[Federal Register Volume 59, Number 123 (Tuesday, June 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15519]


[Federal Register: June 28, 1994]


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Part II





Department of Education





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34 CFR Part 682



Federal Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AB97


Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations governing the Federal 
Family Education Loan (FFEL) Program. The FFEL Program regulations 
govern the Federal Stafford Loan Program, the Federal Supplemental 
Loans for Students (Federal SLS) Program, the Federal PLUS Program, and 
the Federal Consolidation Loan Program, collectively referred to as the 
Federal Family Education Loan Program. The Federal Stafford Loan, the 
Federal SLS, the Federal PLUS and the Federal Consolidation Loan 
programs are hereinafter referred to as the Stafford, SLS, PLUS and 
Consolidation Loan programs. The final regulations incorporate 
statutory changes made to the Higher Education Act of 1965 (HEA) by the 
Higher Education Amendments of 1992 (the 1992 Amendments), self-
implementing provisions of the Omnibus Budget Reconciliation Act of 
1993 (OBRA), and the Higher Education Technical Amendments of 1993 
(1993 Technical Amendments). Regulations needed to implement other OBRA 
amendments and the 1993 Technical Amendments will be published 
separately. The final regulations also reflect various policy 
initiatives intended to improve program administration.

EFFECTIVE DATE: Pursuant to section 482(c) of the Higher Education Act 
of 1965, as amended (20 U.S.C. 1089(c)), these regulations take effect 
July 1, 1995, with the exception of Secs. 682.401, 682.405, and 
682.409. These sections will become effective on July 1, 1995, or after 
the information collection requirements contained in these sections 
have been submitted by the Department of Education and approved by the 
Office of Management and Budget under the Paperwork Reduction Act of 
1980, whichever is later. A document announcing the effective date will 
be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Patricia Beavan, Senior Program 
Specialist, Loans Branch, Division of Policy Development, Policy, 
Training, and Analysis Service, U.S. Department of Education, 400 
Maryland Avenue SW., (Room 4310, ROB-3), Washington, DC 20202-5449. 
Telephone: (202) 708-8242. Individuals who use a telecommunications 
device for the deaf (TDD) may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern 
time, Monday through Friday.

SUPPLEMENTARY INFORMATION: The Stafford, SLS, and PLUS Loan programs 
provide loans to eligible student or parent borrowers who might 
otherwise be unable to finance the costs of postsecondary education. 
The Consolidation Loan Program gives borrowers an opportunity to 
consolidate loans made under the Stafford loan, Perkins (formerly 
National Direct Student Loan), Auxiliary Loans to Assist Students (as 
in effect before October 17, 1986), PLUS, SLS, Health Professions 
Student Loan (HPSL), and the Higher Education Assistance Loan (HEAL) 
programs.
    On March 16, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) for the FFEL program in the Federal Register (59 FR 
12484). Those proposed regulations were developed in compliance with 
section 492 of the 1992 Amendments (Pub. L. 102-325), mandating that 
the regulations be submitted to a negotiated rulemaking process. 
Regional meetings were held during September 1992 to obtain public 
involvement in the development of the proposed regulations and a 
negotiated rulemaking process was conducted during January and February 
1993. The NPRM published on March 16, 1994 provided an indepth 
discussion of those areas where the negotiators reached a consensus as 
reflected in those regulations.
    These regulations improve the efficiency of the Federal student aid 
programs, and, by so doing, improve their capacity to enhance 
opportunities for postsecondary education. Encouraging students to 
graduate from high school and to pursue high quality postsecondary 
education are important elements of the National Education Goals. The 
student aid programs also enable current and future workers to have the 
opportunity to acquire both basic and technologically advanced skills 
needed for today's and tomorrow's workplace. They provide the financial 
means for an increasing number of Americans to receive an education 
that will prepare them to think critically, communicate effectively, 
and solve problems efficiently, as called for in the National Education 
Goals.

Substantive Revisions to the Notice of Proposed Rulemaking

Subpart B--General Provisions

Section 682.200  Definitions
     The Secretary has revised the definition of ``disposable 
income'' to exclude: (1) child support or alimony payments that are 
made under a court order or in accordance with a written legally 
enforceable agreement and (2) the amounts withheld under wage 
garnishment.
     The Secretary has revised the definition of ``estimated 
financial assistance'' to exclude the amount of expected Federal 
Perkins loan or Federal Work-study aid if the borrower did not apply 
for those funds.
     The Secretary has revised the definition of ``repayment 
period'' as it applies to the SLS Program to reflect the borrower's 
option to delay repayment for a period consistent with the grace period 
in the Stafford Loan Program.
     The Secretary has revised the definition of ``satisfactory 
repayment arrangement'' to provide that for purposes of consolidating a 
defaulted loan, the borrower will be required to make three consecutive 
reasonable and affordable full monthly voluntary payments rather than 
six as provided in the NPRM. The definition has been also revised to 
specify that an on-time payment is one received by a guaranty agency or 
its agent within 15 days of the scheduled due date.
Section 682.204  Maximum Loan Amounts
     The Secretary has revised the regulations to reflect the 
changes to the proration of loan amounts made by the 1993 Technical 
Amendments (Pub. L. 103-208).
Section 682.207  Due Diligence in Disbursing a Loan
     The Secretary has revised the regulations to permit 
lenders to disburse loans proceeds by use of a ``master check'' for a 
number of borrowers in addition to an individual check or Electronic 
Funds Transfer for each borrower.

Subpart D--Administration of the Federal Family Education Loan Programs 
by a Guaranty Agency

