[Federal Register Volume 59, Number 115 (Thursday, June 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14593]


[[Page Unknown]]

[Federal Register: June 16, 1994]


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Part IX





Department of Education





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34 CFR Part 682




Federal Family Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AB62

 
Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Final regulations.

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

SUMMARY: The Secretary amends 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, as amended (HEA), by the Higher Education Amendments of 
1992 (Pub. L. 102-325). Public Law 102-325 added new section 428J to 
the HEA which authorizes the Secretary to establish a demonstration 
program for loan forgiveness for certain types of professional or 
public service. Under section 428J of the HEA, the Secretary is 
authorized to forgive portions of Federal Stafford Loans incurred by a 
student borrower who performs volunteer service or works in certain 
teaching or nursing areas. Minor changes to section 428J were made by 
the National and Community Service Trust Act of 1993 (Pub. L. 103-82). 
Section 428J was also recently amended by the Higher Education 
Technical Amendments of 1993 (Pub. L. 103-208). Those additional 
statutory changes are also reflected in these regulations. This program 
is not currently funded.

EFFECTIVE DATE: Pursuant to section 482(c) of the Higher Education Act 
of 1965, as amended (20 U.S.C. 1089(c)), these regulations take effect 
July 1, 1995, with the exception of the information collection 
requirements in Sec. 682.215. The information collection requirements 
in Sec. 682.215 will become effective on July 1, 1995, or after these 
requirements have been submitted by the Department of Education and 
approved by the Office of Management and Budget under the Paperwork 
Reduction Act of 1980, whichever is later. A document announcing the 
effective date will be published later in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Barbara Bauman, 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: New section 428J of the HEA authorizes the 
Secretary to promulgate regulations to establish a loan forgiveness 
demonstration program in the Federal Stafford Loan Program. The purpose 
of the demonstration program is to encourage individuals to enter the 
teaching and nursing professions and to perform national and community 
service by offering partial Federal Stafford loan forgiveness. If 
funding is provided, the loan forgiveness program is available only to 
new borrowers who, as of October 1, 1989, had no outstanding debt on a 
FFEL Program loan.
    On February 25, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) for part 682 in the Federal Register (59 FR 9376). 
The NPRM included a discussion of the major issues surrounding the 
proposed changes which will not be repeated here. The following list 
summarizes those issues and identifies the pages of the preamble to the 
NPRM on which a discussion of those issues may be found:
     Eligibility requirements for a borrower who wishes to 
qualify for loan forgiveness (page 9378);
     Application procedures for loan forgiveness (page 9378);
     Limitations of the loan forgiveness program (page 9378);
     Requirements for borrowers desiring loan forgiveness under 
the teaching, volunteer service or nursing categories (pages 9378-
9379);
     Percentages of loan amounts eligible for forgiveness based 
on year of service completed (page 9379).

Substantive Revisions to the Notice of Proposed Rulemaking

Section 682.215(c)  Application

     The Secretary has defined September 1 as the earliest date 
in which a borrower can apply for loan forgiveness in addition to the 
October 1 deadline for submitting applications.
     The Secretary has clarified that borrowers who submit 
incomplete and inaccurate loan forgiveness applications will not be 
considered for loan forgiveness unless and until a completed 
application is submitted.

Section 682.215(i)  Definitions

     The Secretary has expanded the definition of both 
``elementary school'' and ``secondary school'' to include nonprofit 
private day or residential schools to be consistent with the definition 
for these terms in the Perkins Loan Program definitions.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 14 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the changes made to the regulations as a result of 
those comments follows.
    Major issues are grouped according to subject. Technical and other 
minor changes, and suggested changes the Secretary is not legally 
authorized to make under the applicable statutory authority, are not 
addressed.

