[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29262]


[[Page Unknown]]

[Federal Register: November 29, 1994]


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Part IX





Department of Education





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34 CFR Part 682




Federal Family Education Loan Program; Final Rule
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RIN 1840-AC12

 
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 regulations govern the 
Federal Stafford Loan Program, the Federal Supplemental Loans for 
Students (Federal SLS) Program, the Federal PLUS Program, and the 
Federal Consolidation Loan Program, collectively referred to as the 
Federal Family Education Loan Program. The Federal Stafford Loan, the 
Federal SLS, the Federal PLUS and the Federal Consolidation Loan 
programs are hereinafter referred to as the Stafford, SLS, PLUS and 
Consolidation Loan programs. These amendments are needed to conform the 
FFEL Program regulations with policy decisions made by the Secretary 
during development of regulations for the William D. Ford Federal 
Direct Loan Program, hereinafter referred to as the ``Direct Loan 
Program.''

EFFECTIVE DATE: These regulations take effect on July 1, 1995. However, 
affected parties do not have to comply with the information collection 
requirements in Secs. 682.205, 682.602, 682.604, and 682.605 until the 
Department of Education publishes in the Federal Register the control 
numbers assigned by the Office of Management and Budget to these 
information collection requirements. Publication of the control numbers 
notifies the public that OMB has approved these information collection 
requirements under the Paperwork Reduction Act of 1980. Section 
682.210(s)(6)(iv) incorporates the self-implementing change made to the 
Higher Education Act of 1965, as amended, (HEA) by the Improving 
America's Schools Act of 1994, enacted October 20, 1994. Consistent 
with the effective date of that statutory change, 
Sec. 682.210(s)(6)(iv) applies to all economic hardship deferment 
requests submitted by eligible borrowers on or after that date.

FOR FURTHER INFORMATION CONTACT: Barbara Bauman, Program Specialist, 
Loans Branch, Division of Policy Development, Policy, Training, and 
Analysis Service, U.S. Department of Education, 600 Independence 
Avenue, S.W. (room 4310, ROB-3), Washington, DC 20202-5449. Telephone: 
(202) 708-8242. Individuals who use a telecommunications device for the 
deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-
800-877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through 
Friday.

SUPPLEMENTARY INFORMATION:

Background

    The Secretary is amending 34 CFR Part 682 of the Department's 
regulations to reflect certain policy decisions made during development 
of regulations for the Direct Loan Program. The Secretary agreed to 
make changes in the FFEL Program to conform to policies and procedures 
adopted in the Direct Loan Program, wherever possible, to provide a 
consistent approach in both programs. In addition, some of these 
changes are necessary to ensure that terms, conditions and benefits of 
FFEL Program loans and Direct Loans are the same, to the extent 
required, in accordance with section 455(a)(1) of the HEA. These 
regulations reflect those changes that affect the FFEL Program.
    These regulations also delete certain regulatory provisions in 34 
CFR Part 682 which duplicate or conflict with other regulations. 
Specifically, the Secretary has deleted regulations governing the 
determination of a student's withdrawal date and institutional refund 
policies. These topics are now addressed in 34 CFR Part 668. 
Additionally, these regulations implement changes made to the FFEL 
Program by the Improving America's Schools Act of 1994 (IASA), enacted 
October 20, 1994, and the Bankruptcy Reform Act of 1994, enacted 
October 22, 1994. The changes made by IASA to the economic hardship 
deferment provisions of section 435(o) of the HEA and changes made to 
the Bankruptcy Code affecting borrower eligibility are self-
implementing. The incorporation of these provisions into the FFEL 
regulations requires only minor modifications to those regulations.
    On October 7, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) for Part 682 in the Federal Register (59 FR 51346). 
The NPRM included a discussion of the major issues surrounding the 
proposed changes, and the discussion 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:
 Borrower eligibility with regard to past loan cancellation due 
to the borrower's total and permanent disability (page 51346);
 Disclosure requirements for lenders (page 51346);
 Late disbursement of loan proceeds under documented 
exceptional circumstances (page 51347);
 Processing of borrower's loan proceeds and counseling 
borrowers (page 51347);
 Determining the date of a student's withdrawal (page 51347);
 Refund policy (page 51347);
 Payment of a refund to a lender (page 51347).

Substantive Revisions to the Notice of Proposed Rulemaking

Section 682.100 The Federal Family Education Loan programs

 The IASA provides that a Nursing Student Loan Program loan 
authorized by subpart II of Part B of title VIII of the Public Health 
Service Act may now be consolidated in a Federal Consolidation Loan.

Section 682.201 Eligible Borrowers

 The Secretary has revised this section of the final 
regulations to reflect a change in the Bankruptcy Reform Act of 1994 
that necessitates the deletion of the provision that required 
reaffirmation of a FFEL loan that had been discharged in bankruptcy as 
a prerequisite to further eligibility to participate in the FFEL 
Program.

Section 682.210 Deferment.