Section 682.401  Basic Program Agreement
     The Secretary has revised the regulations to delete the 
proposed regulations reflecting limitation of lender-of-last-resort 
(LLR) services in light of the deletion of these requirements by OBRA 
(Pub. L. 103-66).
Section 682.405  Loan Rehabilitation Agreement
     The Secretary has revised the regulations to allow the 
guaranty agency to determine if the sale of a loan to a lender is 
practicable.
     The Secretary has revised the regulations to require 
guaranty agencies to inform borrowers of the consequences of loan 
rehabilitation.
Section 682.409  Mandatory Assignment by Guaranty Agencies of Defaulted 
Loans to the Secretary
     The Secretary has revised the regulations to require the 
immediate assignment to the Department of loans held by a guaranty 
agency if the Secretary deems it necessary to protect the Federal 
fiscal interest, which includes ensuring an orderly transition from the 
FFEL program to the Federal Direct Student Loan (FDSL) Program and 
requiring the collection of unpaid loans owed by Federal employees by 
Federal salary offset.
Section 682.414  Records, Reports, and Inspection Requirements for 
Guaranty Agency Programs
     The Secretary has revised the regulations to require a 
lender to maintain a copy of the report of the required annual 
independent audit for not less than five years after the report is 
issued.
Analysis of Comments and Changes
    In response to the Secretary's invitation in the NPRM, 71 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and the changes in the regulations since publication of the 
NPRM follows. Substantive issues and significant technical changes are 
discussed under the section of the regulations to which they pertain.
    Numerous comments were received to the effect that the proposed 
regulations did not reflect OBRA or the 1993 Technical Amendments 
changes and suggested that the Secretary publish a revised notice of 
proposed rulemaking (NPRM) indicating which sections were superseded by 
subsequent changes in law. Other than those provisions that are self-
implementing and are reflected in this package, the Secretary will 
issue regulations to implement most substantive provisions from OBRA 
and the 1993 Technical Amendments in a separate rulemaking package.
    The Secretary also notes that technical corrections to the 
regulations governing the FFEL Program were published in the Federal 
Register on May 17, 1994 (59 FR 25750). Some comments made on the NPRM 
are addressed by those corrections.
Section 682.100  The Federal Family Education Loan Programs
Section 682.100(a)(2)
    Comments: Several commenters suggested that the regulations be 
revised to reflect the elimination of the SLS program by OBRA.
    Discussion: As the commenters noted, OBRA amended the HEA to end 
the SLS program effective July 1, 1994. However, the Secretary does not 
agree with the commenters that references to that program should be 
removed from these regulations. SLS loans will remain outstanding for 
many years after the program ends and the regulations need to reflect 
the requirements relating to those loans. However, the Secretary 
revises the regulations to make reference to the SLS program as in 
effect prior to July 1, 1994.
    Changes: The regulations have been revised to refer to the SLS 
Program as in effect prior to July 1, 1994.
Section 682.100(a)(4)
    Comments: Commenters suggested that the Secretary delete the 
reference to parent PLUS loans made on or after October 17, 1986 
because the statutory use of this term was ended by the 1993 Technical 
Amendments. The commenters also suggested that the reference to a 
requirement that a borrower must consolidate at least $7500 in eligible 
student loans in the Consolidation Loan Program be deleted to reflect 
the elimination of this requirement by OBRA. The commenters noted that 
this change needs to be reflected in other sections of the regulations.
    Discussion: The Secretary agrees that it is appropriate to reflect 
these statutory changes. The reference to parent PLUS loans made on or 
after October 17, 1986 was deleted in the technical corrections 
package.
    Changes: The regulations have been revised to reflect the 
commenters' recommendations.
Section 682.102  Obtaining and Repaying a Loan
Section 682.102(e)(1)
    Comments: A commenter suggested that the regulations imply that all 
FFEL debt is forgiven for borrowers in certain areas of teaching or 
nursing professions or community service.
    Discussion: The Secretary agrees that the regulations could be 
interpreted to indicate that the borrower's entire obligation to repay 
a debt may be forgiven for borrowers performing certain public service. 
However, section 428J of the HEA only authorizes the Secretary to repay 
limited portions of certain Federal Stafford loan obligations for 
individuals who enter certain specified teaching and nursing 
professions or perform certain other national and community service. 
Moreover, the loan forgiveness program is a demonstration program which 
is not currently funded.
    Changes: The regulations have been revised to reflect the 
limitation on loan forgiveness for public service. The Secretary notes 
that regulations reflecting this loan forgiveness demonstration program 
are being published separately.
Section 682.200  Definitions
Co-Maker
    Comments: A commenter noted that there is an understanding 
throughout the FFEL industry that the Department is considering 
deleting references to ``co-maker'' and replacing that term with the 
term ``endorser.''
    Discussion: The terms ``endorser'' and ``co-maker'' are not 
synonymous and reflect different legal obligations. The Secretary will 
not be deleting the reference to co-maker, since it is a term used in 
the Consolidation Loan Program. ``Endorser'' is the term used in the 
Federal PLUS Program for borrowers with adverse credit.
    Changes: None.
Disposable Income
    Comments: Some commenters suggested that in the definition of 
``disposable income'' the reference to ``any amounts required by law to 
be withheld'' was unclear and recommended further clarification. The 
commenters noted, for example, that child support payments would 
qualify under this definition if the payments were made under a divorce 
settlement rather than a court order. The commenters believed that the 
Department should not treat borrowers who are subject to garnishment 
for private debts more favorably than borrowers who are making payments 
without the need for court intervention.
    Discussion: The Secretary clarifies that the definition of 
``disposable income'' is that part of a borrower's compensation from an 
employer and other income from any source that remains after the 
deduction of amounts required by law to be withheld or any child 
support or alimony payments that are made under a court order or in 
accordance with a legally enforceable written agreement. The Secretary 
has also revised the definition to exclude payments made under a wage 
garnishment order.
    Changes: The definition of ``disposable income'' has been revised 
to clarify those payments that may be deducted from the borrower's 
compensation.
Estimated Financial Assistance
    Comments: Some commenters expressed the same opinion raised during 
the negotiations that requiring aid officers to certify the student's 
estimated eligibility for the Federal Perkins loan or Federal Work-
Study program regardless of whether the student applies for the aid is 
not reasonable. Some commenters believed that it is unjust to penalize 
a student who declines campus-based awards and that it is inappropriate 
to have the financial aid administrator determine what is an 
``acceptable reason'' for declining aid.
    Discussion: After further consideration of the commenter's views, 
the Secretary agrees that financial aid officers should not be required 
to certify estimated eligibility for other aid that the student does 
not apply for or consider as estimated financial assistance aid offered 
but declined by the student. The Secretary believes that students and 
their families should have discretion in those areas not prescribed by 
law and that aid administrators should not be placed in the position of 
evaluating the merits of a student's reason for declining an award. The 
Secretary notes that this position is consistent with Federal Direct 
Student Loan (FDSL) Program.
    Changes: The regulations have been revised to delete reference to 
``whether or not the student applied'' under paragraph (1)(vii) and 
paragraph (2) has been added to delete the reference to the declining 
aid for an acceptable reason.
Nonsubsidized Stafford Loan
    Comments: A commenter recommended that the definition be revised to 
reflect that those loans are not eligible for special allowance under 
Sec. 682.302. The commenter suggested that confusion exists between the 
terms ``unsubsidized Stafford Loan'' and ``nonsubsidized Stafford 
Loan'' and the revision would clarify the difference.
    Discussion: The Secretary agrees with the commenter's concern that 
the regulations need to reflect a clear distinction between the two 
programs and has revised the regulations to clarify that a 
nonsubsidized loan does not qualify for special allowance payments.
    Changes: The regulations have been revised to reflect the comment.
Repayment Period
    Comments: Some commenters stated that they understood that the 
Secretary had agreed during the negotiated rulemaking process to permit 
a 13-year repayment schedule to be established for a borrower who 
chooses to repay a loan under an income-sensitive repayment schedule. 
The commenters also suggested that the definition be revised to 
incorporate the 10-year repayment requirement for variable rate 
interest loans. The commenters suggested that the 10-year repayment 
period be extended in the case of an Unsubsidized Stafford Loan.
    The commenters also pointed out that during negotiated rulemaking, 
the Department agreed that in the case of the PLUS and SLS loans with a 
variable rate, the lender could use the rate at the time the loan 
entered repayment for purposes of establishing the initial repayment 
period.
    Discussion: During the negotiations the Secretary repeatedly made 
it clear that he had no authority to extend the 10-year repayment 
period provided by statute. The Secretary did agree to authorize a 
three-year forbearance period in the case of an income-sensitive 
repayment schedule and agreed to allow forbearance for a period of up 
to one year in the case of a variable interest rate loan or graduated 
repayment schedule.
    The Secretary noted that these extensions have the practical effect 
of extending the repayment period to eleven or thirteen years. The 
Secretary is developing final regulations to the NPRM published on 
March 24, 1994 that addresses extending the period of forbearance in 
cases where the repayment schedule causes the extension of the maximum 
repayment term of the loan.
    The Secretary agrees with the commenters that a lender should use 
the variable interest rate at the time the loan entered repayment for 
purposes of establishing the initial repayment period. If the repayment 
schedule leads to balloon payments or increased payments, and the 
borrower is unable to make those payments, the lender may grant 
forbearance, which is excluded from the 10-year period.
    Changes: None.
    Comments: A few commenters suggested that the Secretary revise the 
definition of repayment period to include a cross-reference to 
Sec. 682.209(d), which requires that the calculation of the repayment 
period on the loans included in a PLUS or SLS combined repayment 
schedule be based on the date entered repayment of the most recent 
included loan.
    Discussion: The Secretary does not agree that there should be a 
cross-reference to Sec. 682.209(d). The definition of repayment 
reflects statutory requirements. The provisions in Sec. 682.209(d) 
govern specific servicing adjustments necessary in a combined repayment 
situation and do not modify the basic statutory definition.
    Changes: None.
    Comments: Some commenters suggested that the definition of 
repayment period for SLS be revised to incorporate the borrower's 
option to delay repayment for a period consistent with the grace period 
in the Stafford Loan Program. The commenters noted that it should be 
clear that the delay in the repayment of an SLS is not a period of 
deferment or forbearance and, as such, special documentation is not 
required. The commenters also suggested that, since Sec. 682.202(c) 
permits capitalization during grace periods if provided for in the 
promissory note (and the addendum and common applications provided for 
this capitalization), the Secretary should clarify that the lender may 
capitalize interest during this period.
    Discussion: The Secretary agrees with the commenters.
    Changes: The Secretary has revised the definition of repayment 
period to reflect the borrower's option in the SLS program to delay 
repayment for a period consistent with the grace period in the Stafford 
Loan Program. This change is consistent with the change made in 
Sec. 682.102(e)(3) by the technical corrections. The regulations have 
also been revised to clarify that the lender may capitalize interest 
during this period.
Satisfactory Repayment Arrangements
    Comments: While a number of commenters supported a uniform standard 
for determining ``satisfactory repayment arrangements'' for defaulted 
borrowers, many commenters objected to the use of the proposed uniform 
standard for all purposes, including reinstatement of Title IV 
eligibility for defaulted borrowers, rehabilitation of defaulted 
student loans, and consolidation of defaulted student loans. The 
commenters believed that use of the proposed standardized definition to 
qualify a borrower for rehabilitation and consolidation is not in the 
FFEL Program's best interest. Although the commenters supported a 
standard definition of the term ``satisfactory repayment 
arrangements'', they did not view the proposed definition as adequate. 
Commenters believed that it did not adequately recognize the increase 
in payments once the loan has been rehabilitated or consolidated and 
that it did not provide for more lenient treatment based on the 
borrower's individual circumstances.
    Discussion: The Secretary notes that for purposes of rehabilitation 
and reinstatement of borrower eligibility, the statutory language does 
not provide flexibility in establishing the number of payments to 
regain eligibility or rehabilitate a defaulted loan. In regard to 
Consolidation loans, the 1993 Technical Amendments amended section 428C 
of the HEA to refer to ``arrangements satisfactory to the holder.'' The 
Secretary does not believe that this language was intended to conflict 
with the statutory requirement in section 432 of the HEA that common 
procedures be established or the need to ensure that similarly situated 
borrowers be treated fairly. In light of these considerations and the 
other comments received on this provision, the Secretary has determined 
that three consecutive monthly payments will be required for a borrower 
to consolidate a defaulted loan. The Secretary believes the making of 
three consecutive monthly payments would allow a borrower to initiate 
loan consolidation and add the defaulted loan to the consolidation loan 
within the 180-day provision provided under section 428C(a)(3)(b)(II) 
of the HEA.
    Changes: The definition has been revised to distinguish the monthly 
payments required to establish eligibility for rehabilitating, 
consolidating or reinstating a defaulted loan.
    Comments: Some commenters suggested that defining ``on-time'' to be 
making a payment within 15 days of the scheduled due date is a new 
condition that could not have been anticipated by guarantors, servicers 
and lenders making good faith efforts to program their systems to 
handle loan rehabilitation. Some commenters suggested that ``on-time'' 
be revised to mean a payment made within the calendar month. Other 
commenters suggested that ``on-time'' be revised to be a payment 
received by the guaranty agency or its agent within 15 days. The 
commenters suggested that a guaranty agency is aware of the date on 
which payments are received. Using the term ``made'' could be 
interpreted to mean the date on which the check was issued by the 
borrower, or the post-mark date, etc.
    Discussion: The Secretary believes that it is critically important 
for borrowers who have previously defaulted and who are entering into 
satisfactory repayment arrangements with a guaranty agency to establish 
a pattern of monthly payments that are made timely. For this reason, 
the Secretary does not agree that an ``on-time'' payment should be one 
that is made anytime during the calendar month. The Secretary also 
notes that the kind of latitude provided by a payment deadline that is 
anytime within the calendar month will not be available to the borrower 
if the loan is rehabilitated subsequently and is then serviced by a 
lender or lender servicer. The Secretary also believes there is 
sufficient time for guaranty agencies to reprogram their systems prior 
to the July 1, 1995 effective date of these regulations. The Secretary 
agrees with the commenters who suggest that the on-time standard should 
be based on when payments are ``received'' rather than ``made'' because 
a guaranty agency or its agency is aware of this date and the word 
``made'' is open to several different interpretations.
    Changes: The definition has been revised to read that an on-time 
payment is one that is received by the guaranty agency or its agent 
within 15 days of the scheduled due date.
    Comments: Some commenters suggested that the addition of a 
definition of ``reasonable and affordable'' would impact the collection 
of defaulted loans. The commenters suggested that, based upon the 
definition provided, each time a guaranty agency changed the monthly 
payment amount the agency would have to go through the process of 
determining what is reasonable and affordable. The commenters further 
suggested that a guaranty agency's collection agents or attorneys will 
also be subject to conducting the same review whenever they attempt to 
reach a repayment arrangement.
    Discussion: The Secretary believes that this definition will not 
have an impact on the collection of defaulted loans. This provision 
applies to voluntary payments the borrower is making after the borrower 
specifically initiates voluntary payment to reinstate eligibility, 
rehabilitate, or consolidate a defaulted loan. These requirements do 
not relate to other routine changes the guaranty agency makes to 
monthly payment amounts.
    Changes: None.
    Comments: Commenters suggested that borrowers, whose loans are non-
dischargeable and who have not filed a hardship petition, should be 
allowed to have their Chapter 12 or 13 plan payments count toward 
regaining eligibility for FFEL loans. The commenters suggested that 
these borrowers are not attempting to have the loan discharged and, as 
such, are making voluntary payments.
    Discussion: The Secretary does not agree with the commenters. The 
Secretary believes that if a defaulted loan has been included in a 
bankruptcy petition, then payments received under a court mandated 
bankruptcy plan are not voluntary payments as required for this 
purpose.
    Changes: None.
Write-Off
    Comments: Some commenters expressed concern that the definition of 
``write-off'' was unclear as to which applicable standards the 
definition incorporates. Some commenters suggested that the 
``applicable standards'' could be easily read to include the closed 
school/false certification provision.
    Discussion: During negotiations, the Secretary agreed with certain 
negotiators that a uniform standard for ``write-off'' was desirable for 
guaranty agencies to use in determining what constitutes a ``write-
off'' in determining whether a borrower has an adverse credit history. 
The applicable standards referenced in the definition refers to the 
Write-off and Compromise Procedures which the Department of Education 
is now developing in consultation with the Department of Treasury, in 
accordance with the Treasury financial manual and OMB A-129. The 
Secretary does not consider a loan that has been discharged under 
section 437(c) of the Act (language in the preamble incorrectly 
referred to 437(b)) to be considered a write-off nor does the Secretary 
intend to require borrowers to reaffirm those loans to receive 
additional aid under the FFEL program.
    Changes: None.
Section 682.201  Eligible Borrowers
Section 682.201(b)
    Comments: A few commenters suggested that the term ``endorser'' as 
used in the NPRM implies that an endorser on a PLUS loan application 
must be the other parent of the student for whom the loan is made. 
These commenters pointed out that the Secretary has issued policy 
guidance for the FFEL Program that would permit a creditworthy 
nonparent to be an endorser on the Federal PLUS application of a non-
creditworthy parent borrower and that this would be in keeping with the 
provisions of the Federal Direct Loan Program.
    Discussion: The Secretary does not believe that the term 
``endorser'' suggests such a restriction and believes that it is 
unnecessary to reflect this guidance in the regulations.
    Changes: None.
Section 682.201(b)(7)
    Comments: Several commenters expressed a concern that lenders be 
permitted to exercise ``professional judgment'' in determining whether 
to make a Federal PLUS loan in spite of an initial finding of adverse 
credit. They stated that the lender should have the option of using 
this ``professional judgment'' to document the existence of extenuating 
circumstances. They specifically expressed concern that the NPRM, as 
written, restricted valid documentation of extenuating circumstances to 
a new credit report, a statement from the creditor, or a statement from 
the borrower in the event of a debt less than $500.
    Discussion: These commenters were addressing two different but 
related issues in their comments. The first issue addresses lender 
flexibility in determining whether to make a loan when the initial 
credit report includes indicators of adverse credit. The second issue 
relates to the documentation needed by a lender when making a 
determination that extenuating circumstances exist and determining to 
make the PLUS loan based on that determination. The NPRM, as written, 
states in Sec. 682.201(b)(7)(iii) that ``Unless the lender determines 
that extenuating circumstances existed, the lender must consider each 
applicant to have an adverse credit history * * *.'' This provision 
specifically gives the lender the flexibility to determine that some 
cases involve extenuating circumstances that would provide a legitimate 
criterion for PLUS loan approval. The NPRM further states that the 
lender must retain documentation demonstrating its basis for 
determining that extenuating circumstances existed and that the 
documentation may include an updated credit report, a statement from 
the creditor that the borrower has made satisfactory arrangements to 
repay the debt, or a satisfactory statement from the borrower 
explaining any delinquencies with outstanding balances of less than 
$500. The use of the word ``may'' indicates that there could be other 
documentation that the lender would deem sufficient to override the 
adverse credit determination.
    Changes: The Secretary has amended the language in 
Sec. 682.201(b)(7)(vi) of the regulations to include the phrase ``but 
is not limited to'' to the list of documentation to clarify that the 
list is not all-inclusive.
    Comments: Some commenters believed that the definition of adverse 
credit is too restrictive. The commenters believed that allowing one 
account that is 90 days past due to prohibit borrowing when the parent 
may have ten other accounts that are current is not a true indication 
of the borrower's payment history. The commenters recommended that the 
credit history have no more than an average of 30-day delinquency on 
all debts.
    Discussion: The Department views the averaging of past-due accounts 
to be more burdensome than the 90-day standard proposed in the 
regulations. Further, it is unnecessary given the discretion available 
to a lender to apply the extenuating circumstances criterion.
    Changes: None.
    Comments: Several commenters stated that lenders should be given 
the right to restrict the amount a parent borrows if the parent does 
not have the capacity to repay the loan. This is especially significant 
since Congress removed the cap on PLUS loans.
    Discussion: This issue was discussed in the preamble to the NPRM. 
While the statute does not include the ability to repay a PLUS loan as 
an eligibility criterion, a lender is not prohibited from maintaining a 
lending policy that would examine parental ability to repay in 
determining whether to make a loan. However, once the lender has 
decided to make a loan, the lender has no authority to reduce the 
statutory limit provided under the PLUS program.
    Changes: None.
    Comments: A few commenters expressed concern about confusion 
resulting from slightly different wording in Dear Colleague Letter 93-
L-159, dated September 1993, and the NPRM regarding interpretation of 
the wording in the proposed regulation that ``* * * the applicant is 
considered 90 or more days delinquent on the repayment of a debt.'' The 
DCL indicated that one criterion for having adverse credit is that the 
applicant is considered 90 days or more delinquent on the repayment of 
a debt ``on the day of the lender's examination of the credit report.'' 
This was interpreted by some commenters to mean that the lender must 
extrapolate delinquency based on the date of the credit report and the 
date on which the lender examined that report.
    Discussion: It was the Secretary's intention in the Dear Colleague 
Letter that the lender would consider the applicant as being 90 days or 
more delinquent on the repayment of a debt only if the applicant was 
reported 90 days delinquent on the credit report being reviewed. The 
regulations are consistent with this approach.
    Changes: None.
    Comments: Commenters expressed concern that there was no timeframe 
in the NPRM indicating that the credit bureau report used in 
determining adverse credit history must be current and accurate and not 
outdated.
    Discussion: In an attempt to give the lender greater flexibility, 
the Secretary had not included a reference to a specific timeframe for 
the credit report in the regulations. However, in DCL 93-L-159 the 
Department stated that the credit report must be secured within a 
timeframe that would ensure the most accurate, current representation 
of the borrower's credit history before the first day of the period of 
enrollment for which the loan was intended.
    Changes: Since the language in the DCL reflects the Secretary's 
position on the timing of securing the credit report, that language has 
been added to the final regulations.
    Comments: One commenter indicated that the ``90 days or more 
delinquent on any debt'' requirement did not make any allowance for 
disputed debts with a credit bureau that is still investigating the 
dispute. This same commenter also found the term ``default 
determination'' too vague and undefined.
    Discussion: The Secretary believes that the lender's option of 
applying the extenuating circumstances criterion would permit the 
lender, based on its examination of supporting documentation presented 
by the borrower, to override a determination of adverse credit in the 
case of a legitimately disputed debt that was not resolved at the time 
of the credit report.
    The commenter correctly pointed out that while default has been 
defined for purposes of the FFEL Program, its definition could vary 
with regard to other debts. It is specifically for this reason that the 
Secretary has not attempted to define, for purposes of these 
regulations, the term non-Title IV debt.
    Changes: None.
Section 682.201(c)
    Comments: Several commenters recommended that the Secretary amend 
this section to reflect the changes made to the Consolidation Loan 
Program by OBRA and 1993 Technical Amendments. The commenters 
specifically noted that OBRA deleted the requirement that the borrower 
must consolidate at least $7,500 in eligible student loans. The 
commenters also noted that the 1993 Technical Amendments modified the 
requirement that a defaulted borrower who has made satisfactory 
repayment arrangements may be eligible to borrow under the 
Consolidation Loan Program.
    Discussion: The Secretary agrees that these regulations should 
reflect the self-implementing statutory changes made to the 
Consolidation Loan Program.
    Changes: The regulations have been revised to incorporate the self-
implementing statutory changes.
Section 682.204  Maximum Loan Amounts
    Comments: Many commenters recommended that the annual loan limits 
be revised to include changes made to the proration requirements by the 
1993 Technical Amendments.
    Discussion: The Secretary agrees with the commenters that the 
regulations should reflect the new proration requirements.
    Changes: The regulations have been revised to incorporate the new 
loan proration requirements. The Secretary has also revised 
Sec. 682.603(f)(3) to reflect the formula to be used in certifying a 
Stafford or SLS loan amounts subject to proration.
    Comments: Some commenters recommended that the regulations should 
reflect the loan limits for the Unsubsidized Stafford Loan Program.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.204 (c), (d) and (e) incorporates the loan 
limits for the Unsubsidized Stafford Loan Program.