Section 682.215(a)  General

    Comment: Some commenters noted that there is no formal method 
specified in the regulations to inform borrowers about the loan 
forgiveness program. The commenters recommended that details be 
provided to borrowers in the application/promissory note or the 
disclosure statement. The commenters did not believe that lenders 
should be required to do a special mailing.
    Discussion: The Secretary will ensure that guaranty agencies take 
steps to inform borrowers about the loan forgiveness program should the 
program be funded. These methods may include mention in the 
application/promissory note or disclosure statement or in public 
documents such as the Student Guide. Lenders will not be expected to 
publicize the program through a special mailing.
    Change: None.
    Comment: A commenter recommended that the definition of eligible 
borrower be clarified to convey that a borrower who had paid off an 
outstanding debt under the FFEL programs prior to October 1, 1989 would 
be eligible for the forgiveness program if the borrower became a 
``new'' borrower with their first disbursement of a new FFEL program 
loan on or after October 1, 1989.
    Discussion: The Secretary believes that the regulations convey that 
a borrower who has no outstanding debt under the FFEL programs as of 
October 1, 1989 would qualify as an eligible borrower.
    Change: None.
    Comment: A commenter asked if lenders would be required to produce 
a new repayment schedule for a borrower each year loan forgiveness is 
granted. The commenter also suggested that the percentages of loan 
forgiveness should have no effect on the borrower's current payments.
    Discussion: The Secretary does not believe that it is necessary for 
a lender to provide new repayment schedules to borrowers who receive 
loan forgiveness. The Secretary expects that the reduction of the loan 
amount owed by a borrower as a result of the loan forgiveness will most 
likely result in a reduction of the number of payments to be made by 
the borrower.
    Change: None.
    Comment: A commenter asked if all Federal Stafford loans were 
eligible for forgiveness under this demonstration program.
    Discussion: The Secretary agrees that the regulations should be 
clarified to explain that subsidized, unsubsidized, and nonsubsidized 
Federal Stafford loans will be eligible for forgiveness under 
Sec. 682.215.
    Change: The final regulations have been revised to incorporate this 
clarification.
    Comment: One commenter urged the Secretary to include loans made 
under the Federal Direct Student Loan Program to be eligible for the 
forgiveness program. The commenter believed that since the Omnibus 
Budget Reconciliation Act of 1993 stated that all terms and conditions 
under the Federal Stafford Loan Program, which include cancellation, 
deferment and other provisions, also apply to the Federal Direct 
Student Loan Program, Congress intended for the loan forgiveness 
program to be included as well.
    Discussion: The Secretary agrees with the commenter that loans made 
under the Federal Direct Student Loan Program are eligible for the 
forgiveness program. Direct Loan regulations will specify Direct Loan 
borrowers' eligibility for loan forgiveness under this program.
    Change: None.
    Comment: Some commenters believed that the Secretary should provide 
timeframes and procedures by which to notify borrowers of their 
approval or denial of loan forgiveness eligibility. The commenters were 
also interested in knowing the timeframes and procedures that the 
Secretary will adopt to notify the holder regarding which borrowers 
will receive forgiveness and when the holder will be given the 
appropriate funds.
    Discussion: The borrower will be informed of his or her eligibility 
for loan forgiveness by the Secretary in a timely manner. The Secretary 
will take appropriate steps to inform holders of proper procedures. 
However, the Secretary notes that without knowing the amount of 
appropriations, if any, that might be available for the forgiveness 
program and the potential number of recipients, it is impossible to 
define those methods in these regulations.
    Change: None.
    Comment: Some commenters expressed concern about borrower confusion 
regarding the borrower's repayment obligation if the borrower is 
eligible for loan forgiveness. The commenters were worried about the 
period of time between when a borrower applies for loan forgiveness and 
the holder's receipt of the loan forgiveness payment from the 
Secretary. The commenters wanted to know how the servicer would be 
notified that the borrower's loan or loans are eligible for loan 
forgiveness and whether the borrower would be required to continue to 
make regular monthly payments in the time period between the loan 
forgiveness application submission and payment from the Secretary.
    Discussion: The Secretary recognizes the potential problems created 
by this structure. Because this program is not an entitlement, the 
Secretary cannot promise an otherwise eligible borrower that funding 
will be available to award a percentage of loan forgiveness. Therefore, 
the Secretary reminds the commenters that the borrower is still in 
repayment on his or her loan, regardless of eligibility for the loan 
forgiveness unless he or she is in an authorized deferment or 
forbearance period.
    Change: None.
    Comment: One commenter wanted to know if a borrower could 
participate in both a state forgiveness program as well as this 
demonstration program.
    Discussion: Although the National and Community Service Act of 1990 
(42 U.S.C. 12571 et seq.) precludes a borrower from receiving a loan 
cancellation benefit under both that program and this loan forgiveness 
program, the Secretary believes that a borrower participating in the 
loan forgiveness program under Sec. 682.215 is eligible to participate 
in state forgiveness programs, where allowable by the state.
    Change: None.

