[Federal Register Volume 59, Number 55 (Tuesday, March 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6592]


[[Page Unknown]]

[Federal Register: March 22, 1994]


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Part VI





Department of Education





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Office of the Secretary



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34 CFR Part 668




Standards for Participation in Title IV, HEA Programs; Proposed Rule
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DEPARTMENT OF EDUCATION

Office of the Secretary

34 CFR Part 668

 
Standards for Participation in Title IV, HEA Programs

AGENCY: Department of Education.

ACTION: Request for comments.

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SUMMARY: On December 20, 1993, the President signed Public Law 103-208, 
the Higher Education Technical Amendments of 1993. This notice requests 
public comments on how to implement certain provisions of the technical 
amendments relating to the determination of school default rates.

DATES: Comments must be received on or before April 11, 1994.

ADDRESSES: All comments concerning this issue should be addressed to 
Pamela A. Moran, Acting Chief, Loans Branch, Division of Policy 
Development, Policy, Training, and Analysis Service, U.S. Department of 
Education, 400 Maryland Avenue SW. (room 4310, ROB-3), Washington, DC 
20202-5449.

FOR FURTHER INFORMATION CONTACT: Doug Laine, Program Specialist, Loans 
Branch, Division of Policy Development, Policy, Training, and Analysis 
Service, U.S. Department of Education, 400 Maryland Avenue SW. (room 
4310, ROB-3), Washington, DC 20202-5449. Telephone (202) 708-8242. 
Individuals who use a telecommunication 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: Section 2(c)(55) of Public Law 103-208 
amends section 435 of the Higher Education Act of 1965, as amended (the 
Act), 20 U.S.C. 1085. This section modifies the process governing 
schools' appeals of their cohort default rates based on allegations of 
improper loan servicing. This provision adds a new paragraph on appeals 
based upon allegations of improper loan servicing to section 435(a) of 
the Act stating that an institution that is subject to loss of 
eligibility for the Federal Family Education Loan Program pursuant to 
section 435(a)(2)(A); is subject to loss of eligibility for the Federal 
Supplemental Loans for Students program pursuant to section 428A(a)(2); 
or is an institution whose cohort default rate equals or exceeds 20 
percent for the most recent year for which data are available, may 
include in its appeal of such loss or rate a defense based on improper 
loan servicing (in addition to other defenses). In any such appeal, the 
Secretary shall take whatever steps are necessary to ensure that the 
institution has access to a representative sample (as determined by the 
Secretary) of the relevant loan servicing and collection records of the 
affected guaranty agencies and loan servicers for a reasonable period 
of time, not to exceed 30 days. The Secretary shall reduce the 
institution's cohort default rate to reflect the percentage of 
defaulted loans in the representative sample that are required to be 
excluded pursuant to section 435(m)(1)(B) of the Act.
    In making suggestions, commenters should also review section 
435(m)(1)(B) of the Act, which states that in determining the number of 
students who default before the end of the fiscal year, the Secretary 
shall include only loans for which the Secretary or a guaranty agency 
has paid claims for insurance. That section also provides that, in 
considering appeals with respect to cohort default rates pursuant to 
subsection (a)(3), the Secretary shall exclude any loans which, due to 
improper servicing or collection, would, as demonstrated by the 
evidence submitted in support of the institution's timely appeal to the 
Secretary, result in an inaccurate or incomplete calculation of the 
cohort default rate.
    The Secretary intends to issue regulations establishing procedures 
for schools to appeal their default rates based on improper loan 
servicing. The Secretary intends to issue these procedures in an 
interim final rule with a request for comments. This notice solicits 
public help in developing such procedures. The Secretary invites public 
comment on any aspect of implementing the statute, but in particular, 
the Secretary would appreciate comments on the procedural issues 
discussed below.
    Pending the issuance of regulations, the Secretary will continue to 
construe the Act in the course of adjudicating pending appeals based 
upon allegations of improper loan servicing. Under Public Law 103-208, 
the changes to sections 435(a)(3) and 435(m)(1)(B) of the Act apply 
with respect to determinations (and appeals of determinations) of 
cohort default rates for fiscal year 1989 and succeeding fiscal years. 
The Act does not provide for reopening prior determinations.
    1. Procedures for use in determining whether to exclude loans which 
due to improper servicing or collection would result in an inaccurate 
or incomplete calculation of a school's cohort default rate.
    The Secretary would appreciate comments which suggest procedures 
for the Secretary to use in determining whether to exclude any loans 
which, due to improper servicing or collection would, as demonstrated 
by the evidence submitted in support of the institution's timely appeal 
to the Secretary, result in an inaccurate or incomplete calculation of 
(the institution's) cohort default rate. The Secretary is particularly 
interested in receiving suggestions for procedures which are clear and 
concise and which will result in completion of the appeal process 
within the statutory time frames. Commenters may also want to comment 
on procedures the Secretary should follow in identifying loans the 
inclusion of which would, due to improper servicing or collection, 
result in an inaccurate or incomplete calculation of the cohort default 
rate.
    2. Procedures for sampling of loan servicing and collection 
records.
    The Secretary would appreciate comments which suggest a process for 
selecting a representative sample of the relevant loan servicing and 
collection records to be reviewed and identifying which records are 
relevant. The Secretary notes that statistical sampling seems most 
appropriate for this situation. The Secretary also notes that there are 
different types of statistical sampling, and different sampling 
procedures can result in different levels of accuracy. The Secretary 
asks commenters to suggest the type and parameters of sampling and 
provide reasons for any recommendations.
    The Secretary also solicits ideas on the procedures for requesting 
relevant loan servicing and collection records, and the time frame for 
making such requests. The Act states that a school must have access to 
a representative sample of the relevant loan servicing and collection 
records for a reasonable period of time, not to exceed 30 days. The 
Secretary is willing to consider a shorter time frame than 30 days.
    3. Procedures for schools to review tape dump data provided by the 
guaranty agencies to the Secretary for use in determining cohort 
default rates.
    Section 2(c)(60)(A) of Public Law 103-208 also amended section 
435(m)(1)(A) of the Act to allow a school an opportunity to review and 
correct the tape dump data for the school (which provides information 
on the loans included in the calculation of the school's cohort default 
rate) before the rates are calculated. The tape dump data is provided 
by the guaranty agencies to the Secretary.
    The Secretary also intends to issue appropriate regulations, 
consistent with this amendment, establishing procedures and time frames 
for institutions to request data from the guaranty agencies and resolve 
discrepancies. This notice solicits public help in developing such 
procedures and time frames, and in determining how they should relate 
to other procedures for correcting data, specifically as found in 34 
CFR 668.15(g)(1). The Secretary notes that the requirement for 
precalculation review is not effective until October 1, 1994.
    Regarding the procedures and time frames for review and correction 
of data provided by the guaranty agencies, the Secretary is 
particularly interested in suggested time frames that provide ample 
opportunity for review and correction, but still allow the Secretary to 
issue cohort default rates in a timely manner. In addition, the 
Secretary is interested in public comment on the effect of such 
precalculation reviews on further appeals by the institutions under 34 
CFR 668.15(g)(1).

    Dated: March 8, 1994.
David A. Longanecker,
Assistant Secretary for Postsecondary Education.
[FR Doc. 94-6592 Filed 3-21-94; 8:45 am]
BILLING CODE 4000-01-P