Section 682.207  Due Diligence in Disbursing a Loan
Section 682.207(b)(1)(v)(B)(1)
    Comments: Some commenters suggested that the regulations be revised 
to specifically allow for the delivery of a lump sum or master check 
from a lender to a school that can be placed in an account of the 
school, as with electronic funds transfer, and credited to an 
individual student's account.
    Discussion: The Secretary agrees that the regulations should allow 
for delivery of loan proceeds by means of a lump sum check. This change 
recognizes the acceptance by the Department of the ``master check'' 
concept as provided in earlier guidance.
    Changes: The regulations have been revised to permit the 
disbursement of loan proceeds by ``master check'' for a number of 
borrowers in addition to an individual check for each borrower. The 
definition of ``disbursement'' has also been revised to include the 
transfer of loan proceeds by a master check that represents loan 
amounts for more than one borrower.
    Comments: A commenter suggested that the Secretary expand the 
regulations to provide that a student enrolled in a foreign school have 
the option of having the loan proceeds delivered to the student or to 
the foreign school. The commenter suggested that the regulations apply 
to students studying abroad for credit at the home school and appear to 
exclude students enrolled in a foreign school who are not studying for 
credit at the home school.
    Discussion: The Secretary agrees with the commenter that the 
proposed regulations did not provide students attending eligible 
foreign schools the option of receiving the loan proceeds directly or 
having the funds delivered to the school. The Secretary recognizes that 
section 428(b)(1)(N) of the HEA specifically provides borrowers in this 
circumstance this option.
    Changes: Section 682.207(b)(1)(v)(D) has been added to provide the 
option to borrowers attending an eligible foreign school but who are 
not studying for credit at a home school to have their loan proceeds 
delivered to them directly or sent to the school.
Section 682.300  Payments of Interest Benefits on Stafford and 
Consolidation Loans
Section 682.300 (a)
    Comments: Several commenters noted that proposed Sec. 682.300(a) 
should be revised to specify that the Secretary pays interest on 
subsidized Stafford loans.
    Discussion: The Secretary agrees that this change is necessary to 
prevent confusion.
    Changes: The regulations have been revised to specify ``subsidized 
Stafford'' loans.
Section 682.300(c)
    Comments: Several commenters suggested that the use of the word 
``disbursement'' as it relates to the limitations on interest paid to a 
lender prior to disbursement of a loan should be restricted to its more 
``traditional'' use, i.e., issuing of loan proceeds by the lender, 
rather than interpreting it to mean ``delivery'' of loan proceeds to 
the borrower by the school.
    Discussion: As noted in the preamble to the NPRM of March 16, 1994 
(59 FR 12489), the Department's interpretation of Congress' use of the 
word ``disbursement'' in this context and its applicability to the 
interest limitation provision were thoroughly discussed during 
negotiated rulemaking. However, as a result of discussions with the 
negotiators, the Department agreed to proposed regulatory language that 
would achieve the statutory intent while developing a schedule for 
lender billing of interest on the more easily documented disbursement 
date. The term ``disbursed'' as it is used in Sec. 682.300(c) refers to 
the traditional use for issuance of funds by the lender. The interest 
limitation provisions are then applied depending on whether the loan 
proceeds are disbursed by the lender before or after the first day of 
the period of enrollment for which the loan is intended.
    Changes: None.
Section 682.301  Eligibility of Borrowers for Interest Benefits on 
Stafford and Consolidation Loans
Section 682.301(a)(3)
    Comments: Several commenters noted that Sec. 682.301(a)(3), 
regarding the eligibility of Consolidation loan borrowers for interest 
benefits during authorized deferment periods, should be revised to 
reflect OBRA.
    Discussion: OBRA changed section 428C(b)(4)(C)(i) of the HEA to 
limit interest subsidized deferments to Consolidation loan borrowers 
who receive Consolidation loans that discharge only subsidized Stafford 
loans. This change was effective for Consolidation loans made based on 
applications received by the lender on or after August 10, 1993.
    Changes: The regulations have been revised to reflect the changes 
made by OBRA.
Section 682.401  Basic Program Agreement
Section 682.401(b)(4)
Section 682.401(b)(4)(i)(B)
    Comments: Some commenters expressed concern that borrowers not be 
subjected to unreasonable and onerous demands for documentation for 
purposes of reinstatement of borrower eligibility. The commenters 
suggested that borrowers be allowed to provide documentation over the 
phone or by facsimile.
    Discussion: The Secretary does not believe that an agency can 
assess a borrower's total financial circumstances to determine a 
reasonable and affordable payment amount without examining 
documentation from the borrower. The Secretary does not believe that 
the documentation requirements contained in the regulations are 
onerous. The Secretary believes that submission of a monthly budget 
statement on a guaranty agency prepared form and some proof of current 
income are minimal requirements. The Secretary believes that a 
statement of the unpaid balance of all of a borrower's FFEL loans is 
necessary only if the guaranty agency does not already have this 
information. The Secretary has no objection to the borrower submitting 
this documentation via facsimile technology.
    Changes: None.
    Comments: Many commenters were strongly opposed to the reference to 
the $50 payment in proposed Sec. 682.401(b)(4)(i)(B) in regard to the 
requirement that the guaranty agency document the borrower's file if 
the borrower's reasonable and affordable payment is determined to be 
less than $50. The commenters believe that agencies are using the 
reference to $50 to justify their denial of payments of less than $50.
    Discussion: The Secretary expects a guaranty agency to make a 
determination of what constitutes a ``reasonable and affordable'' 
payment amount on a case-by-case basis after examining financial 
information from the defaulted borrower who requests reinstatement of 
eligibility for federal student financial assistance. The proposed rule 
clearly stated that $50 may not be the required minimum payment for a 
borrower if the agency determines that a smaller payment amount is 
appropriate based on its examination of the borrower's total financial 
circumstances. An agency is prohibited from establishing $50 or any 
other amount as a required minimum threshold payment amount in lieu of 
the appropriate reasonable and affordable payment based on the 
borrower's total financial these circumstances. The reference to $50 in 
the regulations is intended by the Secretary to be a documentation 
standard for guaranty agencies. A guaranty agency is required to 
document its determination of a borrower's reasonable and affordable 
payment only if the payment is less than $50.
    Changes: The regulations have been revised to clearly provide that 
a guaranty agency must not establish a minimum payment amount of $50 if 
the agency determines that a smaller payment amount is reasonable and 
affordable based on the borrower's total financial circumstances.
    Comments: Some commenters expressed concern that consideration of a 
spouse's income in the determination of reasonable and affordable 
payments may be in violation of the Federal Equal Credit Opportunity 
Act. The commenters noted that the spouse is not liable for the other 
spouse's individual debt and, therefore, consideration of the secondary 
spouse's income may not be considered in determining a monthly 
reasonable and affordable payment. The commenter suggested that 
clarification must also be made in this section that disclosure of 
child support and/or alimony payments is voluntary, consistent with the 
Federal Equal Credit Opportunity Act.
    Discussion: The Secretary believes that, for a borrower with 
dependents, examining only the borrower's income and expenses may not 
reveal the borrower's true financial circumstances. The Equal Credit 
Opportunity Act relates to the application for credit. The 
determination of reasonable and affordable payments in connection with 
reinstatement of eligibility, rehabilitation or meeting conditions for 
consolidation does not relate to the application for credit. See 12 CFR 
Part 202.
    Changes: None.
Section 682.401(b)(6)(i)
    Comments: Some commenters supported the regulations that provide a 
guaranty agency the authority to establish reasonable criteria for an 
institution to participate in the guaranty agency's program. However, 
many other commenters strongly objected to this provision. The 
objecting commenters suggested that in Sec. 682.401(b)(6)(i), the 
Secretary allows a guaranty agency to determine that an institution 
does not satisfy the standards of administrative capability and 
financial stability standards as defined in 34 CFR Part 668 and 
believed that the Secretary is making the guaranty agencies enforcers 
of the set of administrative capability and financial responsibility 
standards. The commenters believed that this structure is entirely 
outside of the statute and clearly ignores the program integrity triad 
as mandated under the new Part H (Program Integrity) of the HEA with a 
particular role for each part of the Triad. The commenters suggested 
that if the Triad is to be successful, the responsibilities contained 
in the statute must be clearly set forth in regulations with no 
vagaries concerning responsibility. The commenters noted that in the 
General Provisions NPRM, the Secretary proposed to provisionally 
certify an institution that does not currently meet the standards of 
administrative capability but is expected to meet those standards in a 
reasonable period of time. The commenters suggested that under the 
March 16, 1994 NPRM, a guaranty agency could deny participation to 
these institutions, including an institution with a cohort default rate 
of 20% or greater. The commenters believed that it is the Secretary's 
role to ensure that institutions meet appropriate standards of 
administrative capability and financial responsibility and believed the 
Secretary does so by certifying institutions. The commenters suggested 
that if the institution has been certified, the guaranty agency should 
be required to rely on that certification unless and until the 
Secretary uses his authority to revoke that certification. The 
commenters suggested that a guaranty agency provided this improper 
delegation of authority may well have an incentive to retaliate against 
certain institutions as a result of their filing of appeals of their 
cohort default rates. The commenters suggested that appeals of cohort 
default rates, especially appeals alleging servicing error, may 
directly or indirectly challenge the integrity of the guaranty agency 
and may have the economic effect of removing certain loans from being 
eligible for federal reinsurance. The commenters further suggested that 
because of the clear possibility of conflict of interest, it is 
irrational to allow guaranty agencies to effectively terminate the 
participation of institutions in Title IV programs. The commenters 
asserted that in contrast to a State Postsecondary Review Entity 
(SPRE), an accreditation agency or the Department, a guaranty agency is 
not an impartial adjudicator of these issues.
    Discussion: The Secretary understands that a guaranty agency is not 
a member of the Program Integrity Triad authorized under Part H of the 
HEA and that the Triad has imposed a new management structure on the 
oversight of schools participating in the Title IV student assistance 
programs. However, the Secretary believes that the statute continues to 
provide a guaranty agency with oversight authority for schools applying 
to or continuing to participate in its guaranteed loan program and 
disagrees that the regulations provide an improper delegation beyond 
the scope of statutory authority. Section 428(b)(1)(V) provides 
authority for the guaranty agency to require a participation agreement 
between the agency and the school as a condition for the agency 
guaranteeing loans for students attending the school. As part of that 
process, the Secretary believes that a guaranty agency must be 
permitted to establish standards that are consistent with the standards 
of administrative capability and financial responsibility contained in 
34 CFR 668 for a school's participation in its guaranteed loan program. 
The Secretary believes that a guaranty agency should be allowed to 
protect itself from schools that abuse the FFEL program. Generally, a 
guaranty agency must assume that a school that the Secretary has found 
to be eligible is eligible. However, because the agency's examination 
of a school for participation in its program may take place a 
significant period of time after the Secretary's examination of the 
school for certification, the Secretary understands that the agency may 
uncover information relevant to the school's administrative capability 
and financial responsibility that it wishes the Secretary to consider 
before signing a participation agreement with the school. Subject to 
the Secretary's agreement that such information indicates the school's 
failure to meet the standards of administrative capability and 
financial responsibility contained in 34 CFR 668, the agency may 
decline to establish a participation agreement with the school. The 
Secretary believes this authority provided to a guaranty agency does 
not intrude upon the statutory responsibilities of other members of the 
Triad. The Secretary also notes that the guaranty agencies have long 
had responsibility for reviewing schools and have specific statutory 
authority in section 428(b)(1)(T)(ii)(I) for limiting, suspending, or 
terminating a school from the FFEL program. The Secretary believes that 
these regulations are consistent with the agency's statutory authority 
and longstanding Department policy and regulation. Additionally, the 
Secretary does not believe that this regulatory authority would provide 
an agency with the opportunity to retaliate against a school as a 
result of a school's appeal of its cohort default rate. Such an appeal 
presumes that a school already participates in the agency's program. 
The statute authorizes an agency to initiate an emergency action, 
limitation, suspension or termination (LST) of an eligible institution, 
but provides that the action must be undertaken pursuant to criteria, 
rules, or regulations issued under the student loan insurance program 
which are substantially the same as regulations issued by the 
Secretary. Further, an emergency action or LST is subject to review by 
the Secretary. Therefore, the Secretary does not believe that the 
guaranty agency can use its authority to retaliate against a school as 
the commenter suggests.
    Changes: The Secretary has revised Sec. 682.401(b)(6)(i)(F) of the 
regulations to clarify that a guaranty agency's determination that a 
school does not satisfy the standards of administrative capability and 
financial responsibility defined in 34 CFR 668 is subject to the 
agreement of the Secretary.
Section 682.401(b)(6)(ii)
    Comments: A number of commenters objected to the provision that 
gives a guaranty agency the authority to limit the total number of 
loans or the volume of loans made to students attending a particular 
school, or to otherwise establish appropriate limitations on the 
school's participation in the agency's program where the agency has 
determined that a school does not satisfy the financial responsibility 
and administrative capability standards. The commenters suggested that 
this inappropriately places responsibility for evaluating a school's 
administrative and financial responsibility in the hands of the 
guaranty agency. Some commenters objected to applying this provision to 
schools that are renewing an application to continue to participate. 
Some commenters suggested that allowing guaranty agencies to limit the 
participation of schools that seek to renew participation gives 
guaranty agencies an easy way to retaliate against institutions that 
appeal their cohort default rates or take other actions that challenge 
the guaranty agency.
    Discussion: Section 428(b)(1)(T) of the HEA authorizes a guaranty 
agency to limit the total number of loans or the volume of loans to 
students attending a particular eligible institution during any 
academic year. The Secretary notes that there must be a legitimate 
basis for the agency to impose such a limitation. The Secretary expects 
a guaranty agency to maintain evidence of the school's questionable 
administrative capability.
    Changes: None.
Section 682.401(b)(6)(iii)
    Comments: The commenters suggested that if a guaranty agency 
limits, suspends, or terminates (LST) the participation of a school 
that the Secretary should not extend the LST to all locations of the 
school until the Department determines that the guaranty agency in fact 
followed proper procedures, correctly interpreted the law and 
regulations, and gave all due process rights to the institution.
    Discussion: Section 428(b)(1)(T)(ii)(I) provides authority to a 
guaranty agency to limit, suspend, terminate (or take emergency action 
against) a school based on the Secretary's regulations or regulations 
of the guaranty agency that are substantially the same as regulations 
issued by the Secretary. The statute further directs the Secretary to 
apply the limitation, suspension, or termination proceeding to all 
locations of those schools unless the Secretary finds, within 30 days 
of the guaranty agency's notification to the Secretary of the action, 
that the action did not comply with the statute and regulations. To 
make this finding, the Secretary reviews the guaranty agency's actions 
under section 428(b)(1)(T)(ii) of the HEA before extending the LST to 
all locations.
    Changes: None.
Section 682.401(b)(16)
    Comments: A few commenters suggested that the regulations be 
revised to permit assignment of partially disbursed loans if the 
lending institution closes or is terminated and the assignment is 
necessary to be certain that undisbursed funds are delivered to the 
student.
    Discussion: Section 428G(g) of the HEA allows for sale and 
transfers only when a loan is fully disbursed unless the sale will not 
change the party to whom payments are to be made and the first 
disbursement has been made.
    Changes: None.
Section 682.401(b)(24)
Section 682.401(b)(24)(iv)
    Comments: A few commenters suggested that the regulations be 
revised to provide that the guaranty agency provide schools that 
request information under this paragraph an appropriate number for 
borrower inquiries if the assignee of a loan uses a lender servicer, 
rather than the number of the lender. The commenters pointed out that 
many lenders use servicers to address loan inquiries. The commenters 
suggested that these lenders do not staff their offices to address 
borrower inquiries, or maintain on-line access to borrower information. 
Inclusion of the assignee's number will flood these offices with calls, 
frustrating the intent of providing the borrower with loan information.
    Discussion: The Secretary agrees with the commenters.
    Changes: The regulations have been revised to include reference to 
another appropriate number for borrower inquiries if the assignee uses 
a lender servicer.
Section 682.401(b)(25)
    Comments: Some commenters suggested that the designation as 
exceptional servicer or lender is a significant event in the business 
of the servicer or lender. The commenters suggested that the parties 
should be aware of the progress of their application. Another commenter 
suggested that the period of time for the guaranty agency to provide 
the Secretary with any information regarding an eligible lender or 
servicer applying for designation for exceptional performance should be 
increased to 60 days.
    Discussion: The Secretary notes that these comments relate to 
Sec. 682.415 of the regulations included in a Notice of Proposed 
Rulemaking published on April 20, 1994. The commenters' concerns will 
be addressed in that package.
    Changes: Section 682.401(b)(25) has been removed.
Section 682.401(c)
    Comments: A number of commenters suggested that the Secretary 
delete the LLR provisions from the regulations since some of these 
provisions have been repealed by OBRA. Other commenters suggested that 
the regulations should be revised to address the issues and changes 
made by OBRA.
    Discussion: The Secretary recognizes that OBRA repealed the 
provisions providing guaranty agencies the authority to deny LLR 
services to students attending certain categories of schools and has 
removed these provisions from the regulations. In addition, the 
Secretary has reflected certain other changes made by OBRA in these 
regulations.
    Changes: The regulations have been revised to delete the provisions 
allowing limitations of LLR services. The Secretary has also 
incorporated some changes made by OBRA affecting LLR services. Section 
682.401(c) of the regulations has been revised to incorporate the new 
requirements that: (1) The guaranty agency must respond to a student 
within 60 days after the student submits an original complete 
application; and (2) prohibit the agency from requiring a borrower to 
obtain more than two rejections from eligible lenders.
Section 682.401(c)(8)
    Comments: A commenter suggested that the provision be revised to 
reflect that during the appeal process, for schools that have been 
notified that LLR services will not be provided to the school's 
students, the guaranty agency must provide LLR services to students 
attending the school until the date on which the guarantor is notified 
rather than until the date the Secretary rejects the appeal. The 
commenter noted that the guaranty agency should be protected for LLR 
loans made in the brief period between the date that the Secretary 
rejects the appeal and the date that the guaranty agency is aware of 
the rejection and ceases origination activities. The commenter 
suggested that the regulations as currently written would appear to 
cause these ``interim'' loans to be uninsured.
    Discussion: The Secretary notes that, with the removal of the 
provisions eliminating LLR services, the school's appeal process is no 
longer applicable. Therefore, the Secretary has deleted this provision 
from the regulations.
    Changes: Section 682.401(c)(8) has been deleted.
Section 682.405  Loan Rehabilitation
    Comments: Several commenters suggested that a defaulted borrower be 
afforded only one opportunity to benefit from an agency's loan 
rehabilitation program. The commenters believe that a borrower who 
defaults again subsequent to rehabilitation is not likely to be a good 
candidate for loan rehabilitation.
    Discussion: The Secretary points out that pursuant to section 
428F(a)(1)(A) of the HEA, a borrower may request to have a defaulted 
loan rehabilitated and after the borrower has made 12 consecutive 
monthly payments, the guaranty agency must, if practicable, sell the 
loan to an eligible lender. Once a borrower's loan is rehabilitated, 
the borrower is no longer considered to be in default on the loan and 
regains eligibility for all program benefits. Section 428F(b) of the 
HEA allows a borrower with one or more defaulted loans to regain 
eligibility for Title IV student financial assistance after the 
borrower has made six consecutive monthly payments. The Secretary notes 
that section 428F(b) was amended by the 1993 Technical Amendments to 
specifically permit borrowers to receive this benefit only once. 
However, no such limitation was placed on the benefits of 
rehabilitation. In determining whether rehabilitation is practicable, a 
guaranty agency should determine whether a borrower who has made 12 
consecutive monthly payments is a good candidate for loan 
rehabilitation. A borrower's previous experience in the loan 
rehabilitation program may be a factor considered by the guaranty 
agency in making this assessment.
    Changes: None.
Section 682.405(a)(1)
    Comments: Some commenters suggested the regulations should be 
revised to allow guaranty agencies to consider whether the borrower is 
a good candidate for loan rehabilitation. The commenters noted that the 
Dear Colleague Letter (GEN 92-91 dated October 1992) provides that ``In 
determining whether a sale is practicable, a guaranty agency should 
determine whether a borrower * * * is a good candidate for loan 
rehabilitation.'' The commenters believed that the guaranty agency 
should have the discretion to deny borrowers access to its 
rehabilitation program if it believes existing circumstances so 
warrant. The commenters suggested, for example, if there is a judgment 
against a borrower, the original terms of the promissory note may have 
been altered, and the original note may be nonexistent. The commenters 
believed that it is overly burdensome, if not illegal, to rehabilitate 
a loan if a judgment has been issued against the borrower.
    Discussion: The Secretary interprets section 428F of the HEA to 
require that the rehabilitation program must be available to all 
defaulted borrowers even if a guaranty agency has previously been able 
to secure payment from the borrower only through involuntary means 
(e.g., through a court-ordered judgment, Internal Revenue Service tax 
offset, or wage garnishment). The Secretary expects guaranty agencies 
to provide, on an unsolicited basis, information on the loan 
rehabilitation program to all defaulted borrowers. However, the 
Secretary does not expect that payments made on the loan through 
involuntary means be counted toward the borrower's required 12 
consecutive payments for rehabilitation. The Secretary believes that 
the defaulted borrower must initiate a voluntary series of payments for 
this purpose. The Secretary understands, however, that even after the 
required voluntary series of monthly reasonable and affordable 
payments, the rehabilitation of the loan through its purchase by a 
lender may not be possible in all cases. The Department expects 
guaranty agencies to work diligently to identify lenders willing to 
purchase these loans, thereby rehabilitating them. However, section 
428F(a)(2) of the HEA states that the guaranty agency shall sell the 
loan, if practicable [emphasis added]. The Secretary believes that the 
agency has the authority in working with its repurchasing lenders to 
determine if some borrowers are not good candidates for loan 
rehabilitation because they continue to represent a high risk of 
default once the loan is purchased. In those instances, the borrower's 
loan would remain with the guaranty agency and the borrower would 
continue to make payments on the loan to the agency.
    Changes: Section 682.405(a)(1) of the regulations has been revised 
to allow the agency to determine if the sale of a loan to another 
lender is practicable for the purposes of loan rehabilitation.
    Comments: Some commenters suggested that a loan should be 
considered rehabilitated at such point that the borrower has met the 
criteria over which the borrower has control, i.e., when the twelve 
payments have been made. The commenters believed that the sale of the 
loan to an eligible lender is an unrelated administrative task.
    Discussion: The Secretary disagrees with the commenters. The 
Secretary notes that the loan is still in default as long as it is with 
the guaranty agency, even after the required series of payments are 
made and the borrower is not eligible for all benefits of the program 
(e.g., deferment). The Secretary notes that section 428F(a) of the HEA 
provides that only after the loan has been repurchased by the lender 
has it been effectively rehabilitated.
    Changes: None.
    Comments: Some commenters suggested that the proposed regulations 
should be clarified to state that the borrower who rehabilitates a loan 
regains full eligibility for deferments and forbearances, even if the 
borrower previously received a deferment.
    Discussion: The Secretary disagrees with the commenters that the 
borrower should regain full eligibility for deferments. The Secretary 
notes longstanding Department policy that the deferments with which a 
maximum period is associated apply to the borrower and not to 
individual sets of loans and that the borrower will only qualify for 
the balance of deferment eligibility.
    Changes: Section 682.405(a)(3) of the regulations has been revised 
to provide that once the loan is rehabilitated, the borrower regains 
all benefits of the program, including any remaining deferment 
eligibility the borrower may have under the law from the date of the 
rehabilitation.
Section 682.405(b)(1)
    Comments: Some commenters suggested that the regulations be revised 
to define ``voluntary payments'' to include payments made on behalf of 
the borrower.
    Discussion: The Secretary believes that the borrower must make a 
good faith effort in making the required consecutive monthly payments 
to qualify for loan rehabilitation. The Secretary does not believe that 
payments made by parents or other individuals on behalf of the borrower 
for purposes of rehabilitating a defaulted loan constitutes a good 
faith effort on the part of the borrower.
    Changes: None.
    Comments: Some commenters noted that the regulations suggested that 
a borrower may qualify for loan rehabilitation even if the guaranty 
