[Federal Register Volume 59, Number 57 (Thursday, March 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6944]


[[Page Unknown]]

[Federal Register: March 24, 1994]


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Part VI





Department of Education





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34 CFR Part 682




Federal Family Education Loan Program; Proposed Rule
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DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AB99

 
Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations governing the 
Federal Family Education Loan (FFEL) Program. The FFEL Program consists 
of the Federal Stafford, Federal Supplemental Loans for Students (SLS), 
Federal PLUS, and the Federal Consolidation Loan programs. These 
amendments are needed to implement changes made to the Higher Education 
Act of 1965 (HEA) as amended by the Higher Education Amendments of 
1992. The proposed regulations would enhance the ability of lenders and 
guaranty agencies to service and collect FFEL Program loans.

DATES: Comments must be received on or before April 25, 1994.

ADDRESSES: All comments concerning these proposed regulations 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.
    A copy of any comments that concern information collection 
requirements should also be sent to the Office of Management and Budget 
at the address listed in the Paperwork Reduction Act section of this 
preamble.

FOR FURTHER INFORMATION CONTACT: George Harris, Senior 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 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:

Background

    The Secretary is proposing to revise 34 CFR part 682 to implement 
changes made to the HEA by the Higher Education Amendments of 1992 
(Pub. L. 102-325), enacted July 23, 1992. These regulations seek to 
improve the efficiency of Federal student aid programs, and, by so 
doing, to improve their capacity to enhance opportunities for 
postsecondary education.