     The final regulations incorporate the change made by IASA 
that would permit a borrower to receive an economic hardship deferment 
if the borrower is working full-time and has a Federal educational debt 
burden that equals or exceeds 20 percent of the borrower's total 
monthly gross income, providing the borrower's income minus such burden 
is less than 220 percent of the minimum wage or the poverty level for a 
family of two.

Section 682.605 Determining the Date of a Student's Withdrawal

     The Secretary's interim final regulations (59 FR 22348, 
April 29, 1994) governing leaves of absence is being changed in 34 CFR 
668.22. The Secretary has decided to allow institutions to treat a 
student on an approved leave of absence as enrolled for purposes of 
determining a refund calculation and for purposes of terminating a 
title IV borrower's in-school status. Further discussion regarding this 
change may be found in the discussion of 34 CFR 668.22 of the General 
Provisions regulations.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 22 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the changes made to the regulations as a result of 
those comments follows.
    Major issues are grouped according to subject. Technical and other 
minor changes, and suggested changes the Secretary is not legally 
authorized to make under the applicable statutory authority, are not 
addressed.

General

    Comments: A number of commenters suggested changes to the FFEL 
Program regulations that were not included in the NPRM. Some of the 
commenters suggested that additional changes were necessary to conform 
the FFEL Program with the regulations governing the Direct Loan 
Program. For example, some commenters suggested that the Secretary 
should incorporate in the Direct Loan regulations the various 
requirements in the FFEL regulations regarding requirements for 
deferments. Other commenters recommended that the Secretary modify the 
Direct Loan regulations to require the Secretary to comply with certain 
specific time deadlines, like those in the FFEL regulations. Finally, 
other commenters suggested that the Secretary include specific loan 
servicing and collection requirements in the Direct Loan regulations 
like those applicable to lenders and guaranty agencies in FFEL. Some 
commenters also objected to the changes made to sections 682.605 and 
682.606.
    Discussion: The Secretary has carefully considered all of the 
comments that suggested changes to other FFEL regulations that were not 
addressed in the NPRM. The Secretary believes that some of the 
suggestions for streamlining the FFEL regulations have merit, but the 
implications of those changes need to be more fully evaluated by the 
Department before any further changes are proposed.
    Many of the commenters indicated that they believe that the 
Secretary is required to make the regulations and processes in the 
Direct Loan Program strictly conform to the FFEL regulations, and 
suggested that changes are required to the FFEL Program to ensure that 
goal is achieved. The Secretary does not share the commenters' belief. 
Many of the FFEL regulations identified by the commenters establish 
conditions for the lender or guaranty agency to receive payments under 
the FFEL program. The documentation and other requirements included in 
these regulations have been developed over the years based on the 
Secretary's experience in administering the program. The Secretary has 
found that, without specific requirements, FFEL Program participants 
did not adequately ensure that loans were properly serviced or claims 
properly paid. These requirements are not applicable to the Direct Loan 
Program. The Secretary is not required to issue regulations that are 
intended to regulate internal agency processes and that do not affect 
the substantive or procedural rights of program participants. 
Therefore, the Secretary has not modified the FFEL regulations to 
delete the requirements addressed by the commenters.
    Finally, the Secretary notes that the comments regarding sections 
682.605 and 682.606 are more appropriately addressed to 34 CFR 668.22 
and are being addressed in the discussion of 34 CFR 668.22 of the 
General Provisions regulations.
    Commenters generally agreed with the Secretary's changes in the 
following areas:
 Sec. 682.200--Cost of attendance
 Sec. 682.207--Due diligence in disbursing a loan
 Sec. 682.602--Schedule requirements for courses of study by 
correspondence
 Sec. 682.604--Processing the borrower's loan proceeds and 
counseling borrowers
 Sec. 682.606--Refund policy

Section 682.200 Definitions

Estimated Financial Assistance

    Comments: One commenter suggested that paragraph (2)(i) be revised 
to exclude an Unsubsidized Stafford loan in the amounts used to replace 
the expected family contribution. Commenters pointed out that the 
proposed change in the definition of estimated financial assistance is 
not comparable to the definition in the Direct Loan regulations. 
Commenters were also confused about the purpose of the change, and 
whether other forms of student assistance need to be considered if a 
student is applying for a loan to cover expenses incurred within the 
same enrollment period as that for which a prior loan was received.
    Discussion: The purpose of the change to this section in the NPRM 
was to clarify that the gross amount of all loans received for an 
enrollment period, including the amount of origination fees and 
insurance premiums, be considered in calculating the student's 
estimated financial assistance. The Secretary understands the 
confusion, and agrees that the language in the FFEL Program NPRM 
differs from the language in the Direct Loan NPRM. The Secretary 
believes that the proposed change should be deleted from both 
regulations because it is redundant with other paragraphs of the 
definition of estimated financial assistance. Instead, the Secretary 
has revised this section in both these final regulations and in the 
final Direct Loan Program regulations to simplify and clarify the 
definition of estimated financial assistance. Finally, the Secretary 
agrees with the comment that Unsubsidized Stafford Loans used to 
replace the expected family contribution should be excluded.
    Changes: The Secretary has revised the introductory paragraph of 
the definition to eliminate the need for a separate paragraph about 
PLUS; revised paragraph (vii) to clarify that the gross amount of 
loans, including PLUS, should be considered as financial assistance; 
deleted paragraph (viii) regarding PLUS loans and deleted proposed new 
paragraph (viii). Paragraph (2)(i) of the regulations has been revised 
to exclude an Unsubsidized Stafford loan in the amounts used to replace 
the expected family contribution.

