[Federal Register Volume 59, Number 119 (Wednesday, June 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14629]


[[Page Unknown]]

[Federal Register: June 22, 1994]


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Part II





Department of Education





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34 CFR Parts 668, 674, 675, and 676



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Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Work-Study Programs, and Federal Supplemental Educational 
Opportunity Grant Program; Proposed Rule
 

DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 675, and 676

RIN 1840-AB71

Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Work-Study Programs, and Federal Supplemental 
Educational Opportunity Grant Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations governing the 
campus-based programs (Federal Perkins Loan, Federal Work-Study (FWS), 
and Federal Supplemental Educational Opportunity Grant (FSEOG) 
programs). These amendments are needed to implement changes made to the 
Higher Education Act of 1965, as amended (HEA). The Secretary also 
proposes to reduce the administrative burden imposed on applicants for 
student financial assistance and educational institutions resulting 
from the verification requirements by amending the verification 
regulations contained in subpart E of the Student Assistance General 
Provisions, 34 CFR part 668.

DATES: Comments must be received on or before August 22, 1994.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to: Susan M. Morgan, Chief, Campus-Based Loan Programs 
Section, Loans Branch, Division of Policy Development, Student 
Financial Assistance Programs, Office of Postsecondary Education, U.S. 
Department of Education, 400 Maryland Avenue SW. (Regional Office 
Building 3, room 4310), Washington, DC 20202-5447.
    A copy of any comments that concern information collection 
requirements also should 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:
1. For the Federal Perkins Loan program: Sylvia R. Ross, Campus-Based 
Loan Programs Section, Loans Branch on 202-708-8242;
2. For the FWS and FSEOG programs: Kathy S. Gause, Campus-Based 
Programs Section, Grants Branch on 202-708-4690; or
3. For the General Provisions: Lorraine Kennedy, Student Eligibility 
and Verification Section, General Provisions Branch on 202-708-7888.

    Individuals who use a telecommunications device for the deaf (TDD) 
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 
between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: The Student Assistance General Provisions 
regulations implement requirements that are common to the student 
financial assistance programs under title IV of the Higher Education 
Act of 1965, as amended, (title IV, HEA programs). The title IV, HEA 
programs include the Federal Pell Grant, Federal Family Education Loan 
(FFEL), Federal Direct Student Loan, State Student Incentive Grant 
(SSIG), Federal Perkins Loan, Federal Work-Study (FWS), and Federal 
Supplemental Educational Opportunity Grant (FSEOG) programs.
    On February 21, 1992, a notice was published in the Federal 
Register requesting public comments on statutes and regulations that 
substantially impede economic growth, are no longer needed, or 
otherwise impose unnecessary costs or burdens. The proposed change to 
the Student Assistance General Provisions regulations results from the 
public comments received in response to that notice.
    These proposed amendments also revise the existing campus-based 
program regulations. The campus-based programs are authorized as 
follows: Federal Perkins Loan--20 U.S.C. 1087aa-1087hh and 20 U.S.C. 
421-429; FWS--42 U.S.C. 2751-2756b; FSEOG--20 U.S.C. 1070b-1070b-3. 
These proposed regulations would implement provisions of the Crime 
Control Act of 1990 (Pub. L. 101-647), enacted November 29, 1990, the 
National and Community Service Act of 1990 (Pub. L. 101-610), enacted 
November 16, 1990, the Higher Education Amendments of 1992 (Pub. L. 
102-325), enacted July 23, 1992 (Amendments), and the Higher Education 
Technical Amendments of 1993 (Pub. L. 103-208), enacted December 20, 
1993 (Technical Amendments). A description of the major proposed 
changes follows. The proposed changes that pertain to more than one 
program are described first followed by descriptions of provisions that 
pertain to only a specific program. The Federal student financial 
assistance programs support the National Education Goals by enhancing 
opportunities for postsecondary education. The National Education Goals 
call for increasing the rate at which students graduate from high 
school and pursue high quality postsecondary education and for 
supporting life-long learning.

Summary of Proposed Changes

Student Assistance General Provisions

Section 668.57(c)  Acceptable Documentation

    The verification regulations contained in subpart E of the Student 
Assistance General Provisions regulations (34 CFR part 688) govern 
verification of the information that is used to calculate an 
applicant's expected family contribution (EFC) as part of determining 
an applicant's need for student financial assistance. The EFC is the 
amount that an applicant and the applicant's family reasonably can be 
expected to contribute toward the applicant's cost of attendance at an 
institution of higher education.
    Currently, dependent applicants are required to provide the 
signature of both parents when verifying the number of family household 
members enrolled in postsecondary institutions. The Secretary is 
proposing to amend Sec. 668.57(c) to require the signature of one 
parent instead of both parents. If only one parent's income is 
considered in the title IV, HEA aid awarding process, that is the 
parent who must sign. Otherwise, either parent may sign. This amendment 
is being proposed in an effort to reduce the administrative burden 
imposed on applicants and institutions by the verification 
requirements.

Campus-Based Programs

Sections 674.2 and 675.2  Definitions

    The current regulations restrict eligibility for Federal Perkins 
Loan and FWS assistance for undergraduate students to those who have 
not already earned baccalaureate or first professional degrees.
    The Amendments changed the Federal Perkins Loan and FWS programs to 
provide that a student is not ineligible for assistance because he or 
she has previously received a baccalaureate or professional degree. 
Therefore, the Secretary proposes to amend the definition of 
``undergraduate student'' to delete the restriction from the current 
Federal Perkins Loan and FWS regulations. The statutory restriction 
remains for the FSEOG program.

Sections 674.4, 675.4, and 676.4  Allocation and Reallocation

    The Secretary proposes to amend Secs. 674.4, 675.4, and 676.4 in 
accordance with amended sections 413D(e)(2), 422(e)(2), and 462(j)(4) 
of the HEA to state that if an institution returns more than 10 percent 
of its Federal Perkins Loan, FWS, or FSEOG allocation for an award 
year, the institution will have its allocation for the next fiscal year 
for that program reduced by the dollar amount returned. The Amendments 
established this requirement for the Federal Perkins Loan and FSEOG 
programs. The same requirement was provided for the FWS Program by the 
Technical Amendments. These statutory provisions authorize the 
Secretary to take appropriate measures to ensure effective use of 
program funds when an institution fails to expend its allocation. The 
Secretary may waive these provisions if enforcement would be contrary 
to the interest of the programs. To accomplish the purpose of the 
statute, the Secretary expects to find enforcement to be contrary to 
the interest of the program in very limited circumstances, such as a 
natural disaster.

Sections 674.10, 675.10, and 676.10  Selection of Students

    The Secretary proposes to amend Secs. 674.10, 675.10, and 676.10 in 
accordance with amended sections 413C(d), 443(b)(3), and 464(b)(2) of 
the HEA to state that if an institution's FSEOG allocation, FWS grant, 
or Federal Perkins Loan capital contribution is directly or indirectly 
based in part on the financial need of less-than-full-time or 
independent students and if the need of all of these students exceeds 5 
percent of the total need of all students at an institution, then at 
least 5 percent of that allotment for FSEOG, 5 percent of that grant 
for FWS, or 5 percent of the dollar amount of the loans made for 
Federal Perkins must be made available to these students.

Sections 674.14, 675.14, and 676.14  Overaward

    A financial aid administratrato may not award or disburse aid from 
a campus-based program if that aid, when combined with all other 
resources, would exceed the student's need. Before awarding aid from 
campus-based programs, the aid administrator must take into account the 
aid that the student will receive from other student financial 
assistance programs and other resources that the aid administrator 
knows about or can reasonably anticipate at the time aid is awarded to 
the student. If the student receives additional resources at any time 
during the award period that were not considered in determining the 
student's eligibility for aid, and these resources combined with the 
expected financial aid will exceed the student's need, the amount in 
excess of the student's need is considered an overaward.
    In the situation in which an institution learns that a student has 
received additional resources that were not included in calculating the 
student's eligibility for financial assistance, the regulations for the 
three campus-based programs currently permit a student's resources to 
exceed the student's financial need by no more than $200. Further, the 
current regulations allow an institution to continue to employ a 
student under the FWS program after the full financial need has been 
met until the student's cumulative earnings from both need-based and 
non-need-based employment exceed his or her financial need by more than 
$200.
    Section 443(b)(4) of the HEA has been amended to allow a student 
employed under the FWS program to earn up to $300 from need-based 
employment in excess of his or her financial need before employment 
under the FWS program must be discontinued. In addition, for the 
purpose of determining when FWS funds may no longer be used to pay the 
student, an institution will not be required to monitor the student's 
non-need-based earnings. (However, as in the past, earnings from non-
need-based employment will be counted as income for the following 
year.) Therefore, the Secretary is proposing to amend the regulations 
for the FWS program in accordance with the statute to provide that a 
student employed under the FWS program may continue to receive FWS 
funding after the student's full financial need has been met until the 
student's cumulative earnings from need-based employment exceed his or 
her financial need by more than $300.
    The statute does not address the common situation whereby a student 
receives a financial aid package consisting of an FWS award in 
combination with a Federal Perkins Loan or FSEOG award or both. The 
Secretary is proposing to change the current $200 overaward threshold 
for this situation. Under the proposed change, if FWS is awarded to a 
student by itself or in combination with one or both of the other 
campus-based programs, then a $300 overaward threshold will be in 
effect. However, under the proposed change, if a student is not 
employed under the FWS program but is receiving a Federal Perkins Loan 
or FSEOG, the current regulatory $200 overaward threshold will still be 
in effect for those programs.
    In making awards, an institution may not make campus-based awards 
in excess of the amount of the student's need. Although a threshold is 
allowed subsequent to the packaging of campus-based aid, the threshold 
does not allow an institution deliberately to award campus-based aid 
that, in combination with other resources, exceeds the student's 
financial need.

Section 674.16  Making and Disbursing Loans

Section 676.16  Payment of an FSEOG

    The Secretary proposes to allow institutions to disburse a Federal 
Perkins Loan or an FSEOG award after a student ceases to be enrolled 
under certain circumstances. Currently, the Federal Perkins Loan and 
the FSEOG programs do not provide for late disbursements while the 
other title IV, HEA programs have provisions for late disbursements. 
This proposed change would prevent a student from being penalized 
because the student did not receive funds that he or she needed and 
expected due to a delay in payment.
    The proposal would allow an institution to disburse funds under the 
Federal Perkins Loan and FSEOG programs to a student when he or she is 
no longer enrolled if the assistance was awarded while the student was 
still an eligible student. Further, the institution must determine that 
the funds are needed to cover the student's documented educational 
costs that are normally included in the student's cost of attendance 
under section 472 of the HEA for the payment period for which the loan 
or grant was intended and the student was actually enrolled. The 
institution would be expected to collect and retain documentation 
supporting the amount of and the reason for the late disbursement paid 
to the student.

Federal Perkins Loan Program

Program Name Change

    The ``Perkins Loan program'' will be known as the ``Federal Perkins 
Loan program.''

Section 674.2  Definitions

    Section 462(h) of the HEA replaced the dollar-volume ``default 
rate'' calculation in the Federal Perkins Loan program with a borrower-
based ``cohort default rate,'' beginning in the 1993-94 award year. 
Accordingly, the Secretary proposes to amend Sec. 674.2 to remove the 
definition of ``default rate,'' ``defaulted principal amount,'' and 
``matured loans,'' which are definitions used in the calculation of an 
institution's ``default rate,'' but are not used in the ``cohort 
default rate'' calculation. Section 462(h) of the HEA also provides 
that any loan on which the borrower has made satisfactory arrangements 
to resume repayment is not counted toward an institution's cohort 
default rate. ``Satisfactory arrangements to resume payment'' is a term 
currently used in the FFEL program. The Secretary proposes to add the 
same definition of ``satisfactory arrangements to repay the loan'' to 
Sec. 674.2.
    The amendments in section 464(c)(2)(A) of the HEA created a new 
economic hardship deferment and added a new provision of forbearance in 
section 464(e), both of which were also provisions added to the FFEL 
program. Negotiated rulemaking in the FFEL program resulted in the 
requirement that in order for a borrower to establish eligibility for 
an economic hardship deferment or for forbearance of payments, the 
borrower would be required to provide certain documentation to the 
granting institution, including evidence showing the borrower's most 
recent monthly disposable income. The Secretary proposes to add the 
same definition of ``disposable income'' as resulted from the 
negotiated rulemaking process for the FFEL program.
    Section 484 of the HEA now permits borrowers pursuing a second 
baccalaureate degree to receive assistance under the Federal Perkins 
Loan program. The Secretary is, therefore, proposing to amend the 
definition of ``undergraduate student'' in Sec. 674.2 of the Federal 
Perkins Loan program regulations.
    The specific date on which a loan is made to a borrower as well as 
the specific date on which a borrower enters repayment on his or her 
Federal Perkins Loan is critical to the determination of eligibility 
for certain benefits (for example, deferments, cancellations, exclusion 
from an institution's cohort default rate, interest rates, and grace 
periods). However, there has been some confusion on the meaning of 
these concepts. Therefore, the Secretary proposes to incorporate into 
the Federal Perkins Loan program regulations the definitions of the 
term ``making of a loan'' and the term ``enter repayment.'' These 
definitions are based on common institutional practice.
    The Secretary is aware that the term ``Direct Loans'' when used to 
mean a ``National Direct Student Loan'' is the same as the term used to 
mean the new ``Federal Direct Student Loan'' and will clarify the 
distinction between these two terms.

Section 674.4  Allocation and Reallocation

    The Secretary proposes to amend Sec. 674.4 to incorporate the 
requirements in section 462(j) of the HEA that the Secretary shall 
reallocate 80 percent of the available funds to institutions that 
participated in the Federal Perkins Loan program in the 1985-86 award 
year but did not receive an allocation for the award year for which the 
reallocation determination is made. The reallocated amount may not 
exceed the institution's fair share shortfall amount.
    Section 462(j) of the HEA requires that the remaining 20 percent 
must be reallocated in accordance with the regulations. The Secretary 
proposes to amend Sec. 674.4 to provide for the flexibility to 
reallocate the 20 percent of unexpended funds. This change would allow 
the Secretary to assist students who suffer financial harm from a 
natural disaster such as a flood or hurricane.
    Section 462(e)(2) of the HEA requires the Secretary to establish an 
appeals process by which the anticipated collections required in 
section 462(e)(1) may be waived for institutions with ``low default 
rates'' in the Federal Perkins Loan program. The Secretary proposes to 
amend Sec. 674.4 to incorporate an automatic appeals process. The 
Secretary would waive the calculation of anticipated collections in 
section 462(e)(1) for any institution with a cohort default rate that 
does not exceed 7.5 percent and would instead use an amount equal to 
actual collections during the second year preceding the beginning of 
the award year.

Section 674.5  Federal Perkins Loan Cohort Default Rate and Penalties

    The Secretary proposes to add new Sec. 674.5 to the regulations. 
This section establishes, in accordance with section 462(f) of the HEA, 
the Federal Perkins Loan program cohort default rate and penalties for 
an institution with a high cohort default rate for the 1994-95 award 
year and subsequent award years. This section includes the definition 
of which loans are to be included in the cohort default rate 
calculation and provisions detailing how the cohort default rate would 
be calculated for an institution with more than one location or 
undergoing a change in status, in accordance with section 462(h)(3)(G) 
of the HEA which requires the Secretary to prescribe regulations 
designed to prevent an institution from evading the application of the 
cohort default rate because of situations such as changing control of 
the institution. These provisions on calculating a cohort default rate 
for locations of an institution are the same as in the FFEL Program.

Section 674.6  Default Reduction Plan

    The Secretary proposes to add new Sec. 674.6 to the regulations. 
The proposed requirements in Sec. 674.6 describe measures that an 
institution participating in the Federal Perkins Loan program must take 
to reduce its cohort default rate. Section 462(f) of the HEA now 
requires that beginning in the 1994-95 award year, if an institution's 
cohort default rate equals or exceeds 15 percent, the institution must 
establish a default reduction plan.
    It is the Secretary's intent that an institution be able to 
coordinate its default reduction efforts in the Federal Perkins Loan 
program with its default reduction plan under the requirements of the 
FFEL program. To that end, the Secretary is proposing to require 
institutions with a cohort default rate that equals or exceeds 15 
percent to implement a default reduction plan that is similar to the 
plan established by the FFEL program in appendix D of part 668. Any 
substantive differences from appendix D are related to characteristics 
specific to the FFEL program. Section 674.6(b) describes the plan that 
an institution will be required to establish to reduce Federal Perkins 
Loan defaults by its students in the future.