Summary of Comments From Regional Meetings

    In compliance with section 492(a) of the HEA, the Secretary 
convened regional meetings during September 1992 to obtain public 
involvement in the development of these proposed regulations. The 
purpose of the meetings was to ``provide for a comprehensive discussion 
and exchange of information concerning the implementation'' of certain 
parts of Public Law 102-325. In addition, attendees of the regional 
meetings were asked to nominate individuals to act as negotiators in 
the negotiated rulemaking process required by section 492(b) of the 
HEA.
    The regional meetings were conducted for two days each in San 
Francisco, California; New York, New York; Atlanta, Georgia; and Kansas 
City, Missouri during September 1992. Each participant at the regional 
meetings was assigned to one of six groups which were asked to discuss 
particular issue areas identified by the Department. Each group at the 
regional meetings prepared a report of its discussion and 
recommendations and those reports were presented to the Department for 
consideration during the preparation of the proposed regulations.
    At each regional meeting, groups discussed the statutory changes 
relating to repayment of loans that are addressed in these proposed 
regulations. The Department considered the comments received during the 
regional meetings in preparing draft proposed regulations. Below is a 
summary of the information received and the proposals made to the 
Secretary during the regional meetings relating to these proposed 
regulations.
    Repayment Plans--Public Law 102-325 amended section 428(b)(1)(E) to 
require that borrowers be offered income-sensitive repayment plans. 
Participants at all of the regional meetings discussed whether lenders 
were required to provide both graduated and income-sensitive repayment 
plans to all borrowers or whether lenders had some discretion, but none 
of the groups reached an agreement.
    Participants at the meetings also discussed what documentation 
should be considered in determining an income-sensitive repayment 
schedule. The participants at the Atlanta and Kansas City meetings 
recommended that the lender be permitted to rely on the borrower's 
self-certification of income, while participants at the San Francisco 
meeting recommended that the borrower be required to submit 
documentation reflecting income to the lender every three years. 
Participants at the Atlanta and San Francisco meetings also recommended 
that borrowers be permitted to change repayment plans during the 
repayment period, but participants at the Kansas City meeting 
recommended that the lender be given flexibility to determine the 
borrower's repayment schedule without regulatory restrictions.
    Deferments--Public Law 102-325 substantially modified the 
deferments available to borrowers under the FFEL Program. The 
deferments for borrowers who are in school or unemployed were only 
slightly modified, but the other specific deferments in prior law were 
eliminated and replaced by a deferment for periods (up to three years) 
in which the borrower has or will have an economic hardship.
    There was extensive discussion at all of the regional meetings 
regarding the appropriate criteria for an economic hardship deferment. 
Participants at each of the regional meetings supported a different 
standard for economic hardship: participants at the New York meeting 
concluded that income below the minimum wage should be used as the 
standard for economic hardship; participants at the Atlanta meeting 
recommended that borrowers who relied on public assistance and 
borrowers whose income did not exceed certain levels or whose debts 
exceeded their income should be considered as satisfying the economic 
hardship criteria; the San Francisco attendees recommended that the 
Department consider a variety of factors in defining economic hardship, 
including the ratio of debt payment to income, poverty level based on 
family size, and any disabilities the borrower may have. The Kansas 
City participants also recommended consideration of poverty level and 
analysis of debt and income.
    Participants at all of the meetings generally recommended that the 
deferment be approved for one year at a time. However, there were 
significant differences in the recommendations relating to the 
documentation requirements. Participants at the Atlanta meeting 
identified specific documents that the attendees believed should be 
submitted to support a request for an economic hardship deferment; 
participants at the New York meeting recommended that the Department 
require ``reasonable, appropriate'' documentation; the attendees at the 
San Francisco meeting recommended that the regulations not require the 
borrower to provide documentation with the application for a deferment 
but permit the lender to require supporting documentation; and 
attendees at the Kansas City meeting recommended that the borrower be 
allowed to self-certify eligibility for the deferment.
    Forbearance based on income-to-debt ratio--The Department initially 
interpreted section 428(b)(1)(V)(ii) of the HEA to provide that the 
mandatory forbearance for borrowers with a debt burden under Title IV 
of the Act that equals or exceeds 20 percent of the borrower's gross 
income applied only to medical and dental interns. Attendees at the 
regional meeting in Kansas City disagreed with this view and 
recommended that the Department's regulations permit all borrowers who 
meet the debt burden criteria to receive the forbearance. Participants 
at the meeting in New York agreed with the Department's interpretation 
but recommended that lenders be given the discretion to apply the debt 
burden standard to all borrowers. Participants at all of the regional 
meetings recommended that the regulations permit lenders to base a 
decision regarding forbearance on income and debt information certified 
by the borrower. The attendees at the Atlanta meeting specifically 
recommended that the regulations permit the decision on forbearance to 
be based on the borrower's anticipated income for the next 12 months 
rather than relying on past income records.
    Forbearance--General Requirements--Public Law 102-325 amended 
section 428(c)(3) of the HEA to make changes in the requirements for 
forbearance in the FFEL Program. Participants at all of the regional 
meetings agreed that the Department should allow the lender discretion 
as to when to approve changes in an existing forbearance arrangement 
and recommended that borrower-certified information should be 
sufficient to support the granting of a forbearance. In addition, 
attendees at the regional meetings agreed that the period of 
forbearance should not be counted against the borrower's limited 
repayment period.
    However, there was disagreement among the meeting participants on 
other issues. Participants at the Kansas City regional meeting 
recommended the use of a single national forbearance application form, 
while attendees at the Atlanta meeting recommended the use of ``local'' 
forms and the attendees at the San Francisco meeting recommended the 
continuation of current procedures. There was also disagreement as to 
whether a forbearance should be available to take a loan out of 
default--attendees at the Kansas City and Atlanta meetings agreed that 
forbearance should be available for this purpose while attendees at the 
New York meeting recommended that a forbearance be available only until 
a default claim is submitted on the loan.
    Finally, participants at all of the regional meetings identified a 
number of situations in which the regulations could require a lender to 
provide administrative forbearance. Participants at all of the 
meetings, except Atlanta, recommended that notice to the borrower of 
administrative forbearance be required, but participants at all the 
meetings also recommended that the regulations not require the borrower 
to agree to the forbearance.

Negotiated Rulemaking

    After completion of the regional meetings, the Department prepared 
draft proposed regulations to implement the provisions of Public Law 
102-325 relating to the FFEL Program. In accordance with the 
requirements of section 492(b) of the HEA, those regulations were 
submitted to a negotiated rulemaking process. During the weeks of 
January 4-8 and February 1-5, 1993, the Department met with negotiators 
selected from among individuals nominated by attendees at the regional 
meetings.
    The discussion below of the proposed regulations reflects those 
areas where the negotiators reached a consensus and the proposed 
regulations reflect that agreement. The discussion below also indicates 
where consensus was not reached during the negotiations. However, the 
negotiators did not choose to discuss every part of these proposed 
regulations. Accordingly, the discussion below of those issues not 
discussed during the negotiations reflects only the views of the 
Secretary.

