[Federal Register Volume 59, Number 33 (Thursday, February 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3583]


[[Page Unknown]]

[Federal Register: February 17, 1994]


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Part III





Department of Education





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Federal Direct Student Loan Program; Notice
DEPARTMENT OF EDUCATION

 
Federal Direct Student Loan Program

AGENCY: Department of Education.

ACTION: Notice of standards for participation and solicitation of 
applications.

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SUMMARY: The Secretary of Education issues standards for participation 
in the Federal Direct Student Loan (Direct Loan) Program for the 1995-
1996 academic year, which is the academic year beginning July 1, 1995. 
The Secretary also invites applications from schools to participate in 
the Direct Loan Program for the 1995-1996 academic year. This notice 
relates to the Federal Direct Stafford Loan Program, the Federal Direct 
Unsubsidized Stafford Loan Program, and the Federal Direct PLUS 
Program, collectively referred to as the Direct Loan Program.

EFFECTIVE DATES: Deadline dates for the transmittal of applications are 
given elsewhere in this notice. The standards for participation in this 
notice are effective 45 days after publication in the Federal Register 
or later if the Congress takes certain adjournments. If you want to 
know the effective date of these standards, call or write to the 
Department of Education contact person.

FOR FURTHER INFORMATION CONTACT:
Barbara Ragon, U.S. Department of Education, 400 Maryland Avenue SW., 
Washington, DC 20202-5162. Telephone: (202) 708-8242. Individuals who 
use a telecommunications device for the deaf (TDD) may call the Federal 
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 
p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: The Student Loan Reform Act of 1993, enacted 
on August 10, 1993, established the Direct Loan Program under the 
Higher Education Act of 1965, as amended (HEA). See Subtitle A of the 
Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66). Under the 
Direct Loan Program, loan capital is provided directly to student and 
parent borrowers by the Federal Government rather than through private 
lenders.

Background

    The statute directs the Secretary to exercise his discretion in the 
selection of schools so that the loans made under the Direct Loan 
Program will represent 40 percent of the new student loan volume for 
academic year 1995-1996, the second year of this program. See section 
453(a)(2) of the HEA.
    The standards for participation in the second year of the Direct 
Loan Program are issued in this notice in final form. They do not 
encompass standards, criteria, procedures, and other regulations to 
implement the Direct Loan Program in the 1995-1996 and subsequent 
academic years. Those program regulations will be developed through 
negotiated rulemaking to the extent practicable. The Secretary expects 
to publish final program regulations by December 1, 1994. The Secretary 
anticipates publishing standards for repayment of Direct Loans and 
standards for Federal Direct Consolidation Loans for the 1994-1995 
academic year by May 1994. In addition, the Secretary anticipates 
publishing standards and procedures for loan origination for the 1995-
1996 academic year by April 1994. Both sets of standards, which will be 
published in final form, will be determined with as much input from the 
higher education community as practicable.
    A school may participate in both the Federal Family Education Loan 
(FFEL) Program and the Direct Loan Program or only in the Direct Loan 
Program. A school that is selected to participate in the Direct Loan 
Program but wishes to withdraw after publication of the rules for loan 
origination or the other program regulations for the 1995-1996 academic 
year will be allowed a reasonable period to do so.

I. Eligibility Requirements

A. Eligibility for Federal Family Education Loan Program

    To participate in the Direct Loan Program in the 1995-1996 academic 
year, a school must be eligible to participate in the FFEL Program. 
Among other requirements, a school must have a cohort default rate of 
less than 25 percent for one of the three most recent fiscal years for 
which data are available, unless the school is exempt from this 
requirement under section 435(a)(3)(C) of the HEA. That section 
provides that until July 1, 1994, (a) Historically Black Colleges and 
Universities as defined in section 322(2) of the HEA, (b) tribally 
controlled community colleges within the meaning of section 2(a)(4) of 
the Tribally Controlled Community College Assistance Act of 1978, and 
(c) Navajo Community Colleges under the Navajo Community College Act 
are exempt from the cohort default rate requirement.