Section 682.201 Eligible borrowers

Section 682.201(a)(4)

    Comments: Many commenters strongly supported the proposal to 
eliminate the requirement that, to receive a new loan, a borrower must 
reaffirm any FFEL loan amount that previously was cancelled due to the 
borrower's total and permanent disability. A few commenters did not 
agree that this provision should be eliminated and suggested that 
previous experience has shown this to be an area of abuse. The 
commenters believed that, since the debt was canceled because the 
borrower no longer had the means to repay the debt, it is reasonable to 
expect a borrower who is now able to attend school (and presumably able 
to obtain gainful employment considering the borrower is requesting a 
new loan) to be in a position to be able to repay his or her previously 
canceled debt. One commenter expressed concern about the language 
requiring a borrower whose previous loan was canceled due to total and 
permanent disability to obtain a certification from a physician that 
the borrower is able to engage in ``substantial gainful activity.'' The 
commenter noted that ``substantial gainful activity'' is a term that 
could be defined in many different ways. The commenter suggested that 
the Secretary define this term further. The commenter further suggested 
that doctors may not be the individuals best qualified to determine 
whether an individual is capable of ``substantial gainful activity.'' 
The commenter suggested that, for this purpose, a ``substantial gainful 
activity'' determination should also be acceptable if performed by a 
certified occupational therapist, rehabilitation specialist, or other 
qualified individual. A number of commenters also suggested that the 
regulations should clarify if, in the event the borrower is unable to 
obtain the proper certifications required under 34 CFR 682.201(a)(5), 
the borrower can regain eligibility by reaffirming the prior debt. The 
commenters believe that this option would provide students with 
increased educational opportunities. Some commenters suggested that 34 
CFR 682.201(a)(5)(ii) of the December 18, 1992 regulations be deleted, 
as this provision was incorporated in paragraph (a)(5)(i)(B).
    Many commenters suggested that the regulations be revised to 
reflect the Bankruptcy Reform Act of 1994 enacted October 22, 1994.
    Discussion: While the Secretary is not requiring individuals to 
reaffirm a previously canceled debt due to a determination of permanent 
and total disability as a condition for receiving a new FFEL loan, the 
Secretary would not discourage any borrower from arranging to repay a 
previously canceled debt, if the borrower chose to do so.
    The Secretary generally believes that the phrase ``substantial 
gainful activity'' describes a situation in which a borrower is 
sufficiently physically recovered to be capable of attending school, 
successfully completing a program of study, and securing employment in 
order to repay the new loan the borrower is seeking. However, the 
Secretary will consider further whether a specific program definition 
of ``substantial gainful activity'' is required and may address this 
issue in future regulations.
    The Secretary declines to allow an individual other than a 
physician to provide the certification for this purpose. The Secretary 
notes that section 682.402(c)(2) of the FFEL regulations requires that 
a borrower's claim for total and permanent disability for purposes of 
the discharge be documented by a ``certification by a physician who is 
a doctor of medicine or osteopathy and legally authorized to practice 
in a State.'' The Secretary believes that the same level of medical 
professional should certify to such a borrower's ability to now engage 
in ``substantial gainful activity.''
    The Secretary does not agree with the commenters who believe that 
borrowers unable to obtain certification of their condition be allowed 
to borrow again by simply reaffirming the debt as this does not protect 
the Secretary from a possible subsequent default.
    The Secretary agrees with the commenter who recommended that the 
final regulations should reflect the changes provided in the Bankruptcy 
Reform Act of 1994. Section 525 of the Bankruptcy Act, as amended, 
prohibits denial of a loan or loan guarantee based on a bankruptcy 
discharge but does not prohibit consideration of that fact in 
determining the future creditworthiness of a loan applicant. 
Accordingly, the Secretary notes that a bankruptcy discharge may be 
evidence of an adverse credit history for a PLUS borrower.
    Changes: The regulations have been revised to remove the 
requirement that a borrower reaffirm any FFEL loan previously 
discharged in bankruptcy as a condition for receiving a new FFEL loan.
    Comments: A number of commenters suggested that the regulations be 
revised to clarify that the amount of the reaffirmation in the event of 
a write-off includes any outstanding accrued interest and collection 
charges. The commenters specifically suggested that the regulation 
address the treatment of accrued interest between write-off and 
reaffirmation.
    Discussion: The Secretary agrees that the amount a borrower is 
required to reaffirm in a write-off situation should be clarified by 
specifying how accrued interest on the amount of the loan written-off 
should be handled. The Secretary also believes that confusion exists in 
the student aid community as to what the term ``write-off'' means in 
this context. The Secretary wishes to clarify that a ``write-off'' in 
this context is a situation in which the guaranty agency or the 
Secretary ceases all collection activity on a borrower's defaulted 
account after an extended period of unsuccessful collection. This total 
cessation of collection activity does not relieve the defaulted 
borrower of the obligation, and interest continues to accrue on the 
amount on which collection activities cease. These amounts are 
``written-off'' from an accounting standpoint only, in order to more 
accurately reflect a guaranty agency's or the Department of Education's 
accounts receivable. If such a borrower seeks further Title IV student 
assistance, the borrower must reaffirm an amount that represents 
outstanding principal and all interest that has accrued as of the date 
of reaffirmation. In addition, the borrower must make satisfactory 
repayment arrangements on the reaffirmed defaulted debt.
    Change: The Secretary has revised section 682.201(a)(4)(i) to 
require a borrower who has defaulted on a loan on which a guaranty 
agency or the Secretary has ceased collection activity to reaffirm an 
amount that includes all principal and interest that has accrued on 
that amount up to the date of reaffirmation.