Section 674.7  Expanded Lending Option (ELO)

    The Amendments, in section 463(a)(2)(B) of the HEA, established the 
Expanded Lending Option (ELO) beginning in the 1993-94 award year for 
institutions with default rates of 7.5 percent or less that have 
executed an ELO participation agreement with the Secretary. The 
Technical Amendments further amended that section to provide for a 
cohort default rate of 15 percent or less to participate in the ELO for 
the 1994-95 award year and subsequent award years. This was necessary 
because a default rate will no longer be calculated for an institution. 
Instead, as required by the Amendments the default rate calculation has 
been replaced by a cohort default rate calculation for the Federal 
Perkins Loan Program.
    Institutions that receive a Federal Capital Contribution (FCC) and 
participate in the ELO are required to match the FCC on a dollar-for-
dollar basis and are allowed to make loans to students at higher annual 
maximum and aggregate loan limits than is the case at nonparticipating 
institutions. The Secretary proposes to add this section to incorporate 
these statutory changes.

Section 674.8  Program Participation Agreement

    Section 463(a)(2)(B) of the HEA increased the capital contribution 
requirements for institutions that have a participation agreement with 
the Secretary to participate in the Federal Perkins Loan program in the 
1993-94 award year and subsequent award years. The Secretary proposes 
to include in the participation agreement, under Sec. 674.8, these new 
capital contribution requirements. In addition, the HEA eliminated the 
definition of default rate and implemented the cohort default rate, 
which includes new reporting requirements. The Secretary therefore 
proposes to amend the regulations to incorporate new reporting 
requirements containing information that the Department will use to 
determine an institution's cohort default rate.

Section 674.9  Student Eligibility

    The amendments to section 461(a) of the HEA provide for the 
eligibility of a student engaged in a program of study abroad. This 
program must be approved for credit by the home institution. The 
Secretary proposes to amend the regulations to reflect this statutory 
change.
    The Secretary proposes to amend the regulations to incorporate the 
new statutory requirement (section 464(b)(1) of the HEA) that a student 
must provide a driver's license number, if any, to the institution at 
the time of application for the Federal Perkins Loan.
    The Secretary also proposes to amend Sec. 674.9 to require that, to 
establish eligibility to receive additional Federal Perkins Loan funds, 
a borrower must reaffirm a Federal Perkins Loan debt that was 
previously cancelled due to the borrower's total and permanent 
disability, discharged in bankruptcy, or written off (if the amount of 
the write off exceeded $25). This proposal has been incorporated from 
the current Federal Family Education Loan program regulations as part 
of the Secretary's on-going effort to maintain similar provisions, 
wherever possible, in the title IV, HEA student loan programs. This 
proposal would treat any borrower who has not satisfied a previous 
Federal Perkins Loan debt in a manner that is consistent with 34 CFR 
668.7(a)(7), which provides that a borrower who is in default on a 
Federal Perkins Loan is ineligible for new loans. It is the Secretary's 
position that cancellation in exchange for performing a service (such 
as teaching in a low-income school or teaching disabled children) 
satisfies the debt but cancellation for total and permanent disability 
or bankruptcy does not satisfy the debt.

Section 674.12  Loan Maximums

    The Amendments establish annual maximum loan amounts and increase 
the aggregate maximum loan amounts allowable for an eligible student. 
These amounts depend on whether the student is attending an institution 
that participates in the ELO or whether the student is in a program of 
study abroad approved for credit by the home institution. The Secretary 
proposes to amend the maximum loan limits in Sec. 674.12 to reflect the 
statutory changes.

Sections 674.13, 674.19, 674.31, 674.41, 674.47, and 674.49

    The Secretary is proposing to amend Secs. 674.13, 674.19, 674.31, 
674.41, 674.47, and 674.49 to remove all references to the term 
``endorser'' in accordance with section 464(c)(1)(E) of the HEA, which 
now provides that Federal Perkins Loans are to be made without security 
or endorsement.

Section 674.16  Making and Disbursing Loans

    The Amendments require an institution to report to any one national 
credit bureau organization with which the Secretary has an agreement 
the amount of the Federal Perkins Loan made to a borrower. The 
Technical Amendments require that an institution report this 
information at least annually. The Secretary proposes in Sec. 674.16 to 
incorporate the new statutory requirement that an institution report 
loan disbursements to a national credit bureau organization, in 
accordance with section 463(c)(4) of the HEA. In addition, the 
Secretary proposes to establish procedures by which a borrower may not 
be required to sign for any advance of funds made while the borrower is 
in a program of study abroad, if obtaining the borrower's signature 
would pose an undue hardship on the institution.

Section 674.18  Use of Funds

    The Amendments provide for an institution to transfer up to 25 
percent of its Federal Capital Contribution allotment for an award year 
to either or both the FSEOG and FWS programs effective for the award 
years beginning on or after July 1, 1993. The Secretary proposes to 
amend this section to incorporate this new authority.

Section 674.31  Promissory Note

    The Secretary proposes to require an institution to use the 
promissory note that the Secretary has developed and approved and to 
prohibit the institution from changing any provisions of that note, as 
is the case with the promissory notes in the FFEL program and the 
Federal Direct Student Loan program. The notes approved by the 
Secretary will no longer appear as appendices in the regulations but 
will be provided in a ``Dear Colleague Letter.''
    In accordance with provisions in the Amendments, the Secretary is 
also proposing to delete the defense of infancy provision in 
Sec. 674.31(a)(6).

Section 674.33  Repayment

    The Secretary is proposing, in accordance with amended section 
464(c) of the HEA, to allow an institution to increase to $40 the 
minimum monthly repayment amount provided for in the loan agreement. 
This provision applies to loans for which the first disbursement is 
made on or after October 1, 1992, to a borrower who on the date the 
loan is made owes no balance on any Federal Perkins Loan or National 
Direct Student Loan.
    The Amendments also established forbearance of principal and 
interest, or principal only, as requested in writing by the borrower, 
if the borrower's monthly title IV, HEA loan repayment obligation 
equals or exceeds 20 percent of the borrower's monthly disposable 
income. The institution may also grant forbearance to a borrower if it 
identifies other reasons that warrant it. The Secretary proposes to add 
this provision to this section.
    To encourage repayment of defaulted loans, the Amendments provide 
that the Secretary may authorize an institution to compromise on the 
repayment of a loan if the borrower pays: (1) At least 90 percent of 
the loan; (2) all interest due; and (3) any collection fees due. The 
Secretary is proposing to include this authority in this section.

Section 674.34  Deferment of Repayment--Federal Perkins Loans and 
Direct Loans Made On or After July 1, 1993

    Effective for loans made on or after July 1, 1993, the deferment 
provisions under the Federal Perkins Loan Program will change in 
accordance with amended section 464(c)(2)(A) of the HEA. The Secretary 
is proposing to revise the regulations to reflect this change. Loan 
repayment for these loans may be deferred for periods during which a 
borrower: (1) Is at least a half-time student; (2) is pursuing a course 
of study in a graduate fellowship program approved by the Secretary or 
in a rehabilitation training program for disabled individuals approved 
by the Secretary, excluding a medical internship or residency program; 
(3) is, for a period not to exceed three years, unable to find full-
time employment; (4) is, for a period not to exceed three years, 
suffering an economic hardship; or (5) is engaged in service described 
under the cancellation provisions.
    The definition of economic hardship proposed in these regulations 
is the same as the definition of economic hardship as was proposed in 
the FFEL program notice of proposed rulemaking, published on March 24, 
1994. The Secretary will incorporate the same definition of economic 
hardship into the Federal Perkins Loan, the FFEL, and the Federal 
Direct Student Loan program regulations based on public comments 
received on this notice, the FFEL program notice, the discussions of 
the negotiators during the Federal Direct Student Loan program 
negotiated rulemaking sessions, and the public comments received on 
proposed regulations in the Federal Direct Student Loan program.

Section 674.35  Deferment of Repayment--Federal Perkins Loans Made 
Before July 1, 1993

    The Secretary is proposing to amend Sec. 674.35 in accordance with 
the National and Community Service Act of 1990, which provides that a 
borrower who is performing volunteer service that is comparable to 
service in the Peace Corps may be compensated at a rate not to exceed 
the Federal minimum wage and still qualify for a deferment.

Section 674.38  Deferment Procedures

    The Secretary is proposing to amend Sec. 674.38 to include the 
requirement that a defaulted borrower make satisfactory arrangements to 
repay the loan as one of the conditions to be met in order to be 
granted a deferment to bring the Federal Perkins Loan program in line 
with the FFEL program.

Section 674.42  Contact With the Borrower

    The Secretary is proposing to amend Sec. 674.42 (a)(1)(ii) and 
(a)(3) in accordance with amended sections 464(e) and 485(b) of the 
HEA, which require each institution to notify the borrower during the 
exit interview of the right to forbearance and to require the borrower 
to provide during the exit interview: (1) The borrower's expected 
permanent address after leaving the institution (regardless of the 
reason for leaving); (2) the name and address of the borrower's 
expected employer after leaving the institution; (3) the name and 
address of the borrower's next-of-kin; and (4) any corrections in the 
institution's records relating to the borrower's name, address, social 
security number, personal references, and driver's license number.

Section 674.43  Billing Procedures

    The Secretary is proposing to amend Sec. 674.43 to allow a borrower 
to elect to repay his or her Federal Perkins loan by means of the 
electronic transfer of funds from the borrower's bank account. The 
Secretary believes that implementing this provision would result in a 
burden reduction for both the borrower and the institution.

Section 674.44  Address Searches

    Section 463(e) of the HEA has been added to make use of the 
Internal Revenue Service and Department of Education's skip-tracing 
service permissive rather than mandatory for institutions. Currently, 
institutions are required to use the Internal Revenue Service and 
Department of Education's skip-tracing service in order to assign a 
Federal Perkins loan to the Department. The Secretary proposes to amend 
Sec. 674.44 to eliminate skip-tracing as a required due diligence step. 
Also, the Secretary proposes to amend Sec. 674.44, in accordance with a 
provision of the Amendments that eliminates the statute of limitations 
as a limitation on the litigation of a Federal Perkins Loan.

Section 674.45  Collection Procedures

    The Secretary is proposing to amend Sec. 674.45 in accordance with 
amended section 463(c) of the HEA to require institutions to report 
defaulted loans to any one of the credit bureau organizations with 
which the Secretary has an agreement. The Secretary proposes to amend 
Sec. 674.45 in accordance with a provision of the Amendments that 
eliminate the statute of limitations as a limitation on recovering 
amounts owed on defaulted accounts. The Secretary is also proposing to 
amend this section to clarify that these regulations preempt State 
collection laws. This change is needed because some states do not allow 
a collection agency to collect a Federal Perkins Loan if the collection 
agency is not physically located in the state and this circumstance 
directly conflicts with the exercise of Federal authority.

Section 674.46  Litigation Procedures

    In accordance with the changes made to section 484A of the HEA, the 
Secretary is proposing to amend Sec. 674.46 to eliminate the statute of 
limitations as a limitation on the litigation of a Federal Perkins 
Loan.

Section 674.48  Use of Contractors to Perform Billing and Collection or 
Other Program Activities

    The HEA has been amended to prohibit requiring contractors to 
deposit funds they collect into an interest-bearing account, unless 
those funds will be held longer than 45 days. The Secretary is 
proposing to add this provision in Sec. 674.48 in accordance with 
section 463(d) of the HEA.

Section 674.50  Assignment of Defaulted Loans to the United States

    The Secretary is proposing to amend Sec. 674.50 to reflect the 
statutory change from default rate to cohort default rate as a 
measurement of institutional administrative capability. Pursuant to the 
statute, institutions with cohort default rates of at least 20 percent 
will be required to provide documentation demonstrating due diligence 
to assign loans to the United States.

Section 674.51  Special Definitions

    The Amendments added new loan cancellation provisions for borrowers 
who perform certain kinds of public service. The cancellation 
provisions use several terms which need to be defined. The Amendments 
provided definitions for ``Low-income communities,'' ``High-risk 
children,'' ``Infants and toddlers with disabilities,'' ``Children and 
youth with disabilities,'' ``Early intervention services,'' and 
``Qualified professional provider of early intervention services.'' The 
Secretary is proposing definitions for ``Nurse,'' ``Medical 
technician,'' and ``Teaching in a field of expertise.'' The Secretary 
proposes to amend Sec. 674.51 to incorporate the definitions of these 
terms based on consultations with appropriate experts in these fields.

Section 674.53  Teacher Cancellation--Federal Perkins Loans and Direct 
Loans Made on or After July 23, 1992

    Section 465(a)(2) of the HEA has been amended by removing the 50-
percent limitation on all Chapter 1 schools in a State. Teacher 
cancellation provisions are expanded for loans made on or after July 
23, 1992, to include loan cancellation for service as: (1) A full-time 
special-education teacher, including teachers of infants, toddlers, 
children, or youth with disabilities in a public or other nonprofit 
elementary or secondary school system, or a full-time qualified 
professional provider of early- intervention services in a public or 
other nonprofit program under public supervision; or (2) a full-time 
teacher of mathematics, science, foreign languages, bilingual 
education, or any other field of expertise that is determined by the 
State education agency to have a shortage of qualified teachers. The 
Secretary proposes to add this section to incorporate these statutory 
changes.

Section 674.54  Teacher Cancellation--Federal Perkins Loans and Direct 
Loans Made Before July 23, 1992

    The Secretary is proposing to amend Sec. 674.54 to reflect the 
statutory elimination of the 50-percent limitation on all Chapter 1 
schools in a State. Teaching in any Chapter 1 school will now qualify a 
borrower for a loan cancellation.

Section 674.56  Employment Cancellation--Federal Perkins Loans and 
Direct Loans Made On or After July 23, 1992

    The Amendments expanded the cancellation provisions for loans made 
on or after July 23, 1992, to include the following services: (1) A 
full-time nurse or medical technician; (2) a full-time employee of a 
public or private nonprofit child or family service agency who is 
providing or supervising the provision of services to high-risk 
children and their families from low-income communities; or (3) a full-
time qualified professional provider of early intervention services in 
a public or other nonprofit program under public supervision by the 
lead agency. The Secretary proposes to add this section to incorporate 
these changes.

Section 674.57  Cancellation for Law Enforcement or Corrections Officer 
Service

    Section 465(a)(2) of the HEA was amended by the Police Recruitment 
and Education Program (PREP), a provision of the Crime Control Act of 
1990. PREP provides for Federal Perkins Loan and National Direct 
Student Loan cancellation benefits for full-time law enforcement or 
corrections officers providing service to local, State, and Federal law 
enforcement or corrections agencies. The provision only applies to 
Federal Perkins Loans and Direct Loans made on or after November 29, 
1990. The Secretary is proposing to add a new Sec. 674.57 to the 
regulations to reflect these provisions. In developing Sec. 674.57, the 
Secretary relied on the experience gained from the Law Enforcement 
Education Program (LEEP), a highly successful program in the 1970's 
that provided financial assistance to law enforcement officers to 
attend an institution of higher education. The concepts of an eligible 
agency, a law enforcement officer, and eligible service were drawn from 
LEEP.

Section 674.61  Cancellation for Death or Disability

    The Secretary is proposing to amend the definition of permanent and 
total disability in Sec. 674.61 to include the inability of the 
borrower to attend an institution.

Federal Work-Study Programs

Program Name Change

    The three (3) Federal work-study programs under section 441 of the 
HEA are the Federal Work-Study program under subpart A (formerly named 
the College Work-Study program), the Job Location and Development 
program under subpart B, and the Work-Colleges program under the new 
subpart C. These programs will be known collectively as the Federal 
Work-Study programs.

Section 675.1  Purpose and Identification of Common Provisions

    The National and Community Service Act Amendments of 1990 
authorized the creation of full- and part-time national and community 
service programs. In an effort to increase participation in community 
service, Congress amended the statement of purpose for the FWS program, 
in section 441(a) of the HEA, to encourage students receiving program 
assistance to participate in community service activities. The 
Secretary proposes to amend Sec. 675.1(a) in accordance with the 
statute.

Section 675.2  Definitions

    The Secretary proposes to amend the definitions section to add a 
new definition of ``low-income individual'' for purposes of community 
services. The Secretary is proposing to use the same definition 
provided for in Sec. 674.33(c) of the Federal Perkins Loan program 
regulations. The Secretary believes that the ``income protection 
allowance'' (IPA) is the best indicator of a ``low-income individual.'' 
Also, the IPA charts are very accessible because the Secretary 
publishes annually in the Federal Register the revised IPA table that 
is mailed to all institutions participating in title IV, HEA programs.