agency has obtained a judgment against the borrower for the defaulted 
loan. The commenters suggested that since the original promissory note 
is surrendered to the court when there is a judgment on the loan, it 
would become very difficult to initiate legal proceedings against a 
rehabilitated borrower who again defaulted on the rehabilitated loan.
    Discussion: The Secretary shares the concerns raised by the 
commenters. However, the Secretary also believes that a borrower should 
not lose the opportunity to rehabilitate a defaulted loan due solely to 
a judgment. Accordingly, the Secretary has modified the regulations to 
require a borrower who wishes to rehabilitate a loan on which a 
judgment has been entered to sign a new promissory note prior to the 
sale of the loan to an eligible lender. This approach is necessary to 
make sale of the loan practicable.
    Changes: The Secretary has amended Sec. 682.405(a) to add a new 
paragraph (4) to require a borrower against whom the agency has a 
judgment to enter into a new promissory note.
Section 682.405(b)(1)(i)(A)
    Comments: Some commenters suggested that the regulations should 
allow for the inclusion of utilities and work-related expenses in the 
listing of necessary expenses for the purpose of determining a 
reasonable and affordable payment.
    Discussion: The Secretary agrees with the commenters.
    Changes: The regulations have been revised to include utilities and 
work-related expenses.
Section 682.405(b)(1)(i)(C)(1)
    Comments: Some commenters suggested that the regulations should be 
revised to clarify that the borrower's financial status should be 
determined by reviewing the most current information available, 
particularly the most recent U.S. income tax return for documentation 
of the borrower's current income.
    Discussion: The Secretary agrees with the commenters.
    Changes: The regulations have been revised to provide that the 
borrower must provide the most recent U.S. income tax return.
Section 682.405(b)(1)(i)(C)(3)
    Comments: A few commenters recommended that the unpaid balances on 
all FFEL Program loans be considered when determining the monthly loan 
amount that is reasonable and affordable, not just defaulted FFEL 
loans.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.405(b)(1)(i)(C)(3) of the regulations has been 
revised to provide that a guaranty agency shall consider unpaid 
balances on all FFEL Program loans held by other holders when making a 
determination of what constitutes a ``reasonable and affordable'' 
payment for loan rehabilitation or reinstatement of Title IV 
eligibility.
Section 682.405(b)(1)(i)(C)(iv)
    Comments: Some commenters suggested that a guaranty agency should 
not be required to provide the borrower with a written statement 
because the borrower may interpret such a statement as a new 
obligation. The commenters stated that if the loan is rehabilitated, 
the lender purchasing the rehabilitated loan will be required to 
disclose new terms. The commenters further stated that if the borrower 
has a written statement from the guaranty agency, but not from the 
lender, the borrower may be able to claim that he or she has no legal 
obligation to abide by the terms established by the rehabilitating 
lender.
    Discussion: The Secretary did not intend to require the guaranty 
agency to disclose new repayment terms on the rehabilitation loan. The 
Secretary agrees that it would be more appropriate for the disclosure 
to be done by the purchasing lender. Rather, the Secretary merely 
intended the guaranty agency to provide written confirmation of the 
agency's determination of the borrower's reasonable and affordable 
payment amount, the number of consecutive monthly payments that must be 
made to qualify for consideration for loan rehabilitation, any 
deadlines attached to those payments, and any factors the agency will 
consider in determining whether the repurchase of the borrower's loan 
is practicable.
    Changes: Section 682.405(b)(1)(iv) of the regulations has been 
revised to require the guaranty agency to provide a written statement 
confirming the borrower's reasonable and affordable payment amount and 
other conditions surrounding the loan rehabilitation.
    Comments: Some commenters suggested that the guaranty agencies be 
required to inform borrowers who enter into a renewed eligibility plan 
of the possibility of loan rehabilitation after 12 months. The 
commenters suggested that by doing so borrowers can make informed 
decisions about whether exercising the option after 12 payments is to 
their advantage.
    Discussion: The Secretary agrees with the commenters that a 
guaranty agency should be required to inform a borrower when entering 
into an agreement to reinstate loan eligibility of the possibility of 
loan rehabilitation after an additional six monthly payment amounts and 
the potential consequences of loan rehabilitation. The Secretary 
believes that a borrower should be provided sufficient information 
about the circumstances and potential consequences of loan 
rehabilitation to have an understanding of what is expected before 
making the required 12 monthly payments. Borrowers should be aware of, 
for example, that a potential increase in loan payment amounts may be 
necessary once the loan is repurchased by the lender if the reasonable 
and affordable monthly payment amount paid to the guaranty agency will 
not provide for the borrower to repay the loan within the 10-year 
maximum repayment period. The Secretary agrees that providing this 
information will place the borrower in a position to make an informed 
decision of whether or not to exercise his or her option for loan 
rehabilitation.
    Changes: The regulations have been revised to provide that guaranty 
agencies must inform borrowers of the consequences of loan 
rehabilitation after 12 months. Additionally, a new paragraph has been 
added as Sec. 682.401(b)(4)(iv) to require guaranty agencies to provide 
information to defaulted borrowers who made the required series of 
monthly payments to reinstate Title IV eligibility of the possibility 
of loan rehabilitation.
Section 682.406(a)(14)
    Comments: A few commenters recommended that the regulations be 
revised to reflect the 1993 Technical Amendments change that provides 
that the guaranty agencies certify that diligent attempts of skip-
tracing have been made by the lender under Sec. 682.411 before 
receiving reinsurance payments.
    Some commenters suggested that the regulations should indicate that 
the guaranty agency assures the Secretary that diligent attempts have 
been made by the lender and the guaranty agency under Sec. 682.411 to 
locate the borrower through the use of reasonable skip-tracing 
techniques.
    Discussion: Section 428(c)(2)(G) of the HEA, as changed by the 1993 
Technical Amendments, provides that the guaranty agency may not receive 
reinsurance payments unless it certifies that diligent attempts have 
been made to locate the borrower through the use of reasonable skip-
tracing techniques. As pointed out in the preamble to the proposed 
regulations, the Secretary believes that it is primarily a lender 
responsibility to locate the borrower through the use of skip-tracing 
techniques. However, the Secretary intends that diligent attempts must 
be made by either the lender or the agency to locate the borrower. The 
language of the regulations is intended to insure that if the lender 
does not perform the required skip-tracing, the guaranty agency will be 
responsible for doing so.
    Changes: Section 682.406(a)(14) of the regulations has been revised 
by using the word ``certifies'' rather than ``assures''.
Section 682.407
    Comments: A few commenters pointed out that the language in 
Sec. 682.407(f) incorrectly references ED Form 1189 for adjusting 
improperly paid administrative cost allowance payments.
    Discussion: The Secretary agrees with the commenters.
    Changes: The regulations have been revised to reflect that the 
adjustment is to be made on the ED Form 1130.
Section 682.409  Mandatory Assignment by Guaranty Agencies of Defaulted 
Loans to the Secretary
    Comments: One commenter asked if it is the intent of the Secretary 
to only benefit borrowers who move from the FFEL program to the Federal 
Direct Student Loan (FDSL) Program under this provision.
    Discussion: Although the Secretary is authorized to require FFEL 
loans to be assigned to the Secretary to affect an orderly transition 
from the FFEL to the Federal Direct Loan Program, one of the primary 
reasons for loan assignment is that the guaranty agency has been unable 
to collect on a defaulted loan it holds and the Secretary believes that 
the Department can more effectively collect on the loan. Loans assigned 
to the Department under the authority specified in section 682.409 are 
all defaulted FFEL loans held by guaranty agencies. These loans do not 
include non-defaulted FFEL loans which a borrower has requested to be 
consolidated under the Federal Direct Loan Consolidation Program. Until 
a defaulted FFEL borrower resolves his default status with the holder 
of the loan, either the guaranty agency prior to the assignment or the 
Department following assignment, the borrower is not eligible for any 
benefits under the FFEL or Federal Direct Loan Program. As a result, 
the Secretary does not believe that the mandatory assignment process 
benefits particular defaulted borrowers over others.
    Changes: None.
    Comments: One commenter asked what guidelines the Secretary would 
choose to have loans assigned. Specifically, the commenter was 
concerned that loan assignment might cause a guaranty agency to 
experience financial instability.
    Discussion: To the extent that the financial stability of a 
guaranty agency is in the Federal fiscal interest, the Secretary may 
choose, on a case-by-case basis, not to require the assignment of loans 
if the assignment will jeopardize the agency's financial stability.
    Changes: None.
    Comments: One commenter requested clarification on how mandatory 
assignment of FFEL loans relates to an orderly transition from the FFEL 
Program to the FDSL Program.
    Discussion: As noted by the commenter, section 428(c)(8) of the HEA 
provides that the Secretary will require an agency to assign loans if 
the Federal fiscal interest so requires. In addition, the statute deems 
the orderly transition to the FDSL Program to be in the Federal fiscal 
interest. The proposed regulations did not clearly reflect the 
Secretary's discretion in this area. Accordingly, the Secretary has 
revised the regulations to reflect the Secretary's statutory 
discretion. The Secretary believes that the assignment of FFEL loans 
will not impede the orderly transition to the FDSL Program. If it 
appears to the Secretary that the orderly transition to the FDSL 
Program is either impeded or facilitated by mandatory assignment, the 
Secretary will exercise his authority to modify the assignment 
criteria.
    It is also the view of the Secretary that it is in the Federal 
fiscal interest for the Federal government to collect defaulted student 
loans owed by Federal employees unless the guaranty agency has obtained 
a judgment against the Federal employee to collect by wage garnishment 
15 percent or more of disposable pay as defined in 34 CFR Part 31.
    Changes: The regulations have been changed to reflect the 
Secretary's discretion.
    Comments: One commenter indicated support for the criteria for 
performance standards established in this section for mandatory 
assignment of certain loans to the Secretary by a guaranty agency. The 
commenter said the language in this section represents the efforts of 
the community and the Secretary's staff in developing an equitable 
criteria for the assignment of loans and that the criteria outlined in 
this section best protect the Federal fiscal interest.
    Discussion: The Secretary agrees with the commenter.
    Changes: None.
    Comments: Two commenters asked if this section should be revised to 
exclude those agencies that are determined to qualify for Exceptional 
Performer status.
    Discussion: Designation as an Exceptional Performer means that a 
guaranty agency has shown a high level of compliance with the 
provisions of 34 CFR 682.410. That section of the regulations focuses 
on the default collection process, not the results of the process. 
Section 682.409 establishes standards that focus on outcomes as 
expressed in fiscal year loan type recovery rates. The Secretary 
believes that the collection of defaulted FFEL loans is important and 
should be governed by both process and outcome requirements. The 
Secretary does not believe that excusing guaranty agencies from 
complying with outcome requirements because they have complied (even to 
a high degree) with process requirements would adequately protect the 
Federal fiscal interest.
    Changes: None.
    Comments: A commenter asked if these provisions would force 
guaranty agencies to evaluate their entire preclaim and default 
collection operations, in order to achieve the highest recovery rate.
    Discussion: The Secretary agrees that guaranty agencies need to 
evaluate their default prevention and default collection operations. 
These regulations represent the initial attempt by the Secretary, in 
consultation with the guaranty agencies, to establish default 
collection performance standards. The Secretary believes that it is in 
the Department's and the guaranty agencies' best interest to establish 
default prevention performance standards as soon as practicable.
    Changes: None.
    Comments: A commenter observed that guaranty agencies will be 
required to monitor their operations constantly, indicating that it 
will be more difficult for an agency to continue producing recoveries 
over the 80 percent standard required by the regulations. The commenter 
noted that once the Secretary imposes additional assignment 
requirements on agencies that fall below the 80 percent standard, this 
provision will automatically increase the average recovery rate on 
which the 80 percent is based.
    Discussion: The Secretary agrees that guaranty agencies will have 
to constantly monitor their operations to satisfy these standards. The 
Secretary also expects that the assignment process based on recovery 
rate standards will result in the gradual, steady increase in the 
average recovery rate.
    Changes: None.
    Comments: A commenter observed that this section does not require 
the Department to load and begin collection on defaulted loans assigned 
to it within a specified time period. Collection activity could cease 
for months while an account is being processed. The commenter noted 
that it is in the Department's best interest to ensure that this gap in 
collection activities is minimized by providing specific time periods 
to begin the collection of new accounts.
    Discussion: The Secretary agrees that it is desirable to load 
assigned accounts quickly so that gaps in collection activity are 
minimized. While these regulations do not control this process, the 
Secretary intends to loan assigned accounts as quickly as possible.
    Changes: None.
Section 682.409(a)(2)(i)
    Comments: A commenter observed that participation in the IRS offset 
program is required by the Department and recommended that offset 
collections be included in calculating the recovery rate standards. The 
commenter believed that this will help assure guarantor participation 
in the IRS offset program to the maximum extent possible.
    Discussion: The Secretary agrees with the commenter. However, the 
Secretary notes that the regulations do not reflect the requirement 
that guaranty agencies participate in the Federal Income Tax Refund 
Offset program. The Secretary has modified the regulations to reflect 
this requirement.
    Changes: Section 682.409(a)(2)(i) has been revised to reference 
collections by Federal Income Tax Refund Offset.
Section 682.409(a)(3)(i)(B)
    Comments: A few commenters suggested that the Secretary amend the 
appeals process for failure to meet performance standards. They asked 
that the Secretary either permit agencies that have a large number of 
borrowers making ``reasonable and affordable'' payments as a result of 
the borrowers' financial circumstances to appeal on that basis or that 
these loans be excluded entirely from the calculation.
    Discussion: The Secretary agrees with the commenters that the 
regulations should be revised to encourage compliance with the 
provisions in Sec. 682.401(b)(4) and Sec. 682.405 requiring guaranty 
agencies to provide certain borrowers with ``reasonable and 
affordable'' payment plans. However, the Secretary believes that 
excluding loans with ``reasonable and affordable'' payment plans from 
the calculation would place an unnecessary reporting burden on the 
guaranty agencies, as well as increase the costs that would be incurred 
by the Department associated with collecting and auditing the data. The 
Department will provide a guaranty agency with the opportunity to 
demonstrate how ``reasonable and affordable'' payment arrangements have 
affected its recovery rate. The Department will make a determination on 
an acceptable agency recovery rate on an agency-by-agency basis. The 
agency will be required to identify all borrower accounts for which 
required reasonable and affordable payment amounts have impacted the 
agency's collection recovery rate. The Department will examine a sample 
of these accounts to determine how this should be assessed in 
determining the agency's recovery rate.
    Changes: The Secretary has revised Sec. 682.409(a)(3)(i)(B) to 
provide that the Federal interest will be served if the agency 
demonstrates that its compliance with Sec. 682.401(b)(4) and 
Sec. 682.405 has reduced substantially its fiscal year loan type 
recovery rate or rates.
Section 682.409(a)(3)(i)(C)(2)
    Comments: A commenter suggested that as the paragraph is not 
describing a mathematical derivation, the word ``categorized'' is more 
appropriate.
    Discussion: The Secretary agrees with the commenter.
    Changes: Section 682.409(a)(3)(i)(C)(2) has been revised to replace 
``divided'' with ``categorized.''
Section 682.409(c)(1)
    Comments: A few commenters asked if Sec. 682.409(c)(1) needs to 
specify the manner, information, and documentation necessary for 
mandatory assignment.
    Discussion: The Secretary considered expanding Sec. 682.409(c)(1) 
to incorporate the manual assignment and computer tape assignment 
procedures that are transmitted to the guaranty agencies each year by 
mail. However, the Secretary believes that this informal notification 
process has worked particularly well over the last two years, in part 
because it has been accomplished without the burden presented by the 
regulatory process. He believes that the current procedures have 
provided for a flexible process that has been responsive to changing 
guaranty agency and Departmental needs. Therefore, the Secretary has 
decided not to expand these regulations to include operational 
procedures associated with mandatory assignment.
    Changes: None.
Section 682.410  Fiscal, Administrative, and Enforcement Requirements
Section 682.410  General
    Comments: A few commenters noted that on-going negotiated 
rulemaking sessions are addressing matters covered in this section of 
the regulations. The commenters suggested that it would be 
inappropriate for final rules to be issued in light of the negotiations 
underway. Commenters recommended that the Department should propose 
regulations for issues related to this section later through an NPRM 
and final rules process devoted solely to these issues.
    Discussion: The Secretary notes that these regulations are directly 
related to the 1992 Amendments and were developed under the negotiated 
rulemaking sessions required by the 1992 Amendments. The provisions of 
the 1992 Amendments that were not changed by OBRA are reflected in 
these final regulations. The Secretary intends to propose rules to 
implement the provisions of OBRA related to guaranty agency reserves 
soon after the conclusion of current negotiated rulemaking sessions on 
this subject. In addition, the Secretary intends to have final 
regulations implementing both the 1992 Amendments and OBRA go into 
effect at the same time on July 1, 1995.
    Changes: None.
Section 682.410(a)(1)(vii)
    Comments: Commenters recommended that funds collected by the 
guaranty agency, included under Sec. 682.410(a)(1)(vii) as reserve fund 
assets, should include only funds collected on FFELP loans held by that 
agency or FFELP loans for which the agency paid a claim.
    Discussion: The Secretary agrees that clarification is necessary.
    Changes: The final regulations have been revised to clarify that 
only funds collected on FFELP loans on which a claim has been paid are 
included in Sec. 682.410(a)(1)(vii).
Section 682.410(a)(3)
    Comments: Commenters objected to Sec. 682.410(a)(3), Special rule 
for use of certain reserve fund assets, as redundant and confusing.
    Discussion: The Secretary agrees that Sec. 682.410(a)(3) is 
unnecessary.
    Changes: The language in Sec. 682.410(a)(3) has been simplified and 
merged into Sec. 682.410(a)(2).
Section 682.410(a)(6)
    Comments: A commenter urged that the Secretary consider provisions 
for further review and due process in connection with the requirements 
of Sec. 682.410(a)(6), minimum reserve fund level.
    Discussion: Section 682.410(a)(6) simply states the statutory 
requirements for minimum reserve levels. This paragraph specifies no 
action by the Department requiring review or due process.
    Changes: None.
Section 682.410(a)(7)
    Comments: A commenter suggested that the calculation of the 
guaranty agency ``Reserve fund level'' include receivables from ED and 
exclude payables to ED. The commenter argued that acknowledgment of 
those amounts is essential for an accurate determination of a 
guarantor's financial status.
    Discussion: The Secretary is interested in determining the amount 
of assets in a guaranty agency's reserve fund at a point in time. The 
Secretary acknowledges that the reserve fund level as defined in this 
paragraph does not accurately reflect the overall financial condition 
of the guaranty agency. However, the Secretary also believes that 
including receivables from ED and deducting payables to ED would also 
not result in an accurate calculation of the agency's financial 
condition since agencies have receivables from and payables to parties 
other than ED. The Secretary agrees that if an agency's reserve fund 
level, calculated in accordance with this section, is less than the 
minimum specified in Sec. 682.410(a)(6), the guaranty agency will be 
provided with the opportunity to submit information concerning its 
accounts payable and accounts receivable in extenuation of its reserve 
level.
    Changes: None.
Section 682.410(a)(8)(ii)(B)
    Comments: A commenter recommended removing loan guarantees 
transferred to another agency pursuant to a plan of the Secretary in 
response to the insolvency of the agency as an exclusion from loan 
guarantees transferred to another agency in Sec. 682.410(a)(8)(ii)(B).
    Discussion: The Secretary agrees that the reference to those loans 
should be removed from Sec. 682.410(a)(8)(ii)(B) because it is 
duplicative of 34 CFR 682.410(a)(8)(i)(B) which already provides for 
this exclusion.
    Changes: Section 682.410(a)(8)(ii)(B) has been revised to delete 
the reference to loans transferred because of insolvency.
Section 682.410(a)(8)(ii)(E)
    Comments: Some commenters recommended that all loans for which a 
claim has been paid be subtracted from the total loans guaranteed in 
calculating loans outstanding in Sec. 682.410(a)(8), definition of 
amount of loans outstanding. One commenter recommended subtracting from 
the amount of loans for which a claim has been paid only those loans 
for which claims were paid at the direction of the Secretary.
    Discussion: The proposed rule would have subtracted loans for which 
claims are paid under Sec. 682.412(e) on ineligible loans, under 
Sec. 682.509(a)(1) because of school closing, or at the direction of 
the Secretary, from total loans for which a claim has been paid. The 
Secretary agrees that loans for which claims have been paid are not 
outstanding.
    Changes: The regulations have been revised to remove the three 
exclusions.
Section 682.410(a)(8)
    Comments: A commenter recommended adding to Sec. 682.410(a)(8), 
amount of loans outstanding, a new paragraph (iii) to subtract the 
principal amount of loans not disbursed because the loan guarantee was 
partially canceled.
    Discussion: Reporting requirements for Form 1130 provide detailed 
definitions for the items listed in Sec. 682.410(a)(8). Partially 
canceled loans are one of the categories reported under cancelled loan 
guarantees and are therefore included in Sec. 682.410(a)(8)(ii)(A).
    Changes: None.
Section 682.414  Records, Reports, and Inspection Requirements for 
Guaranty Agency Programs
    Comments: A commenter recommended that Sec. 682.414(a)(3)(ii)(K) be 
revised to explicitly require lenders to retain copies of audit reports 
for not less than five years after the report is issued. While 
Sec. 682.414(a)(3)(ii)(K) implies that audits are covered under this 
section because they are reports, the commenter suggested that the 
section be revised explicitly to require that the audit reports be kept 
on file.
    Discussion: The Secretary agrees with the commenter that the 
regulations should explicitly require a lender to retain a copy of its 
annual audit report for not less than five years after the report is 
issued.
    Changes: Section 682.414(a)(3) has been revised to incorporate the 
commenter's recommendation.
Section 682.511  Due Diligence in Collecting a Loan
    Comments: A few commenters suggested that the regulations be 
revised to reflect that joint borrowers may cancel a loan even if they 
do not simultaneously satisfy the same cancellation criterion but the 
loan would otherwise be ``cancellable''. The commenters cited the 
example of a loan with joint borrowers where one borrower becomes 
totally, permanently disabled and the other files for bankruptcy (with 
the loan subject to discharge), both conditions under which a borrower 
would normally be able to cancel a loan.
    Discussion: The Secretary clarifies that a lender may file a claim 
for reimbursement based on the fact that, at the time of the request 
for discharge, joint borrowers both have a condition under which a 
borrower would qualify to cancel a loan.
    Changes: The regulations have been revised to reflect that a claim 
may be filed based on each borrower satisfying the criteria.
Section 682.603  Certification by a Participating School in Connection 
With a Loan Application
Section 682.603(h)
    Comments: Several commenters suggested that the wording of 
Sec. 682.603(h) could be made clearer by substituting ``earlier than 
the 24th day of the student's period of enrollment'' for ``earlier than 
7 days prior to the 31st day of the student's period of enrollment.''
    Discussion: Paragraph (h) of Sec. 682.603 is meant to achieve, in 
the case of new borrowers subject to delayed delivery of loan proceeds, 
the appropriate interest limitation Congress intended in Sec. 682.300 
using a schedule based on the date of disbursement by the lender. The 
Secretary agrees that the suggested rewording would more clearly state 
that requirement.
    Changes: A change has been made to reflect that a school may not 
request the disbursement of loan proceeds for a first time borrower who 
has not previously borrowed a Stafford or SLS loan earlier than the 
24th day of the student's period of enrollment.
Section 682.604  Processing the Borrower's Loan Proceeds and Counseling 
Borrowers
Section 682.604(c)(3)
    Comments: Some commenters suggested that the Secretary revise the 
language to codify the Department's earlier guidance that eliminates 
the separate borrower authorization statement for those students who 
provide the authorization for electronic fund transfer disbursement on 
the common loan application.
    Discussion: The Secretary agrees that this provision does not apply 
in those instances where the borrower has provided a separate 
authorization for electronic fund transfer via the common loan 
application.
    Changes: The regulations have been revised to provide that the 
school fulfills this requirement if the borrower has authorized the 
electronic fund transfer on the common loan application.
Section 682.604(g)(2)(vi)
    Comments: A commenter recommended that the language be revised to 
reflect that when a borrower has obtained loans from multiple 
guarantors, that the institution provide the required updated 
information to all guarantors listed in the borrower's file.
    Discussion: The Secretary agrees that updated information should be 
provided to the guaranty agency or agencies within the specified time.
    Changes: The regulations have been revised to incorporate the 
commenter's recommendation.
Section 682.604(h)
    Comments: A few commenters suggested that the overaward tolerance 
for the FFEL program be consistent with the $200 overaward allowed in 
the campus-based programs. Some commenters suggested that the statutory 
silence on the issue of tolerance does not constitute a prohibition.
    Discussion: There is no statutory basis for providing a $200 
tolerance in the treatment of an FFEL program overaward. Congress has 
provided specific statutory tolerances in the campus-based overaward 
provisions and for limited purposes in the FFEL program in section 
428G(d) of the HEA. Given these precedents, if Congress had intended to 
provide for a general tolerance it would have included it in the 
statute.
    Changes: None.