Section 682.201(a)(6)

    Comments: Some commenters noted that both the FFEL and Direct Loan 
Program regulations provide that a student who is seeking a loan, but 
does not have a certificate of graduation from a secondary school or 
the equivalent, may be eligible if he or she has passed an 
independently administered examination approved by the Secretary. The 
commenters suggested that the FFEL regulations should be consistent 
with the Direct Loan regulations and allow a student to obtain 
eligibility through a determination that he or she has the ability to 
benefit from the program in accordance with a State process approved by 
the Secretary.
    Discussion: The Secretary agrees with the commenters that there 
should be consistency among the programs.
    Change: The regulations have been revised to reference the Student 
Financial Assistance General Provisisons regulations, 34 CFR Part 
668.7(b), which govern student eligibility for all title IV programs. 
The same change has been made to the Direct Loan Program regulations.

Section 682.201(b)(7)

    Comments: Many commenters suggested that the regulations should be 
revised to permit a PLUS borrower who has been determined to have an 
adverse credit history to receive a loan by securing an endorser who 
does not have an adverse credit history. The commenters suggest that 
this treatment would be consistent with the Direct Loan Program.
    Discussion: The Secretary agrees with the commenters that the 
treatment of a PLUS borrower who has been determined to have an adverse 
credit history should be consistent for the FFEL and Direct Loan 
Programs.
    Change: The regulations have been revised to permit a PLUS borrower 
who has been determined to have an adverse credit history to receive a 
loan by securing an endorser who does not have an adverse credit 
history. The Secretary expects lenders in exercising this option to 
ensure that the endorser has the ability to repay the debt if the 
borrower does not do so.

Section 682.205 Disclosure Requirements for Lenders

    Comments: Some commenters argued that the Secretary's proposed 
regulations to require lenders to respond to borrower inquiries 
regarding the loan application process and the terms and conditions of 
the Federal Consolidation Loan are unnecessary because lenders and 
servicers are already required to respond to borrower inquiries within 
a 30-day period under section 682.208(c). The commenters also noted 
that this requirement would duplicate information that must be 
disclosed to a borrower under section 682.205(c)(2)(vii) at or prior to 
the beginning of the borrower's repayment period. Other commenters 
supported the proposal that these kinds of disclosures be provided, but 
felt that they were misplaced and that they should be incorporated as a 
new provision in section 682.208. One commenter supported the 
disclosures but stated the scope of information to be provided was too 
limited. The commenter recommended that the provision be revised to 
specify that the information must cover the application process, terms 
and conditions of consolidation benefits and potential negative effects 
of loan consolidation, deferments available, interest rates, the 
difference between the FFEL and Direct Loan Consolidation programs, and 
the differences between loan consolidation and loan rehabilitation.
    Discussion: The Secretary disagrees that the proposed disclosure 
requirements duplicate existing requirements in sections 682.208(c) and 
682.205(c)(2). The 30-day requirement in Sec. 682.208(c) relates to 
inquiries received on a loan during servicing, long after the 
obligation has been incurred by the borrower. Similarly, disclosures 
under Sec. 682.205(c)(2) just prior to the beginning of repayment are 
made too late in the process to be useful to the borrower in making an 
informed decision on whether to consolidate loans and to assist them 
with the application process. After further consideration, the 
Secretary has decided that, for the same reason, the disclosure 
requirement which governs disclosures made before or at the time of 
disbursement of the loan is equally misplaced in Sec. 682.205(a) of the 
regulations. The Secretary now believes that, to serve its intended 
purpose, such information and counseling must be provided in advance of 
or as part of the consolidation application process. The Secretary does 
not believe it is necessary to regulate in this area.
    Changes: The Secretary has deleted the provision under 
Sec. 682.205(a)(2)(ix) that requires lenders to respond to borrower 
inquires regarding the Consolidation Loan application process and to 
provide information on consolidation loan terms and conditions. The 
Secretary will, instead, work with the student aid community to ensure 
that the Consolidation Loan application materials and procedures 
related to their processing will provide the scope of information 
necessary for a borrower to make an informed decision about loan 
consolidation.