Section 682.215(b)

    Comment: Some commenters believed that in the instances where a 
defaulted borrower made satisfactory repayment arrangements on the 
loans in default, a borrower should be allowed to have those defaulted 
loans forgiven as well. The commenters believed that if the motivation 
behind the demonstration program was to encourage borrowers to enter 
into public service, then defaulted borrowers could be further enticed 
into public service by being allowed to ``work off'' their defaulted 
loans as well as those not in default.
    Discussion: This issue was thoroughly discussed at the negotiated 
rulemaking sessions that preceded publication of the NPRM. Given that 
there may be limited or no funding for this program, the Secretary felt 
that it would be inappropriate to provide this benefit on loans that 
are still in default.
    Change: None.
    Comment: A commenter recommended that the Secretary and the 
guaranty agencies establish a way to easily verify that satisfactory 
repayment arrangements had been made on a loan that is to be considered 
eligible for loan forgiveness.
    Discussion: The Secretary encourages guaranty agencies to provide 
appropriate information to lenders regarding a borrower's loan status. 
Additionally, the Secretary anticipates that the National Student Loan 
Data System will assist in providing this type of information.
    Change: None.
    Comment: Two commenters recommended that the Secretary should 
encourage guaranty agencies to consider those borrowers who have 
defaulted on their loans but are likely to be eligible for loan 
forgiveness to be good candidates for a rehabilitated loan.
    Discussion: The Secretary believes that it is illogical to conclude 
that eligibility for one program assures eligibility for another. The 
loan rehabilitation program has specific requirements separate from the 
forgiveness program.
    Change: None.
    Comment: One commenter requested that the Secretary clarify that 
defaulted loans that have been rehabilitated should be eligible for 
forgiveness.
    Discussion: The Secretary agrees with the commenter. Once a loan 
has been rehabilitated it is no longer in default and is therefore 
considered to be eligible for forgiveness under this program.
    Change: The final regulations have been revised to incorporate this 
clarification.

Section 682.215(c)