B. Default Rate Requirement for the Direct Loan Program

    The Secretary believes that it is not in the best interest of the 
Direct Loan Program to allow a school to participate in the 1995-1996 
academic year if there is a high probability that the school will lose 
its statutory eligibility to participate in the Federal student loan 
programs. Therefore, the Secretary will continue to select schools for 
the Direct Loan Program that also meet the stricter default rate 
requirements adopted for that program for the 1994-1995 academic year. 
Consequently, in order for a school to participate in the 1995-1996 
academic year, the school must also have a cohort default rate of less 
than 25 percent in one of the two most recent fiscal years for which 
data are available at the time of the first selection decision 
following its application.
    If a statutory exemption from the three-year default rate 
requirement in section 435(a) is extended beyond July 1, 1994, the 
Secretary reserves the right to waive the two-year cohort default rate 
requirement for any school exempted from the three-year requirement. 
The Secretary may select a school that is currently exempt from the 
statutory requirement on a provisional basis pending a decision by the 
Congress on extending the exemption.

C. Consortia

    If schools apply as a consortium, each school must be an eligible 
institution. Schools in a consortium interact with the Secretary in the 
same manner as other schools with one exception: communication between 
the Secretary and the schools in the consortium is consolidated and 
channeled through a single point.

II. Selection Criteria

    The Secretary will select schools to participate in the Direct Loan 
Program in the 1995-1996 academic year from among those that apply to 
participate. An application will be evaluated on the basis of whether 
the school is willing to participate electronically and whether it is 
capable of administering the program. From among eligible schools that 
meet these criteria, the Secretary will, to the extent possible, select 
schools that are reasonably representative in terms of several factors.

A. Electronic capability

    Schools participating in the campus-based programs, which include 
the Federal Perkins Loan Program, the Federal Supplemental Educational 
Opportunity Grant Program, and the Federal Work-Study Program, must do 
so electronically. The majority of schools participating in the Federal 
Pell Grant Program also do so electronically. The Secretary intends to 
make maximum use of available technology in the Direct Loan Program and 
will therefore give strong consideration to whether the school is 
willing to participate in the program electronically.

B. Administrative Capability

    In selecting schools for the 1995-1996 academic year, the Secretary 
will evaluate a school's demonstrated capability in administering 
student financial aid programs. While the Secretary retains discretion 
to evaluate all relevant circumstances, the Secretary has identified 
certain factors as indicators of a lack of administrative capability. 
These factors are listed in the standards for participation in this 
notice.

C. Representativeness

    In selecting schools from among eligible applicants that are 
capable of administering the Direct Loan Program and are willing to 
participate electronically, the Secretary will select, to the extent 
practicable, schools that are reasonably representative in terms of 
several factors. These factors are listed in the standards for 
participation in this notice.

III. Selection Process

A. Currently Pending Applications

    A school that has been selected to participate in the Direct Loan 
Program for the 1994-1995 academic year, and an eligible school that 
applied to participate in the program for that year but was not 
selected, need not submit an application for the 1995-1996 academic 
year. If an eligible school that applied but was not selected for 
participation in the first year wishes not to be considered for 
participation in the second year, it should notify the Secretary.

B. Rolling Application and Selection Process

    At the request of the higher education community, the Secretary 
will employ a rolling application and selection process. As provided in 
the solicitation of applications in this notice, the Secretary has 
established up to three deadlines. The first is March 30, 1994. By June 
15, 1994, the Secretary will select schools from all applications 
received by the first deadline, including applications submitted for 
the 1994-1995 academic year. If the loan volume of the selected schools 
represents less than 40 percent of the new student loan volume for the 
1995-1996 academic year, the Secretary will select additional schools 
from applications submitted by July 1, 1994. The Secretary will select 
these schools by September 15, 1994. At this point, if the loan volume 
of all selected schools represents less than 40 percent of the new 
student loan volume for the 1995-1996 academic year, the Secretary will 
select additional schools from applications submitted by October 1, 
1994. The Secretary will select these schools by November 15, 1994.
    Shortly after each selection, the Secretary will publish lists of 
selected schools in the Federal Register. The Secretary emphasizes that 
the Department will stop selecting schools for the 1995-1996 academic 
year as soon as the new student loan volume of the selected schools 
comprises 40 percent of the total volume for that academic year. It is 
possible that the 40 percent cut-off will be reached by the first or 
second application deadline. Thus, potential participants are strongly 
encouraged to submit applications early.

