipt of a payment on the loan or a 
correct address for the borrower, the lender's receipt from the drawee 
of a dishonored check received as a payment on the loan, the lender's 
receipt of a correct telephone number for the borrower, or the 
expiration of an authorized deferment or forbearance period, the lender 
is required to engage in only--
    (i) Two diligent efforts to contact the borrower by telephone during 
this period, if the loan is less than 91 days delinquent (121 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance; or
    (ii) One diligent effort to contact the borrower by telephone during 
this period if the loan is 91-120 days delinquent (121-180 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance.
    (4) A lender need not attempt to contact by telephone any borrower 
who is more than 120 days delinquent (180 days delinquent for a loan 
repayable in installments less frequent than monthly) following the 
lender's receipt of--
    (i) A payment on the loan;
    (ii) A correct address or correct telephone number for the borrower;
    (iii) A dishonored check received from the drawee as a payment on 
the loan; or
    (iv) The expiration of an authorized deferment or forbearance.
    (e) 181-270 days delinquent (241-330 days delinquent for a loan 
repayable in installments less frequently than monthly). During this 
period the lender must engage in efforts to urge the borrower to make 
the required payments on the loan. These efforts must, at a minimum, 
provide information to the borrower regarding options to avoid default 
and the consequences of defaulting on the loan.
    (f) Final demand. On or after the 241st day of delinquency (the 
301st day for loans payable in less frequent installments than monthly) 
the lender must send a final demand letter to the borrower requiring 
repayment of the loan in full and notifying the borrower that a default 
will be reported to each nationwide consumer reporting agency. The 
lender must allow the borrower at least 30 days after the date the 
letter is mailed to respond to the final demand letter and to bring the 
loan out of default before filing a default claim on the loan.
    (g) Collection procedures when borrower's telephone number is not 
available. Upon completion of a diligent but unsuccessful effort to 
ascertain the correct telephone number of a borrower as required by 
paragraph (m) of this section, the lender is excused from any further 
efforts to contact the borrower by telephone, unless the borrower's 
number is obtained before the 211th day of delinquency (the 271st day 
for loans repayable in installments less frequently than monthly).
    (h) Skip-tracing. (1) Unless the letter specified under paragraph 
(f) of this

[[Page 189]]

section has already been sent, within 10 days of its receipt of 
information indicating that it does not know the borrower's current 
address, the lender must begin to diligently attempt to locate the 
borrower through the use of effective commercial skip-tracing 
techniques. These efforts must include, but are not limited to, sending 
a letter to or making a diligent effort to contact each endorser, 
relative, reference, individual, and entity, identified in the 
borrower's loan file, including the schools the student attended. For 
this purpose, a lender's contact with a school official who might 
reasonably be expected to know the borrower's address may be with 
someone other than the financial aid administrator, and may be in 
writing or by phone calls. These efforts must be completed by the date 
of default with no gap of more than 45 days between attempts to contact 
those individuals or entities.
    (2) Upon receipt of information indicating that it does not know the 
borrower's current address, the lender must discontinue the collection 
efforts described in paragraphs (c) through (f) of this section.
    (3) If the lender is unable to ascertain the borrower's current 
address despite its performance of the activities described in paragraph 
(h)(1) of this section, the lender is excused thereafter from 
performance of the collection activities described in paragraphs (c) 
through (f) and (l)(1) through (l)(3) and (l)(5) of this section unless 
it receives communication indicating the borrower's address before the 
241st day of delinquency (the 301st day for loans payable in less 
frequent installments than monthly).
    (4) The activities specified by paragraph (m)(1)(i) or (ii) of this 
section (with references to the ``borrower'' understood to mean 
endorser, reference, relative, individual, or entity as appropriate) 
meet the requirement that the lender make a diligent effort to contact 
each individual identified in the borrower's loan file.
    (i) Default aversion assistance. Not earlier than the 60th day and 
no later than the 120th day of delinquency, a lender must request 
default aversion assistance from the guaranty agency that guarantees the 
loan.
    (j) Gap in collection activity. For purposes of this section, the 
term gap in collection activity means, with respect to a loan, any 
period--
    (1) Beginning on the date that is the day after--
    (i) The due date of a payment unless the lender does not know the 
borrower's address on that date;
    (ii) The day on which the lender receives a payment on a loan that 
remains delinquent notwithstanding the payment;
    (iii) The day on which the lender receives the correct address for a 
delinquent borrower;
    (iv) The day on which the lender completes a collection activity;
    (v) The day on which the lender receives a dishonored check 
submitted as a payment on the loan;
    (vi) The expiration of an authorized deferment or forbearance period 
on a delinquent loan; or
    (vii) The day the lender receives information indicating it does not 
know the borrower's current address; and
    (2) Ending on the date of the earliest of--
    (i) The day on which the lender receives the first subsequent 
payment or completed deferment request or forbearance agreement;
    (ii) The day on which the lender begins the first subsequent 
collection activity;
    (iii) The day on which the lender receives written communication 
from the borrower relating to his or her account; or
    (iv) Default.
    (k) Transfer. For purposes of this section, the term transfer with 
respect to a loan means any action, including, but not limited to, the 
sale of the loan, that results in a change in the system used to monitor 
or conduct collection activity on a loan from one system to another.
    (l) Collection activity. For purposes of this section, the term 
collection activity with respect to a loan means--
    (1) Mailing or otherwise transmitting to the borrower at an address 
that the lender reasonably believes to be the borrower's current address 
a collection

[[Page 190]]

letter or final demand letter that satisfies the timing and content 
requirements of paragraph (c), (d), (e), or (f) of this section;
    (2) Making an attempt to contact the borrower by telephone to urge 
the borrower to begin or resume repayment;
    (3) Conducting skip-tracing efforts, in accordance with paragraph 
(h)(1) or (m)(1)(iii) of this section, to locate a borrower whose 
correct address or telephone number is unknown to the lender;
    (4) Mailing or otherwise transmitting to the guaranty agency a 
request for default aversion assistance available from the agency on the 
loan at the time the request is transmitted; or
    (5) Any telephone discussion or personal contact with the borrower 
so long as the borrower is apprised of the account's past-due status.
    (m) Diligent effort for telephone contact. (1) For purposes of this 
section, the term diligent effort with respect to telephone contact 
means--
    (i) A successful effort to contact the borrower by telephone;
    (ii) At least two unsuccessful attempts to contact the borrower by 
telephone at a number that the lender reasonably believes to be the 
borrower's correct telephone number; or
    (iii) An unsuccessful effort to ascertain the correct telephone 
number of a borrower, including, but not limited to, a directory 
assistance inquiry as to the borrower's telephone number, and sending a 
letter to or making a diligent effort to contact each reference, 
relative, and individual identified in the most recent loan application 
or most recent school certification for that borrower held by the 
lender. The lender may contact a school official other than the 
financial aid administrator who reasonably may be expected to know the 
borrower's address or telephone number.
    (2) If the lender is unable to ascertain the borrower's correct 
telephone number despite its performance of the activities described in 
paragraph (m)(1)(iii) of this section, the lender is excused thereafter 
from attempting to contact the borrower by telephone unless it receives 
a communication indicating the borrower's current telephone number 
before the 211th day of delinquency (the 271st day for loans repayable 
in installments less frequently than monthly).
    (3) The activities specified by paragraph (m)(1) (i) or (ii) of this 
section (with references to ``the borrower'' understood to mean 
endorser, reference, relative, or individual as appropriate), meet the 
requirement that the lender make a diligent effort to contact each 
endorser or each reference, relative, or individual identified on the 
borrower's most recent loan application or most recent school 
certification.
    (n) Due diligence for endorsers. (1) Before filing a default claim 
on a loan with an endorser, the lender must--
    (i) Make a diligent effort to contact the endorser by telephone; and
    (ii) Send the endorser on the loan two letters advising the endorser 
of the delinquent status of the loan and urging the endorser to make the 
required payments on the loan with at least one letter containing the 
information described in paragraph (d)(2) of this section (with 
references to ``the borrower'' understood to mean the endorser).
    (2) On or after the 241st day of delinquency (the 301st day for 
loans payable in less frequent installments than monthly) the lender 
must send a final demand letter to the endorser requiring repayment of 
the loan in full and notifying the endorser that a default will be 
reported to each nationwide consumer reporting agency. The lender must 
allow the endorser at least 30 days after the date the letter is mailed 
to respond to the final demand letter and to bring the loan out of 
default before filing a default claim on the loan.
    (3) Unless the letter specified under paragraph (n)(2) of this 
section has already been sent, upon receipt of information indicating 
that it does not know the endorser's current address or telephone 
number, the lender must diligently attempt to locate the endorser 
through the use of effective commercial skip-tracing techniques. This 
effort must include an inquiry to directory assistance.
    (o) Preemption. The provisions of this section--
    (1) Preempt any State law, including State statutes, regulations, or 
rules,

[[Page 191]]

that would conflict with or hinder satisfaction of the requirements or 
frustrate the purposes of this section; and
    (2) Do not preempt provisions of the Fair Credit Reporting Act that 
provide relief to a borrower while the lender determines the legal 
enforceability of a loan when the lender receives a valid identity theft 
report or notification from a consumer reporting agency that information 
furnished is a result of an alleged identity theft as defined in Sec.  
682.402(e)(14).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087)

[64 FR 58630, Oct. 29, 1999, as amended at 64 FR 58965, Nov. 1, 1999; 72 
FR 62006, Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008; 78 FR 65820, Nov. 1, 
2013]



Sec.  682.412  Consequences of the failure of a borrower or student to
establish eligibility.

    (a) The lender shall immediately send to the borrower a final demand 
letter meeting the requirements of Sec.  682.411(f) when it learns and 
can substantiate that the borrower or the student on whose behalf a 
parent has borrowed, without the lender or school's knowledge at the 
time the loan was made, provided false or erroneous information or took 
actions that caused the student or borrower--
    (1) To be ineligible for all or a portion of a loan made under this 
part;
    (2) To receive a Stafford loan subject to payment of Federal 
interest benefits for which he or she was ineligible; or
    (3) To receive loan proceeds for a period of enrollment from which 
he or she has withdrawn or been expelled prior to the first day of 
classes or during which he or she failed to attend school and has not 
paid those funds to the school or repaid them to the lender.
    (b) The lender shall neither bill the Secretary for nor be entitled 
to interest benefits on a loan after it learns that one of the 
conditions described in paragraph (a) of this section exists with 
respect to the loan.
    (c) In the final demand letter transmitted under paragraph (a) of 
this section, the lender shall demand that within 30 days from the date 
the letter is mailed the borrower repay in full any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest and all special allowance paid by the Secretary.
    (d) If the borrower repays the amounts described in paragraph (c) of 
this section within the 30-day period, the lender shall--
    (1) On its next quarterly interest billing submitted under Sec.  
682.305, refund to the Secretary the interest benefits and special 
allowance repaid by the borrower and all other interest benefits and 
special allowance previously paid by the Secretary on the ineligible 
portion of the loan; and
    (2) Treat that payment of the principal amount of the ineligible 
portion of the loan as a prepayment of principal.
    (e) If a borrower fails to comply with the terms of a final demand 
letter described in paragraph (a) of this section, the lender shall 
treat the entire loan as in default, and--
    (1) With its next quarterly interest billing submitted under Sec.  
682.305, refund to the Secretary the amount of the interest benefits 
received from the Secretary on the ineligible portion of the loan, 
whether or not repaid by the borrower; and
    (2) Within the time specified in Sec.  682.406(a)(5), file a default 
claim thereon with the guaranty agency for the entire unpaid balance of 
principal and accrued interest.

(Approved by the Office of Management and Budget under control number 
1840-0538)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 60 
FR 61757, Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999; 78 FR 65820, Nov. 1, 
2013]



Sec.  682.413  Remedial actions.

    (a)(1) The Secretary requires a lender and its third-party servicer 
administering any aspect of the FFEL programs under a contract with the 
lender to repay interest benefits and special allowance or other 
compensation received on a loan guaranteed by a guaranty agency, 
pursuant to paragraph (a)(2) of this section--
    (i) For any period beginning on the date of a failure by the lender 
or

[[Page 192]]

servicer, with respect to the loan, to comply with any of the 
requirements set forth in Sec.  682.406(a)(1)-(a)(6), (a)(9), and 
(a)(12);
    (ii) For any period beginning on the date of a failure by the lender 
or servicer, with respect to the loan, to meet a condition of guarantee 
coverage established by the guaranty agency, to the date, if any, on 
which the guaranty agency reinstated the guarantee coverage pursuant to 
policies and procedures established by the agency;
    (iii) For any period in which the lender or servicer, with respect 
to the loan, violates the requirements of subpart C of this part; and
    (iv) For any period beginning on the day after the Secretary's 
obligation to pay special allowance on the loan terminates under Sec.  
682.302(d).
    (2) For purposes of this section, a lender and any applicable third-
party servicer shall be considered jointly and severally liable for the 
repayment of any interest benefits and special allowance paid as a 
result of a violation of applicable requirements by the servicer in 
administering the lender's FFEL programs.
    (3) For purposes of paragraph (a)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (a)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The lender has not repaid in full the amount of the 
liability within 30 days from the date the lender receives notice from 
the Secretary of the liability;
    (B) The lender has not made other satisfactory arrangements to pay 
the amount of the liability within 30 days from the date the lender 
receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the lender 
by offsetting the lender's bill to the Secretary for interest benefits 
or special allowance, if--
    (1) The bill is submitted after the 30 day period specified in 
paragraph (a)(3)(ii)(A) of this section has passed; and
    (2) The lender has not paid, or made satisfactory arrangements to 
pay, the liability.
    (b)(1) The Secretary requires a guaranty agency to repay reinsurance 
payments received on a loan if the lender, third-party servicer, if 
applicable, or the agency failed to meet the requirements of Sec.  
682.406(a).
    (2) The Secretary may require a guaranty agency to repay reinsurance 
payments received on a loan or to assign FFEL loans to the Department if 
the agency fails to meet the requirements of Sec.  682.410.
    (c)(1) In addition to requiring repayment of reinsurance payments 
pursuant to paragraph (b) of this section, the Secretary may take one or 
more of the following remedial actions against a guaranty agency or 
third-party servicer administering any aspect of the FFEL programs under 
a contract with the guaranty agency, that makes an incomplete or 
incorrect statement in connection with any agreement entered into under 
this part or violates any applicable Federal requirement:
    (i) Require the agency to return payments made by the Secretary to 
the agency.
    (ii) Withhold payments to the agency.
    (iii) Limit the terms and conditions of the agency's continued 
participation in the FFEL programs.
    (iv) Suspend or terminate agreements with the agency.
    (v) Impose a fine on the agency or servicer. For purposes of 
assessing a fine on a third-party servicer, a repeated mechanical 
systemic unintentional error shall be counted as one violation, unless 
the servicer has been cited for a similar violation previously and had 
failed to make the appropriate corrections to the system.
    (vi) Require repayment from the agency and servicer pursuant to 
paragraph (c)(2) of this section, of interest, special allowance, and 
reinsurance paid on Consolidation loan amounts attributed to 
Consolidation loans for which the required lender verification 
certification is not available.

[[Page 193]]

    (vii) Require repayment from the agency or servicer, pursuant to 
paragraph (c)(2) of this section, of any related payments that the 
Secretary became obligated to make to others as a result of an 
incomplete or incorrect statement or a violation of an applicable 
Federal requirement.
    (2) For purposes of this section, a guaranty agency and any 
applicable third-party servicer shall be considered jointly and 
severally liable for the repayment of any interest benefits, special 
allowance, reinsurance paid, or other compensation on Consolidation loan 
amounts attributed to Consolidation loans as specified in Sec.  
682.413(c)(1)(vi) as a result of a violation by the servicer 
administering any aspect of the FFEL programs under a contract with that 
guaranty agency.
    (3) For purposes of paragraph (c)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (c)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The guaranty agency has not repaid in full the amount of 
the liability within 30 days from the date the guaranty agency receives 
notice from the Secretary of the liability;
    (B) The guaranty agency has not made other satisfactory arrangements 
to pay the amount of the liability within 30 days from the date the 
guaranty agency receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the 
guaranty agency by offsetting the guaranty agency's first reinsurance 
claim to the Secretary, if--
    (1) The claim is submitted after the 30-day period specified in 
paragraph (c)(3)(ii)(A) of this section has passed; and
    (2) The guaranty agency has not paid, or made satisfactory 
arrangements to pay, the liability.
    (d)(1) The Secretary follows the procedures described in 34 CFR part 
668, subpart G, applicable to fine proceedings against schools, in 
imposing a fine against a lender, guaranty agency, or third-party 
servicer. References to ``the institution'' in those regulations shall 
be understood to mean the lender, guaranty agency, or third-party 
servicer, as applicable, for this purpose.
    (2) The Secretary also follows the provisions of section 432(g) of 
the Act in imposing a fine against a guaranty agency or lender.
    (e)(1)(i) The Secretary's decision to require repayment of funds, 
withhold funds, or to limit or suspend a lender, guaranty agency, or 
third party servicer from participation in the FFEL Program or to 
terminate a lender or third party from participation in the FFEL Program 
does not become final until the Secretary provides the lender, agency, 
or servicer with written notice of the intended action and an 
opportunity to be heard. The hearing is at a time and in a manner the 
Secretary determines to be appropriate to the resolution of the issues 
on which the lender, agency, or servicer requests the hearing.
    (ii) The Secretary's decision to terminate a guaranty agency's 
participation in the FFEL Program after September 24, 1998 does not 
become final until the Secretary provides the agency with written notice 
of the intended action and provides an opportunity for a hearing on the 
record.
    (2)(i) The Secretary may withhold payments from an agency or suspend 
an agreement with an agency prior to giving notice and an opportunity to 
be heard if the Secretary finds that emergency action is necessary to 
prevent substantial harm to Federal interests.
    (ii) The Secretary follows the notice and show cause procedures 
described in Sec.  682.704 applicable to emergency actions against 
lenders in taking an emergency action against a guaranty agency.
    (3) The Secretary follows the procedures in 34 CFR 30.20-30.32 in 
collecting a debt by offset against payments otherwise due a guaranty 
agency or lender.
    (f) Notwithstanding paragraphs (a)-(e) of this section, the 
Secretary may waive the right to require repayment of funds by a lender 
or agency if in the Secretary's judgment the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of Sec.  682.406(a)(3) or (a)(5) is set forth in appendix D to this 
part.

[[Page 194]]

    (g) The Secretary's final decision to require repayment of funds or 
to take other remedial action, other than a fine, against a lender or 
guaranty agency under this section is conclusive and binding on the 
lender or agency.
    (h) In any action to require repayment of funds or to withhold funds 
from a guaranty agency, or to limit, suspend, or terminate a guaranty 
agency based on a violation of section 428(b)(3) of the Act, if the 
Secretary finds that the guaranty agency provided or offered the 
prohibited payments or activities, the Secretary applies a rebuttable 
presumption that the payments or activities were offered or provided to 
secure applications for FFEL loans or to secure FFEL loan volume. To 
reverse the presumption, the guaranty agency must present evidence that 
the activities or payments were provided for a reason unrelated to 
securing applications for FFEL loans or securing FFEL loan volume.

    Note to Sec.  682.413: A decision by the Secretary under this 
section is subject to judicial review under 5 U.S.C. 706 and 41 U.S.C. 
321-322.

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22454, Apr. 29, 1994; 
59 FR 61190, Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996; 64 FR 18981, 
Apr. 16, 1999; 64 FR 58632, Oct. 29, 1999; 72 FR 62006, Nov. 1, 2007; 78 
FR 65820, Nov. 1, 2013]



Sec.  682.414  Records, reports, and inspection requirements for 
guaranty agency programs.

    (a) Records. (1)(i) The guaranty agency shall maintain current, 
complete, and accurate records of each loan that it holds, including, 
but not limited to, the records described in paragraph (a)(1)(ii) of 
this section. The records must be maintained in a system that allows 
ready identification of each loan's current status, updated at least 
once every 10 business days. Any reference to a guaranty agency under 
this section includes a third-party servicer that administers any aspect 
of the FFEL programs under a contract with the guaranty agency, if 
applicable.
    (ii) The agency shall maintain--
    (A) All documentation supporting the claim filed by the lender;
    (B) Notices of changes in a borrower's address;
    (C) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower by the guaranty agency, and 
the amount of each payment that was attributed to principal, accrued 
interest, and collection costs and other charges, such as late charges;
    (D) A collection history showing the date and subject of each 
communication between the agency and the borrower or endorser relating 
to collection of a defaulted loan, each communication between the agency 
and a consumer reporting agency regarding the loan, each effort to 
locate a borrower whose address was unknown at any time, and each 
request by the lender for default aversion assistance on the loan;
    (E) Documentation regarding any wage garnishment actions initiated 
by the agency on the loan;
    (F) Documentation of any matters relating to the collection of the 
loan by tax-refund offset; and
    (G) Any additional records that are necessary to document its right 
to receive or retain payments made by the Secretary under this part and 
the accuracy of reports it submits to the Secretary.
    (2) A guaranty agency must retain the records required for each loan 
for not less than 3 years following the date the loan is repaid in full 
by the borrower, or for not less than 5 years following the date the 
agency receives payment in full from any other source. However, in 
particular cases, the Secretary may require the retention of records 
beyond these minimum periods.
    (3) A guaranty agency shall retain a copy of the audit report 
required under Sec.  682.410(b) for not less than five years after the 
report is issued.
    (4)(i) The guaranty agency shall require a participating lender to 
maintain current, complete, and accurate records of each loan that it 
holds, including, but not limited to, the records described in paragraph 
(a)(4)(ii) of this section. The records must be maintained in a system 
that allows ready identification of each loan's current status.
    (ii) The lender shall keep--

[[Page 195]]

    (A) A copy of the loan application if a separate application was 
provided to the lender;
    (B) A copy of the signed promissory note;
    (C) The repayment schedule;
    (D) A record of each disbursement of loan proceeds;
    (E) Notices of changes in a borrower's address and status as at 
least a half-time student;
    (F) Evidence of the borrower's eligibility for a deferment;
    (G) The documents required for the exercise of forbearance;
    (H) Documentation of the assignment of the loan;
    (I) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower, and the amount of each 
payment that was attributed to principal, interest, late charges, and 
other costs;
    (J) A collection history showing the date and subject of each 
communication between the lender and the borrower or endorser relating 
to collection of a delinquent loan, each communication other than 
regular reports by the lender showing that an account is current, 
between the lender and a consumer reporting agency regarding the loan, 
each effort to locate a borrower whose address is unknown at any time, 
and each request by the lender for default aversion assistance on the 
loan;
    (K) Documentation of any MPN confirmation process or processes; and
    (L) Any additional records that are necessary to document the 
validity of a claim against the guarantee or the accuracy of reports 
submitted under this part.
    (iii) Except as provided in paragraph (a)(4)(iv) of this section, a 
lender must retain the records required for each loan for not less than 
3 years following the date the loan is repaid in full by the borrower, 
or for not less than five years following the date the lender receives 
payment in full from any other source. However, in particular cases, the 
Secretary or the guaranty agency may require the retention of records 
beyond this minimum period.
    (iv) A lender shall retain a copy of the audit report required under 
Sec.  682.305(c) for not less than five years after the report is 
issued.
    (5)(i) A guaranty agency or lender may store the records specified 
in paragraphs (a)(4)(ii)(C)-(L) of this section in accordance with 34 
CFR 668.24(d)(3)(i) through (iv).
    (ii) If a promissory note was signed electronically, the guaranty 
agency or lender must store it electronically and it must be retrievable 
in a coherent format.
    (iii) A lender or guaranty agency holding a promissory note must 
retain the original or a true and exact copy of the promissory note 
until the loan is paid in full or assigned to the Secretary. When a loan 
is paid in full by the borrower, the lender or guaranty agency must 
return either the original or a true and exact copy of the note to the 
borrower or notify the borrower that the loan is paid in full, and 
retain a copy for the prescribed period.
    (iv) If a lender made a loan based on an electronically signed MPN, 
the holder of the original electronically signed MPN must retain that 
original MPN for at least 3 years after all the loans made on the MPN 
have been satisfied.
    (6)(i) Upon the Secretary's request with respect to a particular 
loan or loans assigned to the Secretary and evidenced by an 
electronically signed promissory note, the guaranty agency and the 
lender that created the original electronically signed promissory note 
must cooperate with the Secretary in all activities necessary to enforce 
the loan or loans. The guaranty agency or lender must provide--
    (A) An affidavit or certification regarding the creation and 
maintenance of the electronic records of the loan or loans in a form 
appropriate to ensure admissibility of the loan records in a legal 
proceeding. This affidavit or certification may be executed in a single 
record for multiple loans provided that this record is reliably 
associated with the specific loans to which it pertains; and
    (B) Testimony by an authorized official or employee of the guaranty 
agency or lender, if necessary to ensure admission of the electronic 
records of the loan or loans in the litigation or legal proceeding to 
enforce the loan or loans.
    (ii) The affidavit or certification described in paragraph 
(a)(6)(i)(A) of this

[[Page 196]]

section must include, if requested by the Secretary--
    (A) A description of the steps followed by a borrower to execute the 
promissory note (such as a flow chart);
    (B) A copy of each screen as it would have appeared to the borrower 
of the loan or loans the Secretary is enforcing when the borrower signed 
the note electronically;
    (C) A description of the field edits and other security measures 
used to ensure integrity of the data submitted to the originator 
electronically;
    (D) A description of how the executed promissory note has been 
preserved to ensure that it has not been altered after it was executed;
    (E) Documentation supporting the lender's authentication and 
electronic signature process; and
    (F) All other documentary and technical evidence requested by the 
Secretary to support the validity or the authenticity of the 
electronically signed promissory note.
    (iii) The Secretary may request a record, affidavit, certification 
or evidence under paragraph (a)(6) of this section as needed to resolve 
any factual dispute involving a loan that has been assigned to the 
Secretary including, but not limited to, a factual dispute raised in 
connection with litigation or any other legal proceeding, or as needed 
in connection with loans assigned to the Secretary that are included in 
a Title IV program audit sample, or for other similar purposes. The 
guaranty agency must respond to any request from the Secretary within 10 
business days.
    (iv) As long as any loan made to a borrower under a MPN created by 
the lender is not satisfied, the holder of the original electronically 
signed promissory note is responsible for ensuring that all parties 
entitled to access to the electronic loan record, including the guaranty 
agency and the Secretary, have full and complete access to the 
electronic record.
    (b) Reports. A guaranty agency shall accurately complete and submit 
to the Secretary the following reports:
    (1) A report concerning the status of the agency's reserve fund and 
the operation of the agency's loan guarantee program at the time and in 
the manner that the Secretary may reasonably require. The Secretary does 
not pay the agency any funds, the amount of which are determined by 
reference to data in the report, until a complete and accurate report is 
received.
    (2) Annually, for each State in which it operates, a report of the 
total guaranteed loan volume, default volume, and default rate for each 
of the following categories of originating lenders on all loans 
guaranteed after December 31, 1980:
    (i) State or private nonprofit lenders.
    (ii) Commercial financial institutions (banks, savings and loan 
associations, and credit unions).
    (iii) All other types of lenders.
    (3) By July 1 of each year, a report on--
    (i) Its eligibility criteria for lenders;
    (ii) Its procedures for the limitation, suspension, and termination 
of lenders;
    (iii) Any actions taken in the preceding 12 months to limit, 
suspend, or terminate the participation of a lender in the agency's 
program; and
    (iv) The steps the agency has taken to ensure its compliance with 
Sec.  682.410(c), including the identity of any law enforcement agency 
with which the agency has made arrangements for that purpose.
    (4) A report to the Secretary of the borrower's enrollment and loan 
status information, details related to the loans or borrower's 
deferments, forbearances, repayment plans, delinquency and contact 
information, or any title IV loan-related data required by the 
Secretary, by the deadline date established by the Secretary.
    (5) Any other information concerning its loan insurance program 
requested by the Secretary.
    (c) Inspection requirements. (1) For purposes of examination of 
records, references to an institution in 34 CFR 668.24(f) (1) through 
(3) shall mean a guaranty agency or its agent.
    (2) A guaranty agency shall require in its agreement with a lender 
or in its published rules or procedures that the lender or its agent 
give the Secretary or the Secretary's designee and the guaranty agency 
access to the lender's records for inspection and copying in

[[Page 197]]

order to verify the accuracy of the information provided by the lender 
pursuant to Sec.  682.401(b) (12) and (13), and the right of the lender 
to receive or retain payments made under this part, or to permit the 
Secretary or the agency to enforce any right acquired by the Secretary 
or the agency under this part.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22455, 22489, Apr. 29, 1994; 59 FR 33358, June 28, 1994; 59 FR 34964, 
July 7, 1994; 61 FR 60493, Nov. 27, 1996; 64 FR 58632, Oct. 29, 1999; 64 
FR 58963, Nov. 1, 1999; 65 FR 65621, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002; 72 FR 62007, Nov. 1, 2007; 78 FR 65820, 
Nov. 1, 2013; 87 FR 66054, Nov. 1, 2022]



Sec.  682.415  [Reserved]



Sec.  682.416  Requirements for third-party servicers and lenders 
contracting with third-party servicers.

    (a) Standards for administrative capability. A third-party servicer 
is considered administratively responsible if it--
    (1) Provides the services and administrative resources necessary to 
fulfill its contract with a lender or guaranty agency, and conducts all 
of its contractual obligations that apply to the FFEL programs in 
accordance with FFEL programs regulations;
    (2) Has business systems including combined automated and manual 
systems, that are capable of meeting the requirements of part B of Title 
IV of the Act and with the FFEL programs regulations; and
    (3) Has adequate personnel who are knowledgeable about the FFEL 
programs.
    (b) Standards of financial responsibility. The Secretary applies the 
provisions of 34 CFR 668.15(b) (1)-(4) and (6)-(9) to determine that a 
third-party servicer is financially responsible under this part. 
References to ``the institution'' in those provisions shall be 
understood to mean the third-party servicer, for this purpose.
    (c) Special review of third-party servicer. (1) The Secretary may 
review a third-party servicer to determine that it meets the 
administrative capability and financial responsibility standards in this 
section.
    (2) In response to a request from the Secretary, the servicer shall 
provide evidence to demonstrate that it meets the administrative 
capability and financial responsibility standards in this section.
    (3) The servicer may also provide evidence of why administrative 
action is unwarranted if it is unable to demonstrate that it meets the 
standards of this section.
    (4) Based on the review of the materials provided by the servicer, 
the Secretary determines if the servicer meets the standards in this 
part. If the servicer does not, the Secretary may initiate an 
administrative proceeding under subpart G.
    (d) Past performance of third-party servicer or persons affiliated 
with servicer. Notwithstanding paragraphs (b) and (c) of this section, a 
third-party servicer is not financially responsible if--
    (1)(i) The servicer; its owner, majority shareholder, or chief 
executive officer; any person employed by the servicer in a capacity 
that involves the administration of a Title IV, HEA program or the 
receipt of Title IV, HEA program funds; any person, entity, or officer 
or employee of an entity with which the servicer contracts where that 
person, entity, or officer or employee of the entity acts in a capacity 
that involves the administration of a Title IV, HEA program or the 
receipt of Title IV, HEA program funds has been convicted of, or has 
pled nolo contendere or guilty to, a crime involving the acquisition, 
use, or expenditure of Federal, State, or local government funds, or has 
been administratively or judicially determined to have committed fraud 
or any other material violation of law involving such funds, unless--
    (A) The funds that were fraudulently obtained, or criminally 
acquired, used, or expended have been repaid to the United States, and 
any related financial penalty has been paid;
    (B) The persons who were convicted of, or pled nolo contendere or 
guilty to, a crime involving the acquisition, use, or expenditure of the 
funds are no longer incarcerated for that crime; and

[[Page 198]]

    (C) At least five years have elapsed from the date of the 
conviction, nolo contendere plea, guilty plea, or administrative or 
judicial determination; or
    (ii) The servicer, or any principal or affiliate of the servicer (as 
those terms are defined in 34 CFR part 85), is--
    (A) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR 
part 9, subpart 9.4; or
    (B) Engaging in any activity that is a cause under 2 CFR 180.700 or 
180.800, as those sections are adopted at 2 CFR 3485.12 for debarment or 
suspension under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or the FAR, 48 
CFR part 9, subpart 9.4; and
    (2) Upon learning of a conviction, plea, or administrative or 
judicial determination described in paragraph (d)(1) of this section, 
the servicer does not promptly remove the person, agency, or 
organization from any involvement in the administration of the 
servicer's participation in title IV, HEA programs, including, as 
applicable, the removal or elimination of any substantial control, as 
determined under 34 CFR 668.15, over the servicer.
    (e) Independent audits. (1) A third-party servicer shall arrange for 
an independent audit of its administration of the FFELP loan portfolio 
unless--
    (i) The servicer contracts with only one lender or guaranty agency; 
and
    (ii) The audit of that lender's or guaranty agency's FFEL programs 
involves every aspect of the servicer's administration of those FFEL 
programs.
    (2) The audit must--
    (i) Examine the servicer's compliance with the Act and applicable 
regulations;
    (ii) Examine the servicer's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Standards for Audit of Governmental Organizations, Programs, Activities, 
and Functions. (This publication is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402.) 
Procedures for audits are contained in an audit guide developed by and 
available from the Office of Inspector General of the Department of 
Education; and
    (iv) Except for the initial audit, be conducted at least annually 
and be submitted to the Secretary within six months of the end of the 
audit period. The initial audit must be an annual audit of the 
servicer's first full fiscal year beginning on or after July 1, 1994, 
and include any period from the beginning of the first full fiscal year. 
The audit report must be submitted to the Secretary within six months of 
the end of the audit period. Each subsequent audit must cover the 
servicer's activities for the one-year period beginning no later than 
the end of the period covered by the preceding audit.
    (3) A third-party servicer must conduct the audit required by this 
paragraph in accordance with 31 U.S.C. 7502 and 2 CFR part 200, subpart 
F--Audit Requirements.\3\
---------------------------------------------------------------------------

    \3\ None of the other regulations in 2 CFR part 200 apply to 
lenders. Only those requirements in subpart F-Audit Requirements, apply 
to lenders, as required under the Single Audit Act Amendments of 1996 
(31 U.S.C. Chapter 75).
---------------------------------------------------------------------------

    (4) [Reserved]
    (f) Contract responsibilities. A lender that participates in the 
FFEL programs may not enter into a contract with a third-party servicer 
that the Secretary has determined does not meet the requirements of this 
section. The lender must provide the Secretary with the name and address 
of any third-party servicer with which the lender enters into a contract 
and, upon request by the Secretary, a copy of that contract. A third-
party servicer that is under contract with a lender to perform any 
activity for which the records in Sec.  682.414(a)(4)(ii) are relevant 
to perform the services for which the servicer has contracted shall 
maintain current, complete, and accurate records pertaining to each loan 
that the servicer is under contract to administer on behalf of the 
lender. The

[[Page 199]]

records must be maintained in a system that allows ready identification 
of each loan's current status.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082; E.O. 12549 (3 
CFR, 1986 Comp., p. 189), 12689 (3 CFR, 1989 Comp., p. 235))

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22455, Apr. 29, 1994; 
59 FR 34964, July 7, 1994; 66 FR 34764, June 29, 2001; 68 FR 66615, Nov. 
26, 2003; 77 FR 18679, Mar. 28, 2012; 78 FR 65820, Nov. 1, 2013; 79 FR 
76105, Dec. 19, 2014]



Sec.  682.417  Determination of Federal funds or assets to be returned.

    (a) General. The procedures described in this section apply to a 
determination by the Secretary that--
    (1) A guaranty agency must return to the Secretary a portion of its 
Federal Fund that the Secretary has determined is unnecessary to pay the 
program expenses and contingent liabilities of the agency; and
    (2) A guaranty agency must require the return to the agency or the 
Secretary of Federal funds or assets within the meaning of section 
422(g)(1) of the Act held by or under the control of any other entity 
that the Secretary determines are necessary to pay the program expenses 
and contingent liabilities of the agency or that are required for the 
orderly termination of the guaranty agency's operations and the 
liquidation of its assets.
    (b) Return of unnecessary Federal funds. (1) The Secretary may 
initiate a process to recover unnecessary Federal funds under paragraph 
(a)(1) of this section if the Secretary determines that a guaranty 
agency's Federal Fund ratio under Sec.  682.410(a)(10) for each of the 
two preceding Federal fiscal years exceeded 2.0 percent.
    (2) If the Secretary initiates a process to recover unnecessary 
Federal funds, the Secretary requires the return of a portion of the 
Federal funds that the Secretary determines will permit the agency to--
    (i) Have a Federal Fund ratio of at least 2.0 percent under Sec.  
682.410(a)(10) at the time of the determination; and
    (ii) Meet the minimum Federal Fund requirements under Sec.  
682.410(a)(10) and retain sufficient additional Federal funds to perform 
its responsibilities as a guaranty agency during the current Federal 
fiscal year and the four succeeding Federal fiscal years.
    (3)(i) The Secretary makes a determination of the amount of Federal 
funds needed by the guaranty agency under paragraph (b)(2) of this 
section on the basis of financial projections for the period described 
in that paragraph. If the agency provides projections for a period 
longer than the period referred to in that paragraph, the Secretary may 
consider those projections.
    (ii) The Secretary may require a guaranty agency to provide 
financial projections in a form and on the basis of assumptions 
prescribed by the Secretary. If the Secretary requests the agency to 
provide financial projections, the agency must provide the projections 
within 60 days of the Secretary's request. If the agency does not 
provide the projections within the specified time period, the Secretary 
determines the amount of Federal funds needed by the agency on the basis 
of other information.
    (c) Notice. (1) The Secretary or an authorized Departmental official 
begins a proceeding to order a guaranty agency to return a portion of 
its Federal funds, or to direct the return of Federal funds or assets 
subject to return, by sending the guaranty agency a notice by certified 
mail, return receipt requested.
    (2) The notice--
    (i) Informs the guaranty agency of the Secretary's determination 
that Federal funds or assets must be returned;
    (ii) Describes the basis for the Secretary's determination and 
contains sufficient information to allow the guaranty agency to prepare 
and present an appeal;
    (iii) States the date by which the return of Federal funds or assets 
must be completed;
    (iv) Describes the process for appealing the determination, 
including the time for filing an appeal and the procedure for doing so; 
and
    (v) Identifies any actions that the guaranty agency must take to 
ensure that the Federal funds or assets that are the subject of the 
notice are maintained and protected against use, expenditure, transfer, 
or other disbursement after the date of the Secretary's

[[Page 200]]

determination, and the basis for requiring those actions. The actions 
may include, but are not limited to, directing the agency to place the 
Federal funds in an escrow account. If the Secretary has directed the 
guaranty agency to require the return of Federal funds or assets held by 
or under the control of another entity, the guaranty agency must ensure 
that the agency's claims to those funds or assets and the collectability 
of the agency's claims will not be compromised or jeopardized during an 
appeal. The guaranty agency must also comply with all other applicable 
regulations relating to the use of Federal funds and assets.
    (d) Appeal. (1) A guaranty agency may appeal the Secretary's 
determination that Federal funds or assets must be returned by filing a 
written notice of appeal within 20 days of the date of the guaranty 
agency's receipt of the notice of the Secretary's determination. If the 
agency files a notice of appeal, the requirement that the return of 
Federal funds or assets be completed by a particular date is suspended 
pending completion of the appeal process. If the agency does not file a 
notice of appeal within the period specified in this paragraph, the 
Secretary's determination is final.
    (2) A guaranty agency must submit the information described in 
paragraph (d)(4) of this section within 45 days of the date of the 
guaranty agency's receipt of the notice of the Secretary's determination 
unless the Secretary agrees to extend the period at the agency's 
request. If the agency does not submit that information within the 
prescribed period, the Secretary's determination is final.
    (3) A guaranty agency's appeal of a determination that Federal funds 
or assets must be returned is considered and decided by a Departmental 
official other than the official who issued the determination or a 
subordinate of that official.
    (4) In an appeal of the Secretary's determination, the guaranty 
agency must--
    (i) State the reasons the guaranty agency believes the Federal funds 
or assets need not be returned;
    (ii) Identify any evidence on which the guaranty agency bases its 
position that Federal funds or assets need not be returned;
    (iii) Include copies of the documents that contain this evidence;
    (iv) Include any arguments that the guaranty agency believes support 
its position that Federal funds or assets need not be returned; and
    (v) Identify the steps taken by the guaranty agency to comply with 
the requirements referred to in paragraph (c)(2)(v) of this section.
    (5)(i) In its appeal, the guaranty agency may request the 
opportunity to make an oral argument to the deciding official for the 
purpose of clarifying any issues raised by the appeal. The deciding 
official provides this opportunity promptly after the expiration of the 
period referred to in paragraph (d)(2) of this section.
    (ii) The agency may not submit new evidence at or after the oral 
argument unless the deciding official determines otherwise. A transcript 
of the oral argument is made a part of the record of the appeal and is 
promptly provided to the agency.
    (6) The guaranty agency has the burden of production and the burden 
of persuading the deciding official that the Secretary's determination 
should be modified or withdrawn.
    (e) Third-party participation. (1) If the Secretary issues a 
determination under paragraph (a)(1) of this section, the Secretary 
promptly publishes a notice in the Federal Register announcing the 
portion of the Federal Fund to be returned by the agency and providing 
interested persons an opportunity to submit written information relating 
to the determination within 30 days after the date of publication. The 
Secretary publishes the notice no earlier than five days after the 
agency receives a copy of the determination.
    (2) If the guaranty agency to which the determination relates files 
a notice of appeal of the determination, the deciding official may 
consider any information submitted in response to the Federal Register 
notice. All information submitted by a third party is available for 
inspection and copying at the offices of the Department of Education in 
Washington, D.C., during normal business hours.

[[Page 201]]

    (f) Adverse information. If the deciding official considers 
information in addition to the evidence described in the notice of the 
Secretary's determination that is adverse to the guaranty agency's 
position on appeal, the deciding official informs the agency and 
provides it a reasonable opportunity to respond to the information 
without regard to the period referred to in paragraph (d)(2) of this 
section.
    (g) Decision. (1) The deciding official issues a written decision on 
the guaranty agency's appeal within 45 days of the date on which the 
information described in paragraphs (d)(4) and (d)(5)(ii) of this 
section is received, or the oral argument referred to in paragraph 
(d)(5) of this section is held, whichever is later. The deciding 
official mails the decision to the guaranty agency by certified mail, 
return receipt requested. The decision of the deciding official becomes 
the final decision of the Secretary 30 days after the deciding official 
issues it. In the case of a determination that a guaranty agency must 
return Federal funds, if the deciding official does not issue a decision 
within the prescribed period, the agency is no longer required to take 
the actions described in paragraph (c)(2)(v) of this section.
    (2) A guaranty agency may not seek judicial review of the 
Secretary's determination to require the return of Federal funds or 
assets until the deciding official issues a decision.
    (3) The deciding official's written decision includes the basis for 
the decision. The deciding official bases the decision only on evidence 
described in the notice of the Secretary's determination and on 
information properly submitted and considered by the deciding official 
under this section. The deciding official is bound by all applicable 
statutes and regulations and may neither waive them nor rule them 
invalid.
    (h) Collection of Federal funds or assets. (1) If the deciding 
official's final decision requires the guaranty agency to return Federal 
funds, or requires the guaranty agency to require the return of Federal 
funds or assets to the agency or to the Secretary, the decision states a 
new date for compliance with the decision. The new date is no earlier 
than the date on which the decision becomes the final decision of the 
Secretary.
    (2) If the guaranty agency fails to comply with the decision, the 
Secretary may recover the Federal funds from any funds due the agency 
from the Department without any further notice or procedure and may take 
any other action permitted or authorized by law to compel compliance.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[64 FR 58632, Oct. 29, 1999]



Sec.  682.418  [Reserved]



Sec.  682.419  Guaranty agency Federal Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain a Federal Student Loan Reserve Fund (referred to as the 
``Federal Fund'') to be used only as permitted under paragraph (c) of 
this section. The assets of the Federal Fund and the earnings on those 
assets are, at all times, the property of the United States. The 
guaranty agency must exercise the level of care required of a fiduciary 
charged with the duty of protecting, investing, and administering the 
money of others.
    (b) Deposits. The agency must deposit into the Federal Fund--
    (1) All funds, securities, and other liquid assets of the reserve 
fund that existed under Sec.  682.410;
    (2) The total amount of insurance premiums or Federal default fees 
collected;
    (3) Federal payments for default, bankruptcy, death, disability, 
closed school, false certification, and other claims;
    (4) Federal payments for supplemental preclaims assistance 
activities performed before October 1, 1998;
    (5) 70 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) All funds received by the guaranty agency from any source on 
FFEL Program loans on which a claim has been paid, within 48 hours of 
receipt of those funds, minus the portion the agency is authorized to 
deposit in its Operating Fund;

[[Page 202]]

    (7) Investment earnings on the Federal Fund;
    (8) Revenue derived from the Federal portion of a nonliquid asset; 
and
    (9) Other funds received by the guaranty agency from any source that 
are specifically designated for deposit in the Federal Fund.
    (c) Uses. A guaranty agency may use the assets of the Federal Fund 
only--
    (1) To pay insurance claims;
    (2) To transfer default aversion fees to the agency's Operating 
Fund;
    (3) To transfer account maintenance fees to the agency's Operating 
Fund, if directed by the Secretary;
    (4) To refund payments made by or on behalf of a borrower on a loan 
that has been discharged in accordance with Sec.  682.402;
    (5) To pay the Secretary's share of borrower payments, in accordance 
with Sec.  682.404(g);
    (6) For transfers to the agency's Operating Fund, pursuant to 
section 422A(f) of the Act;
    (7) To refund insurance premiums or Federal default fees related to 
loans cancelled or refunded, in whole or in part;
    (8) To return to the Secretary portions of the Federal Fund required 
to be returned by the Act; and
    (9) For any other purpose authorized by the Secretary.
    (d) Prohibition against prepayment. A guaranty agency may not prepay 
obligations of the Federal Fund unless it demonstrates, to the 
satisfaction of the Secretary, that the prepayment is in the best 
interests of the United States.
    (e) Minimum Federal Fund level. The guaranty agency must maintain a 
minimum Federal Fund level equal to at least 0.25 percent of its insured 
original principal amount of loans outstanding.
    (f) Definitions. For purposes of this section--
    (1) Federal Fund level means the total of Federal Fund assets 
identified in paragraph (b) of this section plus the amount of funds 
transferred from the Federal Fund that are in the Operating Fund, using 
an accrual basis of accounting.
    (2) Original principal amount of loans outstanding means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was cancelled;
    (B) The loan guarantee was transferred to another agency;
    (C) Payment in full has been made by the borrower;
    (D) Reinsurance coverage has been lost and cannot be regained; and
    (E) The agency paid claims.

(Authority: 20 U.S.C. 1072-1)

[64 FR 58634, Oct. 29, 1999, as amended at 71 FR 45708, Aug. 9, 2006; 78 
FR 65820, Nov. 1, 2013]



Sec. Sec.  682.420-682.422  [Reserved]



Sec.  682.423  Guaranty agency Operating Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain an Operating Fund in an account separate from the Federal Fund. 
Except for funds that may have been transferred from the Federal Fund, 
the Operating Fund is considered the property of the guaranty agency.
    (b) Deposits. The guaranty agency must deposit into the Operating 
Fund--
    (1) Amounts authorized by the Secretary to be transferred from the 
Federal Fund;
    (2) Account maintenance fees;
    (3) Loan processing and issuance fees;
    (4) Default aversion fees;
    (5) 30 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) The portion of the amounts collected on defaulted loans that 
remains after the Secretary's share of collections has been paid and the 
complement of the reinsurance percentage has been deposited into the 
Federal Fund;

[[Page 203]]

    (7) The agency's share of the payoff amounts received from the 
consolidation or rehabilitation of defaulted loans; and
    (8) Other receipts as authorized by the Secretary.
    (c) Uses. A guaranty agency may use the Operating Fund for--
    (1) Guaranty agency-related activities, including--
    (i) Application processing;
    (ii) Loan disbursement;
    (iii) Enrollment and repayment status management;
    (iv) Default aversion activities;
    (v) Default collection activities;
    (vi) School and lender training;
    (vii) Financial aid awareness and related outreach activities; and
    (viii) Compliance monitoring; and
    (2) Other student financial aid-related activities for the benefit 
of students, as selected by the guaranty agency.

(Authority: 20 U.S.C. 1072-2)

[64 FR 58635, Oct. 29, 1999, as amended at 78 FR 65820, Nov. 1, 2013]



Sec.  682.424  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice will not 
be affected thereby.

[87 FR 66055, Nov. 1, 2022]

Subpart E [Reserved]



    Subpart F_Requirements, Standards, and Payments for Schools That 
                    Participated in the FFEL Program



Sec. Sec.  682.600-682.602  [Reserved]



Sec.  682.603  Certification by a school that participated in the FFEL
Program in connection with a loan application.

    (a) A school shall certify that the information it provides in 
connection with a loan application about the borrower and, in the case 
of a parent borrower, the student for whom the loan is intended, is 
complete and accurate. Except as provided in 34 CFR part 668, subpart E, 
a school may rely in good faith upon statements made by the borrower 
and, in the case of a parent borrower of a PLUS loan, the student and 
the parent borrower.
    (b) The information to be provided by the school about the borrower 
pertains to--
    (1) The borrower's eligibility for a loan, as determined in 
accordance with Sec.  682.201 and Sec.  682.204;
    (2) For a subsidized Stafford loan, the student's eligibility for 
interest benefits as determined in accordance with Sec.  682.301; and
    (3) The schedule for disbursement of the loan proceeds, which must 
reflect the delivery of the loan proceeds as set forth in section 428G 
of the Act.
    (c) Except as provided in paragraph (e) of this section, in 
certifying a loan, a school must certify a loan for the lesser of the 
borrower's request or the loan limits determined under Sec.  682.204.
    (d) Before certifying a PLUS loan application for a graduate or 
professional student borrower, the school must determine the borrower's 
eligibility for a Stafford loan. If the borrower is eligible for a 
Stafford loan but has not requested the maximum Stafford loan amount for 
which the borrower is eligible, the school must--
    (1) Notify the graduate or professional student borrower of the 
maximum Stafford loan amount that he or she is eligible to receive and 
provide the borrower with a comparison of--
    (i) The maximum interest rate for a Stafford loan and the maximum 
interest rate for a PLUS loan;
    (ii) Periods when interest accrues on a Stafford loan and periods 
when interest accrues on a PLUS loan; and
    (iii) The point at which a Stafford loan enters repayment and the 
point at which a PLUS loan enters repayment; and
    (2) Give the graduate or professional student borrower the 
opportunity to request the maximum Stafford loan amount for which the 
borrower is eligible.
    (e) A school may not certify a Stafford or PLUS loan, or a 
combination of loans, for a loan amount that--
    (1) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec.  682.204; or

[[Page 204]]

    (2) Exceeds the student's estimated cost of attendance for the 
period of enrollment, less--
    (i) The student's estimated financial assistance for that period; 
and
    (ii) In the case of a Subsidized Stafford loan, the borrower's 
expected family contribution for that period.
    (f)(1)(i) The minimum period of enrollment for which a school may 
certify a loan application is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or has terms that are 
substantially equal in length with no term less than nine weeks in 
length, a single term (e.g., a semester or quarter); or
    (B) Except as provided in paragraphs (f)(1)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion of 
that program if the student has less than the full program remaining) at 
the school; or
    (2) The academic year as defined by the school in accordance with 34 
CFR 668.3.
    (ii) For a student who transfers into a school with credit or clock 
hours from another school, and the prior school certified or originated 
a loan for a period of enrollment that overlaps the period of enrollment 
at the new school, the new school may certify a loan for the remaining 
portion of the program or academic year. In this case the school may 
certify a loan for an amount that does not exceed the remaining balance 
of the student's annual loan limit.
    (iii) For a student who completes a program at a school, where the 
student's last loan to complete that program had been for less than an 
academic year, and the student then begins a new program at the same 
school, the school may certify a loan for the remainder of the academic 
year. In this case the school may certify a loan for an amount that does 
not exceed the remaining balance of the student's annual loan limit at 
the loan level associated with the new program.
    (2) May not, for first-time borrowers, assign through award 
packaging or other methods, a borrower's loan to a particular lender;
    (3) May refuse to certify a Stafford or PLUS loan or may reduce the 
borrower's determination of need for the loan if the reason for that 
action is documented and provided to the borrower in writing, provided 
that--
    (i) The determination is made on a case-by-case basis; and
    (ii) The documentation supporting the determination is retained in 
the student's file; and
    (4) May not, under paragraph (f)(1), (2), and (3) of this section, 
engage in any pattern or practice that results in a denial of a 
borrower's access to FFEL loans because of the borrower's race, sex, 
color, religion, national origin, age, handicapped status, income, or 
selection of a particular lender or guaranty agency.
    (g) The maximum period for which a school may certify a loan 
application is--
    (1) Generally an academic year, as defined by 34 CFR 668.3, except 
that a guaranty agency may allow a school to use a longer period of 
time, corresponding to the period to which the agency applies the annual 
loan limits; or
    (2) For a defaulted borrower who has regained eligibility under 
Sec.  682.401(b)(1), the academic year in which the borrower regained 
eligibility.
    (h) In certifying a Stafford or Unsubsidized Stafford loan amount in 
accordance with Sec.  682.204--
    (1) A program of study must be considered at least one full academic 
year if--
    (i) The number of weeks of instructional time is at least 30 weeks; 
and
    (ii) The number of clock hours is a least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36;
    (2) A program of study must be considered two-thirds (2/3) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 20 weeks; 
and

[[Page 205]]

    (ii) The number of clock hours is at least 600, the number of 
semester or trimester hours is at least 16, or the number of quarter 
hours is at least 24;
    (3) A program of study must be considered one-third (\1/3\) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 10 weeks; 
and
    (ii) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12; and
    (4) In prorating a loan amount for a student enrolled in a program 
of study with less than a full academic year remaining, the school need 
not recalculate the amount of the loan if the number of hours for which 
an eligible student is enrolled changes after the school certifies the 
loan.
    (i)(1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic year 
calendar period has elapsed.
    (2) If a school measures academic progress in an educational program 
in credit hours and uses nonstandard terms that are not substantially 
equal in length or each term is not at least nine weeks of instructional 
time in length, or measures academic progress in credit hours and does 
not have academic terms, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's academic 
year.
    (3) If a school measures academic progress in an educational program 
in clock hours, a student is considered to have completed an academic 
year and progresses to the next annual loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of this section, terms in a loan period are 
substantially equal in length if no term in the loan period is more than 
two weeks of instructional time longer than any other term in that loan 
period.
    (j)(1) A school must cease certifying loans based on the exceptions 
in section 428G(a)(3) of the Act no later than--
    (i) 30 days after the date the school receives notification from the 
Secretary of an FFEL cohort default rate, calculated under subpart M of 
34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
section 428G(a)(3) of the Act no later than 30 days after the date the 
school receives notification from the Secretary of an FFEL cohort 
default rate, calculated under subpart M of 34 CFR part 668, that causes 
the school to no longer meet the qualifications outlined in those 
paragraphs.
    (k) A school may not assess the borrower, or the student in the case 
of a parent PLUS loan, a fee for the completion or certification of any 
FFEL Program form or information or for providing any information 
necessary for a student or parent to receive a loan under part B of the 
Act or any benefits associated with such a loan.
    (l) Pursuant to paragraph (b)(3) of this section, a school may not 
request the disbursement by the lender for loan

[[Page 206]]

proceeds earlier than the period specified in 34 CFR 668.167.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 61757, Dec. 1, 
1995; 61 FR 60609, Nov. 29, 1996; 64 FR 18981, Apr. 16, 1999; 64 FR 
58963, Nov. 1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002; 68 FR 75429, Dec. 31, 2003; 71 FR 
45709, Aug. 9, 2006; 72 FR 62007, 62031, Nov. 1, 2007; 78 FR 65820, Nov. 
1, 2013]



Sec.  682.604  Required exit counseling for borrowers.

    (a) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Stafford Loan borrower and graduate or 
professional student PLUS Loan borrower either in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that this counseling is conducted shortly before the 
student borrower ceases at least half-time study at the school, and that 
an individual with expertise in the title IV programs is reasonably 
available shortly after the counseling to answer the student borrower's 
questions. As an alternative, in the case of a student borrower enrolled 
in a correspondence program or a study-abroad program that the home 
institution approves for credit, written counseling materials may be 
provided by mail within 30 days after the student borrower completes the 
program. If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete an exit counseling session 
as required, the school must, within 30 days after learning that the 
student borrower has withdrawn from school or failed to complete the 
exit counseling as required, ensure that exit counseling is provided 
through interactive electronic means, by mailing written counseling 
materials to the student borrower at the student borrower's last known 
address, or by sending written counseling materials to an email address 
provided by the student borrower that is not an email address associated 
with the school sending the counseling materials.
    (2) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Stafford 
loans, PLUS Loans, or student borrowers who have obtained both Stafford 
and PLUS loans, depending on the types of loans the student borrower has 
obtained, for attendance at the same school or in the same program of 
study at the same school;
    (ii) Review for the student borrower available repayment plan 
options, including standard, graduated, extended, income sensitive and 
income-based repayment plans, including a description of the different 
features of each plan and sample information showing the average 
anticipated monthly payments, and the difference in interest paid and 
total payments under each plan;
    (iii) Explain to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provide information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities;
    (C) The options of the borrower to prepay the loan and to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different lenders;
    (v) Include debt-management strategies that are designed to 
facilitate repayment;
    (vi) Explain to the borrower the use of a Master Promissory Note;
    (vii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the borrower has assumed;
    (viii) Emphasize to the student borrower that the full amount of the 
loan (other than a loan made or originated

[[Page 207]]

by the school) must be repaid in full even if the student borrower does 
not complete the program, does not complete the program within the 
regular time for program completion, is unable to obtain employment upon 
completion, or is otherwise dissatisfied with or does not receive the 
educational or other services that the student borrower purchased from 
the school;
    (ix) Describe the likely consequences of default, including adverse 
credit reports, delinquent debt collection procedures under Federal law, 
and litigation;
    (x) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of 
principal and interest, defer repayment of principal or interest, or be 
granted forbearance on a title IV loan, including forgiveness benefits 
or discharge benefits available to a FFEL borrower who consolidates his 
or her loan into the Direct Loan program; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (xi) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known). The school must ensure that 
this information is provided to the guaranty agency or agencies listed 
in the student borrower's records within 60 days after the student 
borrower provides the information;
    (xii) Review for the student borrower information on the 
availability of the Student Loan Ombudsman's office;
    (xiii) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS) and 
how NSLDS can be used to obtain title IV loan status information; and
    (xiv) A general description of the types of tax benefits that may be 
available to borrowers.
    (3) If exit counseling is conducted by electronic interactive means, 
the school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the counseling.
    (4) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (5)(i) For students who have received both FFEL Program and Direct 
Loan Program loans for attendance at a school, the school's compliance 
with the exit counseling requirements in 34 CFR 685.304(b) satisfies the 
requirements of this section if the school ensures that the exit 
counseling also provides the borrower with the information described in 
paragraphs (a)(2)(i) and (a)(2)(ii) of this section.
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of this 
section, and for students who have also received Direct Loan Program 
loans for attendance at the school, the requirements of 34 CFR 
685.304(b).
    (b) [Reserved]

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1082, 1085, 1092, 1094)

[57 FR 60323, Dec. 18, 1992]

    Editorial Note: For Federal Register citations affecting Sec.  
682.604, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  682.605  Determining the date of a student's withdrawal.

    (a) Except in the case of a student who does not return for the next 
scheduled term following a summer break, which includes any summer term 
or terms in which classes are offered but students are not generally 
required to attend, a school must follow the procedures in Sec.  
668.22(b) or (c), as applicable, for determining the student's date of 
withdrawal. In the case of a student who does not return from a summer

[[Page 208]]

break, the school must follow the procedures in Sec.  668.22(b) or (c), 
as applicable, except that the school shall determine the student's 
withdrawal date no later than 30 days after the first day of the next 
scheduled term.
    (b) The school must use the withdrawal date determined under Sec.  
668.22(b) or (c), as applicable for the purpose of reporting to the 
lender and the Secretary the date that the student has withdrawn from 
the school.
    (c) For the purpose of a school's reporting to a lender and the 
Secretary, a student's withdrawal date is the month, day and year of the 
withdrawal date.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[60 FR 61757, Dec. 1, 1995, as amended at 64 FR 58965, 59043, Nov. 1, 
1999; 78 FR 65822, Nov. 1, 2013]



Sec.  682.606  [Reserved]



Sec.  682.607  Payment of a refund or a return of title IV, HEA program
funds to a lender upon a student's withdrawal.

    (a) General. By applying for a FFEL loan, a borrower authorizes the 
school to pay directly to the lender that portion of a refund or return 
of title IV, HEA program funds from the school that is allocable to the 
loan upon the borrower's withdrawal. A school--
    (1) Must pay that portion of the student's refund or return of title 
IV, HEA program funds that is allocable to a FFEL loan to--
    (i) The original lender; or
    (ii) A subsequent holder, if the loan has been transferred and the 
school knows the new holder's identity; and
    (2) Must provide simultaneous written notice to the borrower if the 
school makes a payment of a refund or a return of title IV, HEA program 
funds to a lender on behalf of that student.
    (b) Allocation of a refund or returned title IV, HEA program funds. 
In determining the portion of a refund or the return of title IV, HEA 
program funds upon a student's withdrawal for an academic period that is 
allocable to a FFEL loan received by the borrower for that academic 
period, the school must follow the procedures established in part 668 
for allocating a refund or return of title IV, HEA program funds.
    (c) Timely payment. A school must pay a refund or a return of title 
IV, HEA program funds that is due in accordance with the timeframe in 
Sec.  668.22(j).

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

[64 FR 59043, Nov. 1, 1999]



Sec.  682.608  [Reserved]



Sec.  682.609  Remedial actions.

    (a) The Secretary may require a school to repay funds paid to other 
program participants by the Secretary. The Secretary also may require a 
school to purchase from the holder of a FFEL loan that portion of the 
loan that is unenforceable, that the borrower was ineligible to receive, 
or for which the borrower was ineligible to receive interest benefits 
contrary to the school's certification, and to make arrangements 
acceptable to the Secretary for reimbursement of the amounts the 
Secretary will be obligated to pay to program participants respecting 
that loan in the future. The repayment of funds and purchase of loans 
may be required if the Secretary determines that the payment to program 
participants, the unenforceability of the loan, or the disbursement of 
loan amounts for which the borrower was ineligible or for which the 
borrower was ineligible for interest benefits, resulted in whole or in 
part from--
    (1) The school's violation of a Federal statute or regulation; or
    (2) The school's negligent or willful false certification.
    (b) In requiring a school to repay funds to the Secretary or to 
another party or to purchase loans from a holder in connection with an 
audit or program review, the Secretary follows the procedures described 
in 34 CFR part 668, subpart H.
    (c) Notwithstanding paragraph (a) of this section, the Secretary may 
waive the right to require repayment of funds or repurchase of loans by 
a school if, in the Secretary's judgment, the best interest of the 
United States so requires.
    (d) The Secretary may impose a fine or take an emergency action 
against a school or limit, suspend, or terminate a

[[Page 209]]

school's participation in the FFEL programs, in accordance with 34 CFR 
part 668, subpart G.
    (e) A school shall comply with any emergency action, limitation, 
suspension, or termination imposed by a guaranty agency in accordance 
with the agency's standards and procedures. A school shall repay funds 
to the Secretary or other party or purchase loans from a holder if a 
guaranty agency determines that the school improperly received or 
retained the funds in violation of a Federal law or regulation or a 
guaranty agency rule or regulation.

(Authority: 20 U.S.C. 1077, 1078 , 1078-1, 1078-2, 1082, 1094)



Sec.  682.610  Administrative and fiscal requirements for schools that
participated in the FFEL Program.

    (a) General. Each school shall--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in the regulations in 
this part and in 34 CFR part 668;
    (2) Follow the record retention and examination provisions in this 
part and in 34 CFR 668.24; and
    (3) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Loan record requirements. In addition to records required by 34 
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on 
behalf of its students, a school must maintain--
    (1) A copy of the loan certification or data electronically 
submitted to the lender, that includes the amount of the loan and the 
period of enrollment for which the loan was intended;
    (2) The cost of attendance, estimated financial assistance, and 
estimated family contribution used to calculate the loan amount;
    (3) For loans delivered to the school by check, the date the school 
endorsed each loan check, if required;
    (4) The date or dates of delivery of the loan proceeds by the school 
to the student or to the parent borrower;
    (5) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's required written authorization, if it 
was not provided in the loan application or MPN, to deliver the initial 
and subsequent disbursements of each FFEL Program loan; and
    (6) Documentation of any MPN confirmation process or processes the 
school may have used.
    (c) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information included 
in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date that the school discovers that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a loan 
under title IV of the Act has changed his or her permanent address.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1082, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 61 
FR 60493, Nov. 27, 1996; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001; 78 FR 65822, Nov. 1, 2013]



Sec.  682.611  [Reserved]



  Subpart G_Limitation, Suspension, or Termination of Lender or Third-
       Party Servicer Eligibility and Disqualification of Lenders



Sec.  682.700  Purpose and scope.

    (a) This subpart governs the limitation, suspension, or termination 
by the Secretary of the eligibility of an otherwise eligible lender to 
participate in the FFEL programs or the eligibility of a third-party 
servicer to enter into a

[[Page 210]]

contract with an eligible lender to administer any aspect of the 
lender's FFEL programs. The regulations in this subpart apply to a 
lender or third-party servicer that violates any statutory provision 
governing the FFEL programs or any regulations, special arrangements, 
agreements, or limitations entered into under the authority of statutes 
applicable to Title IV of the HEA prescribed under the FFEL programs. 
These regulations apply to lenders that participate only in a guaranty 
agency program, lenders that participate in the FFEL programs, and 
third-party servicers that administer aspects of a lender's FFELP 
portfolio. These regulations also govern the Secretary's 
disqualification of a lender from participation in the FFEL programs 
under section 432(h)(2) of the Act.
    (b) This subpart does not apply--
    (1)(i) To a determination that an organization fails to meet the 
definition of ``eligible lender'' in section 435(d)(1) of the Act or the 
definition of ``lender'' in Sec.  682.200, for any reason other than a 
violation of the prohibitions in section 435(d)(5) of the Act; or
    (ii) To a determination that an organization fails to meet the 
standards in Sec.  682.416; or
    (2) To an administrative action by the Department of Education based 
on any alleged violation of--
    (i) The Family Educational Rights and Privacy Act of 1974 (section 
438 of the General Education Provisions Act), which is governed by 34 
CFR part 99;
    (ii) Title VI of the Civil Rights Act of 1964, which is governed by 
34 CFR parts 100 and 101;
    (iii) Section 504 of the Rehabilitation Act of 1973 (relating to 
discrimination on the basis of handicap), which is governed by 34 CFR 
part 104; or
    (iv) Title IX of the Education Amendments of 1972 (relating to sex 
discrimination), which is governed by 34 CFR part 106.
    (c) This subpart does not supplant any rights or remedies that the 
Secretary may have against participating lenders under other 
authorities.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22456, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec.  682.701  Definitions of terms used in this subpart.

    The following definitions apply to terms used in this subpart:
    Designated Departmental Official: An official of the Department of 
Education to whom the Secretary has delegated the responsibility for 
initiating and pursuing disqualification or limitation, suspension, or 
termination proceedings.
    Disqualification. The removal of a lender's eligibility for an 
indefinite period of time by the Secretary on review of limitation, 
suspension, or termination action taken against the lender by a guaranty 
agency.
    Limitation. The continuation of a lender's or third-party servicer's 
eligibility subject to compliance with special conditions established by 
agreement with the Secretary or a guaranty agency, as applicable, or 
imposed as the result of a limitation or termination proceeding.
    Suspension. The removal of a lender's eligibility, or a third-party 
servicer's eligibility to contract with a lender or guaranty agency, for 
a specified period of time or until the lender or servicer fulfills 
certain requirements.
    Termination. (1) The removal of a lender's eligibility for an 
indefinite period of time--
    (i) By a guaranty agency; or
    (ii) By the Secretary, based on an action taken by the Secretary, or 
a designated Departmental official under Sec.  682.706; or
    (2) The removal of a third-party servicer's eligibility to contract 
with a lender or guaranty agency for an indefinite period of time by the 
Secretary based on an action taken by the Secretary, or a designated 
Departmental official under Sec.  682.706.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec.  682.702  Effect on participation.

    (a) Limitation, suspension, or termination proceedings by the 
Secretary do not affect a lender's responsibilities or rights to 
benefits and claim payments that are based on the lender's prior

[[Page 211]]

participation in the program, except as provided in Sec.  682.709.
    (b) A limitation imposes on a lender--
    (1) A limit on the number or total amount of loans that a lender may 
purchase or hold under the FFEL Program; or
    (2) Other reasonable requirements or conditions, including those 
described in Sec.  682.709.
    (c) A limitation imposes on a third-party servicer--
    (1) A limit on the number of loans or accounts or total amount of 
loans that the servicer may service;
    (2) A limit on the number of loans or accounts or total amount of 
loans that the servicer is administering under its contract with a 
lender or guaranty agency; or
    (3) Other reasonable requirements or conditions, including those 
described in Sec.  682.709.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec.  682.703  Informal compliance procedure.

    (a) The Secretary may use the informal compliance procedure in 
paragraph (b) of this section if the Secretary receives a complaint or 
other reliable information indicating that a lender or third-party 
servicer may be in violation of applicable laws, regulations, special 
arrangements, agreements, or limitations entered into under the 
authority of statutes applicable to Title IV of the HEA.
    (b) Under the informal compliance procedure, the Secretary gives the 
lender or servicer a reasonable opportunity to--
    (1) Respond to the complaint or information; and
    (2) Show that the violation has been corrected or submit an 
acceptable plan for correcting the violation and preventing its 
recurrence.
    (c) The Secretary does not delay limitation, suspension, or 
termination procedures during the informal compliance procedure if--
    (1) The delay would harm the FFEL programs; or
    (2) The informal compliance procedure will not result in correction 
of the alleged violation.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]



Sec.  682.704  Emergency action.

    (a) The Secretary, or a designated Departmental official, may take 
emergency action to withhold payment of interest benefits and special 
allowance to a lender if the Secretary--
    (1) Receives reliable information that the lender or a third-party 
servicer with which the lender contracts is in violation of applicable 
laws, regulations, special arrangements, agreements, or limitations 
entered into under the authority of statutes applicable to Title IV of 
the HEA pertaining to the lender's portfolio of loans;
    (2) Determines that immediate action is necessary to prevent the 
likelihood of substantial losses by the Federal Government, parent 
borrowers, or students; and
    (3) Determines that the likelihood of loss exceeds the importance of 
following the procedures for limitation, suspension, or termination.
    (b) The Secretary begins an emergency action by notifying the lender 
or third-party servicer, by certified mail, return receipt requested, of 
the action and the basis for the action.
    (c) The action becomes effective on the date the notice is mailed to 
the lender or third-party servicer.
    (d)(1) An emergency action does not exceed 30 days unless a 
limitation, suspension, or termination proceeding is begun before that 
time expires.
    (2) If a limitation, suspension, or termination proceeding is begun 
before the expiration of the 30-day period--
    (i) The emergency action may be extended until completion of the 
proceeding, including any appeal to the Secretary; and
    (ii) Upon the written request of the lender or third-party servicer, 
the Secretary may provide the lender or

[[Page 212]]

servicer with an opportunity to demonstrate that the emergency action is 
unwarranted.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994; 
78 FR 65822, Nov. 1, 2013]



Sec.  682.705  Suspension proceedings.

    (a) Scope. (1) A suspension by the Secretary removes a lender's 
eligibility under the FFEL programs or a third-party servicer's ability 
to enter into contracts with eligible lenders, and the Secretary does 
not guarantee or reinsure a new loan serviced by the servicer during a 
period not to exceed 60 days from the date the suspension becomes 
effective, unless--
    (i) The lender or servicer and the Secretary agree to an extension 
of the suspension period, if the lender or third-party servicer has not 
requested a hearing; or
    (ii) The Secretary begins a limitation or a termination proceeding.
    (2) If the Secretary begins a limitation or a termination proceeding 
before the suspension period ends, the Secretary may extend the 
suspension period until the completion of that proceeding, including any 
appeal to the Secretary.
    (b) Notice. (1) The Secretary, or a designated Departmental 
official, begins a suspension proceeding by sending the lender or 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
suspend the lender's or servicer's eligibility for a period not to 
exceed 60 days;
    (ii) Describes the consequences of a suspension;
    (iii) Identifies the alleged violations on which the proposed 
suspension is based;
    (iv) States the proposed date the suspension becomes effective, 
which is at least 20 days after the date of mailing of the notice;
    (v) Informs the lender or servicer that the suspension will not take 
effect on the proposed date if the Secretary receives at least five days 
prior to that date a request for an oral hearing or written material 
showing why the suspension should not take effect; and
    (vi) Asks the lender or servicer to correct voluntarily any alleged 
violations.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22457, Apr. 29, 1994, as amended at 60 FR 33058, June 26, 1995; 
66 FR 34764, June 29, 2001; 68 FR 66615, Nov. 26, 2003; 72 FR 62009, 
Nov. 1, 2007; 78 FR 65822, Nov. 1, 2013]



Sec.  682.706  Limitation or termination proceedings.

    (a) Notice. (1) The Secretary, or a designated Departmental 
official, begins a limitation or termination proceeding, whether a 
suspension proceeding has begun, by sending the lender or third-party 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
limit or terminate the lender's or servicer's eligibility;
    (ii) Describes the consequences of a limitation or termination;
    (iii) Identifies the alleged violations on which the proposed 
limitation or termination is based;
    (iv) States the limits which may be imposed, in the case of a 
limitation proceeding;
    (v) States the proposed date the limitation or termination becomes 
effective, which is at least 20 days after the date of mailing of the 
notice;
    (vi) Informs the lender or servicer that the limitation or 
termination will not take effect on the proposed date if the Secretary 
receives, at least five days prior to that date, a request for an oral 
hearing or written material showing why the limitation or termination 
should not take effect;
    (vii) Asks the lender or servicer to correct voluntarily any alleged 
violations; and
    (viii) Notifies the lender or servicer that the Secretary may 
collect any amount owed by means of offset against amounts owed to the 
lender by the Department and other Federal agencies.
    (b) Hearing. (1) If the lender or servicer does not request an oral 
hearing but submits written material, the Secretary, or a designated 
Departmental official, considers the material and--

[[Page 213]]

    (i) Dismisses the proposed limitation or termination; or
    (ii) Notifies the lender or servicer of the date the limitation or 
termination becomes effective.
    (2) If the lender or servicer requests a hearing within the time 
specified in paragraph (a)(2)(vi) of this section, the Secretary 
schedules the date and place of the hearing. The date is at least 15 
days after receipt of the request from the lender or servicer. No 
proposed limitation or termination takes effect until a hearing is held.
    (3) The hearing is conducted by a presiding officer who--
    (i) Ensures that a written record of the hearing is made;
    (ii) Considers relevant written material presented before the 
hearing and other relevant evidence presented during the hearing; and
    (iii) Issues an initial decision, based on findings of fact and 
conclusions of law, that may limit or terminate the lender's or 
servicer's eligibility if the presiding officer is persuaded that the 
limitation or termination is warranted by the evidence.
    (4) The formal rules of evidence do not apply, and no discovery, as 
provided in the Federal Rules of Civil Procedure (28 U.S.C. appendix), 
is required.
    (5) The presiding officer shall base findings of fact only on 
evidence presented at or before the hearing and matters given official 
notice.
    (6) If a termination action is brought against a lender or third-
party servicer and the presiding officer concludes that a limitation is 
more appropriate, the presiding officer may issue a decision imposing 
one or more limitations on a lender or third-party servicer rather than 
terminating the lender's or servicer's eligibility.
    (7) In a termination action against a lender or third-party servicer 
based on a debarment under Executive Order 12549 or under the Federal 
Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4 that does not 
meet the standards described in 2 CFR 3485.612(d), the presiding 
official finds that the debarment constitutes prima facie evidence that 
cause for debarment and termination under this subpart exists.
    (8) The initial decision of the presiding officer is mailed to the 
lender or servicer.
    (9) Any time schedule specified in this section may be shortened 
with the approval of the presiding officer and the consent of the lender 
or servicer and the Secretary or designated Departmental official.
    (10) The presiding officer's initial decision automatically becomes 
the Secretary's final decision 20 days after it is issued and received 
by both parties unless the lender, servicer, or designated Departmental 
official appeals the decision to the Secretary within this period.
    (c) Notwithstanding the other provisions of this section, if a 
lender or a lender's owner or officer or third-party servicer or 
servicer's owner or officer, respectively, is convicted of or pled nolo 
contendere or guilty to a crime involving the unlawful acquisition, use, 
or expenditure of FFEL program funds, that conviction or guilty plea is 
grounds for terminating the lender's or servicer's eligibility, 
respectively, to participate in the FFEL programs.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22458, Apr. 29, 1994, as amended at 60 FR 33058, June 25, 1995; 
72 FR 62009, Nov. 1, 2007; 77 FR 18679, Mar. 28, 2012; 78 FR 65822, Nov. 
1, 2013]



Sec.  682.707  Appeals in a limitation or termination proceeding.

    (a) If the lender, third-party servicer, or designated Departmental 
official appeals the initial decision of the presiding officer in 
accordance with Sec.  682.706(b)(10)--
    (1) An appeal is made to the Secretary by submitting to the 
Secretary and the opposing party within 15 days of the date of the 
appealing party's receipt of the presiding officer's decision, a brief 
or other written material explaining why the decision of the presiding 
officer should be overturned or modified; and
    (2) The opposing party shall submit its brief or other written 
material to the Secretary and the appealing party within 15 days of its 
receipt of the brief or written material of the appealing party.
    (b) The Secretary issues a final decision affirming, modifying, or 
reversing

[[Page 214]]

the initial decision, including a statement of the reasons for the 
Secretary's decision.
    (c) Any party submitting material to the Secretary shall provide a 
copy to each party that participates in the hearing.
    (d) If the presiding officer's initial decision would limit or 
terminate the lender's or servicer's eligibility, it does not take 
effect pending the appeal unless the Secretary determines that a stay of 
the date it becomes effective would seriously and adversely affect the 
FFEL programs or student or parent borrowers.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22458, Apr. 29, 1994; 
66 FR 34765, June 29, 2001]



Sec.  682.708  Evidence of mailing and receipt dates.

    (a) All mailing dates and receipt dates referred to in this subpart 
must be substantiated by the original receipts from the U.S. Postal 
Service.
    (b) If a lender or third-party servicer refuses to accept a notice 
mailed under this subpart, the Secretary considers the notice as being 
received on the date that the lender or servicer refuses to accept the 
notice.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec.  682.709  Reimbursements, refunds, and offsets.

    (a) As part of a limitation or termination proceeding, the 
Secretary, or a designated Departmental official, may require a lender 
or third-party servicer to take reasonable corrective action to remedy a 
violation of applicable laws, regulations, special arrangements, 
agreements, or limitations entered into under the authority of statutes 
applicable to Title IV of the HEA.
    (b) The corrective action may include payment to the Secretary or 
recipients designated by the Secretary of any funds, and any interest 
thereon, that the lender, or, in the case of a third-party servicer, the 
servicer or the lender that has a contract with a third-party servicer, 
improperly received, withheld, disbursed, or caused to be disbursed. A 
third-party servicer may be held liable up to the amounts specified in 
Sec.  682.413(a)(2).
    (c) If a final decision requires a lender, a lender that has a 
contract with a third-party servicer, or a third-party servicer to 
reimburse or make any payment to the Secretary, the Secretary may, 
without further notice or opportunity for a hearing, proceed to offset 
or arrange for another Federal agency to offset the amount due against 
any interest benefits, special allowance, or other payments due to the 
lender, the lender that has a contract with the third-party servicer, or 
the third-party servicer. A third-party servicer may be held liable up 
to the amounts specified in Sec.  682.413(a)(2).
    (d) In any action under this part based on a violation of the 
prohibitions in section 435(d)(5) of the Act, if the Secretary, the 
designated Department official, or the hearing official finds that the 
lender provided or offered the payments or activities described in 
paragraph (5)(i) of the definition of ``lender'' in Sec.  682.200(b), 
the Secretary or the official applies a rebuttable presumption that the 
payments or activities were offered or provided to secure applications 
for FFEL loans. To reverse the presumption, the lender must present 
evidence that the activities or payments were provided for a reason 
unrelated to securing applications for FFEL loans or securing FFEL loan 
volume.

(Authority: 20 U.S.C. 1080, 1082, 1094)

[59 FR 22459, Apr. 29, 1994, as amended at 78 FR 65822, Nov. 1, 2013]



Sec.  682.710  Removal of limitation.

    (a) A lender or third-party servicer may request removal of a 
limitation imposed by the Secretary in accordance with the regulations 
in this subpart at any time more than 12 months after the date the 
limitation becomes effective.
    (b) The request must be in writing and must show that the lender or 
servicer has corrected any violations on which the limitation was based.
    (c) Within 60 days after receiving the request, the Secretary--
    (1) Grants the request;
    (2) Denies the request; or

[[Page 215]]

    (3) Grants the request subject to other limitations.
    (d)(1) If the Secretary denies the request or establishes other 
limitations, the lender or servicer, upon request, is given an 
opportunity to show why all limitations should be removed.
    (2) A lender or third-party servicer may continue to participate in 
the FFEL programs, subject to any limitation imposed by the Secretary 
under paragraph (c)(3) of this section, pending a decision by the 
Secretary on a request under paragraph (d)(1) of this section.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec.  682.711  Reinstatement after termination.

    (a) A lender or third-party servicer whose eligibility has been 
terminated by the Secretary in accordance with the procedures of this 
subpart may request reinstatement of its eligibility after the later 
of--
    (1) Eighteen months from the effective date of the termination; or
    (2) The expiration of the period of debarment under Executive Order 
12459 or the Federal Acquisition Regulation (FAR), 48 CFR part 9, 
subpart 9.4.
    (b) The request must be in writing and must show that--
    (1) The lender or servicer has corrected any violations on which the 
termination was based; and
    (2) The lender or servicer meets all requirements for eligibility.
    (c) Within 60 days after receiving a request for reinstatement, the 
Secretary--
    (1) Grants the request;
    (2) Denies the request; or
    (3) Grants the request subject to limitations.
    (d)(1) If the Secretary denies the lender's or servicer's request or 
allows reinstatement subject to limitations, the lender or servicer, 
upon request, is given an opportunity to show why its eligibility should 
be reinstated and all limitations removed.
    (2) A lender or third-party servicer whose eligibility to 
participate in the FFEL programs is reinstated subject to limitations 
imposed by the Secretary pursuant to paragraph (c)(3) of this section, 
may participate in those programs, subject to those limitations, pending 
a decision by the Secretary on a request under paragraph (d)(1) of this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22459, Apr. 29, 1994; 59 FR 34964, July 7, 1994; 60 FR 33058, June 
26, 1995; 64 FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]



Sec.  682.712  Disqualification review of limitation, suspension, and
termination actions taken by guarantee agencies against lenders.

    (a) The Secretary reviews a limitation, suspension, or termination 
action taken by a guaranty agency against a lender participating in the 
FFEL programs to determine if national disqualification is appropriate. 
Upon completion of the Secretary's review, the Secretary notifies the 
guaranty agency and the lender of the Secretary's decision by mail.
    (b) The Secretary disqualifies a lender from participation in the 
FFEL programs if--
    (1) The lender waives review by the Secretary; or
    (2) The Secretary conducts the review and determines that the 
limitation, suspension, or termination was imposed in accordance with 
section 428(b)(1)(U) of the Act.
    (c)(1) Disqualification by the Secretary continues until the 
Secretary is satisfied that--
    (i) The lender has corrected the failure that led to the limitation, 
suspension, or termination; and
    (ii) There are reasonable assurances that the lender will comply 
with the requirements of the FFEL programs in the future.
    (2) Revocation of disqualification by the Secretary does not remove 
any limitation, suspension, or termination imposed by the agency whose 
action resulted in the disqualification.
    (d) A guaranty agency shall refer a limitation, suspension, or 
termination action that it takes against a lender to the Secretary 
within 30 days of its final decision to limit, suspend, or terminate

[[Page 216]]

the lender's eligibility to participate in the agency's program.
    (e) The Secretary reviews an agency's limitation, suspension, or 
termination of a lender's eligibility only when the guaranty agency's 
action is final, e.g, the lender is not entitled to any further appeals 
within the guaranty agency. A subsequent court challenge to an agency's 
action does not by itself affect the timing of the Secretary's review.
    (f) The guaranty agency's notice to the Secretary regarding a 
termination action must include a certified copy of the administrative 
record compiled by the agency with regard to the action. The record must 
include certified copies of the following documents:
    (1) The guaranty agency's letter initiating the action.
    (2) The lender's response.
    (3) The transcript of the agency's hearing.
    (4) The decision of the agency's hearing officer.
    (5) The decision of the agency on appeal from the hearing officer's 
decision, if any.
    (6) The regulations and written procedures of the agency under which 
the action was taken.
    (7) The audit or lender review report or documented basis that led 
to the action.
    (8) All other documents relevant to the action.
    (g) The guaranty agency's referral notice to the Secretary regarding 
a limitation or suspension action must include--
    (1) The documents described in paragraph (f) of this section; and
    (2) Documents describing and substantiating the existence of one or 
more of the circumstances described in paragraph (i) of this section.
    (h)(1) Within 60 days of the Secretary's receipt of a referral 
notice described in paragraph (f) or (g) of this section, the Secretary 
makes an initial assessment, based on the agency's record, as to whether 
the agency's action appears to comply with section 428(b)(1)(U) of the 
Act.
    (2) In the case of a referral notice described in paragraph (g) of 
this section, the Secretary also determines whether one or more of the 
circumstances described in paragraph (i) of this section exist.
    (3) If the Secretary concludes that the agency's action appears to 
comply with section 428(b)(1)(U) of the Act and, if applicable, one or 
more of the circumstances described in paragraph (i) of this section 
exist, the Secretary notifies the lender that the Secretary will review 
the guaranty agency's action to determine whether to disqualify the 
lender from further participation in the FFEL programs and affords the 
lender an opportunity--
    (i) To waive the review and be disqualified immediately; or
    (ii) To request a review.
    (i) In the case of an action by an agency that limits or suspends a 
lender's eligibility to participate in the agency's program, the agency 
shall provide the Secretary with a referral as described in paragraph 
(g) of this section only if--
    (1) The lender has not corrected the violation. A violation is 
corrected if, among other things, the lender has satisfied fully all 
liabilities incurred by the lender as a result of the violation, 
including its liability to the Secretary, or the lender has arranged to 
satisfy those liabilities in a manner acceptable to the parties to whom 
the liabilities are owed;
    (2) The lender has not provided satisfactory assurances to the 
agency of future compliance with program requirements; or
    (3) The guaranty agency determines that special circumstances 
warrant disqualification of the lender from the FFEL programs for a 
significant period, notwithstanding the agency's decision not to 
terminate the lender's eligibility to participate in the agency's 
program.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999; 78 FR 65822, Nov. 1, 2013]



Sec.  682.713  [Reserved]

Subpart H [Reserved]

[[Page 217]]



               Sec. Appendixes A-C to Part 682 [Reserved]



Sec. Appendix D to Part 682--Policy for Waiving the Secretary's Right To 
   Recover or Refuse To Pay Interest Benefits, Special Allowance, and 
  Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 
  Consolidation Program Loans Involving Lenders' Violations of Federal 
 Regulations Pertaining to Due Diligence in Collection or Timely Filing 
                      of Claims [Bulletin 88-G-138]

    Note: The following is a reprint of Bulletin 88-G-138, issued on 
March 11, 1988, with modifications made to reflect changes in the 
program regulations. For a loan that has lost reinsurance prior to 
December 1, 1992, this policy applies only through November 30, 1995. 
For a loan that loses reinsurance on or after December 1, 1992, this 
policy applies until 3 years after the default claim filing deadline. 
For the purpose of determining the 3-year deadline, reinsurance is lost 
on the later of (a) 3 years from the last date the claim could have been 
filed for claim payment with the guaranty agency for a claim that was 
not filed; or (b) 3 years from the date the guaranty agency rejected the 
claim, for a claim that was filed. These deadlines are extended by 
periods during which collection activities are suspended due to the 
filing of a bankruptcy petition.