    Comment: Three commenters urged the Secretary to develop a 
standardized loan forgiveness application form that includes such data 
items as borrower dates of service, loan balance information, 
eligibility, and interest amounts in order to simplify the process.
    Discussion: The Secretary agrees and is committed to consulting 
with FFEL participants to develop a standardized application form 
pursuant to the requirements of section 432(1) of the HEA.
    Change: None.
    Comment: One commenter questioned to whom the term ``designee'' in 
Sec. 682.215(c) refers. The commenter also recommended that the 
Secretary provide the designee with a means by which to identify and 
verify that a certain type of facility, tax-exempt organization or 
teacher shortage area meets the criteria of Sec. 682.215. The commenter 
suggested that a more suitable alternative would be to require the 
certifying official to certify that the organization meets the 
requirements of Sec. 682.215.
    Discussion: The term ``designee'' refers to the departmental 
official assigned with implementing this program. The Secretary will 
provide the designee with all necessary information at the appropriate 
time if necessary. The Secretary notes that the NPRM provided that the 
certifying official in each category of forgiveness certify that the 
borrower's service meets the requirements of Sec. 682.215.
    Change: None.
    Comment: In considering the October 1 deadline for submitting 
forgiveness applications, some commenters recommended that the 
regulations define a specific timeframe as to the earliest date an 
application for forgiveness may be received. They reasoned that since 
funding for this program may be limited and will be awarded on a first-
come, first-served basis, applicants should be informed of the first 
date upon which they can apply. The commenters also wished to know 
whether a borrower need complete the service prior to applying for 
forgiveness or merely have completed service before the October 1 
deadline.
    Discussion: The Secretary agrees with the commenters that a 
borrower should be informed of the first date on which a forgiveness 
application can be received. A borrower's application for forgiveness 
should be postmarked no earlier than September 1 of each year that 
forgiveness is requested. The Secretary has chosen the September start 
date in order to be fair to all categories of borrowers, since certain 
professions have more definitive begin and end dates or terms that may 
end in June or July that would give them an advantage over other 
borrowers if the earliest date to apply was July or August. The 
Secretary also believes that it is appropriate to require that the 
service be completed prior to the borrower's submission of an 
application for forgiveness. This would result in fair treatment to the 
greatest number of borrowers and would eliminate the need to confirm 
that the borrower completed the service.
    Change: The final regulations have been revised to include 
September 1 as the earliest date for forgiveness applications to be 
received.
    Comment: A commenter asked if applications for forgiveness should 
be routed through the lender or guaranty agency or directly to the 
Secretary.
    Discussion: Applications for loan forgiveness should be directed to 
the Secretary.
    Change: None.
    Comment: Some commenters felt that there should be a provision 
whereby a borrower who qualified for forgiveness one year but did not 
receive it due to limited funding should be first to be considered for 
forgiveness the following year. The commenters also wanted to know if a 
borrower who qualified and received the forgiveness one year would be 
automatically eligible for the following year's forgiveness.
    Discussion: This approach was discussed at the negotiated 
rulemaking sessions. The Secretary believes that given the limited 
amount of funding, there is no statutory basis to allow eligible 
applicants from one year to automatically qualify for the next year. 
Similarly, borrowers who were denied forgiveness due to lack of funding 
one year will not be given priority over the next year's applicants. 
Borrowers are required to reapply for each year for which they wish to 
receive the forgiveness benefit.
    Change: None.
    Comment: Some commenters wanted to know how to treat a borrower's 
incomplete forgiveness application. The commenters asked whether a 
borrower should be disqualified, or if allowed to provide the missing 
information, how much time should a borrower have to submit the 
information. They also wanted to know if the borrower's first-come, 
first-served status would be affected by submitting an incomplete 
application.
    Discussion: An incomplete or inaccurate application will not 
qualify a borrower for receiving loan forgiveness. However, the 
Secretary will attempt to notify the borrowers who submit inaccurate or 
incomplete applications so that they will have an opportunity to 
complete and submit a complete application by the October 1 deadline.
    Change: None.
    Comment: A number of commenters expressed confusion over the 
treatment of borrowers with regard to forbearance. Some commenters 
questioned whether forbearance for eligible borrowers under the 
forgiveness program was necessary or administratively feasible.
    Discussion: The Secretary reminds the commenters that all borrowers 
who request forbearance while they are serving in areas that would 
qualify for forgiveness are entitled to forbearance as stated in 
section 428J. The ability to obtain forbearance is based on the 
borrower's being engaged in qualifying service and is not dependent on 
whether the borrower actually receives the loan forgiveness.
    Change: None.
    Comment: Some commenters asked when a borrower could request 
forbearance since the borrower does not apply for forgiveness until 
after the year of service has been completed. The commenters questioned 
whether forbearance would be granted retroactively at the time the 
borrower applied for forgiveness or if the lender or servicer would be 
expected to grant forbearance to a borrower the year prior to 
application while the borrower was serving in an eligible position. The 
commenters felt that the wording of the NPRM regarding forbearance may 
be confusing for a borrower who may think that payments do not have to 
be made during the period of service. The commenters also wished to 
know if the forbearance applied only to the loans eligible for 
forgiveness or on all loans.
    Discussion: The Secretary wishes to emphasize that the holder or 
servicer is to grant forbearance to a borrower upon the borrower's 
request while the borrower is serving in one of the categories of 
service eligible for forgiveness under Sec. 682.215. A borrower shall 
receive forbearance while serving regardless of whether sufficient 
funding is available for forgiveness at the end of that year of 
service. The forbearance will apply to all loans held by the borrower 
that would normally be entitled to forbearance. A borrower who is not 
in an authorized deferment or forbearance status while serving is 
expected to follow the terms of the promissory note regarding 
repayment.
    Change: None.
    Comment: Some commenters recommended that all borrowers in 
qualifying service that wish to apply for forbearance be given explicit 
instruction as to the terms of the forbearance and the fact that 
receiving forbearance for service under Sec. 682.215 was not related to 
receiving loan forgiveness for performing qualifying service. The 
commenters were concerned that a borrower would be incurring additional 
costs with a forbearance with the potential of not receiving the loan 
forgiveness benefit for performing qualifying service.
    Discussion: The Secretary shares the concerns of the commenters and 
expects holders to provide information on the option of forbearance 
under this program as is required under the FFEL programs. The holders 
will inform borrowers that funding, if available for this program, is 
limited and that receiving a forbearance during qualifying service does 
not guarantee loan forgiveness under this program and as such may 
result in additional costs to the borrower.
    Change: None.

Section 682.215 (e), (f), and (g)

    Comment: Some commenters asked that the Secretary clarify that a 
borrower must apply for forgiveness each year following the year of 
qualifying service in the teaching, volunteer and nursing categories.
    Discussion: The Secretary anticipates that some eligible borrowers 
may have completed qualifying service in previous years that would not 
be immediately preceding the time in which they apply for this program. 
In this situation, the Secretary envisions that a borrower would need 
to indicate the begin and end date of the year of service, as all other 
eligible borrowers are required to do. Loan forgiveness, if funding is 
available, would be at the level based on which year the borrower last 
received forgiveness. For example, a borrower who qualified and 
received the benefit for the first year of service, but not the second 
year, who now qualifies for forgiveness for the third year of service 
would receive the benefit as a second year participant in the 
forgiveness program.
    Change: The final regulations have been revised to clarify that a 
borrower must apply each year to obtain loan forgiveness under this 
demonstration program.

