[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15666]


[[Page Unknown]]

[Federal Register: June 29, 1994]


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Part II





Department of Education





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34 CFR Part 682




Federal Family Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AB99

 
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 consists of the 
Federal Stafford, Federal Supplemental Loans for Students (SLS), 
Federal PLUS, and the Federal Consolidation Loan programs. These 
amendments are needed to implement changes made to the Higher Education 
Act of 1965, as amended (HEA), by the Higher Education Amendments of 
1992, and certain technical changes made by the Omnibus Budget 
Reconciliation Act of 1993, the National and Community Service Trust 
Act of 1993, and the Higher Education Technical Amendments of 1993. The 
regulations amend the FFEL Program repayment, deferment, and 
forbearance provisions, and enhance the ability of lenders and guaranty 
agencies to service and collect FFEL Program loans.

EFFECTIVE DATE: Pursuant to section 482(c) of the Higher Education Act 
of 1965, as amended (20 U.S.C. 1089(c)), these regulations take effect 
July 1, 1995, with the exception of the information collection 
requirements in Secs. 682.209, 682.210, and 682.211. The information 
collection requirements in Secs. 682.209, 682.210, and 682.211 will 
become effective on July 1, 1995, or after the information collection 
requirements contained in those 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.
    During the period before July 1, 1995, the Secretary will provide 
guidance to all FFEL Program participants to ensure effective and 
uninterrupted administration of the FFEL Program, and to ensure that 
eligible borrowers receive the benefits provided by the statutory 
provisions reflected in these regulations.

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

SUPPLEMENTARY INFORMATION: The Secretary is amending 34 CFR part 682 to 
implement changes made to the HEA by the Higher Education Amendments of 
1992 (Pub. L. 102-325), enacted July 23, 1992, and certain technical 
changes made by the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 
103-66), enacted August 10, 1993, the National and Community Service 
Trust Act of 1993 (Pub. L. 103-82), enacted September 21, 1993, and the 
Higher Education Technical Amendments of 1993 (Pub. L. 103-208), 
enacted December 20, 1993. These regulations seek to improve the 
efficiency of federal student aid programs, and, by so doing, to 
improve their capacity to enhance opportunities for postsecondary 
education.
    On March 24, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) for part 682 in the Federal Register (59 FR 14070). 
The NPRM included a discussion of the major issues surrounding the 
proposed changes which will not be repeated here. The following list 
summarizes those issues and identifies the pages of the preamble to the 
NPRM on which a discussion of those issues may be found:
     Amendment to Sec. 682.209 to provide income-sensitive 
repayment schedules for borrowers (page 14071);
     Amendment to Sec. 682.210 to provide economic hardship 
deferments for borrowers (page 14072);
     Amendments to Sec. 682.211 to provide mandatory and 
administrative forbearances for borrowers (page 14072).

Substantive Revisions to the Notice of Proposed Rulemaking

Section 682.209 Repayment of a Loan

     The Secretary has modified the requirement that a lender 
grant a choice of repayment options to a borrower to specify that this 
requirement applies only if the borrower responds to the lender's offer 
within 45 days after the lender made the offer.
     The Secretary has revised the borrower income 
documentation requirements that apply if a borrower wants to repay a 
loan under an income-sensitive repayment schedule. The modified 
requirements apply only if a borrower reports income that would cause 
the amount of his or her monthly payment to be insufficient to repay 
the loan within the maximum 10-year repayment period.
     The Secretary has deleted the provision that would have 
required a lender to obtain a copy of a borrower's federal income tax 
return if the borrower wants to repay a loan under an income-sensitive 
repayment schedule.
     The final regulations have been revised to require a 
lender either to make adjustments to the amount of the borrower's 
installment payments to reflect annual changes in the variable interest 
rate on the borrower's loan or, if the lender declines to make such 
adjustments, to grant the administrative forbearance described in 
Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within 
the maximum repayment period.
     The final regulations have been revised to require a 
lender to grant the administrative forbearance described in 
Sec. 682.211(j)(5)(ii) in cases where the effect of decreased 
installment amounts paid under an income-sensitive repayment schedule 
would result in the loan not being repaid within the maximum repayment 
period.

Section 682.210 Deferment

     The regulations have expanded the types of debts that can 
be considered when determining a borrower's eligibility for an economic 
hardship deferment. Section 682.210(s)(6) has been revised to include 
any debt, whether in default or otherwise, owed by a borrower for a 
postsecondary education loan obtained through a federal program in 
determining the borrower's eligibility for an economic hardship 
deferment.
     The Secretary has modified the provision that would have 
required a lender to obtain a copy of a borrower's federal income tax 
return if the borrower requested an economic hardship deferment. This 
requirement will now apply only if the borrower requests an additional 
period of economic hardship deferment that begins less than one year 
after the end of an economic hardship deferment, other than a deferment 
based solely on the borrower's status as a public assistance recipient.
     The Secretary has deleted the criterion that would have 
permitted a borrower to receive an economic hardship deferment if the 
borrower did not have monthly disposable income exceeding four times 
the minimum wage or the poverty level for a family of two and the 
borrower had monthly student loan payments of at least 20 percent of 
the borrower's monthly disposable income. That criterion has been 
replaced with one under which a borrower whose total monthly gross 
income was not more than twice the minimum wage or the poverty level 
for a family of two would qualify for an economic hardship deferment by 
not having remaining total monthly gross income, from employment or 
from other sources, that exceeds the greater of the minimum wage rate 
or the poverty level for a family of two after deducting an amount 
equal to what the borrower would owe for monthly payments on 
postsecondary education loans obtained through a federal program.
     In addition to the criterion discussed above, the 
Secretary has added two other criteria under which a borrower may 
establish eligibility for an economic hardship deferment: (1) by being 
granted an economic hardship deferment under either the Federal Direct 
Student Loan (FDSL) or Federal Perkins Loan programs for the period of 
time for which the borrower has requested an economic hardship 
deferment for his or her FFEL loan; or (2) by being eligible for a 
payment under a federal or state public assistance program, such as Aid 
to Families with Dependent Children, Supplemental Security Income, Food 
Stamps, or state general public assistance.
    Section 682.211  Forbearance

     The regulations have been amended to add a provision to 
require a lender to grant a forbearance to a borrower who serves in a 
national service position for which the borrower receives a national 
service educational award under Pub. L. 103-82, or to a borrower who is 
eligible for forgiveness of a Federal Stafford Loan under the Federal 
Stafford Loan Forgiveness Demonstration Program because of certain 
public service under the terms of section 428J of the HEA, if that 
program is funded.
     The regulations have been amended to add a provision to 
require a lender to grant a forbearance to a borrower who would be 
eligible for a partial repayment of a loan under the Student Loan 
Repayment Programs administered by the Department of Defense under 10 
U.S.C. 2171.
     The one-year forbearance period proposed in the NPRM to 
cover the effect that variable interest rate changes may have on a 
borrower's ability to repay the loan within 10 years under a fixed-
amount (now referred to as a standard repayment schedule) or graduated 
repayment schedule has been lengthened to three years.
     The three-year forbearance period proposed in the NPRM to 
cover the effect that a borrower's decreased income may have on his or 
her ability to repay the loan within 10 years under an income-sensitive 
repayment schedule has been increased to five years.
     The provision in the NPRM that would have required a 
lender to obtain a copy of a borrower's federal income tax return if 
the borrower requested a mandatory forbearance based on a high debt-to-
income ratio has been deleted.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 32 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the changes made to the regulations as a result of 
those comments follows.
    Major issues are grouped according to subject, with references to 
the appropriate sections of the regulations. Other substantive issues 
are discussed under the section of the regulations to which they 
pertain. Technical and other minor changes, and suggested changes the 
Secretary is not legally authorized to make under the applicable 
statutory authority, generally are not addressed.

Section 682.209  Repayment of a Loan

    1. Comments: Some commenters noted that paragraph (a)(6)(i) of 
Sec. 682.209 was not included in the NPRM, but needed to be updated to 
reflect the new regulations for income-sensitive repayment schedules.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.209(a)(6)(i) has been revised to state that a 
borrower's installment payment may increase or decrease during the 
repayment period.
    Section 682.209(a)(6)(iii)
    2. Comments: Some commenters asked if a lender could establish a 
repayment schedule for a borrower at the time the loan is made, 
providing the borrower is permitted to choose another schedule, if 
desired, six months before the first payment is due. If the borrower 
does not notify the lender that he or she wishes a different type of 
repayment schedule, the lender can assume that the borrower continues 
to agree with the schedule established by the lender when the loan was 
made.
    Discussion: Section 428(b)(1)(E)(i) of the HEA prohibits a lender 
from offering a choice of repayment schedules to a borrower more than 
six months prior to the date on which the borrower's first payment is 
due. A lender may not establish a repayment schedule for the borrower 
when the loan is made (frequently several years before repayment is 
due) and inform the borrower that the lender will presume that the 
borrower is agreeable to that type of repayment schedule in the absence 
of the borrower's later request for a different repayment schedule. The 
Secretary believes that a borrower may not recall that he or she has 
that option if the lender does not remind the borrower of it shortly 
(three to six months) before the first payment is due.
    Changes: None.
    3. Comments: Some commenters asked if a lender would be required to 
permit a borrower to repay multiple loans under several different 
repayment schedules, if that was what the borrower wished.
    Discussion: Section 432(l)(1) of the HEA directs the Secretary to 
prescribe procedures to standardize servicing of FFEL Program loans. In 
addition, section 485C of the HEA directs eligible lenders, to the 
extent practicable, to treat all loans made under the same section of 
the HEA as one loan and to send the borrower one bill for such loans. 
The Secretary believes that the effective implementation of these 
statutory provisions would be advanced by allowing a lender to require 
a borrower to repay all loans held by the lender in accordance with a 
single repayment schedule.
    Changes: Section 682.209(a)(6)(ix) has been added to the final 
regulations to permit a lender to require that all FFEL loans owed by a 
borrower to the lender be combined and repaid under one repayment 
schedule.
    4. Comments: Some commenters asked if the requirement to offer a 
choice of repayment schedules would apply in the case of a borrower who 
received a loan on or after a date specified in the proposed 
regulations, but who was already in repayment under a schedule 
established by the lender.
    Discussion: As required by section 428(b)(1)(E)(i) of the HEA, a 
new borrower who receives a loan on or after July 1, 1993 must be 
offered a choice of repayment schedules. If a borrower has entered the 
repayment period on the loan, the lender must notify the borrower of 
the new repayment options, and if a new option is selected, provide the 
borrower with a new repayment schedule prior to the effective date of 
these regulations (July 1, 1995).
    Changes: None.
    5. Comments: Some commenters requested clarification of what is 
meant by a loan ``first disbursed on or after July 1, 1993.'' The 
commenters asked if the requirement to offer a choice of repayment 
schedules would apply if any disbursement of a loan was made on or 
after that date.
    Discussion: A lender is required to offer a choice of repayment 
schedules to a new borrower whose initial disbursement of a loan is 
made on or after July 1, 1993.
    Changes: None.
    6. Comments: Some commenters objected to the requirement that a 
lender must offer a choice of a standard, graduated, or income-
sensitive repayment schedule to certain borrowers. The commenters 
believed that section 428(b)(1)(E)(i) of the HEA permits a lender to 
offer a borrower a choice of two repayment schedules: (1) a standard 
schedule; or (2) a flexible repayment schedule (either graduated or 
income-sensitive) chosen by the lender. The commenters stated their 
view that there is little or no difference between a graduated 
repayment schedule and an income-sensitive repayment schedule. 
Therefore, the commenters contended, there would be no harm done if the 
lender made the choice for the borrower.
    Discussion: It appears that the rationale that the commenters have 
based their recommendations upon does not acknowledge the fundamental 
differences between graduated and income-sensitive repayment schedules: 
a graduated schedule is a modified standard repayment schedule with 
preset yearly payment amounts specified when the schedule is 
established; an income-sensitive schedule establishes payment amounts 
for one year at a time, subject to the borrower's income. The Secretary 
believes that Congress intended that the dramatically different method 
of repaying a loan under an income-sensitive repayment schedule would 
be of great assistance to a borrower because the installment amounts 
can be adjusted to reflect the borrower's ability to repay the loan. 
Although lenders could have used income-sensitive repayment schedules 
in the past, almost none of them chose to do so. As a result, if a 
borrower was locked into a standard repayment schedule and was unable 
to make scheduled payments or qualify for a deferment, a default was 
inevitable if the lender declined to grant forbearance. Congress 
therefore concluded, and the Secretary agrees, that a remedy to this 
problem (in conjunction with mandatory forbearances and a new economic 
hardship deferment) would be to permit the borrower to repay the loan 
under an income-sensitive repayment schedule. The Secretary believes 
that defaults will decrease if borrowers are given that option.
    Changes: None.
    7. Comments: Some commenters recommended that the regulations 
specifically permit a borrower who has selected one type of repayment 
option to later choose a different one. The commenters proposed that a 
borrower be restricted to two changes during the repayment period. Some 
commenters believed that the lender should be permitted to grant an 
administrative forbearance to a borrower during the change, so that any 
existing delinquency status on the loan can be waived before the new 
repayment schedule commences.
    Discussion: Section 428(b)(1)(E)(i) of the HEA neither prohibits a 
lender from permitting a borrower to change his or her mind about a 
chosen repayment schedule nor requires a lender to comply with a 
borrower's request to change the repayment schedule. The Secretary 
encourages lenders to revise repayment schedules in response to 
borrower requests, if practicable, but does not believe that the 
borrower's repayment of the loan needs to be interrupted while the 
lender develops a new repayment schedule. The borrower simply continues 
to pay under the existing schedule until the new one is in place.
    Changes: None.
    8. Comments: Some commenters recommended that the regulations 
address a lender's obligation to offer a choice of repayment schedules 
to a borrower if the lender received notification of the borrower's 
withdrawal from school after the repayment period on the borrower's 
loan had already begun, or if the notification was received less than 
90 days before the repayment period on the loan was due to commence.
    Discussion: The Secretary agrees with the commenters. The 
Secretary's longstanding policy has been to require a lender to 
establish a first payment due date that is not more than 75 days after 
the date the lender received the notification that the borrower had 
entered the repayment period. Section 428(b)(1)(E)(i) of the HEA 
requires the lender to offer a choice of repayment schedules to a 
borrower prior to the date that the borrower's first payment is due. 
If, because of late notification, the lender does not have sufficient 
time to establish an income-sensitive repayment schedule for the 
borrower, the lender must convert the loan to a repayment status by 
establishing a standard repayment schedule. After receiving the 
required documentation from a borrower who wishes to repay his or her 
loan through an income-sensitive repayment schedule, the lender must 
follow the procedures prescribed in Sec. 682.209(a)(6)(viii).
    Changes: Section 682.209(a)(6)(viii)(B) of the final regulations 
has been revised to permit a lender to request income documentation 
from a borrower for the purpose of estimating an income-sensitive 
repayment schedule less than 90 days before the borrower's first 
payment is due if the lender receives late notification that the 
borrower has entered the repayment period.