Section 675.8  Program Participation Agreement

    The Secretary is proposing to amend the provisions governing the 
program participation agreement between the Secretary and the 
institution in Sec. 675.8 in accordance with the statutory change in 
section 443(b) of the HEA to add assurances that: (1) employment under 
the program may be used to support programs for supportive services to 
students with disabilities; and (2) institutions will inform all 
eligible students of the opportunity to perform community service and 
will consult with local nonprofit, governmental, and community-based 
organizations to identify community service opportunities. In 
identifying community service opportunities, the Secretary expects 
institutions to consult with their students.

Section 675.18  Use of Funds

    The Secretary is proposing several amendments to Sec. 675.18. 
First, in accordance with section 448(b)(1) of the HEA, the Secretary 
is proposing to amend Sec. 675.18(a) to provide that institutions 
participating in the Work-Colleges program may use funds allocated 
under section 442 of the HEA for meeting costs of the Work-Colleges 
program.
    Second, in accordance with section 447 of the HEA, the Secretary is 
proposing to amend Sec. 675.18(b)(5) to eliminate the institutional 
administrative expense allowance for work-study for community service 
learning. Institutions would, however, be allowed to use up to 10 
percent of the funds available for the institution's administrative 
cost allowance and attributable to the institution's FWS program 
expenditures to cover expenses incurred for its program of community 
services.
    Third, in accordance with section 488 of the HEA, the Secretary is 
proposing to amend Sec. 675.18(f)(1) to increase the amount of an 
institution's allocation under the FWS programs that may be transferred 
to the FSEOG program from 10 percent to 25 percent.
    Fourth, in accordance with section 445(b)(2) of the HEA, the 
Secretary is proposing to amend Sec. 675.18 to provide that an 
institution is authorized to make payments to students for services 
performed on or after May 15 of the previous award year but prior to 
the beginning of the succeeding award year (that is, for summer 
employment) from the succeeding award year's allocation. This carry-
back authority would be in addition to the existing authority to carry-
back 10 percent of the succeeding year's allocation for use at any time 
during the preceding award year.
    Fifth, in accordance with section 443(b)(2)(A) of the HEA, the 
Secretary is proposing to amend Sec. 675.18 to provide that 
institutions are required to use at least 5 percent of the total funds 
granted to the institution to compensate students employed in community 
service activities for the 1994-95 and subsequent award years. If an 
institution is unable to comply with this requirement to provide 
community services, the institution may request a waiver of this 
requirement. The Secretary will approve a waiver if the Secretary 
determines that enforcing this requirement would create a hardship for 
students at the institution. The public is invited to comment on the 
circumstances under which the community service requirement might 
create a hardship for students.

Section 675.21  Institutional Employment

    Current regulations provide that a proprietary institution may 
employ a student to work for the institution in jobs that are in 
community services but also involve the provision of student services 
that are directly related to the work-study student's training or 
education. In accordance with section 443(b)(8) of the HEA, as amended 
by the Technical Amendments, the Secretary is proposing to amend 
Sec. 675.21(b) to provide that a student employed by a proprietary 
institution and performing community services is no longer also 
required to be furnishing student services. This change would help 
promote community services because of the limited employment 
opportunities that satisfy both types of services.

Section 675.26  FWS Federal Share Limitations

    Current regulations provide that the Federal share of FWS 
compensation paid to a student employed other than by a for-profit 
organization may not exceed 70 percent. In accordance with section 
443(b)(5) of the HEA, the Secretary is proposing to amend Sec. 675.26 
to increase the Federal share to 75 percent. However, the Federal share 
of FWS compensation paid to a student employed by a for-profit 
organization still may not exceed 50 percent as established by the HEA.
    It is important to note that the Secretary will continue to 
authorize a Federal share of 100 percent of the compensation earned by 
students during an award year if all of the following criteria are met:
    1. The work performed by the student is for the institution itself, 
for a Federal, state or local public agency, or for a private nonprofit 
organization.
    2. The institution at which the student is enrolled is designated 
as an eligible institution under the Strengthening Institutions Program 
(34 CFR part 607), the Strengthening Historically Black Colleges and 
Universities Program (34 CFR part 608), or the Strengthening 
Historically Black Graduate Institutions Program (34 CFR part 609).
    3. The institution requests the increased Federal share as part of 
its regular FWS funding application for that year.

Section 675.28  Community Service Learning Program

    Current regulations provide for a separate ``Community Service 
Learning program'' under the FWS programs. In an effort to increase 
participation in community service activities in the title IV, HEA 
programs, Congress amended the statement of purpose for the FWS program 
to encourage students to participate in community service activities. 
The Amendments removed the authority for a separate ``Community 
Service-Learning program'' and instead require institutions to employ a 
percentage of their FWS students in community service jobs. As a result 
of this change, the Secretary is proposing to remove Sec. 675.28 from 
the regulations.

Job Location and Development (JLD) Program (Subpart B)

Sections 675.31, 675.32  Purpose and Program Description

    Current regulations provide for two separate Job Location and 
Development programs: (1) A regular JLD program to expand off-campus 
job opportunities for students enrolled in eligible institutions of 
higher education who, regardless of their financial need, want jobs; 
and (2) a ``Community Services'' JLD program to locate and develop 
community services jobs for students with financial need.
    The Secretary is proposing to amend Sec. 675.31 in accordance with 
amended section 446 of the HEA to combine the two programs into one 
program to expand off-campus job opportunities for students enrolled in 
eligible institutions, regardless of their financial need. The 
Secretary is further proposing to amend Sec. 675.31, in accordance with 
the amended statement of purpose for all the FWS programs in section 
441(a) of the HEA, to include in the statement of purpose for the JLD 
program the encouragement of participation in community service 
activities. Also, in accordance with amended section 446 of the HEA, 
the Secretary is proposing to amend Sec. 675.32 to allow an institution 
to use the lesser of $50,000 or 10 percent of the institution's 
allocation to establish or expand a program to locate and develop jobs, 
including community service jobs.

Section 675.34  Multi-Institutional Job Location and Development 
Programs

    Current regulations provide that institutions may enter into 
agreements with other participating institutions and nonprofit 
organizations to establish and operate job location programs for its 
students.
    The Secretary is proposing to amend Sec. 675.34 in accordance with 
amended section 446(a) of the HEA to eliminate the authority for 
institutions to enter into agreements with nonprofit organizations and 
limit institutions to working with other institutions for the purpose 
of developing jobs.

Work-Colleges (Subpart C)

Sections 675.41-675.47

    The Amendments added new section 448 to the HEA to establish the 
``Work-Colleges program.'' Congress created this program to encourage 
comprehensive work-learning programs and recognize the special nature 
of institutions that choose to make work-learning a central part of 
their educational programs.
    Under the statute, institutions that satisfy the definition of 
``work-college'' may apply to the Secretary to participate in the Work-
Colleges program. The term ``work-college'' under the statute means an 
eligible institution that (1) has been a public or private nonprofit 
institution with a commitment to community service; (2) has operated a 
comprehensive work-learning program for at least two years; (3) 
requires all resident students who reside on campus to participate in a 
comprehensive work-learning program and the provision of services as an 
integral part of the institution's educational program and as part of 
the institution's educational philosophy; and (4) provides students 
participating in the comprehensive work-learning program with the 
opportunity to contribute to their education and to the welfare of the 
community as a whole.
    A comprehensive work-learning program does not provide only 
narrowly career-oriented or job-skill-oriented employment. It provides 
work experiences that teach basic habits and attitudes, responsibility, 
interpersonal relations, communication, teamwork, self analysis, 
organizational behavior, problem solving, leadership and other lessons 
that are not job specific or career specific.
    The statute requires that funds made available to work-colleges 
must be matched on a dollar-for-dollar basis from non-Federal sources. 
In addition to any amounts appropriated, the statute allows work-
colleges to also use FWS program funds and Federal Perkins Loan funds 
to provide flexibility in strengthening the self-help-through-work 
element in financial aid packaging.

Federal Supplemental Educational Opportunity Grant Program

Program Name Change

    The ``Supplemental Educational Opportunity Grant program'' will now 
be known as the ``Federal Supplemental Educational Opportunity Grant 
program.''

Section 676.4  Allocation and Reallocation

    The Secretary proposes to amend this section to provide for the 
flexibility to reallocate unexpended FSEOG funds. This change would 
allow the Secretary to assist students who suffer financial harm from a 
natural disaster such as a flood or hurricane.

Section 676.18  Use of Funds

    The Secretary proposes to eliminate an institution's authority to 
transfer FSEOG funds to the FWS program. This change is required by the 
Amendments.

Section 676.20  Minimum and Maximum FSEOG Award

    Current regulations provide that an institution may award a student 
a maximum of $4,000 per academic year. In accordance with section 
413B(a)(3) of the HEA, the Secretary proposes to amend the regulations 
to allow an institution to increase the FSEOG to $4,400, for a student 
engaged in a program of study abroad.

Section 676.21  FSEOG Federal Share Limitations

    The Amendments require that the Federal share of FSEOG awards will 
not exceed 75 percent effective for award years beginning on or after 
July 1, 1993. The Secretary is proposing to amend this section to 
incorporate this statutory change.
    It is important to note that the Secretary will continue to 
authorize a Federal share of 100 percent of the FSEOGs awarded to 
students by an institution for an award year if all of the following 
criteria are met:
    1. The institution is designated as an eligible institution under 
the Strengthening Institutions Program (34 CFR part 607) or the 
Strengthening Historically Black Colleges and Universities Program (34 
CFR part 608).
    2. The institution requests that increased Federal share as part of 
its regular FSEOG funding application for that year.

Executive Order 12866

1. Assessment of Costs and Benefits

    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. 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.
    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.
    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 regulations 
without impeding the effective and efficient administration of the 
program.

2. Clarity of the Regulations

    Executive Order 12866 requires each agency to write regulations 
that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following: (1) Are the requirements in the proposed regulations 
clearly stated? (2) Do the regulations contain technical terms or other 
wording that interferes with their clarity? (3) Does the format of the 
regulations (grouping and order of sections, use of headings, 
paragraphing, etc.) aid or reduce their clarity? Would the regulations 
be easier to understand if they were divided into more (but shorter) 
sections? (A ``section'' is preceded by the symbol ``Sec. '' and a 
numbered heading, for example, Sec. 674.4 Allocation and reallocation.) 
(4) Is the description of the regulations in the ``Supplementary 
Information'' section of this preamble helpful in understanding the 
regulations? How could this description be more helpful in making the 
regulations easier to understand? (5) What else could the Department do 
to make the regulations easier to understand?
    A copy of any comments that concern how the Department could make 
these proposed regulations easier to understand should be sent to 
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of 
Education, 400 Maryland Avenue SW. (Room 5125, FOB-6), Washington, DC 
20202-2241.

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. The small entities affected by these proposed regulations are 
small institutions of postsecondary education. The changes in these 
regulations will not substantially increase institutions' workload or 
costs associated with administering the title IV, HEA programs and, 
therefore, will not have a significant economic impact on a substantial 
number of small entities.

Paperwork Reduction Act of 1980

    Sections 668.57, 674.6, 674.8, 674.10, 674.16, 674.31, 674.34, 
674.35, 674.42, 674.45, 674.48, 674.49, 674.50, 675.10, 675.27, 675.34, 
675.35, 675.46, 675.47, and 676.16 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)).
    Annual public reporting and recordkeeping burden for the Student 
Assistance General Provisions--subpart E, which includes Sec. 668.57, 
is estimated to average 365,693 hours, including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    Annual public reporting and recordkeeping burden for the Federal 
Perkins Loan program--subpart C, Secs. 674.42, 674.45, 674.48, 674.49, 
and 674.50 is 80,431 hours, including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    Annual public reporting and recordkeeping burden for the Federal 
Perkins Loans, the Federal Work-Study, and the Federal Supplemental 
Educational Opportunity Grant programs, Secs. 674.6, 674.8, 674.10, 
674.16, 674.31, 674.34, 674.35, 675.10, 675.27, 675.34, 675.35, 675.46, 
675.47, and 676.16 is 12,723 hours, including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    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 Room 4310, ROB-3, 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

34 CFR Part 668

    Administrative practice and procedure, Colleges and universities, 
Consumer protection, Loan programs--education, Grant programs--
education, Student aid, Reporting and recordkeeping requirements.

34 CFR Part 674

    Loan programs--education, Student aid, Reporting and recordkeeping 
requirements.

34 CFR Part 675

    Loan programs--education, Student aid, Reporting and recordkeeping 
requirements.

34 CFR Part 676

    Loan programs--education, Student aid, Reporting and recordkeeping 
requirements.

    Dated: February 8, 1994.

Richard W. Riley,
Secretary of Education.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 
Consolidation Program; 84.032 Guaranteed Student Loan Program; 
84.032 PLUS Program; 84.032 Supplemental Loans for Students Program; 
84.038 Federal Perkins Loan Program; 84.033 Federal Work-Study 
Program; 84.226 Income Contingent Loan Program; 84.063 Federal Pell 
Grant Program; 84.069 State Student Incentive Grant Program)
    The Secretary proposes to amend parts 668, 674, 675, and 676 of 
title 34 of the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    1. The authority citation for part 668 continues to read as 
follows:

    Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, and 1141, 
unless otherwise noted.

    2. Section 668.57 is amended by revising paragraph (c)(1), 
introductory text to read as follows:


Sec. 668.57  Acceptable documentation.

* * * * *
    (c) Number of family household members enrolled in postsecondary 
institutions. (1) Except as provided in Sec. 668.56 (b), (c), (d), and 
(e), an institution shall require an applicant selected for 
verification to verify annually information included on the application 
regarding the number of household members in the applicant's family 
enrolled on at least a half-time basis in postsecondary institutions. 
The institution shall require the applicant to verify that information 
by submitting a statement signed by the applicant and one of the 
applicant's parents whose income was used in the applicant's need 
analysis, if the applicant is a dependent student, or by the applicant 
and the applicant's spouse, if the applicant is an independent student, 
listing--
* * * * *

PART 674--FEDERAL PERKINS LOAN PROGRAM

    1. The authority citation for part 674 continues to read as 
follows:

    Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless 
otherwise noted.

    2. Section 674.2(b) is amended by removing the definitions of 
``Default rate'', ``Defaulted principal amount outstanding'', and 
``Matured loans''; by revising the definition of ``Undergraduate 
student''; and by adding, in alphabetical order, the definitions of 
``Disposable income'', ``Enter repayment'', ``Making of a loan'', and 
``Satisfactory arrangements to repay the loan'' to read as follows:


Sec. 674.2  Definitions.

* * * * *
    (b) * * *
    Disposable income: 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.
    Enter repayment: The day following the expiration of the initial 
grace period or the day the borrower waives the initial grace period. 
This date does not change if a forbearance, deferment or cancellation 
is granted after the borrower enters repayment.
    Making of a loan: When the borrower signs for an advance of loan 
funds and those funds are disbursed.
    Satisfactory arrangements to repay the loan: The establishment of a 
new written repayment agreement and the making of one payment each 
month for six consecutive months.
    Undergraduate student: A student enrolled in a course of study at 
an institution of higher education that is at or below the 
baccalaureate level and that usually does not exceed four academic 
years, or is enrolled in a four to five academic year program designed 
to lead to a first degree. A student enrolled in a program of any other 
length is considered an undergraduate student for only the first four 
academic years of that program.
* * * * *
    3. Section 674.4 is amended by revising paragraph (b) and by adding 
new paragraphs (e) and (f) to read as follows:


Sec. 674.4  Allocation and reallocation.

* * * * *
    (b) The Secretary reallocates Federal capital contributions to 
institutions participating in the Federal Perkins Loan program by--
    (1) Reallocating 80 percent of the total funds available in 
accordance with section 462(j) of the HEA; and
    (2) Reallocating 20 percent of the total funds available in a 
manner that best carries out the purposes of the Federal Perkins Loan 
program.
* * * * *
    (e) Unexpended funds. (1) If an institution does not expend its 
Federal Perkins Loan allocation during an award year and returns more 
than 10 percent of the allocation, the Secretary reduces its allocation 
for the next fiscal year by the amount returned.
    (2) The Secretary may waive the provision of paragraph (e)(1) of 
this section for a specific institution if the Secretary finds that 
enforcement would be contrary to the interests of the program.
    (3) The Secretary considers enforcement of paragraph (e)(1) of this 
section to be contrary to the interest of the program only if the 
institution returned more than 10 percent of its allocation due to 
circumstances beyond the institution's control that are not expected to 
recur.
    (f) Anticipated collections. (1) For the purposes of calculating an 
institution's share of any excess allocation, an institution's 
anticipated collections are equal to the amount that was collected 
during the second year preceding the beginning of the award period 
multiplied by 1.21.
    (2) The Secretary may waive the provision of paragraph (f)(1) of 
this section for any institution that has a cohort default rate that 
does not exceed 7.5 percent.
    4. A new Sec. 674.5 is added to read as follows:


Sec. 674.5  Federal Perkins Loan program cohort default rate and 
penalties.

