[Federal Register Volume 59, Number 229 (Wednesday, November 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29261]


[[Page Unknown]]

[Federal Register: November 30, 1994]


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Part III





Department of Education





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34 CFR Part 674, et al.




Federal Perkins Loan Program, Federal Work-Study Programs, and Federal 
Supplemental Educational Opportunity Grant Program; Final Rule
DEPARTMENT OF EDUCATION

34 CFR Parts 674, 675, and 676

RIN 1840 AB71

 
Federal Perkins Loan Program, Federal Work-Study Programs, and 
Federal Supplemental Educational Opportunity Grant Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations governing the campus-
based programs (Federal Perkins Loan, Federal Work-Study (FWS), and 
Federal Supplemental Educational Opportunity Grant (FSEOG) programs). 
These amendments are needed to implement changes made to the Higher 
Education Act of 1965, as amended (HEA). These regulations also seek to 
improve the efficiency of the campus-based programs, to reduce the 
administrative burden for institutions where possible, and to enhance 
opportunities for postsecondary education.

EFFECTIVE DATE: These regulations take effect on July 1, 1995 and apply 
to the 1995-96 and subsequent award years. However, affected parties do 
not have to comply with the information collection requirements in 
Sec. 674.34(e) until the Department of Education publishes in the 
Federal Register the control number assigned by the Office of 
Management and Budget (OMB) 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.

FOR FURTHER INFORMATION CONTACT:

    1. For the Federal Perkins Loan Program: Sylvia R. Ross, U.S. 
Department of Education, 600 Independence Avenue, S.W., (Regional 
Office Building 3, Room 4018), Washington, DC 20202-5447. Telephone: 
(202) 708-8242; or
    2. For the FWS and FSEOG Programs: Kathy S. Gause, U.S. Department 
of Education, 600 Independence Avenue, S.W., (Regional Office Building 
3, Room 4018), Washington, DC 20202-5447. Telephone: (202) 708-4690.
    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: These amendments revise the existing campus-
based program regulations. The campus-based programs are authorized as 
follows: Federal Perkins Loan--20 U.S.C. 1087aa-1087hh and 20 U.S.C. 
421-429; FWS--42 U.S.C. 2751-2756b; FSEOG--20 U.S.C. 1070b-1070b-3. 
These regulations implement the provisions of the National and 
Community Service Act of 1990 (Pub. L. 101-610), enacted November 16, 
1990, the Crime Control Act of 1990 (Pub. L. 101-647), enacted November 
29, 1990, the Higher Education Amendments of 1992 (Pub. L. 102-325), 
enacted July 23, 1992 (Amendments), the Higher Education Technical 
Amendments of 1993 (Pub. L. 103-208), enacted December 20, 1993 
(Technical Amendments), the Improving America's Schools Act of 1994 
(Pub. L. 103-382), enacted October 20, 1994, and the Bankruptcy Reform 
Act of 1994 (Pub. L. 103-394), enacted October 22, 1994.
    On June 22, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) in the Federal Register (59 FR 32264-32287). The NPRM 
included a discussion of major issues surrounding the proposed changes 
that 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 can be found.

Campus-Based Programs

    The Secretary proposed to amend the definition of ``undergraduate 
student'' to remove the restriction that did not allow an undergraduate 
student to receive Federal Perkins Loan or FWS assistance if he or she 
has already earned a baccalaureate or first professional degree. The 
proposal provided that a student is not ineligible for assistance under 
the Federal Perkins Loan or FWS programs because he or she has 
previously received a baccalaureate or professional degree (page 
32264).
    The Secretary proposed to amend the allocation and reallocation 
procedures for the campus-based programs to provide that if an 
institution returns more than 10 percent of its Federal Perkins Loan, 
FWS, or FSEOG allocation for an award year, the institution will have 
its allocation for the next fiscal year for that program reduced by the 
dollar amount returned (pages 32264-32265).
    The Secretary proposed to amend the criteria for selection of 
students for campus-based assistance to ensure that independent 
students and students attending an institution on a less-than-full-time 
basis would be equitably provided financial assistance (page 32265).
    The Secretary proposed to amend the overaward threshold provisions 
for the campus-based programs (page 32265).
    To reduce burden for both the student and the institution, the 
Secretary proposed to allow an institution to disburse funds under the 
Federal Perkins Loan and FSEOG programs to a student when he or she is 
no longer enrolled if the assistance was awarded while the student was 
still an eligible student (page 32265).

Federal Perkins Loan Program

    The Secretary proposed to remove the definitions of ``Default 
rate'', ``Defaulted principal amount outstanding'', and ``Matured 
loans'', and add the definitions of ``Disposable income'', ``Enter 
repayment'', ``Making of a loan'', and ``Satisfactory arrangements to 
repay the loan'' (pages 32265-32266).
    The Secretary proposed to amend the reallocation formula for the 
Federal Perkins Loan Program, and to establish an appeals process by 
which the anticipated collections requirement may be waived for 
institutions with ``low default rates'' (page 32266).
    The Secretary proposed to add a new section to the regulations to 
establish the Federal Perkins Loan cohort default rate and penalties 
for an institution with a high cohort default rate for the 1994-95 
award year and subsequent award years (page 32266).
    The Secretary proposed to add a new section to the regulations to 
describe the measures that institutions with high default rates must 
use to establish a default reduction plan (page 32266).
    The Secretary proposed establishment of the Expanded Lending Option 
as necessary to implement statutory provisions under the Amendments and 
the Technical Amendments (page 32266).
    The Secretary proposed to amend the Program Participation Agreement 
to implement the increase in the capital contribution requirements as 
required by the Amendments, and to include new reporting requirements 
containing information for determining an institution's cohort default 
rate (pages 32266-32267).
    The Secretary proposed to amend the student eligibility 
requirements to implement statutory provisions under the Amendments 
(page 32267).
    The Secretary proposed to amend the maximum loan limits to reflect 
statutory changes (page 32267).
    The Secretary proposed to remove all references to the term 
``endorser'' to reflect the statutory change that provides that all 
Federal Perkins Loans are to be made without security or endorsement 
(page 32267).
    The Secretary proposed to incorporate the new statutory requirement 
that an institution report loan disbursements to a national credit 
bureau (page 32267).
    In accordance with statutory changes, the Secretary proposed to 
provide for the transfer of up to 25 percent of an institution's 
Federal Capital Contribution (FCC) allotment for an award year to 
either or both the FSEOG and FWS programs (page 32267).
    The Secretary proposed to delete the promissory note from the 
existing regulations and to provide the note in a ``Dear Colleague'' 
letter. In addition, the Secretary proposed to delete the defense of 
infancy provision (page 32267).
    In accordance with statutory changes, the Secretary proposed to 
allow an institution to increase the minimum monthly repayment amount 
to $40. In addition, the Secretary proposed to establish forbearance of 
principal and interest where circumstances warrant it, and to authorize 
an institution to compromise on the repayment of a loan (page 32267).
    The Secretary proposed to revise the regulations to reflect 
statutory changes in the deferment provisions (pages 32267-32268).
    The Secretary proposed to amend the regulations to incorporate new 
statutory loan disclosure requirements that must be met during a 
borrower's exit interview (page 32268).
    To reduce burden for both the borrower and the institution, the 
Secretary proposed to allow a borrower to elect to repay his loan by 
means of the electronic transfer of funds from the borrower's bank 
account (page 32268).
    To reduce institutional burden, the Secretary proposed to eliminate 
skip-tracing as a required due diligence step (page 32268).
    In accordance with statutory changes, the Secretary proposed to 
revise loan collection and litigation procedures to require 
institutions to report defaulted loans to any one of the credit bureaus 
with which the Secretary has an agreement. In addition, the Secretary 
proposed to amend the regulations to reflect the elimination of the 
statute of limitations on litigating to recover amounts owed on 
defaulted accounts (page 32268).
    In accordance with statutory changes, the Secretary proposed to 
eliminate the 50-percent limitation on the number of Title 1 schools in 
a State that meet the eligibility criteria and provided that teaching 
in any Title 1 school that meets the eligibility criteria now qualifies 
a borrower for a loan cancellation. This change will increase the 
opportunities for receiving loan cancellations and encourage more 
teachers to teach in low-income schools (pages 32268-32269).
    The Secretary proposed to expand the loan cancellation employment 
provisions (page 32269).
    The Secretary proposed to amend the definition of permanent and 
total disability to include the inability of the borrower to attend an 
institution because of an impairment that is expected to continue 
indefinitely or result in death (page 32269).