Section 682.209(a)(6)(iv)

    9. Comment: Some commenters recommended that the requirement that 
each scheduled payment equal at least the interest that accrues during 
the interval between payments should not apply to an income-sensitive 
repayment schedule. The commenters believed that the income of some 
borrowers would occasionally be so low that they could not afford to 
pay the interest on their loans. The commenters believed that a more 
realistic approach would be to recognize that a repayment schedule that 
was truly sensitive to a borrower's income may result in scheduled 
payments that are less than the interest that accrues. The commenters 
recommended that the lender be permitted to schedule payments that are 
less than the accruing interest, and capitalize any unpaid interest.
    Discussion: With the exception of a loan made under the Federal 
Consolidation Loan Program, the maximum repayment period that applies 
to an FFEL Program loan is 10 years. Given this constraint, negative 
amortization (in which payments are less than the interest that accrued 
since the last payment) is not a workable option in the FFEL Program. 
Some commenters may have believed that the FFEL repayment regulations 
should mirror the regulations that will be promulgated for the Federal 
Direct Student Loan (FDSL) Program's income contingent repayment plan. 
Although the FFEL and FDSL programs will have comparable repayment 
provisions in many respects, the 10-year repayment limit in the FFEL 
Program does not exist in the income contingent repayment plan provided 
in the FDSL Program under section 455(d)(1)(D) of the HEA. In addition, 
unlike in the FFEL Program, negative amortization is specifically 
permitted for FDSL loans under section 455(d)(1)(C) of the HEA.
    The Secretary believes that if a borrower finds his or her 
scheduled FFEL payment amount to be too difficult to maintain, even 
though the borrower's scheduled payment represents accrued interest 
only, the borrower's difficulties can be ameliorated through the use of 
appropriate forbearances and deferments.
    Changes: The final regulations have been revised to require a 
lender to grant an administrative forbearance under Sec. 682.211(j)(5) 
for up to 5 years of borrower payments where the effect of decreased 
installment amounts under an income-sensitive repayment schedule would 
cause the loan to be in repayment for more than 10 years.

Section 682.209(a)(6)(v)

    10. Comments: Some commenters recommended that the regulations 
include a time limit for the borrower to choose a repayment schedule 
after being notified of the option to choose one.
    Discussion: The Secretary agrees with the commenters.
    Changes: The final regulations have been revised to require a 
lender to grant the borrower's choice of repayment schedule only if the 
borrower responds to the lender's offer within 45 days after the lender 
makes the offer. As discussed in response to comment 7, a lender is 
encouraged to agree to a borrower's request to revise an established 
repayment schedule if this request is made after the 45-day period.
    11. Comments: Some commenters were confused about the reference to 
a borrower who did not ``qualify'' for a graduated repayment schedule 
and asked what procedures a lender must follow to determine if a 
borrower ``qualifies'' for a graduated repayment schedule.
    Discussion: The Secretary agrees that the use of the word 
``qualifies'' in the proposed regulation was confusing.
    Changes: The final regulations have been revised to require the 
lender to establish a standard repayment schedule for a borrower who 
does not select an income-sensitive or graduated schedule, or who does 
not provide the documentation required for an income-sensitive 
schedule.
    12. Comments: Some commenters recommended that the regulations 
clarify a lender's obligation concerning the offer of an income-
sensitive repayment schedule to a co-maker of a loan.
    Discussion: A co-maker of a loan is a borrower of a loan. Any 
requirement that applies to a borrower also applies to a co-maker.
    Changes: None.
    13. Comments: Some commenters recommended that a lender be 
permitted to establish either a graduated or a standard repayment 
schedule if the borrower does not choose a repayment schedule, or does 
not provide income documentation for an income-sensitive repayment 
schedule.
    Discussion: The Secretary believes that the interests of promoting 
consistent treatment of borrowers and simplification of the FFEL 
Program is best served if there is one standard repayment schedule that 
applies in these situations. Therefore, a lender must establish a 
standard repayment schedule if the borrower does not choose a repayment 
schedule, or does not provide income documentation for an income-
sensitive repayment schedule. As discussed in response to comment 7, a 
lender could agree to a borrower's later request to revise an 
established repayment schedule.
    Changes: The final regulations have been revised to require a 
lender to establish a standard repayment schedule for a borrower who 
does not select an income-sensitive repayment schedule or does not 
provide the documentation required for an income-sensitive repayment 
schedule.

Section 682.209(a)(6)(vi)

    14. Comments: Some commenters recommended that a lender be allowed 
to adjust the borrower's monthly payment amount owed under a standard 
repayment schedule to reflect annual variable interest rate changes.
    Discussion: The Secretary believes that such adjustments would be 
beneficial to borrowers and that lenders should have the option of 
adjusting annual variable interest payment amounts in much the same way 
that lenders routinely adjust installment amounts for other variable 
interest rate loans they make, e.g., adjustable rate mortgage loans.
    Changes: Section 682.209(a)(6) of the final regulations has been 
revised to provide a lender the option of making adjustments to the 
amount of the borrower's installment payments to reflect annual changes 
in the variable interest rate on the borrower's loan, or to grant the 
administrative forbearance described in Sec. 682.211(j)(5)(i) for a 
period of up to 3 years of payments in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term.

Section 682.209(a)(6)(vii)

    15. Comments: Some commenters believed that a lender should be 
permitted to offer a graduated repayment schedule that establishes an 
installment amount that exceeds three times the amount of any other 
installment. The commenters believed that the income of a borrower 
during the early years of repayment may be so low that a strict 
adherence to the ``three times rule'' would not be helpful to the 
borrower.
    Discussion: The Secretary believes that the ``three times rule'' is 
needed to prevent excessively large payment amounts that the borrower 
may not be able to afford. If a borrower does not have sufficient 
income to make scheduled payments that are scheduled within the 
constraints of the ``three times rule'' and the lender's application of 
the mandatory forbearance described in Sec. 682.211(j)(5)(ii), the 
borrower could request assistance through deferments and other 
forbearances that would normally be available.
    Changes: None.

Section 682.209(a)(6)(viii)(A)