Section 682.215(h)

    Comment: Some commenters asked whether all Federal Stafford loans 
are eligible for loan forgiveness. They recommended that if all Federal 
Stafford loans are eligible the Secretary should specify how the holder 
should apply the forgiveness amounts.
    Discussion: The Secretary clarifies that unsubsidized, subsidized 
and nonsubsidized Federal Stafford loans are eligible for this 
forgiveness program and that the holder should apply the forgiveness 
amounts first to the unsubsidized portion, followed by the subsidized 
and then the nonsubsidized portion of the loans.
    Change: The final regulations have been revised in both 
Sec. 682.215(a) and Sec. 682.215(h) to incorporate this clarification.
    Comment: Some commenters are worried that holders and servicers do 
not link individual loans to the specific academic years when the 
borrower was in school and will therefore be unable to identify which 
years constitute the borrower's last two years of undergraduate 
education or two-year period when the borrower was obtaining a post 
graduate teaching or additional teaching certificate.
    Discussion: The Secretary believes that holders and servicers are 
able to track loan amounts for this purpose because numerous existing 
program requirements already require such tracking. Loans are made 
based on statutory annual loan limits for applicable undergraduate and 
post baccalaureate academic levels. This data is available on a loan-
by-loan basis for each borrower in lender and guaranty agency systems 
and should be sufficient for purposes of implementing these provisions.
    Change: None.

Section 682.215(h)(5)

    Comment: A commenter objected to the provision in the NPRM that 
states that payments eligible for forgiveness under this program that 
were already repaid by the borrower will not be refunded. The commenter 
noted that a prudent borrower may choose not to risk the additional 
costs of forbearance given the questionable funding for this program 
and continue to repay the loan, perhaps resulting in paying a loan 
amount that could have been forgiven but is now not eligible.
    Discussion: The statute does not authorize the refunding of any 
repayment of a Federal Stafford loan.
    Change: None.

Section 682.215(i)

    Comment: A commenter recommended that the term ``secondary school'' 
should not include education beyond the twelfth grade. The commenter 
stated that this definition conflicts with the commonly recognized 
definition of postsecondary education in many states and thus may 
confuse those involved in postsecondary education.
    Discussion: This definition was taken from already existing FFEL 
program regulations.
    Change: None.
    Comment: One commenter objected to the Secretary limiting the 
teaching forgiveness provision to borrowers who teach in public 
elementary and secondary schools. The commenter pointed out that 
section 428J provides forgiveness for those borrowers who teach full 
time in a school that qualifies under section 462(a)(2)(A) of the HEA 
for loan cancellation for Perkins loan recipients. The commenter noted 
that under the Perkins Loan Program, cancellation is provided for full-
time teachers in nonprofit private elementary schools as well. The 
commenter requested that the Secretary make the definitions of 
elementary school and secondary school consistent with the Perkins 
definitions.
    Discussion: The Secretary agrees with the commenter.
    Change: The final regulations have been revised to include 
nonprofit private schools in the elementary school and secondary school 
definitions. This change allows those serving in these types of schools 
to be eligible under the teaching forgiveness category of 
Sec. 682.215(e).
    Comment: A commenter suggested that the Secretary expand the 
definitions that pertain to the nursing category of loan forgiveness. 
The commenter asked that the Secretary broaden the eligibility of sites 
to encourage more nursing graduates to participate in the forgiveness 
program.
    Discussion: The Secretary consulted with the Secretary of Health 
and Human Services (HHS) in determining the definitions that would 
apply to the facilities described in section 428J in which a borrower 
would be employed full-time as a nurse. These definitions were taken 
from HHS and other existing regulations. The statute indicates that the 
Secretary is to rely on the expertise of HHS in these areas. 
Accordingly, there will be no change.
    Change: None.

Executive Order 12866

    These final 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 final regulations are those 
resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering the program effectively and 
efficiently. In assessing the potential costs and benefits--both 
quantitative and qualitative--of these regulations, the Secretary has 
determined that the benefits of the regulations justify the costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Assessment of Educational Impact

    In the notice of proposed rulemaking, the Secretary requested 
comments on whether the proposed regulations would require transmission 
of information that is being gathered by or is available from any other 
agency or authority of the United States.
    Based on the response to the proposed rules and on its own review, 
the Department has determined that the regulations in this document do 
not 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, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

    Dated: May 10, 1994.
Richard W. Riley,
Secretary of Education.