Federal Work-Study Programs

    In accordance with statutory amendments and consistent with the 
Secretary's desire to promote community service activities, the 
Secretary proposed to amend the purpose of the FWS program to include 
an encouragement to students receiving program assistance to 
participate in community service activities (page 32269).
    The Secretary proposed to add a new definition of ``low-income 
individual'' for purposes of community services (page 32269).
    The Secretary proposed to amend the program participation agreement 
to include assurances that (1) employment under the program may be used 
to support programs for supportive services to students with 
disabilities, and (2) institutions will inform all eligible students of 
the opportunity to perform community service and will consult with 
local nonprofit, governmental, and community-based organizations to 
identify community service opportunities. In identifying community 
service opportunities, the Secretary expects institutions to consult 
with their students (page 32269).
    In accordance with statutory changes, the Secretary proposed to 
amend several provisions governing use of FWS funds. First, 
institutions participating in the Work-Colleges program would be 
allowed to use FWS funds for meeting costs of the Work-Colleges 
program. Second, the institutional administrative expense allowance for 
work-study for community service learning would be eliminated. Third, 
the amount of an institution's allocation under the FWS programs that 
may be transferred to the FSEOG program would be increased from 10 
percent to 25 percent. Fourth, an institution would have additional 
carry-back authority to pay students who work during the summer. Fifth, 
an institution would be required to use 5 percent of the total FWS 
Federal funds granted to the institution to compensate students 
employed in community service activities for the 1994-95 award year and 
subsequent award years (page 32269).
    In accordance with statutory changes, the Secretary proposed to 
provide that a student employed by a proprietary institution and 
performing community services is no longer also required to be 
furnishing student services (pages 32269-32270).
    In accordance with statutory changes, the Secretary proposed to 
increase the Federal share of FWS compensation paid to a student 
employed other than by a for-profit organization to 75 percent (page 
32270).
    As a result of statutory changes the Secretary proposed to remove 
the ``Community Service-Learning Program'' from the regulations (page 
32270).

Job Location and Development (JLD) Program

    The Secretary proposed to combine the regular JLD program to expand 
off-campus job opportunities and the ``Community Services'' JLD program 
to locate and develop community services jobs for students into one 
program. The Secretary further proposed to expand the statement of 
purpose for the JLD program to include the encouragement of 
participation in community service activities. The Secretary also 
proposed to allow an institution to use the lesser of $50,000 or 10 
percent of its FWS allocation to establish or expand a JLD program 
(page 32270).
    The Secretary, in accordance with amended section 446(a) of the 
HEA, proposed to eliminate the authority for institutions to enter into 
agreements with nonprofit organizations and limit institutions to 
working with other institutions for the purpose of developing jobs 
(page 32270).

Work-Colleges Program

    In accordance with the Amendments, the Secretary proposed to add 
the new ``Work-Colleges program'' to the regulations (page 32270).

Federal Supplemental Educational Opportunity Grant Program

    The Secretary proposed to amend the allocation and reallocation 
provisions for unexpended FSEOG funds (page 32270-32271).
    The Secretary proposed to eliminate an institution's authority to 
transfer FSEOG funds to the FWS program as necessary to implement 
statutory provisions (page 32271).
    The Secretary proposed to increase the maximum FSEOG award that an 
institution may award a student per academic year from $4,000 to $4,400 
for a student studying abroad (page 32271).
    The Secretary proposed that the Federal share of FSEOG awards will 
not exceed 75 percent effective for award years beginning on or after 
July 1, 1993 as necessary to implement statutory changes (page 32271).

Substantive Changes to the NPRM

    The following discussion describes the significant changes since 
publication of the NPRM and the manner in which certain critical 
provisions will be initially implemented. They are discussed in the 
order in which they appear in the text of the regulations. The changes 
that apply to more than one program are described first followed by 
descriptions of changes that pertain to only a specific program.

Student Assistance General Provisions

Section 668.57  Acceptable Documentation

    In the June 22, 1994 NPRM, the Secretary proposed to amend 
Sec. 668.57(c) to require the signature of one parent instead of both 
parents when verifying the number of family household members enrolled 
in postsecondary institutions for a dependent applicant. If only one 
parent's income is considered in the title IV, HEA aid awarding 
process, that is the parent who must sign. Otherwise, either parent may 
sign. This burden reduction provision will be addressed in the Student 
Assistance General Provisions final regulations governing verification 
of all title IV programs which will provide that either parent may 
sign, regardless of which parent's income is reported.

Federal Perkins Loan, FWS, and FSEOG Programs

Sections 674.10, 675.10, and 676.10  Selection of Students

    In the June 22, 1994 NPRM the Secretary proposed to amend 
Secs. 674.10, 675.10, and 676.10 to state that if an institution's 
FSEOG allocation, FWS grant, or Federal Perkins Loan FCC is directly or 
indirectly based in part on the financial need of less-than-full-time 
or independent students and if the need of all of these students 
exceeds 5 percent of the total need of all students at an institution, 
then at least 5 percent of that allotment for FSEOG, 5 percent of that 
grant for FWS, or 5 percent of the dollar amount of the loans made 
under the Federal Perkins Loan program must be made available to these 
students. The Department previously had stated in various documents 
that ``make available'' meant that an institution was required to 
actually ``expend'' the dollars for these students. In response to the 
public comments and as part of his efforts to reduce regulatory burden, 
the Secretary is revising the final regulations to provide that the 
institution must ``offer'' the funds to less-than-full-time and 
independent students. The institution is not required to have actually 
disbursed the title IV funds to less-than-full-time and independent 
students.