    16. Comments: Some commenters believed that there should be an 
absolute prohibition against any repayment schedule that establishes an 
installment amount that exceeds three times the amount of any other 
installment. The commenters were concerned that the Secretary's 
encouragement to lenders to stay within the ``three times rule'' for 
income-sensitive repayment schedules would be insufficient protection 
for some borrowers who initially would be given artificially low 
repayment schedules, only to experience significant payment increases 
in later years.
    Discussion: The Secretary has no reason to believe that lenders 
would not have heeded his encouragement in the NPRM to attempt to stay 
within the ``three times rule'' for income-sensitive repayment 
schedules. However, in the interest of ensuring consistent and 
equitable treatment of all borrowers, the Secretary agrees that the 
``three times rule'' should apply to all types of repayment schedules. 
The Secretary believes that if a borrower finds his or her scheduled 
FFEL payment amount to be too difficult to maintain, the borrower's 
difficulties can be ameliorated through the use of appropriate 
forbearances and deferments.
    Changes: The final regulations will retain the ``three times rule'' 
contained in Sec. 682.209(a)(6)(ii) of the current regulations for all 
types of repayment schedules.
    17. Comments: Some commenters believed that an income-sensitive 
repayment schedule should be based on the borrower's family income, 
rather than only on the borrower's income. The commenters believed that 
a borrower whose spouse has substantial earnings should be expected to 
repay a loan more quickly than a borrower who does not have access to 
such resources. The commenters recommended that the regulations 
specifically address the treatment of income received by a borrower's 
spouse.
    Discussion: The statutory provisions governing repayment of an FFEL 
Program loan consistently rely on consideration of the borrower's 
income. In contrast, in the FDSL Program, section 455(e) of the HEA 
specifically authorizes consideration of family income. These 
regulations reflect the statutory restrictions in the FFEL Program.
    Changes: None.
    18. Comments: Some commenters recommended that an income-sensitive 
repayment schedule be based on a borrower's gross income, instead of 
disposable income. The commenters believed that the term ``gross 
income'' is more widely understood and more easily explained. Other 
commenters believed exactly the opposite--that the term ``disposable 
income'' would be easier to explain and more readily understood by 
borrowers.
    Discussion: The Secretary believes that the various opinions 
presented by the commenters show a need for a simplified and easily 
understood definition to be used to determine a borrower's income.
    Changes: The final regulations have been revised to add the concept 
of ``total monthly gross income.'' This term will mean the gross amount 
of income received by the borrower from employment and from other 
sources.
    19. Comments: Some commenters recommended that the regulations 
specify the minimum and maximum monthly payment amounts that the 
Secretary would consider reasonable based on the borrower's income. For 
example, some commenters suggested that an acceptable range for monthly 
payments would be $10 to $20 for each $100 of monthly income.
    Discussion: The minimum payment amount must be equal to at least 
the interest that accrues during the interval between scheduled 
payments. If the borrower finds that payment amount to be too difficult 
to maintain, the borrower's difficulties may be ameliorated through the 
use of forbearances and deferments. The maximum payment amount may not 
exceed three times the amount of any other scheduled payment requested 
from the borrower. The Secretary believes that the borrower and the 
lender are the parties that can best establish a reasonable payment 
amount that falls within these two extremes.
    Changes: None.
    20. Comments: Some commenters believed that, in addition to a 
borrower's income, a lender should be required to take the borrower's 
monthly living expenses into consideration when determining the amount 
of the borrower's monthly repayment amount under an income-sensitive 
repayment schedule. The commenters believed that a lender should be 
required to subtract specified monthly living expenses, based on family 
size, from the borrower's monthly income.
    Discussion: The Secretary does not agree with the commenters. A 
lender may take factors other than income into consideration when 
establishing a borrower's payment amount, but the Secretary sees no 
need to prescribe in the regulations what those factors should be. A 
lender's discretion to consider such other factors is limited only by 
the basic rule that the borrower's scheduled installment amount must 
equal at least the interest accruing on the loan.
    Changes: None.
    21. Comments: Some commenters believed that an income-sensitive 
repayment schedule should be limited to the borrower's initial three 
years of repayment. The commenters believed that three years was an 
adequate amount of time for a borrower to develop an ability to manage 
his or her debt. Following this three-year period, the loan would be 
repaid under a standard or a graduated repayment schedule.
    Discussion: The HEA permits certain borrowers to repay their loans 
through income-sensitive repayment schedules. The HEA does not restrict 
the borrower's ability to select this option to only a certain number 
of years of the borrower's total repayment period. The Secretary 
recognizes, however, that a borrower who has had low monthly payments 
scheduled for several years under an income-sensitive repayment 
schedule would eventually reach a point where such low payments could 
no longer be scheduled in accordance with the maximum 10-year repayment 
period, even if the borrower received the maximum 5-year administrative 
forbearance authorized under Sec. 682.211(j)(5)(ii). The Secretary 
believes that lenders should counsel borrowers on the drawbacks of a 
borrower's over-reliance on the ability to continue to have small 
scheduled payments under an income-sensitive repayment plan. The 
Secretary strongly encourages lenders to counsel borrowers that the 
income-sensitive option should be considered a ``safety net'' for 
borrowers who are truly in financial need, and that there are many 
advantages in repaying loans more rapidly under a standard or graduated 
repayment schedule.
    Changes: None.
    22. Comments: Some commenters recommended that the regulations be 
revised to state that an income-sensitive repayment schedule is based 
on a borrower's current income, rather than expected income. The 
commenters believed it is more appropriate to require a borrower to 
certify current income (which is known) than to expect a borrower to 
certify an amount of income that is expected in the future.
    Discussion: The commenters have overlooked the fact that a 
borrower's future payments are based on the borrower's expected income 
for the next 12 months. The borrower is not required to ``certify'' 
events that have not yet occurred, but is merely being asked to provide 
recent documentation that could reasonably be used by the lender as a 
guide to establish the appropriate installment amount for the borrower 
to pay during the next 12 months.
    Changes: None.
    23. 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. 
Other commenters recommended that the three-year forbearance period 
authorized in Sec. 682.211(f)(10) be increased to five years.
    Discussion: During the negotiated rulemaking sessions, the 
Department made it clear that the Secretary had no authority to extend 
the 10-year statutory length of the repayment schedule. However, the 
Secretary agreed to the creation of a specific forbearance for 
borrowers repaying their loans under an income-sensitive repayment 
schedule. Periods of authorized forbearance are not included in the 
repayment period. The Secretary agrees that a five-year forbearance 
period would be more helpful to borrowers and lenders than the three-
year forbearance period that was proposed in the NPRM.
    Changes: As discussed in response to comment 55, the final 
regulations have been revised to relocate this forbearance from 
Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to increase it to 
five years.

Section 682.209(a)(6)(viii)(C)

    24. Comments: Some commenters noted that section 428C(c)(4) of the 
HEA mandates that repayment of a Consolidation Loan must begin within 
60 days after the consolidating lender has repaid the loans selected by 
the borrower for consolidation. The commenters did not believe that the 
consolidating lender would have sufficient time to comply with the 
provision in Sec. 682.209(a)(6)(viii)(C) for requesting, obtaining, and 
evaluating the income documentation submitted by the borrower.
    Discussion: The Secretary is not persuaded that a consolidating 
lender will not have sufficient time for establishing a borrower's 
income-sensitive repayment schedule. The Secretary notes that a lender 
could gain additional time to accomplish this process by requesting the 
borrower's income documentation at the time the borrower submits an 
application for a Consolidation Loan.
    Changes: None.
    25. Comments: Some commenters believed that a lender should be 
permitted to request documentation from a borrower more than 90 days 
before the borrower's initial payment is due under an income-sensitive 
repayment schedule. The commenters recommended 180 days, rather than 90 
days.
    Discussion: The Secretary believes that a timely request for 
documentation is important, and should be made between 90 days and six 
months before the borrower's first payment is due. The Secretary did 
not intend for the 90-day restriction to be interpreted as a bar to a 
lender's request for additional documentation from the borrower if the 
lender believed it to be necessary. However, except in the case of a 
late notification (see comment 8), the initial request must be made not 
less than 90 days before the borrower's first payment is due.
    Changes: None.
    26. Comments: Some commenters objected to the requirement that a 
borrower must submit documentation of income. The commenters believed 
that the borrower should be permitted to self-certify his or her 
income, and that the documentation requirements are burdensome and 
conflict with the Paperwork Reduction Act of 1980. The commenters also 
expressed their belief that there would be little incentive for a 
borrower to misrepresent his or her income by providing inaccurate 
income data because the cost savings to a borrower increase more 
quickly as a loan is repaid. Some commenters suggested that borrowers 
would have an incentive to correctly self-certify their income if the 
Secretary enforced appropriate penalties against borrowers who 
submitted false or incomplete information. Other commenters questioned 
why self-certification of income is acceptable for the determination of 
eligibility for federal student financial aid but is not acceptable for 
purposes of establishing an income-sensitive repayment schedule. The 
commenters suggested that the Secretary could ensure that borrowers 
correctly self-certify their income by using verification techniques 
similar to those that exist for determining eligibility for federal 
student financial aid. Some commenters believed that a borrower's 
federal income tax return from the previous year would have no 
relevance in determining the appropriate amount of the borrower's 
monthly repayment amount under an income-sensitive repayment schedule. 
The commenters believed that the information on the tax return reflects 
a financial status for the borrower that no longer exists. The 
commenters recommended a deletion of this requirement.
    Discussion: The Secretary disagrees with the presumption that a 
borrower would have little incentive to misrepresent his or her income 
by providing inaccurate income data. The Secretary has an obligation to 
the taxpayers to ensure that their tax dollars are effectively spent. 
The Secretary believes that some borrowers may be tempted to 
misrepresent their income so that their scheduled monthly payment 
amounts can be inappropriately low. As a consequence of earlier 
payments that are inappropriately low, the borrower's future payments 
may have to be much larger than the borrower could afford, thereby 
increasing the risk of default and the exposure of the taxpayers to 
increased default costs. Permitting a borrower to self-certify 
incorrect income data would also cause the borrower's loan balance to 
remain higher than it should for a longer time than it should. The 
taxpayer would then be unfairly obligated to pay excessive amounts of 
interest benefits (during deferments) and special allowance payments, 
in addition to a larger default payment if the borrower defaults.
    However, the Secretary has reconsidered the type of documentation 
that should be provided by the borrower, and no longer believes it is 
necessary to require the lender to obtain a copy of the borrower's 
federal income tax return (although a lender could still require one if 
the lender thought it was needed). The Secretary believes that evidence 
of income is not needed if a borrower voluntarily reports an amount of 
income that would result in monthly installment amounts that would be 
projected to repay the loan within the maximum 10-year repayment 
period. The Secretary also believes that the information on the tax 
return may have little or no bearing on the borrower's current or 
future financial situation, and would reflect only past income. A 
lender could still require a tax return if the lender thought it was 
needed to clarify questionable income documentation submitted by the 
borrower. If the borrower later requested an additional period of 
income-sensitive repayment, a lender may find the information on the 
tax return more relevant because it contains information that the 
lender can compare to the amount of recent income reported by the 
borrower for purposes of establishing the appropriate amount of the 
borrower's monthly payment.
    The Secretary does not believe that the taxpayers should be 
expected to incur the costs associated with permitting a borrower to 
make very low monthly payments under an income-sensitive repayment 
schedule simply on the strength of the borrower's undocumented 
assertion that he or she has a very low income. The Secretary believes 
that the public interest justifies the collection of minimal 
documentation from a borrower who reports a very low income in order to 
obtain the benefit of smaller scheduled monthly payments under an 
income-sensitive repayment schedule. The documentation requirements 
therefore comply with the provisions of the Paperwork Reduction Act of 
1980. The Secretary believes the required documentation of income is 
reasonable, easily obtainable by the borrower, and necessary to 
maintain the integrity of the FFEL Program. A need for documentation of 
a borrower's income exists for other purposes (for example, 
documentation of income from a borrower who requests an economic 
hardship deferment) and the Secretary believes that documentation also 
should be provided by a borrower who requests very low payments under 
an income-sensitive repayment schedule. It is the Secretary's belief 
that FFEL lenders have sufficient experience and expertise in obtaining 
and verifying borrower-supplied income documentation for other purposes 
(such as for mortgage applications or car loans), and will be able to 
do the same for their FFEL borrowers. The Secretary will, of course, 
take appropriate action against individuals who provide fraudulent 
information to obtain a federal benefit. The existing enforcement 
powers available to the Secretary in this regard are sufficient, and no 
new powers specifically created for the purpose of preventing potential 
fraud by borrowers in this area are needed.
    Changes: The final regulations have been revised to require a 
borrower to present evidence of his or her income only if the borrower 
reports an amount of income that would be so low that the scheduled 
installment amounts would be insufficient to repay the loan within the 
maximum 10-year repayment period permitted under the HEA. The final 
regulations have deleted the requirement that the lender must require 
the borrower to submit a copy of his or her federal income tax return 
to be eligible for an income-sensitive repayment schedule.

Section 682.209(a)(6)(viii)(C)(1)

    27. Comments: Some commenters recommended that the regulations 
require a borrower to certify that he or she has reported all of his or 
her monthly income to the lender. The commenters noted that the lender 
would not know if the borrower had income other than what the borrower 
divulged. The commenters also believed that a borrower who claimed to 
have not filed a federal income tax return for the most recent year 
should be required to certify the truthfulness of that claim.
    Discussion: As discussed in response to comment 26, the requirement 
to obtain a borrower's federal income tax return has been deleted. The 
Secretary would not object if a lender required the certifications 
suggested by the commenters, but does not believe they should be 
mandated in the regulations. It is the Secretary's belief that the 
lender, who may possess other information about the borrower, is the 
most appropriate party to decide if the borrower should provide 
verifying information or certifications. As further discussed in 
response to comment 26, the Secretary believes that FFEL lenders have 
sufficient experience and expertise in obtaining and verifying 
borrower-supplied income documentation for other purposes (such as for 
mortgage applications or car loans), and will be able to do the same 
for their FFEL borrowers.
    Changes: None.
    28. Comments: Some commenters recommended the deletion of the 
requirement that a borrower document his or her income ``from all 
sources.'' The commenters believed that this requirement is ambiguous 
and burdensome. The commenters also believed that most of the ``other 
sources'' would be reluctant to provide documentation to the borrower. 
Some commenters interpreted it to mean that the income received by a 
borrower's spouse would be included in this determination.
    Discussion: The point of a repayment schedule that is based on the 
borrower's income is to determine the appropriate monthly installment 
amount that the borrower can afford to pay. It would serve no purpose, 
other than to establish an artificially low payment amount, if certain 
types of income received by the borrower were excluded from this 
consideration. As discussed in response to comment 17, for the purposes 
of establishing a borrower's income-sensitive repayment schedule for an 
FFEL loan (unlike under the FDSL Program), the HEA does not require the 
consideration of a borrower's family income.
    Changes: None.