    (a) Default penalty. If an institution's cohort default rate meets 
the following levels, a default penalty is imposed on the institution 
as follows:
    (1) If the institution's cohort default rate equals or exceeds 15 
percent, the institution must establish a default reduction plan in 
accordance with Sec. 674.6.
    (2) If the institution's cohort default rate equals or exceeds 20 
percent, but is less than 25 percent, the institution's FCC is reduced 
by 10 percent.
    (3) If the institution's cohort default rate equals or exceeds 25 
percent, but is less than 30 percent, the institution's FCC is reduced 
by 30 percent.
    (4) If the institution's cohort default rate equals or exceeds 30 
percent, the institution's FCC is reduced to zero.
    (b) Cohort default rate. (1) The term ``cohort default rate'' 
means, for any award year in which 30 or more current and former 
students at the institution enter repayment on a loan received for 
attendance at the institution, the percentage of those current and 
former students who enter repayment in that award year on the loans 
received for attendance at that institution who default before the end 
of the following award year.
    (2) In determining the number of students who default before the 
end of the following award year, the Secretary excludes any loans that, 
due to improper servicing or collection, would result in an inaccurate 
or incomplete calculation of the cohort default rate.
    (3) For any award year in which less than 30 current and former 
students at the institution enter repayment on a loan received for 
attendance at the institution, the ``cohort default rate'' means the 
percentage of those current and former students who entered repayment 
on loans received for attendance at that institution in any of the 
three most recent award years and who defaulted on those loans before 
the end of the award year immediately following the year in which they 
entered repayment.
    (c) Defaulted loans to be included in the cohort default rate. For 
purposes of calculating the cohort default rate under paragraph (b) of 
this section--
    (1) A borrower must be included only if the borrower's default has 
persisted for at least--
    (i) 240 consecutive days for loans repayable in monthly 
installments; or
    (ii) 270 consecutive days for loans repayable in quarterly 
installments;
    (2) A loan is considered to be in default if a payment is made by 
the institution of higher education, its owner, agency, contractor, 
employee, or any other entity or individual affiliated with the 
institution, in order to avoid default by the borrower;
    (3)(i) Any loan that is in default, but on which the borrower has 
made satisfactory arrangements to repay the loan, or any loan that has 
been rehabilitated before the end of the following award year is not 
considered to be in default for purposes of the cohort default rate 
calculation; and
    (ii) In the case of a student who has attended and borrowed at more 
than one institution, the student and his or her subsequent repayment 
or default are attributed to the institution for attendance at which 
the student received the loan that entered repayment in the award year; 
and
    (4) Improper servicing or collection means the failure of the 
institution to comply with subpart C of this part.
    (d) Locations of the institution. (1) A cohort default rate of an 
institution applies to all locations of the institution as it exists on 
the first day of the award year for which the rate is calculated.
    (2) A cohort default rate of an institution applies to all 
locations of the institution from the date the institution is notified 
of that rate until the institution is notified by the Secretary that 
the rate no longer applies.
    (3) For an institution that changes status from a location of one 
institution to a free-standing institution, the Secretary determines 
the cohort default rate based on the institution's status as of July 1 
of the award year for which a cohort default rate is being calculated.
    (4)(i) For an institution that changes status from a free-standing 
institution to a location of another institution, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
combined number of students who default during the applicable award 
years from both the former free-standing institution and the other 
institution. This cohort default rate applies to the new consolidated 
institution and all of its current locations.
    (ii) For free-standing institutions that merge, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
combined number of students who default during the applicable award 
years from both of the institutions that are merging. This cohort 
default rate applies to the new, consolidated institution.
    (iii) For an institution that changes status from a location of one 
institution to a location of another institution, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
number of students who default during the applicable award years from 
both of the institutions in their entirety, not limited solely to the 
respective locations.
    (5) For an institution that has a change in ownership that results 
in a change in control, the Secretary determines the cohort default 
rate based on the combined number of students who enter repayment 
during the applicable award year and the combined number of students 
who default during the applicable award years from the institution 
under both the old and new control.
    (e) Loan rehabilitation. (1) A loan is considered rehabilitated 
only after the borrower has executed a new written repayment agreement 
and has made one payment each month for 12 consecutive months.
    (2) The institution shall report to any one national credit bureau 
organization with which the Secretary has an agreement within 30 days 
of the date the loan was rehabilitated that the loan is no longer in 
default.

(Authority: 20 U.S.C. 1087bb)

    5. A new Sec. 674.6 is added to read as follows:


Sec. 674.6  Default reduction plan.

    (a) General. An institution with a cohort default rate that equals 
or exceeds 15 percent shall establish and implement a plan designed to 
reduce defaults by its students in the future. The institution shall 
submit to the Secretary by December 31 of the calendar year in which 
the cohort default rate was calculated--
    (1) A written description of the default reduction plan;
    (2) A statement indicating that the institution agrees to comply 
with the required measures in paragraph (b) of this section; or
    (3) For an institution that is participating in the Federal Family 
Education Loan Program and has in place a default reduction plan for 
that program, a statement indicating that the institution agrees to 
apply that plan to the Federal Perkins Loan program.
    (b) Required measures. The default reduction plan required under 
this section must include a description of the measures to be taken by 
the institution to reduce defaults. The institution shall explain how 
it plans to implement the following measures:
    (1) Revise admission policies and screening practices, consistent 
with applicable State law, to ensure that students enrolled in the 
institution, especially those who are not high school graduates or 
those who are in need of substantial remedial work, have a reasonable 
expectation of succeeding in their programs of study.
    (2) Improve the availability and effectiveness of academic 
counseling and other support services to decrease withdrawal rates, 
including--
    (i) Providing academic counseling and other support services to 
students on a regular basis, at a time and location that is convenient 
for the students involved;
    (ii) Publicizing the availability of the academic counseling and 
other support services;
    (iii) Establishing procedures to identify academically high-risk 
students and schedule those students for immediate counseling services; 
and
    (iv) Maintaining records identifying those students who receive 
academic counseling.
    (3) Attempt to reduce its withdrawal rate by conforming with that 
accrediting agency's standards of satisfactory progress and with those 
described in 34 CFR 668.14, and improving its curricula, facilities, 
materials, equipment, qualifications and size of faculty, and other 
aspects of its educational program in consultation with its academic 
accrediting agency.
    (4) Increase the frequency of reviews of in-school status of 
borrowers to ensure the institution's prompt recognition of instances 
in which borrowers withdraw without notice to the institution. Reviews 
must be conducted each month.
    (5) Expand its job placement program for its students by--
    (i) Increasing contacts with local employers, counseling students 
in job search skills, and exploring with local employers the 
feasibility of establishing internship and cooperative education 
programs;
    (ii) Attempting to improve its job placement rate and licensing 
examination pass rate by improving its curricula, facilities, 
materials, equipment, qualifications and size of faculty, and other 
aspects of its educational program in consultation with the cognizant 
accrediting body; and
    (iii) Establishing a liaison for job information and placement 
assistance with the local office of the United States Employment 
Service and the Private Industry Council supported by the U.S. 
Department of Labor.
    (6) Remind the borrower of the importance of the repayment 
obligation and of the consequences of default and update the 
institution's records regarding the borrower's employer and employer's 
address as part of the contacts with the borrower under Sec. 674.42(b).
    (7) Obtain information from the borrower regarding references and 
family members beyond those provided on the loan application to provide 
the institution or its agent with a variety of ways to locate a 
borrower who later relocates without notifying the institution at the 
time of a borrower's admission to the institution.
    (8) Explain to a prospective student that the student's 
dissatisfaction with, or nonreceipt of, the educational services being 
offered by the institution does not excuse the borrower from repayment 
of any Federal Perkins Loan.
    (9) Use a written test and intensive additional counseling for 
those borrowers who fail the test to ensure the borrower's 
comprehension of the terms and conditions of the loan including those 
described in Secs. 674.16 and 674.42(a) as part of the initial loan 
counseling and the exit interview.
    (10) During the exit interview provided to a Federal Perkins Loan 
borrower--
    (i) Explain the use by institutions of outside contractors to 
service and collect loans;
    (ii) Provide general information on budgeting of living expenses 
and other aspects of personal financial management; and
    (iii) Provide guidance on the preparation of correspondence to the 
borrower's institution or agent and completion of deferment and 
cancellation forms.
    (11) Use available audio-visual materials such as videos and films 
to enhance the effectiveness of the initial and exit counseling.
    (12) Conduct an annual comprehensive self-evaluation of its 
administration of the title IV programs to identify institutional 
practices that should be modified to reduce defaults, and then 
implement those modifications.
    (13) Delay loan disbursements to first-time borrowers for 30 days 
after enrollment.
    (14) Require first-time borrowers to endorse their loan check at 
the institution and to pick up at the institution any loan proceeds 
remaining after deduction of institutional charges.

(Authority: 20 U.S.C. 1087bb)

    6. A new Sec. 674.7 is added to read as follows:


Sec. 674.7  Expanded lending option (ELO).

    (a) To participate in the expanded lending option in any award 
year, an eligible institution shall enter into a special ELO 
participation agreement with the Secretary. The agreement provides that 
the institution shall--
    (1) Deposit ICC equal to 100 percent of its FCC into the Fund;
    (2) Maintain a cohort default rate that is equal to or less than 15 
percent; and
    (3) Have participated in the Federal Perkins Loan Program for at 
least two years.
    (b) The maximum annual amount of Federal Perkins Loans and Direct 
Loans an eligible student who attends an institution that participates 
in the ELO may borrow in any academic year is--
    (1) $4,000 for a student who has not successfully completed a 
program of undergraduate education; and
    (2) $6,000 for a graduate or professional student.
    (c) The aggregate maximum amount of Federal Perkins and Direct 
Loans an eligible student who attends an institution that participates 
in the ELO may borrow in any academic year is--
    (1) $8,000 for a student who has not successfully completed two 
years of a program leading to a bachelor's degree;
    (2) $20,000 for a student who has successfully completed two years 
of a program leading to a bachelor's degree but who has not received 
the degree; and
    (3) $40,000 for a graduate or professional student.
    (d) The maximum annual amounts described in paragraph (b) of this 
section and the aggregate maximum amounts described in paragraph (c) of 
this section may be exceeded by 20 percent if the student is engaged in 
a program of study abroad that is approved for credit by the home 
institution at which the student is enrolled and that has reasonable 
costs in excess of the home institution's cost of attendance.
    (e) For each student, the maximum annual amounts described in 
paragraphs (b) and (d) of this section and the aggregate maximum 
amounts listed in paragraphs (c) and (d) of this section include any 
amount borrowed previously by that student under title IV, part E of 
the HEA at any institution, including any amounts that may have been 
repaid to the Fund at any institution.
    (f) The institution shall deposit into its Fund an amount required 
under paragraph (a)(1) of this section whether or not the institution 
makes loans in the amount authorized under paragraphs (b) and (c) of 
this section.

(Authority: 20 U.S.C. 1087cc, 1087dd)

    7. Section 674.8 is amended by revising paragraph (a)(2); by 
redesignating paragraphs (a)(3) through (a)(6) as paragraphs (a)(4) 
through (a)(7) respectively; by adding a new paragraph (a)(3); and by 
revising paragraph (c) to read as follows:


Sec. 674.8  Program participation agreement.

* * * * *
    (a) * * *
    (2) Except as provided in paragraph (a)(1) of Sec. 674.7--
    (i) ICC equal to at least three-seventeenths of the FCC described 
in paragraph (a)(1) of this section in award year 1993-94; and
    (ii) ICC equal to at least one-third of the FCC described in 
paragraph (a)(1) of this section in award year 1994-95 and succeeding 
award years;
    (3) ICC equal to the amount of FCC described in paragraph (a)(1) of 
Sec. 674.7 for an institution that has been granted permission by the 
Secretary to participate in the ELO under the Federal Perkins Loan 
program;
* * * * *
    (c) The institution shall submit an annual report to the Secretary 
containing information that determines its cohort default rate that 
includes--
    (1) For institutions in which 30 or more of its current or former 
students first entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in 
the award year; and
    (ii) The number of those borrowers in default by the end of the 
following award year; or
    (2) For institutions in which less than 30 of its current or former 
students entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in 
any of the three most recent award years; and
    (ii) The number of those borrowers in default before the end of the 
award year immediately following the year in which they entered 
repayment.
* * * * *
    8. Section 674.9 is amended by revising paragraph (b); by removing 
the word ``and'' after the semicolon in paragraph (d)(2); by removing 
the period at the end of paragraph (e) and adding, in its place, a 
semicolon; and by adding new paragraphs (f), (g), (h), and (i) to read 
as follows:


Sec. 674.9  Student eligibility.

* * * * *
    (b) Is enrolled or accepted for enrollment as an undergraduate, 
graduate, or professional student at the institution, whether or not 
engaged in a program of study abroad approved for credit by the home 
institution;
* * * * *
    (f) Provides to the institution a driver's license number, if any, 
at the time of application for the loan;
    (g) Reaffirms any Federal Perkins, Direct, or Defense loan amount 
that previously was cancelled due to the borrower's total and permanent 
disability, or discharged in bankruptcy, or written off (if the amount 
of the write-off exceeded $25); and
    (h)(1) In the case of a borrower whose previous loan was cancelled 
due to total and permanent disability, obtains a certification from a 
physician that the borrower's condition has improved and that the 
borrower is able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that any new Federal Perkins, 
Direct, or Defense loan the borrower received cannot be cancelled in 
the future on the basis of any present impairment, unless that 
condition substantially deteriorates.
    (i) For purposes of this section, reaffirmation means the 
acknowledgment of the loan by the borrower in a legally binding manner. 
The acknowledgement may include, but is not limited to, the borrower--
    (1) Signing a new promissory note or new repayment agreement; or
    (2) Making a payment on the loan.

(Authority: 20 U.S.C. 1087aa, 1087dd, and 1091)

    9. Section 674.10 is amended by revising paragraph (b) to read as 
follows:


Sec. 674.10  Selection of students for loans.

* * * * *
    (b) If an institution's allocation of FCC is directly or indirectly 
based in part on the financial need demonstrated by students who are 
attending the institution as less-than-full-time students, or who are 
independent students, and the total financial need of all the less-
than-full-time or independent students at the institution exceeds 5 
percent of the total financial need of all students at the institution, 
at least 5 percent of those loans shall be made available to those 
less-than-full-time or independent students.
* * * * *
    10. Section 674.12 is revised to read as follows:


Sec. 674.12  Loan maximums.

    (a) The maximum annual amount of Federal Perkins Loans and Direct 
Loans an eligible student who attends an institution that does not 
participate in the ELO may borrow in any academic year is--
    (1) $3,000 for a student who has not successfully completed a 
program of undergraduate education; and
    (2) $5,000 for a graduate or professional student.
    (b) The aggregate maximum amount of Federal Perkins Loans and 
Direct Loans an eligible student who attends an institution that does 
not participate in the ELO may borrow is--
    (1) $15,000 for a student who has not successfully completed a 
program of undergraduate education; and
    (2) $30,000 for a graduate or professional student.
    (c) The maximum annual amounts described in paragraph (a) of this 
section and the aggregate maximum amounts described in paragraph (b) of 
this section may be exceeded by 20 percent if the student is engaged in 
a program of study abroad that is approved for credit by the home 
institution at which the student is enrolled and that has reasonable 
costs in excess of the home institution's cost of attendance.
    (d) For each student, the maximum annual amounts described in 
paragraphs (a) and (c) of this section and the aggregate maximum 
amounts described in paragraphs (b) and (c) of this section, include 
any amounts borrowed previously by the student under title IV, part E 
of the HEA at any institution, including any amounts that may have been 
repaid to the Fund at any institution.
* * * * *


Sec. 674.13  [Amended]

    11. Section 674.13 is amended by removing the words ``or endorser'' 
after the word ``borrower'' in paragraph (b)(1)(ii).
    12. Section 674.14 is amended by removing the words ``Guaranteed 
Student Loans'' and adding, in its place, the words ``Federal Family 
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and 
need-based ICLs'' after the words ``Direct Loans'' in paragraph 
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'', 
by removing the comma after the words ``PLUS loan'', and by removing 
the words ``or non-need-based ICL'' before the word ``as'' in paragraph 
(b)(3); and by revising paragraphs (c) introductory text, (c)(1), 
(c)(2), and (c)(3) to read as follows:


Sec. 674.14  Overaward.