Section 682.207 Due Diligence in Disbursing a Loan

    Comments: A few commenters suggested that the Secretary expand the 
30 days to 60 days beyond the standard 60-day period to make late 
disbursements.
    Discussion: The Secretary believes that 30 days beyond the standard 
60-day period provides ample time to make late disbursements in 
exceptional circumstances under the FFEL Program.
    Change: None.

Section 682.402(a)(2)

    Comments: Some commenters compared the loan discharge provisions in 
the Direct Loan NPRM of August 18, 1994 with those found in the FFEL 
regulations and concluded that the Direct Loan NPRM regulations provide 
a greater discharge benefit for married borrowers with a joint Direct 
Consolidation Loan than the FFEL regulations for similar married 
borrowers with an FFEL Consolidation Loan. The commenters believed that 
the exception proposed in 34 CFR 685.215(l)(3)(ii) (Direct Loan NPRM) 
should be added to the FFEL regulations.
    Discussion: This addition is unnecessary. Section 682.402(a)(2) 
does not prohibit a portion of an FFEL Consolidation Loan to be 
discharged if the borrower qualifies for a closed school or false 
certification discharge on a loan that was consolidated. 
Sec. 682.402(h)(2)(v) further provides that a payment received as a 
result of a discharge of a loan that has been consolidated will reduce 
the Consolidation loan.
    Change: None.

Section 682.402(c)(3)

    Comments: Some commenters compared Sec. 685.212(f) of the Direct 
Loan NPRM to Sec. 682.402(c)(3) of the FFEL regulations which govern 
payments received from or on behalf of a borrower after the date the 
lender or servicer is notified of a borrower's claim of total 
disability, and stated that they believed there was an inconsistency 
between the two programs. The commenters recommended that the FFEL 
regulations be amended to conform with the Direct Loan regulations.
    Discussion: The Secretary believes that there is no substantial 
difference between the language in the two program regulations on this 
issue. He believes that the language differences are not significant.
    Change: None.

Section 682.402(d)(1)(i)

    Comment: Some commenters noted that Sec. 685.213(c)(1)(ii) of the 
Direct Loan NPRM permits an extension of the 90-day withdrawal period 
applicable to closed school loan discharges if exceptional 
circumstances existed. The commenters recommended that the FFEL 
regulations be amended to provide for similar extensions.
    Discussion: Section 682.402(d)(1)(i) already provides the extension 
suggested by the commenters.
    Change: None.

Section 682.402(e)

    Comments: Some commenters considered the false certification 
discharge provisions in the FFEL regulations to be more restrictive 
than those contained in the Direct Loan NPRM. The commenters did not 
specify the precise areas that they believed represented the Direct 
Loan Program's more liberal interpretation of what constitutes false 
certification.
    Discussion: Other than minor technical language differences to 
reflect the operational differences between the FFEL and Direct Loan 
Programs, the standard for both sets of false certification regulations 
is identical.
    Change: None.

Section 682.402(e)(1)(ii)

    Comments: Some commenters noted that Sec. 685.214(a)(2) of the 
Direct Loan NPRM was essentially the same as Sec. 682.402(e)(1)(ii) of 
the FFEL regulations, except that the last sentence of 
Sec. 682.402(e)(1)(ii) did not appear in the Direct Loan NPRM 
regulations. Some commenters recommended that the sentence be added to 
the Direct Loan final regulations; other commenters recommended that it 
be deleted from the FFEL final regulations.
    Discussion: The FFEL regulatory provision that is the subject of 
this comment states that the Secretary does not reimburse the lender 
with respect to any amount disbursed by means of a check bearing an 
unauthorized endorsement unless the school also executed the 
application or promissory note for that loan for the named borrower 
without that individual's consent. In other words, in the FFEL program, 
a lender is responsible for the authenticity of the borrower's 
endorsement on the lender's check, unless the lender cannot reasonably 
be held responsible because the school had earlier forged the 
borrower's signature on the loan application or promissory note. In 
that event, the lender would have no valid signature on file to compare 
with the endorsement on the check. In the Direct Loan Program, the 
Secretary is the lender. Thus, it would not be logical for the Direct 
Loan Program final regulations to state that the Secretary will not, in 
effect, insure himself for losses resulting from this type of 
unauthorized endorsement.
    Change: None.