                              Introduction

    (1) This letter sets forth the circumstances under which the 
Secretary, pursuant to sections 432(a)(5) and (6) of the Higher 
Education Act of 1965 and 34 CFR 682.406(b) and 682.413(f), will waive 
certain of the Secretary's rights and claims with respect to Stafford 
Loans, PLUS, Supplemental Loans for Students (SLS), and Consolidation 
Program loans made under a guaranty agency program that involve 
violations of Federal regulations pertaining to due diligence in 
collection or timely filing. (These programs are collectively referred 
to in this letter as the FFEL Program.) This policy applies to due 
diligence violations on loans for which the first day of delinquency 
occurred on or after March 10, 1987 (the effective date of the November 
10, 1986 due diligence regulations) and to timely filing violations 
occurring on or after December 26, 1986, whether or not the affected 
loans have been submitted as claims to the guaranty agency.
    (2) The Secretary has been implementing a variety of regulatory and 
administrative actions to minimize defaults in the FFEL Program. As a 
part of this effort, the Secretary published final regulations on 
November 10, 1986, requiring lenders and guaranty agencies to undertake 
specific due diligence activities to collect delinquent and defaulted 
loans, and establishing deadlines for the filing of claims by lenders 
with guaranty agencies. In recognition of the time required for agencies 
and lenders to modify their internal procedures, the Secretary delayed 
for four months the date by which lenders were required to comply with 
the new due diligence requirements. Thus, Sec.  682.411 of the 
regulations, which established minimum due diligence procedures that a 
lender must follow in order for a guaranty agency to receive reinsurance 
on a loan, became effective for loans for which the first day of 
delinquency occurred on or after March 10, 1987. The regulations make 
clear that compliance with these minimum requirements, and with the new 
timely filing deadlines, is a condition for an agency's receiving or 
retaining reinsurance payments made by the Secretary on a loan. See 34 
CFR 682.406(a)(3), (a)(5), (a)(6), and 682.413(b). The regulations also 
specify that a lender must comply with Sec.  682.411 and with the 
applicable filing deadline as a condition for its right to receive or 
retain interest benefits and special allowance on a loan for certain 
periods. See 34 CFR 682.300(b)(2)(vii), 682.302(d)(1)(iv), 
682.413(a)(1).
    (3) The Department has received inquiries regarding the procedures 
by which a lender may cure a violation of Sec.  682.411 regarding 
diligent loan collection, or of the 90-day deadline for the filing of 
default claims found in Sec.  682.406(a)(3) and (a)(5), in order to 
reinstate the agency's right to reinsurance and the lender's right to 
interest benefits and special allowance. Preliminarily, please note 
that, absent an exercise of the Secretary's waiver authority, a guaranty 
agency may not receive or retain reinsurance payments on a loan on which 
the lender has violated the Federal due diligence or timely filing 
requirements, even if the lender has followed a cure procedure 
established by the agency. Under Sec. Sec.  682.406(b) and 682.413(f), 
the Secretary--not the guaranty agency--decides whether to reinstate 
reinsurance coverage on a loan involving such a violation or any other 
violation of Federal regulations. A lender's violation of a guaranty 
agency's requirement that affects the agency's guarantee coverage also 
affects reinsurance coverage. See Sec. Sec.  682.406(a)(7) and 
682.413(b). As Sec. Sec.  682.406(a)(7) and 682.413(b) make clear, a 
guaranty agency's cure procedures are relevant to reinsurance coverage 
only insofar as they allow for cure of violations of requirements 
established by the agency affecting the loan insurance it provides to 
lenders. In addition, all those requirements must be submitted to the 
Secretary for review and approval under 34 CFR 682.401(c).

[[Page 218]]

    (4) References throughout this letter to ``due diligence and timely 
filing'' rules, requirements, and violations should be understood to 
mean only the Federal rules cited above, unless the context clearly 
requires otherwise.

                                A. Scope

    This letter outlines the Secretary's waiver policy regarding certain 
violations of Federal due diligence or timely filing requirements on a 
loan insured by a guaranty agency. Unless your agency receives 
notification to the contrary, or the lender's violation involves fraud 
or other intentional misconduct, you may treat as reinsured any 
otherwise reinsured loan involving such a violation that has been cured 
in accordance with this letter.

          B. Duty of a Guaranty Agency To Enforce Its Standards

    As noted above, a lender's violation of a guaranty agency's 
requirement that affects the agency's guarantee coverage also affects 
reinsurance coverage. Thus, as a general rule, an agency that fails to 
enforce such a requirement and pays a default claim involving a 
violation is not eligible to receive reinsurance on the underlying loan. 
However, in light of the waiver policy outlined below, which provides 
more stringent cure procedures for violations occurring on or after May 
1, 1988 than for pre-May 1, 1988 violations, some guaranty agencies with 
more stringent policies than the policy outlined below for the pre-May 1 
violations have indicated that they wish to relax their own policies for 
violations of agency rules during that period. While the Secretary does 
not encourage any agency to do so, the Secretary will permit an agency 
to take either of the following approaches to its enforcement of its own 
due diligence and timely filing rules for violations occurring before 
May 1, 1988.
    (1) The agency may continue to enforce its rules, even if they 
result in the denial of guarantee coverage by the agency on otherwise 
reinsurable loans; or
    (2) The agency may decline to enforce its rules as to any loan that 
would be reinsured under the retrospective waiver policy outlined below. 
In other words, for violations of a guaranty agency's due diligence and 
timely filing rules occurring before May 1, 1988, a guaranty agency is 
authorized, but not required, to retroactively revise its own due 
diligence and timely filing standards to treat as guaranteed any loan 
amount that is reinsured under the retrospective enforcement policy 
outlined in section I.C.1. However, for any violation of an agency's due 
diligence or timely filing rules occurring on or after May 1, 1988, the 
agency must resume enforcing those rules in accordance with their terms, 
in order to receive reinsurance payments on the underlying loan. For 
these post-April 30 violations, and for any other violation of an 
agency's rule affecting its guarantee coverage, the Secretary will treat 
as reinsured all loans on which the agency has engaged in, and 
documented, a case-by-case exercise of reasonable discretion allowing 
for guarantee coverage to be continued or reinstated notwithstanding the 
violation. But any agency that otherwise fails, or refuses, to enforce 
such a rule does so without the benefit of reinsurance coverage on the 
affected loans, and the lenders continue to be ineligible for interest 
benefits and special allowance thereon.

                            C. Due Diligence

    Under 34 CFR 682.200, default on a FFEL Program loan occurs when a 
borrower fails to make a payment when due, provided this failure 
persists for 270 days for loans payable in monthly installments, or for 
330 days for loans payable in less frequent installments. The 270/330-
day default period applies regardless of whether payments were missed 
consecutively or intermittently. For example, if the borrower, on a loan 
payable in monthly installments, makes his January 1st payment on time, 
his February 1st payment two months late (April 1st), his March 1st 
payment 3 months late (June 1st), and makes no further payments, the 
delinquency period begins on February 2nd, with the first delinquency, 
and default occurs on December 27th, when the April payment becomes 270 
days past due. The lender must treat the payment made on April 1st as 
the February 1st payment, since the February 1st payment had not been 
made prior to that time. Similarly, the lender must treat the payment 
made on June 1st as the March 1st payment, since the March payment had 
not been made prior to that time.

    Note: Lenders are strongly encouraged to exercise forbearance, prior 
to default, for the benefit of borrowers who have missed payments 
intermittently but have otherwise indicated willingness to repay their 
loans. See 34 CFR 682.211. The forbearance process helps to reduce the 
incidence of default, and serves to emphasize for the borrower the 
importance of compliance with the repayment obligation.

                            D. Timely Filing

    (1) The 90-day filing period applicable to FFEL Program default 
claims is described in 34 CFR 682.406(a)(5). The 90-day filing period 
begins at the end of the 270/330-day default period. The lender 
ordinarily must file a default claim on a loan in default by the end of 
the filing period. However, the lender may, but need not, file a claim 
on that loan before the 360th day of delinquency (270-day default period 
plus 90-day filing period) if the borrower brings the account less than 
270 days

[[Page 219]]

delinquent before the 360th day. Thus, in the above example, if the 
borrower makes the April 1st payment on December 28th, that payment 
makes the loan 241 days delinquent, and the lender may, but need not, 
file a default claim on the loan at that time. If, however, the loan 
again becomes 270 days delinquent, the lender must file a default claim 
within 90 days thereafter (unless the loan is again brought to less than 
270 days delinquent prior to the end of that 90-day period). In other 
words, the Secretary will permit a lender to treat payments made during 
the filing period as curing the default if those payments are sufficient 
to make the loan less than 270 days delinquent.
    (2) Section I of this letter outlines the Secretary's waiver policy 
for due diligence and timely filing violations. As noted above, to the 
extent that it results in the imposition of a lesser sanction than that 
available to the Secretary by statute or regulation, this policy 
reflects the exercise of the Secretary's authority to waive the 
Secretary's rights and claims in this area. Section II discusses the 
issue of the due date of the first payment on a loan and the application 
of the waiver policy to that issue. Section III provides guidance on 
several issues related to due diligence and timely filing as to which 
clarification has been requested by some program participants.

                            I. Waiver Policy

                             A. Definitions

    The following definitions apply to terms used throughout this 
letter:
    Full payment means payment by the borrower, or another person (other 
than the lender) on the borrower's behalf, in an amount at least as 
great as the monthly payment amount required under the existing terms of 
the loan, exclusive of any forbearance agreement in force at the time of 
the default. (For example, if the original repayment schedule or 
agreement called for payments of $50 per month, but a forbearance 
agreement was in effect at the time of default that allowed the borrower 
to pay $25 per month for a specified time, and the borrower defaulted in 
making the reduced payments, a full payment would be $50, or two $25 
payments in accordance with the original repayment schedule or 
agreement.) In the case of a payment made by cash, money order, or other 
means that do not identify the payor that is received by a lender after 
the date of this letter, that payment may constitute a full payment only 
if a senior officer of the lender or servicing agent certifies that the 
payment was not made by or on behalf of the lender or servicing agent.
    Earliest unexcused violation means:
    (a) In cases when reinsurance is lost due to a failure to timely 
establish a first payment due date, the earliest unexcused violation 
would be the 46th day after the date the first payment due date should 
have been established.
    (b) In cases when reinsurance is lost due to a gap of 46 days, the 
earliest unexcused violation date would be the 46th day following the 
last collection activity.
    (c) In cases when reinsurance is lost due to three or more due 
diligence violations of 6 days or more, the earliest unexcused violation 
would be the day after the date of default.
    (d) In cases when reinsurance is lost due to a timely filing 
violation, the earliest unexcused violation would be the day after the 
filing deadline.
    Reinstatement with respect to reinsurance coverage means the 
reinstatement of the guaranty agency's right to receive reinsurance 
payments on the loan after the date of reinstatement. Upon reinstatement 
of reinsurance, the borrower regains the right to receive forbearance or 
deferments, as appropriate. Reinstatement with respect to reinsurance on 
a loan also includes reinstatement of the lender's right to receive 
interest and special allowance payments on that loan.
    Gap in collection activity on a loan means:
    (a) The period between the initial delinquency and the first 
collection activity;
    (b) The period between collection activities (a request for 
preclaims assistance is considered a collection activity);
    (c) The period between the last collection activity and default; or
    (d) The period between the date a lender discovers a borrower has 
``skipped'' and the lender's first skip-tracing activity.

    Note: The concept of ``gap'' is used herein simply as one measure of 
collection activity. This definition applies to loans subject to the 
FFEL and PLUS programs regulations published on or after November 10, 
1986. For those loans, not all gaps are violations of the due diligence 
rules.

    Violation with respect to the due diligence requirements in Sec.  
682.411 means the failure to timely complete a required diligent phone 
contact effort, the failure to timely send a required letter (including 
a request for preclaims assistance), or the failure to timely engage in 
a required skip-tracing activity. If during the delinquency period a gap 
of more than 45 days occurs (more than 60 days for loans with a 
transfer), the lender must satisfy the requirement outlined in I.D.1. 
for reinsurance to be reinstated. The day after the 45-day gap (or 60 
for loans with a transfer) will be considered the date that the 
violation occurred.
    Transfer means any action, including, but not limited to, the sale 
of the loan, that results in a change in the system used to monitor or 
conduct collection activity on a loan from one system to another.

[[Page 220]]

    B. General
    1. Resumption of Interest and Special Allowance Billing on Loans 
Involving Due Diligence or Timely Filing Violations. For any loan on 
which a cure is required under this letter in order for the agency to 
receive any reinsurance payment, the lender may resume billing for 
interest and special allowance on the loan only for periods following 
its completion of the required cure procedure.
    2. Reservation of the Secretary's Right to Strict Enforcement. While 
this letter describes the Secretary's general waiver policy, the 
Secretary retains the option of refusing to permit or recognize cures, 
or of insisting on strict enforcement of the remedies established by 
statute or regulation, in cases where, in the Secretary's judgment, a 
lender has committed an excessive number of severe violations of due 
diligence or timely filing rules and in cases where the best interests 
of the United States otherwise require strict enforcement. More 
generally, this bulletin states the Secretary's general policy and is 
not intended to limit in any way the authority and discretion afforded 
the Secretary by statute or regulation.
    3. Interest, Special Allowance, and Reinsurance Repayment Required 
as a Condition for Exercise of the Secretary's Waiver Authority. The 
Secretary's waiver of the right to recover or refuse to pay reinsurance, 
interest benefits, or special allowance payments, and recognition of 
cures for due diligence and timely filing violations, are conditioned on 
the following:
    a. The guaranty agency and lender must ensure that the lender repays 
all interest benefits and special allowance received on loans involving 
violations occurring prior to May 1, 1988, for which the lender is 
ineligible under the waiver policy for the ``retrospective period'' 
described in section I.C.1., or under the waiver policy for timely 
filing violations described in section I.E.1., by an adjustment to one 
of the next three quarterly billings for interest benefits and special 
allowance submitted by the lender in a timely manner after May 1, 1988. 
The guaranty agency's responsibility in this regard is satisfied by 
receipt of a certification from the lender that this repayment has been 
made in full.
    b. The guaranty agency, on or before October 1, 1988, must repay all 
reinsurance received on loans involving violations occurring prior to 
May 1, 1988, for which the agency is ineligible under the waiver policy 
for the ``retrospective period'' described in section I.C.1., or under 
the waiver policy for timely filing violations described in section 
I.E.1. Pending completion of the repayment described above, a lender or 
guaranty agency may submit billings to the Secretary on loans that are 
eligible for reinsurance under the waiver policy in this letter until it 
learns that repayment in full will not be made, or until the deadline 
for a repayment has passed without it being made, whichever is earlier. 
Of course, a lender or guaranty agency is prohibited from billing the 
Secretary for program payments on any loan amount that is not eligible 
for reinsurance under the waiver policy outlined in this letter. In 
addition to the repayments required above, any amounts received in the 
future in violation of this prohibition must immediately be repaid to 
the Secretary.
    4. Applicability of the Waiver Policy to Particular Classes of 
Loans. The policy outlined in this letter applies only to a loan for 
which the first day of the 180/240-day or 270/330-day default period (as 
applicable) that ended with default by the borrower occurred on or after 
March 10, 1987, or, in the case of a timely filing violation, December 
26, 1986, and that involves violations only of the due diligence or 
timely filing requirements or both. For a loan that has lost reinsurance 
prior to December 1, 1992, this policy applies only through November 30, 
1995. For a loan that loses reinsurance on or after December 1, 1992, 
this policy applies until 3 years after the default claim filing 
deadline.
    5. Excuse of Certain Due Diligence Violations. Except as noted in 
section II, if a loan has due diligence violations but was later cured 
and brought current, those violations will not be considered in 
determining whether a loan was serviced in accordance with 34 CFR 
682.411. Guarantors must review the due diligence for the 180/240 or 
270/330-day period (as applicable) prior to the default date ensuring 
the due date of the first payment not later made is the correct payment 
due date for the borrower.
    6. Excuse of Timely Filing Violations Due to Performance of a 
Guaranty Agency's Cure Procedures. If, prior to May 1, 1988, and prior 
to the filing deadline, a lender commenced the performance of collection 
activities specifically required by the guaranty agency to cure a due 
diligence violation on a loan, the Secretary will excuse the lender's 
timely filing violation if the lender completes the additional 
activities within the time period permitted by the guaranty agency and 
files a default claim on the loan not more than 45 days after completing 
the additional activities.
    7. Treatment of Accrued Interest on ``Cured'' Claims. For any loan 
involving any violation of the due diligence or timely filing rules for 
which a ``cure'' is required under section I.C. or I.E., for the agency 
to receive a reinsurance payment, the Secretary will not reimburse the 
guaranty agency for any unpaid interest accruing after the date of the 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and prior to the date of reinstatement 
of reinsurance coverage. The lender may capitalize unpaid interest 
accruing on

[[Page 221]]

the loan from the date of the earliest unexcused violation to the date 
of the reinstatement of reinsurance coverage. However, if the agency 
later files a claim for reinsurance on that loan, the agency must deduct 
this capitalized interest from the amount of the claim. Some cures will 
not reinstate coverage. For treatment of accrued interest in those 
cases, see section I.E.1.c.
    C. Waiver Policy for Violations of the Federal Due Diligence in 
Collection Requirements (34 CFR 682.411)
    A violation of the due diligence in collection rules occurs when a 
lender fails to meet the requirements found in 34 CFR 682.411. However, 
if a lender makes all required calls and sends all required letters 
during any of the delinquency periods described in that section, the 
lender is considered to be in compliance with that section for that 
period, even if the letters were sent before the calls were made. The 
special provisions for transfers apply whenever the violation(s) and, if 
applicable, the gap, were due to a transfer, as defined in section I.A.
    1. Retrospective Period. For one or more due diligence violations 
occurring during the period March 10, 1987-April 30, 1988--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if no gap of 46 days or more 
(61 days or more for a transfer) exists.
    b. If a gap of 46-60 days (61-75 days for a transfer) exists, 
principal will be reinsured, but accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period are limited to amounts accruing through the date of 
default.
    c. If a gap of 61 days or more (76 days or more for a transfer) 
exists, the borrower must be located after the gap, either by the agency 
or the lender, in order for reinsurance on the loan to be reinstated. 
(See section I.E.1.d., for a description of acceptable evidence of 
location.) In addition, if the loan is held by the lender or after March 
15, 1988, the lender must follow the steps described in section I.E.1., 
or receive a full payment or a new signed repayment agreement, in order 
for the loan to again be eligible for reinsurance. The lender must repay 
all interest benefits and special allowance received for the period 
beginning with its earliest unexcused violation, occurring after the 
last payment received before the cure is accomplished, and ending with 
the date, if any, that reinsurance on the loan is reinstated.
    2. Prospective Period. For due diligence violations occurring on or 
after May 1, 1988 based on due dates prior to October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer.)
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest, interest benefits, and special allowance otherwise 
payable by the Secretary for the delinquency period will be limited to 
amounts accruing through the date of default. However, the lender must 
complete all required activities before the claim filing deadline, 
except that a preclaims assistance request must be made before the 240th 
day of delinquency. If the lender fails to make this request by the 
240th day, the Secretary will not pay any accrued interest, interest 
benefits, and special allowance for the most recent 180 days prior to 
default. If the lender fails to complete any other required activity 
before the claim filing deadline, accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period will be limited to amounts accruing through the 90th 
day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1., or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1., for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    3. Post 1998 Amendments. For due diligence violations based on due 
dates on or after October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer).
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest,

[[Page 222]]

interest benefits, and special allowance otherwise payable by the 
Secretary for the delinquency period will be limited to amounts accruing 
through the date of default. However, the lender must complete all 
required activities before the claim filing deadline, except that a 
default aversion assistance request must be made before the 330th day of 
delinquency. If the lender fails to make this request by the 330th day, 
the Secretary will not pay any accrued interest, interest benefits, and 
special allowance for the most recent 270 days prior to default. If the 
lender fails to complete any other required activity before the claim 
filing deadline, accrued interest, interest benefits, and special 
allowance otherwise payable by the Secretary for the delinquency period 
will be limited to amounts accruing through the 90th day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1. or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1. for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    D. Reinstatement of Reinsurance Coverage for Certain Egregious Due 
Diligence Violations.
    1. Cures. In the case of a loan involving violations described in 
section I.C.2.d. or I.C.3.d., the lender may utilize either of the two 
procedures described in section I.D.1.a or I.D.1.b. for obtaining 
reinstatement of reinsurance coverage on the loan.
    a. After the violations occur, the lender obtains a new repayment 
agreement signed by the borrower. The repayment agreement must comply 
with the repayment period limitations set out in 34 CFR 682.209(a)(8) 
and 682.209(h)(2); or
    b. After the violations occur, the lender obtains one full payment. 
If the borrower later defaults, the guaranty agency must obtain evidence 
of this payment (e.g., a copy of the check) from the lender.
    2. Borrower Deemed Current as of Date of Cure. On the date the 
lender receives a new signed repayment agreement or the curing payment 
under section I.D.1., reinsurance coverage on the loan is reinstated, 
and the borrower must be deemed by the lender to be current in repaying 
the loan and entitled to all rights and benefits available to borrowers 
who are not in default. The lender must then follow the collection and 
timely filing requirements applicable to the loan.
    E. Cures for Timely Filing Violations and Certain Due Diligence 
Violations
    1. Default Claims.
    a. Reinstatement of Insurance Coverage. Except as noted in section 
I.B.6., in order to obtain reinstatement of reinsurance coverage on a 
loan in the case of a timely filing violation, a due diligence violation 
described in section I.C.2.c. or I.C.3.c., or a due diligence violation 
described in section I.C.1.c. where the lender holds the loan on or 
after March 15, 1988, the lender must first locate the borrower after 
the gap, or after the date of the last violation, as applicable. (See 
section I.E.1.d. for description of acceptable evidence of location.) 
Within 15 days thereafter, the lender must send to the borrower, at the 
address at which the borrower was located, (i) a new repayment 
agreement, to be signed by the borrower, that complies with the ten-year 
repayment limitations in 34 CFR 682.209(a)(7), along with (ii) a 
collection letter indicating in strong terms the seriousness of the 
borrower's delinquency and its potential effect on his or her credit 
rating if repayment is not commenced or resumed. If, within 15 days 
after the lender sends these items, the borrower fails to make a full 
payment or to sign and return the new repayment agreement, the lender 
must, within 5 days thereafter, diligently attempt to contact the 
borrower by telephone. Within 5-10 days after completing these efforts, 
the lender must again diligently attempt to contact the borrower by 
telephone. Finally, within 5-10 days after completing these efforts, the 
lender must send a forceful collection letter indicating that the entire 
unpaid balance of the loan is due and payable, and that, unless the 
borrower immediately contacts the lender to arrange repayment, the 
lender will be filing a default claim with the guaranty agency.
    b. Borrower Deemed Current Under Certain Circumstances. If, at any 
time on or before the 30th day after the lender completes the additional 
collection efforts described in section I.E.1.a., or the 270th day of 
delinquency, whichever is later, the lender receives a full payment or a 
new signed repayment agreement, reinsurance coverage on the loan is 
reinstated on the date the lender receives the full payment or new 
agreement. The borrower must be deemed by the lender to be

[[Page 223]]

current in repaying the loan and entitled to all rights and benefits 
available to borrowers who are not in default. In the case of a timely 
filing violation on a loan for which the borrower is deemed current 
under this paragraph, the lender is ineligible to receive interest 
benefits and special allowance accruing from the date of the violation 
to the date of reinstatement of reinsurance coverage on the loan.
    c. Borrower Deemed in Default Under Certain Circumstances. If the 
borrower does not make a full payment, or sign and return the new 
repayment agreement, on or before the 30th day after the lender 
completes the additional collection efforts described in section 
I.E.1.a., or the 270th day of delinquency, whichever is later, the 
lender must deem the borrower to be in default. The lender must then 
file a default claim on the loan, accompanied by acceptable evidence of 
location (see section I.E.1.d.), within 30 days after the end of the 30-
day period. Reinsurance coverage, and therefore the lender's right to 
receive interest benefits and special allowance, is not reinstated on a 
loan involving these circumstances. However, the Secretary will honor 
reinsurance claims submitted in accordance with this paragraph on the 
outstanding principal balance of those loans, on unpaid interest as 
provided in section I.B.7., and for reimbursement of eligible 
supplemental preclaims assistance costs. In the case of a timely filing 
violation on a loan for which the borrower is deemed in default under 
this paragraph, the lender is ineligible to receive interest benefits 
and special allowance accruing from the date of the violation.
    d. Acceptable Evidence of Location. Only the following documentation 
is acceptable as evidence that the lender has located the borrower:
    (1) A postal receipt signed by the borrower not more than 15 days 
prior to the date on which the lender sent the new repayment agreement, 
indicating acceptance of correspondence from the lender by the borrower 
at the address shown on the receipt; or
    (2) Documentation submitted by the lender showing--
    (i) The name, identification number, and address of the lender;
    (ii) The name and Social Security number of the borrower; and
    (iii) A signed certification by an employee or agent of the lender, 
that--
    (A) On a specified date, he or she spoke with or received written 
communication (attached to the certification) from the borrower on the 
loan underlying the default claim, or a parent, spouse, sibling, 
roommate, or neighbor of the borrower;
    (B) The address and, if available, telephone number of the borrower 
were provided to the lender in the telephone or written communication; 
and
    (C) In the case of a borrower whose address or telephone number was 
provided to the lender by someone other than the borrower, the new 
repayment agreement and the letter sent by the lender pursuant to 
section I.E.1.a., had not been returned undelivered as of 20 days after 
the date those items were sent, for due diligence violations described 
in section I.C.1.c. where the lender holds the loan on the date of this 
letter, and as of the date the lender filed a default claim on the cured 
loan, for all other violations.
    2. Death, Disability, and Bankruptcy Claims. The Secretary will 
honor a death or disability claim on an otherwise eligible loan 
notwithstanding the lender's failure to meet the 60-day timely filing 
requirement (See 34 CFR 682.402(g)(2)(i)). However, the Secretary will 
not reimburse the guaranty agency if, before the date the lender 
determined that the borrower died or was totally and permanently 
disabled, the lender had violated the Federal due diligence or timely 
filing requirements applicable to that loan, except in accordance with 
the waiver policy described above. Interest that accrued on the loan 
after the expiration of the 60-day filing period remains ineligible for 
reimbursement by the Secretary, and the lender must repay all interest 
and special allowance received on the loan for periods after the 
expiration of the 60-day filing period. The Secretary has determined 
that, in the vast majority of cases, the failure of a lender to comply 
with the timely filing requirement applicable to bankruptcy claims 
(Sec.  682.402(g)(2)(iv)) causes irreparable harm to the guaranty 
agency's ability to contest the discharge of the loan by the court, or 
to otherwise collect from the borrower. Therefore, the Secretary has 
decided not to excuse violations of the timely filing requirement 
applicable to bankruptcy claims, except when the lender can demonstrate 
that the bankruptcy action has concluded and that the loan has not been 
discharged in bankruptcy or, if previously discharged, has been the 
subject of a reversal of the discharge. In that case, the lender must 
return the borrower to the appropriate status that existed prior to the 
filing of the bankruptcy claim unless the status has changed due solely 
to passage of time. In the latter case, the lender must place the 
borrower in the status that would exist had no bankruptcy claim been 
filed. If the borrower is delinquent after the loan is determined 
nondischargeable, the lender should grant administrative forbearance to 
bring the borrower's account current as provided in Sec.  682.211(f)(4) 
and Sec.  682.402(f)(5)(ii) and (f)(6). The Secretary will not reimburse 
the guaranty agency for interest for the period beginning on the filing 
deadline for the bankruptcy claim and ending on the date the loan 
becomes eligible again for reinsurance. Reinsurance is reinstated on the 
date the bankruptcy action concludes and the loan is not

[[Page 224]]

discharged or on the date a previous discharge is reversed.
    II. Due Date of First Payment. Section 682.411(b)(1) refers to the 
``due date of the first missed payment not later made'' as one way to 
determine the first day of delinquency on a loan. Section 682.209(a)(3) 
states that, generally, the repayment period on an FFEL Program loan 
begins some number of months after the month in which the borrower 
ceases at least half-time study. Where the borrower enters the repayment 
period with the lender's knowledge, the first payment due date may be 
set by the lender, provided it falls within a reasonable time after the 
first day of the month in which the repayment period begins. In this 
situation, the Secretary generally permits a lender to allow the 
borrower up to 45 days from the first day of repayment to make the first 
payment (unless the lender establishes the first day of repayment under 
Sec.  682.209(a)(3)(ii)(E)).
    1. In cases where the lender learns that the borrower has entered 
the repayment period after the fact, current Sec.  682.411 treats the 
30th day after the lender receives this information as the first day of 
delinquency. In the course of discussion with lenders, the Secretary has 
learned that many lenders have not been using the 30th day after receipt 
of notice that the repayment period has begun (``the notice'') as the 
first payment due date. In recognition of this apparently widespread 
practice, the Secretary has decided that, both retrospectively and 
prospectively, a lender should be allowed to establish a first payment 
due date within 60 days after receipt of the notice, to capitalize 
interest accruing up to the first payment due date, and to exercise 
forbearance with respect to the period during which the borrower was in 
the repayment period but made no payment. In effect, this means that, if 
the lender sends the borrower a coupon book, billing notice, or other 
correspondence establishing a new first payment due date, on or before 
the 60th day after receipt of the notice, the lender is deemed to have 
exercised forbearance up to the new first payment due date. The new 
first payment due date must fall no later than 75 days after receipt of 
the notice (unless the lender establishes the first day of repayment 
under Sec.  682.209(a)(3)(ii)(E)). In keeping with the 5-day tolerance 
permitted under section I.C.2.a., for the ``prospective period,'' or 
section I.C.3.a., for the ``post 1998 amendment period,'' a lender that 
sends the above-described material on or before the 65th day after 
receipt of the notice will be held harmless. However, a lender that does 
so on the 66th day will have failed by more than 5 days to send both of 
the collection letters required by Sec.  682.411(c) to be sent within 
the first 30 days of delinquency and will thus have committed two 
violations of more than five days of that rule.
    2. If the lender fails to send the material establishing a new first 
payment due date on or before the 65th day after receipt of the notice, 
it may thereafter send material establishing a new first payment due 
date falling not more than 45 days after the materials are sent and will 
be deemed to have exercised forbearance up to the new first payment due 
date. However, all violations and gaps occurring prior to the date on 
which the material is sent are subject to the waiver policies described 
in section I for violations falling in either the retrospective or 
prospective periods. This is an exception to the general policy set 
forth in section I.B.5., that only violations occurring during the most 
recent 180 or 270 days (as applicable) of the delinquency period on a 
loan are relevant to the Secretary's examination of due diligence.
    Please Note: References to the ``65th day after receipt of the 
notice'' and ``66th day'' in the preceding paragraphs should be amended 
to read ``95th day'' and ``96th day'' respectively for lenders subject 
to Sec.  682.209(a)(3)(ii)(E).
    III. Questions and Answers
    The waiver policy outlined in this letter was developed after 
extensive discussion and consultation with participating lenders and 
guaranty agencies. In the course of these discussions, lenders and 
agencies raised a number of questions regarding the due diligence rules 
as applied to various circumstances. The Secretary's responses to these 
questions follow.
    Note: The answer to questions 1 and 4 are applicable only to loans 
subject to Sec.  682.411 of the FFEL and PLUS program regulations 
published on or after November 10, 1986.
    1. Q: Section 682.411 of the program regulations requires the lender 
to make ``diligent efforts to contact the borrower by telephone'' during 
each 30-day period of delinquency beginning after the 30th day of 
delinquency. What must a lender do to comply with this requirement?
    A: Generally speaking, one actual telephone contact with the 
borrower, or two attempts to make such contact on different days and at 
different times, will satisfy the ``diligent efforts'' requirement for 
any of the 30-day delinquency periods described in the rule. However, 
the ``diligent efforts'' requirement is intended to be a flexible one, 
requiring the lender to act on information it receives in the course of 
attempting telephone contact regarding the borrower's actual telephone 
number, the best time to call to reach the borrower, etc. For instance, 
if the lender is told during its second telephone contact attempt that 
the borrower can be reached at another number or at a different time of 
day, the lender must then attempt to reach the borrower by telephone at 
that number or that time of day.

[[Page 225]]

    2. Q: What must a lender do when it receives conflicting information 
regarding the date a borrower ceased at least half-time study?
    A: A lender must promptly attempt to reconcile conflicting 
information regarding a borrower's in-school status by making inquiries 
of appropriate parties, including the borrower's school. Pending 
reconciliation, the lender may rely on the most recent credible 
information it has.
    3. Q: If a loan is transferred from one lender to another, is the 
transferee held responsible for information regarding the borrower's 
status that is received by the transferor but is not passed on to the 
transferee?
    A: No. A lender is responsible only for information received by its 
agents and employees. However, if the transferee has reason to believe 
that the transferor has received additional information regarding the 
loan, the transferee must make a reasonable inquiry of the transferor as 
to the nature and substance of that information.
    4. Q: What are a lender's due diligence responsibilities where a 
check received on a loan is dishonored by the bank on which it was 
drawn?
    A: Upon receiving notice that a check has been dishonored, the 
lender must treat the payment as having never been made for purposes of 
determining the number of days that the borrower is delinquent at that 
time. The lender must then begin (or resume) attempting collection on 
the loan in accordance with Sec.  682.411, commencing with the first 30-
day delinquency period described in Sec.  682.411 that begins after the 
30-day delinquency period in which the notice of dishonor is received. 
The same result occurs when the lender successfully obtains a delinquent 
borrower's correct address through skip-tracing, or when a delinquent 
borrower leaves deferment or forbearance status.

[64 FR 58636, Oct. 29, 1999, as amended at 66 FR 34765, June 29, 2001; 
78 FR 65823, Nov. 1, 2013]



PART 685_WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents



                       Subpart A_Purpose and Scope

Sec.
685.100 The William D. Ford Federal Direct Loan Program.
685.101 Participation in the Direct Loan Program.
685.102 Definitions.
685.103 Applicability of subparts.
685.109 Severability.

                      Subpart B_Borrower Provisions

685.200 Borrower eligibility.
685.201 Obtaining a loan.
685.202 Charges for which Direct Loan Program borrowers are responsible.
685.203 Loan limits.
685.204 Deferment.
685.205 Forbearance.
685.206 Borrower responsibilities and defenses.
685.207 Obligation to repay.
685.208 Repayment plans.
685.209 Income-contingent repayment plans.
685.210 Choice of repayment plan.
685.211 Miscellaneous repayment provisions.
685.212 Discharge of a loan obligation.
685.213 Total and permanent disability discharge.
685.214 Closed school discharge.
685.215 Discharge for false certification of student eligibility or 
          unauthorized payment.
685.216 Unpaid refund discharge.
685.217 Teacher loan forgiveness program.
685.218 Discharge of student loan indebtedness for survivors of victims 
          of the September 11, 2001, attacks.
685.219 Public Service Loan Forgiveness Program (PSLF).
685.220 Consolidation.
685.221 Income-based repayment plan.
685.222 Borrower defenses and procedures for loans first disbursed on or 
          after July 1, 2017, and before July 1, 2020, and procedures 
          for loans first disbursed prior to July 1, 2017.
685.223 Severability.

Appendix A to Subpart B of Part 685--Examples of Borrower Relief

Subpart C_Requirements, Standards, and Payments for Direct Loan Program 
                                 Schools

685.300 Agreements between an eligible school and the Secretary for 
          participation in the Direct Loan Program.
685.301 Origination of a loan by a Direct Loan Program school.
685.302 [Reserved]
685.303 Processing loan proceeds.
685.304 Counseling borrowers.
685.305 Determining the date of a student's withdrawal.
685.306 Payment of a refund or return of title IV, HEA program funds to 
          the Secretary.
685.307 Withdrawal procedure for schools participating in the Direct 
          Loan Program.
685.308 Remedial actions.
685.309 Administrative and fiscal control and fund accounting 
          requirements for schools participating in the Direct Loan 
          Program.
685.310 Severability.

                 Subpart D_Borrower Defense to Repayment

685.400 Scope and purpose.

[[Page 226]]

685.401 Borrower defense-general.
685.402 Group process for borrower defense.
685.403 Individual process for borrower defense.
685.404 Group process based on prior Secretarial final actions.
685.405 Institutional response.
685.406 Adjudication of borrower defense applications.
685.407 Reconsideration.
685.408 Discharge.
685.409 Recovery from institutions.
685.410 Cooperation by the borrower.
685.411 Transfer to the Secretary of the borrower's right of recovery 
          against third parties.
685.499 Severability.

    Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise noted.

    Source: 59 FR 61690, Dec. 1, 1994, unless otherwise noted.



                       Subpart A_Purpose and Scope



Sec.  685.100  The William D. Ford Federal Direct Loan Program.

    (a) Under the William D. Ford Federal Direct Loan (Direct Loan) 
Program (formerly known as the Federal Direct Student Loan Program), the 
Secretary makes loans to enable a student or parent to pay the costs of 
the student's attendance at a postsecondary school. This part governs 
the Federal Direct Stafford/Ford Loan Program, the Federal Direct 
Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS 
Program, and the Federal Direct Consolidation Loan Program. The 
Secretary makes loans under the following program components:
    (1)(i) Federal Direct Stafford/Ford Loan Program (Direct Subsidized 
Loan Program), which provides loans to undergraduate, graduate, and 
professional students. Loans made under this program are referred to as 
Direct Subsidized Loans. Except as provided in paragraph (a)(1)(ii) of 
this section, the Secretary subsidizes the interest while the borrower 
is in an in-school, grace, or deferment period. Graduate and 
professional students are not eligible to receive Direct Subsidized 
Loans for any period of enrollment beginning on or after July 1, 2012.
    (ii) The Secretary does not subsidize the interest that accrues 
during the grace period on any Direct Subsidized Loan for which the 
first disbursement is made on or after July 1, 2012 and before July 1, 
2014.
    (2) Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program), which provides loans to undergraduate, 
graduate and professional students. Loans made under this program are 
referred to as Direct Unsubsidized Loans. The borrower is responsible 
for the interest that accrues during any period.
    (3) Federal Direct PLUS Program (Direct PLUS Loan Program), which 
provides loans to parents of dependent students and to graduate or 
professional students. Loans made under this program are referred to as 
Direct PLUS Loans. The borrower is responsible for the interest that 
accrues during any period.
    (4) Federal Direct Consolidation Loan Program (Direct Consolidation 
Loan Program), which provides loans to borrowers to consolidate certain 
Federal educational loans. Loans made under this program are referred to 
as Direct Consolidation Loans.
    (b) The Secretary makes a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, or a Direct PLUS Loan only to a student or a parent 
of a student enrolled in a school that participates in the Direct Loan 
Program.
    (c) The Secretary makes a Direct Consolidation Loan only to a 
borrower who is consolidating at least one loan made under the Direct 
Loan Program or the Federal Family Education Loan (FFEL) Program.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 71 FR 45709, Aug. 9, 2006; 78 
FR 65823, Nov. 1, 2013]



Sec.  685.101  Participation in the Direct Loan Program.

    (a) Colleges, universities, graduate and professional schools, 
vocational schools, and proprietary schools may participate in the 
Direct Loan Program. Participation in the Direct Loan Program enables an 
eligible student or parent to obtain a loan to pay for the student's 
cost of attendance at the school.
    (b)(1) An eligible undergraduate student who is enrolled at a school 
participating in the Direct Loan Program

[[Page 227]]

may borrow under the Direct Subsidized Loan and Direct Unsubsidized Loan 
programs.
    (2) An eligible graduate or professional student enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan 
programs, except that a graduate or professional student may not borrow 
under the Direct Subsidized Loan Program for any period of enrollment 
beginning on or after July 1, 2012.
    (3) An eligible parent of an eligible dependent student enrolled at 
a school participating in the Direct Loan Program may borrow under the 
Direct PLUS Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

[78 FR 65823, Nov. 1, 2013]



Sec.  685.102  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in the Student Assistance General Provisions, 34 CFR part 668:

Academic year
Campus-based programs
Dependent student
Disbursement
Eligible program
Eligible student
Enrolled
Expected family contribution (EFC)
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Full-time student
Graduate or professional student
Half-time student
Independent student
One-third of an academic year
Parent
Payment period
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant Program
TEACH Grant
Two-thirds of an academic year
Undergraduate student
U.S. citizen or national
William D. Ford Federal Direct Loan (Direct Loan) Program

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Correspondence course
Credit hour
Educational program
Eligible institution
Federal Family Education Loan (FFEL) Program
Foreign institution
Institution of higher education
Nationally recognized accrediting agency or association
Preaccredited
Secretary
State

    (b) The following definitions also apply to this part:
    Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et 
seq.
    Default: The failure of a borrower and endorser, if any, to make an 
installment payment when due, or to meet other terms of the promissory 
note, if the Secretary finds it reasonable to conclude that the borrower 
and endorser, if any, no longer intend to honor the obligation to repay, 
provided that this failure persists for 270 days.
    Endorser: An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, or 
other sources, such as scholarships, grants, net earnings from need-
based employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990 (AmeriCorps).
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
    (iii) Any educational benefits paid because of enrollment in a 
postsecondary education institution, or to cover postsecondary education 
expenses;
    (iv) Fellowships or assistantships, except non-need-based employment 
portions of such awards;

[[Page 228]]

    (v) Insurance programs for the student's education; and
    (vi) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of subsidized and unsubsidized Federal 
Stafford Loans, Direct Subsidized and Unsubsidized Loans, and Federal 
PLUS or Direct PLUS Loans.
    (2) Estimated financial assistance does not include--
    (i) Those amounts used to replace the expected family contribution 
(EFC), including the amounts of any TEACH Grants, unsubsidized Federal 
Stafford Loans or Direct Unsubsidized Loans, Federal PLUS or Direct PLUS 
Loans, and non-federal non-need-based loans, including private, state-
sponsored, and institutional loans. However, if the sum of the amounts 
received that are being used to replace the student's EFC exceed the 
EFC, the excess amount must be treated as estimated financial 
assistance;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
student has declined;
    (iii) For the purpose of determining eligibility for a Direct 
Subsidized Loan, national service education awards or post-service 
benefits under title I of the National and Community Service Act of 1990 
(AmeriCorps);
    (iv) Any portion of the estimated financial assistance described in 
paragraph (1) of this definition that is included in the calculation of 
the student's EFC;
    (v) Non-need-based employment earnings;
    (vi) Assistance not received under a title IV, HEA program, if that 
assistance is designated to offset all or a portion of a specific amount 
of the cost of attendance and that component is excluded from the cost 
of attendance as well. If that assistance is excluded from either 
estimated financial assistance or cost of attendance, it must be 
excluded from both;
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI Bill--
active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 1981 
(10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
    Federal Direct Consolidation Loan Program (Direct Consolidation Loan 
Program): (1) A loan program authorized by title IV, part D of the Act 
that provides loans to borrowers who consolidate certain Federal 
educational

[[Page 229]]

loan(s), and one of the components of the Direct Loan Program. Loans 
made under this program are referred to as Direct Consolidation Loans.
    (2) The term ``Direct Subsidized Consolidation Loan'' refers to the 
portion of a Direct Consolidation Loan attributable to certain 
subsidized title IV education loans that were repaid by the 
consolidation loan. Interest is not charged to the borrower during 
deferment periods, or, for a borrower whose consolidation application 
was received before July 1, 2006, during in-school and grace periods.
    (3) The term ``Direct Unsubsidized Consolidation Loan'' refers to 
the portion of a Direct Consolidation Loan attributable to unsubsidized 
title IV education loans, certain subsidized title IV education loans, 
and certain other Federal education loans that were repaid by the 
consolidation loan. The borrower is responsible for the interest that 
accrues during any period.
    (4) In the case of a Direct Consolidation Loan that entered 
repayment prior to July 1, 2006, the term ``Direct PLUS Consolidation 
Loan'' refers to the portion of a Direct Consolidation Loan attributable 
to Direct PLUS Loans, Direct PLUS Consolidation Loans, Federal PLUS 
Loans, and Parent Loans for Undergraduate Students that were repaid by 
the consolidation loan. The borrower is responsible for the interest 
that accrues during any period.
    Federal Direct PLUS Program (Direct PLUS Loan Program): A loan 
program authorized by title IV, Part D of the Act that is one of the 
components of the Federal Direct Loan Program. The Federal Direct PLUS 
Program provides loans to parents of dependent students attending 
schools that participate in the Direct Loan Program. The Federal Direct 
PLUS Program also provides loans to graduate or professional students 
attending schools that participate in the Direct Loan Program. The 
borrower is responsible for the interest that accrues during any period. 
Loans made under this program are referred to as Direct PLUS Loans.
    Federal Direct Stafford/Ford Loan Program (Direct Subsidized Loan 
Program): A loan program authorized by title IV, part D of the Act that 
provides loans to undergraduate, graduate, and professional students 
attending Direct Loan Program schools, and one of the components of the 
Direct Loan Program. The Secretary subsidizes the interest while the 
borrower is in an in-school, grace, or deferment period, except that the 
Secretary does not subsidize the interest that accrues during the grace 
period on a loan for which the first disbursement is made on or after 
July 1, 2012 and before July 1, 2014. Loans made under this program are 
referred to as Direct Subsidized Loans. Graduate and professional 
students are not eligible to receive Direct Subsidized Loans for any 
period of enrollment beginning on or after July 1, 2012.
    Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program): A loan program authorized by title IV, part 
D of the Act that provides loans to undergraduate, graduate, and 
professional students attending Direct Loan Program schools, and one of 
the components of the Direct Loan Program. The borrower is responsible 
for the interest that accrues during any period. Loans made under this 
program are referred to as Direct Unsubsidized Loans.
    Federal Insured Student Loan Program: The loan program authorized by 
title IV, part B of the Act under which the Secretary directly insures 
lenders against losses.
    Federal Stafford Loan Program: The loan program authorized by title 
IV, part B of the Act which encouraged the making of subsidized and 
unsubsidized loans to undergraduate, graduate, and professional students 
and is one of the Federal Family Education Loan programs.
    Grace period: A six-month period that begins on the day after a 
Direct Subsidized Loan borrower, a Direct Unsubsidized Loan borrower, 
or, in some cases, a Direct Consolidation Loan borrower whose 
consolidation application was received before July 1, 2006, ceases to be 
enrolled as at least a half-time student at an eligible institution and 
ends on the day before the repayment period begins.
    Guaranty agency: A State or private nonprofit organization that has 
an agreement with the Secretary under

[[Page 230]]

which it will administer a loan guarantee program under the Act.
    Holder: The entity that owns a loan. For a FFEL Program loan, the 
term ``holder'' refers to an eligible lender owning a FFEL Program loan, 
including a Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender.
    Interest rate: The annual interest rate that is charged on a loan, 
under title IV, part D of the Act.
    Lender: As used in this part, the term ``lender'' has the meaning 
specified in section 435(d) of the Act for purposes of the FFEL Program.
    Loan fee: A fee, payable by the borrower, that is used to help 
defray the costs of the Direct Loan Program.
    Master Promissory Note (MPN): (1) A promissory note under which the 
borrower may receive loans for a single academic year or multiple 
academic years.
    (2) For MPNs processed by the Secretary before July 1, 2003, loans 
may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be disbursed;
    (ii) One year after the date of the borrower's first anticipated 
disbursement if no disbursement is made during that twelve-month period; 
or
    (iii) Ten years after the date of the first anticipated 
disbursement, except that a remaining portion of a loan may be disbursed 
after this date.
    (3) For MPNs processed by the Secretary on or after July 1, 2003, 
loans may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be made;
    (ii) One year after the date the borrower signed the MPN or the date 
the Secretary receives the MPN, if no disbursements are made under that 
MPN; or
    (iii) Ten years after the date the borrower signed the MPN or the 
date the Secretary receives the MPN, except that a remaining portion of 
a loan may be disbursed after this date.
    (4) Unless the Secretary determines otherwise, a school may use a 
single MPN as the basis for all loans borrowed by a student or parent 
borrower for attendance at that school. If a school is not authorized by 
the Secretary for multi-year use of the MPN, a student or parent 
borrower must sign a new MPN for each academic year.
    Nationwide consumer reporting agency: A consumer reporting agency as 
defined in 15 U.S.C. 1681a(p).
    Payment data: An electronic record that is provided to the Secretary 
by an institution showing student disbursement information.
    Period of enrollment: The period for which a Direct Subsidized, 
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of 
enrollment must coincide with one or more bona fide academic terms 
established by the school for which institutional charges are generally 
assessed (e.g., a semester, trimester, or quarter in weeks of 
instructional time; an academic year; or the length of the program of 
study in weeks of instructional time). The period of enrollment is also 
referred to as the loan period.
    Satisfactory repayment arrangement: (1) For the purpose of regaining 
eligibility under section 428F(b) of the HEA, the making of six 
consecutive, voluntary, on-time, full monthly payments on a defaulted 
loan. A borrower may only obtain the benefit of this paragraph with 
respect to renewed eligibility once.
    (2) For the purpose of consolidating a defaulted loan under Sec.  
685.220(d)(1)(ii)(A)(3)--
    (i) The making of three consecutive, voluntary, on-time, full 
monthly payments on a defaulted loan prior to consolidation; or
    (ii) Agreeing to repay the Direct Consolidation Loan under one of 
the income-contingent repayment plans described in Sec.  685.209 or the 
income-based repayment plan described in Sec.  685.221.
    (3) For the purpose of paragraph (2)(i) of this definition, the 
required monthly payment amount may not be more than is reasonable and 
affordable based

[[Page 231]]

on the borrower's total financial circumstances. ``On-time'' means a 
payment made within 20 days of the scheduled due date, and voluntary 
payments are payments made directly by the borrower and do not include 
payments obtained by Federal offset, garnishment, or income or asset 
execution.
    (4) A borrower has not used the one opportunity to renew eligibility 
for title IV assistance if the borrower makes six consecutive, on-time, 
voluntary, full monthly payments under an agreement to rehabilitate a 
defaulted loan, but does not receive additional title IV assistance 
prior to defaulting on that loan again.
    Substantial gainful activity: A level of work performed for pay or 
profit that involves doing significant physical or mental activities, or 
a combination of both.
    Totally and permanently disabled: The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.

(Authority: 20 U.S.C. 1070g, 1087a, et seq.)

[59 FR 61690, Dec. 1, 1994]

    Editorial Note: For Federal Register citations affecting Sec.  
685.102, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  685.103  Applicability of subparts.

    (a) Subpart A contains general provisions regarding the purpose and 
scope of the Direct Loan Program.
    (b) Subpart B contains provisions regarding borrowers in the Direct 
Loan Program.
    (c) Subpart C contains certain requirements regarding schools in the 
Direct Loan Program.
    (d) Subpart D of this part contains provisions regarding borrower 
defense to repayment in the Direct Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 87 FR 66055, Nov. 1, 2022]



Sec.  685.109  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice will not 
be affected thereby.

[87 FR 66055, Nov. 1, 2022]



                      Subpart B_Borrower Provisions



Sec.  685.200  Borrower eligibility.

    (a) Student Direct Subsidized or Direct Unsubsidized borrower. (1) A 
student is eligible to receive a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, or a combination of these loans, if the student meets 
the following requirements:
    (i) The student is enrolled, or accepted for enrollment, on at least 
a half-time basis in a school that participates in the Direct Loan 
Program.
    (ii) The student meets the requirements for an eligible student 
under 34 CFR part 668.
    (iii) In the case of an undergraduate student who seeks a Direct 
Subsidized Loan or a Direct Unsubsidized Loan at a school that 
participates in the Federal Pell Grant Program, the student has received 
a determination of Federal Pell Grant eligibility for the period of 
enrollment for which the loan is sought.
    (iv) In the case of a borrower whose previous loan or TEACH Grant 
service obligation was discharged due to total and permanent disability, 
the student--
    (A) In the case of a borrower whose prior loan under title IV of the 
Act or TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that neither the new Direct Loan 
the borrower receives nor any previously

[[Page 232]]

discharged loan on which the borrower is required to resume payment in 
accordance with paragraph (a)(1)(iv)(B) of this section can be 
discharged in the future on the basis of any impairment present when the 
new loan is made, unless that impairment substantially deteriorates;
    (B) In the case of a borrower who receives a new Direct Loan, other 
than a Direct Consolidation Loan, within three years of the date that 
any previous title IV loan or TEACH Grant service obligation was 
discharged due to a total and permanent disability in accordance with 
Sec.  685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 
682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, the borrower resumes repayment on the 
previously discharged loan in accordance with Sec.  685.213(b)(7), 34 
CFR 674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he or 
she is once again subject to the terms of the TEACH Grant agreement to 
serve before receiving the new loan; and
    (C) In the case of a borrower whose prior loan under title IV of the 
Act was conditionally discharged after an initial determination that the 
borrower was totally and permanently disabled based on a discharge 
request received prior to July 1, 2010--
    (1) The suspension of collection activity on the prior loan has been 
lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section;
    (3) The borrower signs a statement acknowledging that neither the 
new Direct Loan the borrower receives nor the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability can be discharged in the future on the basis of any 
impairment present when the borrower applied for a total and permanent 
disability discharge or when the new loan is made, unless that 
impairment substantially deteriorates; and
    (4) The borrower signs a statement acknowledging that the suspension 
of collection activity on the prior loan will be lifted.
    (v) In the case of a student who was enrolled in a program of study 
prior to July 1, 2012 and who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR 668.32(e)(2), (3), (4), or (5).
    (2)(i) A Direct Subsidized Loan borrower must demonstrate financial 
need in accordance with title IV, part F of the Act.
    (ii) [Reserved]
    (b) Student PLUS borrower. (1) The student is enrolled, or accepted 
for enrollment, on at least a half-time basis in a school that 
participates in the Direct Loan Program.
    (2) The student meets the requirements for an eligible student under 
34 CFR part 668.
    (3) The student meets the requirements of paragraphs (a)(1)(iv) and 
(a)(1)(v) of this section, if applicable.
    (4) The student has received a determination of his or her annual 
loan maximum eligibility under the Direct Unsubsidized Loan Program and, 
for periods of enrollment beginning before July 1, 2012, the Direct 
Subsidized Loan Program; and
    (5) The student meets the requirements that apply to a parent under 
paragraphs (c)(2)(viii)(A) through (G) of this section.
    (c) Parent PLUS borrower--(1) Definitions. The following definitions 
apply to this paragraph (c):
    (i) Charged off means a debt that a creditor has written off as a 
loss, but that is still subject to collection action.
    (ii) In collection means a debt that has been placed with a 
collection agency by a creditor or that is subject to more intensive 
efforts by a creditor to recover amounts owed from a borrower who has 
not responded satisfactorily to the demands routinely made as part of 
the creditor's billing procedures.
    (2) Eligibility. A parent is eligible to receive a Direct PLUS Loan 
if the parent meets the following requirements:
    (i) The parent is borrowing to pay for the educational costs of a 
dependent undergraduate student who meets the requirements for an 
eligible student under 34 CFR part 668.

[[Page 233]]

    (ii) The parent provides his or her and the student's social 
security number.
    (iii) The parent meets the requirements pertaining to citizenship 
and residency that apply to the student under 34 CFR 668.33.
    (iv) The parent meets the requirements concerning defaults and 
overpayments that apply to the student in 34 CFR 668.32(g).
    (v) The parent complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student under 34 CFR 
part 668, except for the completion of a Statement of Selective Service 
Registration Status.
    (vi) The parent meets the requirements that apply to a student under 
paragraph (a)(1)(iv) of this section.
    (vii) The parent has completed repayment of any title IV, HEA 
program assistance obtained by fraud, if the parent has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining title IV, HEA program assistance.
    (viii)(A) The parent--
    (1) Does not have an adverse credit history;
    (2) Has an adverse credit history, but has obtained an endorser who 
does not have an adverse credit history, and completes PLUS loan 
counseling offered by the Secretary; or
    (3) Has an adverse credit history but documents to the satisfaction 
of the Secretary that extenuating circumstances exist and completes PLUS 
loan counseling offered by the Secretary.
    (B) For purposes of this paragraph (c), an adverse credit history 
means that the parent--
    (1) Has one or more debts with a total combined outstanding balance 
greater than $2,085, as may be adjusted by the Secretary in accordance 
with paragraphs (c)(2)(viii)(C) and (D) of this section, that are 90 or 
more days delinquent as of the date of the credit report, or that have 
been placed in collection or charged off, as defined in paragraph (c)(1) 
of this section, during the two years preceding the date of the credit 
report; or
    (2) Has been the subject of a default determination, bankruptcy 
discharge, foreclosure, repossession, tax lien, wage garnishment, or 
write-off of a debt under title IV of the Act during the five years 
preceding the date of the credit report.
    (C) The Secretary increases the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section, or its inflation-adjusted 
equivalent, when the Secretary determines that an inflation adjustment 
to that amount would result in an increase of $100 or more.
    (D) In making the inflation adjustment described in paragraph 
(c)(2)(viii)(C) of this section, the Secretary:
    (1) Uses the annual average percent change of the All Items Consumer 
Price Index for All Urban Consumers (CPI-U), before seasonal adjustment, 
as the measurement of inflation; and
    (2) If the adjustment calculated under paragraph (c)(2)(viii)(D)(1) 
of this section is equal to or greater than $100, adding the adjustment 
to $2,085 threshold amount, or its inflation-adjusted equivalent, and 
rounding up to the nearest $5.
    (E) The Secretary will publish a notice in the Federal Register 
announcing any increase to the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section.
    (F) For purposes of this paragraph (c), the Secretary does not 
consider the absence of a credit history as an adverse credit history 
and does not deny a Direct PLUS loan on that basis.
    (G) For purposes of this paragraph (c), the Secretary may determine 
that extenuating circumstances exist based on documentation that may 
include, but is not limited to--
    (1) An updated credit report for the parent; or
    (2) A statement from the creditor that the parent has repaid or made 
satisfactory arrangements to repay a debt that was considered in 
determining that the parent has an adverse credit history.
    (3) For purposes of paragraph (c)(2) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would

[[Page 234]]

have been taken into account when calculating a dependent student's 
expected family contribution.
    (d) Defaulted Perkins, FFEL, and Direct Loan program borrowers. 
Except as noted in Sec.  685.220(d)(1)(ii)(A)(3), in the case of a 
student or parent borrower who is currently in default on a Perkins, 
FFEL, or Direct Loan program loan, the borrower must make satisfactory 
repayment arrangements, as described in paragraph (1) of the definition 
of that term under Sec.  685.102(b), on the defaulted loan.
    (e) Use of loan proceeds to replace expected family contribution. 
The amount of a Direct Unsubsidized Loan, a Direct PLUS loan, or a non-
federal non-need based loan, including a private, state-sponsored, or 
institution loan, obtained for a loan period may be used to replace the 
expected family contribution for that loan period.

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 61816, Dec. 1, 1995; 61 
FR 29900, June 12, 1996; 65 FR 65629, 65693, Nov. 1, 2000; 66 FR 34765, 
June 29, 2001; 66 FR 44007, Aug. 21, 2001; 68 FR 75430, Dec. 31, 2003; 
71 FR 45710, Aug. 9, 2006; 71 FR 64399, Nov. 1, 2006; 74 FR 56001, Oct. 
29, 2009; 77 FR 66135, Nov. 1, 2012; 78 FR 28984, May 16, 2013; 79 FR 
3120, Jan. 17, 2014; 78 FR 65824, Nov. 1, 2013; 79 FR 63331, Oct. 23, 
2014; 81 FR 76080, Nov. 1, 2016; 85 FR 49821, Aug. 14, 2020; 86 FR 
31438, June 14, 2021]



Sec.  685.201  Obtaining a loan.

    (a) Application for a Direct Subsidized Loan or a Direct 
Unsubsidized Loan. (1) To obtain a Direct Subsidized Loan or a Direct 
Unsubsidized Loan, a student must complete a Free Application for 
Federal Student Aid and submit it in accordance with instructions in the 
application.
    (2) If the student is eligible for a Direct Subsidized Loan or a 
Direct Unsubsidized Loan, the school in which the student is enrolled 
must perform the following functions:
    (i) Create a loan origination record and transmit the record to the 
Secretary.
    (ii) Ensure that the loan is supported by a completed Master 
Promissory Note (MPN) and, if applicable, transmit the MPN to the 
Secretary.
    (iii) In accordance with 34 CFR 668.162, draw down funds or receive 
funds from the Secretary, and disburse the funds to the student.
    (b) Application for a Direct PLUS Loan. (1) For a parent to obtain a 
Direct PLUS Loan, the parent must complete the Direct PLUS Loan MPN and 
the dependent student on whose behalf the parent is borrowing must 
complete a Free Application for Federal Student Aid and submit it in 
accordance with instructions in the application.
    (2) For a graduate or professional student to apply for a Direct 
PLUS Loan, the student must complete a Free Application for Federal 
Student Aid and submit it in accordance with instructions in the 
application. The graduate or professional student must also complete the 
Direct PLUS Loan MPN.
    (3) For either a parent or student PLUS borrower, as applicable, the 
school must complete its portion of the Direct PLUS Loan MPN and, if 
applicable, submit it to the Secretary. The Secretary makes a 
determination as to whether the parent or graduate or professional 
student has an adverse credit history. The school performs the functions 
described in paragraph (a)(2) of this section.
    (c) Application for a Direct Consolidation Loan. (1) To obtain a 
Direct Consolidation Loan, the applicant must complete the application 
and promissory note and submit it to the Secretary. The application and 
promissory note sets forth the terms and conditions of the Direct 
Consolidation Loan and informs the applicant how to contact the 
Secretary. The Secretary answers questions regarding the process of 
applying for a Direct Consolidation Loan and provides information about 
the terms and conditions of both Direct Consolidation Loans and the 
types of loans that may be consolidated.
    (2) Once the applicant has submitted the completed application and 
promissory note to the Secretary, the Secretary makes the Direct 
Consolidation Loan under the procedures specified in Sec.  685.220.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[64 FR 58965, Nov. 1, 1999, as amended at 65 FR 65629, Nov. 1, 2000; 71 
FR 45711, Aug. 9, 2006; 78 FR 65825, Nov. 1, 2013]

[[Page 235]]



Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) Interest--(1) Interest rate for Direct Subsidized Loans and 
Direct Unsubsidized Loans first disbursed before July 1, 1995. During 
all periods, the interest rate during any twelve-month period beginning 
on July 1 and ending on June 30 is determined on the June 1 immediately 
preceding that period. The interest rate is equal to the bond equivalent 
rate of 91-day Treasury bills auctioned at the final auction held prior 
to that June 1 plus 3.1 percentage points, but does not exceed 8.25 
percent.
    (2) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans first disbursed on or after July 1, 1995, and before 
July 1, 1998. (i) During the in-school, grace, and deferment periods. 
The interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 immediately preceding that 
period. The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 2.5 percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 3.1 percentage points, but 
does not exceed 8.25 percent.
    (3) Interest Rate for Direct Subsidized Loans and Direct Subsidized 
Loans first disbursed on or after July 1, 1998, and before July 1, 2006. 
(i) During the in-school, grace, and deferment periods. The interest 
rate during any twelve-month period beginning on July 1 and ending on 
June 30 is determined on the June 1 immediately preceding that period. 
The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 1.7 percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 2.3 percentage points, but 
does not exceed 8.25 percent.
    (4) Interest rate for Direct Subsidized Loans made to undergraduate 
students for which the first disbursement is made on or after July 1, 
2006, and before July 1, 2013. For a loan for which the first 
disbursement is made:
    (i) On or after July 1, 2006, and before July 1, 2008, the interest 
rate is 6.8 percent on the unpaid principal balance of the loan.
    (ii) On or after July 1, 2008, and before July 1, 2009, the interest 
rate is 6 percent on the unpaid principal balance of the loan.
    (iii) On or after July 1, 2009, and before July 1, 2010, the 
interest rate is 5.6 percent on the unpaid principal balance of the 
loan.
    (iv) On or after July 1, 2010, and before July 1, 2011, the interest 
rate is 4.5 percent on the unpaid principal balance of the loan.
    (v) On or after July 1, 2011, and before July 1, 2013, the interest 
rate is 3.4 percent on the unpaid balance of the loan.
    (5) Interest rate for Direct Subsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2006, and before July 1, 2012. The interest rate is 6.8 
percent.
    (6) Interest rate for Direct Unsubsidized Loans first disbursed on 
or after July 1, 2006, and before July 1, 2013. The interest rate is 6.8 
percent.
    (7) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans made to undergraduate students for which the first 
disbursement is made on or after July 1, 2013. The interest rate for 
loans first disbursed during any 12-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 preceding that period and 
is a fixed rate for the life of the loan. The interest rate is the 
lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June

[[Page 236]]

1 preceding the 12-month period, plus 2.05 percentage points, or
    (ii) 8.25 percent.
    (8) Interest rate for Direct Unsubsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2013. The interest rate for loans first disbursed during 
any 12-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period and is a fixed rate for 
the life of the loan. The interest rate is the lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 3.6 percentage points, or
    (ii) 9.5 percent.
    (9) Interest rate for Direct PLUS Loans. (i) Direct PLUS Loans first 
disbursed before July 1, 1998. (A) Interest rates for periods ending 
before July 1, 2001. During all periods, the interest rate during any 
twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period. The interest rate is 
equal to the bond equivalent rate of 52-week Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 9 percent.
    (B) Interest rates for periods beginning on or after July 1, 2001. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 26 
preceding that period. The interest rate is equal to the weekly average 
1-year constant maturity Treasury yield, as published by the Board of 
Governors of the Federal Reserve System, for the last calendar week 
ending on or before that June 26 plus 3.1 percentage points, but does 
not exceed 9 percent.
    (ii) Direct PLUS Loans first disbursed on or after July 1, 1998, and 
before July 1, 2006. During all periods, the interest rate during any 
twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 9 percent.
    (iii) Direct PLUS Loans first disbursed on or after July 1, 2006, 
and before July 1, 2013. The interest rate is 7.9 percent.
    (iv) Direct PLUS Loans first disbursed on or after July 1, 2013. The 
interest rate for loans first disbursed during any 12-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
preceding that period and is a fixed rate for the life of the loan. The 
interest rate is the lesser of--
    (A) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 4.6 percentage points, or
    (B) 10.5 percent.
    (10) Interest rate for Direct Consolidation Loans--(i) Interest rate 
for Direct Subsidized Consolidation Loans and Direct Unsubsidized 
Consolidation Loans. (A) Loans first disbursed before July 1, 1995. The 
interest rate is the rate established for Direct Subsidized Loans and 
Direct Unsubsidized Loans in paragraph (a)(1) of this section.
    (B) Loans first disbursed on or after July 1, 1995, and before July 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(2) of this section.
    (C) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(3) of this section.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.

[[Page 237]]

    (E) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999, and before July 1, 2013. During 
all periods, the interest rate is based on the weighted average of the 
interest rates on the loans being consolidated, rounded to the nearest 
higher one-eighth of one percent, but does not exceed 8.25 percent.
    (F) Loans for which the consolidation application is received by the 
Secretary on or after July 1, 2013. During all periods, the interest 
rate is based on the weighted average of the interest rates on the loans 
being consolidated, rounded to the nearest higher one-eighth of one 
percent.
    (ii) Interest rate for Direct PLUS Consolidation Loans. (A) Loans 
first disbursed before July 1, 1998. The interest rate is the rate 
established for Direct PLUS Loans in paragraph (a)(9)(i) of this 
section.
    (B) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct PLUS Loans 
in paragraph (a)(9)(ii) of this section.
    (C) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999, and before July 1, 2006. During 
all periods, the interest rate is based on the weighted average of the 
interest rates on the loans being consolidated, rounded to the nearest 
higher one-eighth of one percent, but does not exceed 8.25 percent.
    (11) Applicability of the Servicemembers Civil Relief Act (SCRA)(50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(10) of this section, upon the Secretary's receipt of evidence of the 
borrower's military service, the maximum interest rate under 50 U.S.C. 
527, App. section 207(a), on Direct Loan Program loans made prior to the 
borrower entering military service status is six percent while the 
borrower is in military service. For purposes of this paragraph, the 
interest rate includes any other charges or fees applied to the loan. 
For purposes of this paragraph (a)(11), the term ``military service'' 
means--
    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active military 
service, at a school designated as a service school by law or by the 
Secretary of the military department concerned. Such term does not 
include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including service 
under a call to active service, which means service on active duty or 
full-time National Guard duty, authorized by the President or the 
Secretary of Defense for a period of more than 30 consecutive days for 
purposes of responding to a national emergency declared by the President 
and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer of 
the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty on 
account of sickness, wounds, leave, or other lawful cause.
    (b) Capitalization. (1) The Secretary may add unpaid accrued 
interest to the borrower's unpaid principal balance. This increase in 
the principal balance of a loan is called ``capitalization.''
    (2) For a Direct Loan not eligible for interest subsidies during 
periods of deferment, the Secretary capitalizes the unpaid interest that 
has accrued on the loan upon the expiration of the deferment.

[[Page 238]]

    (c) Loan fee for Direct Subsidized, Direct Unsubsidized, and Direct 
PLUS Loans. The Secretary--
    (1)(i) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed prior to February 8, 2006, charges a borrower a loan fee not 
to exceed 4 percent of the principal amount of the loan;
    (ii) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after February 8, 2006, but before July 1, 2007, charges 
a borrower a loan fee not to exceed 3 percent of the principal amount of 
the loan;
    (iii) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2007, but before July 1, 2008, charges a 
borrower a loan fee not to exceed 2.5 percent of the principal amount of 
the loan;
    (iv) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2008, but before July 1, 2009, charges the 
borrower a loan fee not to exceed 2 percent of the principal amount of 
the loan;
    (v) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2009, but before July 1, 2010, charges the 
borrower a loan fee not to exceed 1.5 percent of the principal amount of 
the loan;
    (vi) For a Direct Subsidized or Direct Unsubsidized loan first 
disbursed on or after July 1, 2010, charges the borrower a loan fee not 
to exceed 1 percent of the principal amount of the loan; and
    (vii) Charges a borrower a loan fee of four percent of the principal 
amount of the loan on a Direct PLUS loan.
    (2) Deducts the loan fee from the proceeds of the loan;
    (3) In the case of a loan disbursed in multiple installments, 
deducts a pro rated portion of the fee from each disbursement; and
    (4) Applies to a borrower's loan balance the portion of the loan fee 
previously deducted from the loan that is attributable to any portion of 
the loan that is--
    (i) Repaid or returned within 120 days of disbursement, unless--
    (A) The borrower has no Direct Loans in repayment status and has 
requested, in writing, that the repaid or returned funds be used for a 
different purpose; or
    (B) The borrower has a Direct Loan in repayment status, in which 
case the payment is applied in accordance with Sec.  685.211(a) unless 
the borrower has requested, in writing, that the repaid or returned 
funds be applied as a cancellation of all or part of the loan; or
    (ii) Returned by a school in order to comply with the Act or with 
applicable regulations.
    (d) Late charge. (1) The Secretary may require the borrower to pay a 
late charge of up to six cents for each dollar of each installment or 
portion thereof that is late under the circumstances described in 
paragraph (d)(2) of this section.
    (2) The late charge may be assessed if the borrower fails to pay all 
or a portion of a required installment payment within 30 days after it 
is due.
    (e)(1) Collection charges before default. Notwithstanding any 
provision of State law, the Secretary may require that the borrower or 
any endorser pay costs incurred by the Secretary or the Secretary's 
agents in collecting installments not paid when due. These charges do 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (2) Collection charges after default. If a borrower defaults on a 
Direct Loan, the Secretary assesses collection costs on the basis of 34 
CFR 30.60.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 62 
FR 63434, Nov. 28, 1997; 64 FR 46254, Aug. 24, 1999; 66 FR 34765, June 
29, 2001; 71 FR 45711, Aug. 9, 2006; 72 FR 62009, Nov. 1, 2007; 74 FR 
56001, Oct. 29, 2009; 77 FR 66135, Nov. 1, 2012; 78 FR 28986, May 16, 
2013; 78 FR 65825, Nov. 1, 2013; 80 FR 67238, Oct. 30, 2015; 87 FR 
66055, Nov. 1, 2022]



Sec.  685.203  Loan limits.

    (a) Direct Subsidized Loans. (1) In the case of an undergraduate 
student who has not successfully completed the first year of a program 
of undergraduate education, the total amount the student may borrow for 
any academic year of study under the Direct Subsidized Loan Program may 
not exceed the following:
    (i) $3,500 for a program of study of at least a full academic year 
in length.

[[Page 239]]

    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.000

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.001

    (2) In the case of an undergraduate student who has successfully 
completed the first year of an undergraduate program but has not 
successfully completed the second year of an undergraduate program, the 
total amount the student may borrow for any academic year of study under 
the Direct Subsidized Loan Program may not exceed the following:
    (i) $4,500 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.002

    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Direct Subsidized Loan Program may not exceed 
the following:
    (i) $5,500 for a program of study of at least an academic year in 
length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.003

    (4) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed

[[Page 240]]

the amounts in paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student for periods of 
enrollment beginning before July 1, 2012, the total amount the student 
may borrow for any academic year of study under the Direct Subsidized 
Loan Program may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate, the total 
amount the student may borrow for any academic year of study under the 
Direct Subsidized Loan Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.
    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Direct Subsidized Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Direct Unsubsidized Loans. (1) In the case of a dependent 
undergraduate student, except as provided in paragraph (c)(3) of this 
section, the total amount a student may borrow for any academic year of 
study under the Direct Unsubsidized Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Direct Subsidized Loan Program, plus--
    (i) $2,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is one academic year or more in 
length with less than a full academic year remaining, the amount that is 
the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.004

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--

[[Page 241]]

[GRAPHIC] [TIFF OMITTED] TR01NO13.005

    (2)(i) In the case of an independent undergraduate student or 
certain dependent undergraduate students under the conditions specified 
in paragraph (c)(1)(ii) of this section, except as provided in paragraph 
(c)(3) of this section, the total amount the student may borrow for any 
period of enrollment under the Direct Unsubsidized Loan Program may not 
exceed the amounts determined under paragraph (a) of this section less 
any amount received under the Direct Subsidized Loan Program in 
combination with the amounts determined under paragraph (c) of this 
section.
    (ii) In the case of a graduate or professional student for a period 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed the amount determined under 
paragraph (a)(5) of this section, less any amount received under the 
Direct Subsidized Loan Program.
    (iii) In the case of a graduate or professional student for a period 
of enrollment beginning on or after July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed $8,500.
    (c) Additional eligibility for Direct Unsubsidized Loans. (1)(i) An 
independent undergraduate student, graduate or professional student, and 
certain dependent undergraduate students may borrow amounts under the 
Direct Unsubsidized Loan Program in addition to any amount borrowed 
under paragraph (b) of this section, except as provided in paragraph 
(c)(3) for certain dependent undergraduate students.
    (ii) In order for a dependent undergraduate student to receive this 
additional loan amount, the financial aid administrator must determine 
that the student's parent likely will be precluded by exceptional 
circumstances from borrowing under the Direct PLUS Loan Program and the 
student's family is otherwise unable to provide the student's expected 
family contribution. The financial aid administrator must base the 
determination on a review of the family financial information provided 
by the student and consideration of the student's debt burden and must 
document the determination in the school's file.
    (iii) ``Exceptional circumstances'' under paragraph (c)(1)(ii) of 
this section include but are not limited to circumstances in which the 
student's parent receives only public assistance or disability benefits, 
the parent is incarcerated, the parent has an adverse credit history, or 
the parent's whereabouts are unknown. A parent's refusal to borrow a 
Direct PLUS Loan does not constitute ``exceptional circumstances.''
    (2) The additional amount that a student described in paragraph 
(c)(1)(i) of

[[Page 242]]

this section may borrow under the Direct Unsubsidized Loan Program for 
any academic year of study may not exceed the following:
    (i) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education--
    (A) $6,000 for a program of study of at least a full academic year 
in length.
    (B) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.005

    (C) For a program of study that is less than a full academic year in 
length, an amount that is the same ratio to $6,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.006

    (ii) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education--
    (A) $6,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $6,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.007

    (iii) In the case of a student who has successfully completed the 
second year of a program of undergraduate education but has not 
completed the remainder of the program of study--
    (A) $7,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $7,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.008

    (iv) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or

[[Page 243]]

professional student, the total amount the student may borrow for any 
academic year of study may not exceed the amounts in paragraph 
(c)(2)(iii) of this section.
    (v) In the case of a graduate or professional student, $12,000.
    (vi) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate--
    (A) $6,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (B) $7,000 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.
    (vii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in coursework 
necessary for a professional credential or certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State, $7,000.
    (viii) Except as provided in paragraph (c)(2)(iv) of this section, 
an undergraduate student who is enrolled in a program that is one 
academic year or less in length may not borrow an amount for any 
academic year of study that exceeds the amounts in paragraph (c)(2)(i) 
of this section.
    (ix) Except as provided in paragraph (c)(2)(iv) of this section--
    (A) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph 
(c)(2)(i) of this section.
    (B) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (c)(2)(ii) of this 
section.
    (3) A dependent undergraduate student who qualifies for additional 
Direct Unsubsidized Loan amounts under this section in accordance with 
paragraph (c)(1)(ii) is not eligible to receive the additional Direct 
Unsubsidized Loan amounts provided under paragraph (b)(1)(ii) of this 
section.
    (d) Aggregate limits for subsidized loans. The aggregate unpaid 
principal amount of all Direct Subsidized Loans and Subsidized Federal 
Stafford Loans made to a student but excluding the amount of capitalized 
interest may not exceed the following:
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500 in the case of a graduate or professional student, 
including loans for undergraduate study.
    (e) Aggregate limits for unsubsidized loans. The total amount of 
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, and 
Federal SLS Loans, excluding the amount of capitalized interest, may not 
exceed the following:
    (1) For a dependent undergraduate student, $31,000 minus any Direct 
Subsidized Loan and Subsidized Federal Stafford Loan amounts, unless the 
student qualifies under paragraph (c) of this section for additional 
eligibility or qualified for that additional eligibility under the 
Federal SLS Program.
    (2) For an independent undergraduate or a dependent undergraduate 
who qualifies for additional eligibility under paragraph (c) of this 
section or qualified for this additional eligibility under the Federal 
SLS Program, $57,500 minus any Direct Subsidized Loan and Subsidized 
Federal Stafford Loan amounts.
    (3) For a graduate or professional student, $138,500, including any 
loans for undergraduate study, minus any Direct Subsidized Loan, 
Subsidized Federal Stafford Loan, and Federal SLS Program loan amounts.
    (f) Direct PLUS Loans annual limit. The total amount of all Direct 
PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student, or that a graduate or professional student may 
borrow, for any academic year of study may not exceed the cost of 
attendance minus other estimated financial assistance for the student.

[[Page 244]]

    (g) Direct PLUS Loans aggregate limit. The total amount of all 
Direct PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student, or that a graduate or professional student may 
borrow, for enrollment in an eligible program of study may not exceed 
the student's cost of attendance minus other estimated financial 
assistance for that student for the entire period of enrollment.
    (h) Loan limit period. The annual loan limits apply to an academic 
year, as defined in 34 CFR 668.3.
    (i) Treatment of Direct Consolidation Loans and Federal 
Consolidation Loans. The percentage of the outstanding balance on Direct 
Consolidation Loans or Federal Consolidation Loans counted against a 
borrower's aggregate loan limits is calculated as follows:
    (1) For Direct Subsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Subsidized and 
Subsidized Federal Stafford Loans.
    (2) For Direct Unsubsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Unsubsidized, 
Federal SLS, and Unsubsidized Federal Stafford Loans.
    (j) Maximum loan amounts. In no case may a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan amount exceed the student's estimated 
cost of attendance for the period of enrollment for which the loan is 
intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) In the case of a Direct Subsidized Loan, the borrower's expected 
family contribution for that period.
    (k) Any TEACH Grants that have been converted to Direct Unsubsidized 
Loans are not counted against any annual or aggregate loan limits under 
this section.

(Authority: 20 U.S.C. 1070g, 1087a, et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58966, Nov. 1, 1999; 67 
FR 67081, Nov. 1, 2002; 68 FR 75430, Dec. 31, 2003; 71 FR 45711, Aug. 9, 
2006; 71 FR 64399, Nov. 1, 2006; 73 FR 35495, June 23, 2008; 74 FR 
56001, Oct. 29, 2009; 78 FR 65827, Nov. 1, 2013]



Sec.  685.204  Deferment.

    (a) General. (1) A Direct Subsidized Loan or Direct Subsidized 
Consolidation Loan borrower who meets the requirements described in 
paragraphs (b), (d), (e), (f), (g), (h), (i), or (j) of this section is 
eligible for a deferment during which periodic installments of principal 
and interest need not be paid.
    (2) A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation 
Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who 
meets the requirements described in paragraphs (b) through (j) of this 
section is eligible for a deferment during which periodic installments 
of principal need not be paid but interest does accrue and is 
capitalized or paid by the borrower. At or before the time a deferment 
is granted, the Secretary provides information, including an example, to 
assist the borrower in understanding the impact of capitalization of 
accrued, unpaid interest on the borrower's loan principal and on the 
total amount of interest to be paid over the life of the loan.
    (3) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.
    (4)(i) To receive a deferment, except as provided for in-school 
deferments under paragraphs (b)(2)(ii) through (iv) of this section, the 
borrower must request the deferment and, except as provided in paragraph 
(a)(5)(i) of this section, provide the Secretary with all information 
and documents required to establish eligibility for the deferment.
    (ii) In the case of a military service deferment under paragraph (h) 
of this section, a borrower's representative may request the deferment 
and provide the required information and documents on behalf of the 
borrower. If the Secretary grants a military service deferment based on 
a request from a borrower's representative, the Secretary notifies the 
borrower that the deferment has been granted and that the borrower has 
the option to cancel the deferment and continue to make payments on the 
loan. The Secretary may also notify the borrower's representative of the 
outcome of the deferment request.

[[Page 245]]

    (5)(i) After receiving a borrower's written or verbal request for a 
deferment, the Secretary may grant a graduate fellowship deferment under 
paragraph (d), a rehabilitation training deferment under paragraph (e), 
an unemployment deferment under paragraph (f), an economic hardship 
deferment under paragraph (g), a military service deferment under 
paragraph (h), or a post-active duty student deferment under paragraph 
(i) of this section if the Secretary confirms that the borrower has 
received a deferment on a FFEL Program loan for the same reason and 
during the same time period.
    (ii) The Secretary will grant a deferment based on the information 
obtained under paragraph (a)(5)(i) of this section when determining a 
borrower's eligibility for a deferment, unless the Secretary, as of the 
date of the determination, has information indicating that the borrower 
does not qualify for the deferment. The Secretary will resolve any 
discrepant information before granting a deferment under paragraph 
(a)(5)(i) of this section.
    (iii) If the Secretary grants a deferment under paragraph (a)(5)(i) 
of this section, the Secretary notifies the borrower that the deferment 
has been granted and that the borrower has the option to cancel the 
deferment and continue to make payments on the loan.
    (b) In-school deferment. (1) A Direct Loan borrower is eligible for 
a deferment during any period during which--
    (i) The borrower is carrying at least one-half the normal full-time 
work load for the course of study that the borrower is pursuing, as 
determined by the eligible school the borrower is attending; and
    (ii) The borrower is not serving in a medical internship or 
residency program, except for a residency program in dentistry.
    (2) For the purpose of paragraph (b)(1) of this section, the 
Secretary processes a deferment when--
    (i) The borrower submits a request to the Secretary along with 
documentation verifying the borrower's eligibility;
    (ii) The Secretary receives information from the borrower's school 
indicating that the borrower is eligible to receive a new loan;
    (iii) The Secretary receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower is enrolled on at least a half-time basis; or
    (iv) The Secretary confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested to 
do so by the school the borrower is attending.
    (3)(i) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(2)(ii), (iii), or (iv) of this section, 
the borrower has the option to cancel the deferment and continue to make 
payments on the loan.
    (ii) If the borrower elects to cancel the deferment and continue to 
make payments on the loan, the borrower has the option to make the 
principal and interest payments that were deferred. If the borrower does 
not make the payments, the Secretary applies a deferment for the period 
in which payments were not made and capitalizes the interest.
    (c) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is eligible for a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008 during the six-month period that 
begins on the day after the student ceases to be enrolled on at least a 
half-time basis at an eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower in accordance with Sec.  685.204(b)(2)(ii), 
(iii), or (iv), the deferment period for a Direct PLUS Loan first 
disbursed on or after July 1, 2008 includes the six-month post-
enrollment period described in paragraph (c)(1)(i) of this section.
    (2) A parent Direct PLUS Loan borrower is eligible for a deferment 
on a Direct PLUS Loan first disbursed on or after July 1, 2008--
    (i) Upon the request of the borrower, during the period when the 
student on whose behalf the loan was obtained is

[[Page 246]]

enrolled at an eligible institution on at least a half-time basis; and
    (ii) Upon the request of the borrower, during the six-month period 
that begins on the later of the day after the student on whose behalf 
the loan was obtained ceases to be enrolled on at least a half-time 
basis or, if the parent borrower is also a student, the day after the 
parent borrower ceases to be enrolled on at least a half-time basis.
    (d) Graduate fellowship deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which an authorized 
official of the borrower's graduate fellowship program certifies that 
the borrower is pursuing a course of study pursuant to an eligible 
graduate fellowship program in accordance with paragraph (d)(2) of this 
section.
    (2)(i) To qualify for a deferment under paragraph (d)(1) of this 
section, a borrower must--
    (A) Hold at least a baccalaureate degree conferred by an institution 
of higher education;
    (B) Have been accepted or recommended by an institution of higher 
education for acceptance on a full-time basis into an eligible graduate 
fellowship program, as defined in paragraph (d)(2)(ii) of this section; 
and
    (C) Not be serving in a medical internship or residency program, 
except for a residency program in dentistry.
    (ii) An eligible graduate fellowship program is a fellowship program 
that--
    (A) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (B) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (C) Requires a graduate fellow to submit periodic reports, projects, 
or evidence of the fellow's progress; and
    (D) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) A Direct Loan 
borrower is eligible for a deferment during any period in which an 
authorized official of the borrower's rehabilitation training program 
certifies that the borrower is pursuing an eligible rehabilitation 
training program for individuals with disabilities in accordance with 
paragraph (e)(2) of this section.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Unemployment deferment. (1) A Direct Loan borrower is eligible 
for a deferment during periods that, collectively, do not exceed three 
years in which the borrower is seeking and unable to find full-time 
employment.
    (2) A borrower qualifies for an unemployment deferment by--
    (i) Providing evidence of eligibility for unemployment benefits to 
the Secretary; or

[[Page 247]]

    (ii) Providing to the Secretary a written certification, or an 
equivalent as approved by the Secretary, that--
    (A) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (B) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding six-month 
period to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (f)(2)(ii) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least three months.
    (iv) The initial period of unemployment deferment may be granted for 
a period of unemployment beginning up to six months before the date the 
Secretary receives the borrower's request, and may be granted for up to 
six months after that date.
    (4) The Secretary does not grant an unemployment deferment beyond 
the date that is six months after the date the borrower provides 
evidence of the borrower's eligibility for unemployment insurance 
benefits under paragraph (f)(2)(i) of this section or the date the 
borrower provides the written certification, or an approved equivalent, 
under paragraph (f)(2)(ii) of this section.
    (g) Economic hardship deferment. (1)(i) A Direct Loan borrower is 
eligible for a deferment during periods that, collectively, do not 
exceed three years in which the borrower has experienced or will 
experience an economic hardship in accordance with paragraph (g)(2) of 
this section.
    (ii) An economic hardship deferment is granted for periods of up to 
one year at a time, except that a borrower who receives a deferment 
under paragraph (g)(2)(iv) of this section may receive an economic 
hardship deferment for the lesser of the borrower's full term of service 
in the Peace Corps or the borrower's remaining period of economic 
hardship deferment eligibility under the 3-year maximum.
    (2) A borrower qualifies for an economic hardship deferment if the 
borrower--
    (i) Has been granted an economic hardship deferment under either the 
FFEL or the Federal Perkins Loan programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her Direct Loan;
    (ii) Is receiving payment under a Federal or State public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or State general public assistance;
    (iii) Is working full-time (as defined in paragraph (g)(3)(iii) of 
this section) and has a monthly income (as defined in paragraph 
(g)(3)(iv) of this section) that does not exceed the greater of (as 
calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size (as defined in paragraph 
(g)(3)(v) of this section) as published annually by the Department of 
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower 
is not a resident of a State identified in the poverty guidelines, the 
poverty guideline to be used for the borrower is the poverty guideline 
(for the relevant family size) used for the 48 contiguous States; or
    (iv) Is serving as a volunteer in the Peace Corps.
    (3) The following rules apply to a deferment granted under paragraph 
(g)(2)(iii) of this section:
    (i) For an initial period of deferment, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's monthly 
income.
    (ii) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of

[[Page 248]]

deferment under paragraph (g)(2)(iii) of this section, the Secretary 
requires the borrower to submit evidence showing the amount of the 
borrower's monthly income or a copy of the borrower's most recently 
filed Federal income tax return.
    (iii) A borrower is considered to be working full-time if the 
borrower is expected to be employed for at least three consecutive 
months at 30 hours per week.
    (iv) A borrower's monthly income is the gross amount of income 
received by the borrower from employment and from other sources, or one-
twelfth of the borrower's adjusted gross income, as recorded on the 
borrower's most recently filed Federal income tax return.
    (v) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from the 
borrower. A borrower's family size includes other individuals if, at the 
time the borrower requests the economic hardship deferment, the other 
individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (h) Military service deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency, as defined in paragraph (h)(5) of this section; 
or
    (ii) Performing qualifying National Guard duty during a war or other 
military operation or national emergency, as defined in paragraph (h)(5) 
of this section.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of the service 
described in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
    (3) Without supporting documentation, the military service deferment 
will be granted to an otherwise eligible borrower for a period not to 
exceed the initial 12 months from the date the qualifying eligible 
service began based on a request from the borrower or the borrower's 
representative.
    (4) The provisions of paragraph (h) of this section do not authorize 
the refunding of any payments made by or on behalf of a borrower during 
a period for which the borrower qualified for a military service 
deferment.
    (5) As used in paragraph (h) of this section--
    (i) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (A) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
    (B) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (C) Any other member of an Armed Force on active duty in connection 
with such emergency or subsequent actions or conditions who has been 
assigned to a duty station at a location other than the location at 
which the member is normally assigned;
    (ii) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard on 
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) under a 
call to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days under 32 U.S.C. 
502(f) in connection with a war, other military operation, or national 
emergency declared by the President and supported by Federal funds;
    (iii) Active duty means active duty as defined in 10 U.S.C. 
101(d)(1) except that it does not include active duty for training or 
attendance at a service school;

[[Page 249]]

    (iv) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (v) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (i) Post-active duty student deferment. (1) A Direct Loan borrower 
is eligible for a deferment for 13 months following the conclusion of 
the borrower's active duty military service and any applicable grace 
period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and
    (ii) The borrower was enrolled on at least a half-time basis in a 
program of instruction at an eligible institution at the time, or within 
six months prior to the time, the borrower was called to active duty.
    (2) As used in paragraph (i)(1) of this section, ``active duty'' 
means active duty as defined in 10 U.S.C. 101(d)(1) for at least a 30-
day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard personnel 
based on State statute or policy and the activities of the National 
Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the U.S. 
Secretary of Defense, to order a member to State active duty and the 
activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed in 
such a position is reassigned to active duty under paragraph (i)(2)(i) 
of this section or full-time National Guard duty under paragraph 
(i)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status on at least a 
half-time basis during the grace period or the 13-month deferment 
period, the deferment expires at the time the borrower returns to 
enrolled student status on at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (j) Additional deferments for Direct Loan borrowers with FFEL 
Program loans made before July 1, 1993. If, at the time of application 
for a borrower's first Direct Loan, a borrower has an outstanding 
balance of principal or interest owing on any FFEL Program loan that was 
made, insured, or guaranteed prior to July 1, 1993, the borrower is 
eligible for a deferment during--
    (1) The periods described in paragraphs (b) through (i) of this 
section; and
    (2) The periods described in 34 CFR 682.210(b), including those 
periods that apply to a ``new borrower'' as that term is defined in 34 
CFR 682.210(b)(7).