(Catalog of Federal Domestic Assistance Number 84.032, Federal 
Family Education Loan Program)

    The Secretary amends part 682 of title 34 of the Code of Federal 
Regulations 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. A new Sec. 682.215 is added to read as follows:


Sec. 682.215  Federal Stafford Loan forgiveness demonstration program.

    (a) General. The Federal Stafford Loan forgiveness demonstration 
program is intended to encourage individuals to enter the teaching and 
nursing professions and to perform national and community service. 
Under this demonstration program, the Secretary repays portions of 
unsubsidized, subsidized and nonsubsidized Federal Stafford obligations 
that were incurred by a borrower during the borrower's last two years 
of undergraduate education if that borrower worked in those professions 
or performed that service. For purposes of this section, an eligible 
borrower is a borrower who, as of October 1, 1989, had no outstanding 
debt under the FFEL programs.
    (b) Borrower eligibility; requirements for qualification. A 
borrower may obtain loan forgiveness under this program if he or she 
was employed as a full-time teacher in certain elementary and secondary 
schools teaching certain subjects or as a full-time nurse in certain 
types of hospitals or health care centers, or was serving as a 
volunteer under the Peace Corps Act or under the Domestic Volunteer 
Service Act of 1973, or was performing comparable service as a full-
time employee of a tax exempt organization under section 501(c)(3) of 
the Internal Revenue Code of 1986. For purposes of this section, full-
time means the standard used by a State or profession in defining full-
time employment. For a borrower serving in more than one organization, 
the determination of ``full-time'' is based on the combination of all 
qualifying employment. A borrower who is in default on a FFEL loan and 
has not made satisfactory repayment arrangements is not eligible for 
forgiveness. However, if a borrower has made satisfactory repayment 
arrangements on the loan or loans in default, the forgiveness applies 
only to the loan or loans held by the holder that are not in default. 
Federal Stafford loans that have been rehabilitated are eligible for 
forgiveness.
    (c) Application. To qualify for the forgiveness program, an 
eligible borrower shall apply to the Secretary each year following a 
completed year of service, but no earlier than September 1 and no later 
than October 1 of a given year. The application must be in writing, on 
a form provided by the Secretary and according to procedures 
established by the Secretary. An eligible borrower must complete a year 
of service prior to filing a loan forgiveness application with the 
Secretary. Eligible borrowers are chosen on a first-come, first-served 
basis to participate and must receive forbearance upon request for each 
year of service for which forgiveness is requested. An eligible 
borrower must reapply each year to receive the forgiveness benefit. 
Incomplete or inaccurate applications are not considered in the first-
come, first-served process. If a borrower initially submits an 
incomplete or inaccurate application, the borrower must provide a 
completed application to the Secretary or his designee prior to 
consideration in the selection process.
    (d) Limitation; Stafford forgiveness recipients. The total amount 
of loans forgiven is limited to the amount of funds appropriated for 
the fiscal year for the demonstration program.
    (e) Borrower eligibility; teaching forgiveness. (1) To qualify for 
teaching loan forgiveness under this section, a borrower must have 
taught full-time for a year (as defined by the jurisdiction in which 
the borrower is employed) in a teacher shortage area as certified by 
the authorizing official. For purposes of this paragraph a teacher has 
taught in a teacher shortage area if--
    (i) The teacher taught in a school that satisfied the criteria in 
section 465(a)(2)(A) of the Act for loan cancellation for Perkins loan 
recipients who teach in those schools; and
    (ii) The teacher taught mathematics, science, foreign languages, 
special education, bilingual education or in any other field of 
expertise where the State educational agency determined there was a 
shortage of qualified teachers.
    (2) The borrower, in the time frame provided under paragraph (c) of 
this section, for the year of service for which forgiveness is 
requested, must provide to the Secretary or his designee--
    (i) A statement by the chief administrative officer of the public 
elementary or secondary school in which the borrower was teaching--
    (A) Certifying the year that the borrower was employed as a full-
time teacher;
    (B) Certifying which subject area listed in paragraph (e)(1)(ii) of 
this section or designated by the State educational agency the borrower 
taught; and
    (C) Verifying that the borrower taught in a school that satisfies 
the requirements of paragraph (e)(1)(i) of this section.
    (f) Borrower eligibility; volunteer service forgiveness. (1)(i) To 
qualify for the volunteer service loan forgiveness under this 
paragraph, a borrower must have served as a full-time volunteer for at 
least a year (defined as twelve consecutive months) under--
    (A) The Peace Corps Act; or
    (B) The Domestic Volunteer Service Act of 1973 (ACTION programs).