Executive Order 12866

    These final regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering this program effectively 
and efficiently. Burdens specifically associated with information 
collection requirements were identified and explained in the NPRM.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these regulations, the Secretary has determined 
that the benefits of these 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.

Waiver of Proposed Rulemaking

    In addition to the changes made to part 682 based on public comment 
on the notice of proposed rulemaking, the Secretary has revised the 
regulations to include technical changes made by certain legislation, 
as stated above.
    It is the practice of the Secretary to offer interested parties the 
opportunity to comment on proposed regulations in accordance with 
section 431(b)(2)(A) of the General Education Provisions Act (20 U.S.C. 
1232(b)(2)(A)) and the Administrative Procedure Act, 5 U.S.C. 553. 
However, since these changes merely reflect statutory changes in the 
regulations and do not establish substantive policy changes, public 
comment could have no effect. Therefore, the Secretary has determined, 
pursuant to 5 U.S.C. 553(b)(B), that public comment on these amendments 
to the regulations is unnecessary and contrary to the public interest.

Assessment of Educational Impact

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

List of Subjects in 34 CFR Part 682

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Reporting and recordkeeping.

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

    Dated: May 25, 1994.
Richard W. Riley,
Secretary of Education.

    The Secretary amends Part 682 of Title 34 of the Code of Federal 
Regulations as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM

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

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

    2. Section 682.100 is amended by revising paragraphs (a)(2), (a)(3) 
and (a)(4) to read as follows:


Sec. 682.100  The Federal Family Education Loan programs.

    (a)* * *
    (2) The Federal Supplemental Loans for Students (SLS) Program, as 
in effect for periods of enrollment beginning prior to July 1, 1994, 
which encourages making loans to graduate, professional, independent 
undergraduate, and certain dependent undergraduate students.
    (3) The Federal PLUS (PLUS) Program, which encourages making loans 
to parents of dependent undergraduate students. Before October 17, 
1986, the PLUS Program also provided for making loans to graduate, 
professional, and independent undergraduate students. Before July 1, 
1993, the PLUS Program also provided for making loans to parents of 
dependent graduate students.
    (4) The Federal Consolidation Loan (Consolidation) Program, which 
encourages making loans to borrowers for the purpose of consolidating 
their repayment obligations, with respect to loans received while they 
were students, under the Federal Insured Student Loan (FISL), Stafford 
loan, SLS, ALAS (as in effect before October 17, 1986), PLUS, and 
Perkins Loan programs, the Health Professions Student Loan (HPSL) 
Program authorized by subpart II of Part A of Title VII of the Public 
Health Services Act, and Health Education Assistance Loans (HEAL) 
authorized by Subpart I of Part A of Title VII of the Health Services 
Act.
* * * * *
    3. Section 682.101 is amended by revising paragraph (c) to read as 
follows:


Sec. 682.101  Participation in the FFEL programs.

* * * * *
    (c) Students who meet certain requirements, including enrollment at 
a participating school, may borrow under the Stafford Loan and, prior 
to July 1, 1994, the SLS program. Parents of eligible dependent 
undergraduate students may borrow under the PLUS Program. Borrowers 
with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, ALAS, or 
PLUS loans or married couples each of whom have eligible loans under 
these programs may borrow under the Consolidation Loan Program.
* * * * *
    4. Section 682.102 is amended by adding a new sentence at the end 
of the second sentence in paragraph (d); and by adding a new sentence 
at the end of paragraph (e)(1) to read as follows:


Sec. 682.102  Obtaining and repaying a loan.

* * * * *
    (d) Consolidation loan application. * * * In the case of a married 
couple seeking a Consolidation loan, only the holders for one of the 
applicants must be contacted for consolidation.* * *
    (e) Repaying a loan. (1) * * * The borrower's obligation to repay a 
PLUS loan is cancelled if the student, on whose behalf the parent 
borrowed, dies. The borrower's obligation to repay all or a portion of 
his or her loan may be cancelled if the borrower is unable to complete 
his or her program of study because the school closed or the borrower's 
eligibility to borrow was falsely certified by the school. The 
obligation to repay all or a portion of a loan may be forgiven for 
borrowers who enter certain areas of the teaching or nursing 
professions or perform certain kinds of national or community service.
* * * * *
    5. Section 682.200 is amended by redesignating paragraphs (a)(1)(i) 
and (a)(1)(ii) as paragraphs (a)(1) and (a)(2) respectively; removing 
``Eligible institution'' from redesignated paragraph (a)(2); revising 
the definition of ``Co-maker'' in paragraph (b); revising the 
definition of ``Disbursement'' in paragraph (b); revising paragraph (1) 
of the definition of ``Estimated financial assistance''in paragraph 
(b); adding a new sentence at the end of the definition of ``Grace 
period'' in paragraph (b); revising paragraph (2), and redesignating 
paragraphs (3) and (4) as paragraphs (4) and (5) respectively, and 
adding a new paragraph 3, in the definition of ``Lender'' in paragraph 
(b); revising the definitions of ``Repayment period'' and ``Stafford 
Loan Program'' in paragraph (b); adding, in alphabetical order, new 
definitions of ``Disposable income'', ``Nonsubsidized Stafford loan'', 
``Satisfactory repayment arrangement'', ``Subsidized Stafford loan'', 
``Unsubsidized Stafford loan'', and ``Write-off'' in paragraph (b) to 
read as follows:


Sec. 682.200  Definitions.

* * * * *
    Co-maker. One of two parents who are joint borrowers on a PLUS loan 
or one of two individuals who are joint borrowers on a Consolidation 
loan, each of whom are eligible and who are jointly and severally 
liable for repayment of the loan.
    Disbursement. The transfer of loan proceeds by a lender to a 
borrower, a school, or an escrow agent by issuance of an individual 
check, a master check that represents loan amounts for more than one 
borrower, or by electronic funds transfer.
* * * * *
    Disposable income. That part of a borrower's compensation from an 
employer and other income from any source that remains after the 
deduction of any amounts required by law to be withheld, or any child 
support or alimony payments that are made under a court order or 
legally enforceable written agreement. Amounts required by law to be 
withheld include, but are not limited, to Federal and State taxes, 
Social Security contributions, and wage garnishment payments.
* * * * *
    Estimated financial assistance. (1) The estimated amount of 
assistance that a student has been or will be awarded for a period of 
enrollment, beginning on or after July 1, 1993, for which the loan is 
sought, from Federal, State, institutional, or other scholarship, 
grant, financial need-based employment, or loan programs, including but 
not limited to--
    (i) Veterans' educational benefits paid under Chapters 30, 31, 32, 
and 35 of Title 38 of the United States Code;
    (ii) Educational benefits paid under Chapters 106 and 107 of Title 
10 of the United States Code (Selected Reserve Educational Assistance 
Program);
    (iii) Reserve Officer Training Corps (ROTC) scholarships and 
subsistence allowances awarded under Chapter 2 of Title 10 and Chapter 
2 of Title 37 of the United States Code;
    (iv) Benefits paid under Pub. L. 97-376, section 156: Restored 
Entitlement Program for Survivors (or Quayle benefits);
    (v) Benefits paid under Pub. L. 96-342, section 903: Educational 
Assistance Pilot Program;
    (vi) Any educational benefits paid because of enrollment in a 
postsecondary education institution;
    (vii) The estimated amount of other Federal student financial aid, 
including, but not limited to, a Stafford loan, Pell Grant and, to the 
extent funding is available and according to the school's award 
packaging policy, campus-based aid the student is expected to receive;
    (viii) In the case of a PLUS loan, the estimated amount of other 
Federal student financial aid, including but not limited to, a Stafford 
loan, Pell Grant and campus-based aid that the student has been or will 
be awarded.
    (2) The estimated amount of assistance does not include--
    (i) Those amounts used to replace the expected family contribution, 
including--
    (A) Nonsubsidized Stafford loan amounts for which interest benefits 
are not payable;
    (B) SLS and PLUS loan amounts; or
    (C) Private and state-sponsored loan programs; and
    (ii) Perkins loan and College Work-Study funds that the school 
determines the student has declined.
* * * * *
    Grace period. * * * For an SLS borrower who also has a Federal 
Stafford loan on which the borrower has not yet entered repayment, the 
grace period is an equivalent period after the borrower ceases to be 
enrolled as at least a half-time student at an eligible institution.
* * * * *
    Lender. * * *
    (2) With respect to a National or State chartered bank, a mutual 
savings bank, a savings and loan association, a stock savings bank, or 
a credit union--
    (i) The phrase ``subject to examination and supervision'' in 
section 435(d) of the Act means ``subject to examination and 
supervision in its capacity as a lender'';
    (ii) The phrase ``does not have as its primary consumer credit 
function the making or holding of loans made to students under this 
part'' in section 435(d) of the Act means that the lender does not, or 
in the case of a bank holding company, the company's wholly-owned 
subsidiaries as a group do not at any time, hold FFEL Program loans 
that total more than one-half of the lender's or subsidiaries' combined 
consumer credit loan portfolio, including home mortgages held by the 
lender or its subsidiaries.
    (3) A bank that is subject to examination and supervision by an 
agency of the United States, making student loans as a trustee, may be 
an eligible lender if it makes loans under an express trust, operated 
as a lender in the FFEL programs prior to January 1, 1975, and met the 
requirements of this paragraph prior to July 23, 1992.
* * * * *
    Nonsubsidized Stafford loan. A Stafford loan made prior to October 
1, 1992 that does not qualify for interest benefits under 
Sec. 682.301(b) or special allowance payments under Sec. 682.302.
* * * * *
    Repayment period. (1) For a Stafford loan, the period beginning on 
the date following the expiration of the grace period and ending no 
later than 10 years from the date the first payment of principal is due 
from the borrower, exclusive of any period of deferment or forbearance.
    (2) For unsubsidized Stafford loans, the period that begins on the 
day after the expiration of the applicable grace period that follows 
after the student ceases to be enrolled on at least a half-time basis 
and ending no later than 10 years from that date, exclusive of any 
period of deferment or forbearance. However, payments of interest are 
the responsibility of the borrower during the in-school and grace 
period, but may be capitalized by the lender.
    (3) For SLS loans, the period that begins on the date the loan is 
disbursed, or if the loan is disbursed in more than one installment, on 
the date the last disbursement is made and ending no later than 10 
years from that date, exclusive of any period of deferment or 
forbearance. The first payment of principal is due within 60 days after 
the loan is fully disbursed unless a borrower who is also a Stafford 
loan borrower but who, has not yet entered repayment on the Stafford 
loan requests that commencement of repayment on the SLS loan be delayed 
until the borrower's grace period on the Stafford loan expires. 
Interest on the loan accrues and is due and payable from the date of 
the first disbursement of the loan. The borrower is responsible for 
paying interest on the loan during the grace period and periods of 
deferment, but the interest may be capitalized by the lender.
    (4) For Federal PLUS loans, the period that begins on the date the 
loan is disbursed, or if the loan is disbursed in more than one 
installment, on the date the last disbursement is made and ending no 
later than 10 years from that date, exclusive of any period of 
deferment or forbearance. Interest on the loan accrues and is due and 
payable from the date of the first disbursement of the loan.
    (5) For Federal Consolidation loans, the period that begins on the 
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25, 
or 30 years from that date depending upon the sum of the amount of the 
Consolidation loan, and the unpaid balance on other student loans, 
exclusive of any period of deferment or forbearance.
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under section 428F(b) of the HEA, the making of six (6) 
consecutive voluntary full monthly payments on a defaulted loan.
    (2) For purposes of consolidating a defaulted loan under 34 CFR 
682.201(c)(iii)(C), the making of three (3) consecutive voluntary full 
monthly payments on a defaulted loan.
    (3) The required full monthly payment amount may not be more than 
is reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are those payments made directly by 
the borrower, and do not include payments obtained by income tax off-
set, garnishment, or income or asset execution. On-time means a payment 
received by the Secretary or a guaranty agency or its agent within 15 
days of the scheduled due date.
* * * * *
    Stafford Loan Program. The loan program authorized by Title IV-B of 
the Act which encourages the making of subsidized and unsubsidized 
loans to undergraduate, graduate, and professional students and is one 
of the Federal Family Education Loan programs.
* * * * *
    Subsidized Stafford loan. A loan authorized under section 428(b) of 
the Act for borrowers who qualify for interest benefits under 
Sec. 682.301(b).
* * * * *
    Unsubsidized Stafford loan. A loan made after October 1, 1992, 
authorized under section 428H of the Act for borrowers who do not 
qualify for interest benefits under Sec. 682.301(b).
    Write-off. Cessation of collection activity on a defaulted FFEL 
loan due to a determination in accordance with applicable standards 
that no further collection activity is warranted.
    6. Section 682.201 is amended by revising paragraph (a)(2); 
revising paragraphs (b) introductory text and (b)(1); removing ``and'' 
at the end of paragraph (b)(5); removing the period at the end of 
paragraph (b)(6), and adding in its place, ``; and''; adding a new 
paragraph (b)(7); and revising paragraph (c) to read as follows:


Sec. 682.201  Eligible borrowers.