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[78 FR 65829, Nov. 1, 2013]



Sec.  685.205  Forbearance.

    (a) General. ``Forbearance'' means permitting the temporary 
cessation of payments, allowing an extension of time for making 
payments, or temporarily accepting smaller payments than previously 
scheduled. The borrower has the option to choose the form of 
forbearance. Except as provided in paragraph (b)(9) of this section, if 
payments of interest are forborne, they are capitalized. The Secretary 
grants forbearance if the borrower or endorser intends to repay the loan 
but requests forbearance and provides sufficient documentation to 
support this request, and--
    (1) The Secretary determines that, due to poor health or other 
acceptable reasons, the borrower or endorser is currently unable to make 
scheduled payments;
    (2) The borrower's payments of principal are deferred under Sec.  
685.204 and

[[Page 250]]

the Secretary does not subsidize the interest benefits on behalf of the 
borrower;
    (3) The borrower is in a medical or dental internship or residency 
that must be successfully completed before the borrower may begin 
professional practice or service, or the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training;
    (4) The borrower is serving in a national service position for which 
the borrower is receiving a national service education award under title 
I of the National and Community Service Act of 1990;
    (5)(i) The borrower is performing the type of service that would 
qualify the borrower for loan forgiveness under the requirements of the 
teacher loan forgiveness program in Sec.  685.217.
    (ii) Before a forbearance is granted under Sec.  685.205(a)(5)(i), 
the borrower must--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and ending dates that the borrower is 
expected to perform, for that year, the type of service described in 
Sec.  685.217(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec.  685.217(c).
    (iii) The Secretary grants forbearance under paragraph (a)(5) of 
this section only if the Secretary believes, at the time of the 
borrower's annual request, that the expected forgiveness amount under 
Sec.  685.217(d) will satisfy the anticipated remaining outstanding 
balance on the borrower's loan at the time of the expected forgiveness;
    (6) For not more than three years during which the borrower or 
endorser--
    (i) Is currently obligated to make payments on loans under title IV 
of the Act; and
    (ii) The sum of these payments each month (or a proportional share 
if the payments are due less frequently than monthly) is equal to or 
greater than 20 percent of the borrower's or endorser's total monthly 
gross income.
    (7) The borrower is a member of the National Guard who qualifies for 
a post-active duty student deferment, but does not qualify for a 
military service or other deferment, and is engaged in active State duty 
for a period of more than 30 consecutive days, beginning--
    (i) On the day after the grace period expires for a Direct 
Subsidized Loan or Direct Unsubsidized Loan that has not entered 
repayment; or
    (ii) On the day after the borrower ceases enrollment on at least a 
half-time basis, for a Direct Loan in repayment.
    (8)(i) The Secretary may grant a forbearance to permit a borrower or 
endorser to resume honoring the agreement to repay the debt after 
default. The terms of the forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser or a written or oral affirmation of the borrower's or 
endorser's obligation to repay the debt.
    (ii) If the forbearance is based on the borrower's or endorser's 
oral affirmation of the obligation to repay the debt, the forbearance 
period is limited to 120 days, such a forbearance is not granted 
consecutively, and the Secretary will--
    (A) Orally review with the borrower the terms and conditions of the 
forbearance, including the consequences of interest capitalization, and 
all other repayment options available to the borrower;
    (B) Send a notice to the borrower or endorser that confirms the 
terms of the forbearance and the borrower's or endorser's affirmation of 
the obligation to repay the debt and that includes information on all 
other repayment options available to the borrower; and
    (C) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (iii) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (A) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;

[[Page 251]]

    (B) Oral acknowledgement and agreement to repay the debt documented 
by the Secretary in the borrower's or endorser's file and confirmed by 
the Secretary in a notice to the borrower; or
    (C) A payment made on the loan by the borrower or endorser.
    (9)(i) The borrower is performing the type of service that would 
qualify the borrower for a partial repayment of his or her loan under 
the Student Loan Repayment Programs administered by the Department of 
Defense under 10 U.S.C. 2171, 2173, 2174, or any other student loan 
repayment programs administered by the Department of Defense.
    (ii) To receive a forbearance under this paragraph, the borrower 
must submit documentation showing the time period during which the 
Department of Defense considers the borrower to be eligible for a 
partial repayment of his or her loan under a student loan repayment 
program.
    (b) Administrative forbearance. In certain circumstances, the 
Secretary grants forbearance without requiring documentation from the 
borrower. These circumstances include but are not limited to--
    (1) A properly granted period of deferment for which the Secretary 
learns the borrower did not qualify;
    (2) The period for which payments are overdue at the beginning of an 
authorized deferment or forbearance period;
    (3) The period beginning when the borrower entered repayment without 
the Secretary's knowledge until the first payment due date was 
established;
    (4) The period prior to a borrower's filing of a bankruptcy 
petition;
    (5) A period after the Secretary receives reliable information 
indicating that the borrower (or the student in the case of a Direct 
PLUS Loan obtained by a parent borrower) has died, or the borrower has 
become totally and permanently disabled, until the Secretary receives 
documentation of death or total and permanent disability;
    (6) Periods necessary for the Secretary to determine the borrower's 
eligibility for discharge--
    (i) Under Sec.  685.206(c) through (e);
    (ii) Under Sec.  685.214;
    (iii) Under Sec.  685.215;
    (iv) Under Sec.  685.216;
    (v) Under Sec.  685.217;
    (vi) Under Sec.  685.222;
    (vii) Under subpart D of this part; or
    (viii) Due to the borrower's or endorser's (if applicable) 
bankruptcy;
    (7) A period of up to three years in cases where the effect of a 
variable interest rate on a fixed-amount or graduated repayment schedule 
causes the extension of the maximum repayment term;
    (8) A period during which the Secretary has authorized forbearance 
due to a national military mobilization or other local or national 
emergency;
    (9) A period of up to 60 days necessary for the Secretary to collect 
and process documentation supporting the borrower's request for a 
deferment, forbearance, change in repayment plan, or consolidation loan. 
Interest that accrues during this period is not capitalized; or
    (10) For Direct PLUS Loans first disbursed before July 1, 2008, to 
align repayment with a borrower's Direct PLUS Loans that were first 
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 
Direct Unsubsidized Loans that have a grace period in accordance with 
Sec.  685.207(b) or (c). The Secretary notifies the borrower that the 
borrower has the option to cancel the forbearance and continue paying on 
the loan.
    (c) Period of forbearance. (1) The Secretary grants forbearance for 
a period of up to one year.
    (2) The forbearance is renewable, upon request of the borrower, for 
the duration of the period in which the borrower meets the condition 
required for the forbearance.

(Approved by the Office of Management and Budget under control number 
1845-0021)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 64 
FR 58968, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 
2001; 68 FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 73 FR 
63255, Oct. 23, 2008; 74 FR 56003, Oct. 29, 2010; 78 FR 65832, Nov. 1, 
2013; 81 FR 76080, Nov. 1, 2016; 84 FR 49926, Sept. 23, 2019; 87 FR 
66055, Nov. 1, 2022]



Sec.  685.206  Borrower responsibilities and defenses.

    (a) The borrower must give the school the following information as

[[Page 252]]

part of the origination process for a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan:
    (1) A statement, as described in 34 CFR part 668, that the loan will 
be used for the cost of the student's attendance.
    (2) Information demonstrating that the borrower is eligible for the 
loan.
    (3) Information concerning the outstanding FFEL Program and Direct 
Loan Program loans of the borrower and, for a parent borrower, of the 
student, including any Federal Consolidation Loan or Direct 
Consolidation Loan.
    (4) A statement authorizing the school to release to the Secretary 
information relevant to the student's eligibility to borrow or to have a 
parent borrow on the student's behalf (e.g., the student's enrollment 
status, financial assistance, and employment records).
    (b)(1) The borrower must promptly notify the Secretary of any change 
of name, address, student status to less than half-time, employer, or 
employer's address; and
    (2) The borrower must promptly notify the school of any change in 
address during enrollment.
    (c) Borrower defense to repayment for loans first disbursed prior to 
July 1, 2017. (1) For loans first disbursed prior to July 1, 2017, the 
borrower may assert a borrower defense under this paragraph. A 
``borrower defense'' refers to any act or omission of the school 
attended by the student that relates to the making of the loan for 
enrollment at the school or the provision of educational services for 
which the loan was provided that would give rise to a cause of action 
against the school under applicable State law, and includes one or both 
of the following:
    (i) A defense to repayment of amounts owed to the Secretary on a 
Direct Loan, in whole or in part.
    (ii) A claim to recover amounts previously collected by the 
Secretary on the Direct Loan, in whole or in part.
    (2) The order of objections for defaulted Direct Loans are as 
described in Sec.  685.222(a)(6). A borrower defense claim under this 
section must be asserted, and will be resolved, under the procedures in 
Sec.  685.222(e) to (k).
    (3) For an approved borrower defense under this section, except as 
provided in paragraph (c)(4) of this section, the Secretary may initiate 
an appropriate proceeding to collect from the school whose act or 
omission resulted in the borrower defense the amount of relief arising 
from the borrower defense, within the later of--
    (i) Three years from the end of the last award year in which the 
student attended the institution; or
    (ii) The limitation period that State law would apply to an action 
by the borrower to recover on the cause of action on which the borrower 
defense is based.
    (4) The Secretary may initiate a proceeding to collect at any time 
if the institution received notice of the claim before the end of the 
later of the periods described in paragraph (c)(3) of this section. For 
purposes of this paragraph, notice includes receipt of--
    (i) Actual notice from the borrower, from a representative of the 
borrower, or from the Department;
    (ii) A class action complaint asserting relief for a class that may 
include the borrower; and
    (iii) Written notice, including a civil investigative demand or 
other written demand for information, from a Federal or State agency 
that has power to initiate an investigation into conduct of the school 
relating to specific programs, periods, or practices that may have 
affected the borrower.
    (d) Borrower defense to repayment for loans first disbursed on or 
after July 1, 2017, and before July 1, 2020. For borrower defense to 
repayment for loans first disbursed on or after July 1, 2017, and before 
July 1, 2020, a borrower asserts and the Secretary considers a borrower 
defense in accordance with Sec.  685.222.
    (e) Borrower defense to repayment for loans first disbursed on or 
after July 1, 2020, and before July 1, 2023. This paragraph (e) applies 
to borrower defense to repayment for loans first disbursed on or after 
July 1, 2020, and before July 1, 2023.
    (1) Definitions. For the purposes of this paragraph (e), the 
following definitions apply:
    (i) A ``Direct Loan'' under this paragraph (e) means a Direct 
Subsidized

[[Page 253]]

Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan.
    (ii) ``Borrower'' means:
    (A) The borrower; and
    (B) In the case of a Direct PLUS Loan, any endorsers, and for a 
Direct PLUS Loan made to a parent, the student on whose behalf the 
parent borrowed.
    (iii) A ``borrower defense to repayment'' under this paragraph (e) 
includes--
    (A) A defense to repayment of amounts owed to the Secretary on a 
Direct Loan, or a Direct Consolidation Loan that was used to repay a 
Direct Loan, FFEL Program Loan, Federal Perkins Loan, Health Professions 
Student Loan, Loan for Disadvantaged Students under subpart II of part A 
of title VII of the Public Health Service Act, Health Education 
Assistance Loan, or Nursing Loan made under part E of the Public Health 
Service Act; and
    (B) Any accompanying request for reimbursement of payments 
previously made to the Secretary on the Direct Loan or on a loan repaid 
by the Direct Consolidation Loan.
    (iv) The term ``provision of educational services'' under this 
paragraph (e) refers to the educational resources provided by the 
institution that are required by an accreditation agency or a State 
licensing or authorizing agency for the completion of the student's 
educational program.
    (v) The terms ``school'' and ``institution'' under this paragraph 
(e) may be used interchangeably and include an eligible institution, one 
of its representatives, or any ineligible institution, organization, or 
person with whom the eligible institution has an agreement to provide 
educational programs, or to provide marketing, advertising, recruiting, 
or admissions services.
    (2) Federal standard for loans first disbursed on or after July 1, 
2020, and before July 1, 2023. For a Direct Loan or Direct Consolidation 
Loan first disbursed on or after July 1, 2020, and before July 1, 2023, 
a borrower may assert a defense to repayment under this paragraph (e), 
if the borrower establishes by a preponderance of the evidence that--
    (i) The institution at which the borrower enrolled made a 
misrepresentation, as defined in Sec.  685.206(e)(3), of material fact 
upon which the borrower reasonably relied in deciding to obtain a Direct 
Loan, or a loan repaid by a Direct Consolidation Loan, and that directly 
and clearly relates to:
    (A) Enrollment or continuing enrollment at the institution or
    (B) The provision of educational services for which the loan was 
made; and
    (ii) The borrower was financially harmed by the misrepresentation.
    (3) Misrepresentation. A ``misrepresentation,'' for purposes of this 
paragraph (e), is a statement, act, or omission by an eligible school to 
a borrower that is false, misleading, or deceptive; that was made with 
knowledge of its false, misleading, or deceptive nature or with a 
reckless disregard for the truth; and that directly and clearly relates 
to enrollment or continuing enrollment at the institution or the 
provision of educational services for which the loan was made. Evidence 
that a misrepresentation defined in this paragraph (e) may have occurred 
includes, but is not limited to:
    (i) Actual licensure passage rates materially different from those 
included in the institution's marketing materials, website, or other 
communications made to the student;
    (ii) Actual employment rates materially different from those 
included in the institution's marketing materials, website, or other 
communications made to the student;
    (iii) Actual institutional selectivity rates or rankings, student 
admission profiles, or institutional rankings that are materially 
different from those included in the institution's marketing materials, 
website, or other communications made to the student or provided by the 
institution to national ranking organizations;
    (iv) The inclusion in the institution's marketing materials, 
website, or other communication made to the student of specialized, 
programmatic, or institutional certifications, accreditation, or 
approvals not actually obtained, or the failure to remove within a 
reasonable period of time such certifications or approvals from 
marketing materials, website, or other communication when revoked or 
withdrawn;

[[Page 254]]

    (v) The inclusion in the institution's marketing materials, website, 
or other communication made to the student of representations regarding 
the widespread or general transferability of credits that are only 
transferrable to limited types of programs or institutions or the 
transferability of credits to a specific program or institution when no 
reciprocal agreement exists with another institution, or such agreement 
is materially different than what was represented;
    (vi) A representation regarding the employability or specific 
earnings of graduates without an agreement between the institution and 
another entity for such employment data, or sufficient evidence of past 
employment or earnings to justify such a representation, or without 
citing appropriate national, State, or regional data for earnings in the 
same field as provided by an appropriate Federal agency that provides 
such data. (In the event that national data are used, institutions 
should include a written, plain language disclaimer that national 
averages may not accurately reflect the earnings of workers in 
particular parts of the country and may include earners at all stages of 
their career and not just entry level wages for recent graduates.);
    (vii) A representation regarding the availability, amount, or nature 
of any financial assistance available to students from the institution 
or any other entity to pay the costs of attendance at the institution 
that is materially different in availability, amount, or nature from the 
actual financial assistance available to the borrower from the 
institution or any other entity to pay the costs of attendance at the 
institution after enrollment;
    (viii) A representation regarding the amount, method, or timing of 
payment of tuition and fees that the student would be charged for the 
program that is materially different in amount, method, or timing of 
payment from the actual tuition and fees charged to the student;
    (ix) A representation that the institution, its courses, or programs 
are endorsed by vocational counselors, high schools, colleges, 
educational organizations, employment agencies, members of a particular 
industry, students, former students, governmental officials, Federal or 
State agencies, the United States Armed Forces, or other individuals or 
entities when the institution has no permission or is not otherwise 
authorized to make or use such an endorsement;
    (x) A representation regarding the educational resources provided by 
the institution that are required for the completion of the student's 
educational program that are materially different from the institution's 
actual circumstances at the time the representation is made, such as 
representations regarding the institution's size; location; facilities; 
training equipment; or the number, availability, or qualifications of 
its personnel; and
    (xi) A representation regarding the nature or extent of 
prerequisites for enrollment in a course or program offered by the 
institution that are materially different from the institution's actual 
circumstances at the time the representation is made, or that the 
institution knows will be materially different during the student's 
anticipated enrollment at the institution.
    (4) Financial harm. Under this paragraph (e), financial harm is the 
amount of monetary loss that a borrower incurs as a consequence of a 
misrepresentation, as defined in paragraph (e)(3) of this section. 
Financial harm does not include damages for nonmonetary loss, such as 
personal injury, inconvenience, aggravation, emotional distress, pain 
and suffering, punitive damages, or opportunity costs. The Department 
does not consider the act of taking out a Direct Loan or a loan repaid 
by a Direct Consolidation Loan, alone, as evidence of financial harm to 
the borrower. Financial harm is such monetary loss that is not 
predominantly due to intervening local, regional, or national economic 
or labor market conditions as demonstrated by evidence before the 
Secretary or provided to the Secretary by the borrower or the school. 
Financial harm cannot arise from the borrower's voluntary decision to 
pursue less than full-time work or not to work or result from a 
voluntary change in occupation. Evidence of financial harm may include, 
but is not limited to, the following circumstances:

[[Page 255]]

    (i) Periods of unemployment upon graduating from the school's 
programs that are unrelated to national or local economic recessions;
    (ii) A significant difference between the amount or nature of the 
tuition and fees that the institution represented to the borrower that 
the institution would charge or was charging, and the actual amount or 
nature of the tuition and fees charged by the institution for which the 
Direct Loan was disbursed or for which a loan repaid by the Direct 
Consolidation Loan was disbursed;
    (iii) The borrower's inability to secure employment in the field of 
study for which the institution expressly guaranteed employment; and
    (iv) The borrower's inability to complete the program because the 
institution no longer offers a requirement necessary for completion of 
the program in which the borrower enrolled and the institution did not 
provide for an acceptable alternative requirement to enable completion 
of the program.
    (5) Exclusions. The Secretary will not accept the following as a 
basis for a borrower defense to repayment under this paragraph (e)--
    (i) A violation by the institution of a requirement of the Act or 
the Department's regulations for a borrower defense to repayment under 
paragraph (c) or (d) of this section or under Sec.  685.222, unless the 
violation would otherwise constitute the basis for a successful borrower 
defense to repayment under this paragraph (e); or
    (ii) A claim that does not directly and clearly relate to enrollment 
or continuing enrollment at the institution or the provision of 
educational services for which the loan was made, including, but not 
limited to--
    (A) Personal injury;
    (B) Sexual harassment;
    (C) A violation of civil rights;
    (D) Slander or defamation;
    (E) Property damage;
    (F) The general quality of the student's education or the 
reasonableness of an educator's conduct in providing educational 
services;
    (G) Informal communication from other students;
    (H) Academic disputes and disciplinary matters; and
    (I) Breach of contract unless the school's act or omission would 
otherwise constitute the basis for a successful defense to repayment 
under this paragraph (e).
    (6) Limitations period. A borrower must assert a defense to 
repayment under this paragraph (e) within 3 years from the date the 
student is no longer enrolled at the institution. A borrower may only 
assert a defense to repayment under this paragraph (e) within the 
timeframes set forth in this paragraph (e)(6) and paragraph (e)(7) of 
this section.
    (7) Extension of limitation periods and reopening of applications. 
For loans first disbursed on or after July 1, 2020, and before July 1, 
2023, the Secretary may extend the time period when a borrower may 
assert a defense to repayment under Sec.  685.206(e)(6) or may reopen a 
borrower's defense to repayment application to consider evidence that 
was not previously considered only if there is:
    (i) A final, non-default judgment on the merits by a State or 
Federal Court that has not been appealed or that is not subject to 
further appeal and that establishes the institution made a 
misrepresentation, as defined in paragraph (e)(3) of this section; or
    (ii) A final decision by a duly appointed arbitrator or arbitration 
panel that establishes that the institution made a misrepresentation, as 
defined in paragraph (e)(3) of this section.
    (8) Application and forbearance. To assert a defense to repayment 
under this paragraph (e), a borrower must submit an application under 
penalty of perjury on a form approved by the Secretary and sign a waiver 
permitting the institution to provide the Department with items from the 
borrower's education record relevant to the defense to repayment claim. 
The form will note that pursuant to Sec.  685.205(b)(6)(i), if the 
borrower is not in default on the loan for which a borrower defense has 
been asserted, the Secretary will grant forbearance and notify the 
borrower of the option to decline forbearance. The application requires 
the borrower to--
    (i) Certify that the borrower received the proceeds of a loan, in 
whole or in part, to attend the named institution;

[[Page 256]]

    (ii) Provide evidence that supports the borrower defense to 
repayment application;
    (iii) State whether the borrower has made a claim with any other 
third party, such as the holder of a performance bond, a public fund, or 
a tuition recovery program, based on the same act or omission of the 
institution on which the borrower defense to repayment is based;
    (iv) State the amount of any payment received by the borrower or 
credited to the borrower's loan obligation through the third party, in 
connection with a borrower defense to repayment described in paragraph 
(e)(2) of this section;
    (v) State the financial harm, as defined in paragraph (e)(4) of this 
section, that the borrower alleges to have been caused and provide any 
information relevant to assessing whether the borrower incurred 
financial harm, including providing documentation that the borrower 
actively pursued employment in the field for which the borrower's 
education prepared the borrower if the borrower is a recent graduate 
(failure to provide such information results in a presumption that the 
borrower failed to actively pursue employment in the field); whether the 
borrower was terminated or removed for performance reasons from a 
position in the field for which the borrower's education prepared the 
borrower, or in a related field; and whether the borrower failed to meet 
other requirements of or qualifications for employment in such field for 
reasons unrelated to the school's misrepresentation underlying the 
borrower defense to repayment, such as the borrower's ability to pass a 
drug test, satisfy driving record requirements, and meet any health 
qualifications; and
    (vi) State that the borrower understands that in the event that the 
borrower receives a 100 percent discharge of the balance of the loan for 
which the defense to repayment application has been submitted, the 
institution may, if allowed or not prohibited by other applicable law, 
refuse to verify or to provide an official transcript that verifies the 
borrower's completion of credits or a credential associated with the 
discharged loan.
    (9) Consideration of order of objections and of evidence in 
possession of the Secretary under this paragraph (e). (i) If the 
borrower asserts both a borrower defense to repayment and any other 
objection to an action of the Secretary with regard to a Direct Loan or 
a loan repaid by a Direct Consolidation Loan under this paragraph (e), 
the order in which the Secretary will consider objections, including a 
borrower defense to repayment under this paragraph (e), will be 
determined as appropriate under the circumstances.
    (ii) With respect to the borrower defense to repayment application 
submitted under this paragraph (e), the Secretary may consider evidence 
otherwise in the possession of the Secretary, including from the 
Department's internal records or other relevant evidence obtained by the 
Secretary, as practicable, provided that the Secretary permits the 
institution and the borrower to review and respond to this evidence and 
to submit additional evidence.
    (10) School response and borrower reply under this paragraph (e). 
(i) Upon receipt of a borrower defense to repayment application under 
this paragraph (e), the Department will notify the school of the pending 
application and provide a copy of the borrower's request and any 
supporting documents, a copy of any evidence otherwise in the possession 
of the Secretary, and a waiver signed by the student permitting the 
institution to provide the Department with items from the student's 
education record relevant to the defense to repayment claim to the 
school, and invite the school to respond and to submit evidence, within 
the specified timeframe included in the notice, which will be no less 
than 60 days.
    (ii) Upon receipt of the school's response, the Department will 
provide the borrower a copy of the school's submission as well as any 
evidence otherwise in possession of the Secretary, which was provided to 
the school, and will give the borrower an opportunity to submit a reply 
within a specified timeframe, which will be no less than 60 days. The 
borrower's reply must be limited to issues and evidence raised in

[[Page 257]]

the school's submission and any evidence otherwise in the possession of 
the Secretary.
    (iii) The Department will provide the school a copy of the 
borrower's reply.
    (iv) There will be no other submissions by the borrower or the 
school to the Secretary unless the Secretary requests further clarifying 
information.
    (11) Written decision under this paragraph (e). (i) After 
considering the borrower's application and all applicable evidence under 
this paragraph (e), the Secretary issues a written decision--
    (A) Notifying the borrower and the school of the decision on the 
borrower defense to repayment under this paragraph (e);
    (B) Providing the reasons for the decision; and
    (C) Informing the borrower and the school of the relief, if any, 
that the borrower will receive, consistent with paragraph (e)(12) of 
this section and specifying the relief determination.
    (ii) If the Department receives a borrower defense to repayment 
application that is incomplete and is within the limitations period in 
paragraph (e)(6) or (7) of this section, the Department will not issue a 
written decision on the application and instead will notify the borrower 
in writing that the application is incomplete and will return the 
application to the borrower.
    (12) Borrower defense to repayment relief under this paragraph (e). 
(i) If the Secretary grants the borrower's request for relief based on a 
borrower defense to repayment under this paragraph (e), the Secretary 
notifies the borrower and the school that the borrower is relieved of 
the obligation to repay all or part of the loan and associated costs and 
fees that the borrower would otherwise be obligated to pay or will be 
reimbursed for amounts paid toward the loan voluntarily or through 
enforced collection. The amount of relief that a borrower receives under 
this paragraph (e) may exceed the amount of financial harm, as defined 
in paragraph (e)(4) of this section, that the borrower alleges in the 
application pursuant to paragraph (e)(8)(v) of this section. The 
Secretary determines the amount of relief and awards relief limited to 
the monetary loss that a borrower incurred as a consequence of a 
misrepresentation, as defined in paragraph (e)(3) of this section. The 
amount of relief cannot exceed the amount of the loan and any associated 
costs and fees and will be reduced by the amount of refund, 
reimbursement, indemnification, restitution, compensatory damages, 
settlement, debt forgiveness, discharge, cancellation, compromise, or 
any other financial benefit received by, or on behalf of, the borrower 
that was related to the borrower defense to repayment under this 
paragraph (e). In awarding relief under this paragraph (e), the 
Secretary considers the borrower's application, as described in 
paragraph (e)(8) of this section, which includes information about any 
payments received by the borrower and the financial harm alleged by the 
borrower. In awarding relief under this paragraph (e), the Secretary 
also considers the school's response, the borrower's reply, and any 
evidence otherwise in the possession of the Secretary, which was 
previously provided to the borrower and the school, as described in 
paragraph (e)(10) of this section. The Secretary also updates reports to 
consumer reporting agencies to which the Secretary previously made 
adverse credit reports with regard to the borrower's Direct Loan or 
loans repaid by the borrower's Direct Consolidation Loan under this 
paragraph (e).
    (ii) The Secretary affords the borrower such further relief as the 
Secretary determines is appropriate under the circumstances. Further 
relief may include determining that the borrower is not in default on 
the loan and is eligible to receive assistance under title IV of the 
Act.
    (13) Finality of borrower defense to repayment decisions under this 
paragraph (e). The determination of a borrower's defense to repayment by 
the Department included in the written decision referenced in paragraph 
(e)(11) of this section is the final decision of the Department and is 
not subject to appeal within the Department.
    (14) Cooperation by the borrower under this paragraph (e). The 
Secretary may revoke any relief granted to a borrower under this section 
who refuses to cooperate with the Secretary in any proceeding under this 
paragraph (e) or

[[Page 258]]

under part 668, subpart G. Such cooperation includes, but is not limited 
to--
    (i) Providing testimony regarding any representation made by the 
borrower to support a successful borrower defense to repayment under 
this paragraph (e); and
    (ii) Producing, within timeframes established by the Secretary, any 
documentation reasonably available to the borrower with respect to those 
representations and any sworn statement required by the Secretary with 
respect to those representations and documents.
    (15) Transfer to the Secretary of the borrower's right of recovery 
against third parties under this paragraph (e). (i) Upon the grant of 
any relief under this paragraph (e), the borrower is deemed to have 
assigned to, and relinquished in favor of, the Secretary any right to a 
loan refund (up to the amount discharged) that the borrower may have by 
contract or applicable law with respect to the loan or the provision of 
educational services for which the loan was received, against the 
school, its principals, its affiliates and their successors, or its 
sureties, and any private fund, including the portion of a public fund 
that represents funds received from a private party. If the borrower 
asserts a claim to, and recovers from, a public fund, the Secretary may 
reinstate the borrower's obligation to repay on the loan an amount based 
on the amount recovered from the public fund, if the Secretary 
determines that the borrower's recovery from the public fund was based 
on the same borrower defense to repayment and for the same loan for 
which the discharge was granted under this section.
    (ii) The provisions of this paragraph (e)(15) apply notwithstanding 
any provision of State law that would otherwise restrict transfer of 
those rights by the borrower, limit or prevent a transferee from 
exercising those rights, or establish procedures or a scheme of 
distribution that would prejudice the Secretary's ability to recover on 
those rights.
    (iii) Nothing in this paragraph (e)(15) limits or forecloses the 
borrower's right to pursue legal and equitable relief arising under 
applicable law against a party described in this paragraph (e)(15) for 
recovery of any portion of a claim exceeding that assigned to the 
Secretary or any other claims arising from matters unrelated to the 
claim on which the loan is discharged.
    (16) Recovery from the school under this paragraph (e). (i) The 
Secretary may initiate an appropriate proceeding to require the school 
whose misrepresentation resulted in the borrower's successful borrower 
defense to repayment under this paragraph (e) to pay to the Secretary 
the amount of the loan to which the defense applies in accordance with 
part 668, subpart G. This paragraph (e)(16) would also be applicable for 
provisionally certified institutions.
    (ii) Under this paragraph (e), the Secretary will not initiate such 
a proceeding more than 5 years after the date of the final determination 
included in the written decision referenced in paragraph (e)(11) of this 
section. The Department will notify the school of the borrower defense 
to repayment application within 60 days of the date of the Department's 
receipt of the borrower's application.

(Approved by the Office of Management and Budget under control number 
1845-0021)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 64 
FR 58972, Nov. 1, 1999; 78 FR 65832, Nov. 1, 2013; 81 FR 76080, Nov. 1, 
2016; 84 FR 49926, Sept. 23, 2019; 87 FR 66055, Nov. 1, 2022]



Sec.  685.207  Obligation to repay.

    (a) Obligation of repayment in general. (1) A borrower is obligated 
to repay the full amount of a Direct Loan, including the principal 
balance, fees, any collection costs charged under Sec.  685.202(e), and 
any interest not subsidized by the Secretary, unless the borrower is 
relieved of the obligation to repay as provided in this part.
    (2) The borrower's repayment of a Direct Loan may also be subject to 
the deferment provisions in Sec.  685.204, the forbearance provisions in 
Sec.  685.205, the discharge provisions in Sec.  685.212, and the loan 
forgiveness provisions in Sec. Sec.  685.217 and 685.219.
    (3) A borrower's first payment on a Direct Loan is due within 60 
days of the beginning date of the repayment period as determined in 
accordance

[[Page 259]]

with paragraph (b), (c), (d), or (e) of this section.
    (b) Direct Subsidized Loan repayment. (1) During the period in which 
a borrower is enrolled at an eligible school on at least a half-time 
basis, the borrower is in an ``in-school'' period and is not required to 
make payments on a Direct Subsidized Loan unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under Sec.  
685.204(b).
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code and 
is called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.
    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (b)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Subsidized Loan.
    (3)(i) A borrower is not obligated to pay interest on a Direct 
Subsidized Loan during periods when the borrower is enrolled at an 
eligible school on at least a half-time basis unless the borrower is 
required to make payments on the loan during those periods under 
paragraph (b)(1) of this section.
    (ii) Except as provided in paragraph (b)(3)(iii) of this section, a 
borrower is not obligated to pay interest on a Direct Subsidized Loan 
during grace periods.
    (iii) In the case of a Direct Subsidized Loan for which the first 
disbursement is made on or after July 1, 2012 and before July 1, 2014, a 
borrower is responsible for the interest that accrues during the grace 
period.
    (4) The repayment period for a Direct Subsidized Loan begins the day 
after the grace period ends. A borrower is obligated to repay the loan 
under paragraph (a) of this section during the repayment period.
    (c) Direct Unsubsidized Loan repayment. (1) During the period in 
which a borrower is enrolled at an eligible school on at least a half-
time basis, the borrower is in an ``in-school'' period and is not 
required to make payments of principal on a Direct Unsubsidized Loan 
unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under Sec.  
685.204.
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code and 
is called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.
    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (c)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Unsubsidized Loan.
    (3) A borrower is responsible for the interest that accrues on a 
Direct Unsubsidized Loan during in-school and grace periods. Interest 
begins to accrue on the day the first installment is disbursed. Interest 
that accrues may be capitalized or paid by the borrower.
    (4) The repayment period for a Direct Unsubsidized Loan begins the 
day after

[[Page 260]]

the grace period ends. A borrower is obligated to repay the loan under 
paragraph (a) of this section during the repayment period.
    (d) Direct PLUS Loan repayment. The repayment period for a Direct 
PLUS Loan begins on the day the loan is fully disbursed. Interest begins 
to accrue on the day the first installment is disbursed. A borrower is 
obligated to repay the loan under paragraph (a) of this section during 
the repayment period.
    (e) Direct Consolidation Loan repayment. (1) Except as provided in 
paragraphs (e)(2) and (e)(3) of this section, the repayment period for a 
Direct Consolidation Loan begins and interest begins to accrue on the 
day the loan is made. The borrower is obligated to repay the loan under 
paragraph (a) of this section during the repayment period.
    (2) In the case of a borrower whose consolidation application was 
received before July 1, 2006, a borrower who obtains a Direct Subsidized 
Consolidation Loan during an in-school period will be subject to the 
repayment provisions in paragraph (b) of this section.
    (3) In the case of a borrower whose consolidation application was 
received before July 1, 2006, a borrower who obtains a Direct 
Unsubsidized Consolidation Loan during an in-school period will be 
subject to the repayment provisions in paragraph (c) of this section.
    (f) Determining the date on which the grace period begins for a 
borrower in a correspondence program. For a borrower of a Direct 
Subsidized or Direct Unsubsidized Loan who is a correspondence student, 
the grace period specified in paragraphs (b)(2) and (c)(2) of this 
section begins on the earliest of--
    (1) The day after the borrower completes the program;
    (2) The day after withdrawal as determined pursuant to 34 CFR 
668.22; or
    (3) 60 days following the last day for completing the program as 
established by the school.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58968, Nov. 1, 1999; 68 
FR 75430, Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006; 78 FR 65832, Nov. 1, 
2013]



Sec.  685.208  Repayment plans.

    (a) General--(1) Borrowers who entered repayment before July 1, 
2006. (i) A Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct 
Subsidized Consolidation Loan, or a Direct Unsubsidized Consolidation 
Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (f) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k)(2) or (3) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (ii) A Direct PLUS Loan or a Direct PLUS Consolidation Loan may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (f) of 
this section.
    (2) Borrowers entering repayment on or after July 1, 2006. (i) A 
Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS 
Loan that was made to a graduate or professional student borrower may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (g) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (ii) A Direct PLUS Loan that was made to a parent borrower may be 
repaid under--

[[Page 261]]

    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (g) of 
this section.
    (iii) A Direct Consolidation Loan that did not repay a parent Direct 
PLUS Loan or a parent Federal PLUS Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) of 
this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph (m) 
of this section.
    (iv) A Direct Consolidation Loan that repaid a parent Direct PLUS 
Loan or a parent Federal PLUS Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) of 
this section; or
    (D) The income-contingent repayment plan in accordance with 
paragraph (k)(2) of this section.
    (v) No scheduled payment may be less than the amount of interest 
accrued on the loan between monthly payments, except under the income-
contingent repayment plans, the income-based repayment plan, or an 
alternative repayment plan.
    (3) The Secretary may provide an alternative repayment plan in 
accordance with paragraph (l) of this section.
    (4) All Direct Loans obtained by one borrower must be repaid 
together under the same repayment plan, except that--
    (i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan 
that is not eligible for repayment under an income-contingent repayment 
plan or the income-based repayment plan may repay the Direct PLUS Loan 
or Direct Consolidation Loan separately from other Direct Loans obtained 
by the borrower; and
    (ii) A borrower of a Direct PLUS Consolidation Loan that entered 
repayment before July 1, 2006, may repay the Direct PLUS Consolidation 
Loan separately from other Direct Loans obtained by that borrower.
    (5) Except as provided in Sec.  685.209 and Sec.  685.221 for the 
income-contingent repayment plans and the income-based repayment plan, 
the repayment period for any of the repayment plans described in this 
section does not include periods of authorized deferment or forbearance.
    (b) Standard repayment plan for all Direct Subsidized Loan, Direct 
Unsubsidized Loan, and Direct PLUS Loan borrowers, regardless of when 
they entered repayment, and for Direct Consolidation Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full within ten years from the date the 
loan entered repayment by making fixed monthly payments.
    (2) A borrower's payments under this repayment plan are at least $50 
per month, except that a borrower's final payment may be less than $50.
    (3) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec.  685.202(a).
    (c) Standard repayment plan for Direct Consolidation Loan borrowers 
entering repayment on or after July 1, 2006. (1) Under this repayment 
plan, a borrower must repay a loan in full by making fixed monthly 
payments over a repayment period that varies with the total amount of 
the borrower's student loans, as described in paragraph (j) of this 
section.
    (2) A borrower's payments under this repayment plan are at least $50 
per month, except that a borrower's final payment may be less than $50.

[[Page 262]]

    (d) Extended repayment plan for all Direct Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full by making fixed monthly payments 
within an extended period of time that varies with the total amount of 
the borrower's loans, as described in paragraph (i) of this section.
    (2) A borrower makes fixed monthly payments of at least $50, except 
that a borrower's final payment may be less than $50.
    (3) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec.  685.202(a).
    (e) Extended repayment plan for all Direct Loan borrowers entering 
repayment on or after July 1, 2006. (1) Under this repayment plan, a new 
borrower with more than $30,000 in outstanding Direct Loans accumulated 
on or after October 7, 1998 must repay either a fixed annual or 
graduated repayment amount over a period not to exceed 25 years from the 
date the loan entered repayment. For this repayment plan, a new borrower 
is defined as an individual who has no outstanding principal or interest 
balance on a Direct Loan as of October 7, 1998, or on the date the 
borrower obtains a Direct Loan on or after October 7, 1998.
    (2) A borrower's payments under this plan are at least $50 per 
month, and will be more if necessary to repay the loan within the 
required time period.
    (3) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec.  685.202(a).
    (f) Graduated repayment plan for all Direct Loan borrowers who 
entered repayment before July 1, 2006. (1) Under this repayment plan, a 
borrower must repay a loan in full by making payments at two or more 
levels within a period of time that varies with the total amount of the 
borrower's loans, as described in paragraph (i) of this section.
    (2) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec.  685.202(a).
    (3) No scheduled payment under this repayment plan may be less than 
the amount of interest accrued on the loan between monthly payments, 
less than 50 percent of the payment amount that would be required under 
the standard repayment plan described in paragraph (b) of this section, 
or more than 150 percent of the payment amount that would be required 
under the standard repayment plan described in paragraph (b) of this 
section.
    (g) Graduated repayment plan for Direct Subsidized Loan, Direct 
Unsubsidized Loan, and Direct PLUS Loan borrowers entering repayment on 
or after July 1, 2006. (1) Under this repayment plan, a borrower must 
repay a loan in full by making payments at two or more levels over a 
period of time not to exceed ten years from the date the loan entered 
repayment.
    (2) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec.  685.202(a).
    (3) A borrower's payments under this repayment plan may be less than 
$50 per month. No single payment under this plan will be more than three 
times greater than any other payment.
    (h) Graduated repayment plan for Direct Consolidation Loan borrowers 
entering repayment on or after July 1, 2006. (1) Under this repayment 
plan, a borrower must repay a loan in full by making monthly payments 
that gradually increase in stages over the course of a repayment period 
that varies with the total amount of the borrower's student loans, as 
described in paragraph (j) of this section.
    (2) A borrower's payments under this repayment plan may be less than 
$50 per month. No single payment under this plan will be more than three 
times greater than any other payment.
    (i) Repayment period for the extended and graduated plans described 
in paragraphs (d) and (f) of this section, respectively. Under these 
repayment plans, if the total amount of the borrower's Direct Loans is--
    (1) Less than $10,000, the borrower must repay the loans within 12 
years of entering repayment;
    (2) Greater than or equal to $10,000 but less than $20,000, the 
borrower must

[[Page 263]]

repay the loans within 15 years of entering repayment;
    (3) Greater than or equal to $20,000 but less than $40,000, the 
borrower must repay the loans within 20 years of entering repayment;
    (4) Greater than or equal to $40,000 but less than $60,000, the 
borrower must repay the loans within 25 years of entering repayment; and
    (5) Greater than or equal to $60,000, the borrower must repay the 
loans within 30 years of entering repayment.
    (j) Repayment period for the standard and graduated repayment plans 
described in paragraphs (c) and (h) of this section, respectively. Under 
these repayment plans, if the total amount of the Direct Consolidation 
Loan and the borrower's other student loans, as defined in Sec.  
685.220(i), is--
    (1) Less than $7,500, the borrower must repay the Consolidation Loan 
within 10 years of entering repayment;
    (2) Equal to or greater than $7,500 but less than $10,000, the 
borrower must repay the Consolidation Loan within 12 years of entering 
repayment;
    (3) Equal to or greater than $10,000 but less than $20,000, the 
borrower must repay the Consolidation Loan within 15 years of entering 
repayment;
    (4) Equal to or greater than $20,000 but less than $40,000, the 
borrower must repay the Consolidation Loan within 20 years of entering 
repayment;
    (5) Equal to or greater than $40,000 but less than $60,000, the 
borrower must repay the Consolidation Loan within 25 years of entering 
repayment; and
    (6) Equal to or greater than $60,000, the borrower must repay the 
Consolidation Loan within 30 years of entering repayment.
    (k) Income-contingent repayment plans. (1) Under the income-
contingent repayment plan described in Sec.  685.209(a), the required 
monthly payment for a borrower who has a partial financial hardship is 
limited to no more than 10 percent of the amount by which the borrower's 
AGI exceeds 150 percent of the poverty guideline applicable to the 
borrower's family size, divided by 12. The Secretary determines annually 
whether the borrower continues to qualify for this reduced monthly 
payment based on the amount of the borrower's eligible loans, AGI, and 
poverty guideline.
    (2) Under the income-contingent repayment plan described in Sec.  
685.209(b), a borrower's monthly repayment amount is generally based on 
the total amount of the borrower's Direct Loans, family size, and AGI 
reported by the borrower for the most recent year for which the 
Secretary has obtained income information.
    (3) Under the income-contingent repayment plan described in Sec.  
685.209(c), a borrower's required monthly payment is limited to no more 
than 10 percent of the amount by which the borrower's AGI exceeds 150 
percent of the poverty guideline applicable to the borrower's family 
size, divided by 12, unless the borrower's monthly payment amount is 
adjusted in accordance with Sec.  685.209(c)(4)(vi)(E).
    (4) For the income-contingent repayment plan described in Sec.  
685.209(b), the regulations in effect at the time a borrower enters 
repayment and selects the income-contingent repayment plan or changes 
into the income-contingent repayment plan from another plan govern the 
method for determining the borrower's monthly repayment amount for all 
of the borrower's Direct Loans, unless--
    (i) The Secretary amends the regulations relating to a borrower's 
monthly repayment amount under the income-contingent repayment plan; and
    (ii) The borrower submits a written request that the amended 
regulations apply to the repayment of the borrower's Direct Loans.
    (5) Provisions governing the income-contingent repayment plans are 
in Sec.  685.209.
    (l) Alternative repayment. (1) The Secretary may provide an 
alternative repayment plan for a borrower who demonstrates to the 
Secretary's satisfaction that the terms and conditions of the repayment 
plans specified in paragraphs (b) through (h) of this section are not 
adequate to accommodate the borrower's exceptional circumstances.
    (2) The Secretary may require a borrower to provide evidence of the 
borrower's exceptional circumstances before permitting the borrower to 
repay a loan under an alternative repayment plan.

[[Page 264]]

    (3) If the Secretary agrees to permit a borrower to repay a loan 
under an alternative repayment plan, the Secretary notifies the borrower 
in writing of the terms of the plan. After the borrower receives 
notification of the terms of the plan, the borrower may accept the plan 
or choose another repayment plan.
    (4) A borrower must repay a loan under an alternative repayment plan 
within 30 years of the date the loan entered repayment, not including 
periods of deferment and forbearance.
    (m) Income-based repayment plan. (1) Under this repayment plan, the 
required monthly payment for a borrower who has a partial financial 
hardship is limited to no more than 15 percent or, for a new borrower as 
of July 1, 2014, as defined in Sec.  685.221(a)(4), 10 percent of the 
amount by which the borrower's AGI exceeds 150 percent of the poverty 
guideline applicable to the borrower's family size, divided by 12. The 
Secretary determines annually whether the borrower continues to qualify 
for this reduced monthly payment based on the amount of the borrower's 
eligible loans, AGI, and poverty guideline.
    (2) The specific provisions governing the income-based repayment 
plan are in Sec.  685.221.

(Authority: 20 U.S.C. 1087a et seq.)

[71 FR 45712, Aug. 9, 2006, as amended at 71 FR 64400, Nov. 1, 2006; 73 
FR 63255, Oct. 23, 2008; 77 FR 66135, Nov. 1, 2012; 78 FR 65833, Nov. 1, 
2013; 80 FR 67238, Oct. 30, 2015; 87 FR 66058, Nov. 1, 2022]



Sec.  685.209  Income-contingent repayment plans.

    (a) Pay As You Earn repayment plan: The Pay As You Earn repayment 
plan is an income-contingent repayment plan for eligible new borrowers.
    (1) Definitions. As used in this section, other than as expressly 
provided for in paragraph (c) of this section--
    (i) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income;
    (ii) Eligible loan, for purposes of determining whether a borrower 
has a partial financial hardship in accordance with paragraph (a)(1)(v) 
of this section or adjusting a borrower's monthly payment amount in 
accordance with paragraph (a)(2)(ii) of this section, means any 
outstanding loan made to a borrower under the Direct Loan Program or the 
FFEL Program except for a defaulted loan, a Direct PLUS Loan or Federal 
PLUS Loan made to a parent borrower, or a Direct Consolidation Loan or 
Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal 
PLUS Loan made to a parent borrower;
    (iii) Eligible new borrower means an individual who--(A) Has no 
outstanding balance on a Direct Loan Program loan or a FFEL Program loan 
as of October 1, 2007, or who has no outstanding balance on such a loan 
on the date he or she receives a new loan after October 1, 2007; and
    (B)(1) Receives a disbursement of a Direct Subsidized Loan, Direct 
Unsubsidized Loan, or student Direct PLUS Loan on or after October 1, 
2011; or
    (2) Receives a Direct Consolidation Loan based on an application 
received on or after October 1, 2011, except that a borrower is not 
considered an eligible new borrower if the Direct Consolidation Loan 
repays a loan that would otherwise make the borrower ineligible under 
paragraph (a)(1)(iii)(A) of this section;
    (iv) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, at 
the time the borrower certifies family size, the other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs;

[[Page 265]]

    (v) Partial financial hardship means a circumstance in which--
    (A) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment plan 
based on a 10-year repayment period, using the greater of the amount due 
at the time the borrower initially entered repayment or at the time the 
borrower elects the Pay As You Earn repayment plan, exceeds 10 percent 
of the difference between the borrower's AGI and 150 percent of the 
poverty guideline for the borrower's family size; or
    (B) For a married borrower who files a joint Federal tax return with 
his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse elects 
the Pay As You Earn repayment plan, exceeds 10 percent of the difference 
between the borrower's and spouse's AGI, and 150 percent of the poverty 
guideline for the borrower's family size; and
    (vi) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (2) Terms of the Pay As You Earn repayment plan. (i) A borrower may 
select the Pay As You Earn repayment plan only if the borrower has a 
partial financial hardship. The borrower's aggregate monthly loan 
payments are limited to no more than 10 percent of the amount by which 
the borrower's AGI exceeds 150 percent of the poverty guideline 
applicable to the borrower's family size, divided by 12.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (a)(2)(ii)(B) of 
this section, the total amount of the borrower's eligible loans are not 
Direct Loans, in which case the Secretary determines the borrower's 
adjusted monthly payment by multiplying the calculated payment by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (B) Both the borrower and borrower's spouse have eligible loans and 
filed a joint Federal tax return, in which case the Secretary 
determines--
    (1) Each borrower's percentage of the couple's total eligible loan 
debt;
    (2) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(a)(2)(ii)(B)(1) of this section; and
    (3) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (a)(2)(ii)(B)(2) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (C) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (D) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is equal to or greater than $5.00 but 
less than $10.00, in which case the borrower's monthly payment is 
$10.00.
    (iii) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or the 
subsidized portion of a Direct Consolidation Loan, the Secretary does 
not charge the borrower the remaining accrued interest for a period not 
to exceed three consecutive years from the established repayment period 
start date on that loan under the Pay As You Earn repayment plan. Any 
period during which the Secretary has previously not charged the 
borrower accrued interest on an eligible loan under the income-based 
repayment plan or

[[Page 266]]

the Revised Pay As You Earn repayment plan counts toward the maximum 
three years of subsidy a borrower is eligible to receive under the Pay 
As You Earn repayment plan. On a Direct Consolidation Loan that repays 
loans on which the Secretary has not charged the borrower accrued 
interest, the three-year period includes the period for which the 
Secretary did not charge the borrower accrued interest on the underlying 
loans. This three-year period does not include any period during which 
the borrower receives an economic hardship deferment.
    (iv) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is postponed 
until the borrower chooses to leave the Pay As You Earn repayment plan 
or no longer has a partial financial hardship.
    (v) The repayment period for a borrower under the Pay As You Earn 
repayment plan may be greater than 10 years.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the Pay As You Earn repayment plan in the 
following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
    (ii) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec.  685.211(a)(2).
    (iii) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec.  685.211(a)(3).
    (iv) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (a)(3)(i) of this section.
    (4) Changes in the payment amount. (i) If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the Pay As You Earn repayment plan, but the Secretary recalculates 
the borrower's monthly payment. The Secretary also recalculates the 
monthly payment for a borrower who chooses to stop making income-
contingent payments. In either case, as a result of the recalculation--
    (A) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on a 10-year repayment period using the 
amount of the borrower's eligible loans that was outstanding at the time 
the borrower began repayment on the loans under the Pay As You Earn 
repayment plan; and
    (B) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (ii) A borrower who no longer wishes to repay under the Pay As You 
Earn repayment plan may change to a different repayment plan in 
accordance with Sec.  685.210(b).
    (5) Eligibility documentation, verification, and notifications. 
(i)(A) The Secretary determines whether a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan for 
the year the borrower selects the plan and for each subsequent year that 
the borrower remains on the plan. To make this determination, the 
Secretary requires the borrower to provide documentation, acceptable to 
the Secretary, of the borrower's AGI.
    (B) If the borrower's AGI is not available, or if the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the borrower must provide other 
documentation to verify income.
    (C) The borrower must annually certify the borrower's family size. 
If the borrower fails to certify family size, the Secretary assumes a 
family size of one for that year.
    (ii) After making a determination that a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan for 
the year the borrower initially elects the plan and for each subsequent 
year that the borrower has a partial financial hardship, the Secretary 
sends the borrower a written notification that provides the borrower 
with--

[[Page 267]]

    (A) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (a)(2) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (a)(5)(i) of this 
section, if the borrower chooses to remain on the Pay As You Earn 
repayment plan after the initial year on the plan, and an explanation 
that the borrower will be notified in advance of the date by which the 
Secretary must receive this information;
    (C) An explanation of the consequences, as described in paragraphs 
(a)(5)(i)(C) and (a)(5)(vii) of this section, if the borrower does not 
provide the required information; and
    (D) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was used 
to calculate the borrower's current monthly payment no longer reflects 
the borrower's current income. If the Secretary recalculates the 
borrower's monthly payment amount based on the borrower's request, the 
Secretary sends the borrower a written notification that includes the 
information described in paragraphs (a)(5)(ii)(A) through (a)(5)(ii)(D) 
of this section.
    (iii) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the Pay As You Earn repayment 
plan, the Secretary notifies the borrower in writing of the requirements 
in paragraph (a)(5)(i) of this section no later than 60 days and no 
earlier than 90 days prior to the date specified in paragraph 
(a)(5)(iii)(A) of this section. The notification provides the borrower 
with--
    (A) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the documentation described in paragraph (a)(5)(i) of this 
section (annual deadline); and
    (B) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (a)(4)(i) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (a)(2)(iv) of 
this section.
    (iv) Each time the Secretary makes a determination that a borrower 
no longer has a partial financial hardship for a subsequent year that 
the borrower wishes to remain on the plan, the Secretary sends the 
borrower a written notification that provides the borrower with--
    (A) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (a)(4)(i) of this section;
    (B) An explanation that unpaid interest will be capitalized in 
accordance with paragraph (a)(2)(iv) of this section; and
    (C) Information about the borrower's option to request, at any time, 
that the Secretary redetermine whether the borrower has a partial 
financial hardship, if the borrower's financial circumstances have 
changed and the income amount used to determine that the borrower no 
longer has a partial financial hardship does not reflect the borrower's 
current income, and an explanation that the borrower will be notified 
annually of this option. If the Secretary determines that the borrower 
again has a partial financial hardship, the Secretary recalculates the 
borrower's monthly payment in accordance with paragraph (a)(2)(i) of 
this section and sends the borrower a written notification that includes 
the information described in paragraphs (a)(5)(ii)(A) through 
(a)(5)(ii)(D) of this section.
    (v) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the Pay As You Earn 
repayment plan, the Secretary sends the borrower a written notification 
that includes the

[[Page 268]]

information described in paragraph (a)(5)(iv)(C) of this section.
    (vi) If a borrower who is currently repaying under another repayment 
plan selects the Pay As You Earn repayment plan but does not provide the 
documentation described in paragraphs (a)(5)(i)(A) or (a)(5)(i)(B) of 
this section, or if the Secretary determines that the borrower does not 
have a partial financial hardship, the borrower remains on his or her 
current repayment plan.
    (vii) The Secretary designates the repayment option described in 
paragraph (a)(4)(i) of this section if a borrower who is currently 
repaying under the Pay As You Earn repayment plan remains on the plan 
for a subsequent year but the Secretary does not receive the 
documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of 
this section within 10 days of the specified annual deadline, unless the 
Secretary is able to determine the borrower's new monthly payment amount 
before the end of the borrower's current annual payment period.
    (viii) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days 
of the specified annual deadline--
    (A) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (1) If the new monthly payment amount is less than the borrower's 
previously calculated Pay As You Earn repayment plan monthly payment 
amount, and the borrower made payments at the previously calculated 
amount after the end of the most recent annual payment period, the 
Secretary makes the appropriate adjustment to the borrower's account. 
Notwithstanding the requirements of Sec.  685.211(a)(3), unless the 
borrower requests otherwise, the Secretary applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of Sec.  685.209(a)(3)(i).
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated Pay As You Earn repayment plan 
monthly payment amount, and the borrower made payments at the previously 
calculated payment amount after the end of the most recent annual 
payment period, the Secretary does not make any adjustment to the 
borrower's account.
    (3) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (B) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (ix)(A) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph (a)(4)(i) of 
this section, the Secretary grants forbearance with respect to payments 
that are overdue or would be due at the time the new calculated Pay As 
You Earn repayment plan monthly payment amount is determined, if the new 
monthly payment amount is $0.00 or is less than the borrower's 
previously calculated income-based monthly payment amount. Interest that 
accrues during the portion of this forbearance period that covers 
payments that are overdue after the end of the prior annual payment 
period is not capitalized.
    (B) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (6) Loan forgiveness. (i) To qualify for loan forgiveness after 20 
years, a borrower must have participated in the Pay As You Earn 
repayment plan and satisfied at least one of the following conditions 
during that period:

[[Page 269]]

    (A) Made reduced monthly payments under a partial financial hardship 
as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this section, 
including a monthly payment amount of $0.00, as provided under paragraph 
(a)(2)(ii)(C) of this section.
    (B) Made reduced monthly payments after the borrower no longer had a 
partial financial hardship or stopped making income-contingent payments 
as provided in paragraph (a)(4)(i) of this section.
    (C) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) with a 10-year repayment period.
    (D) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) for the amount of the borrower's 
loans that were outstanding at the time the borrower first selected the 
Pay As You Earn repayment plan.
    (E) Made monthly payments under the income-contingent repayment plan 
described in paragraph (b) of this section, the Revised Pay As You Earn 
repayment plan described in paragraph (c) of this section, or the 
income-based repayment plan described in Sec.  685.221, including a 
calculated monthly payment amount of $0.00.
    (F) Made monthly payments under the alternative repayment plan 
described in paragraph (c)(4)(v) of this section prior to changing to a 
repayment plan described under this section or Sec.  685.221;
    (G) Received an economic hardship deferment on eligible Direct 
Loans.
    (ii) As provided under paragraph (a)(6)(v) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (A) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (a)(6)(i) of this section, 
including a monthly payment amount of $0.00, as provided under paragraph 
(a)(2)(ii)(C) of this section; and
    (B)(1) The borrower made those monthly payments each year for a 20-
year period; or
    (2) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 20 years of 
payments.
    (iii) For a borrower who qualifies for the Pay As You Earn repayment 
plan, the beginning date for the 20-year period is--
    (A) If the borrower made payments under the income-contingent 
repayment plan described in paragraph (b) of this section, the Revised 
Pay As You Earn repayment plan described in paragraph (c) of this 
section, or the income-based repayment plan described in Sec.  685.221, 
the earliest date the borrower made a payment on the loan under one of 
those plans at any time after October 1, 2007; or
    (B) If the borrower did not make payments under the income-
contingent repayment plan described in paragraph (b) of this section, 
the Revised Pay As You Earn repayment plan described in paragraph (c) of 
this section, or the income-based repayment plan described in Sec.  
685.221--
    (1) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for the 
Pay As You Earn repayment plan. The beginning date is the date the 
borrower made the payment or received the deferment after October 1, 
2007;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower made 
that payment or received the deferment on that loan after October 1, 
2007;
    (3) For a borrower who did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (a)(6)(iii)(B)(1) or 
(a)(6)(iii)(B)(2) of this section, the date the borrower made a payment 
on the loan under the Pay As You Earn repayment plan;

[[Page 270]]

    (4) If the borrower consolidates his or her eligible loans, the date 
the borrower made a payment on the Direct Consolidation Loan that met 
the requirements of paragraph (a)(6)(i) of this section; or
    (5) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (a)(6)(iii)(A) or 
(a)(6)(iii)(B) of this section, the date the borrower made a payment on 
the loan under the Pay As You Earn repayment plan.
    (iv) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 20-year 
forgiveness period.
    (v)(A) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (a)(6) of this section 
on an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (B) The Secretary determines when a borrower has met the loan 
forgiveness requirements in paragraph (a)(6) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (C) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the borrower with the information described in 
paragraph (a)(6)(v)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (b) Income-contingent repayment plan: The income-contingent 
repayment (ICR) plan is an income-contingent repayment plan under which 
a borrower's monthly payment amount is generally based on the total 
amount of the borrower's Direct Loans, family size, and AGI.
    (1) Repayment amount calculation. (i) The amount the borrower would 
repay is based upon the borrower's Direct Loan debt when the borrower's 
first loan enters repayment, and this basis for calculation does not 
change unless the borrower obtains another Direct Loan or the borrower 
and the borrower's spouse obtain approval to repay their loans jointly 
under paragraph (b)(2)(ii) of this section. If the borrower obtains 
another Direct Loan, the amount the borrower would repay is based on the 
combined amounts of the loans when the last loan enters repayment. If 
the borrower and the borrower's spouse repay the loans jointly, the 
amount the borrowers would repay is based on both borrowers' Direct Loan 
debts at the time they enter joint repayment.
    (ii) The annual amount payable by a borrower under the ICR plan is 
the lesser of--
    (A) The amount the borrower would repay annually over 12 years using 
standard amortization multiplied by an income percentage factor that 
corresponds to the borrower's AGI as shown in the income percentage 
factor table in a notice published annually by the Secretary in the 
Federal Register; or
    (B) 20 percent of discretionary income.
    (iii)(A) For purposes of paragraph (b) of this section, 
discretionary income is defined as a borrower's AGI minus the amount of 
the poverty guideline, as defined in paragraph (b)(1)(iii)(B) of this 
section, for the borrower's family size as defined in Sec.  
685.209(a)(1)(iv).
    (B) For purposes of paragraph (b) of this section, the term 
``poverty guideline'' refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health

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and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower is not a 
resident of a State identified in the poverty guidelines, the poverty 
line to be used for the borrower is the poverty guideline (for the 
relevant family size) used for the 48 contiguous States.
    (iv) For exact incomes not shown in the income percentage factor 
table in the annual notice published by the Secretary, an income 
percentage factor is calculated, based upon the intervals between the 
incomes and income percentage factors shown on the table.
    (v) Each year, the Secretary recalculates the borrower's annual 
payment amount based on changes in the borrower's AGI, the variable 
interest rate, the income percentage factors in the table in the annual 
notice published by the Secretary, and updated HHS Poverty Guidelines 
(if applicable).
    (vi) If a borrower's monthly payment is calculated to be greater 
than $0 but less than or equal to $5.00, the amount payable by the 
borrower is $5.00.
    (vii) For purposes of the annual recalculation described in 
paragraph (b)(1)(v) of this section, after periods in which a borrower 
makes payments that are less than interest accrued on the loan, the 
payment amount is recalculated based upon unpaid accrued interest and 
the highest outstanding principal loan amount calculated for that 
borrower while paying under the ICR plan.
    (viii) For each calendar year, the Secretary publishes in the 
Federal Register a revised income percentage factor table reflecting 
changes based on inflation. This revised table is developed by changing 
each of the dollar amounts contained in the table by a percentage equal 
to the estimated percentage changes in the Consumer Price Index (as 
determined by the Secretary) between December 1995 and the December next 
preceding the beginning of such calendar year.
    (ix) Examples of the calculation of monthly repayment amounts and 
tables that show monthly repayment amounts for borrowers at various 
income and debt levels are included in the annual notice published by 
the Secretary.
    (x) At the beginning of the repayment period under the ICR plan, the 
borrower must make monthly payments of the amount of interest that 
accrues on the borrower's Direct Loan until the Secretary calculates the 
borrower's monthly payment amount on the basis of the borrower's income.
    (2) Treatment of married borrowers. (i)(A) For a married borrower 
who files a joint Federal tax return with his or her spouse, the AGI for 
both spouses is used to calculate the monthly payment amount under the 
ICR plan.
    (B) For a married borrower who files a Federal income tax return 
separately from his or her spouse, only the borrower's AGI is used to 
determine the monthly payment amount under the ICR plan.
    (ii) Married borrowers may repay their loans jointly. The 
outstanding balances on the loans of each borrower are added together to 
determine the borrowers' payback rate under paragraph (b)(1) of this 
section.
    (iii) The amount of the payment applied to each borrower's debt is 
the proportion of the payments that equals the same proportion as that 
borrower's debt to the total outstanding balance, except that the 
payment is credited toward outstanding interest on any loan before any 
payment is credited toward principal.
    (3) Other features of the ICR plan--(i) Alternative documentation of 
income. If a borrower's AGI is not available or if, in the Secretary's 
opinion, the borrower's reported AGI does not reasonably reflect the 
borrower's current income, the Secretary may use other documentation of 
income provided by the borrower to calculate the borrower's monthly 
repayment amount.
    (ii) Adjustments to repayment obligations. The Secretary may 
determine that special circumstances, such as a loss of employment by 
the borrower or the borrower's spouse, warrant an adjustment to the 
borrower's repayment obligations.
    (iii) Repayment period. (A) The maximum repayment period under the 
ICR plan is 25 years.
    (B) The repayment period includes--
    (1) Periods in which the borrower makes payments under the ICR plan 
on loans that are not in default;
    (2) Periods in which the borrower makes reduced monthly payments

[[Page 272]]

under the income-based repayment plan or a recalculated reduced monthly 
payment after the borrower no longer has a partial financial hardship or 
stops making income-based payments, as provided in Sec.  
685.221(d)(1)(i);
    (3) Periods in which the borrower made monthly payments under the 
Pay As You Earn repayment plan or the Revised Pay As You Earn repayment 
plan;
    (4) Periods in which the borrower made monthly payments under the 
alternative repayment plan described in paragraph (c)(4)(v) of this 
section prior to changing to a repayment plan described under this 
section or Sec.  685.221;
    (5) Periods in which the borrower made monthly payments under the 
standard repayment plan after leaving the income-based repayment plan as 
provided in Sec.  685.221(d)(2);
    (6) Periods in which the borrower makes payments under the standard 
repayment plan described in Sec.  685.208(b);
    (7) For borrowers who entered repayment before October 1, 2007, and 
if the repayment period is not more than 12 years, periods in which the 
borrower makes monthly payments under the extended repayment plans 
described in Sec.  685.208(d) and (e), or the standard repayment plan 
described in Sec.  685.208(c);
    (8) Periods after October 1, 2007, in which the borrower makes 
monthly payments under any other repayment plan that are not less than 
the amount required under the standard repayment plan described in Sec.  
685.208(b); or
    (9) Periods of economic hardship deferment.
    (C) If a borrower repays more than one loan under the ICR plan, a 
separate repayment period for each loan begins when that loan enters 
repayment.
    (D) If a borrower has not repaid a loan in full at the end of the 
25-year repayment period under the ICR plan, the Secretary cancels the 
outstanding balance and accrued interest on that loan. No later than six 
months prior to the anticipated date that the borrower will meet the 
forgiveness requirements, the Secretary sends the borrower a written 
notification that includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (E) The Secretary determines when a borrower has met the loan 
forgiveness requirements under paragraph (b)(3)(iii)(D) of this section 
and does not require the borrower to submit a request for loan 
forgiveness. After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the information described in paragraph 
(b)(3)(iii)(D)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (iv) [Reserved]
    (v) Notification of terms and conditions. When a borrower elects or 
is required by the Secretary to repay a loan under the ICR plan, and for 
each subsequent year that the borrower remains on the plan, the 
Secretary sends the borrower a written notification that provides the 
terms and conditions of the plan, including--
    (A) The borrower's scheduled monthly payment amount as calculated 
under paragraph (b)(1) or (b)(3)(vi)(D) of this section, as applicable, 
and the time period during which this scheduled monthly payment will 
apply (annual payment period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (b)(3)(vi)(A) of this 
section, if the borrower chooses to remain on the ICR plan after the 
initial year on the plan, and an explanation that the borrower will be 
notified in advance of the date by which the Secretary must receive the 
information;
    (C) That if the borrower believes that special circumstances warrant 
an adjustment to the borrower's repayment

[[Page 273]]

obligations, as described in paragraph (b)(3)(ii) of this section, the 
borrower may contact the Secretary at any time during the borrower's 
current annual payment period and obtain the Secretary's determination 
as to whether an adjustment is appropriate; and
    (D) An explanation of the consequences, as described in paragraph 
(b)(3)(vi)(D) of this section, if the borrower does not provide the 
required information.
    (vi) Documentation of income and certification of family size. (A) 
For the initial year that a borrower selects the ICR plan and for each 
subsequent year that the borrower remains on the plan, the borrower 
must--
    (1) Provide to the Secretary, for purposes of calculating a monthly 
repayment amount and servicing and collecting the borrower's loan, 
acceptable documentation, as determined by the Secretary, of the 
borrower's AGI or alternative documentation of income in accordance with 
paragraph (b)(3)(i) of this section; and
    (2) Certify the borrower's family size. If the borrower fails to 
certify family size, the Secretary assumes a family size of one for the 
year.
    (B) For each subsequent year that a borrower remains on the ICR 
plan, the Secretary notifies the borrower in writing of the requirements 
described in paragraph (b)(3)(vi)(A) of this section no later than 60 
days and no earlier than 90 days prior to the date specified in 
paragraph (b)(3)(vi)(B)(1) of this section. The notification provides 
the borrower with--
    (1) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
the documentation described in paragraph (b)(3)(vi)(A) of this section 
(annual deadline); and
    (2) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (b)(3)(vi)(D) of this section, and the 
effective date for the recalculated monthly payment amount.
    (C) The Secretary designates the standard repayment plan for a 
borrower who initially selects the ICR plan but does not comply with the 
requirement in paragraph (b)(3)(vi)(A)(1) of this section.
    (D) If, during a subsequent year that a borrower remains on the ICR 
plan, the Secretary does not receive the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline, the Secretary recalculates the borrower's 
required monthly payment amount, unless the Secretary is able to 
determine the borrower's new monthly payment amount before the end of 
the borrower's current annual payment period. The maximum recalculated 
monthly amount the Secretary requires the borrower to repay is the 
amount the borrower would have paid under the standard repayment plan 
based on a 10-year repayment period using the amount of the borrower's 
loans that was outstanding at the time the borrower began repayment 
under the ICR plan. The repayment period based on the recalculated 
payment may exceed 10 years.
    (E) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline--
    (1) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (i) If the new calculated monthly payment amount is less than the 
borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated amount after the end 
of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding Sec.  
685.211(a)(3), the Secretary applies the excess payment amounts made 
after the end of the most recent annual payment period in accordance 
with the requirements of Sec.  685.211(a)(1), unless the borrower 
requests otherwise.
    (ii) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously

[[Page 274]]

calculated payment amount after the end of the most recent annual 
payment period, the Secretary does not make any adjustment to the 
borrower's account.
    (iii) Any payments the borrower continued to make at the previously 
calculated payment amount after the end of the prior annual payment 
period and before the new monthly payment amount is calculated are 
considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (2) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (F)(1) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section more than 10 days after the 
specified annual deadline and the borrower's monthly payment amount is 
recalculated in accordance with paragraph (b)(3)(vi)(D) of this section, 
the Secretary grants forbearance with respect to payments that are 
overdue or would be due at the time the new calculated monthly payment 
amount is determined, if the new monthly payment amount is $0.00 or is 
less than the borrower's previously calculated monthly payment amount. 
Interest that accrues during the portion of this forbearance period that 
covers payments that are overdue after the end of the prior annual 
payment period is not capitalized.
    (2) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (G) If a borrower defaults and the Secretary designates the ICR plan 
for the borrower but the borrower fails to comply with the requirements 
in paragraph (b)(3)(vi)(A) of this section, the Secretary mails a notice 
to the borrower establishing a repayment schedule for the borrower.
    (c) Revised Pay As You Earn repayment plan. The Revised Pay As You 
Earn repayment plan (REPAYE plan) is an income-contingent repayment plan 
under which a borrower's monthly payment amount is based on the 
borrower's AGI and family size.
    (1) Definitions. As used in this paragraph (c)--
    (i) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income and is used to calculate the monthly payment amount. For a 
married borrower filing separately, the AGI for each spouse is combined 
to calculate the monthly payment amount, unless the borrower certifies, 
on a form approved by the Secretary, that the borrower is--
    (A) Separated from his or her spouse; or
    (B) Unable to reasonably access the income information of his or her 
spouse.
    (ii) Eligible loan, for purposes of adjusting a borrower's monthly 
payment amount in accordance with paragraph (c)(2)(ii) of this section, 
means any outstanding loan made to a borrower under the Direct Loan 
Program or the FFEL Program except for a defaulted loan, a Direct PLUS 
Loan or Federal PLUS Loan made to a parent borrower, or a Direct 
Consolidation Loan or Federal Consolidation Loan that repaid a Direct 
PLUS Loan or Federal PLUS Loan made to a parent borrower;
    (iii) Family size means the number that is determined by counting 
the borrower, the borrower's spouse, and the borrower's children, 
including unborn children who will be born during the year the borrower 
certifies family size, if the children receive more than half their 
support from the borrower. Family size does not include the borrower's 
spouse if the borrower is separated from his or her spouse, or if the 
borrower is filing separately and is unable to reasonably access the 
spouse's income information. A borrower's family size includes other 
individuals if, at the time the borrower certifies family size, the 
other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the

[[Page 275]]

borrower for the year the borrower certifies family size. Support 
includes money, gifts, loans, housing, food, clothes, car, medical and 
dental care, and payment of college costs; and
    (iv) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (2) Terms of the Revised Pay As You Earn repayment plan. (i) The 
aggregate monthly loan payments of a borrower who selects the REPAYE 
plan are limited to no more than 10 percent of the amount by which the 
borrower's AGI exceeds 150 percent of the poverty guideline applicable 
to the borrower's family size, divided by 12, unless the borrower's 
monthly payment amount is adjusted in accordance with paragraph 
(c)(4)(vi)(E) of this section.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (c)(2)(ii)(B) of 
this section, the borrower's eligible loans are not solely Direct Loans, 
in which case the Secretary determines the borrower's adjusted monthly 
payment by multiplying the calculated payment by the percentage of the 
total outstanding principal amount of the borrower's eligible loans that 
are Direct Loans;
    (B) Except in the case of a married borrower filing separately whose 
spouse's income is excluded in accordance with paragraph (c)(1)(i)(A) or 
(B) of this section, both the borrower and borrower's spouse have 
eligible loans, in which case the Secretary determines--
    (1) Each borrower's percentage of the couple's total eligible loan 
debt;
    (2) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(c)(2)(ii)(B)(1) of this section; and
    (3) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (c)(2)(ii)(B)(2) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (C) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A) 
or (B) of this section is less than $5.00, in which case the borrower's 
monthly payment is $0.00; or
    (D) The calculated amount under paragraph (c)(2)(i) or (c)(2)(ii)(A) 
or (B) of this section is equal to or greater than $5.00 but less than 
$10.00, in which case the borrower's monthly payment is $10.00.
    (iii) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's loan--
    (A) Except as provided in paragraph (c)(2)(iii)(B) of this section, 
for a Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan, the Secretary does not charge the borrower the 
remaining accrued interest for a period not to exceed three consecutive 
years from the established repayment period start date on that loan 
under the REPAYE plan. Following this three-year period, the Secretary 
charges the borrower 50 percent of the remaining accrued interest on the 
Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan.
    (B) For a Direct Unsubsidized Loan, a Direct PLUS Loan made to a 
graduate or professional student, the unsubsidized portion of a Direct 
Consolidation Loan, or for a Direct Subsidized Loan or the subsidized 
portion of a Direct Consolidation Loan for which the borrower has become 
responsible for accruing interest in accordance with Sec.  
685.200(f)(3), the Secretary charges the borrower 50 percent of the 
remaining accrued interest.
    (C) The three-year period described in paragraph (c)(2)(iii)(A) of 
this section--
    (1) Does not include any period during which the borrower receives 
an economic hardship deferment;
    (2) Includes any prior period of repayment under the income-based 
repayment plan or the Pay As You Earn repayment plan; and

[[Page 276]]

    (3) For a Direct Consolidation Loan, includes any period in which 
the underlying loans were repaid under the income-based repayment plan 
or the Pay As You Earn repayment plan.
    (iv) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is postponed 
until the borrower leaves the REPAYE plan.
    (v) A borrower who no longer wishes to repay under the REPAYE plan 
may change to a different repayment plan in accordance with Sec.  
685.210(b). A borrower who changes to a different repayment plan in 
accordance with this paragraph or paragraph (c)(4)(vi)(C) of this 
section may return to the REPAYE plan pursuant to the requirements in 
paragraphs (c)(4)(vi)(D) and (E) of this section.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the REPAYE plan in the following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
    (ii) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec.  685.211(a)(2).
    (iii) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec.  685.211(a)(3).
    (iv) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (c)(3)(i) of this section.
    (4) Eligibility documentation, verification, and notifications. 
(i)(A) For the year the borrower initially selects the REPAYE plan and 
for each subsequent year that the borrower remains on the plan, the 
Secretary determines the borrower's monthly payment amount for that 
year. To make this determination, the Secretary requires the borrower to 
provide documentation, acceptable to the Secretary, of the borrower's 
AGI.
    (B) If the borrower's AGI is not available, or if the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the borrower must provide other 
documentation to verify income.
    (C) Unless otherwise directed by the Secretary, the borrower must 
annually certify the borrower's family size. If the borrower fails to 
certify family size, the Secretary assumes a family size of one for that 
year.
    (ii) After making the determination described in paragraph 
(c)(4)(i)(A) of this section for the initial year that the borrower 
selects the REPAYE plan and for each subsequent year that the borrower 
remains on the plan, the Secretary sends the borrower a written 
notification that provides the borrower with--
    (A) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (c)(2) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (c)(4)(i) of this 
section, if the borrower chooses to remain on the REPAYE plan after the 
initial year on the plan, and an explanation that the borrower will be 
notified in advance of the date by which the Secretary must receive this 
information;
    (C) An explanation of the consequences, as described in paragraphs 
(c)(4)(i)(C) and (c)(4)(v) and (vi) of this section, if the borrower 
does not provide the required information; and
    (D) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was used 
to calculate the borrower's current monthly payment no longer reflects 
the borrower's current income. If the Secretary recalculates the 
borrower's monthly payment amount based on the borrower's request, the 
Secretary sends the borrower a written notification that includes the 
information described

[[Page 277]]

in paragraphs (c)(4)(ii)(A) through (D) of this section.
    (iii) For each subsequent year that a borrower remains on the REPAYE 
plan, the Secretary notifies the borrower in writing of the requirements 
in paragraph (c)(4)(i) of this section no later than 60 days and no 
earlier than 90 days prior to the date specified in paragraph 
(c)(4)(iii)(A) of this section. The notification provides the borrower 
with--
    (A) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the documentation described in paragraph (c)(4)(i) of this 
section (annual deadline); and
    (B) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, as described in paragraph (c)(4)(v) of this section.
    (iv) If a borrower who is currently repaying under another repayment 
plan selects the REPAYE plan but does not provide the documentation 
described in paragraph (c)(4)(i)(A) or (B) of this section, the borrower 
remains on his or her current repayment plan.
    (v) Except as provided in paragraph (c)(4)(vii) of this section, if 
a borrower who is currently repaying under the REPAYE plan remains on 
the plan for a subsequent year but the Secretary does not receive the 
documentation described in paragraph (c)(4)(i)(A) or (B) of this section 
within 10 days of the specified annual deadline, the Secretary removes 
the borrower from the REPAYE plan and places the borrower on an 
alternative repayment plan under which the borrower's required monthly 
payment is the amount necessary to repay the borrower's loan in full 
within the earlier of--
    (A) Ten years from the date the borrower begins repayment under the 
alternative repayment plan; or
    (B) The ending date of the 20- or 25-year period as described in 
paragraphs (c)(5)(i) and (ii) of this section.
    (vi) If the Secretary places the borrower on an alternative 
repayment plan in accordance with paragraph (c)(4)(v) of this section, 
the Secretary sends the borrower a written notification containing the 
borrower's new monthly payment amount and informing the borrower that--
    (A) The borrower has been placed on an alternative repayment plan;
    (B) The borrower's monthly payment amount has been recalculated in 
accordance with paragraph (c)(4)(v) of this section;
    (C) The borrower may change to another repayment plan in accordance 
with Sec.  685.210(b);
    (D) The borrower may return to the REPAYE plan if he or she provides 
the documentation, as described in paragraph (c)(4)(i)(A) or (B) of this 
section, necessary for the Secretary to calculate the borrower's current 
REPAYE plan monthly payment amount and the monthly amount the borrower 
would have been required to pay under the REPAYE plan during the period 
when the borrower was on the alternative repayment plan or any other 
repayment plan;
    (E) If the Secretary determines that the total amount of the 
payments the borrower was required to make while on the alternative 
repayment plan or any other repayment plan is less than the total amount 
the borrower would have been required to make under the REPAYE plan 
during that period, the Secretary will adjust the borrower's monthly 
REPAYE plan payment amount to ensure that the difference between the two 
amounts is paid in full by the end of the 20- or 25-year period 
described in paragraphs (c)(5)(i) and (ii) of this section;
    (F) If the borrower returns to the REPAYE plan or changes to the Pay 
As You Earn repayment plan described in paragraph (a) of this section, 
the income-contingent repayment plan described in paragraph (b) of this 
section, or the income-based repayment plan described in Sec.  685.221, 
any payments that the borrower made under the alternative repayment plan 
after the borrower was removed from the REPAYE plan will count toward 
forgiveness under the REPAYE plan or the other repayment plans under 
paragraph (a) or (b) of this section or Sec.  685.221; and
    (G) Payments made under the alternative repayment plan described in 
paragraph (c)(4)(v) of this section will

[[Page 278]]

not count toward public service loan forgiveness under Sec.  685.219.
    (vii) The Secretary does not take the action described in paragraph 
(c)(4)(v) of this section if the Secretary receives the documentation 
described in paragraph (c)(4)(i)(A) or (B) of this section more than 10 
days after the specified annual deadline, but is able to determine the 
borrower's new monthly payment amount before the end of the borrower's 
current annual payment period.
    (viii) If the Secretary receives the documentation described in 
paragraph (c)(4)(i)(A) or (B) of this section within 10 days of the 
specified annual deadline--
    (A) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (1) If the new monthly payment amount is less than the borrower's 
previously calculated REPAYE plan monthly payment amount, and the 
borrower made payments at the previously calculated amount after the end 
of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding the 
requirements of Sec.  685.211(a)(3), unless the borrower requests 
otherwise, the Secretary applies the excess payment amounts made after 
the end of the most recent annual payment period in accordance with the 
requirements of paragraph (c)(3)(i) of this section.
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated REPAYE plan monthly payment amount, 
and the borrower made payments at the previously calculated payment 
amount after the end of the most recent annual payment period, the 
Secretary does not make any adjustment to the borrower's account.
    (3) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (B) The new annual payment period begins on the day after the end of 
the most recent annual payment period.
    (5) Loan forgiveness. (i) A borrower who meets the requirements 
specified in paragraph (c)(5)(iii) of this section may qualify for loan 
forgiveness after 20 or 25 years, as determined in accordance with 
paragraph (c)(5)(ii) of this section.
    (ii)(A) A borrower whose loans being repaid under the REPAYE plan 
include only loans the borrower received as an undergraduate student or 
a consolidation loan that repaid only loans the borrower received as an 
undergraduate student may qualify for forgiveness after 20 years.
    (B) A borrower whose loans being repaid under the REPAYE plan 
include a loan the borrower received as a graduate or professional 
student or a consolidation loan that repaid a loan received as a 
graduate or professional student may qualify for forgiveness after 25 
years.
    (iii) The Secretary cancels any remaining outstanding balance of 
principal and accrued interest on a borrower's Direct Loans that are 
being repaid under the REPAYE plan after--
    (A) The borrower has made the equivalent of 240 or 300, as 
applicable, qualifying monthly payments as defined in paragraph 
(c)(5)(iv) of this section; and
    (B) Twenty or 25 years, as applicable, have elapsed, beginning on 
the date determined in accordance with paragraph (c)(5)(v) of this 
section.
    (iv) For the purpose of paragraph (c)(5)(iii)(A) of this section, a 
qualifying monthly payment is--
    (A) A monthly payment under the REPAYE plan, including a monthly 
payment amount of $0.00, as provided under paragraph (c)(2)(ii)(C) of 
this section;
    (B) A monthly payment under the Pay As You Earn repayment plan 
described in paragraph (a) of this section, the income-contingent 
repayment plan described in paragraph (b) of this section, or the 
income-based repayment plan described in Sec.  685.221, including a 
monthly payment amount of $0.00;
    (C) A monthly payment made under--

[[Page 279]]

    (1) The Direct Loan standard repayment plan described in Sec.  
685.208(b);
    (2) The alternative repayment plan described in paragraphs (c)(4)(v) 
of this section prior to changing to a repayment plan described in 
paragraph (a), (b), or (c) of this section or Sec.  685.221;
    (3) Any other Direct Loan repayment plan, if the amount of the 
payment was not less than the amount required under the Direct Loan 
standard repayment plan described in Sec.  685.208(b); or
    (D) A month during which the borrower was not required to make a 
payment due to receiving an economic hardship deferment on his or her 
eligible Direct Loans.
    (v) For a borrower who makes payments under the REPAYE plan, the 
beginning date for the 20-year or 25-year repayment period is--
    (A) If the borrower made payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or 
the income-based repayment plan described in Sec.  685.221, the earliest 
date the borrower made a payment on the loan under one of those plans; 
or
    (B) If the borrower did not make payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, the income-
contingent repayment plan described in paragraph (b) of this section, or 
the income-based repayment plan described in Sec.  685.221--
    (1) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a qualifying monthly payment on the 
consolidation loan, before the date the borrower began repayment under 
the REPAYE plan;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a qualifying monthly payment on that loan, 
before the date the borrower began repayment under the REPAYE plan;
    (3) For a borrower who did not make a qualifying monthly payment on 
the loan under paragraph (c)(5)(v)(B)(1) or (2) of this section, the 
date the borrower made a payment on the loan under the REPAYE plan;
    (4) If the borrower consolidates his or her eligible loans, the date 
the borrower made a qualifying monthly payment on the Direct 
Consolidation Loan; or
    (5) If the borrower did not make a qualifying monthly payment on the 
loan under paragraph (c)(5)(v)(A) or (B) of this section, the date the 
borrower made a payment on the loan under the REPAYE plan.
    (vi) Any payments made on a defaulted loan are not qualifying 
monthly payments and are not counted toward the 20-year or 25-year 
forgiveness period.
    (vii)(A) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (c)(5) of this section 
on an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (1) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (B) The Secretary determines when a borrower has met the loan 
forgiveness requirements in paragraph (c)(5) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (C) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the borrower with the information described in 
paragraph (c)(5)(vii)(A)(3) of this section; and

[[Page 280]]

    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.

(Approved by the Office of Management and Budget under control number 
1845-0021)


(Authority: 20 U.S.C. 1087a et seq.)

[77 FR 66136, Nov. 1, 2012, as amended at 80 FR 67238, Oct. 30, 2015; 81 
FR 76081, Nov. 1, 2016; 87 FR 66058, Nov. 1, 2022]



Sec.  685.210  Choice of repayment plan.

    (a) Initial selection of a repayment plan. (1) Before a Direct Loan 
enters into repayment, the Secretary provides the borrower a description 
of the available repayment plans and requests the borrower to select 
one. A borrower may select a repayment plan before the loan enters 
repayment by notifying the Secretary of the borrower's selection in 
writing.
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec.  685.208(b) or 
(c) for the borrower, as applicable.
    (b) Changing repayment plans. (1) A borrower may change repayment 
plans at any time after the loan has entered repayment by notifying the 
Secretary. However, a borrower who is repaying a defaulted loan under an 
income-contingent repayment plan or the income-based repayment plan in 
accordance with Sec.  685.211(d)(3)(ii), or who is repaying a Direct 
Consolidation Loan under the income-contingent repayment plan or the 
income-based repayment plan in accordance with Sec.  
685.220(d)(1)(ii)(A)(3) may not change to another repayment plan 
unless--
    (i) The borrower was required to and did make a payment under the 
income-contingent repayment plan or income-based repayment plan in each 
of the prior three months; or
    (ii) The borrower was not required to make payments but made three 
reasonable and affordable payments in each of the prior three months; 
and
    (iii) The borrower makes and the Secretary approves a request to 
change plans.
    (2)(i) A borrower may not change to a repayment plan that has a 
maximum repayment period of less than the number of years the loan has 
already been in repayment, except that a borrower may change to either 
the income-contingent or income-based repayment plan at any time.
    (ii) If a borrower changes repayment plans, the repayment period is 
the period provided under the borrower's new repayment plan, calculated 
from the date the loan initially entered repayment. However, if a 
borrower changes to the income-contingent repayment plan under Sec.  
685.209(a), the income-contingent repayment plan under Sec.  685.209(b), 
the income-contingent repayment plan under Sec.  685.209(c), or the 
income-based repayment plan under Sec.  685.221, the repayment period is 
calculated as described in Sec.  685.209(a)(6)(iii), Sec.  
685.209(b)(3)(iii), Sec.  685.209(c)(5)(v), or Sec.  685.221(f)(3), 
respectively.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 65 FR 65629, Nov. 1, 2000; 68 
FR 75430, Dec. 31, 2003; 73 FR 63256, Oct. 23, 2008; 77 FR 66142, Nov. 
1, 2012; 78 FR 65833, Nov. 1, 2013; 80 FR 67242, Oct. 30, 2015]



Sec.  685.211  Miscellaneous repayment provisions.