Proposed Regulatory Changes

Section 682.209  Repayment of a Loan

    The proposed regulations implement the provisions of section 
428(b)(1)(E)(i) of the HEA in requiring lenders to offer income-
sensitive or graduated repayment schedules to borrowers. In developing 
criteria to be used by lenders when establishing income-sensitive 
repayment schedules, the Secretary believes that borrowers should be 
required to provide documentation of income. The Secretary therefore 
proposes that lenders request at least a copy of the borrower's most 
recent Federal income tax return if one had been filed within eight 
months prior to the date it is requested by the lender, and evidence 
showing the amount of the borrower's most recent monthly disposable 
income, including, if applicable, pay statements from employers and 
documentation of any income received by the borrower from other 
parties.
    In addition, the Secretary does not believe it would be helpful to 
the borrower or in the interests of the taxpayer if the borrower's 
monthly payment amount is not changed whenever there is a significant 
increase in the borrower's income. Therefore, the proposed regulations 
require an adjustment in the monthly payment amount if the borrower's 
disposable income, for each of three consecutive months, exceeds twice 
the income upon which the payment amount is based. Similarly, if the 
borrower experiences a comparable decrease in disposable income, the 
Secretary strongly encourages a lender to grant a forbearance to a 
borrower who asks the lender for assistance, but who is ineligible for 
a deferment. In a notice of proposed rulemaking published in the 
Federal Register on March 16, 1994 (59 FR 12484), the Secretary also 
proposes to define ``disposable income'' in Sec. 682.200(b) as that 
part of a borrower's compensation from an employer or other income from 
any source that remains after the deduction of any amounts required by 
law to be withheld.
    The Secretary does not believe it would be helpful to the borrower 
or in the interests of the taxpayer if the borrower's monthly payment 
amount is dramatically increased in the later stages of the maximum 
repayment period to accommodate payments that are too small in earlier 
years. The proposed regulations prohibit a lender from establishing a 
graduated repayment plan that schedules any single installment to be 
greater than three times the amount of any other scheduled installment. 
Under an income-sensitive repayment schedule, the borrower's payment 
amount is adjusted at least annually. Given the fact that some 
borrowers may experience wide fluctuations in their income from year-
to-year, a strict adherence to the ``three times'' rule in the case of 
an annual adjustment to a borrower's income-sensitive repayment 
schedule would not always permit the intention of a true income-
sensitive schedule to be achieved. However, the Secretary encourages 
lenders, whenever feasible, to attempt to establish a borrower's 
income-sensitive repayment amount within the ``three times'' rule. To 
implement these requirements, the proposed regulations would permit a 
lender to grant forbearance (which does not count against the maximum 
10-year repayment period) under 34 CFR 682.211 for a period up to 3 
years if the effect of an income-sensitive repayment schedule causes 
the extension of the maximum repayment term of the loan.
    Finally, the Secretary proposes that a fixed-amount repayment 
schedule be used if a borrower fails to indicate a choice of repayment 
schedules, or fails to maintain eligibility for an income-sensitive 
repayment schedule.
    The Secretary estimates that lenders collectively will need an 
additional 20,000 hours to comply with the statutory requirement that 
income-sensitive repayment schedules be offered to most borrowers. The 
income documentation required from borrowers (the borrower's most 
recent Federal income tax return if one had been filed within six 
months prior to the date it is requested by the lender, and evidence 
showing the amount of the borrower's most recent monthly disposable 
income) is needed to obtain verifiable data to accurately determine the 
amount of the borrower's installment payment.