Section 682.402(e)(13)(iii)(B)

    Comments: Some commenters believed that this paragraph should be 
deleted. The commenters reasoned that since a school is not required to 
obtain records of a student's mental or physical condition or criminal 
record prior to certifying a loan application, the school should not 
potentially be liable for ``falsely certifying'' a loan application if 
the student was later unable to obtain employment because of those 
factors.
    Discussion: This paragraph provides essential consumer protection 
to borrowers. The Secretary expects that a school will not certify a 
loan application for a borrower if it knows that the student has a 
mental, physical, or criminal status that would prohibit the student 
from obtaining employment in the occupation for which the school's 
training was intended. The commenters may be assured that if the school 
could not reasonably be expected to be aware of such a disqualifying 
status of the student, the Secretary will not consider the school 
liable in any respect if the borrower later qualifies for a false 
certification loan discharge based on a disqualifying status unknown to 
the school.
    Change: None.

Section 682.604 Processing the borrower's loan proceeds and counseling 
borrowers

Section 682.604(d)(1)(ii)(B)

    Comments: Many commenters noted that the proposed regulations 
modify the current requirement that the school maintain loan proceeds 
at the request of the student in a designated ``trust'' account but 
still require that they be maintained in a ``separate'' account. The 
commenters noted that this was the case in both the FFEL NPRM and the 
Direct Loan NPRM and conflicts with discussion of this provision in the 
preamble to the FFEL NPRM. The commenters support the proposal as 
described in the preamble and suggest that there is no reason for a 
school to maintain a separate account for these funds as long as the 
funds are properly accounted for through subsidiary ledgers.
    The commenters suggested that if the account must be separate, the 
final FFEL regulations should be revised to include the language used 
in the preamble of the December 18, 1992 FFEL regulations which stated 
that a school was permitted to deposit these funds in an interest-
bearing account and retain any interest earned on the account for 
administrative expenses related to administering the account and the 
title IV programs.
    Discussion: The Secretary understands the issue raised by the 
commenters. This issue is being addressed in the cash management 
regulation. Therefore, the Secretary is deleting this provision.
    Change: Section 682.604(d)(1)(ii)(B) has been removed from the 
regulations. The provision regarding this issue is included in the 
Department's cash management regulations in 34 CFR 668.164(e) that are 
being published simultaneously with this regulation.

Section 682.604(f)(1)

    Comments: Many commenters supported the current initial counseling 
requirements for first-time borrowers and the technology permitted to 
be used to provide the counseling. However, many of these commenters 
also believe that FFEL participating schools should be allowed the same 
opportunity, based on specified standards of performance, to devise 
alternative counseling approaches similar to those proposed in the 
Direct Loan NPRM. These commenters stated that schools participating in 
either loan program should have the option of not counseling or 
performing counseling only with selected groups of borrowers. Some 
commenters recommended that the Secretary allow FFEL schools who 
participate in the Institutional Quality Assurance Program (IQAP) to 
adopt an alternative counseling plan.
    Discussion: The Secretary supports the concept of allowing an FFEL 
participating school to implement an alternative approach to initial 
counseling based on specified performance standards. However, the 
Secretary does not believe he has enough data at the current time to 
identify either the performance standards or benchmarks to be used to 
identify which schools should be permitted to implement alternative 
counseling procedures. The Secretary will continue to consider the way 
performance standards can be used for alternative counseling, as well 
as how alternative counseling might be implemented as part of the IQAP 
program.
    Change: None.

Section 682.607 Payment of a Refund to a Lender

Section 682.607(c)(1)

    Comments: Many commenters objected to reducing the timeframe that a 
school has to pay an FFELP refund to the lender from the currently 
permissible 60 days to 30 days. They stated that many schools' 
financial operations are conducted through either a State's treasury or 
a central administrative office, making 30 days an insufficient amount 
of time to generate a refund check to the lender.
    Discussion: Based on the number of commenters who expressed 
concerns that 30 days does not allow most schools enough time to make a 
refund to a lender, the Secretary has decided to retain the provision 
that allows schools 60 days to make a refund to a lender.
    Change: This section has been revised to require a school to make a 
refund to the lender within 60 days after the student's withdrawal date 
has been determined under 34 CFR 682.22.

Waiver of Proposed Rulemaking

    In addition to the changes made to part 682 based on public comment 
on the notice of proposed rulemaking, the Secretary has revised the 
regulations to include changes made by the Improving America's School 
Act of 1994 (Pub. L. 103-382), enacted subsequent to publication of the 
notice of proposed rulemaking.
    It is the practice of the Secretary to offer interested parties the 
opportunity to comment on proposed regulations in accordance with the 
Administrative Procedure Act, 5 U.S.C. 553. However, since these 
changes merely incorporate statutory changes into the regulations, 
public comment could have no effect. Therefore, the Secretary has 
determined pursuant to 5 U.S.C. 553(b)(B) that public comment on the 
regulations is unnecessary and contrary to the public interest.

Paperwork Reduction Act of 1980

    Sections 682.205, 682.602, 682.604, and 682.605 contain information 
collection requirements. As required by the Paperwork Reduction Act of 
1980, the Department will submit a copy of these regulations to the 
Office of Management and Budget (OMB) for its review. (44 U.S.C. 
3504(h))
    Annual public reporting and recordkeeping burden is estimated to 
result in a reduction of 50 hours per 500 respondents, including the 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and reviewing the collection 
of information.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, room 10235, New Executive Office 
Building, Washington, DC 20503; Attention: Daniel J. Chenok.