Sections 674.14, 675.14, and 676.14  Overaward

    A financial aid administrator may not award or disburse aid from a 
campus-based program if that aid, when combined with all other 
resources, would exceed the student's need. If the student receives 
additional resources at any time during the award year that were not 
considered in determining the student's eligibility for aid, and these 
resources combined with the expected financial aid will exceed the 
student's need, the amount in excess of the student's need is 
considered an overaward. Statutory provisions under the Amendments 
provided for a $300 overaward threshold for FWS. In the June 22, 1994 
NPRM, the Secretary proposed that, if a student has FWS, a $300 
overaward threshold for the three campus-based programs would be in 
effect; however, if a student only has an FSEOG or Federal Perkins 
Loan, the current $200 overaward threshold would be the limit. In 
response to the public comments and as part of his efforts to reduce 
regulatory burden, the Secretary is providing a uniform $300 overaward 
threshold for all the campus-based programs regardless of whether the 
student has been awarded FWS funds.

Federal Perkins Loan Program

Section 674.33  Repayment

Section 674.34  Deferment of Repayment

    In the June 22, 1994 NPRM, the Secretary made proposals for the 
implementation of the statutory provisions governing forbearance of a 
borrower's repayment of a Federal Perkins loan and the deferment of 
repayment due to economic hardship reasons. The provisions contained in 
the NPRM paralleled the same provisions in the FFEL Program, as 
detailed in the FFEL Program NPRM, published on March 24, 1994. In 
response to the comments received on the FFEL Program NPRM, the 
Secretary made significant changes to the forbearance and economic 
hardship provisions in the final FFEL Program regulation, published on 
June 29, 1994. Those same changes have been made to the forbearance and 
economic hardship provisions in the Federal Perkins Loan program, as 
part of the Secretary's ongoing effort to reduce the institutional 
burden of administering the title IV student aid programs. These 
changes include the revisions to the definition of ``full-time 
employment'' for purposes of granting an economic hardship deferment.
    In accordance with amendments to the HEA made by the Improving 
America's Schools Act of 1994 (Pub. L. 103-382), the Secretary is 
revising the final regulations to include a new criterion under which a 
borrower may qualify for deferment of repayment due to economic 
hardship reasons.

Section 674.52  Cancellation Procedures

    In accordance with amendments to the HEA made by the National and 
Community Service Act of 1990 (Pub.L. 101-610), the Secretary is 
revising the final regulations to include the provision that a borrower 
may not receive a benefit under subtitle D of title I of the National 
and Community Service Act of 1990 and a cancellation benefit under the 
Federal Perkins Loan program.

Federal Work-Study Program

Section 675.2  Definitions

    Statutory provisions for community service under the Amendments 
provide that community service is designed to improve the quality of 
life for community residents, particularly low-income individuals. In 
the June 22, 1994 NPRM, the Secretary proposed to add a new definition 
of ``low-income individual'' for purposes of community service. In 
response to public comment and as part of the Secretary's efforts to 
reduce regulatory burden, the Secretary is not defining ``low-income 
individual'' in these regulations.

Work-Colleges Program

Sections 675.41-675.50

    Section 448(f) of the HEA contains a separate authorization of 
appropriations for the Work-Colleges program. Therefore, a new 
Sec. 675.42--Allocation and Reallocation, has been added to the 
regulations and all other sections of the Work-Colleges program 
regulations have been redesignated. Sections 675.46 and 675.47 contain 
paperwork requirements, and have been redesignated as Sec. 675.47 and 
Sec. 675.48.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 58 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the changes in the regulations since publication of the 
NPRM follows. 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 applicable statutory 
authority--are not addressed.

Comments and Responses

Sections 674.4, 675.4, and 676.4  Allocation and Reallocation

    Comments: Three commenters suggested that the Secretary permit an 
institution, under certain circumstances, to appeal an allocation 
reduction because it returned more than 10 percent of its previous 
year's allocation. These commenters suggested that the Secretary allow 
an appeal during occurrences of natural disasters or situations in 
which enrollments are reduced because students are called to service in 
areas of hostility, such as the military mobilizations for ``Operation 
Desert Storm.''
    Discussion: The Secretary believes that this provision of the 
proposed regulations adequately addresses situations in which these 
provisions may be waived. As stated in the preamble to the NPRM, the 
Secretary may waive these provisions in such circumstances as a natural 
disaster. Additionally, to assist institutions in their recovery from 
the effects of disasters, or to provide relief to students who have 
been called to military service in areas of hostility, the Secretary 
provides enforcement relief from regulatory requirements and provides 
guidance through ``Dear Colleague'' letters issued at the time of the 
natural disaster or the declaration of an area of hostility.
    Changes: None.
    Comments: One commenter stated that a literal interpretation of a 
reduction in an institution's allocation for the next fiscal year would 
require reductions in two award years. This commenter suggested that 
the term ``fiscal year'' be replaced by ``award year'' to make the 
provision easier to understand while still being in line with 
congressional intent.
    Discussion: The Secretary agrees with the commenter that the use of 
the term ``fiscal year'' in this context is confusing.
    Changes: The language of this provision is changed to incorporate 
the concept of an ``award year'' allocation rather than ``fiscal 
year.''

Section 674.10, 675.10, and 676.10  Selection of Students

    Comments: Several commenters noted that while sections 413C(d), 
443(b)(3), and 464(b)(2) of the HEA require most institutions to ``make 
available'' to less-than-full-time and independent students at least 5 
percent of the FWS allotment, 5 percent of the FSEOG allotment, and 5 
percent of the dollar amount of the loans made under the Federal 
Perkins Loan program, the NPRM did not define the term ``make 
available.'' These commenters were concerned that while most students 
would accept FSEOG as part of their award packages because it is grant 
money, institutions have no control over whether students will accept 
Federal Perkins loans or work to earn FWS funds. They believe that it 
would be very difficult for some institutions to meet this requirement 
if independent and part-time students have to accept, or even earn, 5 
percent of the FWS allocation. One commenter stated that most students 
attending less-than-full-time are doing so because they are already 
working and therefore those students are not interested in FWS. The 
majority of the commenters suggested that the Secretary should 
interpret the statute in its use of the term ``make available'' to mean 
``offer'' FWS, FSEOG, and Federal Perkins loans to students rather than 
``disburse'' these funds.
    One commenter noted that the wording between the FWS section and 
the FSEOG section is slightly different and recommended that it be 
consistent.
    Discussion: The Secretary agrees that in some circumstances it may 
be difficult for an institution to actually disburse to less-than-full-
time and independent students at least 5 percent of its FWS allotment, 
5 percent of its FSEOG allotment, or 5 percent of the dollar amount of 
the loans made under the Federal Perkins Loan program. Therefore, to 
accommodate these circumstances and prevent a burden on institutions to 
be responsible for what financial aid a student accepts, in 
interpreting amended sections 413C(d), 443(b)(3), and 464(b)(2) of the 
HEA, the Secretary considers the words ``make available'' to mean that 
the institutions must ``offer'' to less-than-full-time and independent 
students at least 5 percent of its FWS allotment, 5 percent of its 
FSEOG allotment, or 5 percent of the dollar amount of the loans made 
under the Federal Perkins Loan program if the need of all of these 
students exceeds 5 percent of the total need of all students at an 
institution.
    Changes: The wording of this provision in the campus-based sections 
is changed to reflect that institutions must ``offer'' these campus-
based funds to less-than-full-time and independent students. Also, the 
wording was revised for consistency among the campus-based programs.