    (a) * * *
    (2) In the case of any student who, for a period of enrollment that 
begins prior to July 1, 1994, seeks an SLS loan for the cost of 
attendance at a school that participates in the Stafford Loan Program, 
the student must have--
    (i) Received a determination of need for a subsidized Stafford 
loan, and if determined to have need in excess of $200, have filed an 
application with a lender for a subsidized Stafford loan;
    (ii) Filed an application with a lender for an unsubsidized 
Stafford loan up to the Stafford loan annual maximum unless the school 
declines to certify such an application under section 428(a)(2)(F) of 
the HEA; and
    (iii) Received a certification of graduation from a school 
providing secondary education or the recognized equivalent;
* * * * *
    (b) Parent borrower. A parent borrower, is eligible to receive a 
PLUS Program loan, other than a loan made under Sec. 682.209(e), if the 
parent--
    (1) Is borrowing to pay for the educational costs of a dependent 
undergraduate student who meets the requirements for an eligible 
student set forth in 34 CFR Part 668;
* * * * *
    (7) (i) In the case of a Federal PLUS loan made on or after July 1, 
1993, does not have an adverse credit history.
    (ii) For purposes of this section, the lender must obtain a credit 
report on each applicant from at least one national credit bureau. The 
credit report must be secured within a timeframe that would ensure the 
most accurate, current representation of the borrower's credit history 
before the first day of the period of enrollment for which the loan is 
intended.
    (iii) Unless the lender determines that extenuating circumstances 
existed, the lender must consider each applicant to have an adverse 
credit history based on the credit report if--
    (A) The applicant is considered 90 or more days delinquent on the 
repayment of a debt;
    (B) The applicant has been the subject of a default determination, 
bankruptcy discharge, foreclosure, repossession, tax lien, wage 
garnishment, or write-off of a Title IV debt, during the five years 
preceding the date of the credit report.
    (iv) Nothing in this paragraph precludes the lender from 
establishing more restrictive credit standards to determine whether the 
applicant has an adverse credit history.
    (v) The absence of any credit history is not an indication that the 
applicant has an adverse credit history and is not to be used as a 
reason to deny a PLUS loan to that applicant.
    (vi) The lender must retain documentation demonstrating its basis 
for determining that extenuating circumstances existed. This 
documentation may include, but is not limited to, an updated credit 
report, a statement from the creditor that the borrower has made 
satisfactory arrangements to repay the debt, or a satisfactory 
statement from the borrower explaining any delinquencies with 
outstanding balances of less than $500.
    (c) Consolidation Program Borrower. (1) An individual is eligible 
to receive a Consolidation loan if, at the time of application for a 
Consolidation loan, the individual--
    (i) For a Consolidation loan made on or after January 1, 1993 but 
prior to July 1, 1994, has an outstanding indebtedness of not less than 
$7,500 that are eligible for consolidation under Sec. 682.100;
    (ii) Has ceased, or, in the case of a PLUS borrower, the dependent 
student on whose behalf the parent is borrowing has ceased, at least 
half-time enrollment at a school;
    (iii) Is, on the loans being consolidated--
    (A) In a grace period preceding repayment on the loans being 
consolidated;
    (B) Is in repayment status; or
    (C) In a default status and has made satisfactory repayment 
arrangements with the holder on a defaulted loan being consolidated;
    (iv) Certifies that no other application for a Consolidation loan 
is pending;
    (v) Agrees to notify the holder of any changes in address; and
    (vi) Certifies that the lender holds an outstanding loan of the 
borrower that is being consolidated or that the borrower has 
unsuccessfully sought a loan from the holders of the outstanding loans 
and was unable to secure a Consolidation loan from the holder.
    (2) A married couple is eligible to receive a Consolidation loan in 
accordance with this section if each--
    (i) Agrees to be held jointly and severally liable for the 
repayment of the total amount of the Consolidation loan;
    (ii) Agrees to repay the debt regardless of any change in marital 
status; and
    (iii) Meets the requirements of paragraph (c)(1) of this section, 
and only one must have met the requirements of paragraph (c)(1)(vi) of 
this section.
    (3) To be eligible to receive a Consolidation loan, in the case of 
a student, parent, or Consolidation loan borrower who is currently in 
default on an FFEL Program loan, the borrower must have made 
satisfactory repayment arrangements.
    (4) A borrower's eligibility to receive a Consolidation loan 
terminates upon receipt of a Consolidation loan except--
    (i) With respect to student loans received after the date the 
Consolidation loan is made; or
    (ii) Eligible loans received prior to the date the Consolidation 
loan was made can be added to the Consolidation loan during the 180-day 
period after the making of the Consolidation loan.
    7. Section 682.204 is revised to read as follows:


Sec. 682.204  Maximum loan amounts.

    (a) Stafford Loan Program annual limits. (1) In the case of a 
dependent undergraduate student who has not successfully completed the 
first year of a program of undergraduate education, the total amount 
the student may borrow for any academic year of study under the 
Stafford Loan Program and the Direct Stafford Loan Program may not 
exceed--
    (i) $2,625 for a program whose length is at least a full academic 
year in length;
    (ii) $1,750 for a program whose length is at least two-thirds but 
less than a full academic year in length; and
    (iii) $875 for a program whose length is at least one-third but 
less than two-thirds of an academic year length.
    (2) In the case of a student who has successfully completed the 
first year of an undergraduate program but has not successfully 
completed the second year of an undergraduate program, the total amount 
the student may borrow for any academic year of study under the 
Stafford Loan Program may not exceed--
    (i) $3,500 for a program whose length is at least a full academic 
year in length; or
    (ii) For a Stafford loan first disbursed on or after July 1, 1994 
for a period of enrollment beginning on or after July 1, 1994, if the 
student is enrolled in a program, with less than a full academic year 
remaining, a prorated amount that bears the same ratio to $3,500 as the 
remainder of the program measured in semester, trimester, quarter, or 
clock hours bears to one academic year.
    (3) In the case of a student who has successfully completed the 
first and second year of a program of undergraduate education but has 
not successfully completed the remainder of the program, the total 
amount the student may borrow for academic year of study under the 
Stafford Loan and Direct Stafford Loan Program may not exceed--
    (i) $5,500 for a program whose length is at least an academic year 
in length;
    (ii) For a Stafford loan first disbursed on or after July 1, 1994 
for a period of enrollment beginning on or after July 1, 1994, if the 
student is enrolled in a program with less than a full academic year 
remaining, a prorated amount that bears the same ratio to $5,500 as the 
remainder of the program measured in semester, trimester, quarter, or 
clock hours bears to one academic year.
    (4) In the case of a student in a program who has an associate or 
baccalaureate degree which is required for admission into the program, 
the total amount the student may borrow for an academic year of study 
may not exceed the amount in paragraph (a)(3)(i) of this section.
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for any academic year of study under the 
Stafford Loan Program, in combination with any amount borrowed under 
the Direct Stafford Loan Program, may not exceed $8,500.
    (b) Stafford Loan Program aggregate limits. The aggregate unpaid 
principal amount of all Stafford Loan Program and loans received under 
the Direct Stafford Loan Program may not exceed--
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level; and
    (2) $65,000, in the case of a graduate or professional student, 
including loans for undergraduate study.
    (c) Unsubsidized Stafford Loan Program. In the case of a dependent 
graduate student, the total amount the student may borrow for any 
period of study for the Unsubsidized Stafford Loan Program and Direct 
Unsubsidized Stafford Loan Program is the same as the amount determined 
under paragraph (a) of this section, less any amount received under the 
Stafford Loan Program.
    (d) Additional eligibility under the Unsubsidized Stafford Loan 
Program. In addition to any amount borrowed under paragraph (b) of this 
section, an independent undergraduate student, graduate or professional 
student, or certain dependent undergraduate students may borrow 
additional amounts under the Unsubsidized Stafford Loan Program. The 
additional amount that such a student may borrow under the Unsubsidized 
Stafford Loan Program, in combination with Unsubsidized Stafford loans, 
for any academic year of study--
    (1) In the case of a student who has not successfully completed the 
first and second year of a program of undergraduate education, may not 
exceed--
    (i) $4,000 for enrollment in a program whose length is at least a 
full academic year in length;
    (ii) $2,500 for enrollment in a program whose length is at least 
two-thirds but less than a full academic year in length;
    (iii) $1,500 for enrollment in a program whose length is at least 
one-third but less than two-thirds of an academic year in length;
    (2) In the case of a student who has successfully completed the 
first and second year of an undergraduate program, but has not 
completed the remainder of the program, may not exceed--
    (i) $5,000 for enrollment in a program whose length is at least a 
full academic year;
    (ii) If the student is enrolled in a program with less than a full 
academic year remaining, a prorated amount that bears the same ratio to 
$5,000 as the remainder of the program measured in semester, trimester, 
quarter, or clock hours bears to one academic year;
    (3) In the case of a student in a program who has an associate or 
baccalaureate degree which is required for admission into the program, 
the total amount the student may borrow for an academic year under the 
Unsubsidized Stafford Loan and Direct Unsubsidized Stafford Loan 
Program may not exceed the amount in paragraph (d)(2)(i) of this 
section; and
    (4) In the case of a graduate or professional student, may not 
exceed $10,000.
    (e) Unsubsidized Stafford Loan Program aggregate limits. The total 
unpaid principal amount of Stafford Loans, Direct Stafford Loans, 
Unsubsidized Stafford Loans, Direct Unsubsidized Stafford Loans and SLS 
Loans, may not exceed--
    (1) $46,000 for an undergraduate student; and
    (2) $138,500 for a graduate or professional student.
    (f) SLS Program annual limit. (1) In the case of a loan for which 
the first disbursement is made prior to July 1, 1993, the total amount 
of all SLS loans that a student may borrow for any academic year may 
not exceed $4,000 or, if the student is entering or is enrolled in a 
program of undergraduate education that is less than one academic year 
in length and the student's SLS loan application is certified pursuant 
to Sec. 682.603 by the school on or after January 1, 1990--
    (i) $2,500 for a student enrolled in a program whose length is at 
least two-thirds of an academic year but less than a full academic year 
in length;
    (ii) $1,500 for a student enrolled in a program whose length is 
less than two-thirds of an academic year in length; and
    (iii) $0 for a student enrolled in a program whose length is less 
than one-third of an academic year in length.
    (2) In the case of a loan for which a first disbursement is made on 
or after July 1, 1993, the total amount a student may borrow for an 
academic year under the SLS program--
    (i) In the case of a student who has not successfully completed the 
first and second year of a program of undergraduate education, may not 
exceed--
    (A) $4,000 for enrollment in a program whose length is at least a 
full academic year in length;
    (B) $2,500 for enrollment in a program whose length is at least 
two-thirds but less than a full academic year in length;
    (C) $1,500 for enrollment in a program whose length is least one-
third but less than two-thirds of an academic year in length;
    (ii) Except as provided in paragraph (f)(4) of this section, in the 
case of a student who successfully completed the first and second year 
of an undergraduate program, but has not completed the remainder of the 
program, may not exceed--
    (A) $5,000 for enrollment in a program whose length is at least a 
full academic year;
    (B) $3,325 for enrollment in a program whose length is at least 
two-thirds of an academic year but less than a full academic year in 
length; and
    (C) $1,675 for enrollment in a program whose length is at least 
one-third of an academic year but less than two-thirds of an academic 
year; and
    (iii) In the case of a graduate or professional student, may not 
exceed $10,000.
    (4) For a period of enrollment beginning after October 1, 1993, but 
prior to July 1, 1994 for which the first disbursement is made prior to 
July 1, 1994, in the case of a student who has successfully completed 
the first and second years of a program but has not successfully 
completed the remainder of a program of undergraduate education--
    (i) $5,000; or
    (ii) If the student is enrolled in a program, the remainder of 
which is less than a full academic year, the maximum annual amount that 
the study may receive may not exceed the amount that bears the same 
ratio to the amount in paragraph (f)(4)(i) of this section as the 
remainder measured in semester, trimester, quarter, or clock hours 
bears to one academic year.
    (g) SLS Program aggregate limit. The total unpaid principal amount 
of SLS Program loans made to--
    (1) An undergraduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $23,000, for loans for which the first disbursement was made 
on or after July 1, 1993; and
    (2) A graduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $73,000, for loans for which the first disbursement was made 
on or after July 1, 1993 including loans for undergraduate study.
    (h) PLUS Program annual limit. The total amount of all PLUS Program 
loans that parents may borrow on behalf of each dependent student for 
any academic year of study may borrow for enrollment in an eligible 
program of study may not exceed the student's cost of education minus 
other estimated financial assistance for that student.
    (i) Minimum loan interval. The annual loan limits applicable to a 
student apply to the length of the school's academic year.
    (j) Treatment of Consolidation loans for purposes of determining 
loan limits. The percentage of the outstanding balance on a 
Consolidation loan counted against a borrower's aggregate loan limits 
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford 
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HPSL 
program must equal the percentage of the original amount of the 
Consolidation loan attributable to loans made to the borrower under 
that program.
    (k) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS 
loan amount exceed the student's estimated cost of attendance for the 
period of enrollment for which the loan is intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) The borrower's expected family contribution for that period, in 
the case of a Stafford loan that is eligible for interest benefits.
    (l) In determining a Stafford loan amount in accordance with 
Sec. 682.204 (a), (c) and (d), the school must use the definition of 
academic year in 34 CFR 668.2.
    8. Section 682.206 is amended by revising the introductory text in 
paragraph (c)(2); and revising paragraph (e)(2) to read as follows:


Sec. 682.206  Due diligence in making a loan.

* * * * *
    (c) * * *
    (2) Except in the case of a Consolidation loan, in determining the 
amount of the loan to be made, the lender must review the data on the 
student's cost of attendance and estimated financial assistance that is 
provided by the school. In no case may the loan amount exceed the 
student's estimated cost of attendance less the sum of--
* * * * *
    (e) * * *
    (2) A Federal PLUS Program loan and Federal Consolidation Program 
Loan may be made to two eligible borrowers who agree to be jointly and 
severally liable for repayment of the loan as co-makers.
* * * * *
    9. Section 682.207 is amended by revising paragraphs (b)(1)(v) (A) 
and (B),and adding a new paragraph (b)(1)(v)(D) to read as follows:


Sec. 682.207   Due diligence in disbursing a loan.

* * * * *
    (b)(1) * * *
    (v) * * *
    (A) Except as provided in paragraph (b)(1)(v) (C)(1) and (D) of 
this section, directly to the school;
    (B) In the case of a Federal PLUS loan--
    (1) By electronic funds transfer or master check from the lender to 
the eligible institution to a separate account maintained by the school 
as trustee for the lender; or
    (2) By a check from the lender that is made co-payable to the 
institution and the parent borrower directly to the eligible 
institution.
* * * * *
    (D) In the case of a student enrolled in an eligible foreign 
school, if the student requests--
    (1) Directly to the student; or
    (2) To the institution if the borrower provides a power-of-attorney 
to an individual not affiliated with the institution to endorse the 
check or complete an electronic funds transfer authorization.
* * * * *
    10. Section 682.209 is amended by revising paragraph (c)(2) to read 
as follows:


Sec. 682.209   Repayment of a loan.

* * * * *
    (c) * * *
    (2) The provisions of paragraphs (c)(1) (i) and (ii) of this 
section may not result in an extension of the maximum repayment period 
unless forbearance as described in Sec. 682.211, or deferment described 
in Sec. 682.210, has been approved.
* * * * *
    11. Section 682.300 is amended by revising the section heading; 
revising paragraph (a); revising paragraph (b)(1)(i); and revising 
paragraph (c) to read as follows:


Sec. 682.300   Payment of interest benefits on Stafford and 
Consolidation loans.

    (a) General. The Secretary pays a lender a portion of the interest 
on a subsidized Stafford loan and, on a Consolidation loan that only 
consolidated subsidized Stafford loans, on behalf of a borrower who 
qualifies under Sec. 682.301. This payment is known as interest 
benefits.
    (b) * * *
    (1) * * *
    (i) During all periods prior to the beginning of the repayment 
period, except as provided in paragraphs (b)(2) and (c) of this 
section.
* * * * *
    (c) Interest not covered. The Secretary does not pay--
    (1) Interest for which the borrower is not otherwise liable;
    (2) Interest paid on behalf of the borrower by a guaranty agency;
    (3) Interest that accrues on the first disbursement of a loan for 
any period that is earlier than--
    (i) In the case of a subsidized Stafford loan disbursed by a check, 
10 days prior to the first day of the period of enrollment for which 
the loan is intended or, if the loan is disbursed after the first day 
of the period of enrollment, 3 days after the disbursement date on the 
check; or
    (ii) In the case of a loan disbursed by electronic funds transfer, 
3 days prior to the first day of the period of enrollment or, if the 
loan is disbursed after the first day of the period of enrollment, 3 
days after disbursement.
    (4) In the case of a loan disbursed on or after October 1, 1992, 
interest on a loan if--
    (i) The disbursement check is returned uncashed to the lender or 
the lender is notified that the disbursement made by electronic funds 
transfer will not be released from the restricted account maintained by 
the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made 
by electronic funds transfer has not been released from the restricted 
account maintained by the school before that date.
* * * * *
    12. Section 682.301 is amended by revising the section heading; 
revising paragraph (a)(1); adding new paragraphs (a)(3) and (a)(4); and 
revising paragraph (b) introductory text to read as follows:


Sec. 682.301   Eligibility of borrowers for interest benefits on 
Stafford and Consolidation loans.