Assessment of Educational Impact

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

List of Subjects in 34 CFR Part 682

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

    Dated: November 22, 1994.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number 84.032, Federal 
Family Education Loan Program)

    The Secretary proposes to amend Part 682 of Title 34 of the Code of 
Federal Regulations as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

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

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

    2. Section 682.100, paragraph (a)(4) is amended to read as follows:


Sec. 682.100  The Federal Family Education Loan programs.

    (a) * * *
    (4) The Federal Consolidation Loan Program (Consolidation Loan 
Program), which encourages making loans to borrowers for the purpose of 
consolidating their repayment obligations, with respect to loans 
received while they were students, under the Federal Insured Student 
Loan (FISL), Stafford loan, SLS, ALAS (as in effect before October 17, 
1986), PLUS, and Perkins Loan programs, the Health Professions Student 
Loan (HPSL) Program authorized by subpart II of part A of Title VII of 
the Public Health Services Act, Health Education Assistance Loans 
(HEAL) authorized by subpart I of Part A of Title VII of the Health 
Services Act, and Nursing Student Loan Program loans authorized by 
subpart II of part B of title VIII of the Public Health Service Act.
 * * * * *
    3. Section 682.101, paragraph (c) is revised to read as follows:


Sec. 682.101  Participation in the FFEL programs.

* * * * *
    (c) Students who meet certain requirements, including enrollment at 
a participating school, may borrow under the Stafford Loan and, prior 
to July 1, 1994, the SLS program. Parents of eligible dependent 
undergraduate students may borrow under the PLUS Program. Borrowers 
with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, ALAS, PLUS, 
or Nursing Student Loan Program loans, or married couples each of whom 
have eligible loans under these programs may borrow under the 
Consolidation Loan Program.
    4. Section 682.200, paragraph (b) is amended by removing the 
definition of ``Estimated cost of attendance''; by amending the 
definition of ``Estimated financial assistance'', by revising 
introductory paragraph (1), paragraph (1)(vii), removing (1)(viii) and 
revising paragraph (2)(i)(A) to read as follows:


Sec. 682.200  Definitions.

* * * * *
    (b) * * *
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, 
or other sources, such as, scholarships, grants, financial need-based 
employment, or loans, including but not limited to--* * *
    (vii) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, 
and the gross amount (including fees) of a Federal Stafford, 
Unsubsidized Stafford and Federal PLUS loan.
* * * * *
    (2)(i) * * *
    (A) Unsubsidized and nonsubsidized Stafford loan amounts for which 
interest benefits are not payable.
* * * * *
    5. Section 682.201 is amended by revising paragraph (a)(4)(i), 
paragraph (a)(5)(i), paragraph (a)(6), and adding a new paragraph 
(b)(8) to read as follows:


Sec. 682.201  Eligible borrowers.

    (a) * * *
    (4)(i) Reaffirms any FFEL loan amount on which there has been a 
total cessation of collection activity, including all principal and 
interest that has accrued on that amount up to the date of 
reaffirmation.
* * * * *
    (5)(i) In the case of a borrower whose previous loan was canceled 
due to total and permanent disability, the student must--
    (A) Obtain a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (B) Sign a statement acknowledging that the FFEL loan the borrower 
receives cannot be canceled in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates;
* * * * *
    (6) In the case of any student who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education 
or the recognized equivalent of such a certificate, the student meets 
the requirements under 34 CFR Part 668.7(b).
* * * * *
    (b) * * *
    (8) Obtains an endorser who has been determined not to have an 
adverse credit history as provided in paragraph (7)(iii) of this 
section.
    6. Section 682.207 is amended by removing the period at the end of 
paragraph (d)(2)(ii) and adding, in its place, ``;or''; and adding a 
new paragraph (d)(2)(iii) to read as follows:


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (d) * * *
    (2) * * *
    (iii) Within 90 days after the student ceases to be enrolled on at 
least a half-time basis or after the expiration date of the period of 
enrollment for which the loan was made, whichever is earlier, with the 
prior approval of the guaranty agency, based on a borrower's documented 
exceptional circumstances.
* * * * *
    7. Section 682.210 has been amended by revising paragraph (s)(6) to 
read as follows:


Sec. 682.210  Deferment.