Sections 674.14, 675.14 and 676.14  Overaward

    Comments: There were a number of comments on these sections, all in 
favor of the statutory provision that allows a student employed in the 
FWS program to earn up to $300 for need-based employment in excess of 
his or her financial need before employment in the FWS program must be 
discontinued.
    Several commenters recommended that the Secretary provide a uniform 
overaward threshold of $300 for all recipients of campus-based aid to 
simplify the overaward calculation process and reduce administrative 
costs.
    One commenter suggested that the proposed wording of these 
provisions is slightly ambiguous and subject to different 
interpretations. The commenter believed that the application of a 
uniform overaward threshold to all campus-based aid recipients will 
avoid any potential confusion.
    Discussion: The Secretary has reevaluated his proposal in the June 
22, 1994 NPRM. The statutory purpose of the FWS provision is to prevent 
aid administrators from being administratively burdened by having to 
make adjustments to financial aid packages when small amounts of 
overawards occur. The Secretary believes that the use of a uniform 
campus-based overaward threshold will further reduce the administrative 
burden for institutions without cost implications to the campus-based 
programs.
    It is important to note that these provisions do not allow an 
institution to make campus-based awards in excess of the amount of the 
student's need. Although a threshold is allowed subsequent to the 
packaging of campus-based aid, the threshold does not allow an 
institution deliberately to award campus-based aid that, in combination 
with other resources, exceeds the student's financial need.
    Changes: The Secretary has provided a uniform $300 overaward 
threshold for all recipients of campus-based aid.

Federal Perkins Loan Program

Section 674.2  Definitions

    Comments: While most commenters believed that the new definition of 
``disposable income'' was necessary in order to be consistent with the 
FFEL Program and to establish eligibility for an economic hardship 
deferment or forbearance of payments, others believed the definition 
was unclear and needed further clarification. Commenters were 
particularly concerned that alimony payments, child support payments, 
wage garnishment, and other similar items be considered deductions 
``required by law to be withheld.''
    Discussion: The term ``disposable income'' was defined in the NPRM 
as part of the proposed rules for the forbearance and the economic 
hardship deferment provisions. Forbearance and economic hardship are 
provisions common to all title IV loan programs, including the Federal 
Perkins Loan program, and the Secretary made the identical proposal for 
these two provisions in the FFEL Program NPRM, published on March 24, 
1994. The Secretary received a number of comments on the proposed 
definition of ``disposable income'' in the FFEL Program NPRM and, as a 
result, decided that ``total monthly gross income'' was a term more 
easily understood than ``disposable income.'' Consequently, the 
Secretary replaced ``disposable income'' with ``total monthly gross 
income'' in the final FFEL Program regulation. For a complete 
discussion of the reasons for making this change, see comment number 18 
on page 33584 of the Federal Register published on June 29, 1994.
    As part of the Department's effort to simplify the regulations and 
reduce burden at the institution, provisions that are common to both 
the Federal Perkins Loan program and the FFEL Program will have the 
same regulatory provisions, to the extent practicable. Therefore, in 
this final rule, the proposed rules for the Federal Perkins Loan 
program have been modified to reflect the forbearance and economic 
hardship provisions contained in the final FFEL Program regulation, 
published on June 29, 1994.
    Changes: The definition of ``disposable income'' is removed and 
replaced by the definition of ``total monthly gross income.''
    Comments: Several commenters believed that the definition of 
``making of a loan'' needed to be expanded and clarified. Some 
commenters stated that the Secretary should define when a disbursement 
has been made to the borrower as part of the definition of ``making of 
a loan.'' The commenters believed that without this clarification there 
would be inconsistencies among institutions and additional tracking 
mechanisms would be required.
    Discussion: The issue of when funds are considered to be disbursed 
applies to all of the title IV programs, not just to the Federal 
Perkins Loan program. The Secretary is aware that the current title IV 
disbursement policies are applied inconsistently by institutions and is 
preparing to issue final regulations on this and other ``cash 
management'' issues by December 1, 1994. The Secretary is making 
conforming changes to the Federal Perkins Loan program regulations in 
the ``cash management'' regulations to be issued by December 1, 1994.
    Changes: None.
    Comments: Several commenters believed that the Secretary should 
define when a promissory note should be signed by the borrower as part 
of the definition of ``making of a loan.'' These commenters believed 
that Federal Perkins Loan borrowers should be able to sign the 
promissory note once, at the beginning of the academic year in which 
the award is made, and not each time a disbursement is made to the 
borrower.
    Discussion: The Secretary is sensitive to the commenters' concerns 
and will evaluate situations in which an institution could require an 
annual signature on the promissory note. The Secretary is especially 
interested in evaluating the possibility of making this option 
available to those institutions that have demonstrated a high 
performance level and that have met the stricter cohort default rate 
requirements adopted for the Federal Perkins Loan program. The 
Secretary would like to note that an annual signature on the promissory 
note would necessitate the elimination of the ``open-ended'' Federal 
Perkins Loan promissory note. The ``open-ended'' promissory note, 
currently available only in the Federal Perkins Loan program, 
significantly reduces burden at the institution, by allowing an 
institution to make loans on the same promissory note for as long as 
the statutory provisions remain the same. Allowing only a ``closed-
ended'' promissory note, as is done in the FFEL and FDSL programs, 
would result in a major increase in the number of promissory notes an 
institution would be required to maintain.
    Changes: None.
    Comments: A number of commenters felt strongly that the term 
``satisfactory arrangements to repay the loan'' should be defined in 
terms of the impact on the borrower and the institution. Commenters 
believed that the requirement of 6 months of consecutive payments in 
this definition is too stringent, particularly when this definition is 
used to determine when to exclude loans from the cohort default rate 
calculation. Because of the window of time in the cohort default rate 
tracking period, one commenter believed it would be more equitable to 
consider the fact that the institution was able to establish a new 
repayment plan with the borrower as meeting the criteria for 
satisfactory arrangements to repay the loans. Other commenters 
suggested a minimum of three consecutive monthly payments as the basis 
for excluding the loan from the cohort default rate. These commenters 
further stated that institutions do not have enough time to locate and 
contact the delinquent borrower, obtain the written agreement, and have 
6 months of payments made prior to June 30. One commenter suggested 
that once the new written repayment agreement has been signed and all 
payments due by June 30 have been properly made by the borrower, 
institutions should be allowed to exclude that account from their 
cohort default rate.
    Discussion: While the Secretary is sensitive to the concerns of the 
commenters, the Secretary does not agree that six consecutive months of 
payment is too stringent. In order to reduce the administrative burden 
at the institution, the Secretary is seeking ways to make the Federal 
Perkins Loan program consistent with the other title IV loan programs. 
Including six consecutive monthly payments in the definition of 
satisfactory arrangements to repay the loan is consistent with 
provisions in these programs.
    Changes: None