Waiver of Rulemaking

    It is the practice of the Secretary to offer interested parties the 
opportunity to comment on proposed regulations. While the Secretary has 
consulted with members of the higher education community in the 
development of the standards in this notice, the timely implementation 
of the Direct Loan Program for the 1995-1996 academic year does not 
permit the solicitation of further public comment.
    The increase from five percent of new student loan volume in the 
first year of the program to 40 percent in the second year means that 
the number of schools participating in the program in the second year 
is likely to increase from 104 to over 2,000. Several thousand 
applications are expected to be reviewed. In order to determine each 
applicant's eligibility and evaluate its administrative capability, the 
Secretary must research several different types of records. The 
Secretary estimates that up to 75 days will be needed to complete the 
review of the expected volume of applications and make selection 
decisions.
    To ensure successful implementation of the Direct Loan Program in 
the second year, schools need to receive program and software training, 
integrate Direct Loan Program materials into school publications, and 
interface Direct Loan software and origination procedures with the 
school's own systems and procedures. The Secretary believes that the 
training of school personnel, the development and distribution of 
materials, and the updating of direct loan systems and procedures must 
begin by June 1994. These preparations require that the Secretary 
initiate the school selection process as soon as possible.
    In light of the preparations required to accommodate the dramatic 
growth in the Direct Loan Program in the 1995-1996 academic year, the 
Secretary finds that the requirements for the second-year 
implementation of the program do not permit the solicitation of further 
public comment on the standards for participation in that year. 
Therefore, the Secretary finds that such a solicitation would be 
impracticable and contrary to the public interest under 5 U.S.C. 
553(b)(B).
STANDARDS FOR PARTICIPATION IN THE DIRECT LOAN PROGRAM--1995-1996 
ACADEMIC YEAR

I. Eligibility Requirements

    A. In order to participate in the Direct Loan Program, a school 
must meet the eligibility requirements in section 435(a) of the HEA and 
in paragraph I.C. of these standards. If schools apply as a consortium, 
each school must meet these eligibility requirements.
    B. Under section 435(a), a school must have a cohort default rate 
of less than 25 percent for at least one of the three most recent 
fiscal years for which data are available, unless the school is exempt 
from this requirement under section 435(a)(3)(C). That section provides 
that until July 1, 1994, (a) Historically Black Colleges and 
Universities are defined in section 322(2) of the HEA, (b) tribally 
controlled community colleges within the meaning of section 2(a)(4) of 
the Tribally Controlled Community College Assistance Act of 1978, and 
(c) Navajo Community Colleges under the Navajo Community College Act 
are exempt from the cohort default rate requirement. C.1. In order to 
participate in the Direct Loan Program, a school must also have a 
cohort default rate of less than 25 percent for one of the two most 
recent fiscal years for which data are available at the time of the 
first selection decision following its application.
    2. If a statutory exemption from the three-year default rate 
requirement in section 435(a) is extended beyond July 1, 1994, the 
Secretary reserves the right to waive the two-year cohort default rate 
requirement for any school exempted from the three-year requirement.