Section 682.209(a)(6)(viii)(E)

    29. Comments: Some commenters believed that a borrower's monthly 
payment amount should not have to be adjusted following three 
consecutive months of increased income if there would only be a few 
months remaining before the borrower's next scheduled annual 
adjustment. The commenters recommended that an adjustment be required 
only if the increased income occurred during the first six months of 
the borrower's current annual repayment schedule. Other commenters 
recommended a complete deletion of the requirement that a borrower's 
payment amount be adjusted following three consecutive months of 
increased income. The commenters believed this requirement not only is 
unduly burdensome for borrowers and lenders, particularly if the 
borrower's income is seasonal, it is unnecessary because the next 
annual adjustment would take the borrower's increased income into 
consideration.
    Discussion: The Secretary agrees with the commenters, and 
encourages the lender and the borrower to establish realistic monthly 
payment amounts that reflect the borrower's expected average monthly 
income during the course of the year so as to anticipate periods of 
increased seasonal income.
    Changes: The requirements contained in paragraphs 
682.209(a)(6)(viii) (E) and (F) of the proposed regulations have been 
deleted from the final regulations.

Section 682.209(h)(4)

    30. Comments: Some commenters believed that the regulations should 
state that a defaulted loan that has been included in a Federal 
Consolidation Loan is not considered to be in default. Other commenters 
recommended that the regulations state that the only defaulted loans 
that can be consolidated are loans made under the FFEL Program.
    Discussion: A loan that is repaid through consolidation no longer 
exists as a separate loan obligation for FFEL Program purposes. It is 
therefore unnecessary to say that a non-existent loan obligation is not 
a defaulted loan. The commenters' second recommendation conflicts with 
the Secretary's policy of permitting a borrower to consolidate a 
defaulted Title IV loan if the borrower has made satisfactory 
arrangements to repay the loan. However, the Secretary agrees that a 
clarification of the type of defaulted loans that may be consolidated 
is needed in the regulations.
    Changes: The final regulations have been revised to clarify that a 
defaulted loan made under Title IV of the HEA may be consolidated if 
the borrower has made satisfactory arrangements with the holder to 
repay the loan.

Section 682.210  Deferment

    31. Comments: Some commenters recommended that the regulations 
state that deferments are loan-specific, and not borrower-specific.
    Discussion: The Secretary's longstanding policy has been that 
deferments are borrower-specific, with the sole exception of the 
parental-leave deferment described in Sec. 682.210(o). That exception 
has been created because a borrower may be pregnant or caring for a 
newborn or newly adopted child more than once.
    Changes: Section 682.210(a) of the final regulations has been 
revised to clarify that deferments are borrower-specific, with the sole 
exception of the parental-leave deferment described in Sec. 682.210(o).
    32. Comments: Some commenters stated that it was impractical to 
expect that both co-makers must meet the same deferment requirements to 
qualify for a deferment. The commenters suggested that if the co-makers 
individually qualified for different deferments, the co-makers should 
be permitted to decide which of those deferments they would receive.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.210(a)(11) of the final regulations has been 
revised to permit a co-maker to receive a deferment if both co-makers 
are simultaneously eligible to receive the same, or different 
deferments.
    33. Comments: Some commenters believed that the way that the 
regulations are written would cause people to conclude that a student 
deferment was permitted only if the student was enrolled as a half-time 
student, with no other enrollment status acceptable for deferment 
eligibility. The commenters recommended that the regulations be revised 
to state that the student's status had to be ``at least half-time.''
    Discussion: The Secretary did not intend that the regulations be 
interpreted in a manner that would deny a student deferment to a 
borrower whose enrollment status was greater than half-time.
    Changes: Section 682.210(s)(2) of the final regulations have been 
revised to read ``at least half-time study.''

Section 682.210(s)(6)(i)

    34. Comments: Some commenters recommended that a definition of 
``working full-time'' be included in the regulations.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.210(s)(6)(vii) of the final regulations will 
incorporate the definition of ``full-time employment'' that has been 
used for the purposes of the unemployment deferment authorized under 
Sec. 682.210(h)(4). For the purposes of an economic hardship deferment, 
a borrower will be considered to be ``working full-time'' if the 
borrower is expected to be employed for at least three consecutive 
months at 30 hours per week.
    35. Comments: Some commenters recommended that the regulations 
should require the Secretary to publish the minimum wage rates and the 
poverty levels for a family of two.
    Discussion: The Secretary does not agree with the commenters. This 
information is in the public domain and readily available to all 
parties. It need not be reprocessed through the FFEL Program 
regulations. Information concerning the minimum wage rate may be 
obtained by calling the Wage and Hour Division of the U.S. Department 
of Labor at (202) 219-7043. Annual updates of the poverty level for a 
family of two are published in the Federal Register by the U.S. 
Department of Health and Human Services. The most recent update was 
published on February 10, 1994 (59 FR 6277). The 1994 poverty level for 
a family of two in Alaska is $12,300; in Hawaii, $11,320; for all other 
states and the District of Columbia, $9,840. Further information may be 
obtained by calling the Office of the Assistant Secretary for Planning 
and Evaluation, Department of Health and Human Services, (202) 690-
6141.
    Changes: None.

Section 682.210(s)(6)(ii)

    36. Comments: Some commenters recommended that an economic hardship 
deferment be based on a borrower's gross income, instead of disposable 
income. The commenters believed that the term ``gross income'' is more 
widely understood and more easily explained.
    Discussion: The discussion following comment 18 also applies to an 
economic hardship deferment.
    Changes: None.
    37. Comments: Some commenters believed that any borrower who 
receives public assistance should automatically qualify for an economic 
hardship deferment.
    Discussion: The Secretary agrees with the commenters. It is likely 
that almost all borrowers who receive some form of public assistance 
would be eligible for an economic hardship deferment. While there may 
be a few borrowers on public assistance who effectively have access to 
greater amounts of income than other borrowers, the Secretary believes 
those excess amounts would be marginal and would not justify the need 
to inconvenience the vast majority of borrowers who receive some form 
of public assistance.
    Changes: The final regulations have added a new paragraph 
(s)(6)(ii) to Sec. 682.210. A borrower will automatically qualify for 
an economic hardship deferment if the borrower provides documentation 
to the lender showing that he or she is receiving payment under a 
federal or state public assistance program, such as Aid to Families 
with Dependent Children, Supplemental Security Income, Food Stamps, or 
state general public assistance.
    38. Comments: Some commenters believed there should be no income 
cap for an economic hardship deferment. The commenters believed that a 
debt-to-income ratio would be sufficient by itself. Other commenters 
recommended a lower debt-to-income ratio than the 20 percent ratio that 
was proposed in the NPRM. Some commenters pointed out that the proposed 
regulations would deny a deferment to a borrower who was not working 
full-time, but who had very low income (for example, $300 per month) if 
the borrower's monthly student loan payments were less than 20 percent 
of income (for example, $50). The commenters stated that the borrower 
in this example is in a much more disadvantageous financial position 
than another borrower who may have $3,000 per month in income and who 
owes $600 (20 percent of income) in monthly student loan payments. The 
commenters noted that the borrower in the second case would have much 
more money available ($2,400) after loan payments had been made than 
the first borrower, who would only have $250 available. However, the 
borrower with less available money would not qualify for an economic 
hardship deferment, while the borrower who had nearly ten times as much 
available income, even after accounting for larger student loan debts, 
would be considered in need of an economic hardship deferment, 
including interest subsidies from the federal government on the 
borrower's subsidized loans. The commenters believed that this type of 
inequitable result was not intended by Congress.
    Discussion: The Secretary agrees that the debt-to-income ratio that 
was developed through the negotiated rulemaking process contained the 
flaws noted by the commenters. Therefore, the Secretary has decided to 
replace that criterion with other measures of a borrower's need for an 
economic hardship deferment. A borrower may now receive an economic 
hardship deferment by qualifying under any one of the following 
criteria: (1) By being granted an economic hardship deferment under 
either the FDSL or Federal Perkins Loan Programs for the period of time 
for which the borrower has requested an economic hardship deferment for 
his or her FFEL loan; (2) by being eligible for a payment under a 
federal or state public assistance program, such as Aid to Families 
with Dependent Children, Supplemental Security Income, Food Stamps, or 
state general public assistance; (3) by working full-time and earning 
an amount that does not exceed the greater of the minimum wage rate or 
the poverty level for a family of two; or (4) if the borrower's total 
monthly gross income was not more than twice the minimum wage or the 
poverty level for a family of two, by not having remaining total 
monthly gross income, from employment or from other sources, that 
exceeds the greater of the minimum wage rate or the poverty level for a 
family of two after deducting an amount equal to what the borrower 
would owe for monthly payments on postsecondary education loans 
obtained through a federal program.
    The Secretary believes that the income limitation specified in the 
additional eligibility criterion described in (4) above is a reasonable 
amount that is consistent with the intent of Congress that an economic 
hardship deferment should be restricted to only those borrowers who do 
not have substantial incomes. Therefore, although a borrower could have 
a total monthly gross income up to twice the greater of the minimum 
wage rate or the poverty level for a family of two, the regulations 
focus on the amount of such income that would be available to the 
borrower after subtracting an amount that represents what the borrower 
would have been expected to pay each month on federal postsecondary 
education loan debts. If those projected monthly payments would cause a 
borrower's remaining total monthly gross income to fall below a certain 
level, then the borrower would be considered eligible to receive an 
economic hardship deferment. Thus, borrowers with differing amounts of 
total income or debts could have approximately the same amount of 
remaining total monthly gross income after subtracting their projected 
monthly federal postsecondary education loan payments. A borrower on a 
standard or graduated repayment schedule who would not qualify under 
this criterion because of insufficient debt could request an income-
sensitive repayment schedule or a Federal Consolidation Loan (or both) 
that would reduce his or her monthly loan payments and minimize the 
need for a deferment.
    As an example of the criterion described in (4) above, if the 
minimum wage/poverty level was $820 per month, a borrower who had total 
monthly gross income of $1,000 and who had projected monthly payments 
of $180 per month for federal postsecondary education loans would be 
(if those payments were actually made) in approximately the same 
financial situation as a borrower working full-time and not earning 
more than the minimum wage/poverty level. Both borrowers would have 
approximately $820 per month in total income, and would have the same 
financial need for a deferment.
    Changes: Section 682.210(s)(6) of the final regulations has been 
revised to permit a borrower to receive an economic hardship deferment 
if the borrower provides documentation to the lender showing that he or 
she is on public assistance. In addition, because the same rules will 
apply for determining a borrower's eligibility under the FDSL and 
Federal Perkins loan programs, a borrower will be eligible to receive a 
deferment on an FFEL loan for the same period of time that an economic 
hardship deferment is granted on an FDSL or Federal Perkins loan. A 
borrower also may be eligible if he or she is not receiving total 
monthly gross income greater than twice the amounts specified in 
section 435(o)(1)(A) of the HEA, and the borrower's remaining total 
monthly gross income, after subtracting an amount equal to the 
borrower's monthly payments owed on federal postsecondary education 
loans, would not exceed the greater of the minimum wage rate or the 
poverty level for a family of two.
    39. Comments: Some commenters believed that a borrower whose income 
fell below a specified floor should not be expected to make any loan 
payment, regardless of the borrower's debt-to-income ratio. The 
commenters then went on to propose the concept of ``sliding scales'' 
that would set the ratios at progressively higher levels as the 
borrower's income increased, for example, a borrower whose monthly 
income was $1,000 would have a 5 percent ratio, a borrower whose 
monthly income was $1,500 would have a 10 percent ratio, a borrower 
whose monthly income was $2,000 would have a 15 percent ratio, etc. 
Other commenters recommended a similar plan: counting income that 
exceeds a threshold amount and increasing the debt-to-income ratio to 
25 or 30 percent of the amount by which the borrower's income exceeds 
the threshold amount. The commenters believed that this would ensure 
that low-income borrowers would qualify for a deferment, as well as 
borrowers with higher incomes who also had large debts.
    Discussion: While some of the aspects of the various 
recommendations made by the commenters have merit, none of the 
proposals have the overall fairness and simplicity inherent in the 
criteria described in response to comments 37 and 38.
    Changes: None.
    40. Comments: Some commenters recommended that the regulations 
state that a borrower is not required to be working full-time to 
qualify for a deferment under Sec. 682.210(s)(6)(ii). The commenters 
understood that full-time employment was required for a deferment under 
Sec. 682.210(s)(6)(i), but were concerned that others may not notice 
the absence of such a requirement in Sec. 682.210(s)(6)(ii) unless it 
was specifically stated.
    Discussion: The Secretary agrees that a clarification would be 
helpful for some readers.
    Changes: The final regulations will include a new paragraph 
Sec. 682.210(s)(6)(ix) that will define total monthly gross income as 
the gross amount of income received by the borrower from employment 
(either full-time or part-time) and from other sources.
    41. Comments: Some commenters believed there would be widespread 
confusion if the Secretary did not specifically list all of the federal 
programs through which borrowers could obtain loans for their 
education.
    Discussion: A list of all federal education loan programs would be 
extensive, ever-changing, and would lead to errors in transmission to 
and among program participants. It is the Secretary's understanding 
that all federal postsecondary education loan programs are clearly 
identified as such, and that the vast majority of those programs are 
administered through the U.S. Department of Education and the U.S. 
Department of Health and Human Services.
    Changes: None.
    42. Comments: Some commenters objected to the definition of debt 
that can be considered when determining a borrower's eligibility for an 
economic hardship deferment. The commenters believed that by limiting 
eligible debt to only non-defaulted education loans obtained through a 
federal program, many borrowers who owe education loans to non-federal 
entities may be forced into default on their FFEL Program loans because 
they cannot qualify for an economic hardship deferment. The commenters 
recommended the inclusion of all education related debts owed by the 
borrower, regardless of the source or default status.
    Discussion: The Secretary agrees with the commenters that payments 
due on a loan obtained through a federal postsecondary education loan 
program should be included, even if the borrower is in default on that 
loan. However, the Secretary does not believe that Congress intended to 
indirectly subsidize non-federal loan programs (by making it easier for 
borrowers to repay non-federal debts) by permitting borrowers to use 
their non-federal debts as a means to qualify for deferments on their 
federal debt.
    Changes: The final regulations have been revised to permit any loan 
debt (defaulted or otherwise) owed by the borrower for a postsecondary 
education loan obtained through a federal educational loan program to 
be considered when determining the borrower's eligibility for an 
economic hardship deferment. To allow for the consistent and equitable 
treatment of borrowers who have repayment obligations based on 
different periods of repayment or different repayment options, the 
Secretary believes that, for purposes of determining the projected 
monthly payment amount that can be considered as a payment that would 
have been owed during the deferment period, a federal postsecondary 
education loan owed by a borrower should be treated as if it had been 
scheduled to be repaid in 10 years from the date the borrower entered 
repayment.