    (a) Payment application and prepayment. (1) Except as provided for 
the income-contingent repayment plan under Sec.  685.209(a)(3) or the 
income-based repayment plan under Sec.  685.221(c)(1), the Secretary 
applies any payment first to any accrued charges and collection costs, 
then to any outstanding interest, and then to outstanding principal.
    (2) A borrower may prepay all or part of a loan at any time without 
penalty. If a borrower pays any amount in excess of the amount due, the 
excess amount is a prepayment.
    (3) If a prepayment equals or exceeds the monthly repayment amount 
under the borrower's repayment plan, the Secretary--
    (i) Applies the prepaid amount according to paragraph (a)(1) of this 
section;
    (ii) Advances the due date of the next payment unless the borrower 
requests otherwise; and
    (iii) Notifies the borrower of any revised due date for the next 
payment.
    (4) If a prepayment is less than the monthly repayment amount, the 
Secretary applies the prepayment according to paragraph (a)(1) of this 
section.

[[Page 281]]

    (b) Repayment incentives. To encourage on-time repayment, the 
Secretary may reduce the interest rate for a borrower who repays a loan 
under a system or on a schedule that meets requirements specified by the 
Secretary.
    (c) Refunds and returns of title IV, HEA program funds from schools. 
The Secretary applies any refund or return of title IV, HEA program 
funds that the Secretary receives from a school under Sec.  668.22 
against the borrower's outstanding principal and notifies the borrower 
of the refund or return.
    (d) Default--(1) Acceleration. If a borrower defaults on a Direct 
Loan, the entire unpaid balance and accrued interest are immediately due 
and payable.
    (2) Collection charges. If a borrower defaults on a Direct Loan, the 
Secretary assesses collection charges in accordance with Sec.  
685.202(e).
    (3) Collection of a defaulted loan. (i) The Secretary may take any 
action authorized by law to collect a defaulted Direct Loan including, 
but not limited to, filing a lawsuit against the borrower, reporting the 
default to nationwide consumer reporting agencies, requesting the 
Internal Revenue Service to offset the borrower's Federal income tax 
refund, and garnishing the borrower's wages.
    (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct Consolidation Loan, or a student Direct PLUS 
Loan, the Secretary may designate the income-contingent repayment plan 
or the income-based repayment plan for the borrower.
    (e) Ineligible borrowers. (1) The Secretary determines that a 
borrower is ineligible if, at the time the loan was made and without the 
school's or the Secretary's knowledge, the borrower (or the student on 
whose behalf a parent borrowed) provided false or erroneous information, 
has been convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining title IV, HEA program funds, or took 
actions that caused the borrower or student--
    (i) To receive a loan for which the borrower is wholly or partially 
ineligible;
    (ii) To receive interest benefits for which the borrower was 
ineligible; or
    (iii) To receive loan proceeds for a period of enrollment for which 
the borrower was not eligible.
    (2) If the Secretary makes the determination described in paragraph 
(e)(1) of this section, the Secretary sends an ineligible borrower a 
demand letter that requires the borrower to repay some or all of a loan, 
as appropriate. The demand letter requires that within 30 days from the 
date the letter is mailed, the borrower repay any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest subsidized by the Secretary, through the previous quarter.
    (3) If a borrower fails to comply with the demand letter described 
in paragraph (e)(2) of this section, the borrower is in default on the 
entire loan.
    (4) A borrower may not consolidate a loan under Sec.  685.220 for 
which the borrower is wholly or partially ineligible.
    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 
except for a loan on which a judgment has been obtained, is 
rehabilitated if the borrower makes 9 voluntary, reasonable and 
affordable monthly payments within 20 days of the due date during 10 
consecutive months. The Secretary determines the amount of a borrower's 
reasonable and affordable payment on the basis of a borrower's total 
financial circumstances.
    (i) The Secretary initially considers the borrower's reasonable and 
affordable payment amount to be an amount equal to 15 percent of the 
amount by which the borrower's AGI exceeds 150 percent of the poverty 
guideline amount applicable to the borrower's family size and State, 
divided by 12, except that if this amount is less than $5, the 
borrower's monthly rehabilitation payment is $5.
    (ii) The Secretary may calculate the payment amount based on 
information provided orally by the borrower or the borrower's 
representative and provide the borrower with a rehabilitation agreement 
using that amount. The Secretary requires the borrower to provide 
documentation to confirm the borrower's AGI and family size. If the 
borrower does not provide the Secretary with any documentation requested 
by the Secretary to calculate or confirm the reasonable and affordable 
payment

[[Page 282]]

amount within a reasonable time deadline set by the Secretary, the 
rehabilitation agreement provided is null and void.
    (iii) A reasonable and affordable payment amount is not--
    (A) A required minimum loan payment amount (e.g., $50) if the 
Secretary determines that a smaller amount is reasonable and affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (iv) Within 15 business days of the Secretary's determination of the 
borrower's loan rehabilitation payment amount, the Secretary provides 
the borrower with a written rehabilitation agreement which includes the 
borrower's reasonable and affordable payment amount, a prominent 
statement that the borrower may object orally or in writing to the 
reasonable and affordable payment amount with the method and timeframe 
for raising such an objection, a statement that the rehabilitation is 
null and void if the borrower does not provide the documentation 
required to calculate the reasonable and affordable payment amount, and 
an explanation of any other terms and conditions applicable to the 
required series of payments that must be made. To accept the agreement, 
the borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the Secretary. The Secretary 
does not impose any other conditions unrelated to the amount or timing 
of the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement informs the borrower of the effects of 
having the loans rehabilitated (e.g., removal of the record of default 
from the borrower's credit history and return to normal repayment).
    (2) The Secretary provides the borrower with a written statement 
confirming the borrower's reasonable and affordable payment amount, as 
determined by the Secretary, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before the borrower's account can be rehabilitated. The statement 
informs the borrower that the borrower may object to the terms and 
conditions of the rehabilitation agreement, and explains the method and 
timeframe for objecting to the terms and conditions of the 
rehabilitation agreement.
    (3) If the borrower objects to the monthly payment amount determined 
under paragraph (f)(1) of this section, the Secretary recalculates the 
payment based solely on information provided on a form approved by the 
Secretary and, if requested, supporting documentation from the borrower 
and other sources, and considers--
    (i) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (ii) Family size as defined in Sec.  685.221(a)(3); and
    (iii) Reasonable and necessary expenses, which include--
    (A) Food;
    (B) Housing;
    (C) Utilities;
    (D) Basic communication expenses;
    (E) Necessary medical and dental costs;
    (F) Necessary insurance costs;
    (G) Transportation costs;
    (H) Dependent care and other work-related expenses;
    (I) Legally required child and spousal support;
    (J) Other title IV and non-title IV student loan payments; and
    (K) Other expenses approved by the Secretary.
    (4) The Secretary provides the borrower with a new written 
rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the Secretary.
    (5) The Secretary includes any payment made under paragraph (1) of 
the definition of ``satisfactory repayment

[[Page 283]]

arrangement'' in Sec.  685.102(b) in determining whether the 9 out of 10 
payments required under paragraph (f)(1) of this section have been made.
    (6) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
only upon providing the documentation specified in paragraph (f)(3) of 
this section.
    (7) During the rehabilitation period, the Secretary limits contact 
with the borrower on the loan being rehabilitated to collection 
activities that are required by law or regulation and to communications 
that support the rehabilitation.
    (8) If a defaulted loan is rehabilitated, the Secretary instructs 
any consumer reporting agency to which the default was reported to 
remove the default from the borrower's credit history.
    (9) A defaulted Direct Loan on which a judgment has been obtained 
may not be rehabilitated.
    (10) A Direct Loan obtained by fraud for which the borrower has been 
convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining title IV, HEA program assistance may not be 
rehabilitated.
    (11)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the Secretary 
continues collecting the loan by administrative wage garnishment until 
the borrower makes five qualifying monthly payments under the 
rehabilitation agreement, unless the Secretary is otherwise precluded 
from doing so.
    (ii) After the borrower makes the fifth qualifying monthly payment, 
the Secretary, unless otherwise directed by the borrower, suspends the 
garnishment order issued to the borrower's employer.
    (iii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
    (12) Effective for any defaulted Direct Loan that is rehabilitated 
on or after August 14, 2008, the borrower cannot rehabilitate the loan 
again if the loan returns to default status following the 
rehabilitation.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 
FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 
2001; 67 FR 67081, Nov. 1, 2002; 71 FR 45714, Aug. 9, 2006; 73 FR 63256, 
Oct. 23, 2008; 74 FR 56003, Oct. 29, 2009; 77 FR 66142, Nov. 1, 2012; 78 
FR 65833, Nov. 1, 2013]



Sec.  685.212  Discharge of a loan obligation.

    (a) Death. (1) If a borrower (or a student on whose behalf a parent 
borrowed a Direct PLUS Loan) dies, the Secretary discharges the 
obligation of the borrower and any endorser to make any further payments 
on the loan based on--
    (i) An original or certified copy of the death certificate;
    (ii) An accurate and complete photocopy of the original or certified 
copy of the death certificate;
    (iii) An accurate and complete original or certified copy of the 
death certificate that is scanned and submitted electronically or sent 
by facsimile transmission; or
    (iv) Verification of the borrower's or student's death through an 
authoritative Federal or State electronic database approved for use by 
the Secretary.
    (2) Under exceptional circumstances and on a case-by-case basis, the 
Secretary discharges a loan based upon other reliable documentation of 
the borrower's or student's death that is acceptable to the Secretary.
    (3) In the case of a Direct Consolidation Loan that repaid a Direct 
PLUS Loan or a Federal PLUS Loan obtained on behalf of a student who 
dies, the Secretary discharges an amount equal to the portion of the 
outstanding balance of the consolidation loan, as of the date of the 
student's death, attributable to that Direct PLUS Loan or Federal PLUS 
Loan.
    (b) Total and permanent disability. If a borrower meets the 
requirements in Sec.  685.213, the Secretary discharges the obligation 
of the borrower and any endorser to make any further payments on the 
loan.
    (c) Bankruptcy. If a borrower's obligation to repay a loan is 
discharged in

[[Page 284]]

bankruptcy, the Secretary does not require the borrower to make any 
further payments on the loan.
    (d) Closed schools. If a borrower meets the requirements in Sec.  
685.214, the Secretary discharges the obligation of the borrower and any 
endorser to make any further payments on the loan. In the case of a 
Direct Consolidation Loan, the Secretary discharges the portion of the 
consolidation loan equal to the amount of the discharge applicable to 
any loan disbursed, in whole or in part, on or after January 1, 1986 
that was included in the consolidation loan.
    (e) False certification and unauthorized disbursement. If a borrower 
meets the requirements in Sec.  685.215, the Secretary discharges the 
obligation of the borrower and any endorser to make any further payments 
on the loan. In the case of a Direct Consolidation Loan, the Secretary 
discharges the portion of the consolidation loan equal to the amount of 
the discharge applicable to any loan disbursed, in whole or in part, on 
or after January 1, 1986 that was included in the consolidation loan.
    (f) Unpaid refunds. If a borrower meets the requirements in Sec.  
685.216, the Secretary discharges the obligation of the borrower and any 
endorser to make any further payments on the amount of the loan equal to 
the unpaid refund and any accrued interest and other charges associated 
with the unpaid refund. In the case of a Direct Consolidation Loan, the 
Secretary discharges the portion of the consolidation loan equal to the 
amount of the unpaid refund owed on any loan disbursed, in whole or in 
part, on or after January 1, 1986 that was included in the consolidation 
loan.
    (g) Payments received after eligibility for discharge--(1) For the 
discharge conditions in paragraphs (a), (c), (d), and (e) of this 
section. Upon receipt of acceptable documentation and approval of the 
discharge request, the Secretary returns to the sender, or, for a 
discharge based on death, the borrower's estate, any payments received 
after the date that the eligibility requirements for discharge were met.
    (2) For the discharge condition in paragraph (b) of this section. 
Upon making a final determination of eligibility for discharge based on 
total and permanent disability, the Secretary returns to the sender any 
payments received after the date specified in Sec.  685.213(b)(4)(iii) 
or 685.213(c)(2)(i), as applicable.
    (3) For the discharge condition in paragraph (f) of this section. 
Upon receipt of acceptable documentation and approval of the discharge 
request, the Secretary returns to the sender payments received in excess 
of the amount owed on the loan after applying the unpaid refund.
    (h) Teacher loan forgiveness program. If a new borrower meets the 
requirements in Sec.  685.217, the Secretary repays up to $5,000, or up 
to $17,500, of the borrower's Direct Subsidized Loans, Direct 
Unsubsidized Loans, and, in certain cases, Direct Consolidation Loans.
    (i) Public Service Loan Forgiveness Program. If a borrower meets the 
requirements in Sec.  685.219, the Secretary cancels the remaining 
principal and accrued interest of the borrower's eligible Direct 
Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, and Direct 
Consolidation Loan.
    (j) September 11 survivors discharge. If a borrower meets the 
requirements in Sec.  685.218, the Secretary discharges the obligation 
of the borrower and any endorser to make any further payments--
    (1) On an eligible Direct Loan if the borrower qualifies as the 
spouse of an eligible public servant;
    (2) On the portion of a joint Direct Consolidation Loan incurred on 
behalf of an eligible victim, if the borrower qualifies as the spouse of 
an eligible victim;
    (3) On a Direct PLUS Loan incurred on behalf of an eligible victim 
if the borrower qualifies as an eligible parent; and
    (4) On the portion of a Direct Consolidation Loan that repaid a PLUS 
loan incurred on behalf of an eligible victim, if the borrower qualifies 
as an eligible parent.
    (k) Borrower defenses. (1) If a borrower defense is approved under 
Sec.  685.206(c) or under Sec.  685.206(d) and Sec.  685.222--
    (i) The Secretary discharges the obligation of the borrower in whole 
or in part in accordance with the procedures in Sec. Sec.  685.206(c) 
and 685.222, respectively; and
    (ii) The Secretary returns to the borrower payments made by the 
borrower

[[Page 285]]

or otherwise recovered on the loan that exceed the amount owed on that 
portion of the loan not discharged, if the borrower asserted the claim 
not later than--
    (A) For a claim subject to Sec.  685.206(c), the limitation period 
under applicable law to the claim on which relief was granted; or
    (B) For a claim subject to Sec.  685.222, the limitation period in 
Sec.  685.222(b), (c), or (d), as applicable.
    (2) In the case of a Direct Consolidation Loan, a borrower may 
assert a borrower defense under Sec.  685.206(c) or Sec.  685.222 with 
respect to a Direct Loan, FFEL Program Loan, Federal Perkins Loan, 
Health Professions Student Loan, Loan for Disadvantaged Students under 
subpart II of part A of title VII of the Public Health Service Act, 
Health Education Assistance Loan, or Nursing Loan made under part E of 
the Public Health Service Act that was repaid by the Direct 
Consolidation Loan.
    (i) The Secretary considers a borrower defense claim asserted on a 
Direct Consolidation Loan by determining--
    (A) Whether the act or omission of the school with regard to the 
loan described in this paragraph (k)(2), other than a Direct Subsidized, 
Unsubsidized, or PLUS Loan, constitutes a borrower defense under Sec.  
685.206(c), for a Direct Consolidation Loan made before July 1, 2017, or 
under Sec.  685.222, for a Direct Consolidation Loan made on or after 
July 1, 2017, and before July 1, 2020; or
    (B) Whether the act or omission of the school with regard to a 
Direct Subsidized, Unsubsidized, or PLUS Loan made on after July 1, 
2017, and before July 1, 2020, that was paid off by the Direct 
Consolidation Loan, constitutes a borrower defense under Sec.  685.222.
    (ii) If the borrower defense is approved, the Secretary discharges 
the appropriate portion of the Direct Consolidation Loan.
    (iii) The Secretary returns to the borrower payments made by the 
borrower or otherwise recovered on the Direct Consolidation Loan that 
exceed the amount owed on that portion of the Direct Consolidation Loan 
not discharged, if the borrower asserted the claim not later than--
    (A) For a claim asserted under Sec.  685.206(c), the limitation 
period under the law applicable to the claim on which relief was 
granted; or
    (B) For a claim asserted under Sec.  685.222, the limitation period 
in Sec.  685.222(b), (c), or (d), as applicable.
    (iv) The Secretary returns to the borrower a payment made by the 
borrower or otherwise recovered on the loan described in this paragraph 
(k)(2) only if--
    (A) The payment was made directly to the Secretary on the loan; and
    (B) The borrower proves that the loan to which the payment was 
credited was not legally enforceable under applicable law in the amount 
for which that payment was applied.
    (3) If a borrower's application for a discharge of a loan based on a 
borrower defense is approved under Sec.  685.206(e), the Secretary 
discharges the obligation of the borrower, in whole or in part, in 
accordance with the procedures described in Sec.  685.206(e).
    (4) If a borrower's application for a discharge of a loan based on a 
borrower defense is approved under 34 CFR part 685, subpart D, the 
Secretary discharges the obligation of the borrower, in accordance with 
the procedures described in subpart D of this part.

(Approved by the Office of Management and Budget under control number 
1845-0021)

[59 FR 61690, Dec. 1, 1994]

    Editorial Note: For Federal Register citations affecting Sec.  
685.212, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  685.213  Total and permanent disability discharge.

    (a) General. (1) A borrower's Direct Loan is discharged if the 
borrower becomes totally and permanently disabled, as defined in Sec.  
685.102(b), and satisfies the eligibility requirements in this section.
    (2) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
685.102(b), the borrower's loan discharge application is processed in 
accordance with paragraph (b) of this section.
    (3) For veterans who are totally and permanently disabled as 
described in

[[Page 286]]

paragraph (2) of the definition of that term in Sec.  685.102(b), the 
veteran's loan discharge application is processed in accordance with 
paragraph (c) of this section.
    (4) For purposes of this section, a borrower's representative or a 
veteran's representative is a member of the borrower's family, the 
borrower's attorney, or another individual authorized to act on behalf 
of the borrower in connection with the borrower's total and permanent 
disability discharge application. References to a ``borrower'' or a 
``veteran'' include, if applicable, the borrower's representative or the 
veteran's representative for purposes of applying for a total and 
permanent disability discharge, providing notifications or information 
to the Secretary, and receiving notifications from the Secretary.
    (b) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  685.102(b)--(1) Borrower application for discharge. 
Except as provided in paragraph (d)(2) of this section, to qualify for a 
discharge of a Direct Loan based on a total and permanent disability, a 
borrower must submit a discharge application to the Secretary on a form 
approved by the Secretary. If the borrower notifies the Secretary that 
the borrower claims to be totally and permanent disabled prior to 
submitting a total and permanent disability discharge application, the 
Secretary--
    (i) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (ii) Suspends collection activity on any of the borrower's title IV 
loans held by the Secretary, and notifies the borrower's other title IV 
loan holders to suspend collection activity on the borrower's title IV 
loans for a period not to exceed 120 days; and
    (iii) Informs the borrower that the suspension of collection 
activity will end after 120 days and collection will resume on the loans 
if the borrower does not submit a total and permanent disability 
discharge application to the Secretary within that time.
    (2) Disability certification or Social Security Administration (SSA) 
disability determination. The application must contain--
    (i) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  685.102(b);
    (ii) A certification by a nurse practitioner or physician assistant 
licensed by a State, or a certified psychologist at the independent 
practice level who are licensed to practice in the United States, that 
the borrower is totally and permanently disabled as described in 
paragraph (1) of the definition of that term in Sec.  685.102(b); or
    (iii) An SSA Benefit Planning Query (BPQY) or an SSA notice of 
award, or other documentation deemed acceptable by the Secretary, 
indicating that--
    (A) The borrower qualifies for Social Security Disability Insurance 
(SSDI) benefits or Supplemental Security Income (SSI) based on 
disability, and the borrower's next continuing disability review has 
been scheduled between 5 and 7 years;
    (B) The borrower qualifies for SSDI benefits or SSI based on 
disability and the borrower's next continuing disability review has been 
scheduled at 3 years;
    (C) The borrower has an established onset date for SSDI benefits or 
SSI of at least 5 years prior to the application for a disability 
discharge or has been receiving SSDI benefits or SSI based on disability 
for at least 5 years prior to the application for a TPD discharge;
    (D) The borrower qualifies for SSDI or SSI based on a compassionate 
allowance; or
    (E) For borrowers currently receiving SSA retirement benefits, 
documentation that, prior to the borrower qualifying for SSA retirement 
benefits, the borrower met the requirements in paragraphs (b)(2)(iii)(A) 
through (D) of this section.
    (3) Deadline for application submission. The borrower must submit 
the application described in paragraph (b)(1) of this section to the 
Secretary within 90 days of the date the physician, nurse practitioner, 
physician assistant, or psychologist certifies the application,

[[Page 287]]

if applicable. Upon receipt of the borrower's application, the 
Secretary--
    (i) Identifies all title IV loans owed by the borrower, notifies the 
lenders that the Secretary has received a total and permanent disability 
discharge application from the borrower and directs the lenders to 
suspend collection activity or maintain the suspension of collection 
activity on the borrower's title IV loans;
    (ii) If the application is incomplete, notifies the borrower of the 
missing information and requests the missing information from the 
borrower or the physician, nurse practitioner, physician assistant, or 
psychologist who certified the application, as appropriate, and does not 
make a determination of eligibility for discharge until the application 
is complete;
    (iii) Notifies the borrower that no payments are due on the loan 
while the Secretary determines the borrower's eligibility for discharge; 
and
    (iv) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (4) Determination of eligibility. (i) If, after reviewing the 
borrower's completed application, the Secretary determines that the data 
described in paragraph (b)(2) of this section supports the conclusion 
that the borrower meets the criteria for a total and permanent 
disability discharge, as described in paragraph (1) of the definition of 
that term in Sec.  685.102(b), the borrower is considered totally and 
permanently disabled--
    (A) As of the date the physician, nurse practitioner, physician 
assistant, or psychologist certified the borrower's application; or
    (B) As of the date the Secretary received the SSA data described in 
paragraph (b)(2)(iii) of this section.
    (ii) If the Secretary determines that the borrower's application 
does not support the conclusion that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  685.102(b), the Secretary may require the borrower to 
submit additional medical evidence. As part of the Secretary's review of 
the borrower's discharge application, the Secretary may require and 
arrange for an additional review of the borrower's condition by an 
independent physician or other medical professional identified by the 
Secretary at no expense to the borrower.
    (iii) After determining that the borrower is totally and permanently 
disabled, as described in paragraph (1) of the definition of that term 
in Sec.  685.102(b), the Secretary discharges the borrower's obligation 
to make any further payments on the loan, notifies the borrower that the 
loan has been discharged, and returns to the person who made the 
payments on the loan any payments received after the date the physician, 
nurse practitioner, physician assistant, or psychologist certified the 
borrower's loan discharge application or the date the Secretary received 
the SSA data described in paragraph (b)(2)(iii) of this section. The 
notification to the borrower explains the terms and conditions under 
which the borrower's obligation to repay the loan will be reinstated, as 
specified in paragraph (b)(7)(i) of this section.
    (iv) If the Secretary determines that the physician, nurse 
practitioner, physician assistant, or psychologist certification or the 
SSA data described in paragraph (b)(2)(iii) of this section provided by 
the borrower does not support the conclusion that the borrower is 
totally and permanently disabled, as described in paragraph (1) of the 
definition of that term in Sec.  685.102(b), the Secretary notifies the 
borrower that the application for a disability discharge has been 
denied. The notification to the borrower includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the Secretary 
under the terms of the promissory note and that the loan will return to 
the status that would have existed if the total and permanent disability 
discharge application had not been received;
    (C) The date that the borrower must resume making payments;
    (D) An explanation that the borrower is not required to submit a new 
total and permanent disability discharge application if the borrower 
requests that the Secretary re-evaluate the borrower's application for 
discharge by providing, within 12 months of the date

[[Page 288]]

of the notification, additional information that supports the borrower's 
eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12 
months of the date of the notification, the borrower must submit a new 
total and permanent disability discharge application to the Secretary if 
the borrower wishes the Secretary to re-evaluate the borrower's 
eligibility for a total and permanent disability discharge.
    (v) If the borrower requests re-evaluation in accordance with 
paragraph (b)(4)(iv)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(b)(4)(iv)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for total and 
permanent disability discharge.
    (5) Treatment of disbursements made during the period from the date 
of the certification or the date the Secretary received the SSA data 
until the date of discharge. If a borrower received a title IV loan or 
TEACH Grant before the date the physician, nurse practitioner, physician 
assistant, or psychologist certified the borrower's discharge 
application or before the date the Secretary received the SSA data 
described in paragraph (b)(2)(iii) of this section and a disbursement of 
that loan or grant is made during the period from the date of the 
physician, nurse practitioner, physician assistant, or psychologist 
certification or the receipt of the SSA data described in paragraph 
(b)(2)(iii) of this section until the date the Secretary grants a 
discharge under this section, the processing of the borrower's loan 
discharge request will be suspended until the borrower ensures that the 
full amount of the disbursement has been returned to the loan holder or 
to the Secretary, as applicable.
    (6) Receipt of new title IV loans or TEACH Grants certification, or 
after the date the Secretary received the SSA data. If a borrower 
receives a disbursement of a new title IV loan or receives a new TEACH 
Grant made on or after the date the physician, nurse practitioner, 
physician assistant, or psychologist certified the borrower's discharge 
application or on or after the date the Secretary received the SSA data 
described in paragraph (b)(2)(iii) of this section and before the date 
the Secretary grants a discharge under this section, the Secretary 
denies the borrower's discharge request and resumes collection on the 
borrower's loan.
    (7) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(4)(iii) of this section if, within 3 years after the 
date the Secretary granted the discharge, the borrower receives a new 
TEACH Grant or a new loan under the Direct Loan Program, except for a 
Direct Consolidation Loan that includes loans that were not discharged.
    (ii) If the borrower's obligation to repay the loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed if the 
total and permanent disability discharge application had not been 
received; and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(7)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 90 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if the 
borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (c) Discharge application process for veterans who are totally and 
permanently

[[Page 289]]

disabled as described in paragraph (2) of the definition of that term in 
Sec.  685.102(b)--(1) Veteran's application for discharge. Except as 
provided in paragraph (d)(1) of this section, to qualify for a discharge 
of a Direct Loan based on a total and permanent disability as described 
in paragraph (2) of the definition of that term in Sec.  685.102(b), a 
veteran must submit a discharge application to the Secretary on a form 
approved by the Secretary. The application must be accompanied by 
documentation from the Department of Veterans Affairs showing that the 
Department of Veterans Affairs has determined that the veteran is 
unemployable due to a service-connected disability. The Secretary does 
not require the veteran to provide any additional documentation related 
to the veteran's disability. Upon receipt of the veteran's application, 
the Secretary--
    (i) Identifies all title IV loans owed by the veteran and notifies 
the lenders that the Secretary has received a total and permanent 
disability discharge application from the borrower;
    (ii) If the application is incomplete, requests the missing 
information from the veteran and does not make a determination of 
eligibility for discharge until the application is complete;
    (iii) Notifies the veteran that no payments are due on the loan 
while the Secretary determines the veteran's eligibility for discharge; 
and
    (iv) Explains the Secretary's process for reviewing total and 
permanent disability discharge applications.
    (2) Determination of eligibility. (i) If the Secretary determines, 
based on a review of the documentation from the Department of Veterans 
Affairs, that the veteran is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
685.102(b), the Secretary discharges the veteran's obligation to make 
any further payments on the loan and returns to the person who made the 
payments on the loan any payments received on or after the effective 
date of the determination by the Department of Veterans Affairs that the 
veteran is unemployable due to a service-connected disability.
    (ii) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  685.102(b), the Secretary notifies 
the veteran that the application for a disability discharge has been 
denied. The notification to the veteran includes--
    (A) The reason or reasons for the denial;
    (B) An explanation that the loan is due and payable to the Secretary 
under the terms of the promissory note and that the loan will return to 
the status it was in at the time the veteran applied for a total and 
permanent disability discharge;
    (C) The date that the veteran must resume making payments;
    (D) An explanation that the veteran is not required to submit a new 
total and permanent disability discharge application if the veteran 
requests that the Secretary re-evaluate the veteran's application for 
discharge by providing, within 12 months of the date of the 
notification, additional documentation from the Department of Veterans 
Affairs that supports the veteran's eligibility for discharge; and
    (E) Information on how the veteran may reapply for a total and 
permanent disability discharge in accordance with the procedures 
described in paragraph (b) of this section if the documentation from the 
Department of Veterans Affairs does not indicate that the veteran is 
totally and permanently disabled as described in paragraph (2) of the 
definition of that term in Sec.  685.102(b), but indicates that the 
veteran may be totally and permanently disabled as described in 
paragraph (1) of the definition of that term.
    (d) Discharge without an application. (1) The Secretary will 
discharge a loan under this section without an application or any 
additional documentation from the borrower if the Secretary:
    (i) Obtains data from the Department of Veterans Affairs showing 
that the borrower is unemployable due to a service-connected disability; 
or
    (ii) Obtains data from the Social Security Administration (SSA) 
described in paragraph (b)(2)(iii) of this section
    (2) [Reserved]

[[Page 290]]

    (e) Notification to the borrower. (1) After determining that a 
borrower qualifies for a total and permanent disability discharge under 
paragraph (d) of this section, the Secretary sends a notification to the 
borrower informing the borrower that the Secretary will discharge the 
borrower's title IV loans unless the borrower notifies the Secretary, by 
a date specified in the Secretary's notification, that the borrower does 
not wish to receive the loan discharge.
    (2) Unless the borrower notifies the Secretary that the borrower 
does not wish to receive the discharge the Secretary discharges the 
loan:
    (i) In accordance with paragraph (b)(4)(iii) of this section for a 
discharge based on data from the SSA; or
    (ii) In accordance with paragraph (c)(2)(i) of this section for a 
discharge based on data from VA.
    (3) If the borrower notifies the Secretary that they do not wish to 
receive the discharge, the borrower will remain responsible for 
repayment of the borrower's loans in accordance with the terms and 
conditions of the promissory notes that the borrower signed.

[77 FR 66142, Nov. 1, 2012, as amended at 84 FR 65007, Nov. 26, 2019; 86 
FR 46982, Aug. 23, 2021; 87 FR 66058, Nov. 1, 2022]



Sec.  685.214  Closed school discharge.

    (a) General. (1) The Secretary discharges the borrower's (and any 
endorser's) obligation to repay a Direct Loan in accordance with the 
provisions of this section if the borrower (or the student on whose 
behalf a parent borrowed) did not complete the program of study for 
which the loan was made because the school at which the borrower (or 
student) was enrolled closed, as described in paragraph (d) of this 
section.
    (2) For purposes of this section--
    (i) If a school has closed, the school's closure date is the earlier 
of: the date, determined by the Secretary, that the school ceased to 
provide educational instruction in programs in which most students at 
the school were enrolled, or a date determined by the Secretary that 
reflects when the school ceased to provide educational instruction for 
all of its students;
    (ii) ``School'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered title IV eligible;
    (iii) ``Program'' means the credential defined by the level and 
Classification of Instructional Program code in which a student is 
enrolled, except that the Secretary may define a borrower's program as 
multiple levels or Classification of Instructional Program codes if:
    (A) The enrollment occurred at the same institution in closely 
proximate periods;
    (B) The school granted a credential in a program while the student 
was enrolled in a different program; or
    (C) The programs must be taken in a set order or were presented as 
necessary for borrowers to complete in order to succeed in the relevant 
field of employment;
    (b) Relief pursuant to discharge. (1) Discharge under this section 
relieves the borrower of any past or present obligation to repay the 
loan and any accrued charges or collection costs with respect to the 
loan.
    (2) The discharge of a loan under this section qualifies the 
borrower for reimbursement of amounts paid voluntarily or through 
enforced collection on the loan.
    (3) The Secretary does not regard a borrower who has defaulted on a 
loan discharged under this section as in default on the loan after 
discharge, and such a borrower is eligible to receive assistance under 
programs authorized by title IV of the Act.
    (4) The Secretary reports the discharge of a loan under this section 
to all consumer reporting agencies to which the Secretary previously 
reported the status of the loan, so as to delete all adverse credit 
history assigned to the loan.
    (c) Discharge without an application. (1) If the Secretary 
determines based on information in the Secretary's possession that the 
borrower qualifies for the discharge of a loan under this section, the 
Secretary discharges the loan without an application or any statement 
from the borrower 1 year after the institution's closure date if the 
borrower did not complete the program at another branch or location of 
the school or through a teach-out agreement at another school, approved 
by

[[Page 291]]

the school's accrediting agency and, if applicable, the school's State 
authorizing agency.
    (2) If a borrower accepts but does not complete a continuation of 
the program at another branch or location of the school or a teach-out 
agreement at another school, approved by the school's accrediting agency 
and, if applicable, the school's State authorizing agency, then the 
Secretary discharges the loan 1 year after the borrower's last date of 
attendance at the other branch or location or in the teach-out program.
    (d) Borrower qualification for discharge. (1) Except as provided in 
paragraphs (c) and (h) of this section, to qualify for discharge of a 
loan under this section, a borrower must submit to the Secretary a 
completed application and the factual assertions in the application must 
be true and must be made by the borrower under penalty of perjury. The 
application explains the procedures and eligibility criteria for 
obtaining a discharge and requires the borrower to--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986, to attend a school;
    (B) Did not complete the program of study at that school because the 
school closed while the student was enrolled, or the student withdrew 
from the school not more than 180 calendar days before the school 
closed. The Secretary may extend the 180-day period if the Secretary 
determines that exceptional circumstances, as described in paragraph (i) 
of this section, justify an extension; and
    (C) On or after July 1, 2023, state that the borrower did not 
complete the program at another branch or location of the school or 
through a teach-out agreement at another school, approved by the 
school's accrediting agency and, if applicable, the school's State 
authorizing agency.
    (ii) State whether the borrower (or student) has made a claim with 
respect to the school's closing with any third party, such as the holder 
of a performance bond or a tuition recovery program, and, if so, the 
amount of any payment received by the borrower (or student) or credited 
to the borrower's loan obligation; and
    (iii) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions in 
accordance with paragraph (d) of this section and to transfer any right 
to recovery against a third party to the Secretary in accordance with 
paragraph (e) of this section.
    (2) [Reserved]
    (e) Cooperation by borrower in enforcement actions. (1) To obtain a 
discharge under this section, a borrower must cooperate with the 
Secretary in any judicial or administrative proceeding brought by the 
Secretary to recover amounts discharged or to take other enforcement 
action with respect to the conduct on which the discharge was based. At 
the request of the Secretary and upon the Secretary's tendering to the 
borrower the fees and costs that are customarily provided in litigation 
to reimburse witnesses, the borrower must--
    (i) Provide testimony regarding any representation made by the 
borrower to support a request for discharge;
    (ii) Produce any documents reasonably available to the borrower with 
respect to those representations; and
    (iii) If required by the Secretary, provide a sworn statement 
regarding those documents and representations.
    (2) The Secretary denies the request for a discharge or revokes the 
discharge of a borrower who--
    (i) Fails to provide the testimony, documents, or a sworn statement 
required under paragraph (d)(1) of this section; or
    (ii) Provides testimony, documents, or a sworn statement that does 
not support the material representations made by the borrower to obtain 
the discharge.
    (f) Transfer to the Secretary of borrower's right of recovery 
against third parties. (1) Upon discharge under this section, the 
borrower is deemed to have

[[Page 292]]

assigned to and relinquished in favor of the Secretary any right to a 
loan refund (up to the amount discharged) that the borrower (or student) 
may have by contract or applicable law with respect to the loan or the 
enrollment agreement for the program for which the loan was received, 
against the school, its principals, its affiliates and their successors, 
its sureties, and any private fund, including the portion of a public 
fund that represents funds received from a private party.
    (2) The provisions of this section apply notwithstanding any 
provision of State law that would otherwise restrict transfer of those 
rights by the borrower (or student), limit or prevent a transferee from 
exercising those rights, or establish procedures or a scheme of 
distribution that would prejudice the Secretary's ability to recover on 
those rights.
    (3) Nothing in this section limits or forecloses the borrower's (or 
student's) right to pursue legal and equitable relief regarding disputes 
arising from matters unrelated to the discharged Direct Loan.
    (g) Discharge procedures. (1) After confirming the date of a 
school's closure, the Secretary identifies any Direct Loan borrower (or 
student on whose behalf a parent borrowed) who appears to have been 
enrolled at the school on the school closure date or to have withdrawn 
not more than 180 days prior to the closure date.
    (2) If the borrower's current address is known, the Secretary mails 
the borrower a discharge application and an explanation of the 
qualifications and procedures for obtaining a discharge. The Secretary 
also promptly suspends any efforts to collect from the borrower on any 
affected loan. The Secretary may continue to receive borrower payments.
    (3) If the borrower's current address is unknown, the Secretary 
attempts to locate the borrower and determines the borrower's potential 
eligibility for a discharge under this section by consulting with 
representatives of the closed school, the school's licensing agency, the 
school's accrediting agency, and other appropriate parties. If the 
Secretary learns the new address of a borrower, the Secretary mails to 
the borrower a discharge application and explanation and suspends 
collection, as described in paragraph (g)(2) of this section.
    (4) If a borrower fails to submit the application described in 
paragraph (d) of this section within 90 days of the Secretary's 
providing the discharge application, the Secretary resumes collection 
and grants forbearance of principal and interest for the period in which 
collection activity was suspended.
    (5) Upon resuming collection on any affected loan, the Secretary 
provides the borrower another discharge application and an explanation 
of the requirements and procedures for obtaining a discharge.
    (6) If the Secretary determines that a borrower who requests a 
discharge meets the qualifications for a discharge, the Secretary 
notifies the borrower in writing of that determination.
    (7) If the Secretary determines that a borrower who requests a 
discharge does not meet the qualifications for a discharge, the 
Secretary notifies that borrower in writing of that determination and 
the reasons for the determination.
    (h) Exceptional circumstances. For purposes of this section, 
exceptional circumstances include, but are not limited to--
    (1) The revocation or withdrawal by an accrediting agency of the 
school's institutional accreditation;
    (2) The school is or was placed on probation or issued a show-cause 
order, or was placed on an equivalent accreditation status, by its 
accrediting agency for failing to meet one or more of the agency's 
standards;
    (3) The revocation or withdrawal by the State authorization or 
licensing authority to operate or to award academic credentials in the 
State;
    (4) The termination by the Department of the school's participation 
in a title IV, HEA program;
    (5) A finding by a State or Federal government agency that the 
school violated State or Federal law related to education or services to 
students;
    (6) A State or Federal court judgment that a School violated State 
or Federal law related to education or services to students;

[[Page 293]]

    (7) The teach-out of the student's educational program exceeds the 
180-day look-back period for a closed school discharge;
    (8) The school responsible for the teach-out of the student's 
educational program fails to perform the material terms of the teach-out 
plan or agreement, such that the student does not have a reasonable 
opportunity to complete his or her program of study;
    (9) The school discontinued a significant share of its academic 
programs;
    (10) The school permanently closed all or most of its in-person 
locations while maintaining online programs; and
    (11) The school was placed on the heightened cash monitoring payment 
method as defined in Sec.  668.162(d)(2) of this chapter.

(Approved by the Office of Management and Budget under control number 
1845-0021)

[59 FR 61690, Dec. 1, 1994, as amended at 59 FR 66134, Dec. 22, 1994; 64 
FR 58972, Nov. 1, 1999. Redesignated at 65 FR 65629, Nov. 1, 2000, as 
amended at 66 FR 34765, June 29, 2001; 78 FR 65834, Nov. 1, 2013; 81 FR 
76081, Nov. 1, 2016; 84 FR 49930, Sept. 23, 2019; 87 FR 66060, Nov. 1, 
2022]



Sec.  685.215  Discharge for false certification of student eligibility
or unauthorized payment.

    (a) Basis for discharge--(1) False certification. The Secretary 
discharges a borrower's (and any endorser's) obligation to repay a 
Direct Loan in accordance with the provisions of this section if a 
school falsely certifies the eligibility of the borrower (or the student 
on whose behalf a parent borrowed) to receive the proceeds of a Direct 
Loan. The Secretary considers a student's eligibility to borrow to have 
been falsely certified by the school if the school--
    (i) Certified the eligibility of a student who--
    (A) Reported not having a high school diploma or its equivalent; and
    (B) Did not satisfy the alternative to graduation from high school 
requirements under section 484(d) of the Act and 34 CFR 668.32(e) of 
this chapter that were in effect when the loan was originated;
    (ii) Certified the eligibility of a student who is not a high school 
graduate based on--
    (A) A high school graduation status falsified by the school; or
    (B) A high school diploma falsified by the school or a third party 
to which the school referred the borrower;
    (iii) Signed the borrower's name on the loan application or 
promissory note without the borrower's authorization;
    (iv) Certified the eligibility of the student who, because of a 
physical or mental condition, age, criminal record, or other reason 
accepted by the Secretary, would not meet State requirements for 
employment (in the student's State of residence when the loan was 
originated) in the occupation for which the training program supported 
by the loan was intended; or
    (v) Certified the eligibility of a student for a Direct Loan as a 
result of the crime of identity theft committed against the individual, 
as that crime is defined in paragraph (c)(6) of this section.
    (2) Unauthorized payment. The Secretary discharges a borrower's (and 
any endorser's) obligation to repay a Direct Loan if the school, without 
the borrower's authorization, endorsed the borrower's loan check or 
signed the borrower's authorization for electronic funds transfer, 
unless the proceeds of the loan were delivered to the student or applied 
to charges owed by the student to the school.
    (3) Loan origination. For purposes of this section, a loan is 
originated when the school submits the loan record to the Department's 
Common Origination and Disbursement (COD) System. Before originating a 
Direct Loan, a school must determine the student's or parent's 
eligibility for the loan. For each Direct Loan that a school disburses 
to a student or parent, the school must first submit a loan award record 
to the COD system and receive an accepted response.
    (b) Relief pursuant to discharge. (1) Discharge for false 
certification under paragraph (a)(1) of this section relieves the 
borrower of any past or present obligation to repay the loan and any 
accrued charges and collection costs with respect to the loan.

[[Page 294]]

    (2) Discharge for unauthorized payment under paragraph (a)(2) of 
this section relieves the borrower of the obligation to repay the amount 
of the payment discharged.
    (3) The discharge under this section qualifies the borrower for 
reimbursement of amounts paid voluntarily or through enforced collection 
on the discharged loan or payment.
    (4) The Secretary does not regard a borrower who has defaulted on a 
loan discharged under this section as in default on the loan after 
discharge, and such a borrower is eligible to receive assistance under 
programs authorized by title IV of the Act.
    (5) The Secretary reports the discharge under this section to all 
consumer reporting agencies to which the Secretary previously reported 
the status of the loan, so as to delete all adverse credit history 
assigned to the loan.
    (c) Borrower qualification for discharge. To qualify for discharge 
under this paragraph, the borrower must submit to the Secretary an 
application for discharge on a form approved by the Secretary. The 
application need not be notarized but must be made by the borrower under 
penalty of perjury; and in the application, the borrower's responses 
must demonstrate to the satisfaction of the Secretary that the 
requirements in paragraphs (c)(1) through (7) of this section have been 
met. If the Secretary determines the application does not meet the 
requirements, the Secretary notifies the applicant and explains why the 
application does not meet the requirements.
    (1) High school diploma or equivalent. In the case of a borrower 
requesting a discharge based on not having a high school diploma and not 
having met the alternative to graduation from high school eligibility 
requirements under section 484(d) of the Act and 34 CFR 668.32(e) of 
this chapter as applicable when the loan was originated, and the school 
or a third party to which the school referred the borrower falsified the 
student's high school diploma, the borrower must state in the 
application that the borrower (or the student on whose behalf a parent 
received a PLUS loan)--
    (i) Reported not having a valid high school diploma or its 
equivalent when the loan was originated; and
    (ii) Did not satisfy the alternative to graduation from high school 
statutory or regulatory eligibility requirements identified on the 
application form and applicable when the loan was originated.
    (2) Disqualifying condition. In the case of a borrower requesting a 
discharge based on a condition that would disqualify the borrower from 
employment in the occupation that the training program for which the 
borrower received the loan was intended, the borrower must state in the 
application that the borrower (or student for whom a parent received a 
PLUS loan) did not meet State requirements for employment in the 
student's State of residence in the occupation that the training program 
for which the borrower received the loan was intended because of a 
physical or mental condition, age, criminal record, or other reason 
accepted by the Secretary.
    (3) Unauthorized loan. In the case of a borrower requesting a 
discharge because the school signed the borrower's name on the loan 
application or promissory note without the borrower's authorization, the 
borrower must state that he or she did not sign the document in question 
or authorize the school to do so.
    (4) Unauthorized payment. In the case of a borrower requesting a 
discharge because the school, without the borrower's authorization, 
endorsed the borrower's loan check or signed the borrower's 
authorization for electronic funds transfer, the borrower must--
    (i) State that he or she did not endorse the loan check or sign the 
authorization for electronic funds transfer or authorize the school to 
do so; and
    (ii) State that the proceeds of the contested disbursement were not 
delivered to the student or applied to charges owed by the student to 
the school.
    (5) Identity theft. In the case of an individual whose eligibility 
to borrow was falsely certified because he or she was a victim of the 
crime of identity theft and is requesting a discharge, the individual 
must--

[[Page 295]]

    (i) Certify that the individual did not sign the promissory note, or 
that any other means of identification used to obtain the loan was used 
without the authorization of the individual claiming relief;
    (ii) Certify that the individual did not receive or benefit from the 
proceeds of the loan with knowledge that the loan had been made without 
the authorization of the individual; and
    (iii) Provide a statement of facts and supporting evidence that 
demonstrate, to the satisfaction of the Secretary, that eligibility for 
the loan in question was falsely certified as a result of identity theft 
committed against that individual. Supporting evidence may include--
    (A) A judicial determination of identity theft relating to the 
individual;
    (B) A Federal Trade Commission identity theft affidavit;
    (C) A police report alleging identity theft relating to the 
individual;
    (D) Documentation of a dispute of the validity of the loan due to 
identity theft filed with at least three major consumer reporting 
agencies; and
    (E) Other evidence acceptable to the Secretary.
    (6) Definition of identity theft. (i) For purposes of this section, 
identity theft is defined as the unauthorized use of the identifying 
information of another individual that is punishable under 18 U.S.C. 
1028, 1028A, 1029, or 1030, or substantially comparable State or local 
law.
    (ii) Identifying information includes, but is not limited to--
    (A) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, and employer or 
taxpayer identification number;
    (B) Unique biometric data, such as fingerprints, voiceprint, retina 
or iris image, or unique physical representation;
    (C) Unique electronic identification number, address, or routing 
code; or
    (D) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
    (7) Claim to third party. The borrower must state whether the 
borrower (or student) has made a claim with respect to the school's 
false certification or unauthorized payment with any third party, such 
as the holder of a performance bond or a tuition recovery program, and, 
if so, the amount of any payment received by the borrower (or student) 
or credited to the borrower's loan obligation.
    (8) Cooperation with Secretary. The borrower must state that the 
borrower (or student)--
    (i) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (ii) Agrees to cooperate with the Secretary in enforcement actions 
as described in Sec.  685.214(d) and to transfer any right to recovery 
against a third party to the Secretary as described in Sec.  685.214(e).
    (9) Discharge without an application. The Secretary discharges all 
or part of a loan as appropriate under this section without an 
application from the borrower if the Secretary determines, based on 
information in the Secretary's possession, that the borrower qualifies 
for a discharge. Such information includes, but is not limited to, 
evidence that the school has falsified the Satisfactory Academic 
Progress of its students, as described in Sec.  668.34.
    (10) Application for group discharge. A State Attorney General or 
nonprofit legal services representative may submit to the Secretary an 
application for a group discharge under this section.
    (d) Discharge procedures. (1) If the Secretary determines that a 
borrower's Direct Loan may be eligible for a discharge under this 
section, the Secretary provides the borrower an application and an 
explanation of the qualifications and procedures for obtaining a 
discharge. The Secretary also promptly suspends any efforts to collect 
from the borrower on any affected loan. The Secretary may continue to 
receive borrower payments.
    (2) If the borrower fails to submit the application for discharge 
and supporting information described in paragraph (c) of this section 
within 60 days

[[Page 296]]

of the Secretary's providing the application, the Secretary resumes 
collection and grants forbearance of principal and interest for the 
period in which collection activity was suspended.
    (3) If the borrower submits an application for discharge that the 
Secretary determines is incomplete, the Secretary notifies the borrower 
of that determination and allows the borrower an additional 30-days to 
amend their application and provide supplemental information. If the 
borrower does not amend their application within 30 days of receiving 
the notification from the Secretary, the borrower's application is 
closed as incomplete and the Secretary resumes collection of the loan 
and grants forbearance of principal and interest for the period in which 
collection activity was suspended.
    (4) If the borrower submits a completed application described in 
paragraph (c) of this section, the Secretary determines whether the 
available evidence supports the claim for discharge. Available evidence 
includes evidence provided by the borrower and any other relevant 
information from the Secretary's records and gathered by the Secretary 
from other sources, including guaranty agencies, other Federal agencies, 
State authorities, test publishers, independent test administrators, 
school records, and cognizant accrediting associations. The Secretary 
issues a decision that explains the reasons for any adverse 
determination on the application, describes the evidence on which the 
decision was made, and provides the borrower, upon request, copies of 
the evidence. The Secretary considers any response from the borrower and 
any additional information from the borrower and notifies the borrower 
whether the determination is changed.
    (5) If the Secretary determines that the borrower meets the 
applicable requirements for a discharge under paragraph (c) of this 
section, the Secretary notifies the borrower in writing of that 
determination.
    (6) If the Secretary determines that the borrower does not qualify 
for a discharge, the Secretary notifies the borrower in writing of that 
determination and the reasons for the determination.
    (7) A borrower is not precluded from re-applying for a discharge 
under paragraph (c) of this section if the discharge request is closed 
as incomplete, or if the Secretary determines that the borrower does not 
qualify for a discharge if the borrower provides additional supporting 
evidence.

(Approved by the Office of Management and Budget under control number 
1845-0021)

[59 FR 61690, Dec. 1, 1994, as amended at 59 FR 66134, Dec. 22, 1994; 61 
FR 29900, June 12, 1996; 64 FR 58972, Nov. 1, 1999; 65 FR 65622, Nov. 1, 
2000. Redesignated and amended at 65 FR 65629, Nov. 1, 2000; 66 FR 
34765, June 29, 2001; 71 FR 45714, Aug. 9, 2006; 78 FR 65835, Nov. 1, 
2013; 81 FR 76082, Nov. 1, 2016; 84 FR 49931, Sept. 23, 2019; 87 FR 
66062, Nov. 1, 2022]



Sec.  685.216  Unpaid refund discharge.

    (a)(1) Unpaid refunds in closed school situations. In the case of a 
school that has closed, the Secretary discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of a 
Direct Loan equal to the refund that should have been made by the school 
under applicable law and regulations, including this section. Any 
accrued interest and other charges associated with the unpaid refund are 
also discharged.
    (2) Unpaid refunds in open school situations. (i) In the case of a 
school that is open, the Secretary discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of a 
Direct Loan equal to the refund that should have been made by the school 
under applicable law and regulations, including this section, if--
    (A) The borrower (or the student on whose behalf a parent borrowed) 
is not attending the school that owes the refund;
    (B) The borrower has been unable to resolve the unpaid refund with 
the school; and
    (C) The Secretary is unable to resolve the unpaid refund with the 
school within 120 days from the date the borrower submits a complete 
application in accordance with paragraph (c)(1) of this section 
regarding the unpaid refund. Any accrued interest and other charges 
associated with the unpaid refund are also discharged.
    (ii) For the purpose of paragraph (a)(2)(i)(C) of this section, 
within 60

[[Page 297]]

days of the date notified by the Secretary, the school must submit to 
the Secretary documentation demonstrating that the refund was made by 
the school or that the refund was not required to be made by the school.
    (b) Relief to borrower following discharge. (1) If the borrower 
receives a discharge of a portion of a loan under this section, the 
borrower is reimbursed for any amounts paid in excess of the remaining 
balance of the loan (including accrued interest and other charges) owed 
by the borrower at the time of discharge.
    (2) The Secretary reports the discharge of a portion of a loan under 
this section to all consumer reporting agencies to which the Secretary 
previously reported the status of the loan.
    (c) Borrower qualification for discharge. (1) Except as provided in 
paragraph (c)(2) of this section, to receive a discharge of a portion of 
a loan under this section, a borrower must submit a written application 
to the Secretary. The application requests the information required to 
calculate the amount of the discharge and requires the borrower to sign 
a statement swearing to the accuracy of the information in the 
application. The statement need not be notarized but must be made by the 
borrower under penalty of perjury. In the statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not attend, withdrew, or was terminated from the school 
within a timeframe that entitled the borrower to a refund; and
    (C) Did not receive the benefit of a refund to which the borrower 
was entitled either from the school or from a third party, such as the 
holder of a performance bond or a tuition recovery program;
    (ii) State whether the borrower (or student) has any other 
application for discharge pending for this loan; and
    (iii) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions as 
described in Sec.  685.214(d) and to transfer any right to recovery 
against a third party to the Secretary as described in Sec.  685.214(e).
    (2) The Secretary may discharge a portion of a loan under this 
section without an application if the Secretary determines, based on 
information in the Secretary's possession, that the borrower qualifies 
for a discharge.
    (d) Determination of amount eligible for discharge. (1) The 
Secretary determines the amount eligible for discharge based on 
information showing the refund amount or by applying the appropriate 
refund formula to information that the borrower provides or that is 
otherwise available to the Secretary. For purposes of this section, all 
unpaid refunds are considered to be attributed to loan proceeds.
    (2) If the information in paragraph (d)(1) of this section is not 
available, the Secretary uses the following formulas to determine the 
amount eligible for discharge:
    (i) In the case of a student who fails to attend or whose withdrawal 
or termination date is before October 7, 2000 and who completes less 
than 60 percent of the loan period, the Secretary discharges the lesser 
of the institutional charges unearned or the loan amount. The Secretary 
determines the amount of the institutional charges unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan period after the student's last day of attendance to the actual 
length of the loan period; and
    (B) Multiplying the resulting factor by the institutional charges 
assessed the student for the loan period.
    (ii) In the case of a student who fails to attend or whose 
withdrawal or termination date is on or after October 7, 2000 and who 
completes less than 60 percent of the loan period, the Secretary 
discharges the loan amount unearned. The Secretary determines the loan 
amount unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan

[[Page 298]]

period after the student's last day of attendance to the actual length 
of the loan period; and
    (B) Multiplying the resulting factor by the total amount of title IV 
grants and loans received by the student, or, if unknown, the loan 
amount.
    (iii) In the case of a student who completes 60 percent or more of 
the loan period, the Secretary does not discharge any amount because a 
student who completes 60 percent or more of the loan period is not 
entitled to a refund.
    (e) Discharge procedures. (1) Except as provided in paragraph (c)(2) 
of this section, if the Secretary learns that a school did not make a 
refund of loan proceeds owed under applicable law and regulations, the 
Secretary sends the borrower a discharge application and an explanation 
of the qualifications and procedures for obtaining a discharge. The 
Secretary also promptly suspends any efforts to collect from the 
borrower on any affected loan. The Secretary may continue to receive 
borrower payments.
    (2) If a borrower who is sent a discharge application fails to 
submit the application within 60 days of the Secretary's sending the 
discharge application, the Secretary resumes collection and grants 
forbearance of principal and interest for the period in which collection 
activity was suspended. The Secretary may capitalize any interest 
accrued and not paid during that period.
    (3) If a borrower qualifies for a discharge, the Secretary notifies 
the borrower in writing. The Secretary resumes collection and grants 
forbearance of principal and interest on the portion of the loan not 
discharged for the period in which collection activity was suspended. 
The Secretary may capitalize any interest accrued and not paid during 
that period.
    (4) If a borrower does not qualify for a discharge, the Secretary 
notifies the borrower in writing of the reasons for the determination. 
The Secretary resumes collection and grants forbearance of principal and 
interest for the period in which collection activity was suspended. The 
Secretary may capitalize any interest accrued and not paid during that 
period.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[64 FR 58969, Nov. 1, 1999. Redesignated and amended at 65 FR 65629, 
Nov. 1, 2000; 66 FR 34765, June 29, 2001; 78 FR 65835, Nov. 1, 2013]



Sec.  685.217  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended to 
encourage individuals to enter and continue in the teaching profession. 
For new borrowers, the Secretary repays the amount specified in this 
paragraph (a) on the borrower's Direct Subsidized Loans, Direct 
Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, 
and in certain cases, Direct Consolidation Loans or Federal 
Consolidation Loans. The forgiveness program is only available to a 
borrower who has no outstanding loan balance under the Direct Loan 
Program or the FFEL Program on October 1, 1998, or who has no 
outstanding loan balance on the date he or she obtains a loan after 
October 1, 1998.
    (2)(i) The borrower must have been employed at an eligible 
elementary or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required 
five years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or for an 
eligible educational service agency.
    (ii) Teaching for an eligible elementary or secondary school may be 
counted toward the required five consecutive complete academic years 
only if for least one year of teaching was after the 1997-1998 academic 
year.
    (iii) Teaching at an eligible educational service agency may be 
counted toward the required five consecutive complete academic years 
only if the consecutive five-year period includes qualifying service at 
an eligible educational service agency performed after the 2007-2008 
academic year.

[[Page 299]]

    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible Direct Loan and FFEL Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible Direct Loan and FFEL Program 
loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or by an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or by an eligible 
educational service agency as a highly qualified special education 
teacher.
    (5) The loan for which the borrower is seeking forgiveness must have 
been made prior to the end of the borrower's fifth year of qualifying 
teaching service.
    (b) Definitions. The following definitions apply to this section:
    Academic year means one complete school year at the same school, or 
two complete and consecutive half years at different schools, or two 
complete and consecutive half years from different school years at 
either the same school or different schools. Half years exclude summer 
sessions and generally fall within a twelve-month period. For schools 
that have a year-round program of instruction, a minimum of nine months 
is considered an academic year.
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
    Elementary school means a public or nonprofit private school that 
provides elementary education as determined by State law or the 
Secretary if that school is not in a State.
    Full-time means the standard used by a State in defining full-time 
employment as a teacher. For a borrower teaching in more than one 
school, the determination of full-time is based on the combination of 
all qualifying employment.
    Highly qualified means highly qualified as defined in section 9101 
of the Elementary and Secondary Education Act of 1965, as amended.
    Secondary school means a public or nonprofit private school that 
provides secondary education as determined by State law or the Secretary 
if the school is not in a State.
    Teacher means a person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom setting, including Special 
Education teachers.
    (c) Borrower eligibility. (1) A borrower who has been employed at an 
elementary or secondary school or by an educational service agency as a 
full-time teacher for five consecutive complete academic years may 
obtain loan forgiveness under this program if the elementary or 
secondary school or educational service agency--
    (i) Is in a school district that qualifies for funds under title I 
of the Elementary and Secondary Education Act of 1965, as amended;
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's or educational service 
agency's total enrollment is made up of children who qualify for 
services provided under title I; and
    (iii) Is listed in the Annual Directory of Designated Low-Income 
Schools for Teacher Cancellation Benefits. If this directory is not 
available before May 1 of any year, the previous year's directory may be 
used.
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
    (3) If the school or educational service agency at which the 
borrower is employed meets the requirements specified in paragraph 
(c)(1) of this section for at least one year of the borrower's five 
consecutive complete academic years of teaching and fails to meet those 
requirements in subsequent

[[Page 300]]

years, those subsequent years of teaching qualify for purposes of this 
section for that borrower.
    (4) In the case of a borrower whose five consecutive complete years 
of qualifying teaching service began before October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower--
    (A) Demonstrated knowledge and teaching skills in reading, writing, 
mathematics, and other areas of the elementary school curriculum, as 
certified by the chief administrative officer of the eligible elementary 
school or educational service agency where the borrower was employed; or
    (B) Taught in a subject area that is relevant to the borrower's 
academic major as certified by the chief administrative officer of the 
eligible secondary school or educational service agency where the 
borrower was employed.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science to secondary 
school students on a full-time basis for an eligible educational service 
agency, and was a highly qualified mathematics or science teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or for an eligible educational service agency and was a highly qualified 
special education teacher whose special education training corresponded 
to the children's disabilities and who has demonstrated knowledge and 
teaching skills in the content areas of the elementary or secondary 
school curriculum.
    (iii) Teaching service performed at an eligible educational service 
agency may be counted toward the required five years of teaching only if 
the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (5) In the case of a borrower whose five consecutive years of 
qualifying teaching service began on or after October 30, 2004, the 
borrower--
    (i) May receive up to $5,000 of loan forgiveness if the borrower 
taught full time at an eligible elementary or secondary school or 
educational service agency and was a highly qualified elementary or 
secondary school teacher.
    (ii) May receive up to $17,500 of loan forgiveness if the borrower--
    (A) Taught mathematics or science on a full-time basis at an 
eligible secondary school, or taught mathematics or science on a full-
time basis to secondary school students for an eligible educational 
service agency, and was a highly qualified mathematics or science 
teacher; or
    (B) Taught as a special education teacher on a full-time basis to 
children with disabilities at an eligible elementary or secondary school 
or for an eligible educational service agency and was a highly qualified 
special education teacher whose special education training corresponded 
to the children's disabilities and who has demonstrated knowledge and 
teaching skills in the content areas of the elementary or secondary 
school curriculum.
    (iii) Teaching service performed for an eligible educational service 
agency may be counted toward the required five years of teaching only if 
the consecutive five-year period includes qualifying service for an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (6) To qualify for loan forgiveness as a highly qualified teacher, 
the teacher must have been a highly qualified teacher for all five years 
of eligible teaching service.
    (7) For teacher loan forgiveness applications received by the 
Secretary on or after July 1, 2006, a teacher in a private, non-profit 
elementary or secondary school who is exempt from State certification 
requirements (unless otherwise applicable under State law) may qualify 
for loan forgiveness under paragraphs (c)(4)(ii) or (c)(5) of this 
section if--
    (i) The private school teacher is permitted to and does satisfy 
rigorous subject knowledge and skills tests by taking competency tests 
in applicable grade levels and subject areas;
    (ii) The competency tests are recognized by 5 or more States for the 
purposes of fulfilling the highly qualified teacher requirements under 
section

[[Page 301]]

9101 of the Elementary and Secondary Education Act of 1965; and
    (iii) The private school teacher achieves a score on each test that 
equals or exceeds the average passing score for those 5 states.
    (8) The academic year may be counted as one of the borrower's five 
consecutive complete academic years if the borrower completes at least 
one-half of the academic year and the borrower's employer considers the 
borrower to have fulfilled his or her contract requirements for the 
academic year for the purposes of salary increases, tenure, and 
retirement if the borrower is unable to complete an academic year due 
to--
    (i) A return to postsecondary education, on at least a half-time 
basis, that is directly related to the performance of the service 
described in this section;
    (ii) A condition that is covered under the Family and Medical Leave 
Act of 1993 (FMLA) (29 U.S.C. 2601, et seq.); or
    (iii) A call or order to active duty status for more than 30 days as 
a member of a reserve component of the Armed Forces named in section 
10101 of title 10, United States Code.
    (9) A borrower's period of postsecondary education, qualifying FMLA 
condition, or military active duty as described in paragraph (c)(8) of 
this section, including the time necessary for the borrower to resume 
qualifying teaching no later than the beginning of the next regularly 
scheduled academic year, does not constitute a break in the required 
five consecutive years of qualifying teaching service.
    (10) A borrower who was employed as a teacher at more than one 
qualifying school, for more than one qualifying educational service 
agency, or a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-time, 
as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
    (11) A borrower is not eligible for teacher loan forgiveness on a 
defaulted loan unless the borrower has made satisfactory repayment 
arrangements to re-establish title IV eligibility, as defined in Sec.  
685.200(b).
    (12) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) Subtitle D of title I of the National and Community Service Act 
of 1990;
    (ii) 34 CFR 685.219; or
    (iii) Section 428 K of the Act.
    (13) A borrower may request forbearance during each of the five 
years of qualifying teaching service in accordance with Sec.  
685.205(a)(5).
    (d) Forgiveness amount. (1) A qualified borrower is eligible for 
forgiveness of up to $5,000, or up to $17,500 if the borrower meets the 
requirements of paragraph (c)(4)(ii) or (c)(5)(ii) of this section. The 
forgiveness amount is deducted from the aggregate amount of the 
borrower's Direct Subsidized Loan or Direct Unsubsidized Loan or Direct 
Consolidation Loan obligation that is outstanding after the borrower 
completes his or her fifth consecutive complete academic year of 
teaching as described in paragraph (c) of this section. Only the 
outstanding portion of the Direct Consolidation Loan that was used to 
repay an eligible Direct Subsidized Loan, an eligible Direct 
Unsubsidized Loan, or an eligible Subsidized or Unsubsidized Federal 
Stafford Loan qualifies for loan forgiveness under this section.
    (2) A borrower may not receive more than a total of $5,000, or 
$17,500 if the borrower meets the requirements of paragraph (c)(4)(ii) 
or (c)(5)(ii) of this section, in loan forgiveness for outstanding 
principal and accrued interest under both this section and under section 
34 CFR 682.216.
    (3) The Secretary does not refund payments that were received from 
or on behalf of a borrower who qualifies for loan forgiveness under this 
section.
    (e) Application. (1) A borrower, after completing the qualifying 
teacher service, must request loan forgiveness from the Secretary on a 
form provided by the Secretary.
    (2) If the Secretary determines that the borrower meets the 
eligibility requirements for loan forgiveness under this section, the 
Secretary--

[[Page 302]]

    (i) Notifies the borrower of this determination; and
    (ii) Unless otherwise instructed by the borrower, applies the 
proceeds of the loan forgiveness first to any outstanding Direct 
Unsubsidized Loan balances, next to any outstanding Direct Subsidized 
Loan balances, next to any qualifying Direct Unsubsidized Consolidation 
Loan balances, and last to any qualifying outstanding Direct Subsidized 
Consolidation Loan balances.
    (3) If the Secretary determines that the borrower does not meet the 
eligibility requirements for loan forgiveness under this section, the 
Secretary notifies the borrower of this determination.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[65 FR 65629, Nov. 1, 2000, as amended at 71 FR 45715, Aug. 9, 2006; 71 
FR 64400, Nov. 1, 2006; 73 FR 35495, June 23, 2008; 74 FR 56004, Oct. 
29, 2009; 78 FR 65835, Nov. 1, 2013]



Sec.  685.218  Discharge of student loan indebtedness for survivors of
victims of the September 11, 2001, attacks.

    (a) Definition of terms. As used in this section--
    (1) Eligible public servant means an individual who--
    (i) Served as a police officer, firefighter, other safety or rescue 
personnel, or as a member of the Armed Forces; and
    (ii)(A) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001; or
    (B) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001.
    (2) Eligible victim means an individual who died due to injuries 
suffered in the terrorist attacks on September 11, 2001 or became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001.
    (3) Eligible parent means the parent of an eligible victim if--
    (i) The parent owes a Direct PLUS Loan incurred on behalf of an 
eligible victim; or
    (ii) The parent owes a Direct Consolidation Loan that was used to 
repay a Direct PLUS Loan or a FFEL PLUS Loan incurred on behalf of an 
eligible victim.
    (4) Died due to injuries suffered in the terrorist attacks on 
September 11, 2001 means the individual was present at the World Trade 
Center in New York City, New York, at the Pentagon in Virginia, or at 
the Shanksville, Pennsylvania site at the time of or in the immediate 
aftermath of the terrorist-related aircraft crashes on September 11, 
2001, and the individual died as a direct result of these crashes.
    (5) Became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001 means the individual was 
present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of or in the immediate aftermath of the terrorist-related aircraft 
crashes on September 11, 2001 and the individual became permanently and 
totally disabled as a direct result of these crashes.
    (i) An individual is considered permanently and totally disabled 
if--
    (A) The disability is the result of a physical injury to the 
individual that was treated by a medical professional within 72 hours of 
the injury having been sustained or within 72 hours of the rescue;
    (B) The physical injury that caused the disability is verified by 
contemporaneous medical records created by or at the direction of the 
medical professional who provided the medical care; and
    (C) The individual is unable to work and earn money due to the 
disability and the disability is expected to continue indefinitely or 
result in death.
    (ii) If the injuries suffered due to the terrorist-related aircraft 
crashes did not make the individual permanently and totally disabled at 
the time of or in the immediate aftermath of the attacks, the individual 
may be considered to be permanently and totally disabled for purposes of 
this section if the individual's medical condition has deteriorated to 
the extent that the individual is permanently and totally disabled.
    (6) Immediate aftermath means, except in the case of an eligible 
public servant, the period of time from the aircraft crashes until 12 
hours after the crashes. With respect to eligible public

[[Page 303]]

servants, the immediate aftermath includes the period of time from the 
aircraft crashes until 96 hours after the crashes.
    (7) Present at the World Trade Center in New York City, New York, at 
the Pentagon in Virginia, or at the Shanksville, Pennsylvania site means 
physically present at the time of the terrorist-related aircraft crashes 
or in the immediate aftermath--
    (i) In the buildings or portions of the buildings that were 
destroyed as a result of the terrorist-related aircraft crashes;
    (ii) In any area contiguous to the crash site that was sufficiently 
close to the site that there was a demonstrable risk of physical harm 
resulting from the impact of the aircraft or any subsequent fire, 
explosions, or building collapses. Generally, this includes the 
immediate area in which the impact occurred, fire occurred, portions of 
buildings fell, or debris fell upon and injured persons; or
    (iii) On board American Airlines flights 11 or 77 or United Airlines 
flights 93 or 175 on September 11, 2001.
    (b) September 11 survivors discharge. (1) The Secretary discharges 
the obligation of a borrower and any endorser to make any further 
payments on an eligible Direct Loan if the borrower was, at the time of 
the terrorist attacks on September 11, 2001, and currently is, the 
spouse of an eligible public servant, unless the eligible public servant 
has died. If the eligible public servant has died, the borrower must 
have been the spouse of the eligible public servant at the time of the 
terrorist attacks on September 11, 2001 and until the date the eligible 
public servant died.
    (2) The Secretary discharges the obligation of a borrower and any 
endorser to make any further payments towards the portion of a joint 
Direct Consolidation Loan incurred on behalf of an eligible victim if 
the borrower was, at the time of the terrorist attacks on September 11, 
2001, and currently is, the spouse of an eligible victim, unless the 
eligible victim has died. If the eligible victim has died, the borrower 
must have been the spouse of the eligible victim at the time of the 
terrorist attacks on September 11, 2001 and until the date the eligible 
victim died.
    (3) If the borrower is an eligible parent--
    (i) The Secretary discharges the obligation of a borrower and any 
endorser to make any further payments on a Direct PLUS Loan incurred on 
behalf of an eligible victim.
    (ii) The Secretary discharges the obligation of the borrower and any 
endorser to make any further payments towards the portion of a Direct 
Consolidation Loan that repaid a PLUS Loan incurred on behalf of an 
eligible victim.
    (4) The parent of an eligible public servant may qualify for a 
discharge of a Direct PLUS loan incurred on behalf of the eligible 
public servant, or the portion of a Direct Consolidation Loan that 
repaid a Direct or FFEL PLUS Loan incurred on behalf of the eligible 
public servant, under the procedures, eligibility criteria, and 
documentation requirements described in this section for an eligible 
parent applying for a discharge of a loan incurred on behalf of an 
eligible victim.
    (c) Applying for discharge. (1) In accordance with the procedures in 
paragraphs (c)(2) through (c)(4) of this section, the Secretary 
discharges--
    (i) A Direct Loan owed by the spouse of an eligible public servant;
    (ii) A Direct PLUS Loan incurred on behalf of an eligible victim;
    (iii) The portion of a Direct Consolidation Loan that repaid a PLUS 
loan incurred on behalf of an eligible victim; and
    (iv) The portion of a joint Direct Consolidation Loan incurred on 
behalf of an eligible victim.
    (2) After being notified by the borrower that the borrower claims to 
qualify for a discharge under this section, the Secretary suspends 
collection activity on the borrower's eligible Direct Loans and requests 
that the borrower submit a request for discharge on a form approved by 
the Secretary.
    (3) If the Secretary determines that the borrower does not qualify 
for a discharge under this section, or the Secretary does not receive 
the completed discharge request form from the borrower within 60 days of 
the borrower notifying the Secretary that the borrower claims to qualify 
for a discharge, the Secretary resumes collection and

[[Page 304]]

grants forbearance of payment of both principal and interest for the 
period in which collection activity was suspended. The Secretary 
notifies the borrower that the application for the discharge has been 
denied, provides the basis for the denial, and informs the borrower that 
the Secretary will resume collection on the loan. The Secretary may 
capitalize any interest accrued and not paid during this period.
    (4) If the Secretary determines that the borrower qualifies for a 
discharge under this section, the Secretary notifies the borrower that 
the loan has been discharged or, in the case of a partial discharge of a 
Direct Consolidation Loan, partially discharged. Except in the case of a 
partial discharge of a Direct Consolidation Loan, the Secretary returns 
to the sender any payments received by the Secretary after the date the 
loan was discharged.
    (5) The Secretary discharges a Direct Loan owed by an eligible 
victim or an eligible public servant under the procedures in Sec.  
685.212 for a discharge based on death or under the procedures in Sec.  
685.213 for a discharge based on a total and permanent disability.
    (d) Documentation that an eligible public servant or eligible victim 
died due to injuries suffered in the terrorist attacks on September 11, 
2001. (1) Documentation that an eligible public servant died due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces, or was employed as a police officer, 
firefighter, or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes; and
    (ii) The inclusion of the individual on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001.
    (2) If the individual is not included on an official list of the 
individuals who died in the terrorist attacks on September 11, 2001, the 
borrower must provide--
    (i) The certification described in paragraph (d)(1)(i) of this 
section;
    (ii) An original or certified copy of the individual's death 
certificate; and
    (iii) A certification from a physician or a medical examiner that 
the individual died due to injuries suffered in the terrorist attacks on 
September 11, 2001.
    (3) If the individual owed a Direct Loan, a FFEL Program Loan, or a 
Perkins Loan at the time of the terrorist attacks on September 11, 2001, 
documentation that the individual's loans were discharged by the 
Secretary, the lender, or the institution due to death may be 
substituted for the original or certified copy of a death certificate.
    (4) Documentation that an eligible victim died due to injuries 
suffered in the terrorist attacks on September 11, 2001 is the inclusion 
of the individual on an official list of the individuals who died in the 
terrorist attacks on September 11, 2001.
    (5) If the eligible victim is not included on an official list of 
the individuals who died in the terrorist attacks on September 11, 2001, 
the borrower must provide--
    (i) The documentation described in paragraphs (d)(2)(ii) or (d)(3), 
and (d)(2)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (6) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on another Direct Loan, a FFEL Program 
Loan, or a Perkins Loan because the eligible public servant died due to 
injuries suffered in the terrorist attacks on September 11, 2001, 
documentation of the discharge may be used as an alternative to the 
documentation in paragraphs (d)(1) through (d)(3) of this section.
    (7) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on another Direct Loan or a FFEL 
Program Loan because the eligible victim died due to

[[Page 305]]

injuries suffered in the terrorist attacks on September 11, 2001, 
documentation of the discharge may be used as an alternative to the 
documentation in paragraphs (d)(4) and (d)(5) of this section.
    (8) The Secretary may discharge the loan based on other reliable 
documentation that establishes, to the Secretary's satisfaction, that 
the eligible public servant or the eligible victim died due to injuries 
suffered in the September 11, 2001 attacks. The Secretary discharges a 
loan based on documentation other than the documentation specified in 
paragraphs (d)(1) through (d)(5) of this section only under exceptional 
circumstances and on a case-by-case basis.
    (e) Documentation that an eligible public servant or eligible victim 
became permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001. (1) Documentation that an 
eligible public servant became permanently and totally disabled due to 
injuries suffered in the terrorist attacks on September 11, 2001 must 
include--
    (i) A certification from an authorized official that the individual 
was a member of the Armed Forces or was employed as a police officer, 
firefighter or other safety or rescue personnel, and was present at the 
World Trade Center in New York City, New York, at the Pentagon in 
Virginia, or at the Shanksville, Pennsylvania site at the time of the 
terrorist-related aircraft crashes or in the immediate aftermath of 
these crashes;
    (ii) Copies of contemporaneous medical records created by or at the 
direction of a medical professional who provided medical care to the 
individual within 72 hours of the injury having been sustained or within 
72 hours of the rescue; and
    (iii) A certification by a physician, who is a doctor of medicine or 
osteopathy and legally authorized to practice in a state, that the 
individual became permanently and totally disabled due to injuries 
suffered in the terrorist attacks on September 11, 2001.
    (2) Documentation that an eligible victim became permanently and 
totally disabled due to injuries suffered in the terrorist attacks on 
September 11, 2001 must include--
    (i) The documentation described in paragraphs (e)(1)(ii) and 
(e)(1)(iii) of this section; and
    (ii) A certification signed by the borrower that the eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site at the 
time of the terrorist-related aircraft crashes or in the immediate 
aftermath of these crashes.
    (3) If the borrower is the spouse of an eligible public servant, and 
has been granted a discharge on a Perkins Loan, a FFEL Program loan, or 
another Direct Loan because the eligible public servant became 
permanently and totally disabled due to injuries suffered in the 
terrorist attacks on September 11, 2001, documentation of the discharge 
may be used as an alternative to the documentation in paragraph (e)(1) 
of this section.
    (4) If the borrower is the spouse or parent of an eligible victim, 
and has been granted a discharge on a FFEL Program Loan, or another 
Direct Loan because the eligible victim became permanently and totally 
disabled due to injuries suffered in the terrorist attacks on September 
11, 2001, documentation of the discharge may be used as an alternative 
to the documentation in paragraph (e)(2) of this section.
    (f) Additional information. (1) The Secretary may require the 
borrower to submit additional information that the Secretary deems 
necessary to determine the borrower's eligibility for a discharge under 
this section.
    (2) To establish that the eligible public servant or eligible victim 
was present at the World Trade Center in New York City, New York, at the 
Pentagon in Virginia, or at the Shanksville, Pennsylvania site, such 
additional information may include but is not limited to--
    (i) Records of employment;
    (ii) Contemporaneous records of a federal, state, city, or local 
government agency;
    (iii) An affidavit or declaration of the eligible public servant's 
or eligible victim's employer; or

[[Page 306]]

    (iv) A sworn statement (or an unsworn statement complying with 28 
U.S.C. 1746) regarding the presence of the eligible public servant or 
eligible victim at the site.
    (3) To establish that the disability of the eligible public servant 
or eligible victim is due to injuries suffered in the terrorist attacks 
on September 11, 2001, such additional information may include but is 
not limited to--
    (i) Contemporaneous medical records of hospitals, clinics, 
physicians, or other licensed medical personnel;
    (ii) Registries maintained by federal, state, or local governments; 
or
    (iii) Records of all continuing medical treatment.
    (4) To establish the borrower's relationship to the eligible public 
servant or eligible victim, such additional information may include but 
is not limited to--
    (i) Copies of relevant legal records including court orders, letters 
of testamentary or similar documentation;
    (ii) Copies of wills, trusts, or other testamentary documents; or
    (iii) Copies of approved joint Direct Loan or FFEL Consolidation 
Loan applications or an approved Direct or FFEL PLUS Loan application.
    (g) Limitations on discharge. (1) Only outstanding Direct Subsidized 
Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct 
Consolidation Loans for which amounts were owed on September 11, 2001, 
or outstanding Direct Consolidation Loans incurred to pay off loan 
amounts that were owed on September 11, 2001, are eligible for discharge 
under this section.
    (2)(i) Eligibility for a discharge under this section does not 
qualify a borrower for a refund of any payments made on the borrower's 
Direct Loan prior to the date the loan was discharged.
    (ii) A borrower may apply for a partial discharge of a joint Direct 
Consolidation loan due to death or total and permanent disability under 
the procedures in Sec.  685.212(a) or Sec.  685.213. If the borrower is 
granted a partial discharge under the procedures in Sec.  685.212(a) or 
Sec.  685.213 the borrower may qualify for a refund of payments in 
accordance with Sec.  685.212(g)(1) or Sec.  685.212(g)(2).
    (iii) A borrower may apply for a discharge of a Direct PLUS loan due 
to the death of the student for whom the borrower received the PLUS loan 
under the procedures in Sec.  685.212(a). If a borrower is granted a 
discharge under the procedures in Sec.  685.212(a), the borrower may 
qualify for a refund of payments in accordance with Sec.  685.212(g)(1).
    (3) A determination that an eligible public servant or an eligible 
victim became permanently and totally disabled due to injuries suffered 
in the terrorist attacks on September 11, 2001 for purposes of this 
section does not qualify the eligible public servant or the eligible 
victim for a discharge based on a total and permanent disability under 
Sec.  685.213.
    (4) The spouse of an eligible public servant or eligible victim may 
not receive a discharge under this section if the eligible public 
servant or eligible victim has been identified as a participant or 
conspirator in the terrorist-related aircraft crashes on September 11, 
2001. An eligible parent may not receive a discharge on a Direct PLUS 
Loan or on a Direct Consolidation Loan that was used to repay a Direct 
Loan or FFEL Program PLUS Loan incurred on behalf of an individual who 
has been identified as a participant or conspirator in the terrorist-
related aircraft crashes on September 11, 2001.

[71 FR 78083, Dec. 28, 2006, as amended at 72 FR 55054, Sept. 28, 2007; 
78 FR 65836, Nov. 1, 2013]



Sec.  685.219  Public Service Loan Forgiveness Program (PSLF).

    (a) Purpose. The Public Service Loan Forgiveness Program is intended 
to encourage individuals to enter and continue in full-time public 
service employment by forgiving the remaining balance of their Direct 
loans after they satisfy the public service and loan payment 
requirements of this section.
    (b) Definitions. The following definitions apply to this section:
    AmeriCorps service means service in a position approved by the 
Corporation for National and Community Service under section 123 of the 
National and Community Service Act of 1990 (42 U.S.C. 12573).
    Civilian service to the military means providing services to or on 
behalf of

[[Page 307]]

members, veterans, or the families or survivors of deceased members of 
the U.S. Armed Forces or the National Guard that is provided to a person 
because of the person's status in one of those groups.
    Early childhood education program means an early childhood education 
program as defined in section 103(8) of the Act (20 U.S.C. 1003).
    Eligible Direct Loan means a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct PLUS Loan, or a Direct Consolidation Loan.
    Emergency management services means services that help remediate, 
lessen, or eliminate the effects or potential effects of emergencies 
that threaten human life or health, or real property.
    Employee or employed means an individual--
    (i) To whom an organization issues an IRS Form W-2;
    (ii) Who receives an IRS Form W-2 from an organization that has 
contracted with a qualifying employer to provide payroll or similar 
services for the qualifying employer, and which provides the Form W-2 
under that contract;
    (iii) who works as a contracted employee for a qualifying employer 
in a position or providing services which, under applicable state law, 
cannot be filled or provided by a direct employee of the qualifying 
employer.
    Full-time means:
    (i) Working in qualifying employment in one or more jobs--
    (A) A minimum average of 30 hours per week during the period being 
certified,
    (B) A minimum of 30 hours per week throughout a contractual or 
employment period of at least 8 months in a 12-month period, such as 
elementary and secondary school teachers and professors and instructors, 
in higher education, in which case the borrower is deemed to have worked 
full time; or
    (C) The equivalent of 30 hours per week as determined by multiplying 
each credit or contact hour taught per week by at least 3.35 in non-
tenure track employment at an institution of higher education.
    (ii) Routine paid vacation or paid leave time provided by the 
employer, and leave taken under the Family and Medical Leave Act of 1993 
(29 U.S.C. 2612(a)(1)) will be considered when determining if the 
borrower is working full-time.
    Law enforcement means service that is publicly funded and whose 
principal activities pertain to crime prevention, control or reduction 
of crime, or the enforcement of criminal law.
    Military service means ``active duty'' service or ``full-time 
National Guard duty'' as defined in section 101(d)(1) and (d)(5) of 
title 10 in the United States Code and does not include active duty for 
training or attendance at a service school.
    Non-governmental public service means services provided by employees 
of a non-governmental qualified employer where the employer has devoted 
a majority of its full-time equivalent employees to working in at least 
one of the following areas (as defined in this section): emergency 
management, civilian service to military personnel military service, 
public safety, law enforcement, public interest law services, early 
childhood education, public service for individuals with disabilities or 
the elderly, public health, public education, public library services, 
school library, or other school-based services. Service as a member of 
the U.S. Congress is not qualifying public service employment for 
purposes of this section.
    Non-tenure track employment means work performed by adjunct, 
contingent or part time faculty, teachers, or lecturers who are paid 
based on the credit hours they teach at institutions of higher 
education.
    Other school-based service means the provision of services to 
schools or students in a school or a school-like setting that are not 
public education services, such as school health services and school 
nurse services, social work services in schools, and parent counseling 
and training.
    Peace Corps position means a full-time assignment under the Peace 
Corps Act as provided for under 22 U.S.C. 2504.
    Public education service means the provision of educational 
enrichment or support to students in a public school or a public school-
like setting, including teaching.