Section 674.5  Cohort Default Rate and Penalties

    Comments: Several commenters stated that while the definition of 
``loan rehabilitation'' in Sec. 674.5(e)(1) has limited benefit to the 
school in reducing a school's cohort default rate, it will be a benefit 
to the borrower whose loan is no longer considered to be in default. 
These commenters noted that a loan rehabilitated because the borrower 
has made 12 consecutive monthly payments is not removed from the 
school's cohort default rate. The commenters recommended that the 
definition be revised to allow for lump sum payments or up to a three-
month payment plan. One commenter also invited the Secretary's 
consideration of allowing a quarterly repayment option and a reduction 
in the minimum payments required to consider the loan rehabilitated.
    Discussion: While the Secretary is sensitive to the concerns of the 
commenters, the Secretary does not agree that the definition of a 
rehabilitated loan is too restrictive. Rehabilitating a loan gets the 
borrower out of default. Consequently, the borrower must establish a 
significant repayment history. Again, in order to reduce administrative 
burden at the institution, the provision is parallel to similar 
provisions in the FFEL and FDSL programs.
    Changes: None.
    Comments: Several commenters were concerned that the credit bureau 
reporting requirement for rehabilitated defaulted loans in 
Sec. 674.5(e)(2) was unclear. One commenter recommended including in 
the definition a requirement to report to the national credit bureau 
the date of the last payment, the unpaid principal balance, amount past 
due and date and amount of the last payment. Some commenters 
recommended that the phrase ``no longer in default'' should be 
clarified to mean that the record is not deleted from the borrower's 
credit history, when in fact it is only reported as a status change. 
One commenter also stated that the impact of ``rehabilitated and no 
longer in default'' affects the future disbursement of title IV aid and 
that the Secretary should not force the credit bureau to use unique, 
special definitions.
    Discussion: The Secretary understands the concerns of these 
commenters and agrees that the requirements of this provision are 
unclear. In drafting the provision the Secretary intended that 
institutions report to one of the national credit bureaus the change in 
status of the defaulted loans. The Secretary did not intend that the 
default be eliminated from the credit bureau records. A default on any 
loan is an important component of an individual's credit history and 
credit bureaus are required to maintain such information on an 
individual's account for 7 years. The Secretary is concerned that a 
borrower who has made such a serious attempt to take care of his or her 
defaulted loan have as up-to-date and accurate record at the credit 
bureau as possible. Therefore, the status of the loan should be 
accurate on the credit bureau record. In response to the suggestion 
that additional data be provided to the credit bureau, the Secretary 
does not want to increase the burden at the institution by imposing 
additional reporting requirements on the institution. However, it 
should be noted that these national credit bureaus have standards that 
have been established by Associated Credit Bureaus (ACB), the 
industry's trade group. The Department has no regulatory authority over 
these bureaus' standards. Some of these national credit bureaus might 
require more than the Department requires, such as follow-up reporting 
of the borrower's declining balance as it is paid down or paid off. 
Further, some of their procedures are specifically for credit bureau 
purposes and more closely in line with common U.S. business practice 
than with Federal regulations. For example, business practice considers 
a customer's account to be current up to 30 days past the due date of 
an invoice; whereas in the Federal Perkins Loan program, a borrower is 
considered to be in default when he or she fails to make an installment 
payment when due.
    Changes: The language of this provision is changed to require an 
institution to report to a national credit bureau that a defaulted loan 
has been rehabilitated, rather than that a rehabilitated loan is no 
longer in default.

Section 674.6  Default Reduction Plan

    Comments: One commenter argued that the Federal Perkins Loan 
program operates differently from the FFEL Program, and there is no 
statutory requirement that requires the Federal Perkins Loan program 
default reduction plan to parallel that of the FFEL Program. The 
commenter believed that institutions would have to install costly and 
burdensome tracking mechanisms in order to implement this provision.
    Discussion: The Secretary agrees with the commenter that there is 
no statutory requirement that mandates similar default reduction plans 
for the Federal Perkins Loan Program and the FFEL Program. However, in 
the interest of minimizing increases to burden at the institution, it 
is the Secretary's intent to mirror similar provisions that have 
existed in other title IV programs for a number of years, such as the 
FFEL Program. The default reduction plan, as outlined in these 
provisions, has been in effect in the FFEL Program for many years and, 
thus, has been thoroughly tested. Since most institutions are already 
participating in the FFEL Program, the Secretary does not believe that 
this provision increases burden; rather, he believes it streamlines and 
improves the delivery of student aid. The Secretary reminds commenters 
that there is no requirement for a high default institution to 
implement this specific plan. Each institution has the option of 
developing its own plan, subject to approval by the Secretary.
    Changes: None.
    Comments: A few commenters suggested that the Secretary not include 
a provision in the default reduction plan that would require first-time 
borrowers to endorse their check and to ``pick up'' any remaining 
proceeds at the institution. Instead, because many institutions have 
Federal Perkins loan disbursement systems that do not involve the 
issuance of a check, they recommended that the borrower's loan amount 
be credited directly to his or her student account and that any 
remaining proceeds also be credited to his or her student account, with 
one commenter recommending that the borrower be notified as to how he 
or she will receive his or her funds and that the loan funds will be 
disbursed 30 days after enrollment. One commenter objected to the 
requirement that the disbursement to a first-time borrower be delayed 
until 30 days after enrollment.
    Discussion: The Secretary is sympathetic to the concerns of these 
commenters but does not agree with the comments to remove the delayed 
disbursement provision from the default reduction plan. The Secretary 
reminds the commenters that the purpose of the default reduction plan 
is to help institutions that have large numbers of their Federal 
Perkins loan borrowers in default to set up procedures and mechanisms 
to help keep their borrowers out of default. One aspect of keeping a 
borrower out of default is to require a face-to-face contact in order 
to finalize the processing of loan proceeds. This will help ensure that 
the borrower understands that he or she is receiving a loan and ensures 
to the institution that the borrower is really enrolling. In addition, 
delayed disbursement of loan proceeds ensures that the borrower is 
actually enrolled and continuing his or her studies before disbursing a 
loan, thus avoiding the situation in which a borrower drops out with a 
large debt that the borrower cannot repay.
    Changes: None.
    Comments: One commenter was particularly concerned about the 
intrusive nature of some of the requirements of the default reduction 
plan. This commenter felt that the ability to benefit provisions in the 
general provisions regulations should be sufficient to ensure that 
students ``have a reasonable expectation of succeeding in their 
programs of study.'' This commenter wonders whether institutions with 
``open door'' admissions policies would be required to revise these 
policies, and what an institution is to do if admissions policies are 
set by a Board of Trustees. This commenter also asserts that there is 
no evidence that monthly reviews of in-school status will improve an 
institution's default rate.
    Discussion: In general, the Secretary does not agree with this 
commenter. The ability-to-benefit provisions in the Student Assistance 
General Provisions affords some protection but not all the needed 
protection. When an institution has a high cohort default rate, one of 
the first places to look for the cause is to look at who is being 
admitted to the institution and into what program of study. Students 
should not be admitted if there is not a reasonable expectation of 
success. Moreover, it seems only logical that another procedure to 
follow for eliminating a potential cause of a high cohort default rate 
is to follow up on enrollment status to ensure that a student is still 
enrolled and, if not enrolled, to provide exit counselling to the 
student as soon as possible. The Secretary reminds the commenter that 
these provisions have been in effect in the FFEL Program for several 
years and have not had the intrusive effect on admissions policies or 
the burden of the increased reviews of enrollment status that the 
commenter fears.
    Changes: None.