Section 682.210(s)(6)(ii)(B)

    43. Comments: Some commenters objected to the requirement that a 
borrower must submit documentation of income. The commenters believed 
that the borrower should be permitted to self-certify his or her 
income. The commenters believed that the documentation requirements are 
burdensome, and conflict with the Paperwork Reduction Act of 1980. Some 
commenters recommended a deletion of the requirement that a borrower 
provide a copy of his or her federal income tax return. The commenters 
believed that the income reported on the tax return would be of little 
relevance in determining that a borrower was currently in need of a 
deferment, because the tax return will be for a previous calendar year. 
Other commenters believed it would be an invasion of the borrower's 
privacy to require a copy of his or her federal income tax return.
    Discussion: The Secretary has reconsidered the type of 
documentation that should be provided by the borrower to qualify for an 
economic hardship deferment, and no longer believes it is necessary to 
require the lender to obtain a copy of the borrower's federal income 
tax return unless the borrower wishes to receive the deferment for more 
than one year. For the initial period of deferment, the information on 
the tax return would have little or no bearing on the borrower's 
current or future financial situation, and would reflect only past 
income. A lender could still require a tax return if the lender thought 
it was needed to clarify questionable income documentation submitted by 
the borrower. If the borrower later requested an additional period of 
deferment, the information on the tax return becomes more relevant 
because it contains information that the lender can compare to the 
amount of recent income reported by the borrower for purposes of 
establishing eligibility for the additional period of deferment.
    The Secretary does not believe that the taxpayers should be 
expected to incur the substantial costs associated with providing an 
economic hardship deferment to a borrower simply on the strength of the 
borrower's undocumented assertion that he or she does not have enough 
money to repay his or her loan. The Secretary believes that the public 
interest justifies the collection of minimal documentation from a 
borrower who requests a federal benefit such as an economic hardship 
deferment. The documentation requirements therefore comply with the 
provisions of the Paperwork Reduction Act of 1980. The Secretary 
believes the required documentation of income is reasonable, easily 
obtainable by the borrower, and necessary to maintain the integrity of 
the FFEL Program. A need for documentation of a borrower's eligibility 
status exists for all other deferments, (for example, documentation of 
in-school status from a borrower who claims to be enrolled in school), 
and the Secretary believes that some form of documentation also should 
be provided by a borrower who requests a deferment because of an 
economic hardship.
    Changes: The final regulations have deleted the requirement that 
the borrower must submit a copy of his or her federal income tax return 
to be eligible for an initial period of deferment based on the 
borrower's economic hardship. To qualify for a period of economic 
hardship deferment that begins less than one year after the end of a 
previous economic hardship deferment, other than one based solely on 
the borrower's status as a recipient of public assistance, the lender 
must require the borrower to submit a copy of the borrower's federal 
income tax return if the borrower filed a tax return within eight 
months prior to the date the deferment is requested. This requirement 
does not apply if the borrower provides documentation to the lender 
showing that he or she has been granted an economic hardship deferment 
under either the FDSL or Federal Perkins Loan Programs for the period 
of time for which the borrower has requested an economic hardship 
deferment for his or her FFEL loan.
    44. Comments: Some commenters believed that a borrower who requests 
an economic hardship deferment from a lender should not be required to 
provide documentation of the amount owed on loans held by that lender. 
The commenters suggested that the regulations be revised to require the 
borrower to provide such documentation only for loans owed to other 
lenders.
    Discussion: The Secretary agrees with the commenters.
    Changes: The final regulations have clarified that the lender may 
only require the borrower to provide documentation of federal 
postsecondary educational debts owed to another entity.

Section 682.211  Forbearance

Section 682.211(a)(4)

    45. Comments: Some commenters were opposed to the rule that 
forbearance would apply only if both co-makers of a loan had their 
ability to make scheduled repayments impaired.
    Discussion: A co-maker is an individual who is responsible for 
repaying a loan. If a co-maker's ability to make scheduled repayments 
has not been impaired, he or she does not need a forbearance.
    Changes: None.
    46. Comments: Some commenters noted that the language in 
Sec. 682.211(a)(4) is essentially the same as in Sec. 682.211(a)(3) of 
the existing regulations. The commenters suggested that the existing 
paragraph (a)(3) be deleted.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.211(a)(4) of the NPRM is redesignated as 
Sec. 682.211(a)(3) in the final regulations.
    47. Comments: Some commenters recommended that the regulations 
include a provision to permit a lender to administratively convert a 
forbearance previously granted for partial payment amounts to a 
forbearance of the entire payment amount if the borrower fails to remit 
the partial payments.
    Discussion: The Secretary believes that the borrower's sense of 
obligation to repay the loan would be undermined if the lender 
administratively ignored the borrower's failure to make the loan 
payments that the borrower had agreed to make. The Secretary reminds 
the commenters that the borrower and the lender are expected to 
communicate with each other, and a further reduction of payments could 
be agreed to if the borrower experiences difficulty in making 
previously promised payments.
    Changes: None.

Section 682.211(f)

    48. Comments: Some commenters recommended that all forbearances 
authorized under Sec. 682.211(f) be classified as ``administrative 
forbearances'' to reflect the common usage of that term by FFEL Program 
participants.
    Discussion: The Secretary has no objection to this terminology.
    Changes: The introductory sentence for Sec. 682.211(f) has been 
revised to read: ``A lender may grant administrative forbearance * * 
*.''
    49. Comments: Some commenters observed that some of the proposed 
changes would permit forbearances prospectively (for example, during a 
military mobilization), even if the borrower would not be delinquent 
during such future periods. The commenters recommended that the 
introductory sentence in Sec. 682.211(f), which currently refers only 
to payments that are overdue, be revised accordingly.
    Discussion: The Secretary agrees with the commenters.
    Changes: In addition to the change discussed in comment 48, the 
introductory sentence for Sec. 682.211(f) has been further revised to 
read: ``A lender may grant administrative forbearance, upon notice to 
the borrower or if applicable, the endorser, with respect to payments 
of interest and principal that are overdue or that would be overdue.''
    50. Comments: Some commenters recommended that the regulations 
permit a lender to grant a forbearance to a borrower to cover the 
period from the end of a deferment period to the date that the lender 
processed a borrower's deferment request and documentation. The 
commenters noted that borrowers frequently provide documentation of 
their deferment eligibility after the deferment period expired. The 
commenters believed it is important that the borrower not be considered 
delinquent when he or she resumes repayment after deferment.
    Discussion: The Secretary does not believe that the commenters' 
proposal would promote the timely submission of deferment documentation 
by a borrower or strengthen the borrower's awareness of his or her 
obligation to repay the loan according to the repayment terms explained 
in the borrower's promissory note and other loan documents. The 
Secretary reminds the commenters that the borrower and the lender are 
expected to communicate with each other, and a forbearance could be 
agreed to if the borrower experienced difficulty in making overdue 
payments.
    Changes: None.
    51. Comments: Some commenters recommended that the regulations 
permit a lender to grant a forbearance to a borrower to cover the 
period between the date that a lender agrees to repurchase a loan and 
the date the lender resumes servicing the repurchased loan. The 
commenters noted that borrowers are frequently confused about the 
status of loans during repurchases, and lenders also have difficulty 
determining when to resume the appropriate due diligence activities and 
establishing an ``interest paid through'' date. The commenters believed 
it is important that the borrower not be considered delinquent when he 
or she resumes repayment after a repurchase.
    Discussion: Lenders and guaranty agencies must comply with the 
requirements in Sec. 682.208 that pertain to notifying a borrower when 
there is an assignment of a loan. In addition, specific notification 
requirements exist in cases of loans being repurchased under the loan 
rehabilitation program, or if the borrower is determined to be 
ineligible for a requested loan discharge under Sec. 682.402. The 
Secretary has seen no evidence that lenders and guaranty agencies have 
not clearly informed borrowers of the date of the next payment due, the 
amount of the payment, and to who it should be sent. Without such 
evidence of a problem, the Secretary does not agree that a change is 
needed.
    Changes: None.
    52. Comments: Some commenters recommended that the regulations 
permit a lender to grant a forbearance to a borrower to cover the 
period between the date that a lender filed a claim and the date the 
lender resumes servicing the loan if it is returned by the guarantor in 
the event of the borrower's ineligibility for a loan discharge. The 
commenters believed it is important that the borrower not be considered 
delinquent when he or she resumes repayment after his or her request 
for a loan discharge has been denied.
    Discussion: These types of forbearances have been authorized for 
many years in the discharge provisions of Sec. 682.402.
    Changes: None.
    53. Comments: Some commenters recommended that the regulations 
permit a lender to grant a forbearance to a borrower during the time 
that a lender is attempting to resolve a dispute with the borrower, or 
during periods when the lender is awaiting forbearance or deferment 
documentation from the borrower.
    Discussion: If a borrower has a dispute with a lender, the dispute 
does not negate the borrower's ongoing obligation to repay the loan, or 
justify a lender's suspension of collection efforts. A borrower also 
has an obligation to provide timely forbearance or deferment 
documentation to the lender. The types of forbearances that were 
recommended by the commenters would not provide incentives to lenders 
and borrowers to promptly resolve disputes or establish eligibility for 
deferments or forbearances. In fact, the Secretary believes they would 
undermine those incentives.
    Changes: None.