    (a) * * *
    (1) To qualify for benefits on a Stafford loan, a borrower must 
demonstrate financial need in accordance with Part F of the Act.
* * * * *
    (3) A Consolidation loan borrower qualifies for interest benefits 
during authorized periods of deferment on the portion of the loan that 
does not represent HEAL loans if the loan application was received by 
the lender on or after January 1, 1993 but prior to August 10, 1993.
    (4) A Consolidation loan borrower qualifies for interest benefits 
only if the loan consolidates subsidized Stafford loans.
    (b) Application for interest benefits. To apply for interest 
benefits on a Stafford loan, the student, or the school at the 
direction of the student, must submit a loan application to the lender. 
The application must include a certification from the student's school 
of the following information:
* * * * *
    13. Section 682.302 is amended by revising paragraphs (b), 
(c)(1)(iii), (c)(2) introductory text, (c)(3)(i) introductory text, 
(c)(3)(ii) introductory text, and adding paragraph (c)(3)(iii) to read 
as follows:


Sec. 682.302   Payment of special allowance on FFEL loans.

* * * * *
    (b) Eligible loans. (1) Except for nonsubsidized Federal Stafford 
loans disbursed on or after October 1, 1981, for periods of enrollment 
beginning prior to October 1, 1992, or as provided in paragraph (b)(2) 
or (e) of this section, FFEL loans that otherwise meet program 
requirements are eligible for special allowance payments.
    (2) For a loan made under the Federal SLS or Federal PLUS Program 
on or after July 1, 1987 or under Sec. 682.209 (e) or (f), no special 
allowance is paid for any period for which the interest rate determined 
under Sec. 682.202(a)(2)(iv)(A) for that loan does not exceed--
    (i) 12 percent in the case of a Federal SLS or PLUS loan made prior 
to October 1, 1992;
    (ii) 11 percent in the case of a Federal SLS loan made on or after 
October 1, 1992; or
    (iii) 10 percent in the case of a Federal PLUS loan made on or 
after October 1, 1992.
    (3) In the case of a subsidized Stafford loan disbursed on or after 
October 1, 1992, the Secretary does not pay special allowance on a 
disbursement if--
    (i) The disbursement check is returned uncashed to the lender or 
the lender is notified that the disbursement made by electronic funds 
transfer will not be released from the restricted account maintained by 
the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made 
by electronic funds transfer has not been released from the restricted 
account maintained by the school before that date.
    (c) * * *
    (1) * * *
    (iii) Adding--
    (A) 3.1 percent to the resulting percentage for a loan made on or 
after October 1, 1992;
    (B) 3.25 percent to the resulting percentage, for a loan made on or 
after November 16, 1986, but before October 1, 1992;
    (C) 3.25 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but before November 16, 1986, for a period of 
enrollment beginning on or after November 16, 1986;
    (D) 3.5 percent to the resulting percentage, for a loan made prior 
to October 17, 1986, or a loan described in paragraph (c)(2) of this 
section; or
    (E) 3.5 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but before November 16, 1986, for a period of 
enrollment beginning prior to November 16, 1986;
* * * * *
    (2) The special allowance rate determined under paragraph 
(c)(1)(iii)(D) of this section applies to loans made or purchased from 
funds obtained from the issuance of an obligation of the--
* * * * *
    (3)(i) Subject to paragraphs (c)(3) (ii) and (iii) of this section, 
the special allowance rate is one-half of the rate calculated under 
paragraph (c)(1)(iii)(D) of this section for a loan made or guaranteed 
on or after October 1, 1980 that was made or purchased with funds 
obtained by the holder from--
* * * * *
    (ii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made prior to October 1, 
1992, may not be less than--
* * * * *
    (iii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made on or after October 
1, 1992, may not be less than 9\1/2\ percent minus the applicable 
interest rate.
* * * * *
    14. Section 682.400 is amended by revising paragraph (b) 
introductory text; revising paragraph (b)(1)(i); and adding a new 
paragraph (b)(4) to read as follows:


Sec. 682.400   Agreements between a guaranty agency and the Secretary.

* * * * *
    (b) There are four agreements:
    (1) * * *
    (i) Borrowers whose Stafford and Consolidation loans that 
consolidate only subsidized Stafford loans are guaranteed by the agency 
may qualify for interest benefits that are paid to the lender on the 
borrower's behalf;
* * * * *
    (4) Loan Rehabilitation Agreement. A guaranty agency must have an 
agreement for rehabilitating a loan for which the Secretary has made a 
reinsurance payment under section 428(c)(1) of the Act.
* * * * *
    15. Section 682.401 is amended by revising paragraphs (b)(1) and 
(b)(2); redesignating paragraphs (b)(4) through (b)(24) as paragraphs 
(b)(5) through (b)(25), respectively; adding a new paragraph (b)(4); 
revising redesignated paragraph (b)(6); revising redesignated paragraph 
(b)(14); revising redesignated paragraph (b)(16)(i) introductory text; 
adding a new paragraph (b)(16)(iii); adding new paragraphs (b)(24); 
revising paragraph (c); redesignating paragraphs (e)(2) and (e)(3) as 
paragraphs (e)(3) and (e)(4) respectively; and adding a new paragraph 
(e)(2) to read as follows:


Sec. 682.401   Basic program agreement.

* * * * *
    (b) * * *
    (1) Aggregate loan limits. The aggregate guaranteed unpaid 
principal amount for all Stafford, SLS, PLUS loans made to a borrower 
may not exceed the amounts set forth in Sec. 682.204 (b), (e), and (h).
    (2) Annual loan limits. (i) The annual loan maximum amount for a 
borrower that may be guaranteed for an academic year may not exceed the 
amounts set forth in Sec. 682.204 (a), (c), (d), (f), and (g).
    (ii) A guaranty agency may make the loan amounts authorized under 
paragraph (b)(2)(i) of this section applicable for either--
    (A) A period of not less than that attributable to the academic 
year; or
    (B) A period attributable to the academic year in which the student 
earns the amount of credit in the student's program of study required 
by the student's school as the amount necessary for the student to 
advance in academic standing as normally measured on an academic year 
basis (for example, from freshman to sophomore or, in the case of 
schools using clock hours, completion of at least 900 clock hours.
    (iii) The amount of a loan guaranteed may not exceed the amount set 
forth in Sec. 682.204(i).
* * * * *
    (4) Reinstatement of borrower eligibility. For a borrower's loans 
held by a guaranty agency on which a reinsurance claim has been paid by 
the Secretary, the guaranty agency must afford a defaulted borrower, 
upon the borrower's request, renewed eligibility for Title IV 
assistance once the borrower has made satisfactory repayment 
arrangements as that term is defined in Sec. 682.200.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include consideration of the borrower's and spouse's disposable 
income and necessary expenses including, but not limited to, housing, 
utilities, food, medical costs, dependent care costs, work-related 
expenses and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination, if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater.
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not limited to--
    (1) Evidence of current income (e.g. proof of welfare benefits, 
Social Security benefits, Supplemental Security Income, Workers' 
Compensation, child support, veterans' benefits, two most recent pay 
stubs, most recent copy of U.S. income tax return, State Department of 
Labor reports);
    (2) Evidence of current expenses (e.g. a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances upon providing the documentation specified in paragraph 
(b)(4)(i)(C) of this section.
    (iii) A guaranty agency must provide the borrower with a written 
statement of the reasonable and affordable payment amount required for 
the reinstatement of the borrower's eligibility for Title IV student 
assistance, and provide the borrower with an opportunity to object to 
those terms.
    (iv) A guaranty agency must provide the borrower with written 
information regarding the possibility of loan rehabilitation if the 
borrower makes six additional reasonable and affordable monthly 
payments after making payments to regain eligibility for Title IV 
assistance and the consequences of loan rehabilitation.
* * * * *
    (6) School eligibility. (i) General. A school that has a program 
participation agreement in effect with the Secretary under Sec. 682.600 
is eligible to participate in the program of the agency under 
reasonable criteria established by the guaranty agency, and approved by 
the Secretary, under paragraph (d)(2) of this section, except to the 
extent that--
    (A) The school's eligibility is limited, suspended, or terminated 
by the Secretary under 34 CFR Part 668 or by the guaranty agency under 
standards and procedures that are substantially the same as those in 34 
CFR Part 668;
    (B) The Secretary upholds the limitation, suspension, or 
termination of a school by a guaranty agency and extends that sanction 
to all guaranty agency programs under section 432(h)(3) of the Act or 
Sec. 682.713;
    (C) The school is ineligible under sections 428A(a)(2) or 435(a)(2) 
of the Act;
    (D) There is a State constitutional prohibition affecting the 
school's eligibility;
    (E) The school's programs consist of study solely by 
correspondence;
    (F) The agency determines, subject to the agreement of the 
Secretary, that the school does not satisfy the standards of 
administrative capability and financial responsibility as defined in 34 
CFR Part 668;
    (G) The school fails to make timely refunds to students as required 
in Sec. 682.607(c);
    (H) The school has not satisfied, within 30 days of issuance, a 
final judgment obtained by a student seeking a refund;
    (I) The school or an owner, director, or officer of the school is 
found guilty or liable in any criminal, civil, or administrative 
proceeding regarding the obtaining, maintenance, or disbursement of 
State or Federal student grant, loan, or work assistance funds; or
    (J) The school or an owner, director, or officer of the school has 
unpaid financial liabilities involving the improper acquisition, 
expenditure, or refund of State or Federal student financial assistance 
funds.
    (ii) Limitation by a guaranty agency of a school's participation. 
For purposes of this paragraph, a school that is subject to limitation 
of participation in the guaranty agency's program may be either a 
school that is applying to participate in the agency's program for the 
first time, or a school that is renewing its application to continue 
participation in the agency's program. A guaranty agency may limit the 
total number of loans or the volume of loans made to students attending 
a particular school, or otherwise establish appropriate limitations on 
the school's participation, if the agency makes a determination that 
the school does not satisfy--
    (A) The standards of financial responsibility defined in 34 CFR 
668.5; or
    (B) The standards of administrative capability defined in 34 CFR 
668.16.
    (iii) Limitation, suspension, or termination of school eligibility. 
A guaranty agency may limit, suspend, or terminate the participation of 
an eligible school. If a guaranty agency limits, suspends, or 
terminates the participation of a school from the agency's program, the 
Secretary applies that limitation, suspension, or termination to all 
locations of the school.
    (iv) Condition for guaranteeing loans for students attending a 
school. The guaranty agency may require the school to execute a 
participation agreement with the agency and to submit documentation 
that establishes the school's eligibility to participate in the 
agency's program.
* * * * *
    (14) Guaranty agency verification of default data. A guaranty 
agency must respond to an institution's written request for 
verification of its default rate data for purposes of an appeal 
pursuant to 34 CFR 668.15(g)(1)(i) within 15 working days of the date 
the agency receives the institution's written request pursuant to 34 
CFR 668.15(g)(7), and simultaneously provide a copy of that response to 
the Secretary's designated Department official.
* * * * *
    (16) * * *
    (i) Except as provided in paragraph (b)(16)(iii) of this section, 
the guaranty agency must allow a loan to be assigned only if the loan 
is fully disbursed and is assigned to--
* * * * *
    (iii) The guaranty agency must allow a loan to be assigned under 
paragraph (b)(16)(i) of this section, following the first disbursement 
of the loan if the assignment does not result in a change in the 
identity of the party to whom payments must be made.
* * * * *
    (24) Information on loan sales or transfers. The guaranty agency 
must, upon the request of an eligible school, furnish to the school 
last attended by the student, information with respect to the sale or 
transfer of a borrower's loan prior to the beginning of the repayment 
period, including--
    (i) Notice of the assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party by which contact may be 
made with the holder concerning repayment of the loan; and
    (iv) The telephone number of the assignee, or if the assignee uses 
a lender servicer, another appropriate number for borrower inquiries.
* * * * *
    (c)(1) Lender-of-last-resort. The guaranty agency must ensure that 
it or an eligible lender described in section 435(d)(1)(D) of the Act 
serves as a lender-of-last-resort in the State in which it is the 
principal guaranty agency, as defined in Sec. 682.800(d).
    (2) The lender-of-last-resort must make a subsidized Stafford loan 
to any eligible student who satisfies the lender's eligibility 
requirements and--
    (i) Qualifies for interest benefits, pursuant to Sec. 682.301, for 
a loan amount of at least $200; and
    (ii) Has been otherwise unable after conscientious efforts to 
obtain a loan from another eligible lender for the same period of 
enrollment.
    (3) The guaranty agency or an eligible lender described in section 
435(d)(1)(D) of the Act may arrange for a loan required to be made 
under paragraph (c)(1) of this section to be made by another eligible 
lender.
    (4) The guaranty agency must develop policies and operating 
procedures for its lender-of-last-resort program that provide for the 
accessibility of lender-of-last-resort loans. These policies and 
procedures must be submitted to the Secretary for approval as required 
under paragraph (d)(2) of this section. The policies and procedures for 
the agency's lender-of-last-resort program must ensure that--
    (i) The guaranty agency will serve eligible students attending any 
eligible school;
    (ii) The program establishes operating hours and methods of 
application designed to facilitate application by students; and
    (iii) Information about the availability of loans under the program 
is made available to schools in the State;
    (iv) Appropriate steps are taken to ensure that borrowers receiving 
loans under the program are appropriately counseled on their loan 
obligation;
    (v) The guaranty agency will respond to a student within 60 days 
after the student submits an original complete application; and
    (vi) Borrowers are not required to obtain more than two objections 
from eligible lenders prior to requesting assistance under the lender-
of-last-resort program.
* * * * *
    (e) * * *
    (2)(i) Offer, directly or indirectly, any premium, incentive 
payment, or other inducement to any lender, or any person acting as an 
agent, employee, or independent contractor of any lender or other 
guaranty agency to administer or market FFEL loans, other than 
unsubsidized Stafford loans or subsidized Stafford loans made under a 
guaranty agency's lender-of-last-resort program, in an effort to secure 
the guaranty agency as an insurer of FFEL loans. Examples of prohibited 
inducements include, but are not limited to--
    (A) Compensating lenders or their representatives for the purpose 
of securing loan applications for guarantee;
    (B) Performing functions normally performed by lenders without 
appropriate compensation;
    (C) Providing equipment or supplies to lenders at below market cost 
or rental; or
    (D) Offering to pay a lender, that does not hold loans guaranteed 
by the agency, a fee for each application forwarded for the agency's 
guarantee.
    (ii) For the purposes of this section, the terms ``premium'', 
``inducement'', and ``incentive'' do not include services directly 
related to the enhancement of the administration of the FFEL Program 
the guaranty agency generally provides to lenders that participate in 
its program. However, the terms ``premium'', ``inducement'', and 
``incentive'' do apply to other activities specifically intended to 
secure a lender's participation in the agency's program.
* * * * *
    16. A new Sec. 682.405 is added to read as follows:


Sec. 682.405  Loan rehabilitation agreement.

    (a) General. (1) A guaranty agency that has a basic program 
agreement must enter into a loan rehabilitation agreement with the 
Secretary. The guaranty agency must establish a loan rehabilitation 
program for all borrowers with an enforceable promissory note for the 
purpose of rehabilitating defaulted loans so that the loan may be 
purchased, if practicable, by an eligible lender and removed from 
default status.
    (2) A loan is considered to be rehabilitated only after the 
borrower has made one voluntary reasonable and affordable full payment 
each month and the payment is received by a guaranty agency or its 
agent within 15 days of the scheduled due date for 12 consecutive 
months in accordance with this section, and the loan has been sold to 
an eligible lender.
    (3) After the loan has been rehabilitated, the borrower regains all 
benefits of the program, including any remaining deferment eligibility 
under section 428(b)(1)(M) of the Act, from the date of the 
rehabilitation.
    (4) A borrower who wishes to rehabilitate a loan on which a 
judgment has been entered must sign a new promissory note prior to the 
sale of the loan to an eligible lender.
    (b) Terms of agreement. In the loan rehabilitation agreement, the 
guaranty agency agrees to ensure that its loan rehabilitation program 
meets the following requirements at all times:
    (1) A borrower may request the rehabilitation of the borrower's 
defaulted FFEL loan held by the guaranty agency. The borrower must make 
one voluntary full payment each month for 12 consecutive months to be 
eligible to have the defaulted loans rehabilitated. For purposes of 
this section, ``full payment'' means a reasonable and affordable 
payment agreed to by the borrower and the agency. The required amount 
of such monthly payment may be no more than is reasonable and 
affordable based upon the borrower's total financial circumstances. 
Voluntary payments are those made directly by the borrower regardless 
of whether there is a judgment against the borrower, and do not include 
payments obtained by income tax off-set, garnishment, or income or 
asset execution. A guaranty agency must attempt to secure a lender to 
purchase the loan at the end of the twelve-(12-)month payment period.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include a consideration of the borrower's and spouse's 
disposable income and reasonable and necessary expenses including, but 
not limited to, housing, utilities, food, medical costs, work-related 
expenses, dependent care costs and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater. However, $50.00 may 
not be the minimum payment for a borrower if the agency determines that 
a smaller amount is reasonable and affordable; and
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not be limited to--
    (1) Evidence of current income (e.g., proof of welfare benefits, 
Social Security benefits, child support, veterans' benefits, 
Supplemental Security Income, Workmen's Compensation, two most recent 
pay stubs, most recent copy of U.S. income tax return, State Department 
of Labor reports);
    (2) Evidence of current expenses (e.g., a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) The agency must include any payment made under 
Sec. 682.401(b)(4) in determining whether the 12 consecutive payments 
required under paragraph (b)(1) of this section have been made.
    (iii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances only upon providing the documentation specified in 
paragraph (b)(1)(i)(C) of this section.
    (iv) A guaranty agency must provide the borrower with a written 
statement confirming the borrower's reasonable and affordable payment 
amount, as determined by the agency, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before a borrower's account can be considered for repurchase by an 
eligible lender. The statement must inform borrowers of the 
consequences of having their loans rehabilitated (e.g. credit clearing, 
possibility of increased monthly payments). The statement must inform 
the borrower of the amount of the collection costs to be added to the 
unpaid principal at the time of the sale. The collection costs may not 
exceed 18.5 percent of the unpaid principal and accrued interest at the 
time of the sale.
    (v) A guaranty agency must provide the borrower with an opportunity 
to object to terms of the rehabilitation of the borrower's defaulted 
loan.
    (2) The guaranty agency must report to all national credit bureaus 
within 90 days of the date the loan was rehabilitated that the loan is 
no longer in a default status.
    (3) An eligible lender purchasing a rehabilitated loan must 
establish a repayment schedule that meets the same requirements that 
are applicable to other FFEL Program loans made under the same loan 
type and provides for the borrower to make monthly payments at least as 
great as the average of the 12 consecutive monthly payments received by 
the guaranty agency. For the purposes of the maximum loan repayment 
period, the lender must treat the first payment made under the 12 
consecutive payments as the first payment under the 10-year maximum.