Section 682.210  Deferment

    The proposed regulations implement the requirements of section 
428(b)(1)(M)(iii) of the HEA. During the negotiations, a point of 
contention was the requirements a borrower must meet to qualify for an 
economic hardship deferment. In developing criteria to be used by 
lenders when granting an economic hardship deferment to a borrower 
based on the borrower's income and debt-to-income ratio, as required by 
section 435(o)(2) of the HEA, the Secretary believes that borrowers 
should be required to provide documentation of income. The Secretary 
therefore proposes that lenders obtain at least a copy of the 
borrower's most recent Federal income tax return if one had been filed 
within six months prior to the date it is requested, and evidence 
showing the amount of the borrower's most recent monthly disposable 
income.
    In addition, the Secretary does not believe it would be helpful to 
the borrower or in the interests of the taxpayer if a borrower who has 
the means to repay the loan does not do so. Therefore, the Secretary 
proposes an income limitation on a borrower who requests an economic 
hardship deferment based on income and debt-to-income ratio. The 
Secretary believes the income cap in the proposed regulations--no more 
than four times the minimum wage or four times the poverty line for a 
family of two--is reasonable.
    The public, at the regional meetings in September, and through its 
negotiators, did not agree on the definition of ``debt'' or the precise 
ratio to be used when comparing debt to income. In the Secretary's 
view, it would not be appropriate to include all debts that a borrower 
owed in developing the debt-to-income ratio. In a related section of 
the HEA (section 437A(c)) that evaluates a borrower's debt-to-income 
ratio to determine if a borrower has a high risk of defaulting on a 
loan, only the borrower's FFEL Program debts are considered. Therefore, 
the Secretary believes that for the purpose of establishing the 
borrower's eligibility for an economic hardship deferment, a similar 
evaluation should be used. The proposed regulations reflect the 
Secretary's belief that the calculation of ``debt'' for this purpose 
should include only the monthly amount due on the borrower's non-
defaulted education loans that were obtained through a program 
administered by any agency of the Federal government. Given the ease 
with which borrowers can remove a default status from an FFEL Program 
loan through a guaranty agency's loan rehabilitation program, a 
conscientious borrower with a defaulted FFEL Program loan is not likely 
to be harmed by this restriction solely because of the defaulted loan.
    As for the debt-to-income ratio to be used, the Secretary notes 
that the HEA has created a mandatory forbearance for a borrower who has 
a Title IV debt-to-income ratio that equals or exceeds 20 percent. 
Since a deferment during which the borrower's interest is paid by the 
federal government provides a much greater financial benefit to a 
borrower than a forbearance, it would be logical to establish a similar 
standard for a borrower to meet to qualify for a deferment. Therefore, 
in the Secretary's opinion, the 20 percent ratio is appropriate.
    The Secretary estimates that lenders collectively will need an 
additional 14,000 hours to process the statutorily required economic 
hardship deferments for borrowers.
    The income and debt documentation required from borrowers (the 
borrower's most recent Federal income tax return if one had been filed 
within six months prior to the date it is requested by the lender; 
evidence showing the amount of the borrower's most recent monthly 
disposable income; and evidence showing the most recent monthly amount 
due on the borrower's non-defaulted education loans (or eligible 
defaulted loans) that were obtained through a Federal program) is 
needed to obtain verifiable data to accurately determine the borrower's 
eligibility to receive an economic hardship deferment.

Section 682.211  Forbearance

    Consistent with the rationale expressed earlier with regard to 
income-sensitive repayment schedules and economic hardship deferments, 
the Secretary does not believe it would be helpful to the borrower or 
in the interests of the taxpayer if a borrower who has the means to 
repay the loan does not do so. The Secretary proposes that, in order to 
qualify for a mandatory general forbearance under Sec. 682.211(i)(2)--
which permits a borrower to postpone making scheduled loan payments--a 
borrower should be required to provide at least a copy of his or her 
most recent Federal income tax return if one had been filed within six 
months prior to the date the forbearance is requested, and evidence 
showing the amount of the borrower's most recent monthly disposable 
income. In conformance with section 428(b)(1)(V) of the HEA, this 
requirement does not apply if the borrower is a medical or dental 
intern or resident, as described in Sec. 682.211(i)(1).
    Based on comments received at the regional meetings and other 
information provided to the Secretary from other sources, the Secretary 
has concluded that the public's views concerning the general 
applicability of the use of an administrative forbearance to assist a 
borrower in avoiding default should be reflected in the proposed 
regulations. The Secretary agrees that it would be in the best 
interests of borrowers and taxpayers to require lenders to grant 
administrative forbearance to borrowers or endorsers under the 
exceptional conditions described in Sec. 682.211(j), such as 
emergencies and national disasters, whereas the granting of the 
forbearances authorized under Sec. 682.211(f) is best left to the 
judgement of the lender on a case-by-case basis. The proposed 
regulations would permit a lender to grant forbearance under 
Sec. 682.211 for a period of up to 3 years if the effect of an income-
sensitive repayment schedule causes the extension of the maximum 
repayment term of the loan, and up to one year if the effect of a 
variable interest rate on a fixed-amount or graduated repayment 
schedule similarly causes the extension of the maximum repayment term.
    The Secretary estimates that lenders collectively will need an 
additional 15,000 hours to process mandatory forbearances for 
borrowers. The income and debt documentation required from borrowers 
(the borrower's most recent Federal income tax return if one had been 
filed within six months prior to the date it is requested by the 
lender; evidence showing the amount of the borrower's most recent 
monthly disposable income; and evidence showing the most recent monthly 
amount due on the borrower or endorser's Title IV loans) is needed to 
obtain verifiable data to accurately determine the borrower or 
endorser's eligibility to receive a mandatory forbearance.