Section 674.7  Expanded Lending Option

    Comments: One commenter stated that the phrase ``in any academic 
year'' as it relates to aggregate loan limits is confusing and should 
be deleted if it suggests that a student who does not borrow in his or 
her first year can borrow $8,000 in his or her second year.
    Discussion: The Secretary agrees.
    Changes: This provision is revised to clarify the distinction 
between annual and aggregate loan limits.

Section 674.9  Student Eligibility

    Comments: While several commenters supported the requirement to 
``reaffirm'' a Federal Perkins loan debt previously canceled due to 
total and permanent disability, discharge in bankruptcy, or write-off, 
some of these commenters believed the term ``reaffirmation'' was a 
legal term requiring the reopening of the bankruptcy case, and the 
borrower should ``agree'' rather than ``reaffirm'' to repay any loan 
discharged in bankruptcy.
    Discussion: ``Reaffirmation,'' as it relates to this provision, 
would be the borrower's signature on a new repayment agreement. 
However, the Secretary has removed the provision in proposed section 
674.9(g) that would have required the reaffirmation of Federal Perkins, 
Direct, or Defense loan amounts that had been discharged in bankruptcy 
as a prerequisite to further eligibility for additional Federal Perkins 
Loans. This phrase has been omitted from the final rules because it is 
no longer permissible by operation of law pursuant to the Bankruptcy 
Reform Act of 1994, P.L. 103-394.
    Section 313 of the Bankruptcy Reform Act of 1994 added a new 
subsection (c) to 11 U.S.C. Section 525, to provide that the Department 
and other governmental units may no longer deny a loan, loan guarantee, 
or loan insurance to a person solely because that person has filed for 
or received a discharge in bankruptcy, has had a student loan 
discharged in bankruptcy, or has not paid a student loan that has been 
judicially determined to be dischargeable in bankruptcy. The Secretary 
interprets this provision to mean that once a debtor has filed for 
bankruptcy relief, or had a Federal Perkins Loan, or other student 
loan, discharged or determined to be dischargeable by a Bankruptcy 
Court, the bankruptcy may be considered as evidence of an adverse 
credit history but cannot be the basis for denial of future 
participation in the Federal Perkins Loan, or other student loan 
programs. Conforming changes will be made to 34 CFR 668.7(e).
    Section 674.9(e) of the current regulations states that a student's 
failure to meet payment obligations on a previous loan, including a 
loan discharged in bankruptcy, is evidence that the student is 
unwilling to repay the loan. Because the Secretary is concerned that 
section 674.9(e) might be used to deny a student's eligibility for a 
Federal Perkins Loan based solely on the student's having had a prior 
loan discharged in bankruptcy, the Secretary is removing the phrase 
regarding a bankruptcy discharge from the regulations. However, schools 
may continue to consider the student's post-bankruptcy credit history 
in determining willingness to repay the loan.
    Changes: The Secretary is deleting the requirement that a borrower 
must reaffirm a loan discharged in bankruptcy before regaining 
eligibility for further title IV loans. Also, the Secretary is removing 
the phrase regarding a bankruptcy discharge from the ``willingness to 
repay'' provision.
    Comments: Another commenter objected to the provision that disabled 
individuals should have to reaffirm past loans to reestablish 
eligibility. The commenter believed that disabled individuals should be 
judged solely on a ``snapshot'' of their present condition and 
circumstances; requiring reaffirmation would place yet another obstacle 
in the way of disabled individuals who wish to further their education. 
The commenter went further to say he thought this requirement would 
violate the spirit of the Americans With Disabilities Act.
    Discussion: The Secretary is sensitive to this commenter's 
concerns. The Secretary, as part of the Department's ongoing effort to 
reduce the administrative burden in the loan programs, will no longer 
require reaffirmation of a title IV loan as a student eligibility 
requirement for a borrower whose loan was canceled due to permanent and 
total disability. However, a borrower who has had a loan canceled for 
this reason will still be required to obtain a physician's statement 
attesting that his or her condition has improved, and agree that any 
new loans may not be canceled for this reason, unless the condition 
substantially deteriorates.
    Changes: The Secretary is eliminating the requirement that a 
borrower reaffirm a Federal Perkins loan canceled due to total and 
permanent disability in order for the borrower to be eligible for 
further Federal Perkins loans.

Section 674.16  Making and Disbursing Loans

    Comments: Several commenters objected to the requirement that the 
borrower must sign for each advance of funds on the promissory note. 
Instead, the commenters felt that the borrower should sign for the 
advance of funds on the promissory note at the beginning of each 
academic year.
    Discussion: Due to the legally binding nature of the promissory 
note and the potential for loan defaults requiring the enforcement of 
loans in court, the Secretary will continue to require the borrower to 
sign for each advance of funds for the Federal Perkins Loan program. 
The Secretary asks the commenters to refer to the previous discussion 
of this issue in response to the comments on the definition of ``making 
of a loan'' in Sec. 674.2.
    Changes: None.
    Comments: One commenter supported the study abroad provisions, but 
three commenters felt clarification was needed to indicate that a 
borrower may sign his or her note in advance, but not be required to 
sign for each loan disbursement while enrolled in a study abroad 
program. One commenter suggested deleting this provision.
    Discussion: The Secretary intended that this provision allow an 
institution the option of obtaining from a borrower enrolled in a study 
abroad program his or her signature on the promissory note in advance 
for each disbursement of a Federal Perkins. The Secretary made this 
exception as part of his ongoing effort to reduce administrative burden 
at the institution. The Secretary does not agree that the regulations 
are unclear or that clarification is needed regarding loan 
disbursements made to borrowers who are studying abroad. As stated in 
the proposed language, ``* * * the borrower may not be required to sign 
for any advance of funds made while the borrower is studying abroad if 
obtaining the borrower's signature would pose an undue hardship on the 
institution.''
    Changes: None.
    Comments: One commenter pointed out that small institutions are 
having difficulty reporting small volumes of loans to a national credit 
bureau, because these credit bureaus do not want to deal with small 
volumes. This commenter suggested that the Department demand procedures 
for reporting small volumes as part of any agreement between the 
Department and the national credit bureaus.
    Discussion: The Secretary will look into what administrative steps 
he can take to address this situation. In the interim, small schools 
may want to consider joining together and report their loans 
cooperatively.
    Changes: None.