II. Selection Criteria

    A. The Secretary selects schools to participate in the Direct Loan 
Program in the 1995-1996 academic year from among those that apply to 
participate. In evaluating an application from a school that is 
eligible to participate in the Direct Loan Program, the Secretary 
considers two factors:
    1. Whether the school is willing to participate (i.e. communicate 
with the Secretary) electronically.
    2. Whether the school is capable of administering the Direct Loan 
Program. While the Secretary retains discretion to evaluate all 
relevant circumstances, any of the following factors would indicate 
that the school is not administratively capable:
    a. The school is on the reimbursement system of payment for any of 
the programs under subparts 1 or 3 of part A, part C, or part E of 
title IV of the HEA.
    b. The school is overdue on program or financial reports or audits 
required under title IV of the HEA.
    c. The school is subject to an emergency action or a proposed or 
final limitation, suspension, or termination action under sections 
428(b)(1)(T), 432(h), or 487(c) of the HEA.
    d. In the opinion of the Secretary, the school has had significant 
deficiencies for any of the programs under title IV of the HEA, 
including deficiencies demonstrated by audits or program reviews 
submitted or conducted during the five calendar years immediately 
preceding the date of application.
    B. In selecting schools from among eligible applicants that are 
capable of administering the Direct Loan Program and are willing to 
participate electronically, the Secretary, to the extent possible, 
selects schools that are reasonably representative in terms of 
anticipated loan volume, length of academic program, control of the 
school, highest degree offered, size of student enrollment, geographic 
location, annual loan volume, and default experience.

III. Selection Process

    A. A school that has been selected to participate in the Direct 
Loan Program for the 1994-1995 academic year, and an eligible school 
that applied to participate in the program for that year but was not 
selected, need not submit an application for the 1995-1996 academic 
year.
    B. By June 15, 1994, the Secretary will select schools from all 
applications received by March 30, 1994.
    C. If the loan volume of the selected schools represents less than 
40 percent of the new student loan volume for the 1995-1996 academic 
year, the Secretary will select additional schools from applications 
submitted by July 1, 1994. The Secretary will select these schools by 
September 15, 1994.
    D. If the loan volume of all selected schools represents less than 
40 percent of the new student loan volume for the 1995-1996 academic 
year, the Secretary will select additional schools from applications 
submitted by October 1, 1994. The Secretary will select these schools 
by November 15, 1994. (20 U.S.C. 1087a et seq.)

Solicitation of Applications for Participation in the Direct Loan 
Program--1995-1996 Academic Year

    Purpose of program: To provide loans to enable a student or parent 
to pay the costs of the student's attendance at a postsecondary school. 
Under the Direct Loan Program, loan capital is provided directly to 
student and parent borrowers by the Federal Government rather than 
through private lenders.
    Eligible applicants: Colleges, universities, graduate and 
professional schools, and vocational and technical schools that meet 
the definition of an eligible institution under section 435(a) of the 
HEA.
    Deadlines for transmittal of applications: March 30, 1994; July 1, 
1994; and October 1, 1994.
    For information contact: Barbara Ragon, U.S. Department of 
Education, 400 Maryland Avenue, SW., Washington, DC 20202-5162. 
Telephone: (202) 708-8242. Individuals who use a telecommunications 
device for the deaf (TDD) may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern 
time, Monday through Friday.
    Application form and instructions: The Secretary has developed an 
application form for a school to use to apply to participate in the 
Direct Loan Program. A copy of the application form is included as an 
Appendix to this notice. On this form, the signature of the President 
or Chief Executive Officer (CEO) of the institution is required.
    If a school desires to participate in both the FFEL Program and the 
Direct Loan Program, it must include an estimate of the percentage of 
the institution's anticipated new student loan volume that will be made 
under the Direct Loan Program. In addition, an applying school must 
indicate whether it is willing to participate in the Direct Loan 
Program electronically.
    If a school is applying as part of a consortium, it must indicate 
the exact names of all schools in the consortium and the name of the 
destination point (school or outside entity) for the consortium.
    In order to be considered for participation in the 1995-1996 
academic year, a school must complete the application and submit it to 
the address below as soon as possible, but no later than the final 
deadline date.
    A school may mail or fax the application to: U.S. Department of 
Education, Office of Postsecondary Education, ROB-3, Federal Direct 
Loan Task Force, room 4025, 400 Maryland Avenue, SW., Washington, DC 
20202-5162, FAX: (202) 260-6718, (202) 260-6705, or (202) 260-6706.

(Catalog of Federal Domestic Assistance Number 84.268, Federal 
Direct Student Loan Program)

    Dated: February 9, 1994.
Richard W. Riley,
Secretary of Education.

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[FR Doc. 94-3583 Filed 2-16-94; 8:45 am]
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