[[Page 308]]

    Public health means those engaged in the following occupations (as 
those terms are defined by the Bureau of Labor Statistics): physicians, 
nurse practitioners, nurses in a clinical setting, health care 
practitioners, health care support, counselors, social workers, and 
other community and social service specialists.
    Public interest law is legal services that are funded in whole or in 
part by a local, State, Federal, or Tribal government.
    Public library service means the operation of public libraries or 
services that support their operation.
    Public safety service means services that seek to prevent the need 
for emergency management services.
    Public service for individuals with disabilities means services 
performed for or to assist individuals with disabilities (as defined in 
the Americans with Disabilities Act (42 U.S.C. 12102)) that is provided 
to a person because of the person's status as an individual with a 
disability.
    Public service for the elderly means services that are provided to 
individuals who are aged 62 years or older and that are provided to a 
person because of the person's status as an individual of that age.
    Qualifying employer means:
    (i) A United States-based Federal, State, local, or Tribal 
government organization, agency, or entity, including the U.S. Armed 
Forces or the National Guard;
    (ii) A public child or family service agency;
    (iii) An organization under section 501(c)(3) of the Internal 
Revenue Code of 1986 that is exempt from taxation under section 501(a) 
of the Internal Revenue Code;
    (iv) A Tribal college or university; or
    (v) A nonprofit organization that--
    (A) Provides a non-governmental public service as defined in this 
section, attested to by the employer on a form approved by the 
Secretary; and
    (B) Is not a business organized for profit, a labor union, or a 
partisan political organization.
    Qualifying repayment plan means:
    (i) An income-contingent repayment plan under Sec.  685.209 or an 
income-based repayment plan under Sec.  685.221;
    (ii) The 10-year standard repayment plan under Sec.  685.208(b) or 
the consolidation loan standard repayment plan with a 10-year repayment 
term under Sec.  685.208(c); or
    (iii) Except for the alternative repayment plan, any other repayment 
plan if the monthly payment amount is not less than what would have been 
paid under the 10-year standard repayment plan under Sec.  685.208(b).
    School library services means the operations of school libraries or 
services that support their operation.
    (c) Borrower eligibility. (1) A borrower may obtain loan forgiveness 
under this program if the borrower--
    (i) Is not in default on the loan at the time forgiveness is 
requested;
    (ii) Is employed full-time by a qualifying employer or serving in a 
full-time AmeriCorps or Peace Corps position--
    (A) When the borrower satisfied the 120 monthly payments described 
under paragraph (c)(1)(iii) of this section; and
    (B) At the time the borrower applies for forgiveness under paragraph 
(e) of this section; and
    (iii) Satisfies the equivalent of 120 monthly payments after October 
1, 2007, as described in paragraph (c)(2) of this section, on eligible 
Direct loans.
    (2) A borrower will be considered to have made monthly payments 
under paragraph (c)(1)(iii) of this section by--
    (i) Paying at least the full scheduled amount due for a monthly 
payment under the qualifying repayment plan;
    (ii) Paying in multiple installments that equal the full scheduled 
amount due for a monthly payment under the qualifying repayment plan;
    (iii) For a borrower on an income-contingent repayment plan under 
Sec.  685.209 or an income-based repayment plan under Sec.  685.221, 
paying a lump sum or monthly payment amount that is equal to or greater 
than the full scheduled amount in advance of the borrower's scheduled 
payment due date for a period of months not to exceed the period from 
the Secretary's receipt of the payment until the borrower's next annual 
repayment plan recertification date under the qualifying repayment plan 
in which the borrower is enrolled;
    (iv) For a borrower on the 10-year standard repayment plan under

[[Page 309]]

Sec.  685.208(b) or the consolidation loan standard repayment plan with 
a 10-year repayment term under Sec.  685.208(c), paying a lump sum or 
monthly payment amount that is equal to or greater than the full 
scheduled amount in advance of the borrower's scheduled payment due date 
for a period of months not to exceed the period from the Secretary's 
receipt of the payment until the lesser of 12 months from that date or 
the date upon which the Secretary receives the borrower's next 
submission under subsection (e).
    (v) Receiving one of the following deferments or forbearances for 
the month:
    (A) Cancer treatment deferment under section 455(f)(3) of the Act;
    (B) Economic hardship deferment under Sec.  685.204(g);
    (C) Military service deferment under Sec.  685.204(h);
    (D) Post-active-duty student deferment under Sec.  685.204(i);
    (E) AmeriCorps forbearance under Sec.  685.205(a)(4);
    (F) National Guard Duty forbearance under Sec.  685.205(a)(7);
    (G) U.S. Department of Defense Student Loan Repayment Program 
forbearance under Sec.  685.205(a)(9);
    (H) Administrative forbearance or mandatory administrative 
forbearance under Sec.  685.205(b)(8) or (9); and
    (vi) Being employed full-time with a qualifying employer, as defined 
in this section, at any point during the month for which the payment is 
credited.
    (3) If a borrower consolidates one or more Direct Loans into a 
Direct Consolidation Loan, including a Direct PLUS Loan made to a parent 
borrower, the weighted average of the payments the borrower made on the 
Direct Loans prior to consolidating and that met the criteria in 
paragraphs (c)(2)(i) through (vi) of this section will count as 
qualifying payments on the Direct Consolidation Loan.
    (d) Forgiveness amount. The Secretary forgives the principal and 
accrued interest that remains on all loans for which the borrower meets 
the requirements of paragraph (c) of this section as of the date the 
borrower satisfied the last required monthly payment obligation.
    (e) Application process. (1) Notwithstanding paragraph (f) of this 
section, after making the 120 monthly qualifying payments on the 
eligible loans for which loan forgiveness is requested while working the 
120 months of qualifying service, a borrower may request loan 
forgiveness by filing an application approved by the Secretary.
    (2) If the Secretary has sufficient information to determine the 
borrower's qualifying employer and length of employment, the Secretary 
informs the borrower if the borrower is eligible for forgiveness.
    (3) If the Secretary does not have sufficient information to make a 
determination of the borrower's eligibility for forgiveness, the 
borrower must provide additional information about the borrower's 
employment and employer on a form approved by the Secretary.
    (4) If the borrower is unable to secure a certification of 
employment from a qualifying employer, the Secretary may determine the 
borrower's qualifying employment or payments based on other 
documentation provided by the borrower at the Secretary's request.
    (5) The Secretary may request reasonable additional documentation 
pertaining to the borrower's employer or employment before providing a 
determination.
    (6) The Secretary may substantiate an employer's attestation of 
information provided on the form in paragraph (e)(3) of this section 
based on a review of information about the employer.
    (7) If the Secretary determines that the borrower meets the 
eligibility requirements for loan forgiveness under this section, the 
Secretary--
    (i) Notifies the borrower of this determination; and
    (ii) Forgives the outstanding balance of the eligible loans.
    (8) If the Secretary determines that the borrower does not meet the 
eligibility requirements for loan forgiveness under this section, grants 
forbearance of payment on both principal and interest for the period in 
which collection activity was suspended. The Secretary notifies the 
borrower that the application has been denied, provides the basis for 
the denial, and informs the borrower that the Secretary will

[[Page 310]]

resume collection of the loan. The Secretary does not capitalize any 
interest accrued and not paid during this period.
    (f) Application not required. The Secretary forgives a loan under 
this section without an application from the borrower if the Secretary 
has sufficient information in the Secretary's possession to determine 
the borrower has satisfied the requirements for forgiveness under this 
section.
    (g) Reconsideration process. (1) Within 90 days of the date the 
Secretary sent the notice of denial of forgiveness under paragraph 
(e)(8) of this section to the borrower, the borrower may request that 
the Secretary reconsider whether the borrower's employer or any payment 
meets the requirements for credit toward forgiveness by requesting 
reconsideration on a form approved by the Secretary. Borrowers who were 
denied loan forgiveness under this section after October 1, 2017, and 
prior to [EFFECTIVE DATE OF FINAL RULE], have 180 days from the 
effective date of this Final Rule to request reconsideration.
    (2) To evaluate a reconsideration request, the Secretary considers--
    (i) Any relevant evidence that is obtained by the Secretary; and
    (ii) Additional supporting documentation not previously provided by 
the borrower or employer.
    (3) The Secretary notifies the borrower of the reconsideration 
decision and the reason for the Secretary's determination.
    (4) If the Secretary determines that the borrower qualifies for 
forgiveness, the Secretary adjusts the borrower's number of qualifying 
payments or forgives the loan, as appropriate.
    (5) After the Secretary makes a decision on the borrower's 
reconsideration request, the Secretary's decision is final, and the 
borrower will not receive additional reconsideration unless the borrower 
presents additional evidence.
    (6) For any months in which a borrower postponed monthly payments 
under a deferment or forbearance and was employed full-time at a 
qualifying employer as defined in this section but was in a deferment or 
forbearance status besides those listed in paragraph (c)(2)(v) of this 
section, the borrower may obtain credit toward forgiveness for those 
months, as defined in paragraph (d) of this section, for any months in 
which the borrower--
    (i) Makes an additional payment equal to or greater than the amount 
they would have paid at that time on a qualifying repayment plan or
    (ii) Otherwise qualified for a $0 payment on an income-driven 
repayment plan under Sec.  685.209 and income-based repayment plan under 
Sec.  685.221.

[87 FR 66063, Nov. 1, 2022]



Sec.  685.220  Consolidation.

    (a) Direct Consolidation Loans. A borrower may consolidate education 
loans made under certain Federal programs into a Direct Consolidation 
Loan. Loans consolidated into a Direct Consolidation Loan are discharged 
when the Direct Consolidation Loan is originated.
    (b) Loans eligible for consolidation. The following loans may be 
consolidated into a Direct Consolidation Loan:
    (1) Subsidized Federal Stafford Loans.
    (2) Guaranteed Student Loans.
    (3) Federal Insured Student Loans (FISL).
    (4) Direct Subsidized Loans.
    (5) Direct Subsidized Consolidation Loans.
    (6) Federal Perkins Loans.
    (7) National Direct Student Loans (NDSL).
    (8) National Defense Student Loans (NDSL).
    (9) Federal PLUS Loans.
    (10) Parent Loans for Undergraduate Students (PLUS).
    (11) Direct PLUS Loans.
    (12) Direct PLUS Consolidation Loans.
    (13) Federal Consolidation Loans.
    (14) Unsubsidized Federal Stafford Loans.
    (15) Federal Supplemental Loans for Students (SLS).
    (16) Direct Unsubsidized Loans.
    (17) Direct Unsubsidized Consolidation Loans.
    (18) Auxiliary Loans to Assist Students (ALAS).

[[Page 311]]

    (19) Health Professions Student Loans (HPSL) and Loans for 
Disadvantaged Students (LDS) made under subpart II of part A of title 
VII of the Public Health Service Act.
    (20) Health Education Assistance Loans (HEAL).
    (21) Nursing loans made under part E of title VIII of the Public 
Health Service Act.
    (c) Components of Direct Consolidation Loans. (1) Subsidized 
component of Direct Consolidation Loans. The term ``Direct Subsidized 
Consolidation Loan'' refers to the portion of a Direct Consolidation 
Loan attributable to--
    (i) The loans identified in paragraphs (b)(1) through (b)(5) of this 
section; and
    (ii) The portion of a Federal Consolidation Loan under paragraph 
(b)(13) of this section that is eligible for interest benefits during a 
deferment period under section 428C(b)(4)(C) of the Act.
    (2) Unsubsidized component of Direct Consolidation Loans. Except as 
provided in paragraph (c)(3) of this section, the term ``Direct 
Unsubsidized Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to--
    (i) The loans identified in paragraphs (b)(6) through (b)(12) of 
this section;
    (ii) The portion of a Federal Consolidation Loan under paragraph 
(b)(13) of this section that is not eligible for interest benefits 
during a deferment period under section 428C(b)(4)(C) of the Act; and
    (iii) The loans identified in paragraphs (b)(14) through (b)(21) of 
this section.
    (3) PLUS component of Direct Consolidation Loans. In the case of a 
Direct Consolidation Loan made before July 1, 2006, the term ``Direct 
PLUS Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to the loans identified in paragraphs 
(b)(9) through (b)(12) of this section.
    (d) Eligibility for a Direct Consolidation Loan. (1) A borrower may 
obtain a Direct Consolidation Loan if the borrower meets the following 
requirements:
    (i) On the loans being consolidated, the borrower is--
    (A) At the time the borrower applies for the Direct Consolidation 
Loan--
    (1) In the grace period;
    (2) In a repayment period but not in default; or
    (3) In default but has made satisfactory repayment arrangements in 
accordance with paragraph (2) of the definition of that term in Sec.  
685.102(b);
    (B) Not subject to a judgment secured through litigation, unless the 
judgment has been vacated; or
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted.
    (ii) The borrower agrees to notify the Secretary of any change in 
address.
    (2) A borrower may not consolidate a Direct Consolidation Loan or a 
Federal Consolidation Loan into a new consolidation loan under this 
section unless at least one additional eligible loan is included in the 
consolidation, except that a borrower may consolidate a Federal 
Consolidation Loan into a new consolidation loan under this section 
without including any additional loans if--
    (i) The borrower has a Federal Consolidation Loan that is in default 
or has been submitted to the guaranty agency by the lender for default 
aversion, and the borrower wants to consolidate the Federal 
Consolidation Loan into the Direct Loan Program for the purpose of 
obtaining an income-contingent repayment plan or an income-based 
repayment plan; or
    (ii) The borrower has a Federal Consolidation Loan and the borrower 
wants to consolidate that loan into the Direct Loan Program for the 
purpose of using the Public Service Loan Forgiveness Program or the no 
accrual of interest benefit for active duty service.
    (3) Eligible loans received before or after the date a Direct 
Consolidation Loan is made may be added to a subsequent Direct 
Consolidation Loan.
    (e) Application for a Direct Consolidation Loan. To obtain a Direct 
Consolidation Loan, a borrower must submit a completed application to 
the Secretary. A borrower may add eligible loans to a Direct 
Consolidation Loan by submitting a request to the Secretary within 180 
days after the date on which the Direct Consolidation Loan is 
originated.

[[Page 312]]

    (f) Origination of a consolidation loan. (1)(i) The holder of a loan 
that a borrower wishes to consolidate into a Direct Loan must complete 
and return the Secretary's request for certification of the amount owed 
within 10 business days of receipt or, if it is unable to provide the 
certification, provide to the Secretary a written explanation of the 
reasons for its inability to provide the certification.
    (ii) If the Secretary approves an application for a consolidation 
loan, the Secretary pays to each holder of a loan selected for 
consolidation the amount necessary to discharge the loan.
    (iii) For a Direct Loan Program or FFEL Program loan that is in 
default, the Secretary limits collection costs that may be charged to 
the borrower to a maximum of 18.5 percent of the outstanding principal 
and interest amount of the defaulted loan. For any other defaulted 
Federal education loan, all collection costs that are owed may be 
charged to the borrower.
    (2) Upon receipt of the proceeds of a Direct Consolidation Loan, the 
holder of a consolidated loan must promptly apply the proceeds to fully 
discharge the borrower's obligation on the consolidated loan. The holder 
of a consolidated loan must notify the borrower that the loan has been 
paid in full.
    (3) The principal balance of a Direct Consolidation Loan is equal to 
the sum of the amounts paid to the holders of the consolidated loans.
    (4) If the amount paid by the Secretary to the holder of a 
consolidated loan exceeds the amount needed to discharge that loan, the 
holder of the consolidated loan must promptly refund the excess amount 
to the Secretary to be credited against the outstanding balance of the 
Direct Consolidation Loan.
    (5) If the amount paid by the Secretary to the holder of the 
consolidated loan is insufficient to discharge that loan, the holder 
must notify the Secretary in writing of the remaining amount due on the 
loan. The Secretary promptly pays the remaining amount due.
    (g) Interest rate. The interest rate on a Direct Subsidized 
Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the 
rate established in Sec.  685.202(a)(10)(i). The interest rate on a 
Direct PLUS Consolidation Loan is the rate established in Sec.  
685.202(a)(10)(ii).
    (h) Repayment plans. A borrower may choose a repayment plan for a 
Direct Consolidation Loan in accordance with Sec.  685.208, and may 
change repayment plans in accordance with Sec.  685.210(b).
    (i) Repayment period. (1) Except as noted in paragraph (i)(4) of 
this section, the repayment period for a Direct Consolidation Loan 
begins on the day the loan is disbursed.
    (2)(i) Borrowers who entered repayment before July 1, 2006. The 
Secretary determines the repayment period under Sec.  685.208(i) on the 
basis of the outstanding balances on all of the borrower's loans that 
are eligible for consolidation and the balances on other education loans 
except as provided in paragraphs (i)(3)(i), (ii), and (iii) of this 
section.
    (ii) Borrowers entering repayment on or after July 1, 2006. The 
Secretary determines the repayment period under Sec.  685.208(j) on the 
basis of the outstanding balances on all of the borrower's loans that 
are eligible for consolidation and the balances on other education loans 
except as provided in paragraphs (i)(3)(i) through (iii) of this 
section.
    (3)(i) The total amount of outstanding balances on the other 
education loans used to determine the repayment period under Sec. Sec.  
685.208(i) and (j) may not exceed the amount of the Direct Consolidation 
Loan.
    (ii) The borrower may not be in default on the other education loan 
unless the borrower has made satisfactory repayment arrangements with 
the holder of the loan.
    (iii) The lender of the other educational loan may not be an 
individual.
    (4) A Direct Consolidation Loan that was made based on an 
application received before July 1, 2006 receives a grace period if it 
includes a Direct Loan Program or FFEL Program loan for which the 
borrower was in an in-school period at the time of consolidation. The 
repayment period begins the day after the grace period ends.
    (j) Repayment schedule. (1) The Secretary provides a borrower of a 
Direct Consolidation Loan a repayment schedule before the borrower's 
first payment

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is due. The repayment schedule identifies the borrower's monthly 
repayment amount under the repayment plan selected.
    (2) If a borrower adds an eligible loan to the consolidation loan 
under paragraph (e) of this section, the Secretary makes appropriate 
adjustments to the borrower's monthly repayment amount and repayment 
period.
    (k) Refunds and returns of title IV, HEA program funds received from 
schools. If a lender receives a refund or return of title IV, HEA 
program funds from a school on a loan that has been consolidated into a 
Direct Consolidation Loan, the lender must transmit the refund or return 
and an explanation of the source of the refund or return to the 
Secretary within 30 days of receipt.
    (l) Special provisions for joint consolidation loans. The provisions 
of paragraphs (l)(1) through (3) of this section apply to a Direct 
Consolidation Loan obtained by two married borrowers in accordance with 
the regulations that were in effect for consolidation applications 
received prior to July 1, 2006.
    (1) Deferment. To obtain a deferment on a joint Direct Consolidation 
Loan under Sec.  685.204, both borrowers must meet the requirements of 
that section.
    (2) Forbearance. To obtain forbearance on a joint Direct 
Consolidation Loan under Sec.  685.205, both borrowers must meet the 
requirements of that section.
    (3) Discharge. (i) If a borrower dies and the Secretary receives the 
documentation described in Sec.  685.212(a), the Secretary discharges an 
amount equal to the portion of the outstanding balance of the 
consolidation loan, as of the date of the borrower's death, attributable 
to any of that borrower's loans that were repaid by the consolidation 
loan.
    (ii) If a borrower meets the requirements for total and permanent 
disability discharge under Sec.  685.212(b), the Secretary discharges an 
amount equal to the portion of the outstanding balance of the 
consolidation loan, as of the date the borrower became totally and 
permanently disabled, attributable to any of that borrower's loans that 
were repaid by the consolidation loan.
    (iii) If a borrower meets the requirements for discharge under Sec.  
685.212(d), (e), or (f) on a loan that was consolidated into a joint 
Direct Consolidation Loan, the Secretary discharges the portion of the 
consolidation loan equal to the amount of the loan that would be 
eligible for discharge under the provisions of Sec.  685.212(d), (e), or 
(f) as applicable, and that was repaid by the consolidation loan.
    (iv) If a borrower meets the requirements for loan forgiveness under 
Sec.  685.212(h) on a loan that was consolidated into a joint Direct 
Consolidation Loan, the Secretary repays the portion of the outstanding 
balance of the consolidation loan attributable to the loan that would be 
eligible for forgiveness under the provisions of Sec.  685.212(h), and 
that was repaid by the consolidation loan.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1078-8, 1087a et seq.)

[78 FR 65836, Nov. 1, 2013, as amended at 81 FR 76083, Nov. 1, 2016]



Sec.  685.221  Income-based repayment plan.

    (a) Definitions. As used in this section--
    (1) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income.
    (2) Eligible loan means any outstanding loan made to a borrower 
under the FFEL or Direct Loan programs except for a defaulted loan, a 
FFEL or Direct PLUS Loan made to a parent borrower, or a FFEL or Direct 
Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a 
parent borrower.
    (3) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, at 
the time the borrower

[[Page 314]]

certifies family size, the other individuals--
    (i) Live with the borrower; and
    (ii) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (4) New borrower means an individual who has no outstanding balance 
on a Direct Loan Program or FFEL Program loan on July 1, 2014, or who 
has no outstanding balance on such a loan on the date he or she obtains 
a loan after July 1, 2014.
    (5) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment plan 
based on a 10-year repayment period, using the greater of the amount due 
at the time the borrower initially entered repayment or at the time the 
borrower elects the income-based repayment plan, exceeds 15 percent or, 
for a new borrower, 10 percent of the difference between the borrower's 
AGI and 150 percent of the poverty guideline for the borrower's family 
size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse elects 
the income-based repayment plan, exceeds 15 percent or, for a new 
borrower, 10 percent of the difference between the borrower's and 
spouse's AGI, and 150 percent of the poverty guideline for the 
borrower's family size.
    (6) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower is 
the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (b) Terms of the repayment plan. (1) A borrower may select the 
income-based repayment plan only if the borrower has a partial financial 
hardship. The borrower's aggregate monthly loan payments are limited to 
no more than 15 percent or, for a new borrower, 10 percent of the amount 
by which the borrower's AGI exceeds 150 percent of the poverty guideline 
applicable to the borrower's family size, divided by 12.
    (2) The Secretary adjusts the calculated monthly payment if--
    (i) Except for borrowers provided for in paragraph (b)(2)(ii) of 
this section, the total amount of the borrower's eligible loans are not 
Direct Loans, in which case the Secretary determines the borrower's 
adjusted monthly payment by multiplying the calculated payment by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (ii) Both the borrower and borrower's spouse have eligible loans and 
filed a joint Federal tax return, in which case the Secretary 
determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(2)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (b)(2)(ii)(B) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (iii) The calculated amount under paragraph (b)(1), (b)(2)(i), or 
(b)(2)(ii) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (iv) The calculated amount under paragraph (b)(1), (b)(2)(i), or 
(b)(2)(ii) of this section is equal to or greater than $5.00 but less 
than $10.00, in which case

[[Page 315]]

the borrower's monthly payment is $10.00.
    (3) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or the 
subsidized portion of a Direct Consolidation Loan, the Secretary does 
not charge the borrower the remaining accrued interest for a period not 
to exceed three consecutive years from the established repayment period 
start date on that loan under the income-based repayment plan. Any 
period during which the Secretary has previously not charged the 
borrower accrued interest on an eligible loan under the Pay As You Earn 
repayment plan or the Revised Pay As You Earn repayment plan counts 
toward the maximum three years of subsidy a borrower is eligible to 
receive under the income-based repayment plan. On a Direct Consolidation 
Loan that repays loans on which the Secretary has not charged the 
borrower accrued interest, the three-year period includes the period for 
which the Secretary did not charge the borrower accrued interest on the 
underlying loans. This three-year period does not include any period 
during which the borrower receives an economic hardship deferment.
    (4) Except as provided in paragraph (b)(3) of this section, accrued 
interest is capitalized at the time a borrower chooses to leave the 
income-based repayment plan or no longer has a partial financial 
hardship.
    (5) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is postponed 
until the borrower chooses to leave the income-based repayment plan or 
no longer has a partial financial hardship.
    (6) The repayment period for a borrower under the income-based 
repayment plan may be greater than 10 years.
    (c) Payment application and prepayment. (1) The Secretary applies 
any payment made under the income-based repayment plan in the following 
order:
    (i) Accrued interest.
    (ii) Collection costs.
    (iii) Late charges.
    (iv) Loan principal.
    (2) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec.  685.211(a)(2).
    (3) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec.  685.211(a)(3).
    (4) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (c)(1) of this section.
    (d) Changes in the payment amount. (1) If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the income-based repayment plan, but the Secretary recalculates 
the borrower's monthly payment. The Secretary also recalculates the 
monthly payment for a borrower who chooses to stop making income-based 
payments. In either case, as result of the recalculation--
    (i) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on a 10-year repayment period using the 
amount of the borrower's eligible loans that was outstanding at the time 
the borrower began repayment on the loans under the income-based 
repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2)(i) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the standard repayment plan 
and the Secretary recalculates the borrower's monthly payment based on--
    (A) For a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a 
Direct PLUS Loan, the time remaining under the maximum ten-year 
repayment period for the amount of the borrower's loans that were 
outstanding at the time the borrower discontinued paying under the 
income-based repayment plan; or

[[Page 316]]

    (B) For a Direct Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under Sec.  
685.208(j) and the amount of that loan that was outstanding at the time 
the borrower discontinued paying under the income-based repayment plan.
    (ii) A borrower who no longer wishes to repay under the income-based 
repayment plan and who is required to repay under the Direct Loan 
standard repayment plan in accordance with paragraph (d)(2)(i) of this 
section may request a change to a different repayment plan after making 
one monthly payment under the Direct Loan standard repayment plan. For 
this purpose, a monthly payment may include one payment made under a 
forbearance that provides for accepting smaller payments than previously 
scheduled, in accordance with Sec.  685.205(a).
    (e) Eligibility documentation, verification, and notifications. (1) 
The Secretary determines whether a borrower has a partial financial 
hardship to qualify for the income-based repayment plan for the year the 
borrower selects the plan and for each subsequent year that the borrower 
remains on the plan. To make this determination, the Secretary requires 
the borrower to--
    (i) Provide documentation, acceptable to the Secretary, of the 
borrower's AGI;
    (ii) If the borrower's AGI is not available, or the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, provide other documentation to verify 
income; and
    (iii) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the Secretary assumes a family size of one 
for that year.
    (2) After making a determination that a borrower has a partial 
financial hardship to qualify for the income-based repayment plan for 
the year the borrower initially elects the plan and for any subsequent 
year that the borrower has a partial financial hardship, the Secretary 
sends the borrower a written notification that provides the borrower 
with--
    (i) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (b)(1) of this section, and the time period during which 
this scheduled monthly payment amount will apply (annual payment 
period);
    (ii) Information about the requirement for the borrower to annually 
provide the information described in paragraph (e)(1) of this section, 
if the borrower chooses to remain on the income-based repayment plan 
after the initial year on the plan, and an explanation that the borrower 
will be notified in advance of the date by which the Secretary must 
receive this information;
    (iii) An explanation of the consequences, as described in paragraphs 
(e)(1)(iii) and (e)(7) of this section, if the borrower does not provide 
the required information;
    (iv) An explanation of the consequences if the borrower no longer 
wishes to repay under the income-based repayment plan; and
    (v) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was used 
to calculate the borrower's current monthly payment no longer reflects 
the borrower's current income. If the Secretary recalculates the 
borrower's monthly payment amount based on the borrower's request, the 
Secretary sends the borrower a written notification that includes the 
information described in paragraphs (e)(2)(i) through (e)(2)(v) of this 
section.
    (3) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the income-based repayment plan, 
the Secretary notifies the borrower in writing of the requirements in 
paragraph (e)(1) of this section no later than 60 days and no earlier 
than 90 days prior to the date specified in paragraph (e)(3)(i) of this 
section. The notification provides the borrower with--
    (i) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the information described in paragraph (e)(1) of this section 
(annual deadline); and

[[Page 317]]

    (ii) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (d)(1) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (b)(4) of 
this section.
    (4) Each time the Secretary makes a determination that a borrower no 
longer has a partial financial hardship for a subsequent year that the 
borrower wishes to remain on the plan, the Secretary sends the borrower 
a written notification that provides the borrower with--
    (i) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (d)(1) of this section;
    (ii) An explanation that unpaid interest will be capitalized in 
accordance with paragraph (b)(4) of this section; and
    (iii) Information about the borrower's option to request, at any 
time, that the Secretary redetermine whether the borrower has a partial 
financial hardship, if the borrower's financial circumstances have 
changed and the income amount used to determine that the borrower no 
longer has a partial financial hardship does not reflect the borrower's 
current income, and an explanation that the borrower will be notified 
annually of this option. If the Secretary determines that the borrower 
again has a partial financial hardship, the Secretary recalculates the 
borrower's monthly payment in accordance with paragraph (b)(1) of this 
section and sends the borrower a written notification that includes the 
information described in paragraphs (e)(2)(i) through (e)(2)(v) of this 
section.
    (5) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the income-based repayment 
plan, the Secretary sends the borrower a written notification that 
includes the information described in paragraph (e)(4)(iii) of this 
section.
    (6) If a borrower who is currently repaying under another repayment 
plan selects the income-based repayment plan but does not provide the 
information described in paragraphs (e)(1)(i) and (e)(1)(ii) of this 
section, or if the Secretary determines that the borrower does not have 
a partial financial hardship, the borrower remains on his or her current 
repayment plan.
    (7) The Secretary designates the repayment option described in 
paragraph (d)(1) of this section if a borrower who is currently repaying 
under the income-based repayment plan remains on the plan for a 
subsequent year but the Secretary does not receive the information 
described in paragraphs (e)(1)(i) through (e)(1)(ii) of this section 
within 10 days of the specified annual deadline, unless the Secretary is 
able to determine the borrower's new monthly payment amount before the 
end of the borrower's current annual payment period.
    (8) If the Secretary receives the information described in 
paragraphs (e)(1)(i) and (e)(1)(ii) of this section within 10 days of 
the specified annual deadline--
    (i) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount is 
determined.
    (A) If the new monthly payment amount is less than the borrower's 
previously calculated income-based monthly payment amount, and the 
borrower made payments at the previously calculated amount after the end 
of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding the 
requirements of Sec.  685.211(a)(3), unless the borrower requests 
otherwise, the Secretary applies the excess payment amounts made after 
the end of the most recent annual payment period in accordance with the 
requirements of paragraph (c)(1) of this section.
    (B) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously

[[Page 318]]

calculated payment amount after the end of the most recent annual 
payment period, the Secretary does not make any adjustment to the 
borrower's account.
    (C) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (ii) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (9)(i) If the Secretary receives the documentation described in 
paragraphs (e)(1)(i) and (e)(1)(ii) of this section more than 10 days 
after the specified annual deadline and the borrower's monthly payment 
amount is recalculated in accordance with paragraph (d)(1) of this 
section, the Secretary grants forbearance with respect to payments that 
are overdue or would be due at the time the new calculated income-based 
monthly payment amount is determined, if the new monthly payment amount 
is $0.00 or is less than the borrower's previously calculated income-
based monthly payment amount. Interest that accrues during the portion 
of this forbearance period that covers payments that are overdue after 
the end of the prior annual payment period is not capitalized.
    (ii) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years or, for a new borrower, after 20 years, a borrower must have 
participated in the income-based repayment plan and satisfied at least 
one of the following conditions during the applicable loan forgiveness 
period:
    (i) Made reduced monthly payments under a partial financial hardship 
as provided in paragraph (b)(1) or (b)(2) of this section, including a 
monthly payment amount of $0.00, as provided under paragraph (b)(2)(iii) 
of this section.
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d) of this section.
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) with a 10-year repayment period.
    (iv) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) for the amount of the borrower's 
loans that were outstanding at the time the borrower first selected the 
income-based repayment plan.
    (v) Made monthly payments under a Direct Loan income-contingent 
repayment plan, including a calculated monthly payment amount of $0.00.
    (vi) Made monthly payments under the alternative repayment plan 
described in Sec.  685.209(c)(4)(v) prior to changing to a repayment 
plan described under Sec.  685.209 or this section;
    (vii) Received an economic hardship deferment on eligible Direct 
Loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, including 
a monthly payment amount of $0.00, as provided under paragraph 
(b)(2)(iii) of this section; and
    (ii)(A) The borrower made those monthly payments each year for the 
applicable loan forgiveness period, or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 25 years of payments 
or, for a new borrower, the equivalent of 20 years of payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the

[[Page 319]]

beginning date for the applicable loan forgiveness period is--
    (i) If the borrower made payments under the income-contingent 
repayment plan, the Pay As You Earn repayment plan, or the Revised Pay 
As You Earn repayment plan, the date the borrower made a payment on the 
loan under that plan at any time after July 1, 1994; or
    (ii) If the borrower did not make payments under one of the 
repayment plans described in paragraph (f)(3)(i) of this section--
    (A) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for 
income-based repayment. The beginning date is the date the borrower made 
the payment or received the deferment, but no earlier than July 1, 2009;
    (B) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower made 
that payment or received the deferment on that loan, but no earlier than 
July 1, 2009;
    (C) For a borrower who did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (f)(3)(ii)(A) or 
(f)(3)(ii)(B) of this section, the date the borrower made a payment 
under the income-based repayment plan on the loan;
    (D) If the borrower consolidates his or her eligible loans, the date 
the borrower made a payment on the Direct Consolidation Loan that met 
the requirements in paragraph (f)(1) of this section; or
    (E) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (f)(3)(i) or (f)(3)(ii) 
of this section, the date the borrower made a payment under the income-
based repayment plan on the loan.
    (4) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the applicable loan 
forgiveness period.
    (5)(i) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (f) of this section on 
an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (A) An explanation that the borrower is approaching the date that he 
or she is expected to meet the requirements to receive loan forgiveness;
    (B) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (C) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (ii) The Secretary determines when a borrower has met the loan 
forgiveness requirements under paragraph (f) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (iii) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (A) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (B) Provides the borrower with the information described in 
paragraph (f)(5)(i)(C) of this section; and
    (C) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted in accordance with paragraph (f)(5)(i) of 
this section.

(Authority: 20 U.S.C. 1098e)

[73 FR 63258, Oct. 23, 2008, as amended at 74 FR 56006, Oct. 29, 2009; 
77 FR 66145, Nov. 1, 2012; 80 FR 67242, Oct. 30, 2015]



Sec.  685.222  Borrower defenses and procedures for loans first 
disbursed on or after July 1, 2017, and before July 1, 2020, and
procedures for loans first disbursed prior to July 1, 2017.

    (a) General. (1) For loans first disbursed prior to July 1, 2017, a 
borrower asserts and the Secretary considers a

[[Page 320]]

borrower defense in accordance with the provisions of Sec.  685.206(c), 
unless otherwise noted in Sec.  685.206(c).
    (2) For loans first disbursed on or after July 1, 2017, and before 
July 1, 2020, a borrower asserts and the Secretary considers a borrower 
defense in accordance with this section. To establish a borrower defense 
under this section, a preponderance of the evidence must show that the 
borrower has a borrower defense that meets the requirements of this 
section.
    (3) A violation by the school of an eligibility or compliance 
requirement in the Act or its implementing regulations is not a basis 
for a borrower defense under either this section or Sec.  685.206(c) 
unless the violation would otherwise constitute a basis for a borrower 
defense under this section or Sec.  685.206(c), as applicable.
    (4) For the purposes of this section and Sec.  685.206(c), 
``borrower'' means--
    (i) The borrower; and
    (ii) In the case of a Direct PLUS Loan, any endorsers, and for a 
Direct PLUS Loan made to a parent, the student on whose behalf the 
parent borrowed.
    (5) For the purposes of this section and Sec.  685.206(c), a 
``borrower defense'' refers to an act or omission of the school attended 
by the student that relates to the making of a Direct Loan for 
enrollment at the school or the provision of educational services for 
which the loan was provided, and includes one or both of the following:
    (i) A defense to repayment of amounts owed to the Secretary on a 
Direct Loan, in whole or in part; and
    (ii) A right to recover amounts previously collected by the 
Secretary on the Direct Loan, in whole or in part.
    (6) If the borrower asserts both a borrower defense and any other 
objection to an action of the Secretary with regard to that Direct Loan, 
the order in which the Secretary will consider objections, including a 
borrower defense, will be determined as appropriate under the 
circumstances.
    (b) Judgment against the school. The borrower has a borrower defense 
under this section if the borrower, whether as an individual or as a 
member of a class, or a governmental agency, has obtained against the 
school a nondefault, favorable contested judgment based on State or 
Federal law in a court or administrative tribunal of competent 
jurisdiction. A borrower may assert a borrower defense under this 
paragraph at any time.
    (c) Breach of contract by the school. The borrower has a borrower 
defense under this section if the school the borrower received the 
Direct Loan to attend failed to perform its obligations under the terms 
of a contract with the student. A borrower may assert a defense to 
repayment of amounts owed to the Secretary under this paragraph at any 
time after the breach by the school of its contract with the student. A 
borrower may assert a right to recover amounts previously collected by 
the Secretary under this paragraph not later than six years after the 
breach by the school of its contract with the student.
    (d) Substantial misrepresentation by the school. (1) A borrower has 
a borrower defense under this section if the school or any of its 
representatives, or any institution, organization, or person with whom 
the school has an agreement to provide educational programs, or to 
provide marketing, advertising, recruiting, or admissions services, made 
a substantial misrepresentation in accordance with 34 CFR part 668, 
subpart F, that the borrower reasonably relied on to the borrower's 
detriment when the borrower decided to attend, or to continue attending, 
the school or decided to take out a Direct Loan. A borrower may assert, 
at any time, a defense to repayment under this paragraph (d) of amounts 
owed to the Secretary. A borrower may assert a claim under this 
paragraph (d) to recover funds previously collected by the Secretary not 
later than six years after the borrower discovers, or reasonably could 
have discovered, the information constituting the substantial 
misrepresentation.
    (2) For the purposes of this section, a designated Department 
official pursuant to paragraph (e) of this section or a hearing official 
pursuant to paragraph (f), (g), or (h) of this section may consider, as 
evidence supporting the reasonableness of a borrower's reliance on a 
misrepresentation, whether the

[[Page 321]]

school or any of the other parties described in paragraph (d)(1) engaged 
in conduct such as, but not limited to:
    (i) Demanding that the borrower make enrollment or loan-related 
decisions immediately;
    (ii) Placing an unreasonable emphasis on unfavorable consequences of 
delay;
    (iii) Discouraging the borrower from consulting an adviser, a family 
member, or other resource;
    (iv) Failing to respond to the borrower's requests for more 
information including about the cost of the program and the nature of 
any financial aid; or
    (v) Otherwise unreasonably pressuring the borrower or taking 
advantage of the borrower's distress or lack of knowledge or 
sophistication.
    (e) Procedure for an individual borrower. (1) To assert a borrower 
defense under this section, an individual borrower must--
    (i) Submit an application to the Secretary, on a form approved by 
the Secretary--
    (A) Certifying that the borrower received the proceeds of a loan, in 
whole or in part, to attend the named school;
    (B) Providing evidence that supports the borrower defense; and
    (C) Indicating whether the borrower has made a claim with respect to 
the information underlying the borrower defense with any third party, 
such as the holder of a performance bond or a tuition recovery program, 
and, if so, the amount of any payment received by the borrower or 
credited to the borrower's loan obligation; and
    (ii) Provide any other information or supporting documentation 
reasonably requested by the Secretary.
    (2) Upon receipt of a borrower's application submitted under this 
section, the Secretary--
    (i) If the borrower is not in default on the loan for which a 
borrower defense has been asserted, grants forbearance and--
    (A) Notifies the borrower of the option to decline the forbearance 
and to continue making payments on the loan; and
    (B) Provides the borrower with information about the availability of 
the income-contingent repayment plans under Sec.  685.209 and the 
income-based repayment plan under Sec.  685.221; or
    (ii) If the borrower is in default on the loan for which a borrower 
defense has been asserted--
    (A) Suspends collection activity on the loan until the Secretary 
issues a decision on the borrower's claim;
    (B) Notifies the borrower of the suspension of collection activity 
and explains that collection activity will resume if the Secretary 
determines that the borrower does not qualify for a full discharge; and
    (C) Notifies the borrower of the option to continue making payments 
under a rehabilitation agreement or other repayment agreement on the 
defaulted loan.
    (3) The Secretary designates a Department official to review the 
borrower's application submitted under this section to determine whether 
the application states a basis for a borrower defense, and resolves the 
claim through a fact-finding process conducted by the Department 
official.
    (i) As part of the fact-finding process, the Department official 
notifies the school of the borrower defense application and considers 
any evidence or argument presented by the borrower and also any 
additional information, including--
    (A) Department records;
    (B) Any response or submissions from the school; and
    (C) Any additional information or argument that may be obtained by 
the Department official.
    (ii) For borrower defense applications under this section, upon the 
borrower's request, the Department official identifies to the borrower 
the records the Department official considers relevant to the borrower 
defense. The Secretary provides to the borrower any of the identified 
records upon reasonable request of the borrower.
    (4) At the conclusion of the fact-finding process under this 
section, the Department official issues a written decision as follows:
    (i) If the Department official approves the borrower defense in full 
or in part, the Department official notifies the borrower in writing of 
that determination and of the relief provided

[[Page 322]]

as described in paragraph (i) of this section.
    (ii) If the Department official denies the borrower defense in full 
or in part, the Department official notifies the borrower of the reasons 
for the denial, the evidence that was relied upon, any portion of the 
loan that is due and payable to the Secretary, and whether the Secretary 
will reimburse any amounts previously collected, and informs the 
borrower that if any balance remains on the loan, the loan will return 
to its status prior to the borrower's submission of the application. The 
Department official also informs the borrower of the opportunity to 
request reconsideration of the claim based on new evidence pursuant to 
paragraph (e)(5)(i) of this section.
    (5) The decision of the Department official under this section is 
final as to the merits of the claim and any relief that may be granted 
on the claim. Notwithstanding the foregoing--
    (i) If the borrower defense is denied in full or in part, the 
borrower may request that the Secretary reconsider the borrower defense 
upon the identification of new evidence in support of the borrower's 
claim. ``New evidence'' is relevant evidence that the borrower did not 
previously provide and that was not identified in the final decision as 
evidence that was relied upon for the final decision. If accepted for 
reconsideration by the Secretary, the Secretary follows the procedure in 
paragraph (e)(2) of this section for granting forbearance and for 
defaulted loans; and
    (ii) The Secretary may reopen a borrower defense application at any 
time to consider evidence that was not considered in making the previous 
decision. If a borrower defense application is reopened by the 
Secretary, the Secretary follows the procedure paragraph (e)(2) of this 
section for granting forbearance and for defaulted loans.
    (6) The Secretary may consolidate applications filed under this 
paragraph (e) that have common facts and claims, and resolve the 
borrowers' borrower defense claims as provided in paragraphs (f), (g), 
and (h) of this section.
    (7) The Secretary may initiate a proceeding to collect from the 
school the amount of relief resulting from a borrower defense under this 
section--
    (i) Within the six-year period applicable to the borrower defense 
under paragraph (c) or (d) of this section;
    (ii) At any time, for a borrower defense under paragraph (b) of this 
section; or
    (iii) At any time if during the period described in paragraph 
(e)(7)(i) of this section, the institution received notice of the claim. 
For purposes of this paragraph, notice includes receipt of--
    (A) Actual notice from the borrower, a representative of the 
borrower, or the Department of a claim, including notice of an 
application filed pursuant to this section or Sec.  685.206(c);
    (B) A class action complaint asserting relief for a class that may 
include the borrower for underlying facts that may form the basis of a 
claim under this section or Sec.  685.206(c);
    (C) Written notice, including a civil investigative demand or other 
written demand for information, from a Federal or State agency that has 
power to initiate an investigation into conduct of the school relating 
to specific programs, periods, or practices that may have affected the 
borrower, for underlying facts that may form the basis of a claim under 
this section or Sec.  685.206(c).
    (f) Group process for borrower defense, generally. (1) Upon 
consideration of factors including, but not limited to, common facts and 
claims, fiscal impact, and the promotion of compliance by the school or 
other title IV, HEA program participant, the Secretary may initiate a 
process to determine whether a group of borrowers, identified by the 
Secretary, has a borrower defense under this section.
    (i) The members of the group may be identified by the Secretary from 
individually filed applications pursuant to paragraph (e)(6) of this 
section or from any other source.
    (ii) If the Secretary determines that there are common facts and 
claims that apply to borrowers who have not filed an application under 
paragraph (e) of this section, the Secretary may identify such borrowers 
as members of a group.
    (2) Upon the identification of a group of borrowers under paragraph 
(f)(1) of this section, the Secretary--

[[Page 323]]

    (i) Designates a Department official to present the group's claim in 
the fact-finding process described in paragraph (g) or (h) of this 
section, as applicable;
    (ii) Provides each identified member of the group with notice that 
allows the borrower to opt out of the proceeding;
    (iii) If identified members of the group are borrowers who have not 
filed an application under paragraph (f)(1)(ii) of this section, follows 
the procedures in paragraph (e)(2) of this section for granting 
forbearance and for defaulted loans for such identified members of the 
group, unless an opt-out by such a member of the group is received; and
    (iv) Notifies the school of the basis of the group's borrower 
defense, the initiation of the fact-finding process described in 
paragraph (g) or (h) of this section, and of any procedure by which the 
school may request records and respond. No notice will be provided if 
notice is impossible or irrelevant due to a school's closure.
    (3) For a group of borrowers identified by the Secretary, for which 
the Secretary determines that there may be a borrower defense under 
paragraph (d) of this section based upon a substantial misrepresentation 
that has been widely disseminated, there is a rebuttable presumption 
that each member reasonably relied on the misrepresentation.
    (g) Procedures for group process for borrower defenses with respect 
to loans made to attend a closed school. For groups identified by the 
Secretary under paragraph (f) of this section, for which the borrower 
defense under this section is asserted with respect to a Direct Loan to 
attend a school that has closed and has provided no financial protection 
currently available to the Secretary from which to recover any losses 
arising from borrower defenses, and for which there is no appropriate 
entity from which the Secretary can otherwise practicably recover such 
losses--
    (1) A hearing official resolves the borrower defense under this 
section through a fact-finding process. As part of the fact-finding 
process, the hearing official considers any evidence and argument 
presented by the Department official on behalf of the group and, as 
necessary to determine any claims at issue, on behalf of individual 
members of the group. The hearing official also considers any additional 
information the Department official considers necessary, including any 
Department records or response from the school or a person affiliated 
with the school as described in Sec.  668.174(b), if practicable. The 
hearing official issues a written decision as follows:
    (i) If the hearing official approves the borrower defense in full or 
in part, the written decision states that determination and the relief 
provided on the basis of that claim as determined under paragraph (i) of 
this section.
    (ii) If the hearing official denies the borrower defense in full or 
in part, the written decision states the reasons for the denial, the 
evidence that was relied upon, the portion of the loans that are due and 
payable to the Secretary, and whether reimbursement of amounts 
previously collected is granted, and informs the borrowers that if any 
balance remains on the loan, the loan will return to its status prior to 
the group claim process.
    (iii) The Secretary provides copies of the written decision to the 
members of the group and, as practicable, to the school.
    (2) The decision of the hearing official is final as to the merits 
of the group borrower defense and any relief that may be granted on the 
group claim.
    (3) After a final decision has been issued, if relief for the group 
has been denied in full or in part pursuant to paragraph (g)(1)(ii) of 
this section, an individual borrower may file a claim for relief 
pursuant to paragraph (e)(5)(i) of this section.
    (4) The Secretary may reopen a borrower defense application at any 
time to consider evidence that was not considered in making the previous 
decision. If a borrower defense application is reopened by the 
Secretary, the Secretary follows the procedure in paragraph (e)(2) of 
this section for granting forbearance and for defaulted loans.
    (h) Procedures for group process for borrower defenses with respect 
to loans made to attend an open school. For groups identified by the 
Secretary

[[Page 324]]

under paragraph (f) of this section, for which the borrower defense 
under this section is asserted with respect to Direct Loans to attend a 
school that is not covered by paragraph (g) of this section, the claim 
is resolved in accordance with the procedures in this paragraph (h).
    (1) A hearing official resolves the borrower defense and determines 
any liability of the school through a fact-finding process. As part of 
the fact-finding process, the hearing official considers any evidence 
and argument presented by the school and the Department official on 
behalf of the group and, as necessary to determine any claims at issue, 
on behalf of individual members of the group. The hearing official 
issues a written decision as follows:
    (i) If the hearing official approves the borrower defense in full or 
in part, the written decision establishes the basis for the 
determination, notifies the members of the group of the relief as 
described in paragraph (i) of this section, and notifies the school of 
any liability to the Secretary for the amounts discharged and 
reimbursed.
    (ii) If the hearing official denies the borrower defense for the 
group in full or in part, the written decision states the reasons for 
the denial, the evidence that was relied upon, the portion of the loans 
that are due and payable to the Secretary, and whether reimbursement of 
amounts previously collected is granted, and informs the borrowers that 
their loans will return to their statuses prior to the group borrower 
defense process. The decision notifies the school of any liability to 
the Secretary for any amounts discharged or reimbursed.
    (iii) The Secretary provides copies of the written decision to the 
members of the group, the Department official, and the school.
    (2) The decision of the hearing official becomes final as to the 
merits of the group borrower defense and any relief that may be granted 
on the group borrower defense within 30 days after the decision is 
issued and received by the Department official and the school unless, 
within that 30-day period, the school or the Department official appeals 
the decision to the Secretary. In the case of an appeal--
    (i) The decision of the hearing official does not take effect 
pending the appeal; and
    (ii) The Secretary renders a final decision.
    (3) After a final decision has been issued, if relief for the group 
has been denied in full or in part pursuant to paragraph (h)(1)(ii) of 
this section, an individual borrower may file a claim for relief 
pursuant to paragraph (e)(5)(i) of this section.
    (4) The Secretary may reopen a borrower defense application at any 
time to consider evidence that was not considered in making the previous 
decision. If a borrower defense application is reopened by the 
Secretary, the Secretary follows the procedure in paragraph (e)(2) of 
this section for granting forbearance and for defaulted loans.
    (5)(i) The Secretary collects from the school any liability to the 
Secretary for any amounts discharged or reimbursed to borrowers under 
this paragraph (h).
    (ii) For a borrower defense under paragraph (b) of this section, the 
Secretary may initiate a proceeding to collect at any time.
    (iii) For a borrower defense under paragraph (c) or (d) of this 
section, the Secretary may initiate a proceeding to collect within the 
limitation period that would apply to the borrower defense, provided 
that the Secretary may bring an action to collect at any time if, within 
the limitation period, the school received notice of the borrower's 
borrower defense claim. For purposes of this paragraph, the school 
receives notice of the borrower's claim by receipt of--
    (A) Actual notice of the claim from the borrower, a representative 
of the borrower, or the Department, including notice of an application 
filed pursuant to this section or Sec.  685.206(c);
    (B) A class action complaint asserting relief for a class that may 
include the borrower for underlying facts that may form the basis of a 
claim under this section or Sec.  685.206(c); or
    (C) Written notice, including a civil investigative demand or other 
written demand for information, from a Federal or State agency that has 
power to

[[Page 325]]

initiate an investigation into conduct of the school relating to 
specific programs, periods, or practices that may have affected the 
borrower, of underlying facts that may form the basis of a claim under 
this section or Sec.  685.206(c).
    (i) Relief. If a borrower defense is approved under the procedures 
in paragraph (e), (g), or (h) of this section, the following procedures 
apply:
    (1) The Department official or the hearing official deciding the 
claim determines the appropriate amount of relief to award the borrower, 
which may be a discharge of all amounts owed to the Secretary on the 
loan at issue and may include the recovery of amounts previously 
collected by the Secretary on the loan, or some lesser amount.
    (2) For a borrower defense brought on the basis of--
    (i) A substantial misrepresentation, the Department official or the 
hearing official will factor the borrower's cost of attendance to attend 
the school, as well as the value of the education the borrower received, 
the value of the education that a reasonable borrower in the borrower's 
circumstances would have received, and/or the value of the education the 
borrower should have expected given the information provided by the 
institution, into the determination of appropriate relief. A borrower 
may be granted full, partial, or no relief. Value will be assessed in a 
manner that is reasonable and practicable. In addition, the Department 
official or the hearing official deciding the claim may consider any 
other relevant factors;
    (ii) A judgment against the school--
    (A) Where the judgment awards specific financial relief, relief will 
be the amount of the judgment that remains unsatisfied, subject to the 
limitation provided for in Sec.  685.222(i)(8) and any other reasonable 
considerations; and
    (B) Where the judgment does not award specific financial relief, the 
Department will rely on the holding of the case and applicable law to 
monetize the judgment; and
    (iii) A breach of contract, relief will be determined according to 
the common law of contracts, subject to the limitation provided for in 
Sec.  685.222(i)(8) and any other reasonable considerations.
    (3) In a fact-finding process brought against an open school under 
paragraph (h) of this section on the basis of a substantial 
misrepresentation, the school has the burden of proof as to any value of 
the education.
    (4) In determining the relief, the Department official or the 
hearing official deciding the claim may consider--
    (i) Information derived from a sample of borrowers from the group 
when calculating relief for a group of borrowers; and
    (ii) The examples in Appendix A to this subpart.
    (5) In the written decision described in paragraphs (e), (g), and 
(h) of this section, the designated Department official or hearing 
official deciding the claim notifies the borrower of the relief provided 
and--
    (i) Specifies the relief determination;
    (ii) Advises that there may be tax implications; and
    (iii) Advises the borrower of the requirements to file a request for 
reconsideration upon the identification of new evidence.
    (6) Consistent with the determination of relief under paragraph 
(i)(1) of this section, the Secretary discharges the borrower's 
obligation to repay all or part of the loan and associated costs and 
fees that the borrower would otherwise be obligated to pay and, if 
applicable, reimburses the borrower for amounts paid toward the loan 
voluntarily or through enforced collection.
    (7) The Department official or the hearing official deciding the 
case, or the Secretary as applicable, affords the borrower such further 
relief as appropriate under the circumstances. Such further relief 
includes, but is not limited to, one or both of the following:
    (i) Determining that the borrower is not in default on the loan and 
is eligible to receive assistance under title IV of the Act.
    (ii) Updating reports to consumer reporting agencies to which the 
Secretary previously made adverse credit reports with regard to the 
borrower's Direct Loan.
    (8) The total amount of relief granted with respect to a borrower 
defense cannot exceed the amount of the loan and

[[Page 326]]

any associated costs and fees and will be reduced by the amount of any 
refund, reimbursement, indemnification, restitution, compensatory 
damages, settlement, debt forgiveness, discharge, cancellation, 
compromise, or any other financial benefit received by, or on behalf of, 
the borrower that was related to the borrower defense. The relief to the 
borrower may not include non-pecuniary damages such as inconvenience, 
aggravation, emotional distress, or punitive damages.
    (j) Cooperation by the borrower. To obtain relief under this 
section, a borrower must reasonably cooperate with the Secretary in any 
proceeding under paragraph (e), (g), or (h) of this section. The 
Secretary may revoke any relief granted to a borrower who fails to 
satisfy his or her obligations under this paragraph (j).
    (k) Transfer to the Secretary of the borrower's right of recovery 
against third parties. (1) Upon the granting of any relief under this 
section, the borrower is deemed to have assigned to, and relinquished in 
favor of, the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower may have by contract or applicable law 
with respect to the loan or the contract for educational services for 
which the loan was received, against the school, its principals, its 
affiliates, and their successors, its sureties, and any private fund. If 
the borrower asserts a claim to, and recovers from, a public fund, the 
Secretary may reinstate the borrower's obligation to repay on the loan 
an amount based on the amount recovered from the public fund, if the 
Secretary determines that the borrower's recovery from the public fund 
was based on the same borrower defense and for the same loan for which 
the discharge was granted under this section.
    (2) The provisions of this paragraph (k) apply notwithstanding any 
provision of State law that would otherwise restrict transfer of those 
rights by the borrower, limit or prevent a transferee from exercising 
those rights, or establish procedures or a scheme of distribution that 
would prejudice the Secretary's ability to recover on those rights.
    (3) Nothing in this paragraph (k) limits or forecloses the 
borrower's right to pursue legal and equitable relief against a party 
described in this paragraph (k) for recovery of any portion of a claim 
exceeding that assigned to the Secretary or any other claims arising 
from matters unrelated to the claim on which the loan is discharged.

(Authority: 20 U.S.C. 1087a et seq.; 28 U.S.C. 2401; 31 U.S.C. 3702)

[81 FR 76083, Nov. 1, 2016, as amended at 84 FR 49932, Sept. 23, 2019]



Sec.  685.223  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice shall not 
be affected thereby.

(Authority: 20 U.S.C. 1087a et seq.)

[81 FR 76086, Nov. 1, 2016]



  Sec. Appendix A to Subpart B of Part 685--Examples of Borrower Relief

    As provided in 34 CFR 685.222(i)(4), the Department official or the 
hearing official deciding a borrower defense claim determines the amount 
of relief to award the borrower, which may be a discharge of all amounts 
owed to the Secretary on the loan at issue and may include the recovery 
of amounts previously collected by the Secretary on the loan, or some 
lesser amount. The following are some conceptual examples demonstrating 
relief. The actual relief awarded will be determined by the Department 
official or the hearing official deciding the claim, who shall not be 
bound by these examples.
    1. A school represents to prospective students, in widely 
disseminated materials, that its educational program will lead to 
employment in an occupation that requires State licensure. The program 
does not in fact meet minimum education requirements to enable its 
graduates to sit for the exam necessary for them to obtain licensure. 
The claims are adjudicated in a group process.
    Appropriate relief: Borrowers who enrolled in this program during 
the time that the misrepresentation was made should receive full relief. 
As a result of the schools' misrepresentation, the borrowers cannot work 
in the occupation in which they reasonably expected to work when they 
enrolled. Accordingly, borrowers received limited or no value from this 
educational program because they did not receive the value that they 
reasonably expected.

[[Page 327]]

    2. A school states to a prospective student that its medical 
assisting program has a faculty composed of skilled nurses and 
physicians and offers internships at a local hospital. The borrower 
enrolls in the school in reliance on that statement. In fact, none of 
the teachers at the school other than the Director is a nurse or 
physician. The school has no internship program. The teachers at the 
school are not qualified to teach medical assisting and the student is 
not qualified for medical assistant jobs based on the education received 
at the school.
    Appropriate relief: This borrower should receive full relief. None 
of the teachers at the school are qualified to teach medical assisting, 
and there was no internship. In contrast to reasonable students' 
expectations, based on information provided by the school, the typical 
borrower received no value from the program.
    3. An individual interested in becoming a registered nurse meets 
with a school's admissions counselor who explains that the school does 
not have a nursing program but that completion of a medical assisting 
program is a prerequisite for any nursing program. Based on this 
information, the borrower enrolls in the school's medical assisting 
program rather than searching for another nursing program, believing 
that completing a medical assisting program is a necessary step towards 
becoming a nurse. After one year in the program, the borrower realizes 
that it is not necessary to become a medical assistant before entering a 
nursing program. The borrower's credits are not transferrable to a 
nursing program.
    Appropriate relief: This borrower should receive full relief. 
Because it is not necessary to become a medical assistant prior to 
entering a nursing program, she has made no progress towards the career 
she sought, and in fact has received an education that cannot be used 
for its intended purpose.
    4. A school tells a prospective student, who is actively seeking an 
education, that the cost of the program will be $20,000. Relying on that 
statement, the borrower enrolls. The student later learns the cost for 
that year was $25,000. There is no evidence of any other 
misrepresentations in the enrollment process or of any deficiency in 
value in the school's education.
    Appropriate relief: This borrower should receive partial relief of 
$5,000. The borrower received precisely the value that she expected. The 
school provides the education that the student was seeking but 
misrepresented the price.
    5. A school represents in its marketing materials that three of its 
undergraduate faculty members in a particular program have received the 
highest award in their field. A borrower choosing among two comparable, 
selective programs enrolls in that program in reliance on the 
representation about its faculty. However, although the program 
otherwise remains the same, the school had failed to update the 
marketing materials to reflect the fact that the award-winning faculty 
had left the school.
    Appropriate relief: Although the borrower reasonably relied on a 
misrepresentation about the faculty in deciding to enroll at this 
school, she still received the value that she expected. Therefore, no 
relief is appropriate.
    6. An individual wishes to enroll in a selective, regionally 
accredited liberal arts school. The school gives inflated data to a 
well-regarded school ranking organization regarding the median grade 
point average of recent entrants and also includes that inflated data in 
its own marketing materials. This inflated data raises the place of the 
school in the organization's rankings in independent publications. The 
individual enrolls in the school and graduates. Soon after graduating, 
the individual learns from the news that the school falsified admissions 
data. Notwithstanding this issue, degrees from the school continue to 
serve as effective, well-regarded liberal arts credentials.
    The Department also determines that the school violated the title IV 
requirement that it not make substantial misrepresentations pursuant to 
34 CFR 668.71, which constitutes an enforceable violation separate and 
apart from any borrower defense relief.
    Appropriate Relief: The borrower relied on the misrepresentation 
about the admissions data to his detriment, because the 
misrepresentation factored into the borrower's decision to choose the 
school over others. However, the borrower received a selective liberal 
arts education which represents the value that he could reasonably 
expect, and gets no relief.

[81 FR 76086, Nov. 1, 2016 as amended at 84 FR 49933, Sept. 23, 2019]



Subpart C_Requirements, Standards, and Payments for Direct Loan Program 
                                 Schools



Sec.  685.300  Agreements between an eligible school and the Secretary
for participation in the Direct Loan Program.

    (a) General. Participation of a school in the Direct Loan Program 
means that eligible students at the school may receive Direct Loans. To 
participate in the Direct Loan Program, a school must--
    (1) Demonstrate to the satisfaction of the Secretary that the school 
meets the requirements for eligibility under the Act and applicable 
regulations; and

[[Page 328]]

    (2) Enter into a written program participation agreement with the 
Secretary.
    (b) Program participation agreement. In the program participation 
agreement, the school must promise to comply with the Act and applicable 
regulations and must agree to--
    (1) Identify eligible students who seek student financial assistance 
at the institution in accordance with section 484 of the Act;
    (2) Estimate the need of each of these students as required by part 
F of the Act for an academic year. For purposes of estimating need, a 
Direct Unsubsidized Loan, a Direct PLUS Loan, or any loan obtained under 
any State-sponsored or private loan program may be used to offset the 
expected family contribution of the student for that year;
    (3) Certify that the amount of the loan for any student under part D 
of the Act is not in excess of the annual limit applicable for that loan 
program and that the amount of the loan, in combination with previous 
loans received by the borrower, is not in excess of the aggregate limit 
for that loan program;
    (4) Set forth a schedule for disbursement of the proceeds of the 
loan in installments, consistent with the requirements of section 428G 
of the Act;
    (5) On a monthly basis, reconcile institutional records with Direct 
Loan funds received from the Secretary and Direct Loan disbursement 
records submitted to and accepted by the Secretary;
    (6) Provide timely and accurate information to the Secretary for the 
servicing and collecting of loans--
    (i) Concerning the status of student borrowers (and students on 
whose behalf parents borrow) while these students are in attendance at 
the school;
    (ii) Upon request by the Secretary, concerning any new information 
of which the school becomes aware for these students (or their parents) 
after the student leaves the school; and
    (iii) Concerning student eligibility and need, for the alternative 
origination of loans to eligible students and parents in accordance with 
part D of the Act;
    (7) Provide assurances that the school will comply with loan 
information requirements established by the Secretary with respect to 
loans made under the Direct Loan Program;
    (8) Accept responsibility and financial liability stemming from its 
failure to perform its functions pursuant to the agreement;
    (9) Provide for the implementation of a quality assurance system, as 
established by the Secretary and developed in consultation with the 
school, to ensure that the school is complying with program requirements 
and meeting program objectives;
    (10) Provide that the school will not charge any fees of any kind, 
however described, to student or parent borrowers for origination 
activities or for the provision of information necessary for a student 
or parent to receive a loan under part D of the Act or for any benefits 
associated with such a loan;
    (11) Comply with the provisions of paragraphs (d) through (i) of 
this section regarding student claims and disputes;
    (12) Comply with other provisions that the Secretary determines are 
necessary to protect the interests of the United States and to promote 
the purposes of part D of the Act; and
    (13) Accept responsibility and financial liability stemming from 
losses incurred by the Secretary for repayment of amounts discharged by 
the Secretary pursuant to Sec. Sec.  685.206, 685.214, 685.215, 685.216, 
685.222, and subpart D of this part.
    (c) Origination. A school that originates loans in the Direct Loan 
Program must originate loans to eligible students and parents in 
accordance with part D of the Act. The note or evidence of the 
borrower's obligation on the loan originated by the school is the 
property of the Secretary.
    (d) Borrower defense claims in an internal dispute process. The 
school will not compel any student to pursue a complaint based on 
allegations that would provide a basis for a borrower defense claim 
through an internal dispute process before the student presents the 
complaint to an accrediting agency or government agency authorized to 
hear the complaint.

[[Page 329]]

    (e) Class action bans. (1) The school will not seek to rely in any 
way on a pre-dispute arbitration agreement or on any other pre-dispute 
agreement with a student who has obtained or benefited from a Direct 
Loan, with respect to any aspect of a class action that is related to a 
borrower defense claim, unless and until the presiding court has ruled 
that the case may not proceed as a class action and, if that ruling may 
be subject to appellate review on an interlocutory basis, the time to 
seek such review has elapsed or the review has been resolved.
    (2) Reliance on a pre-dispute arbitration agreement, or on any other 
pre-dispute agreement, with a student, with respect to any aspect of a 
class action includes, but is not limited to, any of the following:
    (i) Seeking dismissal, deferral, or stay of any aspect of a class 
action;
    (ii) Seeking to exclude a person or persons from a class in a class 
action;
    (iii) Objecting to or seeking a protective order intended to avoid 
responding to discovery in a class action;
    (iv) Filing a claim in arbitration against a student who has filed a 
claim on the same issue in a class action;
    (v) Filing a claim in arbitration against a student who has filed a 
claim on the same issue in a class action after the trial court has 
denied a motion to certify the class but before an appellate court has 
ruled on an interlocutory appeal of that motion, if the time to seek 
such an appeal has not elapsed or the appeal has not been resolved; and
    (vi) Filing a claim in arbitration against a student who has filed a 
claim on the same issue in a class action, after the trial court in that 
class action has granted a motion to dismiss the claim and noted that 
the consumer has leave to refile the claim on a class basis, if the time 
to refile the claim has not elapsed.
    (3) Required provisions and notices: (i) After the effective date of 
this regulation, the school must include the following provision in any 
agreements with a student recipient of a Direct Loan for attendance at 
the school, or a student for whom the PLUS loan was obtained, that 
include pre-dispute arbitration or any other pre-dispute agreement 
addressing class actions: ``We agree that this agreement cannot be used 
to stop you from being part of a class action lawsuit in court. You may 
file a class action lawsuit in court, or you may be a member of a class 
action lawsuit even if you do not file it. This provision applies only 
to class action claims concerning our acts or omissions regarding the 
making of the Direct Loan or our provision of educational services for 
which the Direct Loan was obtained. We agree that the court has 
exclusive jurisdiction to decide whether a claim asserted in the lawsuit 
is a claim regarding the making of the Federal Direct Loan or the 
provision of educational services for which the loan was obtained.''
    (ii) When a pre-dispute arbitration agreement or any other pre-
dispute agreement addressing class actions has been entered into before 
the effective date of this regulation and does not contain the provision 
described in paragraph (e)(3)(i) of this section, the school must either 
ensure the agreement is amended to contain that provision or provide the 
student to whom the agreement applies with written notice of that 
provision.
    (iii) The school must ensure the agreement described in paragraph 
(e)(3)(ii) of this section is amended to contain the provision set forth 
in paragraph (e)(3)(i) or must provide the notice to students specified 
in that paragraph no later than the exit counseling required under Sec.  
685.304(b), or the date on which the school files its initial response 
to a demand for arbitration or service of a complaint from a student who 
has not already been sent a notice or amendment, whichever is earlier.
    (A) Agreement provision. ``We agree that neither we, nor anyone else 
who later becomes a party to this agreement, will use it to stop you 
from being part of a class action lawsuit in court. You may file a class 
action lawsuit in court, or you may be a member of a class action 
lawsuit in court even if you do not file it. This provision applies only 
to class action claims concerning our acts or omissions regarding the 
making of the Federal Direct Loan or the provision by us of educational 
services for which the Federal Direct Loan was obtained. We agree that 
the

[[Page 330]]

court has exclusive jurisdiction to decide whether a claim asserted in 
the lawsuit is a claim regarding the making of the Federal Direct Loan 
or the provision of educational services for which the loan was 
obtained.''
    (B) Notice provision. ``We agree not to use any pre-dispute 
agreement to stop you from being part of a class action lawsuit in 
court. You may file a class action lawsuit in court, or you may be a 
member of a class action lawsuit even if you do not file it. This 
provision applies only to class action claims concerning our acts or 
omissions regarding the making of the Federal Direct Loan or the 
provision by us of educational services for which the Federal Direct 
Loan was obtained. We agree that the court has exclusive jurisdiction to 
decide whether a claim asserted in the lawsuit is a claim regarding the 
making of the Federal Direct Loan or the provision of educational 
services for which the loan was obtained.''
    (f) Pre-dispute arbitration agreements. (1)(i) The school will not 
enter into a pre-dispute agreement to arbitrate a borrower defense claim 
or rely in any way on a pre-dispute arbitration agreement with respect 
to any aspect of a borrower defense claim.
    (ii) A student may enter into a voluntary post-dispute arbitration 
agreement with a school to arbitrate a borrower defense claim.
    (2) Reliance on a pre-dispute arbitration agreement with a student 
with respect to any aspect of a borrower defense claim includes, but is 
not limited to, any of the following:
    (i) Seeking dismissal, deferral, or stay of any aspect of a judicial 
action filed by the student, including joinder with others in an action;
    (ii) Objecting to or seeking a protective order intended to avoid 
responding to discovery in a judicial action filed by the student; and
    (iii) Filing a claim in arbitration against a student who has filed 
a suit on the same claim.
    (3) Required provisions and notices: (i) The school must include the 
following provision in any pre-dispute arbitration agreements with a 
student recipient of a Direct Loan for attendance at the school, or, 
with respect to a Parent PLUS Loan, a student for whom the PLUS loan was 
obtained, that include any agreement regarding arbitration and that are 
entered into after the effective date of this regulation: ``We agree 
that neither we nor anyone else will use this agreement to stop you from 
bringing a lawsuit concerning our acts or omissions regarding the making 
of the Federal Direct Loan or the provision by us of educational 
services for which the Federal Direct Loan was obtained. You may file a 
lawsuit for such a claim, or you may be a member of a class action 
lawsuit for such a claim even if you do not file it. This provision does 
not apply to lawsuits concerning other claims. We agree that only the 
court is to decide whether a claim asserted in the lawsuit is a claim 
regarding the making of the Federal Direct Loan or the provision of 
educational services for which the loan was obtained.''
    (ii) When a pre-dispute arbitration agreement has been entered into 
before the effective date of this regulation, that did not contain the 
provision specified in paragraph (f)(3)(i) of this section, the school 
must either ensure the agreement is amended to contain the provision 
specified in paragraph (f)(3)(iii)(A) of this section or provide the 
student to whom the agreement applies with the written notice specified 
in paragraph (f)(3)(iii)(B) of this section.
    (iii) The school must ensure the agreement described in paragraph 
(f)(3)(ii) of this section is amended to contain the provision specified 
in paragraph (f)(3)(iii)(A) of this section or must provide the notice 
specified in paragraph (f)(3)(iii)(B) of this section to students no 
later than the exit counseling required under Sec.  685.304(b), or the 
date on which the school files its initial response to a demand for 
arbitration or service of a complaint from a student who has not already 
been sent a notice or amendment, whichever is earlier.
    (A) Agreement provision. ``We agree that neither we, nor anyone else 
who later becomes a party to this pre-dispute arbitration agreement, 
will use it to stop you from bringing a lawsuit

[[Page 331]]

concerning our acts or omissions regarding the making of the Federal 
Direct Loan or the provision by us of educational services for which the 
Federal Direct Loan was obtained. You may file a lawsuit for such a 
claim, or you may be a member of a class action lawsuit for such a claim 
even if you do not file it. This provision does not apply to other 
claims. We agree that only the court is to decide whether a claim 
asserted in the lawsuit is a claim regarding the making of the Federal 
Direct Loan or the provision of educational services for which the loan 
was obtained.''
    (B) Notice provision. ``We agree not to use any pre-dispute 
arbitration agreement to stop you from bringing a lawsuit concerning our 
acts or omissions regarding the making of the Federal Direct Loan or the 
provision by us of educational services for which the Federal Direct 
Loan was obtained. You may file a lawsuit regarding such a claim, or you 
may be a member of a class action lawsuit regarding such a claim even if 
you do not file it. This provision does not apply to any other claims. 
We agree that only the court is to decide whether a claim asserted in 
the lawsuit is a claim regarding the making of the Direct Loan or the 
provision of educational services for which the loan was obtained.''
    (g) Submission of arbitral records. (1) A school must submit a copy 
of the following records to the Secretary, in the form and manner 
specified by the Secretary, in connection with any borrower defense 
claim filed in arbitration by or against the school:
    (i) The initial claim and any counterclaim;
    (ii) The arbitration agreement filed with the arbitrator or 
arbitration administrator;
    (iii) The judgment or award, if any, issued by the arbitrator or 
arbitration administrator;
    (iv) If an arbitrator or arbitration administrator refuses to 
administer or dismisses a claim due to the school's failure to pay 
required filing or administrative fees, any communication the school 
receives from the arbitrator or arbitration administrator related to 
such a refusal; and
    (v) Any communication the school receives from an arbitrator or an 
arbitration administrator related to a determination that a pre-dispute 
arbitration agreement regarding educational services provided by the 
school does not comply with the administrator's fairness principles, 
rules, or similar requirements, if such a determination occurs;
    (2) A school must submit any record required pursuant to paragraph 
(g)(1) of this section within 60 days of filing by the school of any 
such record with the arbitrator or arbitration administrator and within 
60 days of receipt by the school of any such record filed or sent by 
someone other than the school, such as the arbitrator, the arbitration 
administrator, or the student.
    (3) The Secretary will publish the records submitted by schools in 
paragraph (g)(1) of this section in a centralized database accessible to 
the public.
    (h) Submission of judicial records. (1) A school must submit a copy 
of the following records to the Secretary, in the form and manner 
specified by the Secretary, in connection with any borrower defense 
claim filed in a lawsuit by the school against the student or by any 
party, including a government agency, against the school:
    (i) The complaint and any counterclaim;
    (ii) Any dispositive motion filed by a party to the suit; and
    (iii) The ruling on any dispositive motion and the judgment issued 
by the court;
    (2) A school must submit any record required pursuant to paragraph 
(h)(1) of this section within 30 days of filing or receipt, as 
applicable, of the complaint, answer, or dispositive motion, and within 
30 days of receipt of any ruling on a dispositive motion or a final 
judgment;
    (3) The Secretary will publish the records submitted by schools in 
paragraph (h)(1) in a centralized database accessible to the public.
    (i) Definitions. For the purposes of paragraphs (d) through (h) of 
this section, the term--
    (1) Borrower defense claim means a claim based on an act or omission 
that is or could be asserted as a borrower defense as defined in:

[[Page 332]]

    (i) Sec.  685.206(c)(1);
    (ii) Sec.  685.222(a)(5);
    (iii) Sec.  685.206(e)(1)(iii); or
    (iv) Sec.  685.401(a);
    (2) Class action means a lawsuit in which one or more parties seek 
class treatment pursuant to Federal Rule of Civil Procedure 23 or any 
State process analogous to Federal Rule of Civil Procedure 23;
    (3) Dispositive motion means a motion asking for a court order that 
entirely disposes of one or more claims in favor of the party who files 
the motion without need for further court proceedings;
    (4) Pre-dispute arbitration agreement means any agreement, 
regardless of its form or structure, between a school or a party acting 
on behalf of a school and a student that provides for arbitration of any 
future dispute between the parties.

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58970, Nov. 1, 1999; 71 
FR 64400, Nov. 1, 2006; 78 FR 65838, Nov. 1, 2013; 81 FR 76087, Nov. 1, 
2016; 83 FR 34048, July 19, 2018; 84 FR 49933, Sept. 23, 2019; 87 FR 
66066, Nov. 1, 2022]



Sec.  685.301  Origination of a loan by a Direct Loan Program school.

    (a) Determining eligibility and loan amount. (1) A school 
participating in the Direct Loan Program must ensure that any 
information it provides to the Secretary in connection with loan 
origination is complete and accurate. A school must originate a Direct 
Loan while the student meets the borrower eligibility requirements of 
Sec.  685.200. Except as provided in 34 CFR part 668, subpart E, a 
school may rely in good faith upon statements made by the borrower and, 
in the case of a parent Direct PLUS Loan borrower, the student and the 
parent borrower.
    (2) A school must provide to the Secretary borrower information that 
includes but is not limited to--
    (i) The borrower's eligibility for a loan, as determined in 
accordance with Sec.  685.200 and Sec.  685.203;
    (ii) The student's loan amount; and
    (iii) The anticipated and actual disbursement date or dates and 
disbursement amounts of the loan proceeds, as determined in accordance 
with Sec.  685.303(d).
    (3) Before originating a Direct PLUS Loan for a graduate or 
professional student borrower, the school must determine the borrower's 
eligibility for a Direct Subsidized and a Direct Unsubsidized Loan. If 
the borrower is eligible for a Direct Subsidized or Direct Unsubsidized 
Loan, but has not requested the maximum Direct Subsidized or Direct 
Unsubsidized Loan amount for which the borrower is eligible, the school 
must--
    (i) Notify the graduate or professional student borrower of the 
maximum Direct Subsidized or Direct Unsubsidized Loan amount that he or 
she is eligible to receive and provide the borrower with a comparison 
of--
    (A) The maximum interest rate for a Direct Subsidized Loan and a 
Direct Unsubsidized Loan and the maximum interest rate for a Direct PLUS 
Loan;
    (B) Periods when interest accrues on a Direct Subsidized Loan and a 
Direct Unsubsidized Loan, and periods when interest accrues on a Direct 
PLUS Loan; and
    (C) The point at which a Direct Subsidized Loan and a Direct 
Unsubsidized Loan enters repayment, and the point at which a Direct PLUS 
Loan enters repayment; and
    (ii) Give the graduate or professional student borrower the 
opportunity to request the maximum Direct Subsidized or Direct 
Unsubsidized Loan amount for which the borrower is eligible.
    (4) A school may not originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan, or a combination of loans, for an 
amount that--
    (i) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec.  685.203; or
    (ii) Exceeds the student's estimated cost of attendance less--
    (A) The student's estimated financial assistance for that period; 
and
    (B) In the case of a Direct Subsidized Loan, the borrower's expected 
family contribution for that period.
    (5)(i) A school determines a Direct Subsidized or Direct 
Unsubsidized Loan amount in accordance with Sec.  685.203.
    (ii) When prorating a loan amount for a student enrolled in a 
program of study with less than a full academic year remaining, the 
school need not recalculate the amount of the loan if the

[[Page 333]]

number of hours for which an eligible student is enrolled changes after 
the school originates the loan.
    (6) The date of loan origination is the date a school creates the 
electronic loan origination record.
    (7) If a student has received a determination of need for a Direct 
Subsidized Loan that is $200 or less, a school may choose not to 
originate a Direct Subsidized Loan for that student and to include the 
amount as part of a Direct Unsubsidized Loan.
    (8) A school may refuse to originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan or may reduce the borrower's 
determination of need for the loan if the reason for that action is 
documented and provided to the borrower in writing, and if--
    (i) The determination is made on a case-by-case basis;
    (ii) The documentation supporting the determination is retained in 
the student's file; and
    (iii) The school does not engage in any pattern or practice that 
results in a denial of a borrower's access to Direct Loans because of 
the borrower's race, gender, color, religion, national origin, age, 
disability status, or income.
    (9) A school may not assess a fee for the completion or 
certification of any Direct Loan Program forms or information or for the 
origination of a Direct Loan.
    (10)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or that has terms that 
are substantially equal in length with no term less than nine weeks in 
length, a single academic term (e.g., a semester or quarter); or
    (B) Except as provided in paragraph (a)(10)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion of 
that program if the student has less than the full program remaining) at 
the school; or
    (2) The academic year as defined by the school in accordance with 34 
CFR 668.3.
    (ii) For a student who transfers into a school from another school 
and the prior school originated a loan for a period of enrollment that 
overlaps the period of enrollment at the new school, the new school may 
originate a loan for the remaining portion of the program or academic 
year. In this case the school may originate a loan for an amount that 
does not exceed the remaining balance of the student's annual loan 
limit.
    (iii) For a student who completes a program at a school, where the 
student's last loan to complete that program had been for less than an 
academic year, and the student then begins a new program at the same 
school, the school may originate a loan for the remainder of the 
academic year. In this case the school may originate a loan for an 
amount that does not exceed the remaining balance of the student's 
annual loan limit at the loan level associated with the new program.
    (iv) The maximum period for which a school may originate a Direct 
Loan is--
    (A) Generally an academic year, as defined by the school in 
accordance with 34 CFR 668.3, except that the school may use a longer 
period of time corresponding to the period to which the school applies 
the annual loan limits under Sec.  685.203; or
    (B) For a defaulted borrower who has regained eligibility, the 
academic year in which the borrower regained eligibility.
    (b) Promissory note handling. (1) The Secretary provides promissory 
notes for use in the Direct Loan Program. A school may not modify, or 
make any additions to, the promissory note without the Secretary's prior 
written approval.
    (2) A school that originates a loan must ensure that the loan is 
supported by a completed promissory note as proof of the borrower's 
indebtedness.

[[Page 334]]

    (c) Reporting to the Secretary. The Secretary accepts a student's 
Payment Data that is submitted in accordance with procedures established 
through publication in the Federal Register, and that contains 
information the Secretary considers to be accurate in light of other 
available information including that previously provided by the student 
and the institution.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[78 FR 65838, Nov. 1, 2013]



Sec.  685.302  [Reserved]



Sec.  685.303  Processing loan proceeds.

    (a) Purpose. This section establishes rules governing a school's 
processing of a borrower's Direct Subsidized, Direct Unsubsidized, or 
Direct PLUS Loan proceeds. The school must also comply with any rules 
for processing loan proceeds contained in 34 CFR part 668.
    (b) General--(1) A school may not disburse loan proceeds to a 
borrower unless the borrower has executed a legally enforceable 
promissory note.
    (2) The Secretary provides Direct Loan funds to a school in 
accordance with 34 CFR 668.162.
    (3)(i) Except in the case of a late disbursement under paragraph (f) 
of this section, or as provided in paragraph (b)(3)(iii) of this 
section, a school may disburse loan proceeds only to a student, or a 
parent in the case of a Direct PLUS Loan obtained by a parent borrower, 
if the school determines the student has continuously maintained 
eligibility in accordance with the provisions of Sec.  685.200 from the 
beginning of the loan period for which the loan was intended.
    (ii) If a student delays attending school for a period of time, the 
school may consider that student to have maintained eligibility for the 
loan from the first day of the period of enrollment. However, the school 
must comply with the requirements under paragraph (b)(4) of this 
section.
    (iii) If, after a school makes the first disbursement to a borrower, 
the student becomes ineligible due solely to the school's loss of 
eligibility to participate in the title IV programs or the Direct Loan 
Program, the school may make subsequent disbursements to the borrower as 
permitted by 34 CFR part 668.
    (iv) If, prior to making any disbursement to a borrower, the student 
temporarily ceases to be enrolled on at least a half-time basis, the 
school may make a disbursement and any subsequent disbursement to the 
student if the school determines and documents in the student's file--
    (A) That the student has resumed enrollment on at least a half-time 
basis;
    (B) The student's revised cost of attendance; and
    (C) That the student continues to qualify for the entire amount of 
the loan, notwithstanding any reduction in the student's cost of 
attendance caused by the student's temporary cessation of enrollment on 
at least a half-time basis.
    (4) If a student does not begin attendance in the period of 
enrollment, disbursed loan proceeds must be handled in accordance with 
34 CFR 668.21.
    (5)(i) If a student is enrolled in the first year of an 
undergraduate program of study and has not previously received a Direct 
Subsidized Loan, a Direct Unsubsidized Loan, a Subsidized or 
Unsubsidized Federal Stafford Loan, or a Federal Supplemental Loan for 
Students, a school may not disburse the proceeds of a Direct Subsidized 
or Direct Unsubsidized Loan until 30 days after the first day of the 
student's program of study unless--
    (A)(1) Except as provided in paragraph (b)(5)(i)(A)(2) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668, or weighted average cohort rate of less than 10 
percent for each of the three most recent fiscal years for which data 
are available; or
    (2) For loans first disbursed on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or N of 34 CFR part 668 of less than 
15 percent for each of the three most recent fiscal years for which data 
are available;
    (B) The school is an eligible home institution originating a loan to 
cover the cost of attendance in a study abroad program and has a Direct 
Loan

[[Page 335]]

Program cohort rate, FFEL cohort default rate, or weighted average 
cohort rate of less than 5 percent for the single most recent fiscal 
year for which data are available.
    (ii) Paragraphs (b)(5)(i)(A) and (B) of this section do not apply to 
any loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
paragraph (b)(5)(i)(A) or (B) of this section, as applicable.
    (iii) Paragraph (b)(5)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in that 
paragraph.
    (c) Processing of the proceeds of a Direct Loan. Schools must follow 
the procedures for disbursing funds in 34 CFR 668.164.
    (d) Determining disbursement dates and amounts. (1) Before 
disbursing a loan, a school must determine that all information required 
by the promissory note has been provided by the borrower and, if 
applicable, the student.
    (2) An institution must disburse the loan proceeds on a payment 
period basis in accordance with 34 CFR 668.164(b).
    (3) Unless paragraph (d)(4) or (d)(6) of this section applies--
    (i) If a loan period is more than one payment period, the school 
must disburse loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make at 
least two disbursements during that payment period.
    (A) For a loan originated under Sec.  685.301(a)(10)(i)(A), the 
school may not make the second disbursement until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (B) For a loan originated under Sec.  685.301(a)(10)(i)(B), the 
school may not make the second disbursement until the student 
successfully completes half of the number of credit hours or clock hours 
and half of the number of weeks of instructional time in the payment 
period.
    (4)(i) If one or more payment periods have elapsed before a school 
makes a disbursement, the school may include in the disbursement loan 
proceeds for completed payment periods.
    (ii) If the loan period is equal to one payment period and more than 
one-half of it has elapsed, the school may include in the disbursement 
loan proceeds for the entire payment period.
    (5) The school must disburse loan proceeds in substantially equal 
installments, and no installment may exceed one-half of the loan.
    (6)(i) A school is not required to make more than one disbursement 
if--
    (A)(1) The loan period is not more than one semester, one trimester, 
one quarter, or, for non term-based schools or schools with non-standard 
terms, 4 months; and
    (2)(i) Except as provided in paragraph (d)(6)(i)(A)(2)(ii) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668 of less than 10 percent for each of the three most 
recent fiscal years for which data are available; or
    (ii) For loan disbursements made on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668, of 
less than 15 percent for each of the three most recent fiscal years for 
which data are available; or
    (B) The school is an eligible home institution originating a loan to 
cover the cost of attendance in a study abroad program and has a cohort 
default rate, calculated under subpart M or subpart N of 34 CFR part 
668, of less than five percent for the single most recent fiscal year 
for which data are available.
    (ii) Paragraphs (d)(6)(i)(A) and (B) of this section do not apply to 
any loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in

[[Page 336]]

paragraph (d)(6)(i)(A) or (B) of this section, as applicable.
    (iii) Paragraph (d)(6)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in that 
paragraph.
    (e) Annual loan limit progression based on completion of an academic 
year. (1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic year 
calendar period has elapsed.
    (2) If a school measures academic progress in an educational program 
in credit hours and uses nonstandard terms that are not substantially 
equal in length or each term is not at least nine weeks of instructional 
time in length, or measures academic progress in credit hours and does 
not have academic terms, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's academic 
year.
    (3) If a school measures academic progress in an educational program 
in clock hours, a student is considered to have completed an academic 
year and progresses to the next annual loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of this section, terms in a loan period are 
substantially equal in length if no term in the loan period is more than 
two weeks of instructional time longer than any other term in that loan 
period.
    (f) Late Disbursement. A school may make a late disbursement 
according to the provisions found under 34 CFR 668.164(g).
    (g) Treatment of excess loan proceeds. Before the disbursement of 
any Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS 
Loan proceeds, if a school learns that the borrower will receive or has 
received financial aid for the period of enrollment for which the loan 
was intended that exceeds the amount of assistance for which the student 
is eligible (except for Federal Work-Study Program funds up to $300), 
the school must reduce or eliminate the overaward by either--
    (1) Using the student's Direct Unsubsidized Loan, Direct PLUS Loan, 
or State-sponsored or another non-Federal loan to cover the expected 
family contribution, if not already done; or
    (2) Reducing one or more subsequent disbursements to eliminate the 
overaward.

(Approved by the Office of Management and Budget under control number 
1840-0672)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 61 
FR 29901, June 12, 1996; 61 FR 60610, Nov. 29, 1996; 64 FR 58971, Nov. 
1, 1999; 65 FR 65651, Nov. 1, 2000; 66 FR 34766, June 29, 2001; 68 FR 
75430, Dec. 31, 2003; 71 FR 45717, Aug. 9, 2006; 71 FR 64400, Nov. 1, 
2006; 72 FR 62033, Nov. 1, 2007; 74 FR 55666, Oct. 28, 2009; 75 FR 
67200, Nov. 1, 2010; 78 FR 65839, Nov. 1, 2013]



Sec.  685.304  Counseling borrowers.

    (a) Entrance counseling. (1) Except as provided in paragraph (a)(8) 
of this section, a school must ensure that entrance counseling is 
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan 
student borrower prior to making the first disbursement of the proceeds 
of a loan to a student borrower unless the student borrower has received 
a prior Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized or 
Unsubsidized Federal Stafford Loan, or Federal SLS Loan.