Section 682.211(f)(9)

    54. Comments: Some commenters believed that one year was an 
insufficient forbearance period to cover the effect that variable 
interest rate changes may have on a standard or graduated repayment 
schedule. Some commenters recommended a three-year period if interest 
changes caused the extension of the maximum repayment term; others 
recommended an unlimited extension.
    Discussion: As discussed in response to comment 14, the final 
regulations have been revised to provide a lender the option of making 
adjustments to the amount of the borrower's installment payments to 
reflect annual changes in the variable interest rate on the borrower's 
loan, or to grant the administrative forbearance described in 
Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within 
the maximum repayment period.
    The Secretary agrees that a three-year forbearance period is 
reasonable, but believes that an unlimited forbearance period would not 
provide an incentive to a borrower to increase the amount of his or her 
monthly payments.
    Changes: The final regulations have been revised to relocate this 
forbearance from Sec. 682.211(f)(9) to Sec. 682.211(j)(5)(i) and to 
increase it to three years.

Section 682.211(f)(10)

    55. Comments: Some commenters believed that three years was an 
insufficient forbearance period to assist a borrower who had low income 
during the course of an income-sensitive repayment schedule. Some 
commenters recommended that this period be expanded to five years 
beyond the maximum repayment term; others recommended ten years.
    Discussion: The Secretary agrees that a five-year period is 
reasonable, but believes that a 10-year forbearance period would not 
provide an adequate incentive to a borrower to increase the amount of 
his or her monthly payments.
    Changes: The final regulations have been revised to relocate this 
forbearance from Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to 
increase it to five years.

Section 682.211(f) (9) and (10)

    56. Comments: Some commenters asked how a lender would apply a 
forbearance under this paragraph in light of the general rule in 
Sec. 682.211(h) that prohibits a lender from requiring payments from a 
borrower during any period of forbearance. The commenters believed that 
the borrower should be required to make payments during the extension 
period.
    Discussion: For those cases where a forbearance would apply, the 
Secretary agrees that a clarification is appropriate and the following 
example may be helpful: If a borrower was repaying a loan under a 10-
year repayment schedule with standard payments that would not be 
adjusted to reflect changes in the variable interest rate on the loan, 
the loan could not be repaid within 10 years if the interest rate 
increased during the repayment period. The lender would then be 
required to schedule one or more extra months of borrower payments so 
that the loan will be completely repaid. Those additional monthly 
payments will be considered payments made under an administrative 
forbearance.
    Changes: Section 682.211(f)(9) has been relocated to 
Sec. 682.211(j)(5)(i) and revised for clarity to read: ``The lender 
shall grant a mandatory administrative forbearance to a borrower (or 
endorser, if applicable) during a period when the borrower (or 
endorser, if applicable) is making payments for a period of up to 3 
years of payments in cases where the effect of a variable interest rate 
on a standard or graduated repayment schedule would result in a loan 
not being repaid within the maximum repayment term.'' Section 
682.211(f)(10) has been relocated to Sec. 682.211(j)(5)(ii) and revised 
for clarity to read: ``The lender shall grant a mandatory 
administrative forbearance to a borrower (or endorser, if applicable) 
during a period when the borrower (or endorser, if applicable) is 
making payments for a period of up to 5 years of payments in cases 
where the effect of decreased installment amounts paid under an income-
sensitive repayment schedule would result in the loan not being repaid 
within the maximum repayment term.'' Section 682.211(h) has been 
revised for clarity to read: ``In granting a forbearance under this 
section, except for a forbearance under paragraph (j)(5), a lender 
shall grant a temporary cessation of payments, unless the borrower 
chooses another form of forbearance subject to paragraph (a)(1) of this 
section.''

Section 682.211(i)(1)

    57. Comments: Some commenters recommended that the Secretary define 
what would constitute ``sufficient supporting documentation'' from a 
borrower serving in a medical or dental internship or residency 
program.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.211(i)(1) of the final regulations has been 
amended by inserting ``as described in Sec. 682.210(n)'' after the 
phrase ``sufficient supporting documentation.''

Section 682.211(i)(2)(i)

    58. Comments: Some commenters objected to the restriction that only 
Title IV loans be considered when determining the amount of a 
borrower's debt under the mandatory forbearance provision. The 
commenters believed it would be unfair to exclude education loans from 
other sources, either private or public.
    Discussion: The regulations were written in accordance with section 
428(c)(3)(A)(i)(II) of the HEA, which refers to ``the borrower's debt 
burden under this title * * *''
    Changes: None.

Section 682.211(i)(2)(ii)

    59. Comments: Some commenters believed that Congress did not intend 
that the definition of income would include public assistance benefits, 
food stamps, Aid to Families with Dependent Children, Social Security 
benefits, etc. The commenters recommended that all public assistance 
benefits be excluded.
    Discussion: The Secretary believes that a true measure of a 
borrower's actual need for a forbearance would consider all income 
received by the borrower, no matter what the source. Therefore, the 
Secretary believes that the concept of ``total monthly gross income'' 
as described in response to comment 18 also should apply in the case of 
a forbearance based on the borrower's income.
    Changes: The final regulations have been revised to add the concept 
of ``total monthly gross income.'' This term will mean the gross amount 
of income received by the borrower from employment and from other 
sources.
    60. Comments: Some commenters recommended that the regulations 
incorporate the Secretary's policy of permitting a lender to grant a 
forbearance to a borrower who would be eligible for a partial repayment 
of his or her loan under the Student Loan Repayment Programs 
administered by the Department of Defense under 10 U.S.C. 2171.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.211(i)(2)(ii)(C) has been added to the final 
regulations to permit a lender to grant forbearances in increments of 
one year for as long as a borrower is eligible to receive a partial 
repayment of his or her loan under the Student Loan Repayment Programs 
administered by the Department of Defense. The borrower must provide 
documentation to his or her lender showing the beginning and ending 
dates that the Department of Defense considers the borrower to be 
eligible for such payments. The lender may then grant a forbearance to 
the borrower in anticipation of receiving a payment on his or her 
behalf from the Department of Defense.
    61. Comments: Some commenters recommended that the regulations 
include a provision for granting a forbearance to a borrower who served 
in a national service position for which the borrower received a 
national service educational award under Public Law 103-82. Other 
commenters recommended that forbearances be permitted if the borrower 
is engaged in certain public service under the terms of section 428J of 
the HEA.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.211(i)(2)(ii) of the final regulations has 
been added to require a lender to grant forbearances in increments of 
one year for as long as a borrower is serving in a national service 
position for which the borrower receives a national service educational 
award under the National and Community Service Trust Act of 1993. A 
lender shall also grant forbearances to a borrower who is eligible 
under the Federal Stafford Loan Forgiveness Demonstration Program, if 
that program is funded. Those forbearances shall be in increments of 
one year, for as long as a borrower is performing the type of service 
described in Sec. 682.215(b).

Section 682.211(i)(3)

    62. Comments: Some commenters objected to the requirement that a 
borrower must submit documentation of income to receive a mandatory 
forbearance. The commenters believed that the borrower should be 
permitted to self-certify his or her income. The commenters believed 
that the documentation requirements are burdensome, and conflict with 
the Paperwork Reduction Act of 1980. The commenters also expressed 
their belief that because the cost savings to a borrower increase more 
quickly as a loan is repaid, there would be little incentive for a 
borrower to misrepresent his or her income by providing inaccurate 
income data.
    Discussion: The Secretary has reconsidered the type of 
documentation that should be provided by the borrower who requests a 
mandatory forbearance, and no longer believes it is necessary to 
require the lender to obtain a copy of the borrower's federal income 
tax return. The information on the tax return would have little or no 
bearing on the borrower's current or future financial situation, and 
would reflect only past income. A lender could still require a tax 
return if the lender thought it was needed to clarify questionable 
income documentation submitted by the borrower. If the borrower later 
requested an additional period of mandatory forbearance, the lender may 
find information on the tax return more relevant because it contains 
information that the lender can compare to the amount of recent income 
reported by the borrower for purposes of establishing eligibility for 
the additional period of mandatory forbearance.
    The Secretary does not believe that the taxpayers should be 
expected to incur the increased costs resulting from the delayed 
repayment of a loan on which payments have been forborne simply on the 
strength of the borrower's undocumented assertion that he or she does 
not have enough money to repay his or her loan. The Secretary believes 
that the public interest justifies the collection of minimal 
documentation of recent income and Title IV debt from a borrower who 
requests the federal benefit of a mandatory forbearance that is based 
on the borrower's income and Title IV debt. The documentation 
requirements therefore comply with the provisions of the Paperwork 
Reduction Act of 1980. The Secretary believes the required 
documentation of income is reasonable, easily obtainable by the 
borrower, and necessary to maintain the integrity of the FFEL Program. 
A need for documentation of a borrower's eligibility status exists for 
other forbearances, and the Secretary believes that some form of 
documentation also should be provided by a borrower who requests a 
mandatory forbearance because of a high debt-to-income ratio. It is the 
Secretary's belief that FFEL lenders have sufficient experience and 
expertise in obtaining and verifying borrower-supplied income 
documentation for other purposes (such as for mortgage applications or 
car loans), and will be able to do the same for their FFEL borrowers.
    Changes: The final regulations have deleted the requirement that 
the borrower must submit a copy of his or her federal income tax return 
to be eligible for a mandatory forbearance based on the borrower's high 
debt-to-income ratio.
    63. Comments: Some commenters recommended that a mandatory 
forbearance be based on a borrower's gross income, instead of 
disposable income. The commenters believed that the term ``gross 
income'' is more widely understood and more easily explained.
    Discussion: The discussion following comment 18 also applies to a 
mandatory forbearance.
    Changes: None.

Section 682.211(j)  Mandatory Administrative Forbearance

    64. Comments: Some commenters recommended a deletion of all 
references to an endorser.
    Discussion: The only time that an endorser becomes obligated to 
repay a loan is when the borrower fails to do so. Therefore, the 
references to a borrower in the regulations are qualified by the 
parenthetical phrase (or endorser, if applicable). The Secretary 
believes that if an endorser has become obligated to repay a loan, then 
the interests of the endorser and the taxpayers are served if 
forbearances are available to the endorser.
    Changes: None.