Section 674.18  Use of funds

    Comments: One commenter stated that Sec. 674.18 should reference 
the allowable transfer by an institution participating in the Work-
Colleges program of any portion of its FCC allocation for an award year 
to the Work-Colleges program. Another commenter indicated that the 
proposed Sec. 674.18(c) provided for the new transfer of up to 25 
percent of the FCC allocation for the FWS program or FSEOG program, or 
both. However, the commenter believed that the section should include 
the type of restrictions that appear in Sec. 675.18(f) of the FWS 
regulations.
    Discussion: The Secretary agrees that for clarity and consistency, 
the regulations should note all the transfers allowed and the 
restrictions on those transfers of funds.
    Changes: The Secretary is including in the Federal Perkins Loan 
program under Sec. 674.18 the authority for participating institutions 
to transfer FCC funds to the Work-Colleges program and the restrictions 
on the FCC funds transferred to other programs.

Section 674.19 Fiscal Procedures and Records

    Comments: A few commenters felt that the provision of the proposed 
rule that describes the types of records to be included in the 
repayment history of the borrower should include ``copies of computer 
records.''
    Discussion: The Secretary does not agree with the commenters. The 
current regulations already provide, in Sec. 674.19(e)(4)(v), that an 
institution may keep its records in computer format, which would 
include the computer records held by an institution's servicer. Source 
documents supporting records in computer format must also be 
maintained. The Secretary recognizes the predominance of computer 
servicing, but, in order for computer records to substitute for hard 
copies of these records, the Secretary would need to develop 
specifications, for example, regarding electronic signatures, which he 
is not doing at this time. Because of the need to enforce Federal 
Perkins loans through the judicial system, the Secretary requires the 
hard copy supporting documentation.
    Changes: None.

Section 674.31  Promissory Note

    Comments: One commenter objected to the proposal that institutions 
be required to use the promissory note developed by the Secretary with 
no changes, saying that the proposal was in direct violation of the 
statute. Many commenters supported the provision but felt that some 
discretion should be retained with the format of the promissory note, 
as long as they retain the text provided by the Department. Another 
commenter recommended including language in this provision that would 
clarify that ``stated options'' (such as the minimum repayment) are not 
considered modifications for the purposes of this subsection. One of 
these commenters pointed out that it could use an NCR form by putting 
the signatures on the front of the form with all the text on the back, 
thereby allowing the borrower to pull one copy off the back for his or 
her records. Another of these commenters wondered whether the 
institution could still add the provision telling borrowers that their 
academic transcript would be withheld in the event of a default.
    Discussion: The promissory note is a key document in any legal 
action and serves as a permanent record for reaffirmation of any loans 
and, therefore, must remain as developed by the Secretary. Optional 
elements, such as the minimum monthly repayments, have been provided 
for institutions to use at their own discretion and will continue to be 
provided as options in the text of the promissory note. As such, the 
Secretary does not need to provide regulatory language to support the 
continuation of the optional language. The Secretary intends the text 
of the Department's Federal Perkins loan promissory note to remain 
unchanged. The ``text'' includes the order of the provisions and the 
placement of the signatures. These may not be changed. The current 
regulations have provided that the note approved by the Secretary may 
not have substantive changes made to it. Withholding the official 
academic transcript is in violation of the Family Educational Rights 
and Privacy Act (FERPA), regardless of whether the borrower has signed 
such a provision in his or her promissory note. Such a provision may 
not be included in the promissory note. The institution may change only 
the format of the note, e.g., the type, style, and paper size.
    Changes: None.

Section 674.33  Repayment

    Comments: Many commenters supported the forbearance provision. 
Several commenters felt that the proposed wording in section 
674.33(d)(2) indicates that the minimum period of forbearance is 12 
months and should be modified to read ``at intervals of up to 12 
months.'' One commenter requested clarification of ``disposable 
income'' and ``poverty line.'' Another commenter suggested additional 
documentation to the Federal tax return for the purposes of documenting 
``disposable income.'' Another commenter felt this provision should 
make reference to the national service award.
    Discussion: For a discussion of these issues as they relate to 
making provisions in the Federal Perkins Loan program comparable to 
similar provisions in the FFEL Program, the Secretary asks the 
commenters to refer to the discussion of the definition of ``disposable 
income'' under Sec. 674.2. The ``poverty line'' is determined in 
accordance with section 673(2) of the Community Service Block Grant 
Act, and information on the poverty line may be obtained by calling the 
Office of the Assistant Secretary for Planning and Evaluation, 
Department of Health and Human Services, (202) 690-6141. The Secretary 
does not have the statutory authority to extend forbearance to 
borrowers serving in National Community Service jobs. However, the 
Secretary strongly encourages institutions to use their discretion, 
allowed under these regulatory provisions, to grant forbearance to 
borrowers serving in National Community Service jobs.
    Changes: The forbearance provision is amended to match the final 
FFEL Program regulatory provisions for forbearance, where appropriate.