[[Page 337]]

    (2) Except as provided in paragraph (a)(8) of this section, a school 
must ensure that entrance counseling is conducted with each graduate or 
professional student Direct PLUS Loan borrower prior to making the first 
disbursement of the loan unless the student borrower has received a 
prior student Direct PLUS Loan or student Federal PLUS Loan.
    (3) Entrance counseling for Direct Subsidized Loan, Direct 
Unsubsidized Loan, and graduate or professional student Direct PLUS Loan 
borrowers must provide the borrower with comprehensive information on 
the terms and conditions of the loan and on the responsibilities of the 
borrower with respect to the loan. This information may be provided to 
the borrower--
    (i) During an entrance counseling session, conducted in person;
    (ii) On a separate written form provided to the borrower that the 
borrower signs and returns to the school; or
    (iii) Online or by interactive electronic means, with the borrower 
acknowledging receipt of the information.
    (A) Online or by interactive electronic means, with the borrower 
acknowledging receipt of the information.
    (B) If a standardized interactive electronic tool is used to provide 
entrance counseling to the borrower, the school must provide to the 
borrower any elements of the required information that are not addressed 
through the electronic tool:
    (1) In person; or
    (2) On a separate written or electronic document provided to the 
borrower.
    (4) If entrance counseling is conducted online or through 
interactive electronic means, the school must take reasonable steps to 
ensure that each student borrower receives the counseling materials, and 
participates in and completes the entrance counseling, which may include 
completion of any interactive program that tests the borrower's 
understanding of the terms and conditions of the borrower's loans.
    (5) A school must ensure that an individual with expertise in the 
title IV programs is reasonably available shortly after the counseling 
to answer the student borrower's questions. As an alternative, in the 
case of a student borrower enrolled in a correspondence, distance 
education, or study-abroad program approved for credit at the home 
institution, the student borrower may be provided with written 
counseling materials before the loan proceeds are disbursed.
    (6) Entrance counseling for Direct Subsidized Loan and Direct 
Unsubsidized Loan borrowers must--
    (i) Explain the use of a Master Promissory Note (MPN);
    (ii) Emphasize to the borrower the seriousness and importance of the 
repayment obligation the student borrower is assuming;
    (iii) Describe the likely consequences of default, including adverse 
credit reports, delinquent debt collection procedures under Federal law, 
and litigation;
    (iv) Emphasize that the student borrower is obligated to repay the 
full amount of the loan even if the student borrower does not complete 
the program, does not complete the program within the regular time for 
program completion, is unable to obtain employment upon completion, or 
is otherwise dissatisfied with or does not receive the educational or 
other services that the student borrower purchased from the school;
    (v) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels of indebtedness of Direct Subsidized 
Loan and Direct Unsubsidized Loan borrowers, or student borrowers with 
Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans depending 
on the types of loans the borrower has obtained; or
    (B) The average indebtedness of other borrowers in the same program 
at the same school as the borrower;
    (vi) To the extent practicable, explain the effect of accepting the 
loan to be disbursed on the eligibility of the borrower for other forms 
of student financial assistance;
    (vii) Provide information on how interest accrues and is capitalized 
during periods when the interest is not paid by either the borrower or 
the Secretary;

[[Page 338]]

    (viii) Inform the borrower of the option to pay the interest on a 
Direct Unsubsidized Loan while the borrower is in school;
    (ix) Explain the definition of half-time enrollment at the school, 
during regular terms and summer school, if applicable, and the 
consequences of not maintaining half-time enrollment;
    (x) Explain the importance of contacting the appropriate offices at 
the school if the borrower withdraws prior to completing the borrower's 
program of study so that the school can provide exit counseling, 
including information regarding the borrower's repayment options and 
loan consolidation;
    (xi) Provide information on the National Student Loan Data System 
and how the borrower can access the borrower's records; and
    (xii) Provide the name of and contact information for the individual 
the borrower may contact if the borrower has any questions about the 
borrower's rights and responsibilities or the terms and conditions of 
the loan.
    (7) Entrance counseling for graduate or professional student Direct 
PLUS Loan borrowers must--
    (i) Inform the student borrower of sample monthly repayment amounts 
based on--
    (A) A range of student levels or indebtedness of graduate or 
professional student PLUS loan borrowers, of student borrowers with 
Direct PLUS Loans and Direct Subsidized Loans or Direct Unsubsidized 
Loans, depending on the types of loans the borrower has obtained; or
    (B) The average indebtedness of other borrowers in the same program 
at the same school;
    (ii) Inform the borrower of the option to pay interest on a PLUS 
Loan while the borrower is in school;
    (iii) For a graduate or professional student Direct PLUS Loan 
borrower who has received a prior Direct Subsidized Loan, Direct 
Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized 
Federal Stafford Loan, provide the information specified in Sec.  
685.301(a)(3)(i)(A) through (a)(3)(i)(C); and
    (iv) For a graduate or professional student Direct PLUS Loan 
borrower who has not received a prior Direct Subsidized Loan, Direct 
Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized 
Federal Stafford Loan, provide the information specified in paragraph 
(a)(6)(i) through paragraph (a)(6)(xii) of this section.
    (8) A school may adopt an alternative approach for entrance 
counseling as part of the school's quality assurance plan described in 
Sec.  685.300(b)(9). If a school adopts an alternative approach, it is 
not required to meet the requirements of paragraphs (a)(1) through 
(a)(7) of this section unless the Secretary determines that the 
alternative approach is not adequate for the school. The alternative 
approach must--
    (i) Ensure that each student borrower subject to entrance counseling 
under paragraph (a)(1) or (a)(2) of this section is provided written 
counseling materials that contain the information described in 
paragraphs (a)(6)(i) through (a)(6)(v) of this section;
    (ii) Be designed to target those student borrowers who are most 
likely to default on their repayment obligations and provide them more 
intensive counseling and support services; and
    (iii) Include performance measures that demonstrate the 
effectiveness of the school's alternative approach. These performance 
measures must include objective outcomes, such as levels of borrowing, 
default rates, and withdrawal rates.
    (9) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (b) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Direct Subsidized Loan or Direct Unsubsidized 
Loan borrower and graduate or professional student Direct PLUS Loan 
borrower shortly before the student borrower ceases at least half-time 
study at the school.
    (2) The exit counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that an individual with expertise in the title IV 
programs is reasonably available shortly after the counseling to answer 
the student borrower's questions. As an alternative, in the case of a 
student

[[Page 339]]

borrower enrolled in a correspondence program or a study-abroad program 
approved for credit at the home institution, the student borrower may be 
provided with written counseling materials within 30 days after the 
student borrower completes the program.
    (3) If a student borrower withdraws from school without the school's 
prior knowledge or fails to complete the exit counseling as required, 
exit counseling must, within 30 days after the school learns that the 
student borrower has withdrawn from school or failed to complete the 
exit counseling as required, be provided either through interactive 
electronic means, by mailing written counseling materials to the student 
borrower at the student borrower's last known address, or by sending 
written counseling materials to an email address provided by the student 
borrower that is not an email address associated with the school sending 
the counseling materials.
    (4) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Direct 
Subsidized Loans and Direct Unsubsidized Loans, student borrowers who 
have obtained only Direct PLUS Loans, or student borrowers who have 
obtained Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans, 
depending on the types of loans the student borrower has obtained, for 
attendance at the same school or in the same program of study at the 
same school;
    (ii) Review for the student borrower available repayment plan 
options including the standard repayment, extended repayment, graduated 
repayment, income-contingent repayment, and income-based repayment 
plans, including a description of the different features of each plan 
and sample information showing the average anticipated monthly payments, 
and the difference in interest paid and total payments under each plan;
    (iii) Explain to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provide information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, fees 
to be paid, and length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities;
    (C) The options of the borrower to prepay the loan and to change 
repayment plans; and
    (D) That borrower benefit programs may vary among different lenders;
    (v) Include debt-management strategies that are designed to 
facilitate repayment;
    (vi) Explain to the student borrower how to contact the party 
servicing the student borrower's Direct Loans;
    (vii) Meet the requirements described in paragraphs (a)(6)(i), 
(a)(6)(ii), and (a)(6)(iv) of this section;
    (viii) Describe the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (ix) Provide--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of 
principal and interest, defer repayment of principal or interest, or be 
granted forbearance on a title IV loan; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (x) Review for the student borrower information on the availability 
of the Department's Student Loan Ombudsman's office;
    (xi) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS) and 
how NSLDS can be used to obtain title IV loan status information;
    (xii) A general description of the types of tax benefits that may be 
available to borrowers; and
    (xiii) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license

[[Page 340]]

number and State of issuance, as well as the student borrower's expected 
permanent address, the address of the student borrower's next of kin, 
and the name and address of the student borrower's expected employer (if 
known).
    (5) The school must ensure that the information required in 
paragraph (b)(4)(xiii) of this section is provided to the Secretary 
within 60 days after the student borrower provides the information.
    (6) If exit counseling is conducted through interactive electronic 
means, a school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the exit counseling.
    (7) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (8)(i) For students who have received loans under both the FFEL 
Program and the Direct Loan Program for attendance at a school, the 
school's compliance with the exit counseling requirements in paragraph 
(b) of this section satisfies the exit counseling requirements in 34 CFR 
682.604(a) if the school ensures that the exit counseling also provides 
the borrower with the information described in 34 CFR 682.604(a)(2)(i) 
and (ii).
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of 
paragraph (b) of this section and, for students who have also received 
FFEL Program loans for attendance at the school, 34 CFR 682.604(a).

(Approved by the Office of Management and Budget under control number 
1845-0021)

[74 FR 55666, Oct. 28, 2009, as amended at 78 FR 28986, May 16, 2013; 78 
FR 65841, Nov. 1, 2013; 84 FR 49933, Sept. 23, 2019; 86 FR 31438, June 
14, 2021; 87 FR 66068, Nov. 1, 2022]



Sec.  685.305  Determining the date of a student's withdrawal.

    (a) Except as provided in paragraph (b) of this section, a school 
must follow the procedures in Sec.  668.22(b) or (c), as applicable, for 
determining the student's date of withdrawal.
    (b) For a student who does not return for the next scheduled term 
following a summer break, which includes any summer term(s) in which 
classes are offered but students are not generally required to attend, a 
school must follow the procedures in Sec.  668.22(b) or (c), as 
applicable, for determining the student's date of withdrawal except that 
the school must determine the student's date of withdrawal no later than 
30 days after the start of the next scheduled term.
    (c) The school must use the date determined under paragraph (a) or 
(b) of this section for the purpose of reporting to the Secretary the 
student's date of withdrawal and for determining when a refund or return 
of title IV, HEA program funds must be paid under Sec.  685.306.

(Authority: 20 U.S.C. 1087 et seq.)

[64 FR 59044, Nov. 1, 1999, as amended at 78 FR 65841, Nov. 1, 2013]



Sec.  685.306  Payment of a refund or return of title IV, HEA program funds to the Secretary.

    (a) General. By applying for a Direct Loan, a borrower authorizes 
the school to pay directly to the Secretary that portion of a refund or 
return of title IV, HEA program funds from the school that is allocable 
to the loan. A school--
    (1) Must pay that portion of the student's refund or return of title 
IV, HEA program funds that is allocable to a Direct Loan to the 
Secretary; and
    (2) Must provide simultaneous writ-ten notice to the borrower if the 
school pays a refund or return of title IV, HEA program funds to the 
Secretary on be-half of that student.
    (b) Determination, allocation, and payment of a refund or return of 
title IV, HEA program funds. In determining the portion of a student's 
refund or return of title IV, HEA program funds that is allocable to a 
Direct Loan, the school must follow the procedures established in 34 CFR 
668.22 for allocating and paying a refund or return of title IV, HEA 
program funds that is due.

(Authority: 20 U.S.C. 1087a et seq.)

[64 FR 59044, Nov. 1, 1999; 65 FR 37045, June 13, 2000, as amended at 78 
FR 65841, Nov. 1, 2013]

[[Page 341]]



Sec.  685.307  Withdrawal procedure for schools participating in the 
Direct Loan Program.

    (a) A school participating in the Direct Loan Program may withdraw 
from the program by providing written notice to the Secretary.
    (b) A participating school that intends to withdraw from the Direct 
Loan Program must give at least 60 days notice to the Secretary.
    (c) Unless the Secretary approves an earlier date, the withdrawal is 
effective on the later of--
    (1) 60 days after the school notifies the Secretary; or
    (2) The date designated by the school.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 78 FR 65841, Nov. 1, 2013]



Sec.  685.308  Remedial actions.

    (a) General. The Secretary may require the repayment of funds and 
the purchase of loans by the school if the Secretary determines that the 
school is liable as a result of--
    (1) The school's violation of a Federal statute or regulation;
    (2) The school's negligent or willful false certification under 
Sec.  685.215; or
    (3) The school's actions that gave rise to a successful claim for 
which the Secretary discharged a loan, in whole or in part, pursuant to 
Sec. Sec.  685.206, 685.214, 685.216, 685.222, or subpart D of this 
part.
    (b) In requiring a school to repay funds to the Secretary or to 
purchase loans from the Secretary in connection with an audit or program 
review, the Secretary follows the procedures described in 34 CFR part 
668, subpart H.
    (c) The Secretary may impose a fine or take an emergency action 
against a school or limit, suspend, or terminate a school's 
participation in the Direct Loan Program in accordance with 34 CFR part 
668, subpart G.

[59 FR 61690, Dec. 1, 1994, as amended at 81 FR 76089, Nov. 1, 2016; 84 
FR 49933, Sept. 23, 2019; 87 FR 66068, Nov. 1, 2022]



Sec.  685.309  Administrative and fiscal control and fund accounting
requirements for schools participating in the Direct Loan Program.

    (a) General. A participating school must--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in this part and in 34 
CFR part 668; and
    (2) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information included 
in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe prescribed by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date the school discovers that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a loan 
under title IV of the Act has changed his or her permanent address.
    (c) Record retention requirements. An institution must follow the 
record retention and examination requirements in this part and in 34 CFR 
668.24.
    (d) Accounting requirements. A school must follow accounting 
requirements in 34 CFR 668.24(b).
    (e) Direct Loan Program bank account. Schools must follow the 
procedures for maintaining funds established in 34 CFR 668.163.
    (f) Division of functions. Schools must follow the procedures for 
division of functions in 34 CFR 668.16(c).
    (g) Limit on use of funds. Funds received by a school under this 
part may be used only to make Direct Loans to

[[Page 342]]

eligible borrowers and may not be used or hypothecated for any other 
purpose.

(Approved by the Office of Management and Budget under control number 
1840-0672)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 61 
FR 60493, Nov. 27, 1996; 61 FR 60610, Nov. 29, 1996; 78 FR 65841, Nov. 
1, 2013]



Sec.  685.310  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice shall not 
be affected thereby.

(Authority: 20 U.S.C. 1087a et seq.)

[81 FR 76089, Nov. 1, 2016]



                 Subpart D_Borrower Defense to Repayment

    Source: 87 FR 66068, Nov. 1, 2022, unless otherwise noted.



Sec.  685.400  Scope and purpose.

    This subpart sets forth the provisions under which a borrower 
defense to repayment may be asserted and applies to borrower defense 
applications pending with the Secretary on July 1, 2023, or received by 
the Secretary on or after July 1, 2023.



Sec.  685.401  Borrower defense-general.

    (a) Definitions. For the purposes of this subpart, the following 
definitions apply:
    Borrower means
    (i) The borrower; and
    (ii) In the case of a Direct PLUS Loan, any endorsers, and for a 
Direct PLUS Loan made to a parent, the student on whose behalf the 
parent borrowed.
    Borrower defense to repayment means an act or omission of the school 
attended by the student that relates to the making of a Direct Loan for 
enrollment at the school or the provision of educational services for 
which the loan was provided and that caused the borrower detriment 
warranting relief in the form of:
    (i) A defense to repayment of all amounts owed to the Secretary on a 
Direct Loan including a Direct Consolidation Loan that was used to repay 
a Direct Loan, a FFEL Program Loan, Federal Perkins Loan, Health 
Professions Student Loan, Loan for Disadvantaged Students under subpart 
II of part A of title VII of the Public Health Service Act, Health 
Education Assistance Loan, or Nursing Loan made under part E of the 
Public Health Service Act;
    (ii) Reimbursement of all payments previously made to the Secretary 
on the Direct Loan or on a loan repaid by the Direct Consolidation Loan;
    (iii) For borrowers in default, determining that the borrower is not 
in default on the loan and is eligible to receive assistance under title 
IV of the Act; and
    (iv) Updating or deleting adverse reports the Secretary previously 
made to consumer reporting agencies regarding the borrower's Direct 
Loan.
    Covered loan means a Direct Loan or other Federal student loan that 
is or could be consolidated into a Federal Direct Consolidation Loan.
    Department official means an employee of the Department who 
administers the group process described in Sec.  685.402, the individual 
process as described in Sec.  685.403, and the institutional response 
process in Sec.  685.405.
    Direct Loan means a Direct Subsidized Loan, a Direct Unsubsidized 
Loan, a Direct PLUS Loan, or a Direct Consolidation Loan.
    Legal assistance organization means a legal assistance organization 
that:
    (i) employs attorneys who:
    (A) Are full-time employees;
    (B) Provide civil legal assistance on a full-time basis; and
    (C) Are continually licensed to practice law; and,
    (ii) Is a nonprofit organization that provides legal assistance with 
respect to civil matters to low-income individuals without a fee.
    Legal representation authority means a written agreement entered 
into between a borrower and a legal assistance organization that 
authorizes the legal assistance organization to represent the borrower 
in connection with a claim for borrower defense or a court order 
appointing the legal assistance

[[Page 343]]

organization class counsel for a certified class that includes the 
borrower in an action asserting claims with elements substantially 
similar to the elements of a claim for borrower defense.
    School and institution may be used interchangeably and include an 
eligible institution as defined in 34 CFR 600.2, one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement to provide 
educational programs or to provide marketing, advertising, recruiting, 
or admissions services.
    State requestor means a State as defined in 34 CFR 600.2, a State 
attorney general, a State oversight entity, a State agency responsible 
for approving educational institutions in the State, or a regulatory 
agency with the authority from that State.
    Third-party requestor means a State requestor or legal assistance 
organization as defined in Sec.  685.401(a).
    (b) Federal standard for borrower defense applications received on 
or after July 1, 2023, and for applications pending with the Secretary 
on July 1, 2023. A borrower with a balance due on a covered loan will be 
determined to have a defense to repayment of a Direct Loan under this 
subpart, if at any time the Department concludes by a preponderance of 
the evidence that the institution committed an actionable act or 
omission and, as a result, the borrower suffered detriment of a nature 
and degree warranting the relief provided by a borrower defense to 
repayment as defined in this section. An actionable act or omission 
means--
    (1) The institution made a substantial misrepresentation as defined 
in 34 CFR part 668, subpart F, that misled the borrower in connection 
with the borrower's decision to attend, or to continue attending, the 
institution or the borrower's decision to take out a covered loan;
    (2) The institution made a substantial omission of fact, as defined 
in 34 CFR part 668, subpart F, in connection with the borrower's 
decision to attend, or to continue attending, the institution or the 
borrower's decision to take out a covered loan;
    (3) The institution failed to perform its obligations under the 
terms of a contract with the student and such obligation was undertaken 
as consideration or in exchange for the borrower's decision to attend, 
or to continue attending, the institution, for the borrower's decision 
to take out a covered loan, or for funds disbursed in connection with a 
covered loan;
    (4) The institution engaged in aggressive and deceptive recruitment 
conduct or tactics as defined in 34 CFR part 668, subpart R, in 
connection with the borrower's decision to attend, or to continue 
attending, the institution or the borrower's decision to take out a 
covered loan; or,
    (5)(i) The borrower, whether as an individual or as a member of a 
class, or a governmental agency has obtained against the institution a 
favorable judgment based on State or Federal law in a court or 
administrative tribunal of competent jurisdiction based on the 
institution's act or omission relating to the making of covered loan, or 
the provision of educational services for which the loan was provided; 
or,
    (ii) The Secretary sanctioned or otherwise took adverse action 
against the institution at which the borrower enrolled under 34 CFR part 
668, subpart G, by denying the institution's application for 
recertification, or revoking the institution's provisional program 
participation agreement under 34 CFR 668.13, based on the institution's 
acts or omissions that could give rise to a borrower defense claim under 
paragraphs (b)(1) through (4) of this section.
    (c) Violation of State law. For loans first disbursed prior to July 
1, 2017, a borrower has a borrower defense to repayment under this 
subpart if the Secretary concludes by a preponderance of the evidence 
that the school attended by the student committed any act or omission 
that relates to the making of the loan for enrollment at the school or 
the provision of educational services for which the loan was provided 
that would give rise to a cause of action against the school under 
applicable State law without regard to any State statute of limitations, 
but only upon reconsideration described under Sec.  685.407(a)(1)(ii) or 
(a)(2)(i).

[[Page 344]]

    (d) Exclusions. An institution's violation of an eligibility or 
compliance requirement in the Act or its implementing regulations is not 
a basis for a borrower defense under this subpart unless the violation 
would otherwise constitute a basis for a borrower defense under this 
subpart.
    (e) Circumstances warranting relief. In determining whether a 
detriment caused by an institution's act or omission warrants relief 
under this section, the Secretary will consider the totality of the 
circumstances, including the nature and degree of the acts or omissions 
and of the detriment caused to borrowers. For borrowers who attended a 
closed school shown to have committed actionable acts or omissions that 
caused the borrower detriment, there will be a rebuttable presumption 
that the detriment suffered warrants relief under this section.



Sec.  685.402  Group process for borrower defense.

    (a) Group process, generally. Upon consideration of factors 
including, but not limited to, the existence of common facts and claims 
by borrowers, the likelihood of actionable acts or omissions that were 
pervasive or widely disseminated, and the promotion of compliance by an 
institution or other title IV, HEA program participant, the Secretary 
may determine whether a group of borrowers from one institution or 
commonly owned institutions identified by the Secretary has a borrower 
defense under this subpart.
    (b) Group process initiated by the Secretary. The Secretary may 
identify and form a group based upon information from sources that 
include but are not limited to--
    (1) Actions by the Federal Government, State attorneys general, 
other State agencies or officials, or other law enforcement activity;
    (2) Lawsuits related to educational programs filed against the 
institutions that are the subject of the claims or judgments rendered 
against the institutions; or,
    (3) Individual borrower defense claims pursuant to Sec.  685.403.
    (c) Group process initiated in response to a third-party requestor 
application. The Secretary will consider a request to form a group from 
a third-party requestor that complies with the requirements of this 
section. To comply with the requirements of this section, the 
requestor--
    (1) Submits an application to the Secretary, under penalty of 
perjury, and on a form approved by the Secretary that--
    (i) Identifies the requested group, including at minimum:
    (A) The name of the institution or commonly owned institutions;
    (B) The campuses or programs which are the subject of the claim, if 
applicable;
    (C) A description of the conduct that forms the basis for the group 
borrower defense claim under the Federal standard in Sec.  685.401(b);
    (D) An analysis of why the conduct should result in an approved 
group borrower defense claim under the Federal standard in Sec.  
685.401(b); and,
    (E) The period during which the activity in (c)(1)(i)(C) of this 
section occurred;
    (ii) Provides evidence beyond sworn borrower statements that 
supports each element of the claim made in this paragraph (c)(1), 
including but not limited to evidence demonstrating the actionable acts 
or omissions asserted were pervasive or widely disseminated;
    (iii) Provides the names and other identifying information of 
borrowers in the group to the extent available; and
    (iv) For requests submitted by a legal assistance organization, 
includes a certification that the requestor has entered into a legal 
representation authority with each borrower identified as a member of 
the group; and,
    (2) Provides any other information or supporting documentation 
reasonably requested by the Secretary within 90 days of the Secretary's 
request.
    (3) The Secretary may consolidate multiple group applications 
related to the same institution or commonly owned institutions.
    (4) Once the Secretary determines that the third-party requestor's 
application is materially complete, the Secretary will provide notice to 
the institution of the third-party requestor's application. The 
institution will have

[[Page 345]]

90 days to respond to the Secretary regarding the third-party 
requestor's application request to form a group under this paragraph 
(c).
    (5) The Secretary will provide a response to any materially complete 
third-party requestor group request under this paragraph (c) within two 
years of receipt. That response will be sent to the third-party 
requestor and the institution and includes:
    (i) Whether the Secretary will choose to form a group and a 
definition of the group formed; and
    (ii) Any additional information needed from the third-party 
requestor to continue the third-party requestor requested group process.
    (6)(i) If the Secretary denies in whole or in part a third-party 
requestor's request to form a group under the process described in this 
paragraph (c), for reasons other than that the Secretary already has 
formed a group that includes the members of the proposed group or has 
findings that cover the members of the proposed group, the third-party 
requestor submitting the group claim may request that the Secretary 
reconsider the decision upon the identification of new evidence that was 
not previously available to the Secretary in forming the group.
    (ii) The third-party requestor submitting the group claim under this 
paragraph (c) must request reconsideration of the group formation no 
later than 90 days from the date of the Secretary's initial decision 
regarding formation of the group.
    (iii) The Secretary will provide a response to the third-party 
requestor that requested reconsideration of the group's formation and 
the institution after reaching a decision on the reconsideration 
request.
    (d) Process after group formation. Upon formation of a group of 
borrowers under this section, the Secretary--
    (1) Designates a Department official to present the group's claim in 
the institutional response process described in Sec.  685.405;
    (2) For borrowers who have an application pending with the Secretary 
prior to the formation of the group, notifies those borrowers that they 
are an identified member of the group formed under this section and 
follows Sec.  685.403(d) or (e) as appropriate;
    (3) For borrowers whose names were submitted by the third-party 
requestor and that can be identified by the Secretary, or that can 
otherwise be identified by the Secretary, if the borrower is not in 
default and does not have a separate application pending with the 
Secretary, follows the procedures under Sec.  685.403(d) except that 
interest on the loan will stop accumulating immediately;
    (4) For borrowers whose names were submitted by the third-party 
requestor and that can be identified by the Secretary, or that can 
otherwise be identified by the Secretary, if the borrower is in default 
and does not have a separate application pending with the Secretary, 
follows the procedures under Sec.  685.403(e) except that the interest 
on the loan will stop accumulating immediately;
    (5) For possible group members that the Secretary cannot identify, 
takes reasonable steps to identify and notify potential members of the 
group, and if the Secretary ultimately is able to identify any 
additional members, follows the process under paragraphs (d)(3) and (4) 
of this section to allow those additional members to opt-in the group 
formed; and,
    (6) If the Secretary later identifies a borrower that should have 
received the benefits as described under paragraph (d)(3) or (4) of this 
section, either prior to the adjudication of the group or after an 
adjudication that results in the approval of a group borrower defense, 
retrospectively applies the benefits available to the borrower under 
those subparagraphs and no other consequences will apply.



Sec.  685.403  Individual process for borrower defense.

    (a) Individual process, generally. (1) If Sec.  685.402 does not 
apply to an individual borrower who has submitted a borrower defense 
application, the Secretary will initiate a process to determine whether 
the individual borrower has a borrower defense under this subpart.
    (2) If Sec.  685.402 applies to an individual borrower who is 
covered under a group borrower defense application being

[[Page 346]]

considered by the Secretary, that group borrower defense application 
will toll the timelines under Sec.  685.406 on adjudicating the 
individual borrower application.
    (3) Paragraph (a)(1) of this section will not apply to claims 
covered by a group claim under Sec.  685.402, including claims submitted 
prior to the formation of such a group, until after the Secretary makes 
a decision on that group claim.
    (b) Individual process. (1) The Secretary will consider a borrower 
defense claim from an individual borrower to be materially complete when 
the borrower--
    (i) Submits an application to the Secretary, under penalty of 
perjury and on a form approved by the Secretary with the following 
information:
    (A) A description of one or more acts or omissions by the 
institution;
    (B) The school or school representative attributed with the act or 
omission;
    (C) Approximately when the act or omission occurred;
    (D) How the act or omission impacted their decision to attend, to 
continue attending, or to take out the loan for which they are asserting 
a defense to repayment; and,
    (E) A description of the detriment they suffered as a result of the 
institution's act or omission;
    (ii) Provides additional supporting evidence for the claims made 
under subparagraph (b)(1)(i) of this section, if any;
    (2) The individual must provide any other information or supporting 
documentation reasonably requested by the Secretary.
    (c) Individual borrower status. Upon receipt of a materially 
complete application under this section, the Secretary--
    (1) Designates a Department official to present the individual's 
claim in the institutional response process described in Sec.  685.405;
    (2) Notifies the borrower that the Department will adjudicate the 
claim under Sec.  685.406(c); and
    (3) Places all the borrower's loans in forbearance in accordance 
with paragraph (d) of this section or stopped enforcement collections in 
accordance with paragraph (e) of this section, as applicable.
    (d) Forbearance. The Secretary grants forbearance on all of the 
borrower's title IV loans that are not in default in accordance with 
Sec.  685.205 and--
    (1) Notifies the borrower of the option to decline forbearance and 
to continue making payments on the borrower's loans, and the 
availability of income-contingent repayment plans under Sec.  685.209 
and the income-based repayment plan under Sec.  685.221; and,
    (2) Does not charge interest on the borrower's loans beginning 180 
days from the date the borrower was initially granted forbearance under 
this paragraph (d) if the Secretary has failed to make a determination 
on the borrower's claim by that date and continuing until the Department 
notifies the borrower of the decision.
    (e) Loan collection activities during adjudication of borrower 
defense claim. The Secretary--
    (1) Suspends collection activity on all defaulted title IV loans 
until the Secretary issues a decision on the borrower defense claim;
    (2) Does not charge interest on the borrower's loans beginning 180 
days from the date the Secretary initially suspended collection activity 
under subparagraph (e)(1) of this section if the Secretary has not made 
a determination on the borrower's claim by that date and continuing 
until the Department notifies the borrower of the decision;
    (3) Notifies the borrower of the suspension of collection activity 
and explains that collection activity will resume no earlier than 90 
days following final adjudication of the borrower defense claim if the 
Secretary determines that the borrower does not qualify for a full 
discharge; and
    (4) Notifies the borrower of the option to begin or continue making 
payments under a rehabilitation agreement or other repayment agreement 
on the defaulted loan.

[[Page 347]]



Sec.  685.404  Group process based on prior Secretarial final actions.

    (a) For purposes of forming a Secretary-initiated group process in 
accordance with Sec.  685.402(b), the Department official may consider 
final actions as described in Sec.  685.401(b)(5)(ii).
    (b) For groups based on prior Secretarial final actions in 
accordance with this section, Sec.  685.405 will not apply to the 
affected institutions.



Sec.  685.405  Institutional response.

    (a) For purposes of adjudicating a borrower defense claim other than 
those based on prior Secretarial final actions in accordance with Sec.  
685.404, the Department official notifies the institution of the group 
claim under Sec.  685.402 or individual claim under Sec.  685.403 and 
requests a response from the school. Such notification also may include, 
but is not limited to, requests for documentation to substantiate the 
school's response.
    (b)(1) The notification in paragraph (a) of this section tolls any 
limitation period by which the Secretary may recover from the 
institution under Sec.  685.409.
    (2) The Department official requests a response from the 
institution, which will have 90 days to respond from the date of the 
Department official's notification.
    (c) With its response, the institution must submit an affidavit, on 
a form approved by the Secretary, certifying under penalty of perjury 
that the information submitted to the Department official is true and 
correct.
    (d) If the institution does not respond to the Department official's 
information request within 90 days, the Department official will presume 
that the institution does not contest the borrower defense to repayment 
claim.



Sec.  685.406  Adjudication of borrower defense applications.

    (a) Adjudication. The Department official adjudicates a borrower 
defense claim in accordance with this section.
    (b) Group process, adjudication. (1) For a group formed under Sec.  
685.402, the Department official makes a recommendation to the Secretary 
regarding adjudication after considering any evidence related to the 
claim, including materials submitted as part of the group application, 
individual claims that are part of the group, evidence in the 
Secretary's possession, evidence provided by the institution during the 
institutional response process described in Sec.  685.405, and any other 
relevant information.
    (2) For a group of borrowers under Sec.  685.402 for which the 
Department official determines that there may be a borrower defense 
under Sec.  685.401(b), there is a rebuttable presumption that the act 
or omission giving rise to the borrower defense affected each member of 
the group in deciding to attend, or continue attending, the institution, 
and that such reliance was reasonable.
    (c) Individual process, adjudication. For an individual process 
under Sec.  685.403, the Department official adjudicates the borrower 
defense using the information available to the official and makes a 
recommendation to the Secretary regarding adjudication. The Department 
official considers any evidence related to the claim, including 
materials submitted as part of the individual application, evidence in 
the Secretary's possession, evidence provided by the institution during 
the institutional response process described in Sec.  685.405, and any 
other relevant information.
    (d) Additional information needed from the school or individual. If 
the Department official requests additional information from the school, 
the school must respond to the Department official's information request 
within 90 days. If the Department official requests additional 
information from the individual, the individual must respond to the 
Department official's information request within 90 days.
    (e) Secretary decision. The Secretary makes a final decision after 
taking into account the Department official's recommendation and the 
record compiled under Sec. Sec.  685.402, 685.403, 685.404, 685.405, and 
685.407, as applicable.
    (f) Written decision. The Secretary issues a written decision as 
follows:
    (1) Approval of a Borrower Defense Claim. If the Secretary approves 
the borrower defense claim--

[[Page 348]]

    (i) The written decision states the Secretary's determination and 
the relief provided as defined in Sec.  685.401 on the basis of that 
claim.
    (ii) The Secretary places a borrower's Direct Loans associated with 
a group borrower defense claim into forbearance until the Secretary 
discharges the loan obligations under Sec.  685.212(k). If any balance 
remains on the Direct Loans not associated with the borrower defense 
claim, those loans will return to their status prior to the claim 
process. The Secretary resumes collection activities on those Direct 
Loans not associated with the borrower defense claim no earlier than 90 
days from the date the Department official issues a written decision. No 
interest will be charged on the loans during the forbearance period.
    (2) Denial of a Borrower Defense Claim--(i) Denial, group. If the 
Secretary denies the borrower defense claim, the written decision states 
the reasons for the denial, the evidence upon which the decision was 
based, and the loans that are due and payable to the Secretary. The 
Secretary informs the borrowers that for the Direct Loans associated 
with the group borrower defense claim, those loans will return to their 
status prior to the group claim process. The Secretary resumes 
collection activities on the Direct Loans associated with the group 
borrower defense claim no earlier than 90 days from the date the 
Secretary issues a written decision. The Secretary also informs 
individual borrowers from the group claim initially adjudicated under 
Sec.  685.406(b)(1) of their option to file a new borrower defense 
application under an individual process in accordance with Sec.  
685.403.
    (ii) Denial, individual. If the Secretary denies the borrower 
defense claim, the written decision states the reasons for the denial 
and the evidence upon which the decision was based. The Secretary 
informs the borrowers that their loans will return to their status prior 
to the claim process. The Secretary resumes collection activities on the 
loans under which a forbearance or stopped collection was granted during 
adjudication of the claim in accordance with Sec. Sec.  685.403(d) and 
(e), no earlier than 90 days from the date the Secretary issues a 
written decision. The Secretary also informs the borrower of the 
opportunity to request reconsideration of the claim pursuant to Sec.  
685.407.
    (3) Copies of written decisions. The Secretary provides copies of 
the written decision in this subsection to:
    (i) An individual whose claim was adjudicated under Sec.  
685.406(c), as applicable;
    (ii) The members of the group whose claims were adjudicated under 
Sec.  685.406(b)(1), as applicable;
    (iii) The school; and,
    (iv) The third-party requestor who requested the group claims 
process, as applicable.
    (g) Adjudication, timelines. (1) The Secretary will issue a decision 
on a group or individual borrower defense claim under the following 
timelines:
    (i) For a group claim under Sec.  685.402(c), within 1 year of the 
date the Department official notified the third-party requestor under 
Sec.  685.402(c)(5).
    (ii) For an individual claim under Sec.  685.403, within the later 
of July 1, 2026 or 3 years after the date the Department determines the 
borrower submitted a materially complete application.
    (2) The timelines in paragraph (g)(1) of this section will not apply 
for additional adjudications carried out as part of the reconsideration 
process in Sec.  685.407.
    (3) An individual claim under Sec.  685.403 that is included in a 
group claim under Sec.  685.402 will be subject to the adjudication 
timeline for that group under paragraph (g)(1)(i) of this section, and 
any timelines associated with individual adjudication in paragraph 
(g)(1)(ii) of this section will be tolled until the Secretary renders a 
decision on the claim under Sec.  685.402.
    (4) The Department official will provide an interim update to the 
individual borrower submitting a claim under Sec.  685.403, the third-
party requestor requesting a group process under Sec.  685.402, and the 
institution contacted for the institutional response under Sec.  685.405 
no later than 1 year after the dates in paragraph (g)(1) of this 
section. Such notification will--

[[Page 349]]

    (i) Indicate the Department official's progress in adjudicating the 
claim or claims; and,
    (ii) Provide an expected timeline for rendering a decision on the 
claim.
    (5) If the Secretary does not issue a written decision under 
paragraph (e) of this section on loans covered by certain claims by the 
dates identified in paragraph (g)(1) of this section, the loans, or 
portion of the loans in the case of a Direct Consolidation Loan, will 
not be enforceable by the Department against the borrower and the school 
will not be liable for the loan amount.



Sec.  685.407  Reconsideration.

    (a) The decision of the Secretary is final as to the merits of the 
borrower defense and any discharge that may be granted on the claim. 
Notwithstanding the foregoing--
    (1) If the borrower defense is denied, an individual may request 
that the Secretary reconsider their individual borrower defense claim on 
the following grounds:
    (i) Administrative or technical errors;
    (ii) Consideration under an otherwise applicable State law standard 
under Sec.  685.401(c) but only for loans first disbursed before July 1, 
2017; or,
    (iii) Identification of evidence that was not previously provided by 
the borrower and that was not identified in the final decision as a 
basis for the Department official's determination;
    (2)(i) If the borrower defense is denied for a group claim 
adjudicated under Sec.  685.406(b)(1), any of the third-party requestors 
that requested to form a group under Sec.  685.402(c) may request that 
the Secretary reconsider the borrower defense for the reasons provided 
under (a)(1)(i) through (iii) of this section. A third-party requestor's 
reconsideration request made in accordance with subparagraph (a)(1)(ii) 
of this section must provide:
    (A) The applicable State law standard;
    (B) Why the third-party requestor requests use of such State law 
standard;
    (C) Why application of the State law standard would result in a 
different outcome for the group than adjudication under the Federal 
standard; and
    (D) Why the applicable State law standard would lead to a borrower 
defense.
    (ii) An individual borrower from a group claim initially adjudicated 
under Sec.  685.406(b)(1) may not file a reconsideration request under 
this section.
    (3) The borrower or third-party requestor that requested to form a 
group under Sec.  685.402(c) must request reconsideration under this 
section no later than 90 days from the date of the Department official's 
written decision, for any decisions issued on or after the effective 
date of these regulations.
    (4)(i) The Secretary will consider a reconsideration request under 
paragraph (a)(1) or (a)(2)(i) of this section in which the individual or 
third-party requestor--
    (A) Submits an application under penalty of perjury to the 
Secretary, on a form approved by the Secretary; and,
    (B) Provides additional supporting evidence for the reconsideration 
claims made in this paragraph (a)(4)(i), if any; and
    (ii) The borrower or third-party requestor submitting the 
reconsideration request must provide any other information or supporting 
documentation reasonably requested by the Secretary regarding the 
reconsideration request.
    (b) The Secretary designates a different Department official for the 
reconsideration process than the one who conducted the initial 
adjudication.
    (c) If accepted for reconsideration by the Secretary, the Department 
official follows the procedures in Sec.  685.405 to notify the 
institution of the claim and the basis for the group's borrower defense 
under Sec.  685.402 or individual's borrower defense under Sec.  685.403 
for purposes of adjudicating reconsideration of the borrower defense 
claim and to request a response from the school to the reconsideration 
request.
    (d) If accepted for reconsideration by the Secretary, the Secretary 
follows the procedures in Sec.  685.403(d) for granting forbearance and 
Sec.  685.403(e) for defaulted loans, as applicable.
    (e) The Department official adjudicates the borrower's 
reconsideration request under Sec.  685.406, makes a recommendation to 
the Secretary, and the Secretary provides notice of the final

[[Page 350]]

decision upon reconsideration in accordance with Sec.  685.406(f).
    (f)(1) The Secretary may reopen at any time a borrower defense 
application that was denied. If a borrower defense application is 
reopened by the Secretary, the Secretary follows the procedures in Sec.  
685.403(d) for granting forbearance and for Sec.  685.403(e) for 
defaulted loans, as applicable.
    (2) Upon reopening a borrower defense application under paragraph 
(f) of this section, the Department official adjudicates the claim under 
Sec.  685.406, makes a recommendation to the Secretary, and the 
Secretary provides notice of the final decision on the reopened case in 
accordance with Sec.  685.406(f).



Sec.  685.408  Discharge.

    (a) The Secretary discharges the obligation of the borrower in 
accordance with the procedures described in subpart D of this part.
    (b) Members of a group that received a written notice of an approved 
borrower defense claim in accordance with Sec.  685.406(f)(1) may 
request to opt out of the discharge for the group.



Sec.  685.409  Recovery from institutions.

    (a)(1) For loans first disbursed on or after July 1, 2023, the 
Secretary may collect from the school, or in the case of a closed 
school, a person affiliated with the school as described in Sec.  
668.174(b) of this chapter, any liability to the Secretary for any 
amounts discharged or reimbursed to borrowers for claims approved under 
Sec.  685.406.
    (2) Notwithstanding paragraph (a) of this section, the Secretary may 
choose not to collect from the school, or in the case of a closed 
school, a person affiliated with the school as described in Sec.  
668.174(b) of this chapter, any liability to the Secretary for any 
amounts discharged or reimbursed to borrowers under the discharge 
process described in Sec.  685.408, under conditions such as:
    (i) The cost of collecting would exceed the amounts received; or
    (ii) The claims were approved outside of the limitations period in 
paragraph (c) of this section;
    (b) The Secretary will not collect from the school any liability to 
the Secretary for any amounts discharged or reimbursed to borrowers for 
an approved claim under Sec.  685.406 for loans first disbursed prior to 
July 1, 2023, unless:
    (1) For loans first disbursed before July 1, 2017, the claim would 
have been approved under the standard in Sec.  685.206(c)(1);
    (2) For loans first disbursed on or after July 1, 2017, and before 
July 1, 2020, the claim would have been approved under the standard in 
Sec. Sec.  685.222(b) through (d); or
    (3) For loans first disbursed on or after July 1, 2020, and before 
July 1, 2023, the claim would have been approved under the standard in 
Sec.  685.206(e)(2).
    (c)(1) The Secretary will initiate a proceeding to collect from the 
school the amount of discharge or reimbursement for the borrower 
resulting from a borrower defense under Sec.  685.408 no later than 6 
years after the borrower's last date of attendance at the institution;
    (2) The limitations period described in paragraph (c)(1) of this 
section will not apply if at any time prior to the end of the 
limitations period--
    (i) The Department official notifies the school of the borrower's 
claim in accordance with Sec.  685.405(b);
    (ii) A class that may include the borrower is certified in a case 
against the institution asserting relief that may form the basis of a 
claim in accordance with this subpart; or
    (iii) The institution receives written notice, including a civil 
investigative demand or other written demand for information, from a 
Federal or State agency that has power to initiate an investigation into 
conduct of the school relating to specific programs, periods, or 
practices that may have affected the borrower, for underlying facts that 
may form the basis of a claim under this subpart.
    (3) For a borrower defense under Sec.  685.401(b)(5), the Secretary 
may initiate a proceeding to collect at any time.
    (4) The tolling of the limitations period described in paragraph 
(c)(2) of this section will cease upon the issuance of a written 
decision denying an application under Sec.  685.406(f)(2).

[[Page 351]]

    (d) In requiring an institution to repay funds to the Secretary 
based on successful borrower defense claims under this subpart, the 
Secretary follows the procedures described in 34 CFR part 668, subpart 
H.



Sec.  685.410  Cooperation by the borrower.

    To obtain a discharge under this subpart, a borrower must reasonably 
cooperate with the Secretary in any proceeding under this subpart.



Sec.  685.411  Transfer to the Secretary of the borrower's right of
recovery against third parties.

    (a) Upon the granting of any discharge under this subpart, the 
borrower is deemed to have assigned to, and relinquished in favor of, 
the Secretary any right to a loan refund (up to the amount discharged) 
that the borrower may have by contract or applicable law with respect to 
the loan or the contract for educational services for which the loan was 
received, against the school, its principals, its affiliates, and their 
successors, its sureties, and any private fund.
    (b) The provisions of this section apply notwithstanding any 
provision of State law that would otherwise restrict transfer of those 
rights by the borrower, limit or prevent a transferee from exercising 
those rights, or establish procedures or a scheme of distribution that 
would prejudice the Secretary's ability to recover on those rights.
    (c) Nothing in this section limits or forecloses the borrower's 
right to pursue legal and equitable relief against a party described in 
this section for recovery of any portion of a claim exceeding that 
assigned to the Secretary or any other claims arising from matters 
unrelated to the claim on which the loan is discharged.



Sec.  685.499  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice will not 
be affected thereby.



PART 686_TEACHER EDUCATION ASSISTANCE FOR COLLEGE AND HIGHER EDUCATION 
(TEACH) GRANT PROGRAM--Table of Contents



            Subpart A_Scope, Purpose and General Definitions

Sec.
686.1 Scope and purpose.
686.2 Definitions.
686.3 Duration of student eligibility.
686.4 Institutional participation.
686.5 Enrollment status for students taking regular and correspondence 
          courses.
686.6 Payment from more than one institution.

                    Subpart B_Application Procedures

686.10 Application.
686.11 Eligibility to receive a grant.
686.12 Agreement to serve or repay.

                    Subpart C_Determination of Awards

686.20 Submission process and deadline for a SAR or ISIR.
686.21 Calculation of a grant.
686.22 Calculation of a grant for a payment period.
686.23 Calculation of a grant for a payment period that occurs in two 
          award years.
686.24 Transfer student: attendance at more than one institution during 
          an award year.
686.25 Correspondence study.

               Subpart D_Administration of Grant Payments

686.30 Scope.
686.31 Determination of eligibility for payment and cancellation of a 
          TEACH Grant.
686.32 Counseling requirements.
686.33 Frequency of payment.
686.34 Liability for and recovery of TEACH Grant overpayments.
686.35 Recalculation of TEACH Grant award amounts.
686.36 Fiscal control and fund accounting procedures.
686.37 Institutional reporting requirements.
686.38 Maintenance and retention of records.

               Subpart E_Service and Repayment Obligations

686.40 Documenting the service obligation.
686.41 Periods of suspension.
686.42 Discharge of agreement to serve or repay.
686.43 Obligation to repay the grant.


[[Page 352]]


    Authority: 20 U.S.C. 1070g, et seq. , unless otherwise noted.

    Source: 73 FR 35495, June 23, 2008, unless otherwise noted.



            Subpart A_Scope, Purpose, and General Definitions



Sec.  686.1  Scope and purpose.

    The TEACH Grant program awards grants to students who intend to 
teach, to help meet the cost of their postsecondary education. In 
exchange for the grant, the student must agree to serve as a full-time 
teacher in a high-need field in a school serving low-income students, or 
as a full-time teacher in a high-need field for an educational service 
agency serving low-income students, for at least four academic years 
within eight years of ceasing enrollment at the institution where the 
student received the grant or, in the case of a student who receives a 
TEACH Grant at one institution and subsequently transfers to another 
institution and enrolls in another TEACH Grant-eligible program, within 
eight years of ceasing enrollment at the other institution. The eight-
year period for completing the required four years of teaching does not 
include periods of suspension in accordance with Sec.  686.41. If the 
student does not satisfy the service obligation, the amounts of the 
TEACH Grants received are treated as a Direct Unsubsidized Loan and must 
be repaid with interest charged from the date of each TEACH Grant 
disbursement. A TEACH Grant that has been converted to a Direct 
Unsubsidized Loan can be reconverted to a grant only in accordance with 
Sec.  686.43.

[85 FR 49821, Aug. 14, 2020]



Sec.  686.2  Definitions.

    (a) Definitions for the following terms used in this part are in the 
regulations for Institutional Eligibility under the Higher Education Act 
of 1965, as amended, (HEA) 34 CFR part 600:

Award year
Clock hour
Correspondence course
Credit hour
Eligible institution
Institution of higher education (institution)
Regular student
Secretary
State
Title IV, HEA program

    (b) Definitions for the following terms used in this part are in 
subpart A of the Student Assistance General Provisions, 34 CFR part 668:

Academic year
Enrolled
Expected family contribution (EFC)
Free application for Federal student aid (FAFSA).
Full-time student
Graduate or professional student
Half-time student
HEA
Payment period
Three-quarter-time student
Undergraduate student
William D. Ford Federal Direct Loan (Direct Loan) Program

    (c) Definitions for the following terms used in this part are in 34 
CFR part 77:

Local educational agency (LEA)
State educational agency (SEA)

    (d) Other terms used in this part are defined as follows:
    Academic year or its equivalent for elementary and secondary schools 
(elementary or secondary academic year):
    (1) One complete school year, or two complete and consecutive half-
years from different school years, excluding summer sessions, that 
generally fall within a 12-month period.
    (2) If a school has a year-round program of instruction, the 
Secretary considers a minimum of nine consecutive months to be the 
equivalent of an academic year.
    Agreement to serve or repay: An agreement under which the individual 
receiving a TEACH Grant commits to meet the service obligation or repay 
the loan as described in Sec.  686.12 and to comply with notification 
and other provisions of the agreement.
    Annual award: The maximum TEACH Grant amount a student would receive 
for enrolling as a full-time, three-quarter-time, half-time, or less-
than-half-time student and remaining in that enrollment status for a 
year.
    Bilingual education: An educational program in which two languages 
are used to provide content matter instruction.
    Educational service agency: A regional public multiservice agency 
authorized

[[Page 353]]

by State statute to develop, manage, and provide services or programs to 
local educational agencies (LEAs).
    Elementary school: A nonprofit institutional day or residential 
school, including a public elementary charter school, that provides 
elementary education, as determined under State law.
    English language acquisition: The process of acquiring English as a 
second language.
    Full-time teacher: A teacher who meets the standard used by a State 
in defining full-time employment as a teacher. For an individual 
teaching in more than one school, the determination of full-time is 
based on the combination of all qualifying employment.
    High-need field: Includes the following:
    (1) Bilingual education and English language acquisition.
    (2) Foreign language.
    (3) Mathematics.
    (4) Reading specialist.
    (5) Science, including, but not limited to, computer science.
    (6) Special education.
    (7) Another field documented as high-need by the Federal Government, 
a State government or an LEA, and approved by the Secretary and listed 
in the Department's annual Teacher Shortage Area Nationwide Listing 
(Nationwide List).
    Highly qualified: Has the meaning set forth in paragraphs (i) 
through (iv) of this definition, or the meaning set forth in section 
602(10) of the Individuals With Disabilities Education Act.
    (i) When used with respect to any public elementary school or 
secondary school teacher in a State, means that--
    (A) The teacher has obtained full State certification as a teacher 
(including certification obtained through alternative routes to 
certification) or passed the State teacher licensing examination, and 
holds a license to teach in such State, except that when used with 
respect to any teacher teaching in a public charter school, the term 
means that the teacher meets the requirements set forth in the State's 
public charter school law; and
    (B) The teacher has not had certification or licensure requirements 
waived on an emergency, temporary, or provisional basis.
    (ii) When used with respect to--
    (A) An elementary school teacher who is new to the profession, means 
that the teacher--
    (1) Holds at least a bachelor's degree; and
    (2) Has demonstrated, by passing a rigorous State test, subject 
knowledge and teaching skills in reading, writing, mathematics, and 
other areas of the basic elementary school curriculum (which may consist 
of passing a State-required certification or licensing test or tests in 
reading, writing, mathematics, and other areas of the basic elementary 
school curriculum); or
    (B) A middle or secondary school teacher who is new to the 
profession, means that the teacher holds at least a bachelor's degree 
and has demonstrated a high level of competency in each of the academic 
subjects in which the teacher teaches by--
    (1) Passing a rigorous State academic subject test in each of the 
academic subjects in which the teacher teaches (which may consist of a 
passing level of performance on a State-required certification or 
licensing test or tests in each of the academic subjects in which the 
teacher teaches); or
    (2) Successful completion, in each of the academic subjects in which 
the teacher teaches, of an academic major, a graduate degree, coursework 
equivalent to an undergraduate academic major, or advanced certification 
or credentialing.
    (iii) When used with respect to an elementary, middle, or secondary 
school teacher who is not new to the profession, means that the teacher 
holds at least a bachelor's degree and--
    (A) Has met the applicable standard in paragraph (ii) of this 
definition, which includes an option for a test; or
    (B) Demonstrates competence in all the academic subjects in which 
the teacher teaches based on a highly objective uniform State standard 
of evaluation that--
    (1) Is set by the State for both grade-appropriate academic subject 
matter knowledge and teaching skills;

[[Page 354]]

    (2) Is aligned with challenging State academic content and student 
academic achievement standards and developed in consultation with core 
content specialists, teachers, principals, and school administrators;
    (3) Provides objective, coherent information about the teacher's 
attainment of core content knowledge in the academic subjects in which a 
teacher teaches;
    (4) Is applied uniformly to all teachers in the same academic 
subject and the same grade level throughout the State;
    (5) Takes into consideration, but is not based primarily on, the 
time the teacher has been teaching in the academic subject;
    (6) Is made available to the public upon request; and
    (7) May involve multiple, objective measures of teacher competency.
    (iv)(A) When used with respect to any public, or other non-profit 
private, elementary or secondary school teacher who is exempt from State 
certification requirements means that the teacher is permitted to and 
does satisfy rigorous subject knowledge and skills tests by taking 
competency tests in the applicable grade levels and subject areas.
    (B) For purposes of paragraph (iv)(A) of this definition, the 
competency tests taken by a private school teacher must be recognized by 
five or more States for the purpose of fulfilling the highly qualified 
teacher requirements as described in paragraphs (i) through (iii) of 
this definition, and the score achieved by the teacher on each test must 
equal or exceed the average passing score of those five States.
    Institutional Student Information Record (ISIR): An electronic 
record that the Secretary transmits to an institution that includes an 
applicant's--
    (1) Personal identification information;
    (2) Application data used to calculate the applicant's EFC; and
    (3) EFC.
    Numeric equivalent: (1) If an otherwise eligible program measures 
academic performance using an alternative to standard numeric grading 
procedures, the institution must develop and apply an equivalency policy 
with a numeric scale for purposes of establishing TEACH Grant 
eligibility. The institution's equivalency policy must be in writing and 
available to students upon request and must include clear 
differentiations of student performance to support a determination that 
a student has performed at a level commensurate with at least a 3.25 GPA 
on a 4.0 scale in that program.
    (2) A grading policy that includes only ``satisfactory/
unsatisfactory'', ``pass/fail'', or other similar nonnumeric assessments 
qualifies as a numeric equivalent only if--
    (i) The institution demonstrates that the ``pass'' or 
``satisfactory'' standard has the numeric equivalent of at least a 3.25 
GPA on a 4.0 scale awarded in that program, or that a student's 
performance for tests and assignments yielded a numeric equivalent of a 
3.25 GPA on a 4.0 scale; and
    (ii) For an eligible institution, the institution's equivalency 
policy is consistent with any other standards the institution may have 
developed for academic and other title IV, HEA program purposes, such as 
graduate school applications, scholarship eligibility, and insurance 
certifications, to the extent such standards distinguish among various 
levels of a student's academic performance.
    Payment Data: An electronic record that is provided to the Secretary 
by an institution showing student disbursement information.
    Post-baccalaureate program: A program of instruction for individuals 
who have completed a baccalaureate degree, that--
    (1) Does not lead to a graduate degree;
    (2) Consists of courses required by a State in order for a student 
to receive a professional certification or licensing credential that is 
required for employment as a teacher in an elementary school or 
secondary school in that State, except that it does not include any 
program of instruction offered by a TEACH Grant-eligible institution 
that offers a baccalaureate degree in education; and
    (3) Is treated as an undergraduate program of study for the purposes 
of title IV of the HEA.
    Retiree: An individual who has decided to change his or her 
occupation

[[Page 355]]

for any reason and who has expertise, as determined by the institution, 
in a high-need field.
    Scheduled Award: The maximum amount of a TEACH Grant that a full-
time student could receive for a year.
    School or educational service agency serving low-income students 
(low-income school): An elementary school, secondary school, or 
educational service agency that is listed in the Department's Teacher 
Cancellation Low-Income (TCLI) Directory. The Secretary considers all 
elementary and secondary schools and educational service agencies 
operated by the Bureau of Indian Education (BIE) in the Department of 
the Interior or operated on Indian reservations by Indian Tribal groups 
under contract or grant with the BIE to qualify as schools or 
educational service agencies serving low-income students.
    Secondary school: A nonprofit institutional day or residential 
school, including a public secondary charter school, that provides 
secondary education, as determined under State law, except that the term 
does not include any education beyond grade 12.
    Student Aid Report (SAR): A report provided to an applicant by the 
Secretary showing the amount of his or her expected family contribution.
    TEACH Grant-eligible institution: An eligible institution as defined 
in 34 CFR part 600 that meets financial responsibility standards 
established in 34 CFR part 668, subpart L, or that qualifies under an 
alternative standard in 34 CFR 668.175 and--
    (1) Provides a high-quality teacher preparation program at the 
baccalaureate or master's degree level that--
    (i)(A) Is accredited by a specialized accrediting agency recognized 
by the Secretary for the accreditation of professional teacher education 
programs; or
    (B) Is approved by a State and includes a minimum of 10 weeks of 
full-time pre-service clinical experience, or its equivalent, and 
provides either pedagogical coursework or assistance in the provision of 
such coursework; and
    (ii) Provides supervision and support services to teachers, or 
assists in the provision of services to teachers, such as--
    (A) Identifying and making available information on effective 
teaching skills or strategies;
    (B) Identifying and making available information on effective 
practices in the supervision and coaching of novice teachers; and
    (C) Mentoring focused on developing effective teaching skills and 
strategies;
    (2) Provides a two-year program that--
    (i) Is acceptable for full credit in a baccalaureate teacher 
preparation program of study offered by an institution described in 
paragraph (1) of this definition, as demonstrated by the institutions; 
or
    (ii) Is acceptable for full credit in a baccalaureate degree program 
in a high-need field at an institution described in paragraph (3) of 
this definition, as demonstrated by the institutions;
    (3) Offers a baccalaureate degree that, in combination with other 
training or experience, will prepare an individual to teach in a high-
need field as defined in this part and has entered into an agreement 
with an institution described in paragraphs (1) or (4) of this 
definition to provide courses necessary for its students to begin a 
career in teaching; or
    (4) Provides a post-baccalaureate program of study.
    TEACH Grant-eligible program: An eligible program, as defined in 34 
CFR 668.8, is a program of study at a TEACH Grant-eligible institution 
that is designed to prepare an individual to teach as a highly qualified 
teacher in a high-need field and leads to a baccalaureate or master's 
degree, or is a post-baccalaureate program of study. A two-year program 
of study that is acceptable for full credit toward a baccalaureate 
degree is considered to be a program of study that leads to a 
baccalaureate degree.
    Teacher: A person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom setting, including special 
education teachers and reading specialists.
    Teacher preparation program: A State-approved course of study, the 
completion of which signifies that an enrollee has met all the State's 
educational or

[[Page 356]]

training requirements for initial certification or licensure to teach in 
the State's elementary or secondary schools. A teacher preparation 
program may be a regular program or an alternative route to 
certification, as defined by the State. For purposes of a TEACH Grant, 
the program must be provided by an institution of higher education.
    Teacher Shortage Area Nationwide Listing (Nationwide List): A list 
of teacher shortage areas, as defined in 34 CFR 682.210(q)(8)(vii), in 
each State.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 35495, June 23, 2008, as amended at 75 FR 66968, Oct. 29, 2010; 85 
FR 49821, Aug. 14, 2020]



Sec.  686.3  Duration of student eligibility.

    (a) An undergraduate or post-baccalaureate student enrolled in a 
TEACH Grant-eligible program may receive the equivalent of up to four 
Scheduled Awards during the period required for the completion of the 
first undergraduate baccalaureate program of study and first post-
baccalaureate program of study combined.
    (b) A graduate student is eligible to receive the equivalent of up 
to two Scheduled Awards during the period required for the completion of 
a TEACH Grant-eligible master's degree program of study.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.4  Institutional participation.

    (a) A TEACH Grant-eligible institution that offers one or more TEACH 
Grant-eligible programs may elect to participate in the TEACH Grant 
program.
    (b) If an institution begins participation in the TEACH Grant 
program during an award year, a student enrolled at and attending that 
institution is eligible to receive a grant under this part for the 
payment period during which the institution begins participation and any 
subsequent payment period.
    (c) If an institution ceases to participate in the TEACH Grant 
program or becomes ineligible to participate in the TEACH Grant program 
during an award year, a student who was attending the institution and 
who submitted a SAR with an official EFC to the institution, or for whom 
the institution obtained an ISIR with an official EFC, before the date 
the institution became ineligible will receive a TEACH Grant for that 
award year for--
    (1) The payment periods that the student completed before the 
institution ceased participation or became ineligible to participate; 
and
    (2) The payment period in which the institution ceased participation 
or became ineligible to participate.
    (d) An institution that ceases to participate in the TEACH Grant 
program or becomes ineligible to participate in the TEACH Grant program 
must, within 45 days after the effective date of the loss of 
eligibility, provide to the Secretary--
    (1) The name and other student identifiers as required by the 
Secretary of each eligible student under Sec.  686.11 who, during the 
award year, submitted a SAR with an official EFC to the institution or 
for whom it obtained an ISIR with an official EFC before it ceased to 
participate in the TEACH Grant program or became ineligible to 
participate;
    (2) The amount of funds paid to each student for that award year;
    (3) The amount due each student eligible to receive a grant through 
the end of the payment period during which the institution ceased to 
participate in the TEACH Grant program or became ineligible to 
participate; and
    (4) An accounting of the TEACH Grant program expenditures for that 
award year to the date of termination.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.5  Enrollment status for students taking regular and
correspondence courses.

    (a) If, in addition to regular coursework, a student takes 
correspondence courses from either his or her own institution or another 
institution having an arrangement for this purpose with the student's 
institution, the correspondence work may be included in determining the 
student's enrollment status to the extent permitted under paragraph (b) 
of this section.
    (b) Except as noted in paragraph (c) of this section, the 
correspondence work that may be included in determining a student's 
enrollment status is that amount of work that--

[[Page 357]]

    (1) Applies toward a student's degree or post-baccalaureate program 
of study or is remedial work taken by the student to help in his or her 
TEACH Grant-eligible program;
    (2) Is completed within the period of time required for regular 
coursework; and
    (3) Does not exceed the amount of a student's regular coursework for 
the payment period for which enrollment status is being calculated.
    (c)(1) Notwithstanding the limitation in paragraph (b)(3) of this 
section, a student who would be a half-time student based solely on his 
or her correspondence work is considered a half-time student unless the 
calculation in paragraph (b) of this section produces an enrollment 
status greater than half-time.
    (2) A student who would be a less-than-half-time student based 
solely on his or her correspondence work or a combination of 
correspondence work and regular coursework is considered a less-than-
half-time student.
    (d) The following chart provides examples of the application of the 
regulations set forth in this section. It assumes that the institution 
defines full-time enrollment as 12 credits per term, making half-time 
enrollment equal to six credits per term.

----------------------------------------------------------------------------------------------------------------
                                                                        Total course
                                                                       load in credit
                                     No. of credit    No. of credit       hours to
        Under Sec.   686.5           hours regular        hours          determine         Enrollment status
                                          work        correspondence     enrollment
                                                                           status
----------------------------------------------------------------------------------------------------------------
(b)(3)............................                3                3                6  Half-time.
(b)(3)............................                3                6                6  Half-time.
(b)(3)............................                3                9                6  Half-time.
(b)(3)............................                6                3                9  Three-quarter-time.
(b)(3)............................                6                6               12  Full-time.
(b)(3) and (c)....................                2                6                6  Half-time.
(c) *.............................  ...............  ...............  ...............  Less-than-half-time.
----------------------------------------------------------------------------------------------------------------
* Any combination of regular and correspondence work that is greater than zero, but less than six hours.


(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.6  Payment from more than one institution.

    A student may not receive grant payments under this part 
concurrently from more than one institution.

(Authority: 20 U.S.C. 1070g, et seq.)



                    Subpart B_Application Procedures



Sec.  686.10  Application.

    To receive a grant under this part, a student must--
    (a) Complete and submit the Free application for Federal student aid 
(FAFSA) in accordance with the instructions in the FAFSA;
    (b) Complete and sign an agreement to serve or repay in accordance 
with Sec.  686.12; and
    (c) Provide any additional information requested by the Secretary 
and the institution.

[85 FR 49822, Aug. 14, 2020]



Sec.  686.11  Eligibility to receive a grant.

    (a) Undergraduate, post-baccalaureate, and graduate students. (1) 
Except as provided in paragraph (b) of this section, a student who meets 
the requirements of 34 CFR part 668, subpart C, is eligible to receive a 
TEACH Grant if the student--
    (i) Has met the application requirements in Sec.  686.10;
    (ii) Is enrolled in a TEACH Grant-eligible institution in a TEACH 
Grant-eligible program;
    (iii) Is completing coursework and other requirements necessary to 
begin a career in teaching or plans to complete such coursework and 
requirements prior to graduating; and
    (iv) Has--
    (A) If the student is in the first year of a program of 
undergraduate education as determined by the institution--
    (1) A final cumulative secondary school grade point average (GPA) 
upon graduation of at least 3.25 on a 4.0 scale, or the numeric 
equivalent; or

[[Page 358]]

    (2) A cumulative GPA of at least 3.25 on a 4.0 scale, or the numeric 
equivalent, based on courses taken at the institution through the most-
recently completed payment period;
    (B) If the student is beyond the first year of a program of 
undergraduate education as determined by the institution, a cumulative 
undergraduate GPA of at least 3.25 on a 4.0 scale, or the numeric 
equivalent, through the most recently completed payment period;
    (C) If the student is a graduate student during the first payment 
period, a cumulative undergraduate GPA of at least 3.25 on a 4.0 scale, 
or the numeric equivalent;
    (D) If the student is a graduate student beyond the first payment 
period, a cumulative graduate GPA of at least 3.25 on a 4.0 scale, or 
the numeric equivalent, through the most-recently completed payment 
period; or
    (E) A score above the 75th percentile of scores achieved by all 
students taking the test during the period the student took the test on 
at least one of the batteries from a nationally-normed standardized 
undergraduate, graduate, or post-baccalaureate admissions test, except 
that such test may not include a placement test.
    (2)(i) An institution must document the student's secondary school 
GPA under Sec.  686.11(a)(1)(v)(A) using--
    (A) Documentation provided directly to the institution by the 
cognizant authority; or
    (B) Documentation from the cognizant authority provided by the 
student.
    (ii) A cognizant authority includes, but is not limited to--
    (A) An LEA;
    (B) An SEA or other State agency; or
    (C) A public or private secondary school.
    (iii) A home-schooled student's parent or guardian is the cognizant 
authority for purposes of providing the documentation of a home-schooled 
student's secondary school GPA.
    (iv) If an institution has reason to believe the documentation 
provided by a student under paragraph (a)(2)(i)(B) of this section is 
inaccurate or incomplete, the institution must confirm the student's 
grades by using documentation provided directly to the institution by 
the cognizant authority.
    (b) Current or former teachers or retirees. A student who has met 
the application requirements in Sec.  686.10 and meets the requirements 
of 34 CFR part 668, subpart C, is eligible to receive a TEACH Grant if 
the student--
    (1) Is a current teacher or retiree who is applying for a grant to 
obtain a master's degree or is or was a teacher who is pursuing 
certification through a high-quality alternative certification route; 
and
    (2) Is enrolled in a TEACH Grant-eligible institution in a TEACH 
Grant-eligible program during the period required for the completion of 
a master's degree.
    (c) Transfer students. If a student transfers from one institution 
to the current institution and does not qualify under Sec.  
686.11(a)(1)(v)(E), the current institution must determine that 
student's eligibility for a TEACH Grant for the first payment period 
using either the method described in paragraph (c)(1) of this section or 
the method described in paragraph (c)(2) of this section, whichever 
method coincides with the current institution's academic policy. For an 
eligible student who transfers to an institution that--
    (1) Does not incorporate grades from coursework that it accepts on 
transfer into the student's GPA at the current institution, the current 
institution, for the courses accepted upon transfer--
    (i) Must calculate the student's GPA for the first payment period of 
enrollment using the grades earned by the student in the coursework from 
any prior postsecondary institution that it accepts; and
    (ii) Must, for all subsequent payment periods, apply its academic 
policy and not incorporate the grades from the coursework that it 
accepts on transfer into the GPA at the current institution; or
    (2) Incorporates grades from the coursework that it accepts on 
transfer into the student's GPA at the current institution, the current 
institution must use the grades assigned to the coursework accepted by 
the current institution as the student's cumulative GPA to determine 
eligibility for the first payment period of enrollment and

[[Page 359]]

all subsequent payment periods in accordance with its academic policy.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 FR 35495, June 23, 2008, as amended at 85 FR 49823, Aug. 14, 2020]



Sec.  686.12  Agreement to serve or repay.

    (a) General. A student who meets the eligibility requirements in 
Sec.  686.11 may receive a TEACH Grant only after he or she signs an 
agreement to serve or repay provided by the Secretary and receives 
counseling in accordance with Sec.  686.32.
    (b) Contents of the agreement to serve or repay. The agreement to 
serve or repay--
    (1) Provides that, for each TEACH Grant-eligible program for which 
the student received TEACH Grant funds, the grant recipient must fulfill 
a service obligation by performing creditable teaching service by 
serving--
    (i) As a full-time teacher for a total of not less than four 
elementary or secondary academic years within eight years after the date 
the recipient ceased to be enrolled at the institution where the 
recipient received the TEACH Grant, or in the case of a student who 
receives a TEACH Grant at one institution and subsequently transfers to 
another institution and enrolls in another TEACH Grant-eligible program, 
within eight years of ceasing enrollment at the other institution;
    (ii) In a low-income school as defined in Sec.  686.2(d) and subject 
to the requirements under Sec.  686.40(a)(3);
    (iii) As a highly qualified teacher as defined in Sec.  686.2(d); 
and
    (iv) In a high-need field in the majority of classes taught during 
each elementary and secondary academic year;
    (2) Requires the grant recipient to submit, upon completion of each 
year of service, documentation of the service in the form of a 
certification by a chief administrative officer of the school;
    (3) Explains that the eight-year period for completing the service 
obligation does not include periods of suspension in accordance with 
Sec.  686.41;
    (4) Explains the conditions under which a TEACH Grant may be 
converted to a Direct Unsubsidized Loan, as described in Sec.  686.43;
    (5) Explains that, if a TEACH Grant is converted to a Direct 
Unsubsidized Loan, the grant recipient must repay the loan in full, with 
interest charged from the date of each TEACH Grant disbursement; and
    (6) Explains that to avoid further accrual of interest as described 
in paragraph (b)(5) of this section, a grant recipient who decides not 
to teach in a qualified school or field, or who for any other reason no 
longer intends to satisfy the service obligation, may request that the 
Secretary convert his or her TEACH Grant to a Direct Unsubsidized Loan 
so that the grant recipient may begin repaying immediately, instead of 
waiting for the TEACH Grant to be converted to a loan under the 
condition described in Sec.  686.43(a)(1)(ii); and
    (7) Explains that a grant recipient whose TEACH Grant was converted 
to a Direct Unsubsidized Loan based on a request from the recipient in 
accordance with Sec.  686.43(a)(1)(i) may request that the Secretary 
reconvert the recipient's loan to a TEACH Grant as provided in Sec.  
686.43(a)(8); and
    (8) Requires the grant recipient to comply with the terms, 
conditions, and other requirements consistent with Sec. Sec.  686.40 
through 686.43 that the Secretary determines to be necessary.
    (c) Completion of the service obligation. (1) A grant recipient must 
complete one service obligation for all TEACH Grants received for 
undergraduate study, and one service obligation for all TEACH Grants 
received for graduate study. Each service obligation begins when the 
grant recipient ceases enrollment at the institution where the TEACH 
Grants were received, or, in the case of a grant recipient who receives 
a TEACH Grant at one institution and subsequently transfers to another 
institution, within eight years from the date the grant recipient ceases 
enrollment at the other institution. However, creditable teaching 
service, a suspension approved under Sec.  686.41(a)(2), or a military 
discharge granted under Sec.  686.42(c)(2) may apply to more than one 
service obligation.
    (2) Unless paragraph (c)(3) of this section applies--
    (i) In the case of a TEACH Grant recipient who withdraws from an 
institution before completing a baccalaureate

[[Page 360]]

or post-baccalaureate program of study for which he or she received 
TEACH Grants, but later re-enrolls at the same institution or at a 
different institution in either the same baccalaureate or post-
baccalaureate program or in a different TEACH Grant-eligible 
baccalaureate or post-baccalaureate program prior to the date that his 
or her TEACH Grants are converted to Direct Unsubsidized Loans under 
Sec.  686.43(a)(1)(ii) and receives additional TEACH Grants or the 
Secretary otherwise confirms that the grant recipient has re-enrolled in 
a TEACH Grant-eligible program, the Secretary adjusts the starting date 
of the period for completing the service obligation to begin when the 
grant recipient ceases to be enrolled at the institution where he or she 
has re-enrolled; and
    (ii) In the case of a TEACH Grant recipient who withdraws from an 
institution before completing a master's degree program of study for 
which he or she received TEACH Grants, but later re-enrolls at the same 
institution or at a different institution in either the same master's 
degree program or in a different TEACH Grant eligible master's degree 
program prior to the date that his or her TEACH Grants are converted to 
Direct Unsubsidized Loans under Sec.  686.43(a)(1)(ii) and receives 
additional TEACH Grants or the Secretary otherwise confirms that the 
grant recipient has re-enrolled in a TEACH Grant-eligible program, the 
Secretary adjusts the starting date of the period for completing the 
service obligation to begin when the grant recipient ceases to be 
enrolled at the institution where he or she has re-enrolled.
    (3) In the case of a TEACH Grant recipient covered under paragraph 
(c)(2)(i) or (ii) of this section who completed one or more complete 
academic years of creditable teaching service as described in Sec.  
686.12(b) during the period between the grant recipient's withdrawal and 
re-enrollment--
    (i) The Secretary does not adjust the starting date of the period 
for completing the service obligation unless requested by the recipient;
    (ii) The completed teaching service counts toward satisfaction of 
the grant recipient's service obligation under paragraph (c)(2)(i) of 
this section; and
    (iii) If the grant recipient continues to perform creditable 
teaching service after re-enrolling in a TEACH Grant-eligible program, 
the grant recipient may receive credit toward satisfaction of the 
service obligation for any complete academic years of creditable 
teaching performed while the recipient is concurrently enrolled in the 
TEACH Grant-eligible program only if the recipient does not request and 
receive a temporary suspension of the period for completing the service 
obligation under Sec.  686.41(a)(1)(i).
    (d) Teaching in a high-need field listed in the Nationwide List. For 
a grant recipient's teaching service in a high-need field listed in the 
Nationwide List to count toward satisfying the recipient's service 
obligation, the high-need field in which he or she prepared to teach 
must be listed in the Nationwide List for the State in which the grant 
recipient teaches--
    (1) For teaching service performed before July 1, 2010, at the time 
the grant recipient begins teaching in that field, even if that field 
subsequently loses its high-need designation for that State; or
    (2) For teaching service performed on or after July 1, 2010--
    (i) At the time the grant recipient begins teaching in that field, 
even if that field subsequently loses its high-need designation for that 
State; or
    (ii) At the time the grant recipient signed the agreement to serve 
or repay or received the TEACH Grant, even if that field subsequently 
loses its high-need designation for that State before the grant 
recipient begins teaching in that field.

[85 FR 49823, Aug. 14, 2020]



                    Subpart C_Determination of Awards



Sec.  686.20  Submission process and deadline for a SAR or ISIR.

    (a) Submission process. (1) Except as provided in paragraph (a)(2) 
of this section, an institution must disburse a TEACH Grant to a student 
who is eligible under Sec.  686.11 and is otherwise qualified to receive 
that disbursement

[[Page 361]]

and electronically transmit disbursement data to the Secretary for that 
student if--
    (i) The student submits a SAR with an official EFC to the 
institution; or
    (ii) The institution obtains an ISIR with an official EFC for the 
student.
    (2) In determining a student's eligibility to receive a grant under 
this part, an institution is entitled to assume that the SAR information 
or ISIR information is accurate and complete except under the conditions 
set forth in 34 CFR 668.16(f).
    (b) SAR or ISIR deadline. Except as provided in 34 CFR 668.164(g), 
for a student to receive a grant under this part in an award year, the 
student must submit the relevant parts of the SAR with an official EFC 
to his or her institution or the institution must obtain an ISIR with an 
official EFC by the earlier of--
    (1) The last date that the student is still enrolled and eligible 
for payment at that institution; or
    (2) By the deadline date established by the Secretary through 
publication of a notice in the Federal Register.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.21  Calculation of a grant.

    (a)(1)(i) The Scheduled Award for a TEACH Grant for an eligible 
student is $4,000.
    (ii) Each Scheduled Award remains available to an eligible student 
until the $4,000 is disbursed.
    (2)(i) The total amount that a student may receive in TEACH Grants 
for undergraduate and post-baccalaureate study may not exceed $16,000.
    (ii) The total amount that a student may receive in TEACH Grants for 
graduate study may not exceed $8,000.
    (b) The annual award for--
    (1) A full-time student is $4,000;
    (2) A three-quarter-time student is $3,000;
    (3) A half-time student is $2,000; and
    (4) A less-than-half-time student is $1,000.
    (c) Except as provided in paragraph (d) of this section, the amount 
of a student's grant under this part, in combination with the other 
student financial assistance available to the student, including the 
amount of a Federal Pell Grant for which the student is eligible, may 
not exceed the student's cost of attendance at the TEACH Grant-eligible 
institution. Other student financial assistance is estimated financial 
assistance, as defined in 34 CFR 673.5(c).
    (d) A TEACH Grant may replace a student's EFC, but the amount of the 
grant that exceeds the student's EFC is considered estimated financial 
assistance, as defined in 34 CFR 673.5(c).
    (e) In determining a student's payment for a payment period, an 
institution must include--
    (1) In accordance with 34 CFR 668.20, any noncredit or reduced 
credit courses that an institution determines are necessary--
    (i) To help a student be prepared for the pursuit of a first 
undergraduate baccalaureate or post-baccalaureate degree or certificate; 
or
    (ii) In the case of English language instruction, to enable the 
student to utilize already existing knowledge, training, or skills; and
    (2) In accordance with 34 CFR 668.5, a student's participation in a 
program of study abroad if it is approved for credit by the home 
institution at which the student is enrolled.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 FR 35495, June 23, 2008, as amended at 85 FR 49824, Aug. 14, 2020]



Sec.  686.22  Calculation of a grant for a payment period.

    (a) Eligibility for payment formula--(1) Programs using standard 
terms with at least 30 weeks of instructional time. A student's grant 
for a payment period is calculated under paragraph (b) or (d) of this 
section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters; and
    (C)(1) For an undergraduate student, requires the student to enroll 
for at least 12 credit hours in each term in the award year to qualify 
as a full-time student; or
    (2) For a graduate student, each term in the award year meets the 
minimum full-time enrollment status established by the institution for a 
semester, trimester, or quarter; and

[[Page 362]]

    (ii) The program uses an academic calendar that provides at least 30 
weeks of instructional time in--
    (A) Two semesters or trimesters in the fall through the following 
spring, or three quarters in the fall, winter, and spring, none of which 
overlaps any other term (including a summer term) in the program; or
    (B) Any two semesters or trimesters, or any three quarters where--
    (1) The institution starts its terms for different cohorts of 
students on a periodic basis (e.g., monthly);
    (2) The program is offered exclusively in semesters, trimesters, or 
quarters; and
    (3) Students are not allowed to be enrolled simultaneously in 
overlapping terms and must stay with the cohort in which they start 
unless they withdraw from a term (or skip a term) and reenroll in a 
subsequent term.
    (2) Programs using standard terms with less than 30 weeks of 
instructional time. A student's payment for a payment period is 
calculated under paragraph (c) or (d) of this section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters;
    (C)(1) For an undergraduate student, requires the student to enroll 
in at least 12 credit hours in each term in the award year to qualify as 
a full-time student; or
    (2) For a graduate student, each term in the award year meets the 
minimum full-time enrollment status established by the institution for a 
semester, trimester, or quarter; and
    (D) Is not offered with overlapping terms; and
    (ii) The institution offering the program--
    (A) Provides the program using an academic calendar that includes 
two semesters or trimesters in the fall through the following spring, or 
three quarters in the fall, winter, and spring; and
    (B) Does not provide at least 30 weeks of instructional time in the 
terms specified in paragraph (a)(2)(ii)(A) of this section.
    (3) Other programs using terms and credit hours. A student's payment 
for a payment period is calculated under paragraph (d) of this section 
if the student is enrolled in an eligible program that--
    (i) Measures progress in credit hours; and
    (ii) Is offered in academic terms other than those described in 
paragraphs (a)(1) and (2) of this section.
    (4) Programs not using terms or using clock hours. A student's 
payment for any payment period is calculated under paragraph (e) of this 
section if the student is enrolled in an eligible program that--
    (i) Is offered in credit hours but is not offered in academic terms; 
or
    (ii) Is offered in clock hours.
    (5) Programs for which an exception to the academic year definition 
has been granted under 34 CFR 668.3. If an institution receives a waiver 
from the Secretary of the 30 weeks of instructional time requirement 
under 34 CFR 668.3, an institution may calculate a student's payment for 
a payment period using the following methodologies:
    (i) If the program is offered in terms and credit hours, the 
institution uses the methodology in--
    (A) Paragraph (b) of this section provided that the program meets 
all the criteria in paragraph (a)(1) of this section, except that in 
lieu of meeting the requirements in paragraph (a)(1)(ii)(B) of this 
section, the program provides at least the same number of weeks of 
instructional time in the terms specified in paragraph (a)(1)(ii)(A) of 
this section as are in the program's academic year; or
    (B) Paragraph (d) of this section.
    (ii) The institution uses the methodology described in paragraph (e) 
of this section if the program is offered in credit hours without terms.
    (b) Programs using standard terms with at least 30 weeks of 
instructional time. The payment for a payment period, i.e., an academic 
term, for a student in a program using standard terms with at least 30 
weeks of instructional time in two semesters or trimesters or in three 
quarters as described in paragraph (a)(1)(ii) of this section, is 
calculated by--

[[Page 363]]

    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award; and
    (3) Dividing the amount described in paragraph (b)(2) of this 
section by--
    (i) Two at institutions using semesters or trimesters or three at 
institutions using quarters; or
    (ii) The number of terms over which the institution chooses to 
distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (b)(2) of this section over more than 
two terms at institutions using semesters or trimesters or more than 
three quarters at institutions using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year.
    (c) Programs using standard terms with less than 30 weeks of 
instructional time. The payment for a payment period, i.e., an academic 
term, for a student in a program using standard terms with less than 30 
weeks of instructional time in two semesters or trimesters or in three 
quarters as described in paragraph (a)(2)(ii)(A) of this section, is 
calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award;
    (3) Multiplying his or her annual award determined under paragraph 
(c)(2) of this section by the following fraction as applicable:
    (i) In a program using semesters or trimesters--
    The number of weeks of instructional time offered in the program in 
the fall and spring semesters or trimesters
    The number of weeks in the program's academic year
    (ii) In a program using quarters--
    [GRAPHIC] [TIFF OMITTED] TR23JN08.023
    

; and

    (4)(i) Dividing the amount determined under paragraph (c)(3) of this 
section by two for programs using semesters or trimesters or three for 
programs using quarters; or
    (ii) Dividing the student's annual award determined under paragraph 
(c)(2) of this section by the number of terms over which the institution 
chooses to distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (c)(2) of this section over more than 
two terms for programs using semesters or trimesters or more than three 
quarters for programs using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year definition.
    (d) Other programs using terms and credit hours. The payment for a 
payment period, i.e., an academic term, for a student in a program using 
terms and credit hours, other than those described in paragraph (a)(1) 
or (2) of this section, is calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award; and
    (3) Multiplying his or her annual award determined under paragraph 
(d)(2) of this section by the following fraction:

[[Page 364]]

[GRAPHIC] [TIFF OMITTED] TR23JN08.024

    (e) Programs using credit hours without terms or clock hours. The 
payment for a payment period for a student in a program using credit 
hours without terms or using clock hours is calculated by multiplying 
the Scheduled Award by the lesser of--

    (1)
    [GRAPHIC] [TIFF OMITTED] TR23JN08.025
    

; or
    (2)
    [GRAPHIC] [TIFF OMITTED] TR23JN08.026
    
    (f) Maximum disbursement. A single disbursement may not exceed 50 
percent of an award determined under paragraph (d) of this section. If a 
payment for a payment period calculated under paragraph (d) of this 
section would require the disbursement of more than 50 percent of a 
student's annual award in that payment period, the institution must make 
at least two disbursements to the student in that payment period. The 
institution may not disburse an amount that exceeds 50 percent of the 
student's annual award until the student has completed the period of 
time in the payment period that equals, in terms of weeks of 
instructional time, 50 percent of the weeks of instructional time in the 
program's academic year.
    (g) Minimum payment. No payment for a payment period as determined 
under this section or Sec.  686.25 may be less than $25.
    (h) Definition of academic year. For purposes of this section and 
Sec.  686.25, an institution must define an academic year--
    (1) For each of its TEACH Grant-eligible undergraduate programs of 
study, including post-baccalaureate programs of study, in terms of the 
number of credit or clock hours and weeks of instructional time in 
accordance with the requirements of 34 CFR 668.3; and
    (2) For each of its TEACH Grant-eligible master's degree programs of 
study in terms of the number of weeks of instructional time in 
accordance with the requirements of 34 CFR 668.3 and the minimum number 
of credit or clock hours a full-time student would be expected to 
complete in the weeks of instructional time of the program's academic 
year.
    (i) Payment period completing a Scheduled Award. In a payment 
period, if a student is completing a Scheduled Award, the student's 
payment for the payment period--
    (1) Is calculated based on the total credit or clock hours and weeks 
of instructional time in the payment period; and
    (2) Is the remaining amount of the Scheduled Award being completed 
plus an amount from the next Scheduled

[[Page 365]]

Award, if available, up to the payment for the payment period.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 35495, June 23, 2008, as amended at 74 FR 20221, May 1, 2009]



Sec.  686.23  Calculation of a grant for a payment period that occurs
in two award years.

    If a student enrolls in a payment period that is scheduled to occur 
in two award years--
    (a) The entire payment period must be considered to occur within one 
award year;
    (b) The institution must determine for each TEACH Grant recipient 
the award year in which the payment period will be placed subject to the 
restriction set forth in paragraph (c) of this section;
    (c) The institution must place a payment period with more than six 
months scheduled to occur within one award year in that award year;
    (d) If the institution places the payment period in the first award 
year, it must pay a student with funds from the first award year; and
    (e) If the institution places the payment period in the second award 
year, it must pay a student with funds from the second award year.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.24  Transfer student: attendance at more than one institution
during an award year.

    (a) If a student who receives a TEACH Grant at one institution 
subsequently enrolls at a second institution, the student may receive a 
grant at the second institution only if--
    (1) The student submits a SAR with an official EFC to the second 
institution; or
    (2) The second institution obtains an ISIR with an official EFC.
    (b) The second institution must calculate the student's award in 
accordance with Sec.  686.22 or 686.25.
    (c) The second institution may pay a TEACH Grant only for that 
period in which a student is enrolled in a TEACH Grant-eligible program 
at that institution.
    (d) The student's TEACH Grant for each payment period is calculated 
according to the procedures in Sec.  686.22 or 686.25 unless the 
remaining balance of the Scheduled Award at the second institution is 
the balance of the student's last Scheduled Award and is less than the 
amount the student would normally receive for that payment period.
    (e) A transfer student must repay any amount received in an award 
year that exceeds the amount which he or she was eligible to receive.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.25  Correspondence study.

    (a) An institution calculates a TEACH Grant for a payment period for 
a student in a program of study offered by correspondence courses 
without terms, but not including any residential component, by--
    (1) Using the half-time annual award; and
    (2) Multiplying the half-time annual award by the lesser of--
    (i)
    [GRAPHIC] [TIFF OMITTED] TR23JN08.027
    

; or
    (ii)
    [GRAPHIC] [TIFF OMITTED] TR23JN08.028
    

[[Page 366]]


    (b) For purposes of paragraph (a) of this section--
    (1) The institution must make the first payment to a student for an 
academic year, as calculated under paragraph (a) of this section, after 
the student submits 25 percent of the lessons or otherwise completes 25 
percent of the work scheduled for the program or the academic year, 
whichever occurs last; and
    (2) The institution must make the second payment to a student for an 
academic year, as calculated under paragraph (a) of this section, after 
the student submits 75 percent of the lessons or otherwise completes 75 
percent of the work scheduled for the program or the academic year, 
whichever occurs last.
    (c) In a program of correspondence study offered by correspondence 
courses using terms but not including any residential component--
    (1) The institution must prepare a written schedule for submission 
of lessons that reflects a workload of at least 30 hours of preparation 
per semester hour or 20 hours of preparation per quarter hour during the 
term;
    (2)(i) If the student is enrolled in at least six credit hours that 
commence and are completed in that term, the half-time annual award is 
used to calculate the payment for the payment period; or
    (ii) If the student is enrolled in less than six credit hours that 
commence and are completed in that term the less-than-half-time annual 
award is used to calculate the payment for the payment period;
    (3) A payment for a payment period is calculated using the formula 
in Sec.  686.22(d) except that paragraphs (c)(1) and (2) of this section 
are used in lieu of Sec.  686.22(d)(1) and (2), respectively; and
    (4) The institution must make the payment to a student for a payment 
period after that student completes 50 percent of the lessons or 
otherwise completes 50 percent of the work scheduled for the term, 
whichever occurs last.
    (d) Payments for periods of residential training must be calculated 
under Sec.  686.22(d) if the residential training is offered using terms 
and credit hours or under Sec.  686.22(e) if the residential training is 
offered using credit hours without terms or clock hours.


(Authority: 20 U.S.C. 1070g, et seq.)

[73 35495, June 23, 2008, as amended at 74 FR 20221, May 1, 2009]



               Subpart D_Administration of Grant Payments



Sec.  686.30  Scope.

    This subpart deals with TEACH Grant program administration by a 
TEACH Grant-eligible institution.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.31  Determination of eligibility for payment and cancellation
of a TEACH Grant.

    (a) For each payment period, an institution may pay a grant under 
this part to an eligible student only after it determines that the 
student--
    (1) Is eligible under Sec.  686.11;
    (2) Has completed the relevant initial or subsequent counseling as 
required in Sec.  686.32;
    (3) Has signed an agreement to serve or repay as described in Sec.  
686.12;
    (4) Is enrolled in a TEACH Grant-eligible program; and
    (5) If enrolled in a credit-hour program without terms or a clock-
hour program, has completed the payment period, as defined in 34 CFR 
668.4, for which he or she has been paid a grant.
    (b)(1) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory progress, but 
changes that determination before the end of the payment period, the 
institution may pay a TEACH Grant to the student for the entire payment 
period.
    (2) If an institution determines at the beginning of a payment 
period that a student enrolled in a TEACH Grant-eligible program is not 
maintaining the required GPA for a TEACH Grant under Sec.  686.11 or is 
not pursuing a career in teaching, but changes that determination before 
the end of the payment period, the institution may pay a TEACH Grant to 
the student for the entire payment period.
    (c) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory

[[Page 367]]

progress or the necessary GPA for a TEACH Grant under Sec.  686.11 or is 
not pursuing a career in teaching, but changes that determination after 
the end of the payment period, the institution may not pay the student a 
TEACH Grant for that payment period or make adjustments in subsequent 
payments to compensate for the loss of aid for that period.
    (d) An institution may make one disbursement for a payment period to 
an otherwise eligible student if--
    (1)(i) The student's final high school GPA is not yet available; or
    (ii) The student's cumulative GPA through the prior payment period 
under Sec.  686.11 is not yet available; and
    (2) The institution assumes liability for any overpayment if the 
student fails to meet the required GPA to qualify for the disbursement.
    (e)(1) In accordance with 34 CFR 668.165, before disbursing a TEACH 
Grant for any award year, an institution must--
    (i) Notify the student of the amount of TEACH Grant funds that the 
student is eligible to receive, how and when those funds will be 
disbursed, and the student's right to cancel all or a portion of the 
TEACH Grant; and
    (ii) Return the TEACH Grant proceeds, cancel the TEACH Grant, or 
both, if the institution receives a TEACH Grant cancellation request 
from the student by the later of the first day of a payment period or 14 
days after the date it notifies the student of his or her right to 
cancel all or a portion of a TEACH Grant.
    (2)(i) If a student requests cancellation of a TEACH Grant after the 
period of time in paragraph (e)(1)(ii) of this section, but within 120 
days of the TEACH Grant disbursement date, the institution may return 
the TEACH Grant proceeds, cancel the TEACH Grant, or do both.
    (ii) If the institution does not return the TEACH Grant proceeds, or 
cancel the TEACH Grant, the institution must notify the student that he 
or she may contact the Secretary to request that the TEACH Grant be 
converted to a Direct Unsubsidized Loan Direct Unsubsidized Loan.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 FR 35495, June 23, 2008, as amended at 85 FR 49824, Aug. 14, 2020]



Sec.  686.32  Counseling requirements.