Section 682.211(j)(1)

    65. Comments: Some commenters believed that the prohibition against 
a lender requiring a borrower to provide documentation for a mandatory 
administrative forbearance would be unworkable if a borrower claimed to 
be subject to a military mobilization. The commenters noted that the 
lender would not know if the borrower was subject to a military 
mobilization unless documentation supporting that claim was provided to 
the lender. The commenters recommended that a definition of ``military 
mobilization'' be included in the regulations, and suggested that the 
Secretary use the same rules that applied during Operations Desert 
Shield and Desert Storm in 1990 and 1991.
    Discussion: The Secretary agrees that documentation will be needed 
to establish a borrower's eligibility for a mandatory administrative 
forbearance that is based on the borrower's military status. The 
Secretary also agrees that the definition of ``military mobilization'' 
that was suggested by the commenters is appropriate, and it will be 
added to the final regulations.
    Changes: The final regulations have been revised to define a 
``military mobilization'' to mean a situation in which the Department 
of Defense orders members of the National Guard or Reserves to active 
duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of title 10, 
United States Code. This term will also include the assignment of other 
members of the Armed Forces to duty stations at locations other than 
the locations at which they were normally assigned, only if the 
military mobilization involved the activation of the National Guard or 
Reserves. Before granting an administrative forbearance, the lender 
must obtain documentation of the borrower's military status (which may 
be supplied by any party).
    66. Comments: Some commenters believed that the regulatory 
references to an ``automatic'' forbearance should be changed to 
``administrative'' forbearance to reflect the term commonly used by 
servicers and lenders.
    Discussion: The Secretary agrees with the commenters.
    Changes: The references to an ``automatic forbearance'' in 
Sec. 682.211(j) have been replaced with ``administrative forbearance'' 
in the final regulations.

Section 682.211(j)(2)

    67. Comments: Some commenters recommended that a guaranty agency, 
rather than the Secretary, be permitted to notify a lender that 
borrowers be granted mandatory administrative forbearances based on 
local emergencies. The commenters believed that a guaranty agency would 
frequently be able to know about local emergencies earlier than the 
Secretary, and would be able to notify lenders more quickly than the 
Secretary.
    Discussion: Borrowers who reside in an area where a local emergency 
occurs may owe loans to lenders who do not participate with the 
guaranty agency in that state, or may owe loans directly to other 
guaranty agencies. The Secretary believes it is important that all 
holders of loans owed by borrowers affected by a local emergency 
receive identical and accurate guidance concerning the treatment of 
such borrowers and the dates of the emergency situation. The Secretary 
believes that he can communicate that information to all loan holders 
in the nation more effectively than could an individual guaranty 
agency.
    Changes: None.
    68. Comments: Some commenters recommended that the regulations 
permit a lender to grant a forbearance for a period of delinquency that 
may have existed before a borrower is granted a forbearance because of 
exceptional circumstances or disasters. The commenters believed it is 
important that the borrower not be considered delinquent when he or she 
resumes repayment after such forbearance periods.
    Discussion: A borrower who has not made scheduled payments prior to 
a natural disaster or some other exceptional circumstance is still 
responsible for those delinquent payments. After the natural disaster/
exceptional circumstance forbearance ends, the borrower resumes the 
delinquency status that existed before that forbearance was granted. As 
previously discussed in response to comment 50, the borrower and the 
lender are expected to communicate with each other, and a forbearance 
could be agreed to if the borrower experienced difficulty in making 
those overdue payments.
    Changes: None.

Section 682.211(j)(2)(ii)

    69. Comments: Some commenters were concerned that a lender would 
have difficulty identifying borrowers in a ``geographical area'' if the 
Secretary did not specify the precise locations commonly used by a 
lender, such as postal zip codes, or telephone area codes.
    Discussion: The Secretary will relay the description of the 
``geographical area'' as it is described to him by the state, local, or 
federal government officials responsible for making those 
determinations. If those descriptions are designated according to 
geographical areas other than postal zip codes, or telephone area 
codes, the Secretary is confident that all lenders will be able to 
convert the information into zip codes or area codes, or any other 
geographical unit the lender uses.
    Changes: None.
    70. Comments: Some commenters were opposed to granting a 
forbearance to all borrowers whose residence was located in a disaster 
area. The commenters believed that not only would this requirement be 
burdensome, it would result in forbearances being granted to many 
borrowers who may have experienced no actual hardship from the 
disaster.
    Discussion: The Secretary believes that fairness to borrowers in 
difficult situations would be in the best interests of the United 
States. In trying to help all such borrowers, the Secretary is willing 
to accept the possibility that others may receive unneeded 
forbearances.
    Changes: None.

Section 682.211(j)(3)

    71. Comments: Some commenters noted that if the lender did not know 
how long the exceptional conditions would exist for a forbearance under 
this paragraph, the lender would be required to send two notices to a 
borrower who had been granted a mandatory administrative forbearance: 
one notice ``as soon as feasible, or by the date specified by the 
Secretary'' and a later notice informing the borrower of the date that 
regular payments would resume. The commenters questioned the usefulness 
of granting forbearances for potentially brief periods of time, and of 
being required to send two notices to a borrower during those brief 
periods. The commenters recommended that the minimum period for a 
mandatory administrative forbearance should be six months, unless the 
borrower chooses a lesser period of time.
    Discussion: The Secretary will authorize forbearance periods that 
will be long enough to assist borrowers and minimize the administrative 
burdens on the holders of their loans.
    Changes: None.

Executive Order 12866

    These 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. In assessing the potential costs and benefits--both 
quantitative and qualitative--of these final regulations, the Secretary 
has determined that the benefits of the final regulations justify the 
costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Assessment of Educational Impact

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

List of Subjects in 34 CFR Part 682

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

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

    Dated: June 23,1994.
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 682.209 has been amended by revising paragraph 
(a)(6)(i); by adding paragraphs (a)(6) (iii) through (ix); and by 
revising paragraphs (a)(7)(ii) and (h)(4)(ii) to read as follows:


Sec. 682.209  Repayment of a loan.

    (a) * * *
    (6)(i) The repayment schedule may provide for substantially equal 
installment payments or for installment payments that increase or 
decrease in amount during the repayment period. If the loan has a 
variable interest rate that changes annually, the lender may establish 
a repayment schedule that--
    (A) Provides for adjustments of the amount of the installment 
payment to reflect annual changes in the variable interest rate; or
    (B) Contains no provision for an adjustment of the amount of the 
installment payment to reflect annual changes in the variable interest 
rate, but requires the lender to grant a forbearance to the borrower 
(or endorser, if applicable) for a period of up to 3 years of payments 
in accordance with Sec. 682.211(j)(5) in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term.
* * * * *
    (iii) Not more than six months prior to the date that the 
borrower's first payment is due, the lender shall offer a choice of a 
standard, graduated, or income-sensitive repayment schedule to a new 
borrower who receives a Stafford or SLS loan first disbursed on or 
after July 1, 1993. For purposes of this section, a ``new borrower'' is 
an individual who has no outstanding principal or interest balance on 
an FFEL Program loan as of July 1, 1993 or on the date he or she 
obtains a loan on or after July 1, 1993. This term also includes a 
borrower who obtains a Federal Consolidation Loan on or after July 1, 
1993 if the borrower has no other outstanding FFEL Program loan when 
the Consolidation Loan is made. The lender shall also offer a choice of 
repayment schedules to any individual whose Consolidation loan 
application is received by the lender on or after January 1, 1993. The 
Secretary encourages lenders to offer the choice of repayment schedules 
to all other borrowers.
    (iv) The repayment schedule must require that each payment equal at 
least the interest that accrues during the interval between scheduled 
payments.
    (v) The lender shall require the borrower to repay the loan under a 
standard repayment schedule described in paragraph (a)(6)(vi) of this 
section if the borrower--
    (A) Does not select an income-sensitive or a graduated repayment 
schedule within 45 days after being notified by the lender to choose a 
repayment schedule; or
    (B) Chooses an income-sensitive repayment schedule, but does not 
provide the documentation requested by the lender under paragraph 
(a)(6)(viii)(C) of this section within the time period specified by the 
lender.
    (vi) Under a standard repayment schedule, the borrower is scheduled 
to pay either--
    (A) The same amount for each installment payment made during the 
repayment period, except that the borrower's final payment may be 
slightly more or less than the other payments; or
    (B) An installment amount that will be adjusted to reflect annual 
changes in the loan's variable interest rate.
    (vii) Under a graduated repayment schedule--
    (A) The amount of the borrower's installment payment is scheduled 
to change (usually by increasing) during the course of the repayment 
period; and
    (B) An agreement as specified in paragraph (c)(1)(ii) of this 
section is not required if the schedule provides for less than the 
minimum annual payment amount specified in paragraph (c)(1)(i) of this 
section.
    (viii) Under an income-sensitive repayment schedule--
    (A) The amount of the borrower's installment payment is adjusted 
annually, based on the borrower's expected total monthly gross income 
received by the borrower from employment and from other sources during 
the course of the repayment period;
    (B) In general, the lender shall request the borrower to inform the 
lender of his or her income no earlier than 90 days prior to the due 
date of the borrower's initial installment payment and subsequent 
annual payment adjustment under an income-sensitive repayment schedule. 
The income information must be sufficient for the lender to make a 
reasonable determination of what the borrower's payment amount should 
be. If the lender receives late notification that the borrower has 
dropped below half-time enrollment status at a school, the lender may 
request that income information earlier than 90 days prior to the due 
date of the borrower's initial installment payment;
    (C) If the borrower reports income to the lender that the lender 
considers to be insufficient for establishing monthly installment 
payments that would repay the loan within the maximum 10-year repayment 
period, the lender shall require the borrower to submit evidence 
showing the amount of the most recent total monthly gross income 
received by the borrower from employment and from other sources 
including, if applicable, pay statements from employers and 
documentation of any income received by the borrower from other 
parties;
    (D) The lender shall grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 5 years of payments in 
accordance with Sec. 682.211(j)(5) in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in a loan not being repaid within the maximum 
repayment term; and
    (E) The lender shall inform the borrower that the loan must be 
repaid within the time limits specified under paragraph (a)(7) of this 
section.
    (ix) For purposes of this section, a lender may require that all 
FFEL loans owed by a borrower to the lender be combined into one 
account and repaid under one repayment schedule. In that event, the 
word ``loan'' in this section shall mean all of the borrower's loans 
that were combined by the lender into that account.
    (7) * * *
    (ii) If the borrower receives an authorized deferment or is granted 
forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively, 
the periods of deferment or forbearance are excluded from 
determinations of the 5-, 10-, and 15-year periods, and from the 12-, 
15-, 20-, 25-, and 30-year periods for repayment of a Consolidation 
loan pursuant to Sec. 682.208(h).
* * * * *
    (h) * * *
    (4) * * *
    (ii) Does not include the unpaid balance on any loan not made under 
Title IV of the HEA on which the borrower is in default, but may 
include the unpaid balance on a defaulted loan made under Title IV of 
the HEA if the borrower has made satisfactory repayment arrangements 
with the holder to repay that loan.
* * * * *
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 
1082, 1085)

    3. Section 682.210 has been amended by revising paragraph (a)(1); 
by adding a new paragraph (a)(11); by revising paragraph (c)(4); and by 
adding a new paragraph (s) to read as follows:


Sec. 682.210  Deferment.