Executive Order 12866

    These proposed regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering this program effectively 
and efficiently, as discussed in those sections of the preamble that 
relate to specific sections of the regulations. Burdens specifically 
associated with information collection requirements, if any, are 
identified and explained elsewhere in this preamble under the heading 
Paperwork Reduction Act of 1980.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these proposed regulations, the Secretary has 
determined that the benefits of the proposed regulations justify the 
costs, and do not interfere with state, local, and tribal governments 
in the exercise of their governmental functions.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866, the Secretary invites comment on 
whether there may be further opportunities to reduce any potential 
costs or increase potential benefits resulting from these proposed 
regulations without impeding the effective and efficient administration 
of the program.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities.
    Certain reporting, recordkeeping, and compliance requirements are 
imposed on lenders by the regulations. These requirements, however, 
would not have a significant impact because they would not impose 
excessive regulatory burdens or require unnecessary federal 
supervision.

Paperwork Reduction Act of 1980

    Sections 682.209, 682.210, and 682.211 contain information 
collection requirements. As required by the Paperwork Reduction Act of 
1980, the Department of Education will submit a copy of these sections 
to the Office of Management and Budget (OMB) for its review. (44 U.S.C. 
3504(h))
    These regulations affect lenders that participate in the FFEL 
Program. The Department needs and uses the information to properly 
carry out its responsibility to administer certain aspects of the HEA.
    Annual public reporting burden for this collection of information 
by approximately 7,500 lending institutions participating in the FFEL 
Program is expected to increase by a total of 49,000 hours. The 
collection and reporting of the information in Sec. 682.209(a) is 
expected to occur two million times per year, with each occurrence 
requiring lender processing time of 0.01 hours, for a total increase of 
20,000 hours. The collection and reporting of the information in 
Sec. 682.210(s)(6) is expected to occur 1.4 million times per year, 
with each occurrence requiring lender processing time of 0.01 hours, 
for a total increase of 14,000 hours. The collection and reporting of 
the information in Sec. 682.211 (i) and (j) is expected to occur 1.5 
million times per year, with each occurrence requiring lender 
processing time of 0.01 hours, for a total increase of 15,000 hours.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 3002, New Executive 
Office Building, Washington, DC 20503; Attention: Daniel J. Chenok.

Invitation To Comment

    Interested persons are invited to submit comments and 
recommendations regarding these proposed regulations.
    All comments submitted in response to these proposed regulations 
will be available for public inspection, during and after the comment 
period, in ROB-3, room 4310, 7th and D Streets, SW., Washington, DC, 
between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of 
each week except federal holidays.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether the 
proposed regulations in this document would require transmission of 
information that is being gathered by or is available from any other 
agency or authority of the United States.

List of Subjects in 34 CFR Part 682

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Student aid, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal 
Family Education Loan Program)

    Dated: January 13, 1994.
Richard W. Riley,
Secretary of Education.

    The Secretary proposes to amend part 682 of title IV of the Code of 
Federal Regulations, to read as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM

    1. The authority citation for part 682 continues to read as 
follows:

    Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

    2. Section 682.209 has been amended by adding paragraphs (a)(6) 
(iii) through (viii) and revising paragraphs (a)(7)(ii) and (h)(4)(ii) 
to read as follows:


Sec. 682.209   Repayment of a loan.