* * * * *
    (s) * * *
    (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 Direct Loan 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;
    (iv) Is working full-time and has a Federal education debt burden 
that equals or exceeds 20 percent of the borrower's total monthly gross 
income, and the borrower's income minus such burden is less than 220 
percent of the amount calculated under paragraph (s)(6)(iii) of this 
section; or
    (v) Is not working full-time and has a total monthly gross income 
that does not exceed twice the amount calculated under paragraph 
(s)(6)(iii) of this section and, after deducting an amount equal to the 
borrower's Federal education debt burden, as determined under paragraph 
(s)(6)(vi) of this section, the remaining amount of that income does 
not exceed the amount specified in paragraph (s)(6)(iii) of this 
section.
    (vi) In determining a borrower's Federal education debt burden for 
purposes of an economic hardship deferment under paragraphs (s)(6)(iv) 
through (v) 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. 
The lender shall require the borrower to provide 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)(vi) of this section.
    (vii) For an initial period of deferment granted under paragraphs 
(s)(6)(iii) through (v) of this section, the lender shall require the 
borrower to submit evidence showing the amount of the borrower's most 
recent total monthly gross income, as defined in paragraph (s)(6)(ix) 
of this section.
    (viii) 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) through (v) of this section, the lender shall 
require the borrower to submit 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 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.
    (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.
    (x) For purposes of paragraph (s)(6) 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.
    8. Section 682.402 is amended by revising paragraphs (e)(1)(i)(A), 
(e)(13) heading, and (e)(13)(iii) to read as follows:


Sec. 682.402

Death, disability, closed school, false certification, and bankruptcy 
payments

* * * * *
    (e) * * *
    (1) * * *
    (i) * * *
    (A) Certified the student's eligibility for a FFEL Program loan on 
the basis of ability to benefit from its training and the student did 
not meet the applicable requirements described in 34 CFR Part 668 and 
section 484(d) of the Act, as applicable and as described in paragraph 
(e)(13) of this section; or
* * * * *
    (13) Requirements for certifying a borrower's eligibility for a 
loan.
* * * * *
    (iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this 
section, a student did not have the ability to benefit from training 
offered by the school if--
    (A) The school certified the eligibility of the student for a FFEL 
Program loan; and
    (B) At the time of certification, the student would not meet the 
requirements for employment (in the student's State of residence) in 
the occupation for which the training program supported by the loan was 
intended because of a physical or mental condition, age, or criminal 
record or other reason accepted by the Secretary.
* * * * *
    9. Section 682.602 is amended by revising the section heading; 
removing paragraph (c); redesignating paragraphs (a) and (b) as 
paragraphs (b) and (c) respectively; and adding a new paragraph (a) to 
read as follows:


Sec. 682.602  Schedule requirements for courses of study by 
correspondence.

    (a) This section provides guidance for schools that offer programs 
of study by correspondence for the purpose of determining enrollment 
status.
* * * * *
    10. Section 682.604 is amended by removing and reserving paragraph 
(d)(1)(ii)(B); by revising paragraph (e)(4) introductory text; and by 
revising paragraph (f)(1) to read as follows:


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

* * * * *
    (e) * * *
    (4) If the lender or guaranty agency has not informed the school 
that it prohibits a late disbursement as permitted by 
Sec. 682.207(d)(2)(i), and if the total amount of the disbursement and 
all prior disbursements on the loan does not exceed that portion of the 
student's documented educational costs for the period of enrollment 
completed by the student before the earlier of the dates described in 
paragraph (e)(1) of this section, the school shall deliver the 
borrower's loan proceeds to the borrower not later than 45 days after 
the school's receipt of the funds. If the total amount of the late 
disbursement and all prior disbursements is greater than that portion 
of the borrower's documented educational charges, the school shall--
* * * * *
    (f) * * *
    (1) Except in the case of a student enrolled in a correspondence 
program or a study-abroad program approved for credit at the home 
institution, a school shall conduct initial counseling with each 
Stafford borrower either in person, by audiovisual presentation or by 
computer assisted technology. In each case, the school shall conduct 
this counseling prior to its release of the first disbursement of the 
proceeds of the first Stafford loan made to the borrower for attendance 
at the school, unless the borrower has received a prior Stafford, SLS 
or Direct loan, and shall ensure that an individual with expertise in 
the title IV programs is reasonably available shortly after the 
counseling to answer the borrower's questions regarding those programs. 
In the case of a correspondence school or a student enrolled in a 
study-abroad program that the school approves for credit, the school 
shall provide the borrower with written counseling materials by mail 
prior to releasing those proceeds.
* * * * *
    11. Section 682.605 is revised to read as follows:


Sec. 682.605  Determining the date of a student's withdrawal.

    (a) A school shall follow the procedures in 34 CFR 668.22(i) for 
determining the student's date of withdrawal.
    (b) The school shall use the date determined under 34 CFR 668.22(i) 
for the purpose of reporting to the lender the date that the student 
has withdrawn from the school and for determining when a refund must be 
paid under 34 CFR 668.22.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

    12. Section 682.606 is removed and reserved.
    13. Section 682.607 is amended by revising paragraph (c)(1) to read 
as follows:


Sec. 682.607  Payment of a refund to a lender.

* * * * *
    (c) * * *
    (1) Within 60 days after the student's withdrawal as determined 
under 34 CFR 668.22(i).
* * * * *
    15. Appendix A to part 682 is removed and reserved.

Appendix A [Removed and Reserved]

[FR Doc. 94-29262 Filed 11-28-94; 8:45 am]
BILLING CODE 4000-01-P