    (a) General. (1)(i) A borrower is entitled to have periodic 
installment payments of principal deferred during authorized periods 
after the beginning of the repayment period, pursuant to paragraph (b) 
of this section.
    (ii) With the exception of a deferment authorized under paragraph 
(o) of this section, a borrower may continue to receive a specific type 
of deferment that is limited to a maximum period of time only if the 
total amount of time that the borrower has received the deferment does 
not exceed the maximum time period allowed for the deferment.
* * * * *
    (11) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender shall grant a request for 
deferment if both individuals simultaneously meet the requirements of 
this section for receiving the same, or different deferments.
* * * * *
    (c) * * *
    (4) A borrower serving in a medical internship residency program, 
except for an internship in dentistry, is prohibited from receiving or 
continuing a deferment on a Stafford, SLS, or Consolidation loan under 
paragraph (c) of this section.
* * * * *
    (s) Deferments for new borrowers on or after July 1, 1993--
    (1) General. A new borrower who receives an FFEL Program loan first 
disbursed on or after July 1, 1993 is entitled to receive deferments 
under paragraphs (s)(2) through (s)(6) of this section. For purposes of 
this section, a ``new borrower'' is an individual who has no 
outstanding principal or interest balance on an FFEL Program loan as of 
July 1, 1993 or on the date he or she obtains a loan on or after July 
1, 1993. This term also includes a borrower who obtains a Federal 
Consolidation Loan on or after July 1, 1993 if the borrower has no 
other outstanding FFEL Program loan when the Consolidation Loan was 
made.
    (2) Student deferment. An eligible borrower is entitled to a 
deferment for at least half-time study in accordance with the rules 
prescribed in Sec. 682.210(c), except that the borrower is not required 
to obtain a Stafford or SLS loan for the period of enrollment covered 
by the deferment.
    (3) Graduate fellowship deferment. An eligible borrower is entitled 
to a graduate fellowship deferment in accordance with the rules 
prescribed in Sec. 682.210(d).
    (4) Rehabilitation training program deferment. An eligible borrower 
is entitled to a rehabilitation training program deferment in 
accordance with the rules prescribed in Sec. 682.210(e).
    (5) Unemployment deferment. An eligible borrower is entitled to an 
unemployment deferment in accordance with the rules prescribed in 
Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.
    (6) Economic hardship deferment. An eligible borrower is entitled 
to an economic hardship deferment for periods of up to one year at a 
time that, collectively, do not exceed 3 years, if the borrower 
provides documentation satisfactory to the lender showing that the 
borrower--
    (i) Has been granted an economic hardship deferment under either 
the FDSL or Federal Perkins Loan Programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her FFEL loan;
    (ii) Is receiving payment under a federal or state public 
assistance program, such as Aid to Families with Dependent Children, 
Supplemental Security Income, Food Stamps, or state general public 
assistance;
    (iii) Is working full-time and earning a total monthly gross income 
that does not exceed the greater of--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 100 percent of the poverty line for a family 
of two, as determined in accordance with section 673(2) of the 
Community Service Block Grant Act; or
    (iv) Is not receiving total monthly gross income that exceeds twice 
the amount specified in paragraph (s)(6)(iii) of this section and, 
after deducting an amount equal to the borrower's monthly payments on 
federal postsecondary education loans, as determined under paragraph 
(s)(6)(viii) of this section, the remaining amount of that income does 
not exceed the amount specified in paragraph (s)(6)(iii) of this 
section.
    (v) For a deferment granted under paragraph (s)(6)(iv) of this 
section, the lender shall require the borrower to submit at least the 
following documentation to qualify for an initial period of deferment--
    (A) Evidence showing the amount of the borrower's most recent total 
monthly gross income, as defined in paragraph (s)(6)(ix) of this 
section; and
    (B) Evidence that would enable the lender to determine the amount 
of the monthly payments that would have been owed by the borrower 
during the deferment period to other entities for federal postsecondary 
education loans in accordance with paragraph (s)(6)(viii) of this 
section.
    (vi) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraphs (s)(6)(iii) or (iv) of this section, the lender shall 
require the borrower to submit a copy of the borrower's federal income 
tax return if the borrower filed a tax return within eight months prior 
to the date the deferment is requested.
    (vii) For purposes of paragraph (s)(6)(iii) of this section, a 
borrower is considered to be working full-time if the borrower is 
expected to be employed for at least three consecutive months at 30 
hours per week.
    (viii) In determining a borrower's eligibility for an economic 
hardship deferment under paragraph (s)(6) of this section, the lender 
shall count only the monthly payment amount (or a proportional share if 
the payments are due less frequently than monthly) that would have been 
owed on a federal postsecondary education loan if the loan had been 
scheduled to be repaid in 10 years from the date the borrower entered 
repayment, regardless of the length of the borrower's actual repayment 
schedule or the actual monthly payment amount (if any) that would be 
owed during the period that the borrower requested an economic hardship 
deferment.
    (ix) For purposes of paragraph (s)(6) of this section, a borrower's 
total monthly gross income shall be the gross amount of income received 
by the borrower from employment (either full-time or part-time) and 
from other sources.

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

    4. Section 682.211 has been amended by revising paragraph (a)(3); 
by adding new paragraphs (f) (6) through (8); by revising paragraph 
(h); and by adding new paragraphs (i) and (j) to read as follows:


Sec. 682.211  Forbearance.

    (a) * * *
    (3) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender may grant forbearance on 
repayment of the loan only if the ability of both individuals to make 
scheduled payments has been impaired.
* * * * *
    (f) A lender may grant administrative forbearance, upon notice to 
the borrower or if applicable, the endorser, with respect to payments 
of interest and principal that are overdue or that would be overdue--
* * * * *
    (6) For a period not to exceed 60 days after the lender receives 
reliable information indicating that the borrower (or student in the 
case of a PLUS loan) has died, or the borrower has become totally and 
permanently disabled, until the lender receives documentation of death 
or total and permanent disability, pursuant to Sec. 682.402(b) or (c);
    (7) For periods necessary for the Secretary or guaranty agency to 
determine the borrower's eligibility for discharge of the loan because 
of attendance at a closed school or false certification of loan 
eligibility, pursuant to Sec. 682.402(d) or (e), or the borrower's or, 
if applicable, endorser's bankruptcy, pursuant to Sec. 682.402(f); or
    (8) For a period of delinquency at the time a loan is sold or 
transferred, if the borrower or endorser is less than 60 days 
delinquent on the loan at the time of sale or transfer.
* * * * *
    (h) In granting a forbearance under this section, except for a 
forbearance under paragraph (j)(5), a lender shall grant a temporary 
cessation of payments, unless the borrower chooses another form of 
forbearance subject to paragraph (a)(1) of this section.
    (i) Mandatory forbearance. (1) Medical or dental interns or 
residents. Upon receipt of a written request and sufficient supporting 
documentation, as described in Sec. 682.210(n), from a borrower serving 
in a medical or dental internship or residency program, a lender shall 
grant forbearance to the borrower in yearly increments (or a lesser 
period equal to the actual period during which the borrower is 
eligible) if the borrower has exhausted his or her eligibility for a 
deferment under Sec. 682.210(n), or the borrower's promissory note does 
not provide for such a deferment--
    (i) For the length of time remaining in the borrower's medical or 
dental internship or residency that must be successfully completed 
before the borrower may begin professional practice or service; or
    (ii) For the length of time that the borrower is serving in a 
medical or dental internship or residency program leading to a degree 
or certificate awarded by an institution of higher education, a 
hospital, or a health care facility that offers postgraduate training.
    (2) Borrowers who are not medical or dental interns or residents, 
and endorsers. Upon receipt of a written request and sufficient 
supporting documentation from an endorser (if applicable), or from a 
borrower (other than a borrower who is serving in a medical or dental 
internship or residency described in paragraph (i)(1) of this section), 
a lender shall grant forbearance--
    (i) In increments up to one year, for periods that collectively do 
not exceed three years, if--
    (A) The borrower or endorser is currently obligated to make 
payments on Title IV loans; and
    (B) The amount of those payments each month (or a proportional 
share if the payments are due less frequently than monthly) is 
collectively equal to or greater than 20 percent of the borrower's or 
endorser's total monthly income;
    (ii) In yearly increments (or a lesser period equal to the actual 
period during which the borrower is eligible) for as long as a 
borrower--
    (A) Is serving in a national service position for which the 
borrower receives a national service educational award under the 
National and Community Service Trust Act of 1993;
    (B) Is eligible for loan forgiveness under the Federal Stafford 
Loan Forgiveness Demonstration Program, if the program is funded, for 
performing the type of service described in Sec. 682.215(b); or
    (C) Is performing the type of service that would qualify the 
borrower for a partial repayment of his or her loan under the Student 
Loan Repayment Programs administered by the Department of Defense under 
10 U.S.C. 2171.
    (3) Documentation. (i) Before granting a forbearance to a borrower 
or endorser under paragraph (i)(2)(i) of this section, the lender shall 
require the borrower or endorser to submit at least the following 
documentation:
    (A) Evidence showing the amount of the most recent total monthly 
gross income received by the borrower or endorser from employment and 
from other sources; and
    (B) Evidence showing the amount of the monthly payments owed by the 
borrower or endorser to other entities for the most recent month for 
the borrower's or endorser's Title IV loans.
    (ii) Before granting a forbearance to a borrower or endorser under 
paragraph (i)(2)(ii)(B) of this section, the lender shall require the 
borrower or endorser to submit documentation showing the beginning and 
ending dates that the borrower is expected to perform the type of 
service described in Sec. 682.215(b).
     (iii) Before granting a forbearance to a borrower or endorser 
under paragraph (i)(2)(ii)(C) of this section, the lender shall require 
the borrower or endorser to submit documentation showing the beginning 
and ending dates that the Department of Defense considers the borrower 
to be eligible for a partial repayment of his or her loan under the 
Student Loan Repayment Programs.
    (j) Mandatory administrative forbearance. (1) The lender shall 
grant a mandatory administrative forbearance for the periods specified 
in paragraph (j)(2) of this section until the lender is notified by the 
Secretary or a guaranty agency that the forbearance period no longer 
applies. The lender may not require a borrower who is eligible for a 
forbearance under paragraph (j)(2)(ii) of this section to submit a 
request or supporting documentation, but shall require a borrower (or 
endorser, if applicable) who requests forbearance because of a military 
mobilization to provide documentation showing that he or she is subject 
to a military mobilization as described in paragraph (j)(4) of this 
section.
    (2) The lender is not required to notify the borrower (or endorser, 
if applicable) at the time the forbearance is granted, but shall grant 
a forbearance to a borrower or endorser during a period, and the 30 
days following the period, when the lender is notified by the Secretary 
that--
     (i) Exceptional circumstances exist, such as a local or national 
emergency or military mobilization; or
     (ii) The geographical area in which the borrower or endorser 
resides has been designated a disaster area by the president of the 
United States or Mexico, the prime minister of Canada, or by a governor 
of a state.
     (3) As soon as feasible, or by the date specified by the 
Secretary, the lender shall notify the borrower (or endorser, if 
applicable) that the lender has granted a forbearance and the date that 
payments should resume. The lender's notification shall state that the 
borrower or endorser--
     (i) May decline the forbearance and continue to be obligated to 
make scheduled payments; or
     (ii) Consents to making payments in accordance with the lender's 
notification if the forbearance is not declined.
     (4) For purposes of paragraph (j)(2)(i) of this section, the term 
``military mobilization'' shall mean a situation in which the 
Department of Defense orders members of the National Guard or Reserves 
to active duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of 
title 10, United States Code. This term also includes the assignment of 
other members of the Armed Forces to duty stations at locations other 
than the locations at which they were normally assigned, only if the 
military mobilization involved the activation of the National Guard or 
Reserves.
     (5) The lender shall grant a mandatory administrative forbearance 
to a borrower (or endorser, if applicable) during a period when the 
borrower (or endorser, if applicable) is making payments for a period 
of--
     (i) Up to 3 years of payments in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term; or
     (ii) Up to 5 years of payments in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in the loan not being repaid within the maximum 
repayment term.

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

[FR Doc. 94-15666 Filed 6-28-94; 8:45 am]
BILLING CODE 4000-01-P