    (a) * * *
    (6) * * *
    (iii) Not more than six months prior to the date that the 
borrower's first payment is due, the lender shall offer a choice of a 
fixed-amount, graduated, or income-sensitive repayment schedule to a 
new borrower who receives a Stafford or SLS loan first disbursed on or 
after July 1, 1993. 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 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 is made. The lender shall also offer a choice of 
repayment schedules to any individual whose Consolidation loan 
application is received by the lender on or after January 1, 1993. The 
Secretary encourages lenders to offer the choice of repayment schedules 
to all other borrowers.
    (iv) 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 
fixed-amount repayment schedule described in paragraph (a)(6)(vi) of 
this section if the borrower does not select, or does not qualify for, 
an income-sensitive or a graduated repayment schedule.
    (vi) Under a fixed-amount repayment schedule, the borrower is 
scheduled to pay 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.
    (vii) Under a graduated repayment schedule, the amount of the 
borrower's installment payment is scheduled to change (usually by 
increasing) during the course of the repayment period. If a graduated 
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.
    (viii) (A) Under an income-sensitive repayment schedule, the amount 
of the borrower's installment payment is adjusted annually, based on 
the borrower's expected monthly disposable income, as defined in 
Sec. 682.200(b), during the course of the repayment period. The 
Secretary encourages lenders to develop income-sensitive repayment 
schedules that do not result in any single installment that is more 
than three times greater than any other installment.
    (B) The lender shall inform the borrower that the loan must be 
repaid within the time limits specified under paragraph (a)(7) of this 
section.
    (C) 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 lender shall request 
documentation from the borrower sufficient for the lender to make a 
reasonable determination of what the borrower's payment amount should 
be. The lender shall require the borrower to submit at least the 
following documentation:
    (1) Evidence showing the amount of the borrower's most recent 
monthly disposable income from all sources, including, if applicable, 
pay statements from employers and documentation of any income received 
by the borrower from other parties.
    (2) A copy of the borrower's Federal income tax return if the 
borrower filed a tax return within eight months prior to the date the 
lender requested it.
    (D) If the borrower fails to provide the documentation described in 
paragraph (a)(6)(viii)(C) of this section, the lender shall require the 
borrower to repay the loan in accordance with either a fixed-amount or 
a graduated repayment schedule.
    (E) The agreement between the borrower and lender must specify that 
if, at any time, the borrower's monthly disposable income for each of 
three consecutive months exceeds twice the income upon which the 
current installment amount is calculated, the borrower must inform the 
lender of that fact within 30 days after receiving the income.
    (F) Not later than 30 days after learning from the borrower or 
other sources that the borrower's monthly disposable income has 
exceeded twice the amount upon which the current installment amount is 
calculated for each of three consecutive months, the lender shall 
notify the borrower that, unless the borrower provides documentation 
showing that information to be incorrect or, if it is correct, that the 
borrower's monthly disposable income has since decreased to the level 
that the payment amount had been based on, the amount of the borrower's 
installment payment will be increased commensurately, beginning with 
the second payment due after the date the lender notifies the borrower 
of the new payment amount.
    (7) * * *
    (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-year periods, and from the 12-, 
15-, 20-, 25-, and 30-year periods for repayment of a Consolidation 
loan pursuant to Sec. 682.208(h).
* * * * *
    (h) * * *
    (4) * * *
    (ii) Does not include the unpaid balance on any loan on which the 
borrower is in default, unless the borrower has made satisfactory 
repayment arrangements with the holder to repay that loan.
* * * * *
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 
1082, 1085)

    3. Section 682.210 has been amended by adding a new paragraph 
(a)(11); by revising paragraph (c)(4); and adding a new paragraph (s) 
to read as follows:


Sec. 682.210   Deferment.