    (a) Initial counseling. (1) An institution must ensure that initial 
counseling is conducted with each TEACH Grant recipient prior to making 
the first disbursement of the grant.
    (2) The initial counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
institution must ensure that an individual with expertise in title IV, 
HEA programs is reasonably available shortly after the counseling to 
answer the student's questions. As an alternative, in the case of a 
student enrolled in a correspondence program of study or a study-abroad 
program of study approved for credit at the home institution, the 
student may be provided with written counseling materials before the 
grant is disbursed.
    (3) The initial counseling must--
    (i) Explain the terms and conditions of the TEACH Grant agreement to 
serve or repay as described in Sec.  686.12;
    (ii) Provide the grant recipient with information about how to 
identify low-income schools and documented high-need fields;
    (iii) Inform the grant recipient that, for the teaching to count 
towards the recipient's service obligation, the high-need field in which 
he or she has prepared to teach must be--
    (A) One of the six high-need fields listed in Sec.  686.2; or
    (B) A high-need field that is listed in the Nationwide List for the 
State in which the grant recipient teaches--
    (1) At the time the grant recipient begins teaching in that field, 
even if that field subsequently loses its high-need designation for that 
State; or
    (2) For teaching service performed on or after July 1, 2010, at the 
time the grant recipient signed the agreement to serve or repay or 
received the TEACH Grant, even if that field subsequently loses its 
high-need designation for that State before the grant recipient begins 
teaching in that field;
    (iv) Inform the grant recipient of the opportunity to request a 
suspension of

[[Page 368]]

the eight-year period for completion of the agreement to serve or repay 
and the conditions under which a suspension may be granted in accordance 
with Sec.  686.41;
    (v) Explain to the grant recipient that conditions, such as 
conviction of a felony, could preclude the grant recipient from 
completing the service obligation;
    (vi) Emphasize to the grant recipient that if the grant recipient 
fails or refuses to complete the service obligation contained in the 
agreement to serve or repay or any other condition of the agreement to 
serve or repay--
    (A) The TEACH Grant must be repaid as a Direct Unsubsidized Loan; 
and
    (B) The grant recipient will be obligated to repay the full amount 
of each grant and the accrued interest from each disbursement date;
    (vii) Explain the circumstances, as described in Sec.  686.43, under 
which a TEACH Grant will be converted to a Direct Unsubsidized Loan;
    (viii) Explain that to avoid further accrual of interest as 
described in Sec.  686.12(b)(4)(ii), a grant recipient who decides not 
to teach in a qualified school or field, or who for any other reason no 
longer intends to satisfy the service obligation, may request that the 
Secretary convert his or her TEACH Grant to a Direct Unsubsidized Loan 
that the grant recipient may begin repaying immediately, instead of 
waiting for the TEACH Grant to be converted to a loan under the 
condition described in Sec.  686.43(a)(1)(ii);
    (ix) Emphasize that, once a TEACH Grant is converted to a Direct 
Unsubsidized Loan, it may be reconverted to a grant only if--
    (A) The Secretary determines, based on documentation provided by the 
recipient or in the Secretary's records, that the grant recipient was 
satisfying the service obligation as described in Sec.  686.12 or that 
the grant was converted to a loan in error; or
    (B) In the case of a grant recipient whose TEACH Grant was converted 
to a Direct Unsubsidized Loan in accordance with Sec.  686.43(a)(1)(i), 
the grant recipient requests that the Secretary reconvert the loan to a 
grant and is determined to be eligible for reconversion in accordance 
with Sec.  686.43(a)(8);
    (x) Review for the grant recipient information on the availability 
of the Department's Federal Student Aid Ombudsman's office;
    (xi) Describe the likely consequences of loan default, including 
adverse credit reports, garnishment of wages, Federal offset, and 
litigation; and
    (xii) Inform the grant recipient of sample monthly repayment amounts 
based on a range of student loan indebtedness.
    (b) Subsequent counseling. (1) If a student receives more than one 
TEACH Grant, the institution must ensure that the student receives 
additional counseling prior to the first disbursement of each subsequent 
TEACH Grant award.
    (2) Subsequent counseling may be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
institution must ensure that an individual with expertise in title IV, 
HEA programs is reasonably available shortly after the counseling to 
answer the student's questions. As an alternative, in the case of a 
student enrolled in a correspondence program of study or a study-abroad 
program of study approved for credit at the home institution, the 
student may be provided with written counseling materials before the 
grant is disbursed.
    (3) Subsequent counseling must--
    (i) Review the terms and conditions of the TEACH Grant agreement to 
serve or repay as described in Sec.  686.12;
    (ii) Emphasize to the grant recipient that if the grant recipient 
fails or refuses to complete the service obligation contained in the 
agreement to serve or repay or any other condition of the agreement to 
serve or repay--
    (A) The TEACH Grant must be repaid as a Direct Unsubsidized Loan; 
and
    (B) The grant recipient will be obligated to repay the full amount 
of the grant and the accrued interest from the disbursement date;
    (iii) Explain the circumstances, as described in Sec.  686.43, under 
which a TEACH Grant will be converted to a Direct Unsubsidized Loan;
    (iv) Explain that to avoid further accrual of interest as described 
in Sec.  686.12(b)(4)(ii), a grant recipient who decides not to teach in 
a qualified school or field, or who for any other

[[Page 369]]

reason no longer intends to satisfy the service obligation, may request 
that the Secretary convert his or her TEACH Grant to a Direct 
Unsubsidized Loan that the grant recipient may begin repaying 
immediately, instead of waiting for the TEACH Grant to be converted to a 
loan under the condition described in Sec.  686.43(a)(1)(ii);
    (v) Emphasize that, once a TEACH Grant is converted to a Direct 
Unsubsidized Loan, it may be reconverted to a grant only if--
    (A) The Secretary determines, based on documentation provided by the 
recipient or in the Secretary's records, that the grant recipient was 
satisfying the service obligation as described in Sec.  686.12 or that 
the grant was converted to a loan in error; or
    (B) In the case of a grant recipient whose TEACH Grant was converted 
to a Direct Unsubsidized Loan in accordance with Sec.  686.43(a)(1)(i), 
the grant recipient requests that the Secretary reconvert the loan to a 
grant and is determined to be eligible for reconversion in accordance 
with Sec.  686.43(a)(8); and
    (vi) Review for the grant recipient information on the availability 
of the Department's Federal Student Aid Ombudsman's office.
    (c) Exit counseling. (1) An institution must ensure that exit 
counseling is conducted with each grant recipient before he or she 
ceases to attend the institution at a time determined by the 
institution.
    (2) The exit counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
institution must ensure that an individual with expertise in title IV, 
HEA programs is reasonably available shortly after the counseling to 
answer the grant recipient's questions. As an alternative, in the case 
of a grant recipient enrolled in a correspondence program of study or a 
study-abroad program of study approved for credit at the home 
institution, the grant recipient may be provided with written counseling 
materials within 30 days after he or she completes the TEACH Grant-
eligible program.
    (3) Within 30 days of learning that a grant recipient has withdrawn 
from the institution without the institution's knowledge, or from a 
TEACH Grant-eligible program, or failed to complete exit counseling as 
required, exit counseling must be provided either in-person, through 
interactive electronic means, or by mailing written counseling materials 
to the grant recipient's last known address.
    (4) The exit counseling must--
    (i) Review the terms and conditions of the TEACH Grant agreement to 
serve or repay as described in Sec.  686.12 and emphasize to the grant 
recipient that the four-year service obligation must be completed within 
the eight-year period described in Sec.  686.12;
    (ii) Explain the treatment of a grant recipient who withdraws from 
and then reenrolls in a TEACH Grant-eligible program at a TEACH Grant 
eligible institution as described in Sec.  686.12(c);
    (iii) Inform the grant recipient of the opportunity to request a 
suspension of the eight-year period for completion of the service 
obligation and the conditions under which a suspension may be granted in 
accordance with Sec.  686.41;
    (iv) Provide the grant recipient with information about how to 
identify low-income schools and documented high-need fields;
    (v) Inform the grant recipient that, for the teaching to count 
towards the recipient's service obligation, the high-need field in which 
he or she has prepared to teach must be--
    (A) One of the six high-need fields listed in Sec.  686.2; or
    (B) A high-need field that is listed in the Nationwide List for the 
State in which the grant recipient teaches--
    (1) At the time the grant recipient begins teaching in that field, 
even if that field subsequently loses its high-need designation for that 
State; or
    (2) For teaching service performed on or after July 1, 2010, at the 
time the grant recipient signed the agreement to serve or repay or 
received the TEACH Grant, even if that field subsequently loses its 
high-need designation for that State before the grant recipient begins 
teaching in that field;
    (vi) Emphasize to the grant recipient that if the grant recipient 
fails or refuses to complete the service obligation contained in the 
agreement to serve or repay or fails to meet any

[[Page 370]]

other condition of the agreement to serve or repay--
    (A) The TEACH Grant must be repaid as a Direct Unsubsidized Loan; 
and
    (B) The grant recipient will be obligated to repay the full amount 
of each grant and the accrued interest from each disbursement date;
    (vii) Explain to the grant recipient that the Secretary will, at 
least annually during the service obligation period, send the recipient 
the notice described in Sec.  686.43(a)(2);
    (viii) Explain the circumstances, as described in Sec.  686.43, 
under which a TEACH Grant will be converted to a Direct Unsubsidized 
Loan;
    (ix) Explain that to avoid further accrual of interest as described 
in Sec.  686.12(b)(4)(ii), a grant recipient who decides not to teach in 
a qualified school or field, or who for any other reason no longer 
intends to satisfy the service obligation, may request that the 
Secretary convert his or her TEACH Grant to a Direct Unsubsidized Loan 
that the grant recipient may begin repaying immediately, instead of 
waiting for the TEACH Grant to be converted to a loan under the 
condition described in Sec.  686.43(a)(1)(ii);
    (x) Emphasize that once a TEACH Grant is converted to a Direct 
Unsubsidized Loan it may be reconverted to a grant only if--
    (A) The Secretary determines, based on documentation provided by the 
recipient or in the Secretary's records, that the grant recipient was 
satisfying the service obligation as described in Sec.  686.12 or that 
the grant was converted to a loan in error; or
    (B) In the case of a grant recipient whose TEACH Grant was converted 
to a Direct Unsubsidized Loan in accordance with Sec.  686.43(a)(1)(i), 
the grant recipient requests that the Secretary reconvert the loan to a 
grant and is determined to be eligible for reconversion in accordance 
with Sec.  686.43(a)(8); and
    (xi) Explain to the grant recipient how to contact the Secretary.
    (5) If exit counseling is conducted through interactive electronic 
means, an institution must take reasonable steps to ensure that each 
grant recipient receives the counseling materials and participates in 
and completes the exit counseling.
    (5) If exit counseling is conducted through interactive electronic 
means, an institution must take reasonable steps to ensure that each 
grant recipient receives the counseling materials and participates in 
and completes the exit counseling.
    (d) Compliance. The institution must maintain documentation 
substantiating the institution's compliance with paragraphs (a) through 
(c) of this section for each TEACH Grant recipient.
    (e) Conversion counseling. (1) At the time a TEACH Grant recipient's 
TEACH Grant is converted to a Direct Unsubsidized Loan, the Secretary 
conducts conversion counseling with the recipient by interactive 
electronic means and by mailing written counseling materials to the most 
recent address provided by the recipient.
    (2) The conversion counseling--
    (i) Informs the borrower of the average anticipated monthly 
repayment amount based on the borrower's indebtedness;
    (ii) Reviews for the borrower available repayment plan options, 
including standard, graduated, extended, income-contingent, and income-
based repayment plans, including a description of the different features 
of each plan and the difference in interest paid and total payments 
under each plan;
    (iii) Explains to the borrower the options to prepay each loan, to 
pay each loan on a shorter schedule, and to change repayment plans;
    (iv) Provides information on the effects of loan consolidation 
including, at a minimum--
    (A) The effects of consolidation on total interest to be paid, and 
length of repayment;
    (B) The effects of consolidation on a borrower's underlying loan 
benefits, including grace periods, loan forgiveness, cancellation, and 
deferment opportunities; and
    (C) The options of the borrower to prepay the loan and to change 
repayment plans;
    (v) Includes debt-management strategies that are designed to 
facilitate repayment;
    (vi) Explains to the borrower the availability of Public Service 
Loan

[[Page 371]]

Forgiveness and teacher loan forgiveness;
    (vii) Explains how the borrower may request reconsideration of the 
conversion of the TEACH Grant to a Direct Unsubsidized Loan if the 
borrower believes that the grant was converted to a loan in error, or if 
the borrower can provide documentation showing that he or she was 
satisfying the service obligation as described in Sec.  686.12;
    (viii) Describes the likely consequences of default, including 
adverse credit reports, delinquent debt collection procedures under 
Federal law, and litigation;
    (ix) Informs the borrower of the grace period as described in Sec.  
686.43(c);
    (x) Provides--
    (A) A general description of the terms and conditions under which a 
borrower may obtain full or partial forgiveness or discharge of the loan 
(including under the Public Service Loan Forgiveness Program), defer 
repayment of the loan, or be granted a forbearance on repayment of the 
loan; and
    (B) A copy, either in print or by electronic means, of the 
information the Secretary makes available pursuant to section 485(d) of 
the HEA;
    (xi) Requires the borrower to provide current information concerning 
name, address, Social Security number, and driver's license number and 
State of issuance, as well as the borrower's permanent address;
    (xii) Reviews for the borrower information on the availability of 
the Federal Student Aid Ombudsman's office;
    (xiii) Informs the borrower of the availability of title IV loan 
information in the National Student Loan Data System (NSLDS) and how 
NSLDS can be used to obtain title IV loan status information;
    (xiv) Provides a general description of the types of tax benefits 
that may be available to borrowers;
    (xv) Informs the borrower of the amount of interest that has accrued 
on the converted TEACH Grants and explains that any unpaid interest will 
be capitalized at the end of the grace period; and
    (xvi) In the case of a borrower whose TEACH Grant was converted to a 
Direct Unsubsidized Loan in accordance with Sec.  686.43(a)(1)(i), 
explains that the borrower may request that the Secretary reconvert the 
loan to a grant as provided in Sec.  686.43(a)(8).

(Authority: 20 U.S.C. 1070g, et seq.)

[73 FR 35495, June 23, 2008, as amended at 85 FR 49824, Aug. 14, 2020]



Sec.  686.33  Frequency of payment.

    (a) In each payment period, an institution may pay a student at such 
times and in such installments as it determines will best meet the 
student's needs.
    (b) The institution may pay funds in one lump sum for all the prior 
payment periods for which the student was eligible under Sec.  686.11 
within the award year as long as the student has signed the agreement to 
serve prior to disbursement of the TEACH Grant. The student's enrollment 
status must be determined according to work already completed.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.34  Liability for and recovery of TEACH Grant overpayments.

    (a)(1) Except as provided in paragraphs (a)(2) and (3) of this 
section, a student is liable for any TEACH Grant overpayment made to him 
or her.
    (2) The institution is liable for a TEACH Grant overpayment if the 
overpayment occurred because the institution failed to follow the 
procedures set forth in this part or in 34 CFR part 668. The institution 
must restore an amount equal to the overpayment to its TEACH Grant 
account.
    (3) A student is not liable for, and the institution is not required 
to attempt recovery of or refer to the Secretary, a TEACH Grant 
overpayment if the amount of the overpayment is less than $25 and is not 
a remaining balance.
    (b)(1) Except as provided in paragraph (a)(3) of this section, if an 
institution makes a TEACH Grant overpayment for which it is not liable, 
it must promptly send a written notice to the student requesting 
repayment of the overpayment amount. The notice must state that failure 
to make the requested repayment, or to make arrangements satisfactory to 
the holder of the overpayment debt to repay the

[[Page 372]]

overpayment, makes the student ineligible for further title IV, HEA 
program funds until final resolution of the TEACH Grant overpayment.
    (2) If a student objects to the institution's TEACH Grant 
overpayment determination, the institution must consider any information 
provided by the student and determine whether the objection is 
warranted.
    (c) Except as provided in paragraph (a)(3) of this section, if the 
student fails to repay a TEACH Grant overpayment or make arrangements 
satisfactory to the holder of the overpayment debt to repay the TEACH 
Grant overpayment, after the institution has taken the action required 
by paragraph (b) of this section, the institution must refer the 
overpayment to the Secretary for collection in accordance with 
procedures required by the Secretary. After referring the TEACH Grant 
overpayment to the Secretary under this section, the institution need 
make no further efforts to recover the overpayment.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.35  Recalculation of TEACH Grant award amounts.

    (a) Change in enrollment status. (1) If the student's enrollment 
status changes from one academic term to another academic term within 
the same award year, the institution must recalculate the TEACH Grant 
award for the new payment period taking into account any changes in the 
cost of attendance.
    (2)(i) If the student's projected enrollment status changes during a 
payment period after the student has begun attendance in all of his or 
her classes for that payment period, the institution may (but is not 
required to) establish a policy under which the student's award for the 
payment period is recalculated. Any such recalculations must take into 
account any changes in the cost of attendance. In the case of an 
undergraduate or post-baccalaureate program of study, if such a policy 
is established, it must be the same policy that the institution 
established under 34 CFR 690.80(b) for the Federal Pell Grant Program 
and it must apply to all students in the TEACH Grant-eligible program.
    (ii) If a student's projected enrollment status changes during a 
payment period before the student begins attendance in all of his or her 
classes for that payment period, the institution must recalculate the 
student's enrollment status to reflect only those classes for which he 
or she actually began attendance.
    (b) Change in cost of attendance. If the student's cost of 
attendance changes at any time during the award year and his or her 
enrollment status remains the same, the institution may, but is not 
required to, establish a policy under which the student's TEACH Grant 
award for the payment period is recalculated. If such a policy is 
established, it must apply to all students in the TEACH Grant-eligible 
program.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.36  Fiscal control and fund accounting procedures.

    (a) An institution must follow the provisions for maintaining 
general fiscal records in this section and in 34 CFR 668.24(b).
    (b) An institution must maintain funds received under this section 
in accordance with the requirements in 34 CFR 668.164.

(Authority: 20 U.S.C. 1070g, et seq.)



Sec.  686.37  Institutional reporting requirements.

    (a) An institution must provide to the Secretary information about 
each TEACH Grant recipient that includes but is not limited to--
    (1) The student's eligibility for a TEACH Grant, as determined in 
accordance with Sec. Sec.  686.11 and 686.31;
    (2) The student's TEACH Grant amounts; and
    (3) The anticipated and actual disbursement date or dates and 
disbursement amounts of the TEACH Grant funds.
    (b) The Secretary accepts a student's Payment Data that is submitted 
in accordance with procedures established through publication in the 
Federal

[[Page 373]]

Register, and that contains information the Secretary considers to be 
accurate in light of other available information including that 
previously provided by the student and the institution.

(Authority: 20 U.S.C. 1070g, et seq.)

[73 35495, June 23, 2008, as amended at 75 FR 66968, Oct. 29, 2010]



Sec.  686.38  Maintenance and retention of records.

    (a) An institution must follow the record retention and examination 
provisions in this part and in 34 CFR 668.24.
    (b) For any disputed expenditures in any award year for which the 
institution cannot provide records, the Secretary determines the final 
authorized level of expenditures.

(Authority: 20 U.S.C. 1070g, et seq.)



               Subpart E_Service and Repayment Obligations



Sec.  686.40  Documenting the service obligation.

    (a) If a grant recipient is performing full-time teaching service in 
accordance with the agreement to serve or repay, or agreements to serve 
or repay if more than one agreement exists, the grant recipient must, 
upon completion of each of the four required elementary or secondary 
academic years of teaching service, provide to the Secretary 
documentation of that teaching service on a form approved by the 
Secretary and certified by the chief administrative officer of the 
school or educational service agency in which the grant recipient is 
teaching. The documentation must show that the grant recipient--
    (1) Taught full-time in a low-income school as a highly qualified 
teacher as defined in Sec.  686.2(d); and
    (2)(i) Taught a majority of classes during the period being 
certified in any of the high-need fields of mathematics, science, a 
foreign language, bilingual education, English language acquisition, 
special education, or as a reading specialist; or
    (ii) Taught a majority of classes during the period being certified 
in another high-need field designated by that State and listed in the 
Nationwide List, in accordance with Sec.  686.12(d).
    (b) For purposes of completing the service obligation, the 
elementary or secondary academic year may be counted as one of the grant 
recipient's four complete elementary or secondary academic years if the 
grant recipient completes at least one-half of the elementary or 
secondary academic year and the grant recipient's school employer 
considers the grant recipient to have fulfilled his or her contract 
requirements for the elementary or secondary academic year for the 
purposes of salary increases, tenure, and retirement if the grant 
recipient is unable to complete an elementary or secondary academic year 
due to--
    (1) A condition that is a qualifying reason for leave under the 
Family and Medical Leave Act of 1993 (FMLA) (29 U.S.C. 2612(a)(1) and 
(3));
    (2) A call or order to Federal or State active duty, or Active 
Service as a member of a Reserve Component of the Armed Forces named in 
10 U.S.C. 10101, or service as a member of the National Guard on full-
time National Guard duty, as defined in 10 U.S.C. 101(d)(5); or
    (3) Residing in or being employed in a federally declared major 
disaster area as defined in the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (42 U.S.C. 5122(2)).
    (c)(1) A grant recipient who taught in more than one qualifying 
school or qualifying educational service agency during an elementary or 
secondary academic year and demonstrates that the combined teaching 
service was the equivalent of full-time, as supported by the 
certification of one or more of the chief administrative officers of the 
schools or educational service agencies involved, is considered to have 
completed one elementary or secondary academic year of qualifying 
teaching.
    (2) If the school or educational service agency at which the grant 
recipient is employed meets the requirements of a low-income school in 
the first year of the grant recipient's four elementary or secondary 
academic years of teaching and the school or educational service agency 
fails to meet those requirements in subsequent years, those subsequent 
years of teaching qualify for

[[Page 374]]

purposes of satisfying the service obligation described in Sec.  
686.12(b).

[85 FR 49826, Aug. 14, 2020]



Sec.  686.41  Periods of suspension.

    (a)(1) A grant recipient who has completed or who has otherwise 
ceased enrollment in a TEACH Grant-eligible program for which he or she 
received TEACH Grant funds may request a suspension from the Secretary 
of the eight-year period for completion of the service obligation based 
on--
    (i) Enrollment in a program of study for which the recipient would 
be eligible for a TEACH Grant or in a program of study that has been 
determined by a State to satisfy the requirements for certification or 
licensure to teach in the State's elementary or secondary schools;
    (ii) Receiving State-required instruction or otherwise fulfilling 
requirements for licensure to teach in a State's elementary or secondary 
schools;
    (iii) A condition that is a qualifying reason for leave under the 
FMLA;
    (iv) A call to order to Federal or State active duty or Active 
Service as a member of a Reserve Component of the Armed Forces named in 
10 U.S.C. 10101, or service as a member of the National Guard on full-
time National Guard duty, as defined in 10 U.S.C. 101(d)(5);
    (v) Military orders for the recipient's spouse for--
    (A) Deployment with a military unit or as an individual in support 
of a call to Federal or State Active Duty, or Active Service; or
    (B) A change of permanent duty station from a location in the 
continental United States to a location outside of the continental 
United States or from a location in a State to any location outside of 
that State; or
    (vi) Residing in or being employed in a federally declared major 
disaster area as defined in the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (42 U.S.C. 5122(2)).
    (2) A grant recipient may receive a suspension described in 
paragraphs (a)(1)(i) through (vi) of this section in one-year increments 
that--
    (i) Does not exceed a combined total of three years under paragraphs 
(a)(1)(i) through (iii) of this section;
    (ii) Does not exceed a total of three years under paragraph 
(a)(1)(iv) of this section;
    (iii) Does not exceed a total of three years under paragraph 
(a)(1)(v) of this section; or
    (iv) Does not exceed a total of three years under paragraph 
(a)(1)(vi) of this section.
    (b) A grant recipient, or his or her representative in the case of a 
grant recipient who qualifies under paragraph (a)(1)(iv) or (vi) of this 
section, must apply for a suspension on a form approved by the 
Secretary, prior to being subject to any of the conditions under Sec.  
686.43(a)(1) through (5) that would cause the TEACH Grant to convert to 
a Direct Unsubsidized Loan.
    (c) A grant recipient, or his or her representative in the case of a 
grant recipient who qualifies under paragraph (a)(1)(iv) or (vi) of this 
section, must provide the Secretary with documentation supporting the 
suspension request as well as current contact information including home 
address and telephone number.
    (d) On a case-by-case basis, the Secretary may grant a temporary 
suspension of the period for completing the service obligation if the 
Secretary determines that a grant recipient was unable to complete a 
full academic year of teaching or begin the next academic year of 
teaching due to exceptional circumstances significantly affecting the 
operation of the school or educational service agency where the grant 
recipient was employed or the grant recipient's ability to teach.
    (e) The Secretary notifies the grant recipient regarding the outcome 
of the application for suspension.

[85 FR 49826, Aug. 14, 2020]



Sec.  686.42  Discharge of agreement to serve or repay.

    (a) Death. (1) If a grant recipient dies, the Secretary discharges 
the obligation to complete the agreement to serve or repay based on--
    (i) An original or certified copy of the death certificate;

[[Page 375]]

    (ii) An accurate and complete photocopy of the original or certified 
copy of the death certificate;
    (iii) An accurate and complete original or certified copy of the 
death certificate that is scanned and submitted electronically or sent 
by facsimile transmission; or
    (iv) Verification of the grant recipient's death through an 
authoritative Federal or State electronic database approved for use by 
the Secretary.
    (2) Under exceptional circumstances and on a case-by-case basis, the 
Secretary discharges the obligation to complete the agreement to serve 
or repay based on other reliable documentation of the grant recipient's 
death that is acceptable to the Secretary.
    (b) Total and permanent disability. (1) A grant recipient's 
agreement to serve or repay is discharged if the recipient becomes 
totally and permanently disabled, as defined in 34 CFR 685.102(b), and 
the grant recipient applies for and satisfies the eligibility 
requirements for a total and permanent disability discharge in 
accordance with 34 CFR 685.213.
    (2) If at any time the Secretary determines that the grant recipient 
does not meet the requirements of the three-year period following the 
discharge as described in 34 CFR 685.213(b)(7), the Secretary will 
notify the grant recipient that the grant recipient's obligation to 
satisfy the terms of the agreement to serve or repay is reinstated.
    (3) The Secretary's notification under paragraph (b)(2) of this 
section will--
    (i) Include the reason or reasons for reinstatement;
    (ii) Provide information on how the grant recipient may contact the 
Secretary if the grant recipient has questions about the reinstatement 
or believes that the agreement to serve or repay was reinstated based on 
incorrect information; and
    (iii) Inform the TEACH Grant recipient that he or she must satisfy 
the service obligation within the portion of the eight-year period that 
remained after the date of the discharge.
    (4) If the TEACH Grant made to a recipient whose TEACH Grant 
agreement to serve or repay is reinstated is later converted to a Direct 
Unsubsidized Loan, the recipient will not be required to pay interest 
that accrued on the TEACH Grant disbursements from the date the 
agreement to serve or repay was discharged until the date the agreement 
to serve or repay was reinstated.
    (c) Military discharge. (1) A grant recipient who has completed or 
who has otherwise ceased enrollment in a TEACH Grant-eligible program 
for which he or she received TEACH Grant funds and has exceeded the 
period of time allowed under Sec.  686.41(a)(2)(ii), may qualify for a 
proportional discharge of his or her service obligation due to an 
extended call or order to active duty status. To apply for a military 
discharge, a grant recipient or his or her representative must submit a 
written request to the Secretary.
    (2) A grant recipient described in paragraph (c)(1) of this section 
may receive a--
    (i) One-year discharge of his or her service obligation if a call or 
order to active duty status is for more than three years;
    (ii) Two-year discharge of his or her service obligation if a call 
or order to active duty status is for more than four years;
    (iii) Three-year discharge of his or her service obligation if a 
call or order to active duty status is for more than five years; or
    (iv) Full discharge of his or her service obligation if a call or 
order to active duty status is for more than six years.
    (3) A grant recipient or his or her representative must provide the 
Secretary with--
    (i) A written statement from the grant recipient's commanding or 
personnel officer certifying--
    (A) That the grant recipient is on active duty in the Armed Forces 
of the United States;
    (B) The date on which the grant recipient's service began; and
    (C) The date on which the grant recipient's service is expected to 
end; or
    (ii)(A) A copy of the grant recipient's official military orders; 
and
    (B) A copy of the grant recipient's military identification.

[[Page 376]]

    (4) For the purpose of this section, the Armed Forces means the 
Army, Navy, Air Force, Marine Corps, the Coast Guard, a reserve 
component of the Armed Forces named in 10 U.S.C. 10101, or the National 
Guard.
    (5) Based on a request for a military discharge from the grant 
recipient or his or her representative, the Secretary will notify the 
grant recipient or his or her representative of the outcome of the 
discharge request. For the portion on the service obligation that 
remains, the grant recipient remains responsible for fulfilling his or 
her service obligation in accordance with Sec.  686.12.

(Approved by the Office of Management and Budget under control number 
1845-0083)

(Authority: 20 U.S.C. 1070g, et seq.)

[73 35495, June 23, 2008, as amended at 74 FR 55950, Oct. 29, 2009; 81 
FR 76089, Nov. 1, 2016; 85 FR 49827, Aug. 14, 2020]



Sec.  686.43  Obligation to repay the grant.

    (a)(1) The TEACH Grant amounts disbursed to the recipient will be 
converted into a Direct Unsubsidized Loan, with interest accruing from 
the date that each grant disbursement was made and be collected by the 
Secretary in accordance with the relevant provisions of subpart A of 34 
CFR part 685 if--
    (i) The grant recipient, regardless of enrollment status, requests 
that the TEACH Grant be converted into a Direct Unsubsidized Loan 
because he or she has decided not to teach in a qualified school or 
educational service agency, or not to teach in a high-need field, or for 
any other reason; or
    (ii) The grant recipient does not begin or maintain qualified 
employment within the timeframe that would allow that individual to 
complete the service obligation within the number of years required 
under Sec.  686.12.
    (2) At least annually during the service obligation period under 
Sec.  686.12, the Secretary notifies the grant recipient of--
    (i) The terms and conditions that the grant recipient must meet to 
satisfy the service obligation;
    (ii) The requirement for the grant recipient to provide to the 
Secretary, upon completion of each of the four required elementary or 
secondary academic years of teaching service, documentation of that 
teaching service on a form approved by the Secretary and certified by 
the chief administrative officer of the school or educational service 
agency in which the grant recipient taught and emphasizes the necessity 
to keep copies of this information and copies of the recipient's own 
employment documentation;
    (iii) The service years completed and the remaining timeframe within 
which the grant recipient must complete the service obligation;
    (iv) The conditions under which the grant recipient may request a 
temporary suspension of the period for completing the service 
obligation;
    (v) The conditions as described under paragraph (a)(1) of this 
section under which the TEACH Grant amounts disbursed to the recipient 
will be converted into a Direct Unsubsidized Loan;
    (vi) The potential total interest accrued;
    (vii) The process by which the recipient may contact the Secretary 
to request reconsideration of the conversion, the deadline by which the 
grant recipient must submit the request for reconsideration, and a list 
of the specific documentation required by the Secretary to reconsider 
the conversion; and
    (viii) An explanation that to avoid further accrual of interest as 
described in Sec.  686.12(b)(4)(ii), a grant recipient who decides not 
to teach in a qualified school or field, or who for any other reason no 
longer intends to satisfy the service obligation, may request that the 
Secretary convert his or her TEACH Grant to a Direct Unsubsidized Loan 
that the grant recipient may begin repaying immediately, instead of 
waiting for the TEACH Grant to be converted to a loan under the 
condition described in paragraph (a)(1)(ii) of this section.
    (3) On or about 90 days before the date that a grant recipient's 
TEACH Grants would be converted to Direct Unsubsidized Loans in 
accordance with paragraph (a)(1)(ii) of this section, the Secretary 
notifies the grant recipient of the date by which the recipient must 
submit documentation showing that

[[Page 377]]

the recipient is satisfying the obligation.
    (4) If the TEACH Grant amounts disbursed to a recipient are 
converted to a Direct Unsubsidized Loan, the Secretary notifies the 
recipient of the conversion and offers conversion counseling as 
described in Sec.  686.32(e).
    (5) Except as provided in paragraph (a)(8) of this section, if a 
grant recipient's TEACH Grant was converted to a Direct Unsubsidized 
Loan, the Secretary will reconvert the loan to a TEACH Grant based on 
documentation provided by the recipient or in the Secretary's records 
demonstrating that the recipient was satisfying the service obligation 
as described in Sec.  686.12 or that the grant was converted to a loan 
in error.
    (6) If a grant recipient who requests reconsideration demonstrates 
to the satisfaction of the Secretary that a TEACH Grant was converted to 
a loan in error, the Secretary--
    (i) Reconverts the loan to a TEACH Grant;
    (ii) Applies any academic years of qualifying teaching service that 
the grant recipient completed before or during the period when the grant 
was incorrectly in loan status toward the grant recipient's four-year 
service obligation requirement;
    (iii) Upon reconversion of the loan to a TEACH Grant, provides the 
grant recipient with an additional period of time, equal to eight years 
minus the number of full academic years of teaching that the recipient 
completed prior to the reconversion of the loan to a TEACH Grant, 
including any years of qualifying teaching completed during the period 
when the TEACH Grant was incorrectly in loan status, to complete the 
remaining portion of the service obligation.
    (iv) Ensures that the grant recipient receives credit for any 
payments that were made on the Direct Unsubsidized Loan that was 
reconverted to a TEACH Grant;
    (v) Notifies the recipient of the reconversion to a grant and 
explains that the recipient is once again responsible for meeting all 
requirements of the service obligation under Sec.  686.12; and
    (vi) Requests deletion of any derogatory information reported to the 
consumer reporting agencies related to the grant while it was in loan 
status and furnishes a statement confirming that the grant was converted 
to a loan in error that the recipient may provide to creditors until the 
recipient's credit history has been corrected.
    (7) If a grant recipient who requests reconsideration does not 
demonstrate to the satisfaction of the Secretary that a TEACH Grant was 
converted to a loan in error, the Secretary--
    (i) Notifies the recipient that the loan cannot be converted to a 
TEACH Grant;
    (ii) Explains the reason or reasons why the loan cannot be converted 
to a TEACH Grant; and
    (iii) Explains how the recipient may contact the Federal Student Aid 
Ombudsman if he or she continues to believe that the TEACH Grant was 
converted to a loan in error.
    (8) In the case of a grant recipient whose TEACH Grant was converted 
to a Direct Unsubsidized Loan in accordance with paragraph (a)(1)(i) of 
this section, the Secretary will reconvert the loan to a grant and 
restore the recipient's service obligation if--
    (i) The grant recipient submits a request to the Secretary to 
reconvert the loan to a TEACH Grant;
    (ii) Excluding any periods of suspension granted under Sec.  686.41, 
there is sufficient time remaining for the grant recipient to complete 
the required four academic years of qualifying teaching service within 
eight years from the date the grant recipient ceased enrollment at the 
institution where the recipient received the grant or, in the case of a 
student who received a TEACH Grant at one institution and subsequently 
transferred to another institution and enrolled in another TEACH Grant-
eligible program, within eight years from the date the recipient ceased 
enrollment at the other institution; and
    (iii) In the case of a recipient who would not have sufficient time 
remaining to complete the service obligation within the eight-year 
period as described in paragraph (a)(8)(ii) of this section unless the 
recipient qualifies for a suspension under Sec.  686.40, which

[[Page 378]]

may be granted retroactively, the recipient requests and is determined 
to be eligible for the suspension.
    (9) A TEACH Grant recipient remains obligated to meet all 
requirements of the service obligation under Sec.  686.12, even if the 
recipient does not receive the notices from the Secretary as described 
in paragraph (a)(2) of this section.
    (b) A TEACH Grant that is converted to a loan, and is treated as a 
Direct Unsubsidized Loan, is not counted against the grant recipient's 
annual or aggregate loan limits under 34 CFR 685.203.
    (c) A grant recipient whose TEACH Grant has been converted to a 
Direct Unsubsidized Loan--
    (1) Enters a six-month grace period prior to entering repayment, and
    (2) Is eligible for all of the benefits of the Direct Loan Program.

[85 FR 49827, Aug. 14, 2020]



PART 690_FEDERAL PELL GRANT PROGRAM--Table of Contents



            Subpart A_Scope, Purpose and General Definitions

Sec.
690.1 Scope and purpose.
690.2 Definitions.
690.3-690.5 [Reserved]
690.6 Duration of student eligibility.
690.7 Institutional participation.
690.8 Enrollment status for students taking regular and correspondence 
          courses.
690.10 Administrative cost allowance to participating schools.
690.11 Federal Pell Grant payments from more than one institution.

    Subpart B_Application Procedures for Determining Expected Family 
                              Contribution

690.12 Application.
690.13 Notification of expected family contribution.
690.14 Applicant's request to recalculate expected family contribution 
          because of a clerical or arithmetic error or the submission of 
          inaccurate information.

Subparts C-E [Reserved]

          Subpart F_Determination of Federal Pell Grant Awards

690.61 Submission process and deadline for a Student Aid Report or 
          Institutional Student Information Record.
690.62 Calculation of a Federal Pell Grant.
690.63 Calculation of a Federal Pell Grant for a payment period.
690.64 Determining the award year for a Federal Pell Grant payment 
          period that occurs in two award years.
690.65 Transfer student: attendance at more than one institution during 
          an award year.
690.66 Correspondence study.
690.67 Eligibility to receive additional Federal Pell Grant funds in an 
          amount up to one-half of a Scheduled Award during a single 
          award year.
690.68 Severability.

               Subpart G_Administration of Grant Payments

690.71 Scope.
690.72-690.74 [Reserved]
690.75 Determination of eligibility for payment.
690.76 Frequency of payment.
690.77-690.78 [Reserved]
690.79 Liability for and recovery of Federal Pell Grant overpayments.
690.80 Recalculation of a Federal Pell Grant award.
690.81 Fiscal control and fund accounting procedures.
690.82 Maintenance and retention of records.
690.83 Submission of reports.

    Authority: 20 U.S.C. 1070a, 1070g, unless otherwise noted.



            Subpart A_Scope, Purpose and General Definitions

    Source: 50 FR 10717, Mar. 15, 1985, unless otherwise noted.



Sec.  690.1  Scope and purpose.

    The Federal Pell Grant Program awards grants to help financially 
needy students meet the cost of their postsecondary education.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 59 FR 54730, Nov. 1, 1994]



Sec.  690.2  Definitions.

    (a) The following definitions are contained in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Award year
Clock hour
Correspondence course
Credit hour
Secretary

[[Page 379]]

State

    (b) The following definitions are contained in subpart A of the 
Student Assistance General Provisions, 34 CFR part 668:

Academic year
Dependent student
Eligible program
Enrolled
Expected family contribution
Federal Pell Grant Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Full-time student
Half-time student
HEA
Independent student
Institutional student information record (ISIR)
Parent
Payment period
Student aid report (SAR)
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant Program
TEACH Grant
Three-quarter-time student
Undergraduate student
Valid institutional student information record (valid ISIR)
Valid student aid report (valid SAR)
William D. Ford Federal Direct Loan Program

    (c) Other terms used in this part are:
    Annual award: The Federal Pell Grant award amount a full-time 
student would receive under the Payment Schedule for a full academic 
year in an award year, and the amount a three-quarter-time, half-time, 
and less-than-half-time student would receive under the appropriate 
Disbursement Schedule for being enrolled in that enrollment status for a 
full academic year in an award year.
    Central processor: An organization under contract with the Secretary 
that calculates an applicant's expected family contribution based on the 
applicant's application information, transmits an ISIR to each 
institution designated by the applicant, and submits reports to the 
Secretary on the correctness of its computations of the expected family 
contribution amounts and the accuracy of the answers to questions on 
application forms for the previous award year cycle.
    Disbursement Schedule: A table showing the annual awards that three-
quarter, half-time, and less-than-half-time students at term-based 
institutions using credit hours would receive for an academic year. This 
table is published annually by the Secretary and is based on--
    (1) A student's expected family contribution, as determined in 
accordance with title IV, part F of the HEA; and
    (2) A student's attendance costs as defined in title IV, part F of 
the HEA.
    (3) The amount of funds available for making Federal Pell Grants.
    Electronic Data Exchange: An electronic exchange system between the 
central processor and an institution under which--
    (1) A student is able to transmit his or her application information 
to the central processor through his or her institution and an ISIR is 
transmitted back to the institution;
    (2) A student through his or her institution is able to transmit any 
changes in application information to the central processor; and
    (3) An institution is able to receive an ISIR from the central 
processor for a student.
    Eligible student: An eligible student as described in 34 CFR part 
668, subpart C.
    Enrollment status: Full-time, three-quarter-time, half-time, or 
less-than-half-time depending on a student's credit-hour work load per 
academic term at an institution using semesters, trimesters, quarters, 
or other academic terms and measuring progress by credit hours.
    Institution of higher education (Institution). An institution of 
higher education, or a proprietary institution of higher education, or a 
postsecondary vocational institution as defined in 34 CFR part 600.
    Payment Data: An electronic record that is provided to the Secretary 
by an institution showing student disbursement information.
    Payment Schedule: A table showing a full-time student's Scheduled 
Federal Pell Grant for an academic year. This table, published annually 
by the Secretary, is based on--
    (1) The student's EFC; and
    (2) The student's cost of attendance as defined in part F of title 
IV of the HEA.

[[Page 380]]

    Scheduled Federal Pell Grant: The amount of a Federal Pell Grant 
which would be paid to a full-time student for a full academic year.

[50 FR 10717, Mar. 15, 1985]

    Editorial Note: For Federal Register citations affecting Sec.  
690.2, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec. Sec.  690.3-690.5  [Reserved]



Sec.  690.6  Duration of student eligibility.

    (a) Except as provided in paragraphs (c) and (d) of this section, a 
student is eligible to receive a Federal Pell Grant for the period of 
time required to complete his or her first undergraduate baccalaureate 
course of study.
    (b) An institution shall determine when the student has completed 
the academic curriculum requirements for that first undergraduate 
baccalaureate course of study. Any noncredit or remedial course taken by 
a student, including a course in English language instruction, is not 
included in the institution's determination of that student's period of 
Federal Pell Grant eligibility.
    (c) An otherwise eligible student who has a baccalaureate degree and 
is enrolled in a postbaccalaureate program is eligible to receive a 
Federal Pell Grant for the period of time necessary to complete the 
program if--
    (1) The postbaccalaureate program consists of courses that are 
required by a State for the student to receive a professional 
certification or licensing credential that is required for employment as 
a teacher in an elementary or secondary school in that State;
    (2) The postbaccalaureate program does not lead to a graduate 
degree;
    (3) The institution offering the postbaccalaureate program does not 
also offer a baccalaureate degree in education;
    (4) The student is enrolled as at least a half-time student; and
    (5) The student is pursuing an initial teacher certification or 
licensing credential within a State.
    (d) An institution must treat a student who receives a Federal Pell 
Grant under paragraph (c) of this section as an undergraduate student 
enrolled in an undergraduate program for title IV purposes.
    (e) A student may receive no more than six Scheduled Awards, as 
determined by the Secretary.

[52 FR 38207, Oct. 14, 1987, as amended at 59 FR 54730, Nov. 1, 1994; 64 
FR 58294, Oct. 28, 1999; 74 FR 55951, Oct. 29, 2009; 86 FR 59626, Oct. 
28, 2021]



Sec.  690.7  Institutional participation.

    (a) If an institution begins participation in the Federal Pell Grant 
Program during an award year, a student enrolled and attending that 
institution is eligible to receive a Federal Pell Grant for the payment 
period during which the institution enters into a program participation 
agreement with the Secretary and any subsequent payment period.
    (b) If an institution becomes ineligible to participate in the 
Federal Pell Grant Program during an award year, an eligible student who 
was attending the institution and who submitted a valid SAR to the 
institution, or for whom the institution obtained a valid ISIR, before 
the date the institution became ineligible is paid a Federal Pell Grant 
for that award year for--
    (1) The payment periods that the student completed before the 
institution became ineligible; and
    (2) The payment period in which the institution became ineligible.
    (c)(1) If an institution loses its eligibility to participate in the 
Direct Loan program under the provisions of subpart M or N of 34 CFR 
part 668, it also loses its eligibility to participate in the Federal 
Pell Grant Program for the same period of time.
    (2) That loss of eligibility must be in accordance with the 
provisions of 668.187(d) or 668.206(d).
    (d) An institution which becomes ineligible shall, within 45 days 
after the effective date of loss of eligibility, provide to the 
Secretary--
    (1) The name and enrollment status of each eligible student who, 
during the award year, submitted a valid SAR to the institution or for 
whom the institution obtained a valid ISIR before it became ineligible;
    (2) The amount of funds paid to each Federal Pell Grant recipient 
for that award year;

[[Page 381]]

    (3) The amount due each student eligible to receive a Federal Pell 
Grant through the end of the payment period during which the institution 
became ineligible; and
    (4) An accounting of the Federal Pell Grant expenditures for that 
award year to the date of termination.

[50 FR 10717, Mar. 15, 1985, as amended at 51 FR 43161, Nov. 28, 1986; 
56 FR 56916, Nov. 6, 1991; 59 FR 54730, Nov. 1, 1994; 60 FR 61816, Dec. 
1, 1995; 64 FR 58294, Oct. 28, 1999; 65 FR 65651, Nov. 1, 2000; 69 FR 
12277, Mar. 16, 2004; 71 FR 38004, July 3, 2006; 86 FR 59626, Oct. 28, 
2021]



Sec.  690.8  Enrollment status for students taking regular and 
correspondence courses.

    (a) If, in addition to regular coursework, a student takes 
correspondence courses from either his or her own institution or another 
institution having an agreement for this purpose with the student's 
institution, the correspondence work may be included in determining the 
student's enrollment status to the extent permitted under paragraph (b) 
of this section.
    (b) Except as noted in paragraph (c) of this section, the 
correspondence work that may be included in determining a student's 
enrollment status is that amount of work which--
    (1) Applies toward a student's degree or certificate or is remedial 
work taken by the student to help in his or her course of study;
    (2) Is completed within the period of time required for regular 
course work; and
    (3) Does not exceed the amount of a student's regular course work 
for the payment period for which the student's enrollment status is 
being calculated.
    (c)(1) Notwithstanding the limitation in paragraph (b)(3) of this 
section, a student who would be a half-time student based solely on his 
or her correspondence work is considered a half-time student unless the 
calculation in paragraph (b) of this section produces an enrollment 
status greater than half-time.
    (2) A student who would be a less-than-half-time student based 
solely on his or her correspondence work or a combination of 
correspondence work and regular course work is considered a less-than-
half-time student.
    (d) The following chart provides examples of the rules set forth in 
this section. It assumes that the institution defines full-time 
enrollment as 12 credits per term, making the half-time enrollment equal 
to 6 credits per term.

----------------------------------------------------------------------------------------------------------------
                                                                     Total course
                                                                    load in credit
                                    No. of credit   No. of credit      hours to
        Under Sec.   690.8          hours regular       hours          determine          Enrollment status
                                        work       correspondence     enrollment
                                                                        status
----------------------------------------------------------------------------------------------------------------
(b)(3)...........................               3               3                 6  Half-time.
(b)(3)...........................               3               6                 6  Half-time.
(b)(3)...........................               3               9                 6  Half-time.
(b)(3)...........................               6               3                 9  Three-quarter-time.
(b)(3)...........................               6               6                12  Full-time.
(b)(3) and (c)...................               2               6                 6  Half-time.
(c) \1\..........................  ..............  ..............  ................  Less-than-half-time.
----------------------------------------------------------------------------------------------------------------
\1\ Any combination of regular and correspondence work that is greater than 0, but less than 6 hours.


(Authority: 20 U.S.C. 1070a)

[52 FR 45735, Dec. 1, 1987, as amended at 59 FR 54731, Nov. 1, 1994; 71 
FR 38004, July 3, 2006]



Sec.  690.10  Administrative cost allowance to participating schools.

    (a) Subject to available appropriations, the Secretary pays to each 
participating institution $5.00 for each student who receives a Federal 
Pell Grant at that institution for an award year.
    (b) All funds an institution receives under this section must be 
used solely to pay the institution's cost of administering the Federal 
Pell Grant, Federal Work-Study, and Federal Supplemental Educational 
Opportunity Grant programs.

[[Page 382]]

    (c) If an institution enrolls a significant number of students who 
are attending less-than-full-time or are independent students, the 
institution shall use a reasonable proportion of these funds to make 
financial aid services available during times and in places that will 
most effectively accommodate the needs of those students.

[50 FR 10717, Mar. 15, 1985, as amended at 52 FR 45736, Dec. 1, 1987; 59 
FR 54730, 54732, Nov. 1, 1994; 61 FR 60397, Nov. 27, 1996; 86 FR 59626, 
Oct. 28, 2021]



Sec.  690.11  Federal Pell Grant payments from more than one institution.

    A student is not entitled to receive Federal Pell Grant payments 
concurrently from more than one institution or from the Secretary and an 
institution.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 59 FR 54730, Nov. 1, 1994]



    Subpart B_Application Procedures for Determining Expected Family 
                              Contribution



Sec.  690.12  Application.

    (a) As the first step to receiving a Federal Pell Grant, a student 
shall apply on an approved application form to the Secretary to have his 
or her expected family contribution calculated. A copy of this form is 
not acceptable.
    (b) The student shall submit an application to the Secretary by--
    (1) Providing the application form, signed by all appropriate family 
members, to the institution at which the student attends or plans to 
attend so that the institution can transmit electronically the 
application information to the Secretary under EDE; or
    (2) Sending an approved application form to the Secretary.
    (c) The student shall provide the address of his or her residence 
unless the student is incarcerated and the educational institution has 
made special arrangements with the Secretary to receive relevant 
correspondence on behalf of the student. If such an arrangement is made, 
the student shall provide the address indicated by the institution.
    (d) For each award year the Secretary, through publication in the 
Federal Register, establishes deadline dates for submitting these 
applications and for making corrections to the information contained in 
the applications.

[50 FR 10721, Mar. 15, 1985, as amended at 59 FR 54732, Nov. 1, 1994; 60 
FR 21438, May 2, 1995; 60 FR 30789, June 12, 1995; 61 FR 60397, Nov. 27, 
1996; 86 FR 59626, Oct. 28, 2021]



Sec.  690.13  Notification of expected family contribution.

    The Secretary sends a student's application information and EFC as 
calculated by the central processor to the student on an SAR and allows 
each institution designated by the student to obtain an ISIR for that 
student.

[61 FR 60397, Nov. 27, 1996, as amended at 86 FR 59626, Oct. 28, 2021]



Sec.  690.14  Applicant's request to recalculate expected family 
contribution because of a clerical or arithmetic error or the submission
of inaccurate information.

    (a) An applicant may request that the Secretary recalculate his or 
her expected family contribution if--
    (1) He or she believes a clerical or arithmetic error has occurred; 
or
    (2) The information he or she submitted was inaccurate when the 
application was signed.
    (b) The applicant shall request that the Secretary make the 
recalculation described in paragraph (a) of this section by--
    (1) Having his or her institution transmit that request to the 
Secretary under EDE; or
    (2) Sending to the Secretary an approved form, certified by the 
student, and one of the student's parents if the student is a dependent 
student.
    (c) If an institution transmits electronically the student's 
recalculation request to the Secretary, the corrected information must 
be supported by--
    (1) Information contained on an approved form, that is certified by 
the student, and if the student is a dependent student, one of the 
student's parents; or
    (2) Verification documentation provided by a student under subpart E 
of part 668 of this chapter.

[[Page 383]]

    (d) The recalculation request must be received by the Secretary no 
later than the deadline date established by the Secretary through 
publication in the Federal Register.

[50 FR 10721, Mar. 15, 1985, as amended at 51 FR 8954, Mar. 14, 1986; 59 
FR 54732, Nov. 1, 1994; 61 FR 60397, Nov. 27, 1996; 86 FR 59626, Oct. 
28, 2021]

Subparts C-E [Reserved]



          Subpart F_Determination of Federal Pell Grant Awards

    Source: 50 FR 10722, Mar. 15, 1985, unless otherwise noted.



Sec.  690.61  Submission process and deadline for a Student Aid Report
or Institutional Student Information Record.

    (a) Submission process. (1) Except as provided in paragraph (a)(2) 
of this section, an institution must disburse a Federal Pell Grant to an 
eligible student who is otherwise qualified to receive that disbursement 
and electronically transmit Federal Pell Grant disbursement data to the 
Secretary for that student if--
    (i) The student submits a valid SAR to the institution; or
    (ii) The institution obtains a valid ISIR for the student.
    (2) In determining a student's eligibility to receive his or her 
Federal Pell Grant, an institution is entitled to assume that SAR 
information or ISIR information is accurate and complete except under 
the conditions set forth in 34 CFR 668.16(f) and 668.60.
    (b) Valid Student Aid Report or Valid Institutional Student 
Information Record deadline. Except as provided in the verification 
provisions of Sec.  668.60 and the late disbursement provisions of Sec.  
668.164(g) of this chapter, for a student to receive a Federal Pell 
Grant for an award year, the student must submit the relevant parts of 
the valid SAR to his or her institution or the institution must obtain a 
valid ISIR by the earlier of--
    (1) The last date that the student is still enrolled and eligible 
for payment at that institution; or
    (2) By the deadline date established by the Secretary through 
publication of a notice in the Federal Register.

(Authority: 20 U.S.C 1070a)

[59 FR 54732, Nov. 1, 1994, as amended at 61 FR 60397, Nov. 27, 1996; 67 
FR 67083, Nov. 1, 2002; 69 FR 12277, Mar. 16, 2004; 75 FR 66968, Oct. 
29, 2010]



Sec.  690.62  Calculation of a Federal Pell Grant.

    (a) The amount of a student's Pell Grant for an academic year is 
based upon the payment and disbursement schedules published by the 
Secretary for each award year.
    (b)(1)(i) For a confined or incarcerated individual enrolled in an 
eligible prison education program, no Federal Pell Grant may exceed the 
cost of attendance (as defined in section 472 of the HEA) at the 
institution that student attends.
    (ii) If an institution determines that the amount of a Federal Pell 
Grant for that student exceeds the cost of attendance for that year, the 
amount of the Federal Pell Grant must be reduced until the Federal Pell 
Grant does not exceed the cost of attendance at such institution and 
does not result in a title IV credit balance under 34 CFR 668.164(h).
    (2)(i) If a confined or incarcerated individual's Pell Grant, 
combined with any other financial assistance, exceeds the student's cost 
of attendance, the financial assistance other than the Pell Grant must 
be reduced by the amount that the total financial assistance exceeds the 
student's cost of attendance.
    (ii) If the confined or incarcerated individual's other financial 
assistance cannot be reduced, the student's Pell Grant must be reduced 
by the amount that the student's total financial assistance exceeds the 
student's cost of attendance.

[87 FR 65498, Oct. 28, 2022]



Sec.  690.63  Calculation of a Federal Pell Grant for a payment period.

    (a)(1) Programs using standard terms with at least 30 weeks of 
instructional time. A student's Federal Pell Grant for a payment period 
is calculated under paragraphs (b) or (d) of this section if--

[[Page 384]]

    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters; and
    (C) Requires the student to enroll for at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (ii) The program uses an academic calendar that provides at least 30 
weeks of instructional time in--
    (A) Two semesters or trimesters in the fall through the following 
spring, or three quarters in the fall, winter, and spring, none of which 
overlaps any other term (including a summer term) in the program; or
    (B) Any two semesters or trimesters, or any three quarters where--
    (1) The institution starts its terms for different cohorts of 
students on a periodic basis (e.g., monthly);
    (2) The program is offered exclusively in semesters, trimesters, or 
quarters; and
    (3) Students are not allowed to be enrolled simultaneously in 
overlapping terms and must stay with the cohort in which they start 
unless they withdraw from a term (or skip a term) and re-enroll in a 
subsequent term.
    (2) Programs using standard terms with less than 30 weeks of 
instructional time. A student's Federal Pell Grant for a payment period 
is calculated under paragraph (c) or (d) of this section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters;
    (C) Requires the student to enroll in at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (D) Is not offered with overlapping terms; and
    (ii) The institution offering the program--
    (A) Provides the program using an academic calendar that includes 
two semesters or trimesters in the fall through the following spring, or 
three quarters in the fall, winter, and spring; and
    (B) Does not provide at least 30 weeks of instructional time in the 
terms specified in paragraph (a)(2)(ii)(A) of this section.
    (3) Other programs using terms and credit hours. A student's Federal 
Pell Grant for a payment period is calculated under paragraph (d) of 
this section if the student is enrolled in an eligible program that--
    (i) Measures progress in credit hours; and
    (ii) Is offered in academic terms other than those described in 
paragraphs (a)(1) and (a)(2) of this section.
    (4) Programs not using terms or using clock hours. A student's 
Federal Pell Grant for any payment period is calculated under paragraph 
(e) of this section if the student is enrolled in an eligible program 
that--
    (i) Is offered in credit hours but is not offered in academic terms; 
or
    (ii) Is offered in clock hours.
    (5) Programs of study offered by correspondence. A student's Federal 
Pell Grant payment for a payment period is calculated under Sec.  690.66 
if the program is offered by correspondence courses.
    (6) Programs for which an exception to the academic year definition 
has been granted under 34 CFR 668.3. If an institution receives a waiver 
from the Secretary of the 30 weeks of instructional time requirement 
under 34 CFR 668.3, an institution may calculate a student's Federal 
Pell Grant payment for a payment period using the following 
methodologies:
    (i) If the program is offered in terms and credit hours, the 
institution uses the methodology in--
    (A) Paragraph (b) of this section provided that the program meets 
all the criteria in paragraph (a)(1) of this section, except that in 
lieu of paragraph (a)(1)(ii)(B) of this section, the program provides at 
least the same number of weeks of instructional time in the terms 
specified in paragraph (a)(1)(ii)(A) of this section as are in the 
program's academic year; or
    (B) Paragraph (d) of this section.
    (ii) The institution uses the methodology described in paragraph (e) 
of this section if the program is offered in credit hours without terms 
or clock hours.

[[Page 385]]

    (iii) The institution uses the methodology described in Sec.  690.66 
if the program is correspondence study.
    (b) Programs using standard terms with at least 30 weeks of 
instructional time. The Federal Pell Grant for a payment period, i.e., 
an academic term, for a student in a program using standard terms with 
at least 30 weeks of instructional time in two semesters or trimesters 
or in three quarters as described in paragraph (a)(1)(ii)(A) of this 
section, is calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time students; and
    (3) Dividing the amount described under paragraph (b)(2) of this 
section by--
    (i) Two at institutions using semesters or trimesters or three at 
institutions using quarters; or
    (ii) The number of terms over which the institution chooses to 
distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (b)(2) of this section over more than 
two terms at institutions using semesters or trimesters or more than 
three quarters at institutions using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year.
    (c) Programs using standard terms with less than 30 weeks of 
instructional time. The Federal Pell Grant for a payment period, i.e., 
an academic term, for a student in a program using standard terms with 
less than 30 weeks of instructional time in two semesters or trimesters 
or in three quarters as described in paragraph (a)(2)(ii)(A) of this 
section, is calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time students;
    (3) Multiplying his or her annual award determined under paragraph 
(c)(2) of this section by the following fraction as applicable:
    In a program using semesters or trimesters--
    [GRAPHIC] [TIFF OMITTED] TR03JY06.009
    

; or
    In a program using quarters--
    [GRAPHIC] [TIFF OMITTED] TC15NO91.029
    

; and
    (4)(i) Dividing the amount determined under paragraph (c)(3) of this 
section by two for programs using semesters or trimesters or three for 
programs using quarters; or
    (ii) Dividing the student's annual award determined under paragraph 
(c)(2) of this section by the number of terms over which the institution 
chooses to distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (c)(2) of this section over more than 
two terms for programs using semesters or trimesters or more than three 
quarters for programs using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year definition.
    (d) Other programs using terms and credit hours. The Federal Pell 
Grant for a payment period, i.e., an academic term, for a student in a 
program using terms and credit hours, other than those described in 
paragraphs (a)(1) or (a)(2) of this section, is calculated by--

[[Page 386]]

    (1) Determining his or her enrollment status for the term;
    (i) [Reserved]
    (ii) For a student enrolled in a term other than a semester, 
trimester, or quarter, determining his or her enrollment status for the 
term by--
    (A) Dividing the number of weeks of instructional time in the term 
by the number of weeks of instructional time in the program's academic 
year;
    (B) Multiplying the fraction determined under paragraph 
(d)(1)(ii)(A) of this section by the number of credit hours in the 
program's academic year to determine the number of hours required to be 
enrolled to be considered a full-time student; and
    (C) Determining a student's enrollment status by comparing the 
number of hours in which the student enrolls in the term to the number 
of hours required to be considered full-time under paragraph 
(d)(1)(ii)(B) of this section for that term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time student; and
    (3) Multiplying his or her annual award determined under paragraph 
(d)(2) of this section by the following fraction:
[GRAPHIC] [TIFF OMITTED] TC15NO91.030

    (e) Programs using credit hours without terms or clock hours. The 
Federal Pell Grant for a payment period for a student in a program using 
credit hours without terms or using clock hours is calculated by--
    (1) Determining the student's Scheduled Federal Pell Grant using the 
Payment Schedule; and
    (2) Multiplying the amount determined under paragraph (e)(1) of this 
section by the lesser of--
    (i)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.000
    

or
    (ii)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.001
    
    (f) Calculating payments that exceed 50 percent of a student's 
annual award. A single disbursement may not exceed 50 percent of any 
award determined under paragraphs (d) and (g)(2) of this section. If a 
payment for a payment period calculated under paragraphs (d) and (g)(2) 
of this section would require the disbursement of more than 50 percent 
of a student's annual award in that payment period, the institution must 
make at least two disbursements to the student in that payment period. 
The institution may not disburse an amount that exceeds 50 percent of 
the student's annual award until the student has completed the period of 
time in the payment period that equals, in terms of weeks of 
instructional time, 50 percent of the weeks of instructional time in the 
program's academic year.
    (g) Additional Federal Pell Grant funds and defining an academic 
year. (1) Notwithstanding paragraphs (b), (c), (d), and (e) of this 
section and Sec.  690.66, the amount of a student's award for an

[[Page 387]]

award year may not exceed one and one-half of his or her Scheduled 
Federal Pell Grant award for that award year.
    (2) A student's payment for the payment period may include the 
remaining amount of the student's Scheduled Award plus an amount from 
the additional Federal Pell Grant funds not to exceed one-half of a 
student's Scheduled Award.
    (3) For purposes of this section and Sec.  690.66, an institution 
must define an academic year for each of its eligible programs in terms 
of the number of credit or clock hours and weeks of instructional time 
in accordance with the requirements of 34 CFR 668.3.
    (h) [Reserved]

[59 FR 54733, Nov. 1, 1994, as amended at 69 FR 12277, Mar. 16, 2004; 71 
FR 38004, July 3, 2006; 72 FR 62033, Nov. 1, 2007; 74 FR 20221, May 1, 
2009; 74 FR 55951, Oct. 29, 2009; 74 FR 61245, Nov. 23, 2009; 77 FR 
25901, May 2, 2012; 86 FR 59626, Oct. 28, 2021]



Sec.  690.64  Determining the award year for a Federal Pell Grant payment
period that occurs in two award years.

    (a) If a student enrolls in a payment period that is scheduled to 
occur in two award years--
    (1) The entire payment period must be considered to occur within one 
award year;
    (2) The institution must determine for each Federal Pell Grant 
recipient the award year in which the payment period will be placed;
    (3) If an institution places the payment period in the first award 
year, it must pay a student with funds from the first award year; and
    (4) If an institution places the payment period in the second award 
year, it must pay a student with funds from the second award year.
    (b) An institution may not make a payment which will result in the 
student receiving more than one and one-half of his or her Scheduled 
Federal Pell Grant for an award year.

[77 FR 25901, May 2, 2012, as amended at 86 FR 59626, Oct. 28, 2021]



Sec.  690.65  Transfer student: attendance at more than one institution
during an award year.

    (a) If a student who receives a Federal Pell Grant at one 
institution subsequently enrolls at a second institution in the same 
award year, the student may receive a Federal Pell Grant at the second 
institution only if--
    (1) The student submits a valid SAR to the second institution; or
    (2) The second institution obtains a valid ISIR.
    (b) The second institution shall calculate the student's award 
according to Sec.  690.63.
    (c) The second institution may pay a Federal Pell Grant only for 
that portion of the academic year in which a student is enrolled at that 
institution. The grant amount must be adjusted, if necessary, to ensure 
that the grant does not exceed one and one-half of the student's 
Scheduled Federal Pell Grant for that award year.
    (d) If a student's Scheduled Federal Pell Grant at the second 
institution differs from the Scheduled Federal Pell Grant at the first 
institution, the grant amount at the second institution is calculated as 
follows--
    (1) The amount received at the first institution is compared to the 
Scheduled Federal Pell Grant at the first institution to determine the 
percentage of the Scheduled Federal Pell Grant that the student has 
received.
    (2) That percentage is subtracted from 100 percent or 150 percent, 
if the student is eligible to receive additional Federal Pell Grant 
funds in an amount up to one-half of a Scheduled Award during a single 
award year.
    (3) The remaining percentage is the percentage of the Scheduled 
Federal Pell Grant at the second institution to which the student is 
entitled.
    (e) The student's Federal Pell Grant for each payment period is 
calculated according to the procedures in Sec.  690.63 unless the 
remaining percentage of the Scheduled Federal Pell Grant at the second 
institution, referred to in paragraph (d)(3) of this section, is less 
than the amount the student would normally receive for that payment 
period. In that case, the student's Federal Pell Grant is equal to that 
remaining percentage.

[[Page 388]]

    (f) A transfer student shall repay any amount received in an award 
year that exceeds his or her Scheduled Federal Pell Grant, or one and 
one-half of his or her Scheduled Federal Pell Grant, whichever is 
applicable.

[50 FR 10722, Mar. 15, 1985, as amended at 51 FR 43162, Nov. 28, 1986; 
59 FR 54730, 54734, Nov. 1, 1994; 77 FR 25901, May 2, 2012; 86 FR 59626, 
Oct. 28, 2021]



Sec.  690.66  Correspondence study.

    (a) An institution calculates the Federal Pell Grant for a payment 
period for a student in a program of study offered by correspondence 
courses without terms, but not including any residential component, by--
    (1) Determining the student's annual award using the half-time 
Disbursement Schedule; and
    (2) Multiplying the annual award determined from the Disbursement 
Schedule for a half-time student by the lesser of--
    (i)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.002
    

or
    (ii)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.003
    
    (b) For purposes of paragraph (a) of this section--
    (1) The institution shall make the first payment to a student for an 
academic year, as calculated under paragraph (a) of this section, after 
the student submits 25 percent of the lessons or otherwise completes 25 
percent of the work scheduled for the program or the academic year, 
whichever occurs last; and
    (2) The institution shall make the second payment to a student for 
an academic year, as calculated under paragraph (a) of this section, 
after the student submits 75 percent of the lessons or otherwise 
completes 75 percent of the work scheduled for the program or the 
academic year, whichever occurs last.
    (c) In a program of correspondence study offered by correspondence 
courses using terms but not including any residential component--
    (1) The institution must prepare a written schedule for submission 
of lessons that reflects a workload of at least 30 hours of preparation 
per semester hour or 20 hours of preparation per quarter hour during the 
term;
    (2)(i) If the student is enrolled in at least 6 credit hours that 
commence and are completed in that term, the Disbursement Schedule for a 
half-time student is used to calculate the payment for the payment 
period; or
    (ii) If the student is enrolled in less than 6 credit hours that 
commence and are completed in that term the Disbursement Schedule for a 
less-than-half-time student is used to calculate the payment for the 
payment period;
    (3) A payment for a payment period is calculated using the formula 
in Sec.  690.63(d) except that paragraphs (c) (1) and (2) of this 
section are used in lieu of Sec.  690.63(d) (1) and (2) respectively; 
and
    (4) The institution shall make the payment to a student for a 
payment period after that student completes 50 percent of the lessons or 
otherwise completes 50 percent of the work scheduled for the term, 
whichever occurs last.

[[Page 389]]

    (d) Payments for periods of residential training shall be calculated 
under Sec.  690.63(d) if the residential training is offered using terms 
and credit hours or Sec.  690.63(e) if the residential training is 
offered using credit hours without terms.

[59 FR 54734, Nov. 1, 1994, as amended at 72 FR 62033, Nov. 1, 2007; 74 
FR 20221, May 1, 2009]



Sec.  690.67  Eligibility to receive additional Federal Pell Grant funds
in an amount up to one-half of a Scheduled Award during a single award year.

    An institution awards additional Federal Pell Grant funds up to one-
half of a Scheduled Award to a student in an award year if the student 
is enrolled--
    (a) In an eligible program leading to a bachelor's or associate's 
degree or other recognized educational credential, except as provided in 
34 CFR part 668, subpart O, for students with intellectual disabilities, 
for one or more additional payment periods during the same award year 
that are not fully covered by the student's initial Federal Pell Grant 
Scheduled Award; and
    (b) At least as a half-time student in the payment period(s) for 
which the student receives any portion of the additional Federal Pell 
Grant funds.

[86 FR 59626, Oct. 28, 2021]



Sec.  690.68  Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice will not 
be affected thereby.

[87 FR 65498, Oct. 28, 2022]



               Subpart G_Administration of Grant Payments

    Source: 50 FR 10724, Mar. 15, 1985, unless otherwise noted.



Sec.  690.71  Scope.

    This subpart deals with program administration by an institution of 
higher education.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 51 FR 43162, Nov. 28, 1986; 
59 FR 54730, Nov. 1, 1994; 60 FR 61816, Dec. 1, 1995]



Sec. Sec.  690.72-690.74  [Reserved]



Sec.  690.75  Determination of eligibility for payment.

    (a) For each payment period, an institution may pay a Federal Pell 
Grant to an eligible student only after it determines that the student--
    (1) Qualifies as an eligible student under 34 CFR Part 668, Subpart 
C;
    (2) Is enrolled in an eligible program as an undergraduate student; 
and
    (3) If enrolled in a credit hour program without terms or a clock 
hour program, has completed the payment period as defined in Sec.  668.4 
for which he or she has been paid a Federal Pell Grant.
    (b) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory progress, but 
reverses that determination before the end of the payment period, the 
institution may pay a Federal Pell Grant to the student for the entire 
payment period.
    (c) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory progress, but 
reverses that determination after the end of the payment period, the 
institution may neither pay the student a Federal Pell Grant for that 
payment period nor make adjustments in subsequent Federal Pell Grant 
payments to compensate for the loss of aid for that period.

(Approved by the Office of Management and Budget under control number 
1845-0681)

(Authority: 20 U.S.C. 1070a)

[52 FR 45736, Dec. 1, 1987, as amended at 56 FR 56916, Nov. 6, 1991; 59 
FR 54730, 54735, Nov. 1, 1994; 60 FR 30789, June 12, 1995; 61 FR 60397, 
Nov. 27, 1996; 61 FR 60610, Nov. 29, 1996; 65 FR 65676, Nov. 1, 2000; 67 
FR 67083, Nov. 1, 2002; 85 FR 49828, Aug. 14, 2020]

[[Page 390]]



Sec.  690.76  Frequency of payment.

    (a) In each payment period, an institution may pay a student at such 
times and in such installments as it determines will best meet the 
student's needs.
    (b) The institution may pay funds in one lump sum for all the prior 
payment periods for which the student was an eligible student within the 
award year. The student's enrollment status must be determined according 
to work already completed.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 56 FR 56916, Nov. 6, 1991]



Sec. Sec.  690.77-690.78  [Reserved]



Sec.  690.79  Liability for and recovery of Federal Pell Grant overpayments.

    (a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this 
section, a student is liable for any Federal Pell Grant overpayment made 
to him or her.
    (2) The institution is liable for a Federal Pell Grant overpayment 
if the overpayment occurred because the institution failed to follow the 
procedures set forth in this part or 34 CFR Part 668. The institution 
must restore an amount equal to the overpayment to its Federal Pell 
Grant account.
    (3) A student is not liable for, and the institution is not required 
to attempt recovery of or refer to the Secretary, a Federal Pell Grant 
overpayment if the amount of the overpayment is less than $25 and is not 
a remaining balance.
    (b)(1) Except as provided in paragraph (a)(3) of this section, if an 
institution makes a Federal Pell Grant overpayment for which it is not 
liable, it must promptly send a written notice to the student requesting 
repayment of the overpayment amount. The notice must state that failure 
to make that repayment, or to make arrangements satisfactory to the 
holder of the overpayment debt to repay the overpayment, makes the 
student ineligible for further title IV, HEA program funds until final 
resolution of the Federal Pell Grant overpayment.
    (2) If a student objects to the institution's Federal Pell Grant 
overpayment determination on the grounds that it is erroneous, the 
institution must consider any information provided by the student and 
determine whether the objection is warranted.
    (c) Except as provided in paragraph (a)(3) of this section, if the 
student fails to repay a Federal Pell Grant overpayment or make 
arrangements satisfactory to the holder of the overpayment debt to repay 
the Federal Pell Grant overpayment, after the institution has taken the 
action required by paragraph (b) of this section, the institution must 
refer the overpayment to the Secretary for collection purposes in 
accordance with procedures required by the Secretary. After referring 
the Federal Pell Grant overpayment to the Secretary under this section, 
the institution need make no further efforts to recover the overpayment.

(Authority: 20 U.S.C. 1070a)

[67 FR 67083, Nov. 1, 2002]



Sec.  690.80  Recalculation of a Federal Pell Grant award.

    (a) Change in expected family contribution. (1) The institution 
shall recalculate a Federal Pell Grant award for the entire award year 
if the student's expected family contribution changes at any time during 
the award year. The change may result from--
    (i) The correction of a clerical or arithmetic error under Sec.  
690.14; or
    (ii) A correction based on information required as a result of 
verification under 34 CFR part 668, subpart E.
    (2) Except as described in 34 CFR 668.60(c), the institution shall 
adjust the student's award when an overaward or underaward is caused by 
the change in the expected family contribution. That adjustment must be 
made--
    (i) Within the same award year--if possible--to correct any 
overpayment or underpayment; or
    (ii) During the next award year to correct any overpayment that 
could not be adjusted during the year in which the student was overpaid.
    (b) Change in enrollment status. (1) If the student's enrollment 
status changes from one academic term to another term within the same 
award year, the institution shall recalculate the Federal Pell Grant 
award for the

[[Page 391]]

new payment period taking into account any changes in the cost of 
attendance.
    (2)(i) If the student's projected enrollment status changes during a 
payment period after the student has begun attendance in all of his or 
her classes for that payment period, the institution may (but is not 
required to) establish a policy under which the student's award for the 
payment period is recalculated. Any such recalculations must take into 
account any changes in the cost of attendance. If such a policy is 
established, it must apply to all students.
    (ii) If a student's projected enrollment status changes during a 
payment period before the student begins attendance in all of his or her 
classes for that payment period, the institution shall recalculate the 
student's enrollment status to reflect only those classes for which the 
student actually began attendance.
    (c) Change in cost of attendance. If the student's cost of 
attendance changes at any time during the award year and his or her 
enrollment status remains the same, the institution may (but is not 
required to) establish a policy under which the student's award for the 
payment period is recalculated. If such a policy is established, it must 
apply to all students.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 59 FR 54735, Nov. 1, 1994]



Sec.  690.81  Fiscal control and fund accounting procedures.

    (a) An institution shall follow provisions for maintaining general 
fiscal records in this part and in 34 CFR 668.24(b).
    (b) An institution shall maintain funds received under this part in 
accordance with the requirements in Sec.  668.164.

[50 FR 10724, Mar. 15, 1985, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 54730, Nov. 1, 1994; 59 FR 61722, Dec. 1, 1994; 61 FR 60397, 60493, 
Nov. 27, 1996; 86 FR 59626, Oct. 28, 2021]



Sec.  690.82  Maintenance and retention of records.

    (a) An institution shall follow the record retention and examination 
provisions in this part and in 34 CFR 668.24.
    (b) For any disputed expenditures in any award year for which the 
institution cannot provide records, the Secretary determines the final 
authorized level of expenditures.

[61 FR 60494, Nov. 27, 1996, as amended at 86 FR 59626, Oct. 28, 2021]



Sec.  690.83  Submission of reports.

    (a)(1) An institution may receive either a payment from the 
Secretary for an award to a Federal Pell Grant recipient, or a 
corresponding reduction in the amount of Federal funds received in 
advance for which it is accountable, if--
    (i) The institution submits to the Secretary the student's Payment 
Data for that award year in the manner and form prescribed in paragraph 
(a)(2) of this section by September 30 following the end of the award 
year in which the grant is made, or, if September 30 falls on a weekend, 
on the first weekday following September 30; and
    (ii) The Secretary accepts the student's Payment Data.
    (2) The Secretary accepts a student's Payment Data that is submitted 
in accordance with procedures established through publication in the 
Federal Register, and that contains information the Secretary considers 
to be accurate in light of other available information including that 
previously provided by the student and the institution.
    (3) An institution that does not comply with the requirements of 
this paragraph may receive a payment or reduction in accountability only 
as provided in paragraph (d) of this section.
    (b)(1) An institution shall report to the Secretary any change in 
the amount of a grant for which a student qualifies including any 
related Payment Data changes by submitting to the Secretary the 
student's Payment Data that discloses the basis and result of the change 
in award for each student. The institution shall submit the student's 
Payment Data reporting any change to the Secretary by the reporting 
deadlines published by the Secretary in the Federal Register.

[[Page 392]]

    (2) An institution shall submit, in accordance with deadline dates 
established by the Secretary, through publication in the Federal 
Register, other reports and information the Secretary requires and shall 
comply with the procedures the Secretary finds necessary to ensure that 
the reports are correct.
    (3) An institution that timely submits, and has accepted by the 
Secretary, the Payment Data for a student in accordance with this 
section shall report a reduction in the amount of a Federal Pell Grant 
award that the student received when it determines that an overpayment 
has occurred, unless that overpayment is one for which the institution 
is not liable under Sec.  690.79(a).
    (c) In accordance with 34 CFR 668.84, the Secretary may impose a 
fine on the institution if the institution fails to comply with the 
requirements specified in paragraphs (a) or (b) of this section.
    (d)(1) Notwithstanding paragraphs (a) or (b) of this section, if an 
institution demonstrates to the satisfaction of the Secretary that the 
institution has provided Federal Pell Grants in accordance with this 
part but has not received credit or payment for those grants, the 
institution may receive payment or a reduction in accountability for 
those grants in accordance with paragraphs (d)(4) and either (d)(2) or 
(d)(3) of this section.
    (2) The institution must demonstrate that it qualifies for a credit 
or payment by means of a finding contained in an audit report of an 
award year that was the first audit of that award year and that was 
conducted after December 31, 1988 and timely submitted to the Secretary 
under 34 CFR 668.23(b).
    (3) An institution that timely submits the Payment Data for a 
student in accordance with paragraph (a) of this section but does not 
timely submit to the Secretary, or have accepted by the Secretary, the 
Payment Data necessary to document the full amount of the award to which 
the student is entitled, may receive a payment or reduction in 
accountability in the full amount of that award, if--
    (i) A program review demonstrates to the satisfaction of the 
Secretary that the student was eligible to receive an amount greater 
than that reported in the student's Payment Data timely submitted to, 
and accepted by the Secretary; and
    (ii) The institution seeks an adjustment to reflect an underpayment 
for that award that is at least $100.
    (4) In determining whether the institution qualifies for a payment 
or reduction in accountability, the Secretary takes into account any 
liabilities of the institution arising from that audit or program review 
or any other source. The Secretary collects those liabilities by offset 
in accordance with 34 CFR part 30.

(Approved by the Office of Management and Budget under control number 
1845-0039)

[60 FR 61816, Dec. 1, 1995; 61 FR 3776, Feb. 1, 1996, as amended at 71 
FR 38004, July 3, 2006; 86 FR 59626, Oct. 28, 2021]

                           PART 691 [RESERVED]



PART 692_LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP PROGRAM-
-Table of Contents



     Subpart A_Leveraging Educational Assistance Partnership Program

                                 General

Sec.
692.1 What is the Leveraging Educational Assistance Partnership?
692.2 Who is eligible to participate in the LEAP Program?
692.3 What regulations apply to the LEAP Program?
692.4 What definitions apply to the LEAP Program?

        What is the Amount of Assistance and How May it Be Used?

692.10 How does the Secretary allot funds to the States?
692.11 For what purposes may a State use its payments under the LEAP 
          Program?

       How Does a State Apply To Participate in the LEAP Program?

692.20 What must a State do to receive an allotment under this program?
692.21 What requirements must be met by a State program?

 How Does a State Administer its Community Service-Learning Job Program?

692.30 How does a State administer its community service-learning job 
          program?

[[Page 393]]

        How Does a State Select Students Under the LEAP Program?

692.40 What are the requirements for student eligibility?
692.41 What standards may a State use to determine substantial financial 
          need?

 Subpart B_Special Leveraging Educational Assistance Partnership Program

                                 General

692.50 What is the Special Leveraging Educational Assistance Partnership 
          Program?
692.51 What other regulations apply to the SLEAP Program?
692.52 What definitions apply to the SLEAP Program?
692.53 What requirements must a State satisfy to receive SLEAP Program 
          funds?
692.54 What eligibility requirements must a student satisfy to 
          participate in the SLEAP Program?

       How Does a State Apply To Participate in the SLEAP Program?

692.60 What must a State do to receive an allotment under the SLEAP 
          Program?

        What Is the Amount of Assistance and How May It Be Used?

692.70 How does the Secretary allot funds to the States?
692.71 What activities may be funded under the SLEAP Program?
692.72 May a State use the funds it receives under the SLEAP Program to 
          pay administrative costs?

  How Does a State Administer Its Community Service Work-Study Program?

692.80 How does a State administer its community service work-study 
          program?

           Subpart C_Grants for Access and Persistence Program

                                 General

692.90 What is the Grants for Access and Persistence Program?
692.91 What other regulations apply to the GAP Program?
692.92 What definitions apply to the GAP Program?
692.93 Who is eligible to participate in the GAP Program?
692.94 What requirements must a State satisfy, as the administrator of a 
          partnership, to receive GAP Program funds?

              How Does a State Apply to Participate in GAP?

692.100 What requirements must a State meet to receive an allotment 
          under this program?
692.101 What requirements must be met by a State partnership?

        What Is the Amount of Assistance and How May It Be Used?

692.110 How does the Secretary allot funds to the States?
692.111 For what purposes may a State use its payment under the GAP 
          Program?
692.112 May a State use the funds it receives from the GAP Program to 
          pay administrative costs?
692.113 What are the matching requirements for the GAP Program?

     How Does the Partnership Select Students Under the GAP Program?

692.120 What are the requirements for student eligibility?

    How Does the Secretary Approve a Waiver of Program Requirements?

692.130 How does a participating institution request a waiver of program 
          requirements?

Appendix A to Subpart C of Part 692--Grants for Access and Persistence 
          Program (GAP) State Grant Allotment Case Study

    Authority: 20 U.S.C. 1070c-1070c-4, unless otherwise noted.

    Source: 52 FR 45433, Nov. 27, 1987, unless otherwise noted.



     Subpart A_Leveraging Educational Assistance Partnership Program

                                 General



Sec.  692.1  What is the Leveraging Educational Assistance Partnership?

    The Leveraging Educational Assistance Partnership (LEAP) Program 
assists States in providing grants and work-study assistance to eligible 
students who attend institutions of higher education and have 
substantial financial need. The work-study assistance is provided 
through campus-based community service work learning study programs, 
hereinafter referred to as community service-learning job programs.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38729, June 22, 2000]

[[Page 394]]



Sec.  692.2  Who is eligible to participate in the LEAP Program?

    (a) State participation. A State that meets the requirements in 
Sec. Sec.  692.20 and 692.21 is eligible to receive payments under the 
LEAP program.
    (b) Student participation. A student must meet the requirements of 
Sec.  692.40 to be eligible to receive assistance from a State under the 
LEAP program.

(Authority: 20 U.S.C. 1070c-1)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38729, June 22, 2000]



Sec.  692.3  What regulations apply to the LEAP Program?

    The following regulations apply to the LEAP Program:
    (a) The regulations in this part 692.
    (b) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR 75.60-75.62 (Ineligibility of Certain Individuals to 
Receive Assistance).
    (2) 34 CFR part 76 (State-Administered Programs).
    (3) 34 CFR part 77 (Definitions That Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) [Reserved]
    (6) 34 CFR part 82 (New Restrictions on Lobbying).
    (7) 34 CFR part 84 (Governmentwide Requirements For Drug-Free 
Workplace (Financial Assistance)).
    (8) 34 CFR part 86 (Drug and Alcohol Abuse Prevention).
    (c) The Student Assistance General Provisions in 34 CFR part 668.
    (d)(1) 2 CFR part 180 (OMB Guidelines to Agencies on Governmentwide 
Debarment and Suspension (Nonprocurement)), as adopted at 2 CFR part 
3485; and
    (2) 2 CFR part 200 (Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards), as adopted at 2 
CFR part 3474.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 55 FR 21716, May 25, 1990; 59 
FR 4223, Jan. 28, 1994; 65 FR 38729, June 22, 2000; 79 FR 76105, Dec. 
19, 2014]



Sec.  692.4  What definitions apply to the LEAP Program?

    The following definitions apply to the regulations in this part:
    (a) The definitions of the following terms under 34 CFR part 600:

    Postsecondary vocational institution (Sec.  600.6).
    Public or private nonprofit institution of higher education (Sec.  
600.4).
    Secretary (Sec.  600.2).
    State (Sec.  600.2).

    (b) The definitions of the following terms under 34 CFR part 668:

    Academic year (Sec.  668.2).
    Enrolled (Sec.  668.2).
    HEA (Sec.  668.2).
    Institution (Sec.  668.1(b)).

    (c) The definitions of the following terms also apply to the LEAP 
Program:
    Full-time student means a student carrying a full-time academic 
workload--other than by correspondence--as measured by both of the 
following:
    (1) Coursework or other required activities, as determined by the 
institution that the student attends or by the State.
    (2) The tuition and fees normally charged for full-time study by 
that institution.
    Nonprofit has the same meaning under this part as the same term 
defined in 34 CFR 77.1 of EDGAR.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38729, June 22, 2000]

        What Is the Amount of Assistance and How May It Be Used?



Sec.  692.10  How does the Secretary allot funds to the States?

    (a)(1) The Secretary allots to each State participating in the LEAP 
program an amount which bears the same ratio to the Federal LEAP funds 
appropriated as the number of students in that State who are ``deemed 
eligible'' to participate in the State's LEAP program bears to the total 
number of students in all States who are ``deemed eligible'' to 
participate in the LEAP program, except that no State may receive less 
than it received in fiscal year 1979 for the programs under this part.

[[Page 395]]

    (2) For the programs under this part, if the Federal funds 
appropriated for a fiscal year are not sufficient to allot to each State 
the amount of Federal funds it received in fiscal year 1979, the 
Secretary allots to each State an amount which bears the same ratio to 
the amount of Federal funds appropriated as the amount of Federal funds 
that State received in fiscal year 1979 bears to the amount of Federal 
funds all States received in fiscal year 1979.
    (b) For the purpose of paragraph (a)(1) of this section, the 
Secretary determines the number of students ``deemed eligible'' to 
participate in a State's LEAP Program by dividing the amount of that 
State's LEAP expenditures, including both its Federal allotment and the 
State funds matching the allotment, by the average grant award per 
student of all participating States. The Secretary determines the 
``average grant award per student'' by dividing the total number of 
student recipients for all States into the total amount of LEAP 
expenditures for all States, including both the Federal allotments and 
the State funds matching those allotments. In making this determination, 
the Secretary uses the most current available data reported by each 
State.

(Authority: 20 U.S.C. 1070c, 1070c-2)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000; 74 FR 55952, Oct. 29, 2009]



Sec.  692.11  For what purposes may a State use its payments under the
LEAP Program?

    A State may use the funds it receives under the LEAP Program only to 
make grants to students and to pay wages or salaries to students in 
community service-learning jobs.

(Authority: 20 U.S.C. 1070c)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]

       How Does a State Apply To Participate in The LEAP Program?



Sec.  692.20  What must a State do to receive an allotment under this
program?