    (ii) A borrower may also qualify for the volunteer service loan 
forgiveness if the borrower performed service comparable to service 
provided under paragraph (f)(1) of this section as a full-time employee 
of an organization that is exempt from taxation under section 501(c)(3) 
of the Internal Revenue Code of 1986, if the borrower did not receive 
compensation that exceeds 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 two as defined in section 673(2) of the Community Services Block 
Grant Act.
    (2) To qualify under this paragraph, the borrower must--
    (i) Have worked for an organization that provides services to low 
income persons and their communities to assist them in eliminating 
poverty and poverty-related human, social, and environmental 
conditions; and
    (ii) Not, as part of his or her duties, have given religious 
instruction, conducted worship services, engaged in religious 
proselytizing, or engaged in fund-raising to support religious 
activities.
    (3) The borrower, in the time frame provided under paragraph (c) of 
this section, for the year of service for which forgiveness is 
requested under paragraphs (f)(1), (f)(2), or (f)(3) of this section 
must provide to the Secretary or his designee a statement from an 
authorized official of the organization or agency for whom the borrower 
worked certifying--
    (i) That the borrower served in a job that satisfies the 
requirements of this paragraph;
    (ii) The date on which the borrower's service began; and
    (iii) The date on which the borrower completed the year of service.
    (g) Borrower eligibility; nursing profession loan forgiveness. (1) 
To qualify for the nursing profession loan forgiveness under this 
paragraph, a borrower must have been employed as a full-time nurse for 
a public hospital, a rural health clinic, a migrant health center, an 
Indian Health Service Health Center, an Indian Health Center, a Native 
Hawaiian Health Center or for an acute care or long-term care facility.
    (2) To qualify for loan forgiveness under this paragraph, a 
borrower, in the time frame provided under paragraph (c) of this 
section, for the year of service for which forgiveness is requested, 
must provide to the Secretary or his designee--
    (i) A statement from an authorized official where the borrower was 
employed certifying that the borrower was employed as a full-time nurse 
for a facility described in this section and served for the term of at 
least one year (defined as twelve consecutive months);
    (ii) The date on which the borrower's service began; and
    (iii) The date on which the borrower's year of service ended.
    (h) Forgiveness amounts. (1) The Secretary repays the holder a 
percentage of the total amount of Stafford loans owed by the eligible 
borrower for--
    (i) The borrower's last 2 years of undergraduate education; or
    (ii) The 2 academic years in which a borrower who was not already 
participating in loan repayment pursuant to this section returned to an 
institution of higher education for the purpose of obtaining a post 
graduate teaching certificate or additional teacher certification.
    (2) The Secretary repays loans on the following basis:
    (i) 15 percent of the total original principal amount of Federal 
Stafford loans for each of the first two years in which the borrower is 
awarded the benefit and meets the requirements of this section.
    (ii) 20 percent of the total original principal amount for each of 
the third and fourth years.
    (iii) 30 percent of the total original principal amount for the 
fifth year.
    (3) The Secretary repays the holder for the amount of interest, 
including capitalized interest, which accrued on the loan or loans 
subject to forgiveness over the year.
    (4) Payments made by the Secretary must be applied first to the 
unsubsidized Federal Stafford portion of the loan, followed by the 
subsidized Federal Stafford portion, and then the nonsubsidized Federal 
Stafford portion.
    (5) The amount of payments made by the Secretary under paragraphs 
(h)(2)(i), (h)(2)(ii), and (h)(2)(iii) of this section may not exceed 
the sum of the outstanding principal balance of the loan or loans 
subject to forgiveness plus all interest payments made in accordance 
with paragraph (h)(3) of this section.
    (6) Payments received from a borrower who qualifies for loan 
forgiveness under this section may not be refunded.
    (i) Definitions. The following definitions apply to this section:
    Acute care facility means either a short-term care hospital in 
which the average length of patient stay is less than 30 days, or a 
short-term care hospital in which over 50% of all patients are admitted 
to units where the average length of patient stay is less than 30 days.
    Elementary school means a public or nonprofit private day or 
residential school that provides elementary education, as determined 
under State law.
    Indian Health Service Health Center means a health care facility 
(whether operated directly by the Indian Health Service or operated by 
a tribal contractor or grantee under the Indian Self-Determination 
Act), that is physically separated from a hospital and that provides 
one or more clinical treatment services, such as physician, dentist or 
nursing services, available at least 40 hours a week for outpatient 
care to persons of Indian or Alaska Native descent.
    Long-term care facility means a facility that offers services 