* * * * *
    (c) Treatment of resources in excess of need. An institution shall 
take the following steps if it learns that a student has received 
additional resources not included in the calculation of Direct or 
Federal Perkins Loan eligibility that would result in the student's 
total resources exceeding his or her financial need by more than $200, 
or $300 if employed under the FWS program:
    (1) The institution shall decide whether the student has increased 
financial need that was unanticipated when it awarded financial aid to 
the student. If the student demonstrates increased financial need and 
the total resources do not exceed this increased need by more than 
$200, or $300 if employed under the FWS program, no further action is 
necessary.
    (2) If no increased need is demonstrated, or the student's total 
resources still exceed his or her need by more than $200, or $300 if 
employed under the FWS program, as recalculated pursuant to paragraph 
(c)(1) of this section, the institution shall cancel any undisbursed 
loan or grant (other than a Federal Pell Grant).
    (3) If the student's total resources still exceed his or her need 
by more than $200, or $300 if employed under the FWS program, after the 
institution takes the steps required in paragraphs (c)(1) and (2) of 
this section, the institution shall consider the amount by which the 
resources exceed the student's financial need by more than the 
applicable amount as an overpayment.
    13. Section 674.16 is amended by revising paragraph (a)(1)(ii); by 
revising paragraph (a)(1)(x); by revising paragraph (d); by 
redesignating paragraphs (g) and (h) as paragraphs (h) and (i) 
respectively; by adding a new paragraph (g); by adding the word 
``Federal'' before the words ``Perkins Loan program'' in redesignated 
paragraph (h); and by adding a new paragraph (j) to read as follows:


Sec. 674.16  Making and disbursing loans.

    (a)(1) * * *
    (ii) The principal amount of the loan and a statement that the 
institution will report the amount of the loan to a national credit 
bureau organization with which the Secretary has an agreement at least 
annually.
* * * * *
    (x) A definition of default and the consequences to the borrower, 
including a statement that the institution may report the default to 
any one national credit bureau organization with which the Secretary 
has an agreement.
* * * * *
    (d)(1) The institution may advance the loan proceeds to the 
borrower directly by check or by crediting his or her account with the 
institution. The institution shall notify the student of the amount he 
or she can expect to receive and of how and when that amount will be 
paid. In either case, the borrower must sign for each advance of funds 
on the promissory note, except as provided in paragraph (d)(2) of this 
section.
    (2)(i) In the case of a borrower enrolled in a study-abroad program 
approved for credit by the home institution in which the borrower is 
enrolled, the borrower may not be required to sign for any advance of 
funds made while the borrower is studying abroad if obtaining the 
borrower's signature would pose an undue hardship on the institution.
    (ii) The institution shall properly document the reason for not 
obtaining the borrower's signature.
* * * * *
    (g)(1) An institution may disburse Federal Perkins Loan funds in 
accordance with paragraphs (g)(2) and (3) of this section after the 
student has ceased to be enrolled.
    (2) A disbursement described in paragraph (g)(1) of this section 
may be made--
    (i) Only if the loan was awarded to the student while he or she was 
still an eligible student; and
    (ii) Only if the loan funds will be used to cover documented 
educational costs to the student that are normally included in a 
borrower's cost of attendance under section 472 of the HEA for the 
payment period for which the loan was intended and the student was 
actually enrolled.
    (3) The institution shall document in the student's file the reason 
for the late disbursement.
* * * * *
    (j) An institution shall report to any one national credit bureau 
organization with which the Secretary has an agreement--
    (1) The amount of each disbursement;
    (2) The date the disbursement was made; and
    (3) Information as specified in section 430A of the Act.
* * * * *
    14. Section 674.18 is amended by adding a new paragraph (c) to read 
as follows:


Sec. 674.18  Use of funds.

* * * * *
    (c) Transfer of funds. An institution may transfer up to 25 percent 
of the sum of its initial and supplemental Federal Perkins Loan 
allocations for an award year to the Federal Work-Study program or 
Federal Supplemental Educational Opportunity Grant program, or to both.
* * * * *
    15. Section 674.19 is amended by revising paragraph (e)(2)(ii) to 
read as follows:


Sec. 674.19  Fiscal procedures and records.

* * * * *
    (e) * * *
    (2) * * *
    (ii) The history must also show the date, nature, and result of 
each contact with the borrower in the collection of an overdue loan. 
The institution shall include in the repayment history copies of all 
correspondence to or from the borrower, except bills, routine overdue 
notices, and routine form letters.
* * * * *
    16. Section 674.31 is amended by removing paragraph (a)(2); by 
redesignating paragraphs (a)(3)(i) and (a)(3)(ii)(A) and (B) as 
paragraphs (a)(2)(i) and (a)(2)(ii)(A) and (B) respectively; by 
revising redesignated paragraph (a)(2)(ii)(A); by adding a new 
paragraph (a)(2)(iii); and by revising paragraphs (b)(6) and (b)(10) to 
read as follows:


Sec. 674.31  Promissory note.

    (a) * * *
    (2) * * *
    (ii) * * *
    (A) The note requires the signature of the borrower on each page; 
or
* * * * *
    (iii) The promissory note must state the exact amount of the 
minimum monthly repayment amount if the institution chooses the option 
under Sec. 674.33(b).
    (b) * * *
    (6) Security and endorsement. The promissory note must state that 
the loan shall be made without security and endorsement.
* * * * *
    (10) Disclosure of information. The promissory note must state 
that--
    (i) The institution shall disclose to any one national credit 
bureau organization with which the Secretary has an agreement, the 
amount of the loan made to the borrower, along with other relevant 
information;
    (ii) If the borrower defaults on the loan, the institution shall 
disclose to any one national credit bureau organization with which the 
Secretary has an agreement that the borrower has defaulted on the loan, 
along with other relevant information; and
    (iii) If the borrower defaults on the loan and the loan is assigned 
to the Secretary for collection, the Secretary may disclose to a 
national credit bureau organization, that the borrower has defaulted on 
the loan, along with other relevant information.
* * * * *
    17. Section 674.33 is amended by redesignating paragraph (a)(3) as 
paragraph (a)(4); by adding a new paragraph (a)(3); by revising 
paragraph (b); by revising paragraph (c)(1); and by adding new 
paragraphs (d) and (e) to read as follows:


Sec. 674.33  Repayment.

    (a) * * *
    (3) If the installment payment for all loans made to a borrower by 
an institution is not a multiple of $5, the institution may round that 
payment to the next highest dollar amount that is a multiple of $5.
* * * * *
    (b) Minimum monthly repayment--(1) Minimum monthly repayment 
option. (i) An institution may require a borrower to pay a minimum 
monthly repayment if--
    (A) The promissory note includes a minimum monthly repayment 
provision specifying the amount of the minimum monthly repayment; and
    (B) The monthly repayment of principal and interest for a 10-year 
repayment period is less than the minimum monthly repayment; or
    (ii) An institution may require a borrower to pay a minimum monthly 
repayment if the borrower has received loans with different interest 
rates at the same institution and the total monthly repayment would 
otherwise be less than the minimum monthly repayment.
    (2) Minimum monthly repayment of loans from more than one 
institution. If a borrower has received loans from more than one 
institution, the following rules apply:
    (i) If the total of the monthly repayments is equal to at least the 
minimum monthly repayment, no institution may exercise a minimum 
monthly repayment option.
    (ii) If only one institution exercises the minimum monthly 
repayment option when the monthly repayment would otherwise be less 
than the minimum repayment option, that institution receives the 
difference between the minimum monthly repayment and the repayment owed 
to the other institution.
    (iii) If each institution exercises the minimum repayment option, 
the minimum monthly repayment must be divided among the institutions in 
proportion to the amount of principal advanced by each institution.
    (3) Minimum monthly repayment of both Defense and Direct or Federal 
Perkins loans from one or more institutions. If the total monthly 
repayment is less than $30 and the monthly repayment on a Defense loan 
is less than $15 a month, the amount attributed to the Defense loan may 
not exceed $15 a month.
    (4) Minimum monthly repayment of loans with differing grace periods 
and deferments. If the borrower has received loans with different grace 
periods and deferments, the institution shall treat each note 
separately, and the borrower shall pay the applicable minimum monthly 
payment for a loan that is not in the grace or deferment period.
    (5) Hardship. The institution may reduce the borrower's scheduled 
repayments for a period of not more than one year at a time if--
    (i) It determines that the borrower is unable to make the scheduled 
repayments due to hardship (see Sec. 674.33(c)); and
    (ii) The borrower's scheduled repayment is the minimum monthly 
repayment described in paragraph (b) of this section.
    (6) Minimum monthly repayment rates. For the purposes of this 
section, the minimum monthly repayment rate is--
    (i) $15 for a Defense loan;
    (ii) $30 for a Federal Perkins loan made before October 1, 1992, or 
for a Federal Perkins loan made on or after October 1, 1992, to a 
borrower who, on the date the loan is made, has an outstanding balance 
of principal or interest owing on any loan made under this part; or
    (iii) $40 for a Federal Perkins loan made on or after October 1, 
1992, to a borrower who, on the date the loan is made, has no 
outstanding balance of principal or interest owing on any loan made 
under this part.
    (7) The institution shall determine the minimum repayment amount 
under paragraph (b) of this section for loans with repayment 
installment intervals greater than one month by multiplying the amounts 
in paragraph (b) of this section by the number of months in the 
installment interval.
    (c) Extension of repayment period--(1) Hardship. The institution 
may extend a borrower's repayment period due to prolonged illness or 
unemployment.
* * * * *
    (d) Forbearance. (1) Forbearance means the temporary cessation of 
payments, allowing an extension of time for making payments, or 
temporarily accepting smaller payments than previously were scheduled.
    (2) Upon written request and receipt of supporting documentation, 
the institution shall grant the borrower forbearance of principal and, 
unless otherwise indicated by the borrower, interest renewable at 
intervals of 12 months for a period not to exceed three years.
    (3) The terms of forbearance must be agreed upon, in writing, by 
the borrower and the institution.
    (4) In granting a forbearance under this section, an institution 
shall grant a temporary cessation of payments, unless the borrower 
chooses another form of forbearance subject to paragraph (d)(1) of this 
section.
    (5) An institution shall grant forbearance if--
    (i) The amount of the payments the borrower is obligated to make on 
title IV loans each month (or a proportional share if the payments are 
due less frequently than monthly) is collectively equal to or greater 
than 20 percent of the borrower's monthly disposable income;
    (ii) The institution determines that the borrower should qualify 
for the forbearance due to poor health or for other acceptable reasons; 
or
    (iii) The Secretary authorizes a period in the event of a national 
military mobilization or other national emergency.
    (6) Before granting a forbearance to a borrower under paragraph 
(d)(4)(i) of this section, the institution shall require the borrower 
to submit at least the following documentation:
    (i) Evidence showing the amount of the borrower's most recent 
monthly disposable income.
    (ii) 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 
forbearance is requested.
    (iii) Evidence showing the most recent monthly amount due on the 
borrower's title IV loans.
    (7) Interest accrues during any period of forbearance.
    (e) Compromise of repayment. (1) An institution may compromise on 
the repayment of a defaulted loan if--
    (i) The institution has fully complied with all due diligence 
requirements specified in subpart C of this part; and
    (ii) The student borrower pays in a single lump-sum payment--
    (A) 90 percent of the outstanding principal balance on the loan 
under this part;
    (B) The interest due on the loan; and
    (C) Any collection fees due on the loan.
    (2) The Federal share of the compromise repayment must bear the 
same relation to the institution's share of the compromise repayment as 
the Federal capital contribution to the institution's loan Fund under 
this part bears to the institution's capital contribution to the Fund.
* * * * *
    18. Sections 674.34 through 674.39 are redesignated as Secs. 674.35 
through 674.40 respectively and a new Sec. 674.34 is added to read as 
follows:


Sec. 674.34  Deferment of repayment--Federal Perkins loans and Direct 
loans made on or after July 1, 1993.

    (a) The borrower may defer making scheduled installment repayment 
on a Federal Perkins loan or a Direct loan made on or after July 1, 
1993, during the periods described in this section.
    (b)(1) The borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is--
    (i) Enrolled and in attendance as a regular student in at least a 
half-time course of study at an eligible institution;
    (ii) Enrolled and in attendance as a regular student in a course of 
study that is part of a graduate fellowship program approved by the 
Secretary;
    (iii) Engaged in graduate or post-graduate fellowship-supported 
study (such as a Fulbright grant) outside the United States; or
    (iv) Enrolled in a course of study that is part of a rehabilitation 
training program for disabled individuals approved by the Secretary as 
described in paragraph (g) of this section.
    (2) No borrower is eligible for a deferment under paragraph (b)(1) 
of this section while serving in a medical internship or residency 
program.
    (3) The institution of higher education at which the borrower is 
enrolled does not need to be participating in the Federal Perkins Loan 
program for the borrower to qualify for a deferment.
    (4) If a borrower is attending an institution of higher education 
as at least a half-time regular student for a full academic year and 
intends to enroll as at least a half-time regular student in the next 
academic year, the borrower is entitled to a deferment for 12 months.
    (5) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c)(1) The borrower of a Federal Perkins loan need not repay 
principal, and interest does not accrue, for any period during which 
the borrower is engaged in service described in Secs. 674.53, 674.54, 
674.56, 674.57, 674.58, 674.59, and 674.60.
    (2) The borrower of a Direct loan need not repay principal, and 
interest does not accrue, for any period during which the borrower is 
engaged in service described in Secs. 674.53, 674.54, 674.56, 674.57, 
674.58, and 674.59.
    (d) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is seeking and unable to find full-time employment.
    (e)(1) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is suffering an economic hardship. To qualify for this deferment, the 
borrower must be--
    (i) Employed full-time and earning an amount that 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) Not receiving monthly disposable income from all sources that 
is more than four times the amount specified in paragraph (e)(1)(i) of 
this section, and the amount of the borrower's payments due each month 
(or a proportional share if the payments are due less frequently than 
monthly) on the borrower's nondefaulted education loans that were 
obtained through a Federal program is collectively equal to or greater 
than 20 percent of the borrower's monthly disposable income.
    (2) The institution shall require the borrower to submit at least 
the following documentation to qualify for a deferment under paragraph 
(e) of this section:
    (i) Evidence showing the amount of the borrower's most recent 
monthly disposable income from all sources.
    (ii) 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 
deferment is requested.
    (iii) Evidence showing the most recent monthly amount due on the 
borrower's nondefaulted education loans that were obtained through 
Federal programs, or the borrower's defaulted education loans obtained 
through Federal programs if the holders of the loans provide written 
statements that the borrower has made satisfactory arrangements to 
repay the loans.
    (f) To qualify for a deferment for study as part of a graduate 
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a 
borrower must provide the institution certification that the borrower 
has been accepted for or is engaged in full-time study in the 
institution's graduate fellowship program.
    (g) To qualify for a deferment for study in a rehabilitation 
training program, pursuant to paragraph (b)(1)(iv) of this section, the 
borrower must be receiving, or be scheduled to receive, services under 
a program designed to rehabilitate disabled individuals and must 
provide the institution with the following documentation:
    (1) A certification from the rehabilitation agency that the 
borrower is either receiving or scheduled to receive rehabilitation 
training services from the agency.
    (2) A certification from the rehabilitation agency that the 
rehabilitation program--
    (i) Is licensed, approved, certified, or otherwise recognized by 
one of the following entities as providing rehabilitation training to 
disabled individuals--
    (A) A State agency with responsibility for vocational 
rehabilitation programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment 
by the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that would normally prevent an individual from engaging in full-
time employment either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation.
    (h) The institution may not include the deferment periods described 
in paragraphs (b), (c), (d), (e), (f) and (g) of this section when 
determining the 10-year repayment period.
    (i) The borrower need not pay principal and interest does not 
accrue until six months after completion of any period during which the 
borrower is in deferment under paragraphs (b), (c), (d), (e), (f), and 
(g) of this section.
    (j) For purposes of this section, full-time employment means at 
least 35 hours of work per week.

(Authority: 20 U.S.C. 1087dd)

    19. Redesignated Sec. 674.35 is amended by revising the heading of 
the section; by revising paragraph (a); by adding the word ``Federal'' 
before the words ``Perkins Loan'' in paragraph (b)(2); and by revising 
paragraph (c)(5)(iii) to read as follows:


Sec. 674.35  Deferment of repayment--Federal Perkins loans made before 
July 1, 1993.