    (a) For each fiscal year that it wishes to participate, a State 
shall submit an application that contains information that shows that 
its Leveraging Educational Assistance Partnership Program meets the 
requirements of Sec.  692.21.
    (b)(1) Except as provided in paragraph (b)(2) of this section, the 
State must submit its application through the State agency designated to 
administer its Leveraging Educational Assistance Partnership Program as 
of July 1, 1985.
    (2) If the Governor of the State so designates, and notifies the 
Secretary in writing, the State may submit its application under 
paragraph (a) of this section through an agency that did not administer 
its Leveraging Educational Assistance Partnership Program as of July 1, 
1985.

(Authority: 20 U.S.C. 1070c-2(a))

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]



Sec.  692.21  What requirements must be met by a State program?

    To receive a payment under the LEAP Program for any fiscal year, a 
State must have a program that--
    (a) Is administered by a single State agency;
    (b) Provides assistance only to students who meet the eligibility 
requirements in Sec.  692.40;
    (c) Provides that assistance under this program to a full-time 
student will not be more than the lesser of $12,500 or the student's 
cost of attendance under section 472 of the HEA for each academic year;
    (d) Provides for the selection of students to receive assistance on 
the basis of substantial financial need determined annually by the State 
on the basis of standards that the State establishes and the Secretary 
approves;

    Cross Reference: See Sec.  692.41.

    (e) Provides that no student or parent shall be charged a fee that 
is payable to an organization other than the State for the purpose of 
collecting data to make a determination of financial need in accordance 
with paragraph (d) of this section;

[[Page 396]]

    (f) Provides that all public or private nonprofit institutions of 
higher education and all postsecondary vocational institutions in the 
State are eligible to participate unless that participation is in 
violation of--
    (1) The constitution of the State; or
    (2) A State statute that was enacted before October 1, 1978;
    (g) Provides that, if a State awards grants to independent students 
or to students who are less-than-full-time students enrolled in an 
institution, a reasonable portion of the State's allocation must be 
awarded to those students;
    (h) Provides that--
    (1) The State will pay an amount for grants and work-study jobs 
under this part for each fiscal year that is not less than the payment 
to the State under this part for that fiscal year; and
    (2) The amount that the State expends during a fiscal year for 
grants and work-study jobs under the LEAP Program represents an 
additional amount for grants and work-study jobs for students attending 
institutions over the amount expended by the State for those activities 
during the fiscal year two years prior to the fiscal year in which the 
State first received funds under the LEAP Program;
    (i) Provides for State expenditures under the State program of an 
amount that is not less than--
    (1) The average annual aggregate expenditures for the preceding 
three fiscal years; or
    (2) The average annual expenditure per full-time equivalent student 
for those years;
    (j) Provides that, to the extent practicable, the proportion of the 
funds awarded to independent students in the LEAP Program shall be the 
same proportion of funds awarded to independent students as is in the 
State program or programs of which the State's LEAP Program is a part;
    (k) Notifies eligible students that the grants are--
    (1) Leveraging Educational Assistance Partnership Grants; and
    (2) Funded by the Federal Government, the State, and, where 
applicable, other contributing partners; and
    (l) Provides for reports to the Secretary that are necessary to 
carry out the Secretary's functions under the LEAP Program.

(Approved by the Office of Management and Budget under control number 
1845-NEW7)

(Authority: 20 U.S.C. 1070c-2)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000; 74 FR 55952, Oct. 29, 2009]

 How Does a State Administer Its Community Service-Learning Job Program?



Sec.  692.30  How does a State administer its community service-learning
job program?

    (a)(1) Each year, a State may use up to 20 percent of its allotment 
for a community service-learning job program that satisfies the 
conditions set forth in paragraph (b) of this section.
    (2) A student who receives assistance under this section must 
receive compensation for work and not a grant.
    (b)(1) The community service-learning job program must be 
administered by institutions in the State.
    (2) Each student employed under the program must be employed in work 
in the public interest by an institution itself or by a Federal, State, 
or local public agency or a private nonprofit organization under an 
arrangement between the institution and the agency or organization.
    (c) Each community service-learning job must--
    (1) Provide community service as described in paragraph (d) of this 
section;
    (2) Provide participating students community service-learning 
opportunities related to their educational or vocational programs or 
goals;
    (3) Not result in the displacement of employed workers or impair 
existing contracts for services;
    (4) Be governed by conditions of employment that are considered 
appropriate and reasonable, based on such factors as type of work 
performed, geographical region, and proficiency of the employee;
    (5) Not involve the construction, operation, or maintenance of so 
much of any facility as is used or is to be used for sectarian 
instruction or as a place for religious worship; and
    (6) Not pay any wage to a student that is less than the current 
Federal

[[Page 397]]

minimum wage as mandated by section 6(a) of the Fair Labor Standards Act 
of 1938.
    (d) For the purpose of paragraph (c)(1) of this section, ``community 
service'' means direct service, planning, or applied research that is--
    (1) Identified by an institution through formal or informal 
consultation with local nonprofit, governmental, and community-based 
organizations; and
    (2) Designed to improve the quality of life for residents of the 
community served, particularly low-income residents, in such fields as 
health care, child care, education, literacy training, welfare, social 
services, public safety, crime prevention and control, transportation, 
recreation, housing and neighborhood improvement, rural development, and 
community improvement.
    (e) For the purpose of paragraph (d)(2) of this section, ``low-
income residents'' means--
    (1) Residents whose taxable family income for the year before the 
year in which they are scheduled to receive assistance under the LEAP 
Program did not exceed 150 percent of the amount equal to the poverty 
level determined by using criteria of poverty established by the United 
States Census Bureau; or
    (2) Residents who are considered low-income residents by the State.

(Authority: 20 U.S.C. 1070c-2, 1070-4)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000; 85 FR 49828, Aug. 14, 2020]

        How Does a State Select Students Under the LEAP Program?



Sec.  692.40  What are the requirements for student eligibility?

    To be eligible for assistance, a student must--
    (a) Meet the relevant eligibility requirements contained in 34 CFR 
668.32; and
    (b) Have substantial financial need as determined annually in 
accordance with the State's criteria approved by the Secretary.

(Authority: 20 U.S.C. 1070c-2, 1091)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]



Sec.  692.41  What standards may a State use to determine substantial
financial need?

    (a) A State determines whether a student has substantial financial 
need on the basis of criteria it establishes that are approved by the 
Secretary. A State may define substantial financial need in terms of 
family income, expected family contribution, and relative need as 
measured by the difference between the student's cost of attendance and 
the resources available to meet that cost. To determine substantial 
need, the State may use--
    (1) A system for determining a student's financial need under part F 
of title IV of the HEA;
    (2) The State's own needs analysis system if approved by the 
Secretary; or
    (3) A combination of these systems, if approved by the Secretary.
    (b) The Secretary generally approves a need-analysis system under 
paragraph (a) (2) or (3) of this section only if the need-analysis 
system applies the term ``independent student'' as defined under section 
480(d) of the HEA. However, for good cause shown, the Secretary may 
approve, on a case-by-case basis, a State's need analysis system that 
uses a definition for ``independent student'' that varies from that term 
as defined in section 480(d) of the HEA.

(Authority: 20 U.S.C. 1070c-2)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994]



 Subpart B_Special Leveraging Educational Assistance Partnership Program

    Source: 65 FR 65608, Nov. 1, 2000, unless otherwise noted.

                                 General



Sec.  692.50  What is the Special Leveraging Educational Assistance
Partnership Program?

    The Special Leveraging Educational Assistance Partnership (SLEAP) 
Program assists States in providing grants, scholarships, and community 
service work-study assistance to eligible students who attend 
institutions of

[[Page 398]]

higher education and demonstrate financial need.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec.  692.51  What other regulations apply to the SLEAP Program?

    The regulations listed in Sec.  692.3 also apply to the SLEAP 
Program.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.52  What definitions apply to the SLEAP Program?

    The definitions listed in Sec.  692.4 apply to the SLEAP Program.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec.  692.53  What requirements must a State satisfy to receive SLEAP
Program funds?

    To receive SLEAP Program funds for any fiscal year, a State must--
    (a) Participate in the LEAP Program;
    (b) Meet the requirements in Sec.  692.60; and
    (c) Have a program that satisfies the requirements in Sec.  
692.21(a), (b), (d), (e), (f), (g), (j), and (k).

(Authority: 20 U.S.C. 1070c-3a)

[65 FR 65608, Nov. 1, 2000, as amended at 66 FR 34039, June 26, 2001]



Sec.  692.54  What eligibility requirements must a student satisfy to
participate in the SLEAP Program?

    To receive assistance under the SLEAP Program, a student must meet 
the eligibility requirements contained in Sec.  692.40.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]

       How Does a State Apply To Participate in the SLEAP Program?



Sec.  692.60  What must a State do to receive an allotment under the 
SLEAP Program?

    To receive an allotment under the SLEAP Program, a State must--
    (a) Submit an application in accordance with the provisions in Sec.  
692.20;
    (b) Identify the activities in Sec.  692.71 for which it plans to 
use the SLEAP Federal and non-Federal funds;
    (c) Ensure that the non-Federal funds used as matching funds 
represent dollars that are in excess of the total dollars that a State 
spent for need-based grants, scholarships, and work-study assistance for 
fiscal year 1999, including the State funds reported as part of its LEAP 
Program;
    (d) Provide an assurance that for the fiscal year prior to the 
fiscal year for which the State is requesting Federal funds, the amount 
the State expended from non-Federal sources per student, or the 
aggregate amount the State expended, for all the authorized activities 
in Sec.  692.71 will be no less than the amount the State expended from 
non-Federal sources per student, or in the aggregate, for those 
activities for the second fiscal year prior to the fiscal year for which 
the State is requesting Federal funds; and
    (e) Ensure that the Federal share will not exceed one-third of the 
total funds expended under the SLEAP Program.

(Authority: 20 U.S.C. 1070c-3a)

[65 FR 65608, Nov. 1, 2000, as amended at 66 FR 34039, June 26, 2001]

        What Is the Amount of Assistance and How May It Be Used?



Sec.  692.70  How does the Secretary allot funds to the States?

    For fiscal year 2010-2011, the Secretary allots to each eligible 
State that applies for SLEAP funds an amount in accordance with the 
provisions in Sec.  692.10 prior to calculating allotments for States 
applying for GAP funds under subpart C of this part.

(Authority: 20 U.S.C. 1070c-3a)

[74 FR 55952, Oct. 29, 2009]



Sec.  692.71  What activities may be funded under the SLEAP Program?

    A State may use the funds it receives under the SLEAP Program for 
one or more of the following activities:
    (a) Supplement LEAP grant awards to eligible students who 
demonstrate financial need by--
    (1) Increasing the LEAP grant award amounts for students; or

[[Page 399]]

    (2) Increasing the number of students receiving LEAP grant awards.
    (b) Supplement LEAP community service work-study awards to eligible 
students who demonstrate financial need by--
    (1) Increasing the LEAP community service work-study award amounts 
for students; or
    (2) Increasing the number of students receiving LEAP community 
service work-study awards.
    (c) Award scholarships to eligible students who demonstrate 
financial need and who--
    (1) Demonstrate merit or academic achievement; or
    (2) Wish to enter a program of study leading to a career in--
    (i) Information technology;
    (ii) Mathematics, computer science, or engineering;
    (iii) Teaching; or
    (iv) Other fields determined by the State to be critical to the 
State's workforce needs.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec.  692.72  May a State use the funds it receives under the SLEAP Program
to pay administrative costs?

    A State may not use any of the funds it receives under the SLEAP 
Program to pay any administrative costs.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34040, June 26, 2001]

  How Does a State Administer Its Community Service Work-Study Program?



Sec.  692.80  How does a State administer its community service work-study
program?

    When administering its community service work-study program, a State 
must follow the provisions in Sec.  692.30, other than the provisions of 
paragraph (a)(1) of that section.

(Authority: 20 U.S.C. 1070c-3a)



           Subpart C_Grants for Access and Persistence Program

    Source: 74 FR 55952, Oct. 29, 2009, unless otherwise noted.

                                 General



Sec.  692.90  What is the Grants for Access and Persistence Program?

    The Grants for Access and Persistence (GAP) Program assists States 
in establishing partnerships to provide eligible students with LEAP 
Grants under GAP to attend institutions of higher education and to 
encourage increased participation in early information and intervention, 
mentoring, or outreach programs.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.91  What other regulations apply to the GAP Program?

    The regulations listed in Sec.  692.3 also apply to the GAP Program.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.92  What definitions apply to the GAP Program?

    The definitions listed in Sec.  692.4 also apply to the GAP Program.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.93  Who is eligible to participate in the GAP Program?

    (a) States. States that meet the requirements in Sec. Sec.  692.94 
and 692.100 are eligible to receive payments under the GAP Program.
    (b) Degree-granting institutions of higher education. Degree-
granting institutions of higher education that meet the requirements in 
Sec.  692.101 are eligible to participate in a partnership under the GAP 
Program.
    (c) Early information and intervention, mentoring, or outreach 
programs. Early information and intervention, mentoring, or outreach 
programs that meet the requirements in Sec.  692.101 are eligible to 
participate in a partnership under the GAP Program.
    (d) Philanthropic organizations or private corporations. 
Philanthropic organizations or private corporations that meet the 
requirements in Sec.  692.101 are eligible to participate in a 
partnership under the GAP Program.
    (e) Students. Students who meet the requirements of Sec.  692.120 
are eligible to receive assistance or services from a partnership under 
the GAP Program.

(Authority: 20 U.S.C. 1070c-3a)

[[Page 400]]



Sec.  692.94  What requirements must a State satisfy, as the administrator
of a partnership, to receive GAP Program funds?

    To receive GAP Program funds for any fiscal year--
    (a) A State must--
    (1) Participate in the LEAP Program;
    (2) Establish a State partnership with--
    (i) At least--
    (A) One public degree-granting institution of higher education that 
is located in the State; and
    (B) One private degree-granting institution of higher education, if 
at least one exists in the State that may be eligible to participate in 
the State's LEAP Program under subpart A of this part;
    (ii) New or existing early information and intervention, mentoring, 
or outreach programs located in the State; and
    (iii) At least one philanthropic organization located in, or that 
provides funding in, the State, or private corporation located in, or 
that does business in, the State;
    (3) Meet the requirements in Sec.  692.100; and
    (4) Have a program under this subpart that satisfies the 
requirements in Sec.  692.21(a), (e), (f), (g), and (j).
    (b) A State may provide an early information and intervention, 
mentoring, or outreach program under paragraph (a)(2)(ii) of this 
section.

(Authority: 20 U.S.C. 1070c-3a)

              How Does a State Apply to Participate in GAP?



Sec.  692.100  What requirements must a State meet to receive an
allotment under this program?

    For a State to receive an allotment under the GAP Program, the State 
agency that administers the State's LEAP Program under subpart A of this 
part must--
    (a) Submit an application on behalf of a partnership in accordance 
with the provisions in Sec.  692.20 at such time, in such manner, and 
containing such information as the Secretary may require including--
    (1) A description of--
    (i) The State's plan for using the Federal funds allotted under this 
subpart and the non-Federal matching funds; and
    (ii) The methods by which matching funds will be paid;
    (2) An assurance that the State will provide matching funds in 
accordance with Sec.  692.113;
    (3) An assurance that the State will use Federal GAP funds to 
supplement, and not supplant, Federal and State funds available for 
carrying out the activities under Title IV of the HEA;
    (4) An assurance that early information and intervention, mentoring, 
or outreach programs exist within the State or that there is a plan to 
make these programs widely available;
    (5) A description of the organizational structure that the State has 
in place to administer the program, including a description of how the 
State will compile information on degree completion of students 
receiving grants under this subpart;
    (6) A description of the steps the State will take to ensure, to the 
extent practicable, that students who receive a LEAP Grant under GAP 
persist to degree completion;
    (7) An assurance that the State has a method in place, such as 
acceptance of the automatic zero expected family contribution under 
section 479(c) of the HEA, to identify eligible students and award LEAP 
Grants under GAP to such students;
    (8) An assurance that the State will provide notification to 
eligible students that grants under this subpart are LEAP Grants and are 
funded by the Federal Government and the State, and, where applicable, 
other contributing partners.
    (b) Serve as the primary administrative unit for the partnership;
    (c) Provide or coordinate non-Federal share funds, and coordinate 
activities among partners;
    (d) Encourage each institution of higher education in the State that 
participates in the State's LEAP Program under subpart A of this part to 
participate in the partnership;
    (e) Make determinations and early notifications of assistance;

[[Page 401]]

    (f) Ensure that the non-Federal funds used as matching funds 
represent dollars that are in excess of the total dollars that a State 
spent for need-based grants, scholarships, and work-study assistance for 
fiscal year 1999, including the State funds reported for the programs 
under this part;
    (g) Provide an assurance that, for the fiscal year prior to the 
fiscal year for which the State is requesting Federal funds, the amount 
the State expended from non-Federal sources per student, or the 
aggregate amount the State expended, for all the authorized activities 
in Sec.  692.111 will be no less than the amount the State expended from 
non-Federal sources per student, or in the aggregate, for those 
activities for the second fiscal year prior to the fiscal year for which 
the State is requesting Federal funds; and
    (h) Provide for reports to the Secretary that are necessary to carry 
out the Secretary's functions under the GAP Program.

(Approved by the Office of Management and Budget under control number 
1845-NEW7)

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.101  What requirements must be met by a State partnership?

    (a) State. A State that is receiving an allotment under this subpart 
must meet the requirements under Sec. Sec.  692.94 and 692.100.
    (b) Degree-granting institution of higher education. A degree-
granting institution of higher education that is in a partnership under 
this subpart--
    (1) Must participate in the State's LEAP Program under subpart A of 
this part;
    (2) Must recruit and admit participating eligible students and 
provide additional institutional grant aid to participating students as 
agreed to with the State agency;
    (3) Must provide support services to students who receive LEAP 
Grants under GAP and are enrolled at the institution;
    (4) Must assist the State in the identification of eligible students 
and the dissemination of early notifications of assistance as agreed to 
with the State agency; and
    (5) May provide funding or services for early information and 
intervention, mentoring, or outreach programs.
    (c) Early information and intervention, mentoring, or outreach 
program. An early information and intervention, mentoring, or outreach 
program that is in a partnership under this subpart shall provide direct 
services, support, and information to participating students.
    (d) Philanthropic organization or private corporation. A 
philanthropic organization or private corporation in a partnership under 
this subpart shall provide non-Federal funds for LEAP Grants under GAP 
for participating students or provide funds or support for early 
information and intervention, mentoring, or outreach programs.

(Approved by the Office of Management and Budget under control number 
1845-NEW7)

(Authority: 20 U.S.C. 1070c-3a)

        What Is the Amount of Assistance and How May It Be Used?



Sec.  692.110  How does the Secretary allot funds to the States?

    (a)(1) The Secretary allots to each State participating in the GAP 
Program an amount of the funds available for the GAP Program based on 
the ratio used to allot the State's Federal LEAP funds under Sec.  
692.10(a).
    (2) If a State meets the requirements of Sec.  692.113(b) for a 
fiscal year, the number of students under Sec.  692.10(a) for the State 
is increased to 125 percent in determining the ratio in paragraph (a) of 
this section for that fiscal year.
    (3) Notwithstanding paragraph (a)(1) and (2) of this section--
    (i) If the Federal GAP funds available from the appropriation for a 
fiscal year are sufficient to allot to each State that participated in 
the prior year the same amount of Federal GAP funds allotted in the 
prior fiscal year, but are not sufficient both to allot the same amount 
of Federal GAP funds allotted in the prior fiscal year to these States 
and also to allot additional funds to additional States in accordance 
with the ratio used to allot the States' Federal LEAP funds under Sec.  
692.10(a), the Secretary allots--
    (A) To each State that participated in the prior year, the amount 
the State received in the prior year; and

[[Page 402]]

    (B) To each State that did not participate in the prior year, an 
amount of Federal GAP funds available to States based on the ratio used 
to allot the State's Federal LEAP funds under Sec.  692.10(a); and
    (ii) If the Federal GAP funds available from the appropriation for a 
fiscal year are not sufficient to allot to each State that participated 
in the prior year at least the amount of Federal GAP funds allotted in 
the prior fiscal year, the Secretary allots to each State an amount 
which bears the same ratio to the amount of Federal GAP funds available 
as the amount of Federal GAP funds allotted to each State in the prior 
fiscal year bears to the amount of Federal GAP funds allotted to all 
States in the prior fiscal year.
    (4) For fiscal year 2011, the prior fiscal year allotment to a State 
for purposes of paragraph (a)(3) of this section shall include any 
fiscal year 2010 allotment made to that State under subpart B of this 
part.
    (b) The Secretary allots funds available for reallotment in a fiscal 
year in accordance with the provisions of paragraph (a) of this section 
used to calculate initial allotments for the fiscal year.
    (c) Any funds made available for the program under this subpart but 
not expended may be allotted or reallotted for the program under subpart 
A of this part.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.111  For what purposes may a State use its payment under
the GAP Program?

    (a) Establishment of a partnership. Each State receiving an 
allotment under this subpart shall use the funds to establish a 
partnership to award grants to eligible students in order to increase 
the amount of financial assistance students receive under this subpart 
for undergraduate education expenses.
    (b) Amount of LEAP Grants under GAP. (1) The amount of a LEAP Grant 
under GAP by a State to an eligible student shall be not less than--
    (i) The average undergraduate in-State tuition and mandatory fees 
for full-time students at the public institutions of higher education in 
the State where the student resides that are the same type of 
institution that the student attends (four-year degree-granting, two-
year degree-granting, or non-degree-granting); minus
    (ii) Other Federal and State aid the student receives.
    (2) The Secretary determines the average undergraduate in-State 
tuition and mandatory fees for full-time students at public institutions 
in a State weighted by enrollment using the most recent data reported by 
institutions in the State to the Integrated Postsecondary Education Data 
System (IPEDS) administered by the National Center for Educational 
Statistics.
    (c) Institutional participation. (1) A State receiving an allotment 
under this subpart may restrict the use of LEAP Grants under GAP only to 
students attending institutions of higher education that are 
participating in the partnership.
    (2) If a State provides LEAP Grants under subpart A of this part to 
students attending institutions of higher education located in another 
State, LEAP Grants under GAP may be used at institutions of higher 
education located in another State.
    (d) Early notification to potentially eligible students. (1) Each 
State receiving an allotment under this subpart shall annually notify 
potentially eligible students in grades 7 through 12 in the State, and 
their families, of their potential eligibility for student financial 
assistance, including a LEAP Grant under GAP, to attend a LEAP-
participating institution of higher education.
    (2) The notice shall include--
    (i) Information about early information and intervention, mentoring, 
or outreach programs available to the student;
    (ii) Information that a student's eligibility for a LEAP Grant under 
GAP is enhanced through participation in an early information and 
intervention, mentoring, or outreach program;
    (iii) An explanation that student and family eligibility for, and 
participation in, other Federal means-tested programs may indicate 
eligibility for a LEAP Grant under GAP and other student aid programs;
    (iv) A nonbinding estimate of the total amount of financial aid that 
an

[[Page 403]]

eligible student with a similar income level may expect to receive, 
including an estimate of the amount of a LEAP Grant under GAP and an 
estimate of the amount of grants, loans, and all other available types 
of aid from the major Federal and State financial aid programs;
    (v) An explanation that in order to be eligible for a LEAP Grant 
under GAP, at a minimum, a student shall--
    (A) Meet the eligibility requirements under Sec.  692.120; and
    (B) Enroll at a LEAP-participating institution of higher education 
in the State of the student's residence or an out-of-state institution 
if the State elects to make LEAP Grants under GAP for attendance at out-
of-State institutions in accordance with paragraph (c)(2) of this 
section;
    (vi) Any additional requirements that the State may require for 
receipt of a LEAP Grant under GAP in accordance with Sec.  
692.120(a)(4); and
    (vii) An explanation that a student is required to file a Free 
Application for Federal Student Aid to determine his or her eligibility 
for Federal and State financial assistance and may include a provision 
that eligibility for an award is subject to change based on--
    (A) A determination of the student's financial eligibility at the 
time of the student's enrollment at a LEAP-participating institution of 
higher education or an out-of-State institution in accordance with 
paragraph (c)(2) of this section;
    (B) Annual Federal and State spending for higher education; and
    (C) Other aid received by the student at the time of the student's 
enrollment at the institution of higher education.
    (e) Award notification. (1) Once a student, including a student who 
has received early notification under paragraph (d) of this section, 
applies for admission to an institution that is a partner in the 
partnership of the State of the student's residence, files a Free 
Application for Federal Student Aid and any related State form, and is 
determined eligible by the State, the State shall--
    (i) Issue the student a preliminary award certificate for a LEAP 
Grant under GAP with estimated award amounts; and
    (ii) Inform the student that the payment of the grant is subject to 
certification of enrollment and eligibility by the institution.
    (2) If a student enrolls in an institution that is not a partner in 
the partnership of the student's State of residence but the State has 
not restricted eligibility to students enrolling in partner 
institutions, including, if applicable, out-of-State institutions, the 
State shall, to the extent practicable, follow the procedures of 
paragraph (e)(1) of this section.


(Approved by the Office of Management and Budget under control number 
1845-NEW7)

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.112  May a State use the funds it receives from the GAP Program
to pay administrative costs?

    (a) A State that receives an allotment under this subpart may 
reserve not more than two percent of the funds made available annually 
for State administrative functions required for administering the 
partnership and other program activities.
    (b) A State must use not less than ninety-eight (98) percent of an 
allotment under this subpart to make LEAP Grants under GAP.

(Authority: 20 U.S.C. 1070c-3a)



Sec.  692.113  What are the matching requirements for the GAP Program?

    (a) The matching funds of a partnership--
    (1) Shall be funds used for making LEAP Grants to eligible students 
under this subpart;
    (2) May be--
    (i) Cash; or
    (ii) A noncash, in-kind contribution that--
    (A) Is fairly evaluated;
    (B) Has monetary value, such as a tuition waiver or provision of 
room and board, or transportation;
    (C) Helps a student meet the cost of attendance at an institution of 
higher education; and
    (D) Is considered to be estimated financial assistance under 34 CFR 
673.5(c); and

[[Page 404]]

    (3) May be funds from the State, institutions of higher education, 
or philanthropic organizations or private corporations that are used to 
make LEAP Grants under GAP.
    (b) The non-Federal match of the Federal allotment shall be--
    (1) Forty-three percent of the expenditures under this subpart if a 
State applies for a GAP allotment in partnership with--
    (i) Any number of degree-granting institutions of higher education 
in the State whose combined full-time enrollment represents less than a 
majority of all students attending institutions of higher education in 
the State as determined by the Secretary using the most recently 
available data from IPEDS; and
    (ii) One or both of the following--
    (A) Philanthropic organizations that are located in, or that provide 
funding in, the State; or
    (B) Private corporations that are located in, or that do business 
in, the State; and
    (2) Thirty-three and thirty-four one-hundredths percent of the 
expenditures under this subpart if a State applies for a GAP allotment 
in partnership with--
    (i) Any number of degree-granting institutions of higher education 
in the State whose combined full-time enrollment represents a majority 
of all students attending institutions of higher education in the State 
as determined by the Secretary using the most recently available data 
from IPEDS; and
    (ii) One or both of the following--
    (A) Philanthropic organizations that are located in, or that provide 
funding in, the State; or
    (B) Private corporations that are located in, or that do business 
in, the State.
    (c) Nothing in this part shall be interpreted as limiting a State or 
other member of a partnership from expending funds to support the 
activities of a partnership under this subpart that are in addition to 
the funds matching the Federal allotment.


(Authority: 20 U.S.C. 1070c-3a)

     How Does the Partnership Select Students Under the GAP Program?



Sec.  692.120  What are the requirements for student eligibility?

    (a) Eligibility. A student is eligible to receive a LEAP Grant under 
GAP if the student--
    (1) Meets the relevant eligibility requirements contained in 34 CFR 
668.32;
    (2) Has graduated from secondary school or, for a home-schooled 
student, has completed a secondary education;
    (3)(i) Has received, or is receiving, a LEAP Grant under GAP for 
each year the student remains eligible for assistance under this 
subpart; or
    (ii) Meets at least two of the following criteria--
    (A) As designated by the State, either has an EFC equal to zero, as 
determined under part F of the HEA, or a comparable alternative based on 
the State's approved criteria for the LEAP Program under subpart A of 
this part;
    (B) Qualifies for the State's maximum undergraduate award for LEAP 
Grants under subpart A of this part in the award year in which the 
student is receiving an additional LEAP Grant under GAP; or
    (C) Is participating in, or has participated in, a Federal, State, 
institutional, or community early information and intervention, 
mentoring, or outreach program, as determined by the State agency 
administering the programs under this part; and
    (4) Any additional requirements that the State may require for 
receipt of a LEAP Grant under GAP.
    (b) Priority. In awarding LEAP Grants under GAP, a State shall give 
priority to students meeting all the criteria in paragraph (a)(3)(i) of 
this section.
    (c) Duration of eligibility. (1) A student may receive a LEAP Grant 
under GAP if the student continues to demonstrate that he or she is 
financially eligible by meeting the provisions of paragraph 
(a)(3)(ii)(A) or (B) of this section.
    (2) A State may impose reasonable time limits to degree completion.

(Authority: 20 U.S.C. 1070c-3a)

[[Page 405]]

    How Does the Secretary Approve a Waiver of Program Requirements?



Sec.  692.130  How does a participating institution request a waiver 
of program requirements?

    (a) The Secretary may grant, upon the request of an institution 
participating in a partnership that meets the requirements of Sec.  
692.113(b)(2), a waiver for the institution from statutory or regulatory 
requirements that inhibit the ability of the institution to successfully 
and efficiently participate in the activities of the partnership.
    (b) An institution must submit a request for a waiver through the 
State agency administering the partnership.
    (c) The State agency must forward to the Secretary, in a timely 
manner, the request made by the institution and may include any 
additional information or recommendations that it deems appropriate for 
the Secretary's consideration.

(Authority: 20 U.S.C. 1070c-3a)

[[Page 406]]



    Sec. Appendix A to Subpart C of Part 692--Grants for Access and 
       Persistence Program (GAP) State Grant Allotment Case Study
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[[Page 419]]





PART 694_GAINING EARLY AWARENESS AND READINESS FOR UNDERGRADUATE
PROGRAMS (GEAR UP)--Table of Contents



Sec.
694.1 What is the maximum amount that the Secretary may award each 
          fiscal year to a Partnership or a State under this program?
694.2 Which students must a Partnership, or a State that chooses to use 
          the cohort approach in its project, serve under the program's 
          early intervention component?
694.3 What are the requirements for a cohort?
694.4 Which students must a State or Partnership serve when there are 
          changes in the cohort?
694.5 What requirements must be met by a Partnership or State that 
          chooses to provide services to private school students under 
          the program's early intervention component?
694.6 Who may provide GEAR UP services to students attending private 
          schools?
694.7 What are the matching requirements for a GEAR UP grant?
694.8 Under what conditions may the Secretary approve a request from a 
          Partnership applying for a GEAR UP grant to waive a portion of 
          the matching requirement?
694.9 Under what conditions may the Secretary approve a request from a 
          Partnership that has received a GEAR UP grant to waive a 
          portion of the matching requirement?
694.10 What are the requirements that a Partnership must meet in 
          designating a fiscal agent for its project under this program?
694.11 What is the maximum indirect cost rate for an agency of a State 
          or local government?
694.12 Under what conditions do State and Partnership GEAR UP grantees 
          make section 404E scholarship awards?
694.13 What are the requirements concerning section 404E scholarship 
          awards for grantees whose initial GEAR UP grant awards were 
          made prior to August 14, 2008?
694.14 What are the requirements concerning section 404E scholarship 
          awards for grantees whose initial GEAR UP grant awards were 
          made on or after August 14, 2008?
694.15 May a Partnership that does not award scholarships under section 
          404E of the HEA provide, as part of a GEAR UP project, 
          financial assistance for postsecondary education using non-
          Federal funds?
694.16 What are the requirements for redistribution or return of 
          scholarship funds not awarded to a project's eligible 
          students?
694.17 How does a State determine which State agency will apply for, and 
          administer, a State grant under this program?
694.18 What requirements must be met by a Partnership or State 
          participating in GEAR UP with respect to 21st Century 
          Scholarship Certificates?
694.19 What priorities does the Secretary establish for a GEAR UP grant?
694.20 When may a GEAR UP grantee provide services to students attending 
          an institution of higher education?
694.21 What are required activities for GEAR UP projects?
694.22 What other activities may all GEAR UP projects provide?
694.23 What additional activities are allowable for State GEAR UP 
          projects?
694.24 What services may a GEAR UP project provide to students in their 
          first year at an institution of higher education?
694.25 Are GEAR UP grantees required to provide services to students who 
          were served under a previous GEAR UP grant?

    Authority: 20 U.S.C. 1070a-21 to 1070a-28.

    Source: 65 FR 24760, Apr. 27, 2000, unless otherwise noted.



Sec.  694.1  What is the maximum amount that the Secretary may award
each fiscal year to a Partnership or a State under this program?

    (a) Partnership grants. The Secretary may establish the maximum 
amount that may be awarded each fiscal year for a GEAR UP Partnership 
grant in a notice published in the Federal Register. The maximum amount 
for which a Partnership may apply may not exceed the lesser of the 
maximum amount established by the Secretary, if applicable, or the 
amount calculated by multiplying--
    (1) $800; by
    (2) The number of students the Partnership proposes to serve that 
year, as stated in the Partnership's plan.
    (b) State grants. The Secretary establishes the maximum amount that 
may be awarded each fiscal year for a GEAR UP State grant in a notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1070a-23)

[65 FR 24760, Apr. 27, 2000, as amended at 75 FR 65798, Oct. 26, 2010]

[[Page 420]]



Sec.  694.2  Which students must a Partnership, or a State that chooses
to use the cohort approach in its project, serve under the program's early
intervention component?

    A Partnership, or a State that chooses to use a cohort approach in 
its GEAR UP early intervention component, must, except as provided in 
Sec.  694.4--
    (a) Provide services to at least one entire grade level (cohort) of 
students (subject to Sec.  694.3(b)) beginning not later than the 7th 
grade;
    (b) Ensure that supplemental appropriate services are targeted to 
the students with the greatest needs; and
    (c) Ensure that services are provided through the 12th grade to 
those students.

(Authority: 20 U.S.C. 1070a-22)



Sec.  694.3  What are the requirements for a cohort?

    (a) In general. Each cohort to be served by a Partnership or State 
must be from a participating school--
    (1) That has a 7th grade; and
    (2) In which at least 50 percent of the students are eligible for 
free or reduced-price lunch under the National School Lunch Act; or
    (b) Public housing exception. If the Partnership or State determines 
it would promote program effectiveness, a cohort may consist of all of 
the students in a particular grade level at one or more participating 
schools who reside in public housing, as defined in section 3(b)(1) of 
the United States Housing Act of 1937.

(Authority: 20 U.S.C. 1070a-22)



Sec.  694.4  Which students must a State or Partnership serve when there
are changes in the cohort?

    (a) At the school where the cohort began. A Partnership or State 
must serve, as part of the cohort, any additional students who--
    (1) Are at the grade level of the students in the cohort; and
    (2) Begin attending the participating school at which the cohort 
began to receive GEAR UP services.
    (b) At a subsequent participating school. If not all of the students 
in the cohort attend the same school after the cohort completes the last 
grade level offered by the school at which the cohort began to receive 
GEAR UP services, a Partnership or a State--
    (1) May continue to provide GEAR UP services to all students in the 
cohort; and
    (2) Must continue to provide GEAR UP services to at least those 
students in the cohort who attend one or more participating schools that 
together enroll a substantial majority of the students in the cohort.

(Authority: 20 U.S.C. 1070-a22)

[65 FR 24760, Apr. 27, 2000, as amended at 75 FR 65798, Oct. 26, 2010]



Sec.  694.5  What requirements must be met by a Partnership or State that
chooses to provide services to private school students under the program's
early intervention component?

    (a) Secular, neutral, and nonideological services or benefits. 
Educational services or other benefits, including materials and 
equipment, provided under GEAR UP by a Partnership or State that chooses 
to provide those services or benefits to students attending private 
schools, must be secular, neutral, and nonideological.
    (b) Control of funds. In the case of a Partnership or State that 
chooses to provide services under GEAR UP to students attending private 
schools, the fiscal agent (in the case of a Partnership) or a State 
agency (in the case of a State) must--
    (1) Control the funds used to provide services under GEAR UP to 
those students;
    (2) Hold title to materials, equipment, and property purchased with 
GEAR UP funds for GEAR UP program uses and purposes related to those 
students; and
    (3) Administer those GEAR UP funds and property.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)



Sec.  694.6  Who may provide GEAR UP services to students attending 
private schools?

    (a) GEAR UP services to students attending private schools must be 
provided--
    (1) By employees of a public agency; or

[[Page 421]]

    (2) Through contract by the public agency with an individual, 
association, agency, or organization.
    (b) When providing GEAR UP services to students attending private 
schools, the employee, individual, association, agency, or organization 
must be employed or contracted independently of the private school that 
the students attend, and of any other organization affiliated with the 
school, and that employment or contract must be under the control and 
supervision of the public agency.

(Authority: 1070a-21 to 1070a-28)

[65 FR 24760, Apr. 27, 2000, as amended at 85 FR 49828, Aug. 14, 2020]



Sec.  694.7  What are the matching requirements for a GEAR UP grant?

    (a) In order to be eligible for GEAR UP funding--
    (1) An applicant must state in its application the percentage of the 
cost of the GEAR UP project the applicant will provide for each year 
from non-Federal funds, subject to the requirements in paragraph (b) of 
this section; and
    (2) A grantee must make substantial progress towards meeting the 
matching percentage stated in its approved application for each year of 
the project period.
    (b) Except as provided in Sec. Sec.  694.8 and 694.9, the non-
Federal share of the cost of the GEAR UP project must be not less than 
50 percent of the total cost of the project (i.e., one dollar of non-
Federal contributions for every one dollar of Federal funds obligated 
for the project) over the project period.
    (c) The non-Federal share of the cost of a GEAR UP project may be 
provided in cash or in-kind.

(Authority: 20 U.S.C. 1070a-23)

[75 FR 65798, Oct. 26, 2010]



Sec.  694.8  Under what conditions may the Secretary approve a request
from a Partnership applying for a GEAR UP grant to waive a portion of
the matching requirement?

    (a) The Secretary may approve a Partnership applicant's request for 
a waiver of up to 75 percent of the matching requirement for up to two 
years if the applicant demonstrates in its application a significant 
economic hardship that stems from a specific, exceptional, or 
uncontrollable event, such as a natural disaster, that has a devastating 
effect on the members of the Partnership and the community in which the 
project would operate.
    (b)(1) The Secretary may approve a Partnership applicant's request 
to waive up to 50 percent of the matching requirement for up to two 
years if the applicant demonstrates in its application a pre-existing 
and an on-going significant economic hardship that precludes the 
applicant from meeting its matching requirement.
    (2) In determining whether an applicant is experiencing an on-going 
economic hardship that is significant enough to justify a waiver under 
this paragraph, the Secretary considers documentation of such factors 
as:
    (i) Severe distress in the local economy of the community to be 
served by the grant (e.g., there are few employers in the local area, 
large employers have left the local area, or significant reductions in 
employment in the local area).
    (ii) Local unemployment rates that are higher than the national 
average.
    (iii) Low or decreasing revenues for State and County governments in 
the area to be served by the grant.
    (iv) Significant reductions in the budgets of institutions of higher 
education that are participating in the grant.
    (v) Other data that reflect a significant economic hardship for the 
geographical area served by the applicant.
    (3) At the time of application, the Secretary may provide tentative 
approval of an applicant's request for a waiver under paragraph (b)(1) 
of this section for all remaining years of the project period. Grantees 
that receive tentative approval of a waiver for more than two years 
under this paragraph must submit to the Secretary every two years by 
such time as the Secretary may direct documentation that demonstrates 
that--
    (i) The significant economic hardship upon which the waiver was 
granted still exists; and
    (ii) The grantee tried diligently, but unsuccessfully, to obtain 
contributions needed to meet the matching requirement.

[[Page 422]]

    (c) The Secretary may approve a Partnership applicant's request in 
its application to match its contributions to its scholarship fund, 
established under section 404E of the HEA, on the basis of two non-
Federal dollars for every one Federal dollar of GEAR UP funds.
    (d) The Secretary may approve a request by a Partnership applicant 
that has three or fewer institutions of higher education as members to 
waive up to 70 percent of the matching requirement if the Partnership 
applicant includes--
    (1) A fiscal agent that is eligible to receive funds under title V, 
or Part B of title III, or section 316 or 317 of the HEA, or a local 
educational agency;
    (2) Only participating schools with a 7th grade cohort in which at 
least 75 percent of the students are eligible for free or reduced-price 
lunch under the Richard B. Russell National School Lunch Act; and
    (3) Only local educational agencies in which at least 50 percent of 
the students enrolled are eligible for free or reduced-price lunch under 
the Richard B. Russell National School Lunch Act.

(Authority: 20 U.S.C. 1070a-23)

[75 FR 65798, Oct. 26, 2010]



Sec.  694.9  Under what conditions may the Secretary approve a request
from a Partnership that has received a GEAR UP grant to waive a portion 
of the matching requirement?

    (a) After a grant is awarded, the Secretary may approve a 
Partnership grantee's written request for a waiver of up to--
    (1) 50 percent of the matching requirement for up to two years if 
the grantee demonstrates that--
    (i) The matching contributions described for those two years in the 
grantee's approved application are no longer available; and
    (ii) The grantee has exhausted all funds and sources of potential 
contributions for replacing the matching funds.
    (2) 75 percent of the matching requirement for up to two years if 
the grantee demonstrates that matching contributions from the original 
application are no longer available due to an uncontrollable event, such 
as a natural disaster, that has a devastating economic effect on members 
of the Partnership and the community in which the project would operate.
    (b) In determining whether the grantee has exhausted all funds and 
sources of potential contributions for replacing matching funds, the 
Secretary considers the grantee's documentation of key factors such as 
the following and their direct impact on the grantee:
    (1) A reduction of revenues from State government, County 
government, or the local educational agency (LEA).
    (2) An increase in local unemployment rates.
    (3) Significant reductions in the operating budgets of institutions 
of higher education that are participating in the grant.
    (4) A reduction of business activity in the local area (e.g., large 
employers have left the local area).
    (5) Other data that reflect a significant decrease in resources 
available to the grantee in the local geographical area served by the 
grantee.
    (c) If a grantee has received one or more waivers under this section 
or under Sec.  694.8, the grantee may request an additional waiver of 
the matching requirement under this section no earlier than 60 days 
before the expiration of the grantee's existing waiver.
    (d) The Secretary may grant an additional waiver request for up to 
50 percent of the matching requirement for a period of up to two years 
beyond the expiration of any previous waiver.

(Authority: 20 U.S.C. 1070a-23)

[75 FR 65799, Oct. 26, 2010]



Sec.  694.10  What are the requirements that a Partnership must meet 
in designating a fiscal agent for its project under this program?

    Although any member of a Partnership may organize the project, a 
Partnership must designate as the fiscal agent for its project under 
GEAR UP--
    (a) A local educational agency; or
    (b) An institution of higher education.

(Authority: 20 U.S.C. 1070a-22)

[65 FR 24760, Apr. 27, 2000. Redesignated at 75 FR 65798, Oct. 26, 2010; 
85 FR 49828, Aug. 14, 2020]

[[Page 423]]



Sec.  694.11  What is the maximum indirect cost rate for an agency of
a State or local government?

    Notwithstanding 34 CFR 75.560-75.562 and 2 CFR part 200, subpart E--
Cost Principles, the maximum indirect cost rate that an agency of a 
State or local government receiving funds under GEAR UP may use to 
charge indirect costs to these funds is the lesser of--
    (a) The rate established by the negotiated indirect cost agreement; 
or
    (b) Eight percent of a modified total direct cost base.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)

[65 FR 24760, Apr. 27, 2000. Redesignated at 75 FR 65798, Oct. 26, 2010, 
as amended at 79 FR 76105, Dec. 19, 2014]



Sec.  694.12  Under what conditions do State and Partnership GEAR UP 
grantees make section 404E scholarship awards?

    (a)(1) State Grantees. All State grantees must establish or maintain 
a financial assistance program that awards section 404E scholarships to 
students in accordance with the requirements of Sec.  694.13 or Sec.  
694.14, as applicable.
    (2) Partnership Grantees. Partnerships may, but are not required, to 
award scholarships to eligible students. If a Partnership awards 
scholarships to eligible students pursuant to section 404E of the HEA, 
it must comply with the requirements of Sec.  694.13 or Sec.  694.14, as 
applicable.
    (b)(1) Section 404E scholarship awards for grantees whose initial 
GEAR UP grant awards were made prior to August 14, 2008. A State or 
Partnership grantee making section 404E scholarship awards using funds 
from GEAR UP grant awards that were made prior to August 14, 2008, must 
provide such scholarship awards in accordance with the requirements of 
Sec.  694.13 unless it elects to provide the scholarships in accordance 
with the requirements of Sec.  694.14 pursuant to paragraph (b)(2) of 
this section.
    (2) Election to use Sec.  694.14 requirements. A State or 
Partnership grantee making section 404E scholarship awards using funds 
from GEAR UP grant awards that were made prior to August 14, 2008, may 
provide such scholarship awards in accordance with the requirements of 
Sec.  694.14 (rather than the requirements of Sec.  694.13) provided 
that the grantee--
    (i) Informs the Secretary, in writing, of its election to make the 
section 404E scholarship awards in accordance with the requirements of 
Sec.  694.14; and
    (ii) Such election does not decrease the amount of the scholarship 
promised to any individual student under the grant.
    (c) Section 404E scholarship awards for grantees whose initial GEAR 
UP grant awards were made on or after August 14, 2008. A State or 
Partnership grantee making section 404E scholarship awards using funds 
from GEAR UP grant awards that were made on or after August 14, 2008, 
must provide such scholarship awards in accordance with the requirements 
of Sec.  694.14.

(Authority: 20 U.S.C. 1070a-25)

[75 FR 65799, Oct. 26, 2010]



Sec.  694.13  What are the requirements concerning section 404E scholarship
awards for grantees whose initial GEAR UP grant awards were made prior 
to August 14, 2008?

    The following requirements apply to section 404E scholarship awards 
for grantees whose initial GEAR UP grant awards were made prior to 
August 14, 2008 unless the grantee elects to provide such scholarship 
awards in accordance with the requirements of Sec.  694.14 pursuant to 
Sec.  694.12(b)(2).
    (a)(1) The maximum scholarship amount that an eligible student may 
receive under this section must be established by the grantee.
    (2) The minimum scholarship amount that an eligible student receives 
in a fiscal year pursuant to this section must not be less than the 
lesser of--
    (i) 75 percent of the average cost of attendance for an in-State 
student, in a four-year program of instruction, at public institutions 
of higher education in the student's State; or
    (ii) The maximum Federal Pell Grant award funded under section 401 
of the HEA for the award year in which the scholarship is awarded.
    (3) If an eligible student who is awarded a GEAR UP scholarship 
attends an institution of higher education on a less than full-time 
basis during any award year, the State or Partnership awarding the GEAR 
UP

[[Page 424]]

scholarship may reduce the scholarship amount, but in no case may the 
percentage reduction in the scholarship be greater than the percentage 
reduction in tuition and fees charged to that student.
    (b) Scholarships provided under this section may not be considered 
for the purpose of awarding Federal grant assistance under title IV of 
the HEA, except that in no case may the total amount of student 
financial assistance awarded to a student under title IV of the HEA 
exceed the student's total cost of attendance.
    (c) Grantees providing section 404E scholarship awards in accordance 
with this section--
    (1) Must award GEAR UP scholarships first to students who will 
receive, or are eligible to receive, a Federal Pell Grant during the 
award year in which the GEAR UP scholarship is being awarded; and
    (2) May, if GEAR UP scholarship funds remain after awarding 
scholarships to students under paragraph (c)(1) of this section, award 
GEAR UP scholarships to other eligible students (i.e., students who are 
not eligible to receive a Federal Pell Grant) after considering the need 
of those students for GEAR UP scholarships.
    (d) For purposes of this section, an eligible student is a student 
who--
    (1) Is less than 22 years old at the time of award of the student's 
first GEAR UP scholarship;
    (2) Has received a secondary school diploma or its recognized 
equivalent on or after January 1, 1993;
    (3) Is enrolled or accepted for enrollment in a program of 
undergraduate instruction at an institution of higher education that is 
located within the State's boundaries, except that, at the grantee's 
option, a State or Partnership may offer scholarships to students who 
attend institutions of higher education outside the State; and
    (4) Has participated in activities under Sec.  694.21 or Sec.  
694.22.
    (e) A State using a priority approach may award scholarships under 
paragraph (a) of this section to eligible students identified by 
priority at any time during the grant award period rather than reserving 
scholarship funds for use only in the seventh year of a project or after 
the grant award period.
    (f) A State or a Partnership that makes scholarship awards from GEAR 
UP funds in accordance with this section must award continuation 
scholarships in successive award years to each student who received an 
initial scholarship and who is enrolled or accepted for enrollment in a 
program of undergraduate instruction at an institution of higher 
education.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)

[75 FR 65799, Oct. 26, 2010]



Sec.  694.14  What are the requirements concerning section 404E 
scholarship awards for grantees whose initial GEAR UP grant awards were 
made on or after August 14, 2008?

    The following requirements apply to section 404E scholarship awards 
provided by grantees whose initial GEAR UP grant awards were made on or 
after August 14, 2008 and any section 404E scholarship awards for 
grantees whose initial GEAR UP grant awards were issued prior to August 
14, 2008, but who, pursuant to Sec.  694.12(b)(2), elected to use the 
Sec.  694.14 requirements (rather than the Sec.  694.13 requirements).
    (a)(1) The maximum scholarship amount that an eligible student may 
receive under section 404E of the HEA must be established by the 
grantee.
    (2) The minimum scholarship amount that an eligible student receives 
in a fiscal year must not be less than the minimum Federal Pell Grant 
award under section 401 of the HEA at the time of award.
    (3) If an eligible student who is awarded a GEAR UP scholarship 
attends an institution of higher education on a less than full-time 
basis during any award year, the State or Partnership awarding the GEAR 
UP scholarship may reduce the scholarship amount, but in no case may the 
percentage reduction in the scholarship be greater than the percentage 
reduction in tuition and fees charged to that student.
    (b) For purposes of this section, an eligible student is a student 
who--
    (1) Is less than 22 years old at the time of award of the first GEAR 
UP scholarship;

[[Page 425]]

    (2) Has received a secondary school diploma or its recognized 
equivalent on or after January 1, 1993;
    (3) Is enrolled or accepted for enrollment in a program of 
undergraduate instruction at an institution of higher education that is 
located within the State's boundaries, except that, at the grantee's 
option, a State or Partnership may offer scholarships to students who 
attend institutions of higher education outside the State; and
    (4) Has participated in the activities required under Sec.  694.21.
    (c)(1) By the time students who have received services from a State 
grant have completed the twelfth grade, a State that has not received a 
waiver under section 404E(b)(2) of the HEA of the requirement to spend 
at least 50 percent of its GEAR UP funds on scholarships must have in 
reserve an amount that is not less than the minimum Federal Pell Grant 
multiplied by the number of students the State estimates will enroll in 
an institution of higher education.
    (2) Consistent with paragraph (a) of this section and Sec.  
694.16(a), States must use funds held in reserve to make scholarships to 
eligible students.
    (3) Scholarships must be made to all students who are eligible under 
the definition in paragraph (b) of this section. A grantee may not 
impose additional eligibility criteria that would have the effect of 
limiting or denying a scholarship to an eligible student.
    (d) A State using a priority approach may award scholarships under 
paragraph (a) of this section to eligible students identified by 
priority at any time during the grant award period rather than reserving 
scholarship funds for use only in the seventh year of a project or after 
the grant award period.
    (e) States providing scholarships must provide information on the 
eligibility requirements for the scholarships to all participating 
students upon the students' entry into the GEAR UP program.
    (f) A State must provide scholarship funds as described in this 
section to all eligible students who attend an institution of higher 
education in the State, and may provide these scholarship funds to 
eligible students who attend institutions of higher education outside 
the State.
    (g) A State or a Partnership that chooses to participate in the 
scholarship component in accordance with section 404E of the HEA may 
award continuation scholarships in successive award years to each 
student who received an initial scholarship and who is enrolled or 
accepted for enrollment in a program of undergraduate instruction at an 
institution of higher education.
    (h) A GEAR UP scholarship, provided under section 404E of the HEA, 
may not be considered in the determination of a student's eligibility 
for other grant assistance provided under title IV of the HEA, except 
that in no case may the total amount of student financial assistance 
awarded to a student under title IV of the HEA exceed the student's 
total cost of attendance.

(Authority: 20 U.S.C. 1070a-25)

[75 FR 65800, Oct. 26, 2010]



Sec.  694.15  May a Partnership that does not award scholarships under
section 404E of the HEA provide, as part of a GEAR UP project, 
financial assistance for postsecondary education using non-Federal funds?

    A GEAR UP Partnership that does not participate in the GEAR UP 
scholarship component may provide financial assistance for postsecondary 
education with non-Federal funds, and those funds may be used to satisfy 
the matching requirement.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)

[75 FR 65800, Oct. 26, 2010]



Sec.  694.16  What are the requirements for redistribution or return of
scholarship funds not awarded to a project's eligible students?

    The following requirements apply only to section 404E scholarship 
awards for grantees whose initial GEAR UP grant awards were made on or 
after August 14, 2008, and to any section 404E scholarship awards for 
grantees whose initial GEAR UP grant awards were made prior to August 
14, 2008, but who, pursuant to Sec.  694.12(b)(2), elect to use the 
Sec.  694.14 requirements (rather than the Sec.  694.13 requirements):

[[Page 426]]

    (a) Scholarship funds held in reserve by States under Sec.  
694.14(c) or by Partnerships under section 404D(b)(7) of the HEA that 
are not used by eligible students as defined in Sec.  694.14(b) within 
six years of the students' scheduled completion of secondary school may 
be redistributed by the grantee to other eligible students.
    (b) Any Federal scholarship funds that are not used by eligible 
students within six years of the students' scheduled completion of 
secondary school, and are not redistributed by the grantee to other 
eligible students, must be returned to the Secretary within 45 days 
after the six-year period for expending the scholarship funds expires.
    (c) Grantees that reserve funds for scholarships must annually 
furnish information, as the Secretary may require, on the amount of 
Federal and non-Federal funds reserved and held for GEAR UP scholarships 
and the disbursement of these scholarship funds to eligible students 
until these funds are fully expended or returned to the Secretary.
    (d) A scholarship fund is subject to audit or monitoring by 
authorized representatives of the Secretary throughout the life of the 
fund.

(Authority: 20 U.S.C. 1070a-25(e))

[75 FR 65800, Oct. 26, 2010]



Sec.  694.17  How does a State determine which State agency will apply
for, and administer, a State grant under this program?

    The Governor of a State must designate which State agency applies 
for, and administers, a State grant under GEAR UP.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)

[65 FR 24760, Apr. 27, 2000. Redesignated at 75 FR 65798, Oct. 26, 2010]



Sec.  694.18  What requirements must be met by a Partnership or State
participating in GEAR UP with respect to 21st Century Scholarship 
Certificates?

    (a) A State or Partnership must provide, in accordance with 
procedures the Secretary may specify, a 21st Century Scholar Certificate 
to each student participating in its GEAR UP project.
    (b) 21st Century Scholarship Certificates must be personalized and 
indicate the amount of Federal financial aid for college and the 
estimated amount of any scholarship provided under section 404E of the 
HEA, if applicable, that a student may be eligible to receive.

(Authority: 20 U.S.C. 1070a-26)

[75 FR 65801, Oct. 26, 2010]



Sec.  694.19  What priorities does the Secretary establish for a 
GEAR UP grant?

    The Secretary awards competitive preference priority points to an 
eligible applicant for a State grant that has both--
    (a) Carried out a successful State GEAR UP grant prior to August 14, 
2008, determined on the basis of data (including outcome data) submitted 
by the applicant as part of its annual and final performance reports, 
and the applicant's history of compliance with applicable statutory and 
regulatory requirements; and
    (b) A prior, demonstrated commitment to early intervention leading 
to college access through collaboration and replication of successful 
strategies.

(Authority: 20 U.S.C. 1070a-21(b))

[75 FR 65801, Oct. 26, 2010]



Sec.  694.20  When may a GEAR UP grantee provide services to students
attending an institution of higher education?

    (a) The Secretary authorizes an eligible State or Partnership to 
provide GEAR UP services to students attending an institution of higher 
education if the State or Partnership--
    (1) Applies for and receives a new GEAR UP award after August 14, 
2008, and
    (2) In its application, requested a seventh year so that it may 
continue to provide services to students through their first year of 
attendance at an institution of higher education.
    (b) A State grantee that uses a priority (rather than or in addition 
to a cohort) approach to identify participating students may, consistent 
with its approved application and at any time during the project period, 
provide services to students during their first year of attendance at an 
institution of

[[Page 427]]

higher education, provided that the grantee continues to provide all 
required services throughout the Federal budget period to GEAR UP 
students still enrolled in a local educational agency.
    (c) If a grantee is awarded a seven year grant, consistent with the 
grantee's approved application, during the seventh year of the grant the 
grantee--
    (1) Must provide services to students in their first year of 
attendance at an institution of higher education; and
    (2) May choose to provide services to high school students who have 
yet to graduate.
    (d) Grantees that continue to provide services under this part to 
students through their first year of attendance at an institution of 
higher education must, to the extent practicable, coordinate with other 
campus programs, including academic support services to enhance, not 
duplicate service.

(Authority: 20 U.S.C. 1070a-21(b)(2))

[75 FR 65801, Oct. 26, 2010]



Sec.  694.21  What are required activities for GEAR UP projects?

    A grantee must provide comprehensive mentoring, outreach, and 
supportive services to students participating in the GEAR UP program. 
These services must include the following activities:
    (a) Providing information regarding financial aid for postsecondary 
education to eligible participating students.
    (b) Encouraging student enrollment in rigorous and challenging 
curricula and coursework, in order to reduce the need for remedial 
coursework at the postsecondary level.
    (c) Implementing activities to improve the number of participating 
students who--
    (1) Obtain a secondary school diploma, and
    (2) Complete applications for, and enroll in, a program of 
postsecondary education.
    (d) In the case of a State grantee that has not received a 100-
percent waiver under section 404E(b)(2) of the HEA, providing 
scholarships in accordance with section 404E of the HEA.

(Authority: 20 U.S.C. 1070a-24(a))

[75 FR 65801, Oct. 26, 2010]



Sec.  694.22  What other activities may all GEAR UP projects provide?

    A grantee may use grant funds to carry out one or more of the 
following services and activities:
    (a) Providing tutors and mentors, who may include adults or former 
participants in a GEAR UP program, for eligible students.
    (b) Conducting outreach activities to recruit priority students 
(identified in section 404D(d) of the HEA) to participate in program 
activities.
    (c) Providing supportive services to eligible students.
    (d) Supporting the development or implementation of rigorous 
academic curricula, which may include college preparatory, Advanced 
Placement, or International Baccalaureate programs, and providing 
participating students access to rigorous core academic courses that 
reflect challenging State academic standards.
    (e) Supporting dual or concurrent enrollment programs between the 
secondary school and institution of higher education partners of a GEAR 
UP Partnership, and other activities that support participating students 
in--
    (1) Meeting challenging State academic standards;
    (2) Successfully applying for postsecondary education;
    (3) Successfully applying for student financial aid; and
    (4) Developing graduation and career plans, including career 
awareness and planning assistance as they relate to a rigorous academic 
curriculum.
    (f) Providing special programs or tutoring in science, technology, 
engineering, or mathematics.
    (g) For Partnerships, providing scholarships described in section 
404E of the HEA, and for all grantees providing appropriate 
administrative support for GEAR UP scholarships.
    (h) Introducing eligible students to institutions of higher 
education, through trips and school-based sessions.

[[Page 428]]

    (i) Providing an intensive extended school day, school year, or 
summer program that offers--
    (1) Additional academic classes; or
    (2) Assistance with college admission applications.
    (j) Providing other activities designed to ensure secondary school 
completion and postsecondary education enrollment of at-risk children, 
such as:
    (1) Identification of at-risk children.
    (2) After-school and summer tutoring.
    (3) Assistance to at-risk children in obtaining summer jobs.
    (4) Academic counseling.
    (5) Financial and economic literacy education or counseling.
    (6) Volunteer and parent involvement.
    (7) Encouraging former or current participants of a GEAR UP program 
to serve as peer counselors.
    (8) Skills assessments.
    (9) Personal and family counseling, and home visits.
    (10) Staff development.
    (11) Programs and activities that are specially designed for 
students who are limited English proficient.
    (k) Enabling eligible students to enroll in Advanced Placement or 
International Baccalaureate courses, or college entrance examination 
preparation courses.
    (l) Providing services to eligible students in the participating 
cohort described in Sec.  694.3 through the first year of attendance at 
an institution of higher education.
    (m) Fostering and improving parent and family involvement in 
elementary and secondary education by promoting the advantages of a 
college education, and emphasizing academic admission requirements and 
the need to take college preparation courses, through parent engagement 
and leadership activities.
    (n) Disseminating information that promotes the importance of higher 
education, explains college preparation and admission requirements, and 
raises awareness of the resources and services provided by the eligible 
entities to eligible students, their families, and communities.
    (o) For a GEAR UP Partnership grant, in the event that matching 
funds described in the approved application are no longer available, 
engaging other potential partners in a collaborative manner to provide 
matching resources and to participate in other activities authorized in 
Sec. Sec.  694.21, 694.22, and 694.23.

(Authority: 20 U.S.C. 1070a-24(b))

[75 FR 65801, Oct. 26, 2010]



Sec.  694.23  What additional activities are allowable for State GEAR UP
projects?

    In addition to the required and permissible activities identified in 
Sec. Sec.  694.21 and 694.22, a State may use grant funds to carry out 
one or more of the following services and activities:
    (a) Providing technical assistance to--
    (1) Secondary schools that are located within the State; or
    (2) Partnerships that are eligible to apply for a GEAR UP grant and 
that are located within the State.
    (b) Providing professional development opportunities to individuals 
working with eligible cohorts of students.
    (c) Providing administrative support to help build the capacity of 
Partnerships to compete for and manage grants awarded under the GEAR UP 
program.
    (d) Providing strategies and activities that align efforts in the 
State to prepare eligible students to attend and succeed in 
postsecondary education, which may include the development of graduation 
and career plans.
    (e) Disseminating information on the use of scientifically valid 
research and best practices to improve services for eligible students.
    (f)(1) Disseminating information on effective coursework and support 
services that assist students in achieving the goals described in 
paragraph (f)(2)(ii) of this section, and
    (2) Identifying and disseminating information on best practices with 
respect to--
    (i) Increasing parental involvement; and
    (ii) Preparing students, including students with disabilities and 
students who are limited English proficient, to succeed academically in, 
and prepare

[[Page 429]]

financially for, postsecondary education.
    (g) Working to align State academic standards and curricula with the 
expectations of postsecondary institutions and employers.
    (h) Developing alternatives to traditional secondary school that 
give students a head start on attaining a recognized postsecondary 
credential (including an industry-recognized certificate, an 
apprenticeship, or an associate's or a bachelor's degree), including 
school designs that give students early exposure to college-level 
courses and experiences and allow students to earn transferable college 
credits or an associate's degree at the same time as a secondary school 
diploma.
    (i) Creating community college programs for individuals who have 
dropped out of high school that are personalized drop-out recovery 
programs, and that allow drop-outs to complete a secondary school 
diploma and begin college-level work.

(Authority: 20 U.S.C. 1070a-24)

[75 FR 65802, Oct. 26, 2010]



Sec.  694.24  What services may a GEAR UP project provide to students
in their first year at an institution of higher education?

    Consistent with their approved applications and Sec.  694.20, a 
grantee may provide any services to students in their first year of 
attendance at an institution of higher education that will help those 
students succeed in school, and that do not duplicate services otherwise 
available to them. Examples of services that may be provided include--
    (a) Orientation services including introduction to on-campus 
services and resources;
    (b) On-going counseling to students either in person or though 
electronic or other means of correspondence;
    (c) Assistance with course selection for the second year of 
postsecondary education;
    (d) Assistance with choosing and declaring an academic major;
    (e) Assistance regarding academic, social, and personal areas of 
need;
    (f) Referrals to providers of appropriate services;
    (g) Tutoring, mentoring, and supplemental academic support;
    (h) Assistance with financial planning;
    (i) Career counseling and advising services; or
    (j) Advising students about transferring to other schools.

(Authority: 20 U.S.C. 1070a-24)

[75 FR 65802, Oct. 26, 2010]



Sec.  694.25  Are GEAR UP grantees required to provide services to 
students who were served under a previous GEAR UP grant?

    If a Partnership or State is awarded a GEAR UP grant on or after 
August 14, 2008 (i.e., initial grant), the grant ends before all 
students who received GEAR UP services under the grant have completed 
the twelfth grade, and the grantee receives a new award in a subsequent 
GEAR UP competition (i.e., new grant), the grantee must--
    (a) Continue to provide services required by or authorized under 
Sec. Sec.  694.21, 694.22, and 694.23 to all students who received GEAR 
UP services under the initial grant and remain enrolled in secondary 
schools until they complete the twelfth grade; and
    (b) Provide the services specified in paragraph (a) of this section 
by using Federal GEAR UP funds awarded for the new grant or funds from 
the non-Federal matching contribution required under the new grant.

(Authority: 20 U.S.C. 1070a-21(b)(3)(B) and 1070a-22(d)(1)(C))

[75 FR 65803, Oct. 26, 2010]




 CHAPTER VII_OFFICE OF EDUCATIONAL RESEARCH AND IMPROVEMENT, DEPARTMENT 
                         OF EDUCATION [RESERVED]



[[Page 431]]

                        PARTS 700	799 [RESERVED]

[[Page 433]]

              Subtitle C--Regulations Relating to Education

                          CHAPTER XI [RESERVED]

[[Page 435]]



               CHAPTER XII--NATIONAL COUNCIL ON DISABILITY




  --------------------------------------------------------------------
Part
1200            Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the National 
                    Council on Disability...................         437
1201-1299

 [Reserved]

[[Page 437]]



PART 1200_ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN 
PROGRAMS OR ACTIVITIES CONDUCTED BY THE NATIONAL COUNCIL ON DISABILITY-
-Table of Contents



Sec.
1200.101 Purpose.
1200.102 Application.
1200.103 Definitions.
1200.104-1200.109 [Reserved]
1200.110 Self-evaluation.
1200.111 Notice.
1200.112-1200.129 [Reserved]
1200.130 General prohibitions against discrimination.
1200.131-1200.139 [Reserved]
1200.140 Employment.
1200.141-1200.148 [Reserved]
1200.149 Program accessibility: Discrimination prohibited.
1200.150 Program accessibility: Existing facilities.
1200.151 Program accessibility: New construction and alterations.
1200.152-1200.159 [Reserved]
1200.160 Communications.
1200.161-1200.169 [Reserved]
1200.170 Compliance procedures.
1200.171-1200.999 [Reserved]

    Authority: 29 U.S.C. 794.

    Source: 58 FR 57698, 57699, Oct. 26, 1993, unless otherwise noted.



Sec.  1200.101  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation, Comprehensive Services, and Developmental Disabilities 
Amendments of 1978, which amended section 504 of the Rehabilitation Act 
of 1973 to prohibit discrimination on the basis of handicap in programs 
or activities conducted by Executive agencies or the United States 
Postal Service.



Sec.  1200.102  Application.

    This part (Sec. Sec.  1200.101-1200.170) applies to all programs or 
activities conducted by the agency, except for programs or activities 
conducted outside the United States that do not involve individuals with 
handicaps in the United States.



Sec.  1200.103  Definitions.

    For purposes of this part, the term--
    Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, United States Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TTD's), interpreters, notetakers, written 
materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Historic preservation programs means programs conducted by the 
agency that have preservation of historic properties as a primary 
purpose.
    Historic properties means those properties that are listed or 
eligible for listing in the National Register of Historic Places or 
properties designated as historic under a statute of the appropriate 
State or local government body.
    Individual with handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes--

[[Page 438]]

    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech, and hearing impairments, 
cerebral palsy, epilepsy, muscular dystrophy, multiple sclerosis, 
cancer, heart disease, diabetes, mental retardation, emotional illness, 
HIV disease (whether symptomatic or asymptomatic), and drug addiction 
and alcoholism.
    (2) Major life activities include functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the agency as having such an impairment.
    Qualified individual with handicaps means--
    (1) With respect to preschool, elementary, or secondary education 
services provided by the agency, an individual with handicaps who is a 
member of a class of persons otherwise entitled by statute, regulation, 
or agency policy to receive education services from the agency;
    (2) With respect to any other agency program or activity under which 
a person is required to perform services or to achieve a level of 
accomplishment, an individual with handicaps who meets the essential 
eligibility requirements and who can achieve the purpose of the program 
or activity without modifications in the program or activity that the 
agency can demonstrate would result in a fundamental alteration in its 
nature;
    (3) With respect to any other program or activity, an individual 
with handicaps who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (4) Qualified handicapped person as that term is defined for 
purposes of employment in 29 CFR 1614.203(a)(6), which is made 
applicable to this part by Sec.  1200.140.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended. As used in 
this part, section 504 applies only to programs or activities conducted 
by Executive agencies and not to federally assisted programs.
    Substantial impairment means a significant loss of the integrity of 
finished materials, design quality, or special character resulting from 
a permanent alteration.



Sec. Sec.  1200.104-1200.109  [Reserved]



Sec.  1200.110  Self-evaluation.

    (a) The agency shall, by November 28, 1994, evaluate its current 
policies and practices, and the effects thereof, that do not or may not 
meet the requirements of this part and, to the extent modification of 
any such policies and practices is required, the agency shall proceed to 
make the necessary modifications.
    (b) The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation 
process by submitting comments (both oral and written).
    (c) The agency shall, for at least three years following completion 
of the

[[Page 439]]

self-evaluation, maintain on file and make available for public 
inspection:
    (1) A description of areas examined and any problems identified; and
    (2) A description of any modifications made.



Sec.  1200.111  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such manner as the head of the agency 
finds necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this part.



Sec. Sec.  1200.112-1200.129  [Reserved]



Sec.  1200.130  General prohibitions against discrimination.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity conducted by the agency.
    (b)(1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of handicap--
    (i) Deny a qualified individual with handicaps the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in according equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
individuals with handicaps or to any class of individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aid, benefits, or services 
that are as effective as those provided to others;
    (v) Deny a qualified individual with handicaps the opportunity to 
participate as a member of planning or advisory boards;
    (vi) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified individual with handicaps 
the opportunity to participate in programs or activities that are no 
separate or different, despite the existence of permissibly separate or 
different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (6) The agency may not administer a licensing or certification 
program in a manner that subjects qualified individuals with handicaps 
to discrimination on the basis of handicap, nor may the agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified

[[Page 440]]

individuals with handicaps to discrimination on the basis of handicap. 
However, the programs or activities of entities that are licensed or 
certified by the agency are not, themselves, covered by this part.
    (c) The exclusion of nonhandicapped persons from the benefits of a 
program limited by Federal statute or Executive order to individuals 
with handicaps or the exclusion of a specific class of individuals with 
handicaps from a program limited by Federal statute or Executive order 
to a different class of individuals with handicaps is not prohibited by 
this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.



Sec. Sec.  1200.131-1200.139  [Reserved]



Sec.  1200.140  Employment.

    No qualified individual with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any program 
or activity conducted by the agency. The definitions, requirements, and 
procedures of section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 
791), as established by the Equal Employment Opportunity Commission in 
29 CFR part 1614, shall apply to employment in federally conducted 
programs or activities.



Sec. Sec.  1200.141-1200.148  [Reserved]



Sec.  1200.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec.  1200.150, no qualified 
individual with handicaps shall, because the agency's facilities are 
inaccessible to or unusable by individuals with handicaps, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the agency.



Sec.  1200.150  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not--
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps;
    (2) In the case of historic preservation programs, require the 
agency to take any action that would result in a substantial impairment 
of significant historic features of an historic property; or
    (3) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the agency has the burden of 
proving that compliance with Sec.  1200.150(a) would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the agency head or his or her 
designee after considering all agency resources available for use in the 
funding and operation of the conducted program or activity, and must be 
accompanied by a written statement of the reasons for reaching that 
conclusion. If an action would result in such an alteration or such 
burdens, the agency shall take any other action that result in such an 
alteration or such burdens but would nevertheless ensure that 
individuals with handicaps receive the benefits and services of the 
program or activity.
    (b) Methods--(1) General. The agency may comply with the 
requirements of this section through such means as redesign of 
equipment, reassignment of services to accessible buildings, assignment 
of aides to beneficiaries, home visits, delivery of services at 
alternate accessible sites, alteration of existing facilities and 
construction of new facilities, use of accessible rolling stock, or any 
other methods that result in making its programs or activities readily 
accessible to and usable by individuals with handicaps. The agency is 
not required to make structural changes in existing facilities where 
other methods are effective in achieving compliance with this section. 
The agency, in making alterations to existing buildings,

[[Page 441]]

shall meet accessibility requirements to the extent compelled by the 
Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), 
and any regulations implementing it. In choosing among available methods 
for meeting the requirements of this section, the agency shall give 
priority to those methods that offer programs and activities to 
qualified individuals with handicaps in the most integrated setting 
appropriate.
    (2) Historic preservation programs. In meeting the requirements of 
Sec.  1200.150(a) in historic preservation programs, the agency shall 
give priority to methods that provide physical access to individuals 
with handicaps. In cases where a physical alteration to an historic 
property is not required because of Sec.  1200.150(a)(2) or (a)(3), 
alternative methods of achieving program accessibility include--
    (i) Using audio-visual materials and devices to depict those 
portions of an historic property that cannot otherwise be made 
accessible;
    (ii) Assigning persons to guide individuals with handicaps into or 
through portions of historic properties that cannot otherwise be made 
accessible; or
    (iii) Adopting other innovative methods.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section by January 24, 1994, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by November 26, 1996, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
agency shall develop, by May 26, 1994, a transition plan setting forth 
the steps necessary to complete such changes. The agency shall provide 
an opportunity to interested persons, including individuals with 
handicaps or organizations representing individuals with handicaps, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum--
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.



Sec.  1200.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151-4157), as established 
in 41 CFR 101-19.600 to 101-19.607, apply to buildings covered by this 
section.



Sec. Sec.  1200.152-1200.159  [Reserved]



Sec.  1200.160  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices

[[Page 442]]

for deaf persons (TDD's) or equally effective telecommunication systems 
shall be used to communicate with persons with impaired hearing.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance with Sec.  1200.160 would 
result in such alteration or burdens. The decision that compliance would 
result in such alteration or burdens must be made by the agency head or 
his or her designee after considering all agency resources available for 
use in the funding and operation of the conducted program or activity 
and must be accompanied by a written statement of the reasons for 
reaching that conclusion. If an action required to comply with this 
section would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that, to the maximum 
extent possible, individuals with handicaps receive the benefits and 
services of the program or activity.



Sec. Sec.  1200.161-1200.169  [Reserved]



Sec.  1200.170  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs and activities conducted by the agency.
    (b) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1614 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) The Executive Director shall be responsible for coordinating 
implementation of this section. Complaints may be sent to the National 
Council on Disability, 800 Independence Avenue, SW., suite 814, 
Washington, DC 20591.
    (d) The agency shall accept and investigate all complete complaints 
for which it has jurisdiction. All complete complaints must be filed 
within 180 days of the alleged act of discrimination. The agency may 
extend this time period for good cause.
    (e) If the agency receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate Government 
entity.
    (f) The agency shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), is not readily accessible to 
and usable by individuals with handicaps.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, the agency shall notify the complainant of the 
results of the investigation in a letter containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 90 days of receipt from 
the agency of the letter required by Sec.  1200.170(g). The agency may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the head of 
the agency.
    (j) The head of the agency shall notify the complainant of the 
results of

[[Page 443]]

the appeal within 60 days of the receipt of the request. If the head of 
the agency determines that additional information is needed from the 
complainant, he or she shall have 60 days from the date of receipt of 
the additional information to make his or her determination on the 
appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended with the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.



Sec. Sec.  1200.171-1200.999  [Reserved]

                       PARTS 1201	1299 [RESERVED]

[[Page 445]]



                           TITLE 35 [RESERVED]




  --------------------------------------------------------------------

[[Page 447]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 449]]



                    Table of CFR Titles and Chapters




                      (Revised as of July 1, 2023)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 450]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)
        LX  Federal Communications Commission (Parts 6000--6099)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)

[[Page 451]]

      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)

[[Page 452]]

    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Parts 10100--10199)
       CII  U.S. Office of Special Counsel (Parts 10200--10299)
       CIV  Office of the Intellectual Property Enforcement 
                Coordinator (Part 10400--10499)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)

[[Page 453]]

      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]

[[Page 454]]

      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)
         L  Rural Business-Cooperative Service, and Rural 
                Utilities Service, Department of Agriculture 
                (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Fair Trade Practices 
                Program), Department of Agriculture (Parts 200--
                299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  (Parts 900--999)[Reserved]

[[Page 455]]

         X  Consumer Financial Protection Bureau (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research, Department of the 
                Treasury (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)

[[Page 456]]

      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
        XV  Office of the Under-Secretary for Economic Affairs, 
                Department of Commerce (Parts 1500--1599)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

[[Page 457]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Agency for Global Media (Parts 500--599)
       VII  U.S. International Development Finance Corporation 
                (Parts 700--799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 458]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799) 
                [Reserved]
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]

[[Page 459]]

        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--799)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 460]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance

[[Page 461]]

         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Great Lakes St. Lawrence Seaway Development 
                Corporation, Department of Transportation (Parts 
                400--499)

[[Page 462]]

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical, and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)

[[Page 463]]

       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)
        IX  Federal Permitting Improvement Steering Council (Part 
                1900)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  (Parts 103-001--104-099) [Reserved]
       105  General Services Administration (Parts 105-1--105-999)

[[Page 464]]

       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Federal Acquisition Supply Chain Security
       201  Federal Acquisition Security Council (Parts 201-1--
                201-99).
            Subtitle E [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   II--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 465]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

[[Page 466]]

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)

[[Page 467]]

        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 468]]

        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 469]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of July 1, 2023)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 470]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Office of the Under-          15, XV
       Secretary for
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I

[[Page 471]]

  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Office of the Under-Secretary   15, XV
     for
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
     States
[[Page 472]]

Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Acquisition Security Council              41, 201
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 2, LX; 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Permitting Improvement Steering Council   40, IX
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 473]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes St. Lawrence Seaway Development       33, IV
     Corporation
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II

[[Page 474]]

Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Intellectual Property Enforcement Coordinator,    5, CIV
     Office of
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Environmental Enforcement, Bureau    30, II
       of
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice, Department of                            2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Federal Acquisition Regulation                  48, 29

[[Page 475]]

  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VI
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI; 47, II

[[Page 476]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resource Revenue, Office of               30, XII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, IV, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Contracts, Department of Labor             41, 50
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Utilities Service                           7, XVII, XVIII, XLII, L
Safety and Environmental Enforcement, Bureau of   30, II
Science and Technology Policy, Office of          32, XXIV; 47, II
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State, Department of                              2, VI; 22, I; 28, XI

[[Page 477]]

  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Great Lakes St. Lawrence Seaway Development     33, IV
       Corporation
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury, Department of the                       2, X; 5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
Truman, Harry S. Scholarship Foundation           45, XVIII
United States Agency for Global Media             22, V
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
U.S. Office of Special Counsel                    5, CII
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 479]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2018 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2018

34 CFR
                                                                   83 FR
                                                                    Page
680 Removed........................................................52150
682.202 Regulation at 81 FR 76079 eff. date further delayed to 7-
        1-19........................................................6459
682.211 Regulation at 81 FR 76079 eff. date further delayed to 7-
        1-19........................................................6459
682.402 Regulation at 81 FR 76079 eff. date further delayed to 7-
        1-19........................................................6459
682.405 Regulation at 81 FR 76080 eff. date further delayed to 7-
        1-19........................................................6459
682.410 Regulation at 81 FR 76080 eff. date further delayed to 7-
        1-19........................................................6459
685.300 (b)(11) and (d) through (i) removed; (b)(12) redesignated 
        as new (b)(11).............................................34048
    (b)(11) redesignated as (b)(12); new (b)(11) and (d) through 
(i) added; eff. 7-1-19.............................................34048
685.308 Regulation at 81 FR 76089 eff. date further delayed to 7-
        1-19........................................................6459
693 Removed........................................................52150
695 Removed........................................................52150
696 Removed........................................................52150
697 Removed........................................................52150
698 Removed........................................................52150
699 Removed........................................................52150

                                  2019

34 CFR
                                                                   84 FR
                                                                    Page
682 Authority citation revised.....................................49926
682.202 Regulation at 81 FR 76079 eff. 10-16-18.....................9964
682.211 Regulation at 81 FR 76079 eff. 10-16-18.....................9964
682.402 Regulation at 81 FR 76079 eff. 10-16-18.....................9964
682.402 (c)(9)(xiii) added; interim................................65007
682.405 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
682.410 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
682.410 (b)(2) revised; authority citation removed.................49926
685 Authority citation revised.....................................49926
685.200 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
685.205 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
685.205 (b)(6)(i) amended; authority citation removed..............49926
685.206 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
685.206 (c) heading revised; (d) and (e) added; authority citation 
        removed
685.209 Regulation at 81 FR 76080 eff. 10-16-18.....................9964
685.212 Regulation at 81 FR 76081 eff. 10-16-18.....................9964

[[Page 480]]

685.212 (k) revised; authority citation removed....................49929
685.213 (c)(1)(v) added; interim...................................65007
685.214 Regulation at 81 FR 76081 eff. 10-16-18.....................9964
685.214 (c)(2) redesignated as (c)(3); new (c)(2), (f) 
        introductory text, and (g) added; (c)(1) introductory text 
        and new (3)(ii) amended; authority citation removed........49930
685.215 Regulation at 81 FR 76082 eff. 10-16-18.....................9964
685.215 (a)(1) introductory text, (ii) introductory text, (iv), 
        and (v) amended; (a)(1)(vi), (d) introductory text, (e), 
        and (f) added; (c) introductory text revised; authority 
        citation removed...........................................49931
685.222 Regulation at 81 FR 76083 eff. 10-16-18.....................9964
685.222 Heading revised; (a)(2), (b), (c), (d)(1), (e)(2) 
        introductory text, (3) introductory text, (ii), (4) 
        introductory text, (5) introductory text, (f)(1) 
        introductory text, (g) introductory text, and (h) 
        introductory text amended; authority citation removed......49932
685.200--685.223 (Subpart B) Regulation at 81 FR 76086 eff. 10-16-
        18..........................................................9964
685.200--685.223 (Subpart B) Appendix A amended....................49933
685.300 Regulation at 81 FR 76087 eff. 10-16-18.....................9964
685.300 (b)(8) revised; (b)(11), (d) through (i), and authority 
        citation removed; (b)(12) redesignated as (b)(11); (b)(10) 
        and new (11) amended; new (b)(12) added....................49933
685.304 (a)(3)(iii)(A), (B), and (6)(xii) amended; (a)(5) revised; 
        (a)(6)(xiii) redesignated as (a)(6)(xvi); new 
        (a)(6)(xiii), (xiv), and (xv) added; authority citation 
        removed....................................................49933
685.308(a) Regulation at 81 FR 76089 eff. 10-16-18..................9964
685.308 (a) revised; authority citation removed....................49933

                                  2020

34 CFR
                                                                   85 FR
                                                                    Page
682 Waivers........................................................79856
682.210 (m)(1)(iv) removed.........................................49821
682.301 (a)(2) removed; (a)(3) redesignated as new (a)(2)..........49821
685 Waivers........................................................79856
685.200 (a)(2)(ii) removed.........................................49821
685.219 (b) amended; (c)(1)(ii) revised............................49821
686.1 Revised......................................................49821
686.2 (b) and (d) amended..........................................49821
686.10 Revised.....................................................49822
686.11 (a)(1)(i) and (b) introductory text amended; (a)(1)(ii) and 
        (b)(1) removed; (a)(1)(iii) through (v), (b)(2), and (3) 
        redesignated as (a)(1)(ii through (iv), (b)(1), and (2)....49823
686.12 Revised.....................................................49823
686.21 (a)(2)(i) and (ii) amended..................................49824
686.31 (a)(3) and (e)(2)(ii) amended...............................49824
686.32 (a)(3), (b)(3), (c)(4), and (d) revised; (e) added..........49824
686.40 Revised.....................................................49826
686.41 Revised.....................................................49826
686.42 Heading, (a)(1) introductory text, (2), and (c)(4) amended; 
        (b) revised................................................49827
686.43 Revised.....................................................49827
690.75 (d) revised.................................................49828
692.30 (c)(5) revised..............................................49828
694.6 (b) revised; (c) removed.....................................49828
694.10 (b) amended.................................................49828

                                  2021

34 CFR
                                                                   86 FR
                                                                    Page
Chapter VI
Chapter VI Interpretation..........................................44277
682 Waivers.........................................................5008
682.402 (c)(9)(iv) amended; (c)(9)(xiii) removed; (c)(10) and (11) 
        added; OMB number..........................................46981
685 Waivers.........................................................5008
685.200 (a)(2)(i) introductory text amended; (a)(2)(i)(A), (B), 
        (f), and authority citation removed; eff. 8-13-21..........31438
685.213 (b)(1) introductory text and (c)(1) introductory text 
        amended; (c)(1)(v) removed; (d) and (e) added; OMB number 
                                                                   46982

[[Page 481]]

685.304 (a)(6)(xiv) and (xv) amended; (a)(6)(xvi) and (b)(4)(xii) 
        removed; (b)(4)(xiii) and (xiv) redesignated as new 
        (b)(4)(xii) and (xiii); eff. 8-13-21.......................31438
686 Notification...................................................36070
690.2 (b) amended; OMB number......................................59625
690.6 (e) revised; OMB number......................................59626
690.7 (a) removed; (b) through (e) redesignated as new (a) through 
        (d); new (c)(1), new (2) and new (d)(1)amended; OMB number
                                                                   59626
690.10 (b) amended; OMB number.....................................59626
690.12 OMB number and section amended..............................59626
690.13 OMB number and section amended..............................59626
690.14 (c)(2) amended; OMB number..................................59626
690.62 Revised.....................................................59626
690.63 (f) and (g) revised; OMB number and section amended.........59626
690.64 (b) amended; OMB number.....................................59626
690.65 (c), (d)(2), (f), and section amended.......................59626
690.67 Added.......................................................59626
690.81 OMB number and section amended..............................59626
690.82 OMB number and section amended..............................59626
690.83 (d)(2), OMB number, and section amended.....................59626
691 Removed........................................................59627

                                  2022

34 CFR
                                                                   87 FR
                                                                    Page
682 Waivers........................................................61512
682.402 (c)(7) and (e)(13) removed; (c)(8) through (11) and (e)(6) 
        through (12) redesignated as (c)(7) through (10) and 
        (e)(7) through (13); (c)(2)(iv) through (vii), (3) through 
        (6), new (7), new (9), new (10), (d)(1) through (3), (8), 
        (e)(1), (3), (7) through (13), (14), and (15) revised; 
        (d)(6)(ii)(B) introductory text, (2), (H), (7)(ii), 
        (e)(2)(v) amended; (d)(9), new (e)(6), and (16) added......66046
682.414 (b)(4) revised.............................................66054
682.424 Added......................................................66055
685 Waivers........................................................61512
685 Authority citation revised.....................................66055
685.103 (d) revised................................................66055
685.109 Added......................................................66055
685.202 (b)(2), (4), and (5) removed; (b)(3) redesignated as 
        (b)(2) and revised.........................................66055
685.205 (b)(6) revised.............................................66055
685.206 (e) revised................................................66055
685.208 (l)(5) removed.............................................66058
685.209 (a)(2)(iv), (b)(3)(iv) and (c)(2)(iv) removed; (a)(2)(v), 
        (vi), (c)(2)(v), and (vi) redesignated as (a)(2)(iv), (v), 
        (c)(2)(iv), and (v); (b)(1)(vii) and (c)(4)(iii)(B) 
        amended....................................................66058
685.212 (k)(4) added...............................................66058
685.213 (b)(2) through (7) revised; (b)(8) removed; (d) and (e) 
        removed....................................................66058
685.214 (a)(1) amended; (g) removed; (c) through (f) redesignated 
        as (d) through (g); (a)(2), and new (d) through new (g) 
        revised; new (c) and (h) added.............................66060
685.215 (a)(1), (c) introductory text, (1) through (5), and (d) 
        revised; (c)(6) through (8) redesignated as (c)(7) through 
        (9); (a)(3), new (c)(6), and (10) added; (e) and (f) 
        removed....................................................66062
685.219 Revised....................................................66063
685.300 (b)(11) and (12) redesignated as (b)(12) and (13); (b)(7), 
        (10) and new (13) revised; new (b)(11) and (d) through (i) 
        added......................................................66066
685.304 (a)(6)(xi) and (xii) amended; (a)(6)(xiii) through (xv) 
        removed....................................................66068
685.308 (a)(3) revised.............................................66068
685.400--685.499 (Subpart D) Added.................................66068
690.62 Revised.....................................................65498
690.68 Added.......................................................65498

[[Page 482]]

                                  2023

   (Regulations published from January 1, 2023, through July 1, 2023)

34 CFR
                                                                   88 FR
                                                                    Page
Chapter VI
682 Waivers........................................................39360
685 Waivers........................................................39360


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