designed to provide diagnostic, preventive, therapeutic, 
rehabilitative, supportive and maintenance services for individuals who 
have chronic physical or mental impairments.
    This facility may have a variety of institutional and non-
institutional health settings, including the home, and the goal of the 
service is to promote the optimum level of physical, social and 
psychological functioning.
    Native Hawaiian Health Center means an entity (as defined in 
section 8 of the Native Hawaiian Health Care Act of 1988 (Pub.L. 100-
579)--
    (1) That is organized under the laws of the State of Hawaii;
    (2) That provides or arranges for health care services through 
practitioners licensed by the State of Hawaii, if licensure 
requirements are applicable;
    (3) That is a public or private nonprofit entity; and
    (4) In which Native Hawaiian health practitioners significantly 
participate in the planning, management, monitoring, and evaluation of 
health services.
    Public hospital means a facility (as defined in 24 CFR 242.1)--
    (1) Owned by a State or unit of local government or by an 
instrumentality thereof, or owned by a public benefit corporation 
established by a State or unit of local government or by an 
instrumentality thereof;
    (2) That provides community services for inpatient medical care of 
the sick or injured (including obstetrical care);
    (3) Where not more than 50 percent of the total patient days during 
any year are customarily assignable to the categories of chronic 
convalescent and rest, drug and alcoholic, epileptic, mentally 
deficient, mental, nervous and mental, and tuberculosis; and
    (4) That is licensed or regulated by the State (or, if there is no 
State law providing for such licensing or regulation by the State, by 
the municipality or other political subdivision in which the facility 
is located).
    Rural Health Clinic means an entity (as defined under section 
1861(aa)(2) of the Social Security Act and in 42 CFR 491.2 that--
    (1) Is primarily engaged in furnishing to outpatients, physicians' 
services and services furnished by a physician assistant or by a nurse 
practitioner, as well as those services and supplies covered under 
sections 1861(s)(2)(A) and 1961(s)(10) of the Social Security Act;
    (2) In the case of a facility that is not a physician-directed 
clinic, has an arrangement (consistent with the provisions of State and 
local law relative to the practice, performance, and delivery of health 
services) with one or more physicians under which provision is made for 
the periodic review by those physicians of covered services furnished 
by physician assistants and nurse practitioners, the supervision and 
guidance by such patients as may be necessary, and the availability of 
those physicians for advice and assistance in the management of medical 
emergencies, and in the case of the physician-directed clinic, has one 
or more of its staff physicians perform the activities accomplished 
through such an arrangement;
    (3) Maintains clinical records on all patients;
    (4) Has arrangements with one or more hospitals, having agreements 
in effect under section 1866 of the Social Security Act, for the 
referral and admission of patients requiring inpatient services or 
diagnostic or other specialized services as are not available at the 
clinic;
    (5) Has written policies, that are developed with the advice of 
(and with provision of review of those policies from time to time by) a 
group of professional personnel, including one or more physicians and 
one or more physician assistants or nurse practitioners, to govern 
those services which it furnishes;
    (6) Has a physician assistant or nurse practitioner responsible for 
the execution of policies described in paragraph (5) of this definition 
and relating to the provision of the clinic's services;
    (7) Directly provides routine diagnostic services, including 
clinical laboratory services, as prescribed in 42 CFR 491.2, and has 
prompt access to additional diagnostic services from facilities meeting 
requirements under title 42;
    (8) In compliance with State and Federal law, has available for 
administering to patients of the clinic at least such drugs and 
biologicals as are determined under 42 CFR 491.2 to be necessary for 
the treatment of emergency cases and has appropriate procedures or 
arrangements for storing, administering, and dispensing any drugs and 
biologicals;
    (9) Has appropriate procedures for review of utilization of clinic 
services to the extent that the Secretary determines to be necessary 
and feasible; and
    (10) Meets other requirements as the Secretary of Health and Human 
Services may find necessary in the interest of the health and safety of 
the individuals who are furnished services by the clinic.
    Secondary school means a public or nonprofit private 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.
    State education agency means the agency or official designated by 
the Governor or by State law as being primarily responsible for the 
State supervision of public elementary and secondary schools.
    Teacher means a professional who provides direct and personal 
services to students for their educational development through 
classroom teaching.

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

[FR Doc. 94-14593 Filed 6-15-94; 8:45 am]
BILLING CODE 4000-01-P