(Authority: 20 U.S.C. 1078-6)

    17. Section 682.406 is amended by removing ``and'' at the end of 
paragraph (a)(12); removing the period at the end of paragraph (a)(13) 
and adding in its place, ``; and'' and adding a new paragraph (a)(14) 
to read as follows:


Sec. 682.406   Conditions of reinsurance coverage.

    (a) * * *
    (14) The guaranty agency certifies to the Secretary that diligent 
attempts have been made by the lender and the guaranty agency under 
Sec. 682.411(g) to locate the borrower through the use of reasonable 
skip-tracing techniques.
* * * * *
    18. Section 682.407 is amended by adding a new paragraph (e) to 
read as follows:


Sec. 682.407  Administrative cost allowance for guaranty agencies.

* * * * *
    (e) An administrative cost allowance improperly paid on a loan to a 
guaranty agency must be deducted by the agency from the amount 
reflected in the following quarter's ED form 1130 when it is submitted 
to the Department for payment.
* * * * *
    19. Section 682.409 is amended by revising paragraph (a); revising 
paragraph (c)(1); and adding a new paragraph (c)(6) to read as follows:


Sec. 682.409  Mandatory assignment by guaranty agencies of defaulted 
loans to the Secretary.

    (a) (1) If the Secretary determines that action is necessary to 
protect the Federal fiscal interest, the Secretary will direct a 
guaranty agency to promptly assign to the Secretary any loan held by 
the agency on which the agency has received payment under 
Sec. 682.402(d), 682.402(i), or 682.404. An orderly transition from the 
FFEL program to the Federal Direct Student Loan (FDSL) Program and the 
collection of unpaid loans owed by Federal employees by Federal salary 
offset are, among other things, deemed to be in the Federal fiscal 
interest. Unless the Secretary notifies an agency, in writing, that 
other loans must be assigned to the Secretary, an agency must assign 
any loan that meets all of the following criteria as of April 15 of 
each year:
    (i) The unpaid principal balance is at least $100.
    (ii) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the loan, and any other loans 
held by the agency for that borrower, have been held by the agency for 
at least four years; for any subsequent fiscal year such loan must have 
been held by the agency for at least five years.
    (iii) A payment has not been received on the loan in the last year.
    (iv) A judgment has not been entered on the loan against the 
borrower.
    (2) If the agency fails to meet a fiscal year recovery rate 
standard under paragraph (a)(2)(ii) of this section for a loan type, 
and the Secretary determines that additional assignments are necessary 
to protect the Federal fiscal interest, the Secretary may require the 
agency to assign in addition to those loans described in paragraph 
(a)(1) of this section, loans in amounts needed to satisfy the 
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
    (i) Calculation of fiscal year loan type recovery rate. A fiscal 
year loan type recovery rate for an agency is determined by dividing 
the amount collected on defaulted loans, including collections by 
Federal Income Tax Refund Offset, for each loan program (i.e., the 
Stafford, PLUS, SLS, and Consolidation loan programs) by the agency for 
loans of that program (including payments received by the agency on 
loans under Sec. 682.401(b)(4) and Sec. 682.409 and the amounts of any 
loans purchased from the guaranty agency by an eligible lender) during 
the most recent fiscal year for which data are available by the total 
of principal and interest owed to an agency on defaulted loans for each 
loan program at the beginning of the same fiscal year, less accounts 
permanently assigned to the Secretary through the most recent fiscal 
year.
    (ii) Fiscal year loan type recovery rates standards. (A) If, in 
each of the two fiscal years following the fiscal year in which these 
regulations are effective, the fiscal year loan type recovery rate for 
a loan program for an agency is below 80 percent of the average 
recovery rate of all active guaranty agencies in each of the same two 
fiscal years for that program type, and the Secretary determines that 
additional assignments are necessary to protect the Federal fiscal 
interest, the Secretary may require the agency to make additional 
assignments in accordance with paragraph (a)(2)(iii) of this section.
    (B) In any subsequent fiscal year the loan type recovery rate 
standard for a loan program must be 90 percent of the average recovery 
rate of all active guaranty agencies.
    (iii) Non-achievement of loan type recovery rate standards.
    (A) Unless the Secretary determines under paragraph (a)(2)(iv) of 
this section that protection of the Federal fiscal interest requires 
that a lesser amount be assigned, upon notice from the Secretary, an 
agency with a fiscal year loan type recovery rate described in 
paragraph (a)(2)(ii) of this section must promptly assign to the 
Secretary a sufficient amount of defaulted loans, in addition to loans 
to be assigned in accordance with paragraph (a)(1) of this section, to 
cause the fiscal year loan type recovery rate of the agency that fiscal 
year to equal or exceed the average rate of all agencies described in 
paragraph (a)(2)(ii) of this section when recalculated to exclude from 
the denominator of the agency's fiscal year loan type recovery rate the 
amount of these additional loans.
    (B) The Secretary, in consultation with the guaranty agency, may 
require the amount of loans to be assigned under paragraph (a)(2) of 
this section to include particular categories of loans that share 
characteristics that make the performance of the agency fall below the 
appropriate percentage of the loan type recovery rate as described in 
paragraph (a)(2)(ii) of this section.
    (iv) Calculation of loan type recovery rate standards. The 
Secretary, within 30 days after the date for submission of the second 
quarterly report from all agencies, makes available to all agencies a 
mid-year report, showing the recovery rate for each agency and the 
average recovery rate of all active guaranty agencies for each loan 
type. In addition, the Secretary, within 120 days after the beginning 
of each fiscal year, makes available a final report showing those rates 
and the average rate for each loan type for the preceding fiscal year.
    (3)(i) Determination that the protection of the Federal fiscal 
interest requires assignments. Upon petition by an agency submitted 
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of 
this section, the Secretary may determine that protection of the 
Federal fiscal interest does not require assignment of all loans 
described in paragraph (a)(1) of this section or of loans in the full 
amount described in paragraph (a)(2)(iii) of this section only after 
review of the agency's petition. In making this determination, the 
Secretary considers all relevant information available to him 
(including any information and documentation obtained by the Secretary 
in reviews of the agency or submitted to the Secretary by the agency) 
as follows:
    (A) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the Secretary considers 
information presented by an agency with a fiscal year loan type 
recovery rate above the average rate of all active agencies to 
demonstrate that the protection of the Federal fiscal interest will be 
served if any amounts of loans of the loan type required to be assigned 
to the Secretary under paragraph (a)(1) of this section are retained by 
that agency. For any subsequent fiscal year, the Secretary considers 
information presented by an agency with a fiscal year recovery rate 10 
percent above the average rate of all active agencies.
    (B) The Secretary considers information presented by an agency that 
is required to assign loans under paragraph (a)(2) of this section to 
demonstrate that the protection of the Federal fiscal interest will be 
served if the agency demonstrates that its compliance with 
Sec. 682.401(b)(4) and Sec. 682.405 has reduced substantially its 
fiscal year loan type recovery rate or rates or if the agency is not 
required to assign amounts of loans that would otherwise have to be 
assigned.
    (C) The information provided by an agency pursuant to paragraphs 
(a)(3)(i)(A) and (B) of this section may include, but is not limited to 
the following:
    (1) The fiscal year loan type recovery rate within such school 
sectors as the Secretary may designate for the agency, and for all 
agencies.
    (2) The fiscal year loan type recovery rate for loans for the 
agency and for all agencies categorized by age of the loans as the 
Secretary may determine.
    (3) The performance of the agency, and all agencies, in default 
aversion.
    (4) The agency's performance on judgment enforcement.
    (5) The existence and use of any state or guaranty agency-specific 
collection tools.
    (6) The agency's level of compliance with Secs. 682.409 and 
682.410(b)(6).
    (7) Other factors that may affect loan repayment such as State or 
regional unemployment and natural disasters.
    (ii) Denial of an agency's petition. If the Secretary does not 
accept the agency's petition, the Secretary provides, in writing, to 
the agency the Secretary's reasons for concluding that the Federal 
fiscal interest is best protected by requiring the assignment.
* * * * *
    (c)(1) A guaranty agency must assign a loan to the Secretary under 
this section at the time, in the manner, and with the information and 
documentation that the Secretary requires. The agency must submit this 
information and documentation in the form (including magnetic media) 
and format specified by the Secretary.
* * * * *
    (6) The Secretary may accept the assignment of a loan without all 
of the documents listed in paragraph (c)(4) of this section. If 
directed to do so, the agency must retain these documents for 
submission to the Secretary at some future date.
* * * * *
    20. Section 682.410 is amended by revising paragraphs (a)(1) and 
(a)(2); and adding paragraphs (a)(6), (a)(7), and (a)(8) to read as 
follows:


Sec. 682.410  Fiscal, administrative, and enforcement requirements.

    (a) * * *
    (1) Reserve fund assets. The guaranty agency must establish and 
maintain a reserve fund to be used solely for the FFEL Program to which 
the guaranty agency must credit--
    (i) The total amount of insurance premiums collected;
    (ii) Funds appropriated by a State for the agency's loan guaranty 
program, including matching funds under section 422(a) of the Act;
    (iii) Federal advances obtained under sections 422(a) and (c) of 
the Act;
    (iv) Federal payments for default, bankruptcy, death and 
disability, closed schools and false certification claims;
    (v) Supplemental preclaims assistance payments;
    (vi) Administrative cost allowance payments received under 
Sec. 682.407;
    (vii) Funds collected by the guaranty agency on FFELP loans for 
which the guaranty agency has paid claims;
    (viii) Investment earnings on the reserve fund; and
    (ix) Funds received by the guaranty agency from any other source 
for the agency's loan guaranty program.
    (2) Uses of reserve fund assets. A guaranty agency may only use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay--
    (i) Insurance claims;
    (ii) Operating costs, including payments necessary in administering 
loan collections, preclaims assistance, monitoring enrollment and 
repayment status and any other loan guaranty activities under this 
part;
    (iii) Lenders that participate in a loan referral service under 
section 428(e) of the Act;
    (iv) The Secretary's equitable share of collections;
    (v) Federal advances and other funds owed to the Secretary;
    (vi) Reinsurance fees;
    (vii) Insurance premiums related to cancelled loans; and
    (viii) Any other amounts authorized or directed by the Secretary.
* * * * *
    (6) Minimum reserve fund level. The guaranty agency must maintain a 
current minimum reserve level of not less than--
    (i) .5 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1993;
    (ii) .7 percent of the amount of loans outstanding, for the fiscal 
year that begins in calendar year 1994;
    (iii) .9 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1995; and
    (iv) 1.1 percent of the amount of loans outstanding, for each 
fiscal year of the agency that begins on or after January 1, 1996.
    (7) For purposes of this section, reserve fund level means--
    (i) The total of the reserve fund assets as defined in paragraph 
(a)(1) of this section, minus
    (ii) The total of the amount of the reserve fund assets used in 
accordance with paragraphs (a)(2) and (a)(3) of this section.
    (8) For purposes of this section, amount of loans outstanding 
means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was cancelled;
    (B) The loan guarantee was transferred to another agency;
    (C) Payment in full has been made by the borrower;
    (D) Reinsurance coverage has been lost and cannot be regained; and
    (E) The agency paid claims.
* * * * *
    21. Section 682.414 is amended by revising paragraph (a)(3)(iii) 
and adding a new paragraph (a)(3)(iv) to read as follows:


Sec. 682.414  Records, reports, and inspection requirements for 
guaranty agency programs.

    (a) * * *
    (3) * * *
    (iii) Except as provided in paragraph (a)(3)(iv) of this section, a 
lender shall retain the records required for each loan for not less 
than five years following the date the loan is repaid in full by the 
borrower or the lender is reimbursed on a claim. However, in particular 
cases, the Secretary or the guaranty agency may require the retention 
of records beyond this minimum period.
    (iv) A lender shall retain a copy of the audit report for not less 
than five years after the report is issued.
* * * * *
    21. Section 682.507 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 682.507  Due diligence in collecting a loan.

    (a) * * *
    (2) If two borrowers are liable for repayment of a Federal PLUS or 
Consolidation loan as co-makers, the lender must follow these 
procedures with respect to both borrowers.
* * * * *
    22. Section 682.511 is amending by revising paragraph (a)(2) to 
read as follows:


Sec. 682.511  Procedures for filing a claim.

    (a) * * *
    (2) If a Federal PLUS loan was obtained by two eligible parents as 
co-makers, or a Consolidation loan was obtained jointly by a married 
couple, the reason for filing a claim must hold true for both 
applicants, or each applicant must have satisfied a claimable criterion 
at the time of the request for discharge of the loan.
* * * * *
    23. Section 682.601 is amended by removing ``and'' at the end of 
paragraph (a)(4); removing the period at the end of paragraph (a)(5) 
and adding in its place, ``; and''; and adding new paragraphs (a)(6) 
and (a)(7) to read as follows:


Sec. 682.601  Rules for a school that makes or originates loans.

    (a) * * *
    (6) The school's cohort default rate as calculated under 
Sec. 668.17 may not exceed 15 percent; and
    (7) Except for reasonable administrative expenses directly related 
to the FFEL Program, the school must use payments received under 
Sec. 682.300 and Sec. 682.302 for need-based grant programs for its 
students.
* * * * *
    24. Section 682.603 is amended by adding new paragraphs (f)(3) and 
(h) to read as follows:


Sec. 682.603  Certification by a participating school in connection 
with a loan application.

* * * * *
    (f) * * *
    (3) In certifying a Stafford or SLS loan amount in accordance with 
Sec. 682.204--
    (i) A program of study must be considered at least one full 
academic year if--
    (A) The number of weeks of instruction time is at least 30 weeks; 
and
    (B) The number of clock hours is at least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36.
    (ii) A program of study must be considered two-thirds \2/3\ of an 
academic year if--
    (A) The number of weeks of instruction is at least 20 weeks; and
    (B) The number of clock hours is at least 600, the number of 
semester or trimester hours is at least 16, or the number of quarter 
hours is at least 24.
    (iii) A program of study must be considered one-third \1/3\ of an 
academic year if--
    (A) The number of weeks of instruction time is at least 10 weeks; 
and
    (B) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12.
* * * * *
    (h) Pursuant to paragraph (b)(5) of this section, a school may not 
request the disbursement of loan proceeds, for a borrower who is 
enrolled in the first year of an undergraduate program of study and who 
has not previously received a Stafford or SLS loan, earlier that the 
24th day of the student's period of enrollment.
    25. Section 682.604 is amended by revising paragraph (c)(3) 
introductory text; removing paragraph (g)(2)(i); redesignating 
paragraphs (g)(2)(ii) through (g)(2)(vi), as paragraphs (g)(2)(i) 
through (g)(2)(v) respectively; removing ``and'' at the end of 
redesignated (g)(2)(iv); revising redesignated paragraph (g)(2)(v); 
adding a new paragraph (g)(2)(vi); revising the introductory text of 
paragraph (h); and adding a new paragraph (i) to read as follows:


Sec. 682.604  Processing the borrower's loan proceeds and counseling 
borrowers.

* * * * *
    (c) * * *
    (3) If the loan proceeds are disbursed by electronic funds transfer 
to an account of the school on behalf of a borrower in accordance with 
Sec. 682.207(b)(1)(ii)(B), the school must, unless authorization was 
provided in the loan application, not more than 30 days prior to the 
first day of classes of the period of enrollment for which the loan is 
intended, obtain the student's, or in the case of a Federal PLUS loan, 
the parent borrower's written authorization for the release of the 
initial and any subsequent disbursement of each FFEL loan to be made, 
and after the student has registered either--
* * * * *
    (g) * * *
    (2) * * *
    (v) Review with the borrower the conditions under which the 
borrower may defer repayment or obtain partial cancellation of a loan; 
and
    (vi) Require the borrower to provide corrections to the 
institution's records concerning name, address, social security number, 
references, and driver's license number, as well as the name and 
address of the borrower's expected employer that will then be provided 
within 60 days to the guaranty agency or agencies listed in the 
borrower's records.
* * * * *
    (h) Treatment of excess loan proceeds. Except as provided under 
paragraph (i) of this section, or in the case of a student attending a 
foreign school, if, before the delivery of any Stafford or SLS loan 
disbursement, the school learns that the borrower will receive or has 
received financial aid for the period of enrollment for which the loan 
was made that exceeds the amount of assistance for which the student is 
eligible, the school shall reduce or eliminate the overaward by 
either--
* * * * *
    (i) For purposes of paragraph (h) of this section, funds obtained 
from any Federal College Work-Study employment that do not exceed the 
borrower's financial need by more than $300 may not be considered as 
excess loan proceeds.

[FR Doc. 94-15519 Filed 6-27-94; 8:45 am]
BILLING CODE 4000-01-P