    (a) The borrower may defer repayment on a Federal Perkins Loan made 
before July 1, 1993, during the periods described in this section.
* * * * *
    (c) * * *
    (5) * * *
    (iii) The borrower does not receive compensation that exceeds the 
rate prescribed under section 6 of the Fair Labor Standards Act of 1938 
(the Federal minimum wage), except that the tax-exempt organization may 
provide health, retirement, and other fringe benefits to the volunteer 
that are substantially equivalent to the benefits offered to other 
employees of the organization.
* * * * *
    20. Redesignated Sec. 674.36 is amended by revising the heading of 
the section; by revising paragraph (a); by adding the word ``Federal'' 
before the words ``Perkins Loan program'' in paragraph (b)(2); and by 
revising paragraph (c)(4)(iii) to read as follows:


Sec. 674.36  Deferment of repayment--Direct loans made on or after 
October 1, 1980, but before July 1, 1993.

    (a) The borrower may defer repayment on a Direct Loan made on or 
after October 1, 1980, but before July 1, 1993, during the periods 
described in this section.
* * * * *
    (c) * * *
    (4) * * *
    (iii) The borrower does not receive compensation that exceeds the 
rate prescribed under section 6 of the Fair Labor Standards Act of 1938 
(the Federal minimum wage), except that the tax-exempt organization may 
provide health, retirement, and other fringe benefits to the volunteer 
that are substantially equivalent to the benefits offered to other 
employees of the organization.
* * * * *
    21. Redesignated Sec. 674.38 is amended by revising paragraph 
(b)(2) and by adding a new paragraph (d) to read as follows:


Sec. 674.38  Deferment procedures.

* * * * *
    (b) * * *
    (2) As a condition for a deferment under this paragraph, the 
institution shall require the borrower to make satisfactory 
arrangements to repay the loan.
* * * * *
    (d) The institution shall determine the continued eligibility of a 
borrower for a deferment at least annually.
* * * * *
    22. Redesignated Sec. 674.39 is amended by adding the word 
``Federal'' before the word ``Perkins'' in paragraph (b) and by 
revising the heading of the section to read as follows:


Sec. 674.39  Postponement of loan repayments in anticipation of 
cancellation--loans made before July 1, 1992.

* * * * *
    23. Section 674.41 is amended by removing the words ``or any 
endorser'' after the words ``the borrower'' in paragraph (a)(2); by 
removing paragraph (b); and by redesignating paragraph (c) as (b).
    24. Section 674.42 is amended by revising paragraph (a)(1)(ii); by 
redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) and 
(a)(5) respectively; and by adding a new paragraph (a)(3) to read as 
follows:


Sec. 674.42  Contact with the borrower.

    (a) * * *
    (1) * * *
    (ii) The borrower's rights to forbearance, deferment, cancellation 
or postponement of repayment and the procedures for filing for those 
benefits.
* * * * *
    (3) The institution shall require the borrower to provide to the 
institution, during the exit interview--
    (i) The borrower's expected permanent address after leaving the 
institution, regardless of the reason for leaving;
    (ii) The name and address of the borrower's expected employer after 
leaving the institution;
    (iii) The name and address of the borrower's next of kin; and
    (iv) Any corrections in the institution's records relating to the 
borrower's name, address, social security number, personal references, 
and driver's license number.
* * * * *
    25. Section 674.43 is amended by adding a new paragraph (a)(3) to 
read as follows:


Sec. 674.43  Billing procedures.

    (a) * * *
    (3) Notwithstanding paragraph (a)(2)(ii) of this section, if the 
borrower elects to make payment by means of an electronic transfer of 
funds from the borrower's bank account, the institution shall send to 
the borrower a statement of account each quarter, if payments are made 
monthly, or semi-annually, if payments are made on other than a monthly 
basis.
* * * * *
    26. Section 674.44 is amended by revising paragraph (a)(3) and by 
revising paragraph (d)(1) to read as follows:


Sec. 674.44  Address searches.

    (a) * * *
    (3) If, after following the procedures in paragraph (a) of this 
section, an institution is still unable to locate a borrower, the 
institution may use the Internal Revenue Service skip-tracing service.
* * * * *
    (d) * * *
    (1) The loan is recovered through litigation;
* * * * *
    27. Section 674.45 is amended by revising paragraph (a)(1); by 
revising paragraph (b); by revising paragraph (d); and by adding a new 
paragraph (g) to read as follows:


Sec. 674.45  Collection procedures.

    (a) * * *
    (1) Report the defaulted account to any one national credit bureau 
organization with which the Secretary has an agreement; and
* * * * *
    (b) An institution shall report to any one national credit bureau 
organization with which the Secretary has an agreement, according to 
the reporting procedures of the national credit bureau organization, 
any changes in account status and shall respond within one month of its 
receipt to any inquiry from any credit bureau regarding the information 
reported on the loan amount.
* * * * *
    (d) If the institution is unable to place the loan in repayment as 
described in paragraph (c)(1) of this section after following the 
procedures in paragraphs (a), (b), and (c) of this section, the 
institution shall continue to make annual attempts to collect from the 
borrower until--
    (1) The loan is recovered through litigation;
    (2) The account is assigned to the United States; or
    (3) The account is written off under Sec. 674.47(g).
* * * * *
    (g) Preemption of State law. The provisions of this section preempt 
any State law, including State statutes, regulations, or rules, that 
would conflict with or hinder satisfaction of the requirements or 
frustrate the purposes of this section.
* * * * *
    28. Section 674.46 is amended by revising paragraph (a)(1) 
introductory text to read as follows:


Sec. 674.46  Litigation procedures.

    (a)(1) If the collection efforts described in Sec. 674.45 do not 
result in the repayment of a loan, the institution shall determine at 
least annually whether--
* * * * *
    29. Section 674.48 is amended by revising paragraph (c)(4)(iii) and 
by revising paragraph (d)(1)(iii) to read as follows:


Sec. 674.48  Use of contractors to perform billing and collection or 
other program activities.

* * * * *
    (c) * * *
    (4) * * *
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days; 
and
* * * * *
    (d) * * *
    (1) * * *
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days, 
after deducting its fees if authorized to do so by the institution; and
* * * * *
    30. Section 674.49 is amended by revising paragraph (a); by 
removing paragraph (g); by redesignating paragraph (h) as paragraph 
(g); by removing redesignated paragraph (g)(3); and by revising 
redesignated paragraph (g)(1) introductory text to read as follows:


Sec. 674.49  Bankruptcy of borrower.

    (a) General. If an institution receives notice that a borrower has 
filed a petition for relief in bankruptcy, usually by receiving a 
notice of meeting of creditors, the institution and its agents shall 
immediately suspend any collection efforts outside the bankruptcy 
proceeding against the borrower.
* * * * *
    (g) Termination of collection and write-off. (1) An institution 
shall terminate all collection action and write off a loan if it 
receives--
* * * * *
    31. Section 674.50 is amended by revising paragraph (c)(10) to read 
as follows:


Sec. 674.50  Assignment of defaulted loans to the United States.

* * * * *
    (c) * * *
    (10) Documentation that the institution has complied with all of 
the due diligence requirements described in paragraph (a)(1) of this 
section if the institution has a cohort default rate that is equal to 
or greater than 20 percent as of June 30 of the second year preceding 
the submission period.
* * * * *

Subpart D--Loan Cancellation

    32. Section 674.51 is amended by redesignating paragraphs (g), (h), 
and (i) as paragraphs (o), (p), and (q) respectively; by redesignating 
paragraph (f) as paragraph (j); by redesignating paragraphs (d) and (e) 
as paragraphs (f) and (g) respectively; by revising redesignated 
paragraph (q)(3); and by adding new paragraphs (d), (e), (h), (i), (k), 
(l), (m), (n), and (r) to read as follows:


Sec. 674.51  Special definitions.

* * * * *
    (d) Children and youth with disabilities: Children and youth from 
ages 3 through 21, inclusive, who require special education and related 
services because they have disabilities as defined in section 602(a)(1) 
of the Individuals with Disabilities Education Act.
    (e) Early intervention services: Those services defined in section 
672(2) of the Individuals with Disabilities Education Act that are 
provided to infants and toddlers with disabilities.
* * * * *
    (h) High-risk children: Individuals under the age of 21 who are 
low-income or at risk of abuse or neglect, have been abused or 
neglected, have serious emotional, mental, or behavioral disturbances, 
reside in placements outside their homes, or are involved in the 
juvenile justice system.
    (i) Infants and toddlers with disabilities: Infants and toddlers 
from birth to age 2, inclusive, who need early intervention services 
for specified reasons, as defined in section 672(1) of the Individuals 
with Disabilities Education Act.
* * * * *
    (k) Low-income communities: Communities in which there is a high 
concentration of children eligible to be counted under chapter 1 of 
title I of the Elementary and Secondary Education Act of 1965.
    (l) Medical technician: An allied health professional who is 
certified, registered, or licensed by the appropriate State agency in 
the State in which he or she provides specialized medical services.
    (m) Nurse: An individual who is licensed by the appropriate State 
agency in the State in which he or she is providing nursing care.
    (n) Qualified professional provider of early intervention services: 
A provider of services as defined in section 672(2) of the Individuals 
with Disabilities Education Act.
* * * * *
    (q) * * *
    (3) * * *
    (i) Speech and language pathology and audiology;
    (ii) Physical therapy;
    (iii) Occupational therapy;
    (iv) Psychological and counseling services; or
    (v) Recreational therapy.
    (r) Teaching in a field of expertise: The majority of classes 
taught are in the borrower's field of expertise.
* * * * *
    33. Section 674.52 is amended by revising paragraph (d) to read as 
follows:


Sec. 674.52  Cancellation procedures.

* * * * *
    (d) The Secretary considers a borrower's loan deferment under 
Secs. 674.35, 674.36, and 674.37 to run concurrently with any period 
for which a cancellation for military, Peace Corps, or ACTION program 
service is granted.
* * * * *
    34. Sections 674.55 through 674.60 are redesignated as Secs. 674.58 
through 674.63 respectively; Secs. 674.53 and 674.54 are redesignated 
as Secs. 674.54 and 674.55 respectively; and a new Sec. 674.53 is added 
to read as follows:


Sec. 674.53  Teacher cancellation--Federal Perkins loans and Direct 
loans made on or after July 23, 1992.

    (a) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students. (1) An institution shall 
cancel up to 100 percent of the outstanding loan balance on a Federal 
Perkins loan or a Direct loan made on or after July 23, 1992, for full-
time teaching in a public or other nonprofit elementary or secondary 
school that--
    (i) Is in a school district that qualified for funds, in that year, 
under Chapter 1 of the Education Consolidation and Improvement Act of 
1981; and
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up 
of Chapter 1 children.
    (2) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (a) of this 
section.
    (3) If a list of eligible institutions in which a teacher performs 
services under paragraph (a)(1) of this section is not available before 
May 1 of any year, the Secretary may use the list for the year 
preceding the year for which the determination is made to make the 
service determination.
    (4) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Affairs (BIA) or operated on Indian 
reservations by Indian tribal groups under contract with BIA to qualify 
as schools serving low-income students.
    (5) A teacher, who performs service in a school that meets the 
requirement of paragraph (a)(1) of this section in any year and in a 
subsequent year fails to meet these requirements, may continue to teach 
in that school and will be eligible for loan cancellation pursuant to 
paragraph (a) of this section, in subsequent years.
    (b) Cancellation for full-time teaching in special education. An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made on or after 
July 23, 1992, for the borrower's service as a full-time special 
education teacher of infants, toddlers, children, or youth with 
disabilities, in a public or other nonprofit elementary or secondary 
school system;
    (c) Cancellation for full-time teaching in fields of expertise. An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made on or after 
July 23, 1992, for full-time teaching in mathematics, science, foreign 
languages, bilingual education, or any other field of expertise where 
the State education agency determines that there is a shortage of 
qualified teachers.
    (d) Cancellation rates. (1) To qualify for cancellation under 
paragraphs (a), (b), or (c) of this section, a borrower shall teach 
full-time for a complete academic year or its equivalent.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time teaching;
    (ii) 20 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time teaching; 
and
    (iii) 30 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time teaching.
    (e) Teaching in a school system. The Secretary considers a borrower 
to be teaching in a public or other nonprofit elementary or secondary 
school system only if the borrower is directly employed by the school 
system.
    (f) Teaching children and adults. A borrower who teaches both 
adults and children qualifies for cancellation for this service only if 
a majority of the students whom the borrower teaches are children.

(Authority: 20 U.S.C 1087ee.)

    35. Redesignated Sec. 674.54 is amended by revising the heading of 
the section; by revising paragraph (a)(1) introductory text; by 
removing paragraph (a)(2); by redesignating paragraphs (a)(3) and 
(a)(4) as paragraphs (a)(2) and (a)(3) respectively; and by revising 
paragraph (b)(1) to read as follows:


Sec. 674.54  Teacher cancellation--Federal Perkins loans and Direct 
loans made before July 23, 1992.

    (a) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students. (1) An institution shall 
cancel up to 100 percent of the outstanding loan balance on a Federal 
Perkins loan or a Direct loan made before July 23, 1992, for full-time 
teaching in a public or other nonprofit elementary or secondary school 
that--
* * * * *
    (b) Cancellation for full-time teaching of the handicapped. (1) An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made before July 
23, 1992, for full-time teaching of handicapped children in a public or 
other nonprofit elementary or secondary school system.
* * * * *
(Authority: 20 U.S.C 1087ee.)

    36. A new Sec. 674.56 is added to read as follows:


Sec. 674.56  Employment cancellation--Federal Perkins loans and Direct 
loans made on or after July 23, 1992.

    (a)(1) Cancellation for full-time employment as a nurse or medical 
technician. An institution shall cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or Direct loan made 
on or after July 23, 1992, for full-time employment as a nurse or 
medical technician by a public or private nonprofit health care 
facility.
    (b) Cancellation for full-time employment in a public or private 
nonprofit child or family service agency. An institution shall cancel 
up to 100 percent of the outstanding balance on a borrower's Federal 
Perkins loan or Direct loan made on or after July 23, 1992, for service 
as a full-time employee in a public or private nonprofit child or 
family service agency who is providing, or supervising the provision 
of, services to high-risk children who are from low-income communities 
and the families of such children.
    (c) Cancellation for service as a qualified professional provider 
of early intervention services. An institution shall cancel up to 100 
percent of the outstanding balance on a borrower's Federal Perkins loan 
or Direct loan made on or after July 23, 1992, for the borrower's 
service as a full-time qualified professional provider of early 
intervention services in a public or other nonprofit program under 
public supervision by the lead agency as authorized in section 
676(b)(9) of the Individuals With Disabilities Education Act.
    (d) Cancellation rates. (1) To qualify for cancellation under 
paragraphs (a), (b), and (c) of this section, a borrower must work 
full-time for a 12 consecutive months.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time 
employment;
    (ii) 20 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time 
employment; and
    (iii) 30 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time employment.

(Authority: 20 U.S.C. 1087ee.)

    37. A new Sec. 674.57 is added to read as follows:


Sec. 674.57  Cancellation for law enforcement or corrections officer 
service--Federal Perkins and Direct loans for loans made on or after 
November 29, 1990.

    (a)(1) An institution shall cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins loan or Direct loan 
made on or after November 29, 1990, for full-time service as a law 
enforcement or corrections officer for an eligible employing agency.
    (2) An eligible employing agency is an agency--
    (i) That is a local, State, or Federal law enforcement or 
corrections agency;
    (ii) That is public-funded; and
    (iii) The principal activities of which pertain to crime 
prevention, control, or reduction or the enforcement of the criminal 
law.
    (3) Agencies that are primarily responsible for enforcement of 
civil, regulatory, or administrative laws are ineligible employing 
agencies.
    (4) A borrower qualifies for cancellation under this section only 
if the borrower is--
    (i) A sworn law enforcement or corrections officer; or
    (ii) A person whose principal responsibilities are unique to the 
criminal justice system.
    (5) To qualify for a cancellation under this section, the 
borrower's service must be essential in the performance of the eligible 
employing agency's primary mission.
    (6) The agency must be able to document the employee's functions.
    (7) A borrower whose principal official responsibilities are 
administrative or supportive does not qualify for cancellation under 
this section.
    (b)(1) To qualify for cancellation under paragraph (a) of this 
section, a borrower shall work full-time for 12 consecutive months.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time 
employment;
    (ii) 20 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time 
employment; and
    (iii) 30 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time employment.

(Authority: 20 U.S.C. 465.)

    38. Redesignated Sec. 674.58 is amended by adding the word 
``Federal'' before the words ``Perkins loan'' in paragraph (a).
    39. Redesignated Sec. 674.61 is amended by revising paragraph 
(b)(2) to read as follows:


Sec. 674.61  Cancellation for death or disability.