    (a) * * *
    (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 only if both individuals meet the requirements of this 
section.
* * * * *
    (c) * * *
    (4) A borrower serving in a medical internship residency program, 
except for an internship in dentistry, is prohibited from receiving or 
continuing deferment on a Stafford, SLS, or Consolidation loan under 
paragraph (c) of this section.
* * * * *
    (s) Deferments for new borrowers on or after July 1, 1993.
    (1) General. 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 
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.
    (2) Student deferment. An eligible borrower is entitled to a 
deferment for half-time study in accordance with the rules prescribed 
in Sec. 682.210(c), except that the borrower is not required to obtain 
a Stafford or SLS loan for the period of enrollment covered by the 
deferment.
    (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).
    (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 if the borrower provides 
documentation satisfactory to the lender showing that the borrower--
    (i) Is working full-time and is earning an amount which does not 
exceed the greater of--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 100 percent of the poverty line for a family 
of 2 as determined in accordance with section 673(2) of the Community 
Service Block Grant Act; or
    (ii) Is not receiving monthly disposable income, as defined in 
Sec. 682.200(b), from all sources that is more than four times the 
amount specified in paragraph (s)(6)(i) of this section, and the amount 
of the borrower's payments each month (or a proportional share if the 
payments are due less frequently than monthly) on education loans 
obtained through a Federal program on which the borrower is not 
considered by the holder of the loan to be in a default status, is 
collectively equal to or greater than 20 percent of the borrower's 
monthly disposable income. The lender shall require the borrower to 
submit at least the following documentation to qualify for a deferment 
under paragraph (s)(6)(ii) of this section:
    (A) Evidence showing the amount of the borrower's most recent 
monthly disposable income from all sources.
    (B) A copy of the borrower's Federal income tax return if the 
borrower filed a tax return within six months prior to the date the 
deferment is requested.
    (C) Evidence showing the most recent monthly amount due on the 
borrower's non-defaulted education loans (or eligible defaulted loans) 
that were obtained through a Federal program. For this purpose, a 
borrower's defaulted education loan obtained through a Federal program 
may be included only if the holder of the loan provides a written 
statement that the borrower has made satisfactory arrangements to repay 
the loan.


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


    4. Section 682.211 has been amended by redesignating paragraph 
(a)(4) as (a)(5) and adding a new paragraph (a)(4); by adding new 
paragraphs (f) (6) through (10); and by adding new paragraphs (i) and 
(j) to read as follows:


Sec. 682.211  Forbearance.

    (a) * * *
    (4) 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.
* * * * *
    (f) * * *
    (6) 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, or the borrower has become totally and 
permanently disabled, until the lender receives documentation of death 
or total and permanent disability, pursuant to Sec. 682.402 (b) or (c);
    (7) For periods necessary for the Secretary or guaranty agency to 
determine the borrower's eligibility for cancellation of the loan 
because of 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);
    (8) 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;
    (9) For a period of up to one year 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; or
    (10) For a period of up to 3 years in cases where the effect of an 
income-sensitive repayment schedule causes the extension of the maximum 
repayment term.
* * * * *
    (i) Mandatory forbearance.--(1) Medical or dental interns or 
residents. Upon receipt of a written request and sufficient supporting 
documentation from a borrower serving in a medical or dental internship 
or residency program, a lender shall grant forbearance renewable at 12-
month intervals to a borrower who has exhausted his or her eligibility 
for a deferment under Sec. 682.210(n), or whose 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 written request and sufficient 
supporting documentation from an endorser, or from a borrower (other 
than a borrower who is serving in a medical or dental internship or 
residency described in paragraph (i)(1) of this section), a lender 
shall grant forbearance in increments of up to one year, for periods 
that, collectively, do not exceed three years, if the borrower or 
endorser--
    (i) Is currently obligated to make payments on Title IV loans; and
    (ii) The amount of such 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 or 
endorser's monthly disposable income.
    (3) Documentation. Before granting a forbearance to a borrower or 
endorser under paragraph (i)(2) of this section, the lender shall 
require the borrower or endorser to submit at least the following 
documentation:
    (i) Evidence showing the amount of the borrower or endorser's most 
recent monthly disposable income, as defined in Sec. 682.200(b).
    (ii) A copy of the borrower or endorser's Federal income tax return 
if the borrower or endorser filed a tax return within six months prior 
to the date the forbearance is requested.
    (iii) Evidence showing the most recent monthly amount due on the 
borrower or endorser's Title IV loans.
    (j) Mandatory administrative forbearance. (1) The lender shall 
grant a mandatory automatic forbearance for the periods specified in 
paragraph (j)(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 an 
automatic forbearance under this paragraph to submit a request or 
supporting documentation.
    (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
    (ii) Consents to making payments in accordance with the lender's 
notification if the forbearance is not declined.


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

[FR Doc. 94-6944 Filed 3-23-94; 8:45 am]
BILLING CODE 4000-01-P