* * * * *
    (b) * * *
    (2) Permanent and total disability is the inability to work and 
earn money or to attend an institution because of an impairment that is 
expected to continue indefinitely or result in death.
* * * * *
    40. Redesignated Sec. 674.63 is amended by revising paragraphs 
(a)(1) and (b) to read as follows:


Sec. 674.63  Reimbursement to institutions for loan cancellation.

    (a) Reimbursement for Defense loan cancellation. (1) The Secretary 
pays an institution each award year its share of the principal and 
interest cancelled under Secs. 674.55 and 674.59(a).
* * * * *
    (b) Reimbursement for Direct and Federal Perkins loan cancellation. 
The Secretary pays an institution each award year the principal and 
interest cancelled from its student loan fund under Secs. 674.53, 
674.54, 674.56, 674.57, 674.58, 674.59(b), and 674.60. The institution 
shall deposit this amount in its Fund.
* * * * *
    41. Appendix A to Part 674--Promissory Note--Perkins Loan is 
removed.
    42. Appendix B to Part 674--Promissory Note--Direct Loan is 
removed.
    43. Appendix C to Part 674--Promissory Note--Perkins Loan--Less 
Than Half-Time Student Borrower is removed.
    44. Appendix D to Part 674--Promissory Note--Direct Loan--Less Than 
Half-Time Student Borrower is removed.
    45. In 34 CFR part 674 add the word ``Federal'' before the word 
``Perkins'' in the following places:
    (a) Section 674.1 (a) and (b)(1).
    (b) Section 674.2 (a) and (b) definitions.
    (c) Section 674.3 (a) and (b).
    (d) Section 674.4 (a) and (b).
    (e) Section 674.8 introductory text.
    (f) Section 674.9 introductory text.
    (g) Section 674.14 (a)(1), (a)(2) introductory text, (b)(1)(x).
    (h) Section 674.17 (a) and (b)(1) introductory text.
    (i) Section 674.18 (a), (b)(1), (b)(2)(i), (b)(3), and (b)(4).
    (j) Section 674.19 (a)(1), (a)(3)(i), (b), (b)(1), (b)(1)(ii), 
(b)(3), (b)(4) introductory text, (d)(4), and (e)(4)(iv).
    (k) Section 674.20(b).
    (l) Section 674.31 (b)(2)(i)(B), (b)(5)(ii)(A), and (b)(7)(ii).
    (m) Section 674.33(c)(2)(i).
    (n) Section 674.42(b)(1)(i).
    (o) Section 674.46(a)(1)(i).
    46. In 34 CFR part 674 remove the term ``College Work-Study (CWS) 
Program'' and add, in its place, the term ``Federal Work-Study (FWS) 
Program'' in Sec. 674.2(a).
    47. In 34 CFR part 674 remove the term ``CWS'' and add, in its 
place, the term ``FWS'' in the following places:
    (a) Section 674.18 (b)(2)(i), (b)(3), and (b)(4).
    (b) Section 674.19(d)(4).
    48. In 34 CFR part 674 remove the term ``Supplemental Educational 
Opportunity Grant (SEOG) Program'' and add, in its place, the term 
``Federal Supplemental Educational Opportunity Grant (FSEOG) Program'' 
in Sec. 674.2(a).
    49. In 34 CFR part 674 remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:
    (a) Section 674.18 (b)(2)(i) and (b)(4).
    (b) Section 674.19(d)(4).
    50. In 34 CFR part 674 remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in Sec. 674.14(b)(1)(iv).
    51. In 34 CFR part 674 remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add, in its place, the term ``Federal Family 
Education Loan (FFEL) programs'' in Sec. 674.2(a).
    52. In 34 CFR part 674 add the term ``Federal'' before the term 
``Pell Grant'' in the following places:
    (a) Section 674.2(a).
    (b) Section 674.9(d)(1) and (d)(2).
    (c) Section 674.14(b)(1)(i).
    (d) Section 674.15(c)(2).
    53. In 34 CFR part 674 remove the term ``Income Contingent Loan 
(ICL) Program'' in Sec. 674.2(a).
    54. In 34 CFR part 674 add the term ``Federal'' before the term 
``PLUS'' Program'' and the term ``SLS Program'' in Sec. 674.2(a).
    55. In 34 CFR part 674 add the term ``Federal'' before the term 
``Supplemental Loan for Students (SLS)'' in Sec. 674.14(b)(3).

PART 675--FEDERAL WORK-STUDY PROGRAMS

    1. The authority citation for part 675 continues to read as 
follows:

    Authority: 42 U.S.C. 2571-2756b, unless otherwise noted.

    2. The heading of part 675 is revised to read as set forth above.
    3. The heading for subpart A is amended by removing the term 
``College Work-Study Program'' and adding, in its place, the term 
``Federal Work-Study Program''.
    4. Section 675.1 is amended by revising paragraph (a) to read as 
follows:


Sec. 675.1  Purpose and identification of common provisions.

    (a) The Federal Work-Study (FWS) program provides part-time 
employment to students attending institutions of higher education who 
need the earnings to help meet their costs of postsecondary education 
and encourages students receiving FWS assistance to participate in 
community service activities.
* * * * *
    5. Section 675.2, paragraph (b) is amended by adding, in 
alphabetical order, the definition of ``Low-income individual'' and by 
revising the definition of ``Undergraduate student'' to read as 
follows:


Sec. 675.2  Definitions.

* * * * *
    (b) * * *
    Low-income individual. (1)(i) An individual without dependents 
whose total income for the preceding calendar year did not exceed 45 
percent of the income protection allowance for the current award year 
for a family of four with one in college; or
    (ii) An individual with a family that includes the individual and 
any spouse or legal dependents whose total family income for the 
preceding calendar year did not exceed 125 percent of the Income 
Protection Allowance for the current award year for a family with one 
in college and equal in size to that of the individual's family.
    (2) The institution shall use the income protection allowance 
published annually in accordance with section 478 of the HEA in making 
this determination.
* * * * *
    Undergraduate student: A student enrolled at an institution of 
higher education who is in an undergraduate course of study which 
usually does not exceed 4 academic years, or is enrolled in a 4 to 5 
academic year program designed to lead to a first degree. A student 
enrolled in a program of any other length is considered an 
undergraduate student for only the first 4 academic years of that 
program.
* * * * *
    6. Section 675.4 is amended by revising the introductory text of 
paragraph (d) and adding new paragraph (e) to read as follows:


Sec. 675.4  Allocation and reallocation.

* * * * *
    (d) Authority to expend funds. Except as specifically provided in 
Sec. 675.18, paragraphs (c), (d), and (g), an institution may not use 
funds allocated or reallocated for an award year--
* * * * *
    (e) Unexpended funds. (1) If an institution does not expend its FWS 
allocation during an award year and returns more than 10 percent of the 
allocation, the Secretary reduces its allocation for the next fiscal 
year by the amount returned.
    (2) The Secretary may waive the provision of paragraph (e)(1) of 
this section for a specific institution if the Secretary finds that 
enforcement would be contrary to the interests of the program.
    (3) The Secretary considers enforcement of paragraph (e)(1) of this 
section to be contrary to the interest of the program only if the 
institution returns more than 10 percent of its allocation due to 
circumstances beyond the institution's control that are not expected to 
recur.
* * * * *
    7. Section 675.8 is amended by removing the word ``and'' after 
paragraph (d); by removing the period after paragraph (e) and adding, 
in its place, a semicolon; and adding new paragraphs (f) and (g) to 
read as follows:


Sec. 675.8  Program participation agreement.

* * * * *
    (f) Assure that employment under this part may be used to support 
programs for supportive services to students with disabilities; and
    (g) Inform all eligible students of the opportunity to perform 
community services and consult with local nonprofit, governmental, and 
community-based organizations to identify those opportunities.
* * * * *
    8. Section 675.10 is amended by revising the heading of the section 
and by revising paragraph (c) to read as follows:


Sec. 675.10  Selection of students for FWS employment.

* * * * *
    (c) Part-time and independent students. If an institution's 
allocation of FWS funds is directly or indirectly based in part on the 
financial need demonstrated by students attending the institution as 
less than full-time students or independent students, and if the total 
financial need of those students exceeds 5 percent of the total 
financial need of all students at the institution, the institution 
shall make available at least 5 percent of its allocation, under this 
part, to those students.
* * * * *
    9. Section 675.14 is amended by removing the words ``Guaranteed 
Students Loans'' and adding, in its place, the words ``Federal Family 
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and 
need-based ICLs'' after the words ``Direct Loans'' in paragraph 
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'', 
by removing the comma after the words ``PLUS loan'', and by removing 
the words ``or non-need-based ICL'' before the word ``as'' in paragraph 
(b)(3); by removing the dollar figure ``$200'' and adding, in its 
place, the dollar figure ``$300'' in paragraphs (c) introductory text, 
(c)(1), and (c)(2); and by revising paragraph (d)(2) to read as 
follows:


Sec. 675.14  Overaward.

* * * * *
    (d) * * *
    (2) Notwithstanding the provisions of paragraph (d)(1) of this 
section, an institution may provide additional FWS funding to a student 
whose need has been met until that student's cumulative earnings from 
all need-based employment occurring subsequent to the time his or her 
financial need has been met exceed $300.
* * * * *
    10. Section 675.18 is amended by redesignating paragraphs (a)(3) 
and (a)(4) as paragraphs (a)(4) and (a)(5) respectively; by removing 
paragraph (f)(4); by adding a new paragraph (a)(3); by revising 
paragraphs (b)(3), (b)(5), and (f)(1); and by adding new paragraphs (g) 
and (h) to read as follows:


Sec. 675.18  Use of funds.

    (a) * * *
    (3) Meeting the cost of a Work-Colleges program under subpart C;
* * * * *
    (b) * * *
    (3) However, the institution shall not include, when calculating 
the allowance in paragraph (b)(1) of this section, the amount of loans 
made under the Federal Perkins Loan program it assigns to the Secretary 
under section 463(a)(6) of the HEA.
* * * * *
    (5) An institution may use up to 10 percent of the allowance in 
paragraph (b) of this section, that is attributable to the 
institution's expenditures under the FWS program, to pay the 
administrative costs of conducting its program of community service. 
These costs may include the costs of--
    (i) Developing mechanisms to assure the academic quality of a 
student's experience;
    (ii) Assuring student access to educational resources, expertise, 
and supervision necessary to achieve community service objectives; and
    (iii) Collaborating with public and private nonprofit agencies and 
programs assisted under the National and Community Service Act of 1990, 
in the planning, development, and administration of these programs.
* * * * *
    (f) Transfer funds to FSEOG. (1) Beginning with the 1993-94 award 
year, an institution may transfer up to 25 percent of the sum of its 
initial and supplemental FWS allocations for an award year to its FSEOG 
program.
* * * * *
    (g) Carry back funds for summer employment. An institution may 
carry back and expend in the previous award year its initial and 
supplemental FWS allocations for the current award year to pay student 
wages earned on or after May 15 of the previous award year but prior to 
the beginning of the current award year.
    (h) Community service. (1) For the 1994-95 and subsequent award 
years, an institution shall use at least 5 percent of the sum of its 
initial and supplemental FWS allocations for an award year to 
compensate students employed in community service activities.
    (2) If an institution is unable to comply with this requirement, 
the institution may request a waiver of this requirement.
    (3) A request for a waiver must be in writing to the Secretary and 
is approved if the Secretary determines that enforcing this requirement 
would create a hardship for students at the institution.
    11. Section 675.21 is amended by revising paragraph (b) to read as 
follows:


Sec. 675.21  Institutional employment.

* * * * *
    (b) A proprietary institution may employ a student to work for the 
institution, but only in jobs that--
    (1) Are in community services as defined in Sec. 675.2; or
    (2) Are on campus and that--
    (i) Involve the provision of student services as defined in 
Sec. 675.2;
    (ii) To the maximum extent possible, complement and reinforce the 
educational program or vocational goals of the student; and
    (iii) Do not involve the solicitation of potential students to 
enroll at the proprietary institution.
    12. Section 675.26 is amended by revising paragraphs (a)(1), 
(a)(2), and (a)(3) to read as follows:


Sec. 675.26  FWS Federal share limitations.

    (a)(1) The Federal share of FWS compensation paid to a student 
employed other than by a private for-profit organization, as described 
in Sec. 675.23, may not exceed 75 percent for the 1993-94 award year 
and subsequent award years unless the Secretary approves a higher share 
under paragraph (d) of this section.
    (2) The Federal share of the compensation paid to a student 
employed by a private for-profit organization may not exceed 50 
percent.
    (3) An institution may not use FWS funds to pay a student after he 
or she has, in addition to other resources, earned $300 or more over 
his or her financial need.
* * * * *
    13. Section 675.28 is removed.
    14. The heading for subpart B is amended by removing the ``s'' from 
the word ``Programs''.
    15. Section 675.31 is revised to read as follows:


Sec. 675.31  Purpose.

    The purpose of the Job Location and Development program is to 
expand off-campus job opportunities for students who are enrolled in 
eligible institutions of higher education and want jobs, regardless of 
their financial need, and to encourage students to participate in 
community service activities.

(Authority: 42 U.S.C. 2756)

    16. Section 675.32 is revised to read as follows:


Sec. 675.32  Program description.

    An institution may expend up to the lesser of $50,000 or 10 percent 
of its FWS allocation and reallocation for an award year to establish 
or expand a program under which the institution, separately or in 
combination with other eligible institutions, locates and develops 
jobs, including community service jobs, for currently enrolled 
students.

(Authority: 42 U.S.C. 2756)

    17. Section 675.34 is amended by revising the heading of the 
section; by revising paragraph (a); and by revising paragraph (c) to 
read as follows:


Sec. 675.34  Multiinstitutional job location and development programs.

    (a) An institution participating in the FWS program may enter into 
a written agreement to establish and operate job location programs for 
its students with other participating institutions.
* * * * *
    (c) Each institution shall retain responsibility for the proper 
disbursement of the Federal funds it contributes under an agreement 
with other eligible institutions.
* * * * *
    18. Section 675.35 is amended by adding the word ``in'' before the 
word ``accordance'' in paragraph (b)(1) and by revising paragraph 
(b)(3)(i) to read as follows:


Sec. 675.35  Agreement.

* * * * *
    (b) * * *
    (3) * * *
    (i) The institution will not use program funds to locate and 
develop jobs at an eligible institution;
* * * * *
    19. A new subpart C is added to part 675 to read as follows:

Subpart C--Work-Colleges Program


Sec. 675.41  Special definitions.

    The following definitions apply to this subpart:
    (a) Work-college: The term ``work-college'' means an eligible 
institution that--
    (1) Is a public or private nonprofit institution with a commitment 
to community service;
    (2) Has operated a comprehensive work-learning program for at least 
two years;
    (3) Requires--
    (i) All resident students who reside on campus to participate in a 
comprehensive work-learning program; and
    (ii) The provision of services as an integral part of the 
institution's educational program and as part of the institution's 
educational philosophy; and
    (4) Provides students participating in the comprehensive work-
learning program with the opportunity to contribute to their education 
and to the welfare of the community as a whole.
    (b) Comprehensive student work-learning program: A student work/
service program that--
    (1) Is an integral and stated part of the institution's educational 
philosophy and program;
    (2) Requires participation of all resident students for enrollment, 
participation, and graduation;
    (3) Includes learning objectives, evaluation, and a record of work 
performance as part of the student's college record;
    (4) Provides programmatic leadership by college personnel at levels 
comparable to traditional academic programs;
    (5) Recognizes the educational role of work-learning supervisors; 
and
    (6) Includes consequences for nonperformance or failure in the 
work-learning program similar to the consequences for failure in the 
regular academic program.

(Authority: 42 U.S.C. 2756b)


Sec. 675.42  Purpose.

    The purpose of the Work-Colleges program is to recognize, 
encourage, and promote the use of comprehensive work-learning programs 
as a valuable educational approach when it is an integral part of the 
institution's educational program and a part of a financial plan that 
decreases reliance on grants and loans and to encourage students to 
participate in community service activities.

(Authority: 42 U.S.C. 2756b)


Sec. 675.43  Program description.

    (a) An institution that satisfies the definition of ``work-
college'' in Sec. 675.41(a) and wishes to participate in the Work-
Colleges program must apply to the Secretary at the time and in the 
manner prescribed by the Secretary.
    (b) An institution may expend funds separately, or in combination 
with other eligible institutions, to provide work-learning 
opportunities for currently enrolled students.
    (c) For any given award year, Federal funds allocated for that 
award year under sections 442 and 462 of the HEA may be transferred for 
the purpose of carrying out the Work-Colleges program to provide 
flexibility in strengthening the self-help-through-work element in 
financial aid packaging.

(Authority: 42 U.S.C. 2756b)


Sec. 675.44  Allowable costs, Federal share, and institutional share.

    (a) Allowable costs. An institution participating in the Work-
Colleges program may use appropriated funds to carry out the following 
activities:
    (1) Support the educational costs of qualified students through 
self-help payments or credits provided under the work learning program 
within the limits of part F of title IV of the HEA.
    (2) Promote the work-learning-service experience as a tool of 
postsecondary education, financial self-help, and community service-
learning opportunities.
    (3) Carry out activities in sections 443 or 446 of the HEA.
    (4) Administer, develop, and assess comprehensive work-learning 
programs including--
    (i) Community-based work-learning alternatives that expand 
opportunities for community service and career-related work; and
    (ii) Alternatives that develop sound citizenship, encourage student 
persistence, and make optimum use of assistance under the Work-Colleges 
program in education and student development.
    (b) Federal share of allowable costs. An institution, in addition 
to the funds allocated for this program, may transfer allocations 
provided under its Federal Perkins Loan or its Federal Work-Study 
program to pay allowable costs.
    (c) Institutional share of allowable costs. An institution must 
match Federal funds made available for this program on a dollar-for-
dollar basis from non-Federal sources. The institution shall keep 
records documenting the amount and source of its share.

(Authority: 42 U.S.C. 2756b)


Sec. 675.45  Unallowable costs.

    An institution may not use funds appropriated to carry out the 
Work-Colleges program to pay costs related to the purchase, 
construction, or alteration of physical facilities or indirect 
administrative costs.

(Authority: 42 U.S.C. 2756b)


Sec. 675.46  Multiinstitutional work-colleges arrangements.

    (a) An institution participating in the Work-Colleges program may 
enter into a written agreement with another participating institution 
to promote the work-learning-service experience.
    (b) The agreement described in paragraph (a) of this section must--
    (1) Designate the administrator of the program; and
    (2) Specify the terms, conditions, and performance standards of the 
program.
    (c) Each institution shall retain responsibility for the proper 
disbursement of the Federal funds it contributes under an agreement 
with other eligible institutions.

(Authority: 42 U.S.C. 2756b)


Sec. 675.47  Agreement.

    To participate in the Work-Colleges program, an institution shall 
enter into an agreement with the Secretary. The agreement provides 
that, among other things, the institution shall--
    (a) Assure that it will comply with all the appropriate provisions 
of the HEA and the appropriate provisions of the regulations;
    (b) Assure that it satisfies the definition of ``work-college'' in 
Sec. 675.41(a);
    (c) Assure that it will match the Federal funds according to the 
requirements in Sec. 675.44(c); and
    (d) Assure that it will use funds only to carry out the activities 
in Sec. 675.44(a).

(Authority: 42 U.S.C. 2756b)


Sec. 675.48  Procedures and records.

    In administering a Work-Colleges program under this subpart, an 
institution shall comply with the applicable provisions of this part 
675.

(Authority: 42 U.S.C. 2756b)


Sec. 675.49  Termination and suspension.

    Procedures for termination and suspension under this subpart are 
governed by applicable provisions found in 34 CFR part 668, subpart G 
of the Student Assistance General Provisions regulations.

(Authority: 42 U.S.C. 2756b)
 * * * * *
    20. In 34 CFR part 675 remove the term ``College Work-Study'' 
before the word ``program'' and add, in its place, the term ``FWS'' in 
Sec. 675.4(a).
    21. In 34 CFR part 675 remove the term ``CWS'' and add, in its 
place, the term ``FWS'' in the following places:
    (a) Section 675.3(a) and (b).
    (b) Section 675.4(d)(1).
    (c) Section 675.8 introductory text, (b), (c), and (e).
    (d) Section 675.9 introductory text.
    (e) Section 675.10(a).
    (f) Section 675.14 (a)(1), (a)(2) introductory text, (a)(2)(i), 
(a)(3), (c) introductory text, and (d)(1).
    (g) Section 675.15(a) introductory text.
    (h) Section 675.16(a)(3), (a)(4), (b)(1), (b)(2), and (b)(3).
    (i) Section 675.17.
    (j) Section 675.18(a) introductory text, (a)(1), redesignated 
(a)(5), (b)(1), (b)(2)(i), (b)(4), (c)(1) and (2), and (d).
    (k) Section 675.19(a)(1), (a)(3)(i) introductory text, (a)(3)(ii), 
and (b)(4).
    (l) Section 675.20(a) heading and introductory text, (b)(1), (c) 
heading, and (c)(2) introductory text.
    (m) Section 675.22(b) introductory text heading.
    (n) Section 675.23(a), and (b)(2)(ii).
    (o) Section 675.24 heading, (a)(1), and (b).
    (p) Section 675.25(a)(1) and (2), and (b).
    (q) Section 675.26 heading and (d)(2)(ii).
    (r) Section 675.27(a)(1), redesignated (a)(4), and (b).
    (s) Section 675.33(b).
    (t) Section 675.35(a).
    (u) Section 675.37(a).
    22. In 34 CFR part 675 remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in Sec. 675.14(b)(1)(iv).
    23. In 34 CFR part 675 remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:
    (a) Section 675.18 redesignated (a)(5), (b)(2)(i), and (b)(4).
    (b) Section 675.19(b)(4).
    24. In Sec. 675.2, paragraph (a) is amended by removing the term 
``Supplemental Educational Opportunity Grant (SEOG) program'' and 
adding, in its place, the term ``Federal Supplemental Educational 
Opportunity Grant (FSEOG) program''.
    25. Appendix B to 34 CFR part 675 is amended by removing the term 
``College Work-Study program'' and adding, in its place, ``Federal 
Work-Study program'', and removing the term ``CWS'' and adding, in its 
place, the term ``FWS'' each place these terms appear.
    26. In 34 CFR part 675 add the word ``Federal'' before the word 
``Perkins'' in the following places:
    (a) Section 675.2(a).
    (b) Section 675.14(b)(1)(x).
    (c) Section 675.18(b)(2)(i) and (b)(4).
    (d) Section 675.19(b)(4).
    27. In 34 CFR part 675 add the word ``Federal'' before the word 
``Pell'' in the following places:
    (a) Section 675.2(a).
    (b) Section 675.14(b)(1)(i) and (c)(2).
    (c) Section 675.15(c)(2).
    (d) Section 675.18(b)(4).
    28. In 34 CFR part 675 remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add, in its place, the term ``Federal Family 
Education Loan (FFEL) programs'' in Sec. 675.2(a).
    29. In 34 CFR part 675 remove the term ``Income Contingent Loan 
Program'' in Sec. 675.2(a).
    30. In 34 CFR part 675 add the word ``Federal'' before the term 
``PLUS Program'' and the term ``SLS Program'' in Sec. 675.2(a).
    31. In 34 CFR part 675 add the word ``Federal'' before the term 
``Supplemental Loan for Students (SLS)'' in Sec. 675.14(b)(3).
    32. In 34 CFR part 675 change the word ``Programs'' to ``Program'' 
after the word ``Development'' in Sec. 675.17. The Secretary proposes 
to amend part 676 of title 34 of the Code of Federal Regulations as 
follows:

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM

    1. The authority citation for part 676 continues to read as 
follows:

    Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.

    2. Section 676.1 is amended by removing the term ``Supplemental 
Educational Opportunity Grant (SEOG) Program'' and replacing it with 
the term ``Federal Supplemental Educational Opportunity Grant (FSEOG) 
program'' in paragraph (a).
    3. Section 676.4 is amended by redesignating paragraphs (b), (c), 
and (d) as paragraphs (c), (d), and (e) respectively; by adding the 
words ``Except as specifically provided in Sec. 676.16(f), an'' before 
the word ``institution'' in the introductory text of redesignated 
paragraph (e); revising paragraph (a); and by adding new paragraphs (b) 
and (f) to read as follows:


Sec. 676.4  Allocation and reallocation.

    (a) The Secretary allocates funds to institutions participating in 
the FSEOG program in accordance with section 413D of the HEA.
    (b) The Secretary reallocates funds to institutions participating 
in the FSEOG program in a manner that best carries out the purposes of 
the FSEOG program.
* * * * *
    (f) Unexpended funds. (1) If an institution does not expend its 
FSEOG allocation during an award year and returns more than 10 percent 
of the allocation, the Secretary reduces its allocation for the next 
fiscal year by the amount returned.
    (2) The Secretary may waive the provision of paragraph (f)(1) of 
this section for a specific institution if the Secretary finds that 
enforcement would be contrary to the interests of the program.
    (3) The Secretary considers enforcement of paragraph (f)(1) of this 
section to be contrary to the interest of the program only if the 
institution returned more than 10 percent of its allocation due to 
circumstances beyond the institution's control that are not expected to 
recur.
* * * * *
    4. Section 676.10 is amended by revising paragraph (b) to read as 
follows:


Sec. 676.10  Selection of students for FSEOG awards.

* * * * *
    (b) Part-time and independent students. If an institution's 
allocation of FSEOG funds is directly or indirectly based in part on 
the financial need demonstrated by students attending the institution 
as less than full-time or independent students and if the total 
financial need of those students exceeds 5 percent of the total 
financial need of all students at an institution, the institution shall 
make available at least 5 percent of its allocation under this part to 
those students.
* * * * *
    5. Section 676.14 is amended by removing the words ``Guaranteed 
Student Loans'' and adding, in its place, the words ``Federal Family 
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and 
need-based ICLs'' after the words ``Direct Loans'' in paragraph 
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'', 
by removing the comma after the words ``PLUS loan'', and by removing 
the words ``or non-need-based ICL'' before the word ``as'' in paragraph 
(b)(3); and by revising paragraphs (c) introductory text, (c)(1), 
(c)(2), and (c)(3) to read as follows:


Sec. 676.14  Overaward.

* * * * *
    (c) Treatment of resources in excess of need. An institution shall 
take the following steps when it learns that a student has received 
additional resources not included in the calculation of FSEOG 
eligibility that would result in the student's total resources 
exceeding his or her financial need by more than $200, or $300 if 
employed under the FWS program:
    (1) The institution shall decide whether the student has increased 
financial need that was unanticipated when it awarded financial aid to 
the student. If the student demonstrates increased financial need and 
the total resources do not exceed this increased need by more than 
$200, or $300 if employed under the FWS program, no further action is 
necessary.
    (2) If no increased need is demonstrated, or the student's total 
resources still exceed his or her need by more than $200, or $300 if 
employed under the FWS program, as recalculated pursuant to paragraph 
(c)(1) of this section, the institution shall cancel any undisbursed 
loan or grant (other than a Federal Pell Grant).
    (3) If the student's total resources still exceed his or her need 
by more than $200, or $300 if employed under the FWS program, after the 
institution takes the steps required in paragraphs (c)(1) and (2) of 
this section, the institution shall consider the amount by which the 
resources exceed the student's financial need by more than the 
applicable amount as an overpayment.
* * * * *
    6. Section 676.16 is amended by redesignating paragraphs (f) and 
(g) as paragraphs (g) and (h) respectively and a new paragraph (f) is 
added to read as follows:


Sec. 676.16  Payment of an FSEOG.

* * * * *
    (f)(1) An institution may disburse FSEOG funds after the student 
has ceased to be enrolled in accordance with paragraphs (f)(2) and (3) 
of this section.
    (2) A disbursement described in paragraph (f)(1) of this section 
may be made--
    (i) Only if the FSEOG was awarded to the student while he or she 
was still an eligible student; and
    (ii) Only if the FSEOG funds will be used to cover documented 
educational costs to the student that are normally included in a 
student's cost of attendance under section 472 of the HEA for the 
payment period for which the FSEOG was intended and the student was 
actually enrolled.
    (3) The institution shall document in the student's file the reason 
for the late disbursement.
* * * * *
    7. Section 676.18 is amended by removing paragraph (a)(3); by 
adding the word ``and'' after the semicolon in paragraph (a)(1); by 
removing the word ``and'' after the semicolon in paragraph (a)(2); by 
removing the semicolon in paragraph (a)(2) and adding, in its place, a 
period; and by revising paragraph (c) to read as follows:


Sec. 676.18  Use of funds.

* * * * *
    (c) Transfer back of funds to FWS. An institution shall transfer 
back to the FWS program any funds unexpended at the end of the award 
year that it transferred to the FSEOG program from the FWS program.
* * * * *
    8. Section 676.20 is amended by revising paragraph (a) and by 
adding a new paragraph (c) to read as follows:


Sec. 676.20  Minimum and maximum FSEOG award.

    (a) An institution may award an FSEOG for an academic year in an 
amount it determines a student needs to continue his or her studies. 
However, except as provided in paragraph (c) of this section, an FSEOG 
may not be awarded for a full academic year that is--
    (1) Less than $100; or
    (2) More than $4,000.
* * * * *
    (c) The maximum amount of the FSEOG may be increased from $4,000 to 
as much as $4,400 for a student participating in a program of study 
abroad that is approved for credit by the home institution, if 
reasonable costs for the study abroad program exceed the cost of 
attendance at the home institution.
* * * * *
    9. Section 676.21 is amended by removing the words ``Beginning with 
the 1989-90 award year'', by removing the comma before the words ``the 
Secretary'', and by capitalizing the letter ``t'' in the word ``the'' 
before the word ``Secretary'' in paragraph (b) introductory text and by 
revising paragraph (a) to read as follows:


Sec. 676.21  FSEOG Federal share limitations.

    (a) Except as provided in paragraph (b) of this section, for the 
1993-94 award year and subsequent award years, the Federal share of the 
FSEOG awards made by an institution may not exceed 75 percent of the 
amount of FSEOG awards made by that institution.
* * * * *
    10. In 34 CFR part 676 remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:
    (a) Section 676.3(a) and (b).
    (b) Section 676.4 redesignated (e)(1).
    (c) Section 676.8 introductory text and (b).
    (d) Section 676.9 introductory text.
    (e) Section 676.10 heading, (a)(1), and (a)(2).
    (f) Section 676.14(a)(1), (a)(2) introductory text, (a)(2)(i), 
(a)(3), and (d)(1) and (2).
    (g) Section 676.15(a) introductory text.
    (h) Section 676.16 heading, paragraph (a)(1), (a)(2), (b), (d)(1), 
(e)(1) introductory text, redesignated paragraphs (g) and (h).
    (i) Section 676.17.
    (j) Section 676.18(a) introductory text, (b)(1), (b)(2)(i), and 
(b)(4).
    (k) Section 676.19(a)(1), (a)(2)(i) introductory text and (ii), and 
(b)(3).
    (l) Section 676.20(b).
    (m) Section 676.21 heading, (b)(2), and (c).
    11. In 34 CFR part 676 remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in the following places:
    (a) Section 676.14 (b)(1)(iv).
    (b) Section 676.21(b) introductory text.
    12. In 34 CFR part 676 add the word ``Federal'' before the word 
``Perkins'' in the following places:
    (a) Section 676.2(a).
    (b) Section 676.14(b)(1)(x).
    (c) Section 676.18(b)(2)(i), (b)(3), and (b)(4).
    (d) Section 676.19(b)(3).
    13. In 34 CFR part 676 add the word ``Federal'' before the word 
``Pell'' in the following places:
    (a) Section 676.2(a)
    (b) Section 676.10(a)(1) and (2).
    (c) Section 676.14(b)(1)(i).
    (d) Section 676.15(c)(2).
    (e) Section 676.18(b)(4).
    14. In 34 CFR part 676 remove the term ``CWS'' and add, in its 
place, the term ``FWS'' in the following places:
    (a) Section 676.18(b)(2)(i), (b)(3), and (b)(4).
    (b) Section 676.19(b)(3).
    15. In 34 CFR part 676 remove the term ``College Work-Study (CWS) 
Program'' and add, in its place, the term ``Federal Work-Study (FWS) 
Program'' in Sec. 676.2(a).
    16. In 34 CFR part 676 remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add, in its place, the term ``Federal Family 
Education Loan (FFEL) programs'' in Sec. 676.2(a).
    17. In 34 CFR part 676 remove the term ``Income Contingent Loan 
Program'' in Sec. 676.2(a).
    18. In 34 CFR part 676 add the word ``Federal'' before the term 
``PLUS Program'' and the term ``SLS Program'' in Sec. 676.2(a).
    19. In 34 CFR part 676 add the word ``Federal'' before the term 
``Supplemental Loan for Students (SLS)'' in Sec. 676.14(b)(3).

[FR Doc. 94-14629 Filed 6-21-94; 8:45 am]
BILLING CODE 4000-01-P