Section 674.34  Deferment of Repayment

    Comments: Many commenters disagreed with the Secretary's proposal 
that if an institution no longer qualifies as an institution of higher 
education, the borrower's deferment ends on the date the institution 
ceases to qualify. The commenters argued that the borrower's 
eligibility should not be affected by circumstances that are beyond the 
borrower's control. The unanticipated cessation of a deferment would 
also pose an undue hardship on the borrower. One commenter suggested 
that to expect a borrower or an institution and its third party 
servicer to monitor another institution's qualification as an 
institution of higher education throughout the borrower's deferment 
period would be unduly burdensome for the institution and the servicer.
    One commenter agreed that borrowers who attend institutions that do 
not qualify as institutions of higher education should not receive 
deferments; however, this requirement should be eased for borrowers who 
begin an academic year at an eligible institution that subsequently 
loses its eligibility sometime during that academic year. The 
commenters suggested that, at a minimum, the borrowers should be 
granted a continuation of their deferment to the end of the academic 
year in which they are enrolled. A few commenters suggested that a 
borrower should continue to be eligible for a deferment for the 
remainder of the deferment period.
    Discussion: While the Secretary understands these concerns, the 
Secretary does not agree with the commenters. The statute is clear that 
a student must be attending an institution of higher education (IHE). 
The Secretary feels that very few borrowers would be in the situation 
in which an initially-eligible IHE would lose its eligibility. However, 
the Secretary is not requiring the deferment-granting institution to 
closely monitor this situation. Rather, in order to not unduly increase 
burden at the institution, the Secretary requires that if the 
deferment-granting institution becomes aware that an institution is no 
longer an IHE, the borrower's deferment must be terminated. This 
borrower then qualifies for a 6-month post-deferment grace period, 
which effectively reduces the impact on the borrowers.
    Changes: None.
    Comments: One commenter was concerned that dental residents would 
be ineligible for a ``student'' deferment because medical interns and 
residents are no longer eligible for deferments. This commenter noted 
that dental residents often receive little or no stipends, and a 
significant number pay tuition. This commenter suggested that 
Sec. 674.34(b)(2) be changed to include dental residents as eligible 
borrowers for a ``student'' deferment, as has been done in the FFEL and 
FDSL programs regulations.
    Discussion: The Secretary agrees with the commenters.
    Changes: A change has been made to include dental residents as 
eligible for a ``student'' deferment.
    Comments: One commenter recommended that the Secretary include in 
this section the same hardship deferment provisions as are included in 
redesignated Sec. 674.35(i), Sec. 674.36(e), and Sec. 674.37(e). The 
commenter believes that this would provide the opportunity for 
institutions to maintain their maximum flexibility in working with 
borrowers.
    Discussion: The Secretary feels that any benefits that accrued to 
borrowers under the ``old'' hardship deferment are now available under 
forbearance. Also, there is no statutory authorization for such a 
deferment in the Federal Perkins Loan program.
    Changes: None.
    Comments: One commenter recommended that the regulations include a 
definition for the minimum period during which a borrower must be 
enrolled in school in order to qualify for the 6-month post-deferment 
grace period after ceasing to be enrolled. This commenter suggested 
that the borrower be required to complete the enrollment period.
    Discussion: The Secretary is quite interested in this issue and 
understands that there is a wide variety of interpretations of the 
applicability of the 6-month post-deferment grace period. As the 
Secretary understands it, institutions are granting the 6-month post-
deferment grace period in one of four ways: (1) granting a 6-month 
post-deferment grace period regardless of the period of time the 
borrower is enrolled, even if it is only for one day; (2) granting a 6-
month post-deferment grace period (and also a ``student'' deferment) 
only after the enrollment records are finalized, usually 5 or 6 weeks 
into the term; (3) granting the 6-month post-deferment grace period 
only if the borrower is enrolled longer than the borrower's repayment 
billing period; or (4) requiring the borrower to complete the 
enrollment period.
    The statute requires granting the post-deferment grace period for 
``any period'' the borrower qualifies for a deferment, and a borrower 
qualifies for a ``student'' deferment for ``any period'' of enrollment 
as at least a half-time student. Therefore, any institution that is 
granting post-deferment grace periods under the first condition is in 
compliance with the Federal Perkins Loan program regulations. All other 
institutions need to modify the procedures used for determining 
eligibility for post-deferment grace periods and also student 
deferments. While the statute allows an institution much discretion in 
administering the Federal Perkins Loan program, the granting of 
deferments and post-deferment grace periods to qualified non-defaulted 
borrowers and the granting of cancellation benefits to qualified 
borrowers are not at the institution's discretion. These provisions are 
an entitlement to the borrower once the borrower has provided a written 
request and acceptable documentation to the institution. The Secretary 
expects to revisit this issue, should the Secretary find that there is 
widespread abuse by borrowers of this benefit.
    Changes: None.
    Comments: A few commenters suggested that the language in 
Sec. 674.34 should read ``interest should not accrue'' instead of 
``interest does not accrue'' for consistency with other sections.
    Discussion: The Secretary does not agree. Each provision in the 
current regulations governing the 6-month post-deferment grace period 
contains the language, ``interest does not accrue.''
    Changes: None.

Section 674.38  Deferment Procedures

    Comments: Several commenters felt the proposal to require defaulted 
borrowers to make ``satisfactory arrangements'' to repay the loan as 
one of the conditions to be met in order to be granted a deferment 
would be unfair to the borrowers and impossible to accomplish in many 
cases because a borrower is in ``default'' the first day a payment is 
missed. Several commenters felt the provisions in the current 
regulations should be maintained.
    Discussion: The Secretary agrees that implementation of this 
provision as written in the proposed rule is unfair to borrowers and 
agrees that the current regulatory provision should be maintained. The 
Secretary reminds the commenters that Sec. 674.37(a)(2) provides the 
option to an institution to declare a borrower in default if the 
borrower fails to supply a deferment request and documentation. The 
fact that a borrower is in ``default'' the first day after a payment is 
missed is more significant for the cohort default rate calculation. The 
borrower still has the opportunity to respond to the demand letters 
before being reported to a national credit bureau, for example, even 
though this borrower would be counted as a default for purposes of the 
cohort default rate calculation.
    Changes: The Secretary is withdrawing the proposed language in 
favor of the current language of Sec. 674.37(b).

Section 674.39  Postponement of Loan Repayment

    Comments: A few commenters felt that postponement of loan repayment 
in anticipation of cancellation should reflect loans made before ``July 
23, 1992'' not before ``July 1, 1992.''
    Discussion: There is a typographical error in this section. The 
date should be ``July 1, 1993.'' The Secretary has included this date 
to provide for those borrowers who are eligible for cancellation 
benefits but are not eligible for the new deferment provisions 
(borrowers whose loans were made on or after July 23, 1992, but before 
July 1, 1993).
    Changes: The Secretary will change this section to reflect ``July 
1, 1993.''

Section 674.43(a)(3)  Billing Procedures

    Comments: While several commenters supported the Secretary's 
proposal to amend section 674.43 to allow a borrower to elect to repay 
his or her Federal Perkins loan by means of the electronic transfer of 
funds from the borrower's bank account, they felt the Secretary should 
modify this proposal even further to allow for annual notification to 
the borrower regardless of the repayment frequency. These commenters 
felt that this requirement was too burdensome.
    Discussion: The Secretary agrees. Using the electronic method of 
repaying a loan is quite similar to the coupons system, and no 
statement of account is required under this system. However, the 
borrower has the remaining coupons to demonstrate the amount still due 
on the loan. This does not exist under the electronic system, and the 
borrower needs to be kept apprised of the status of his or her account. 
This statement of account needs to be no more frequent than annually. 
As part of the Secretary's effort to be mindful of the burden imposed 
by regulations on the institution, the Secretary is reducing burden in 
this provision by requiring only an annual statement of account.
    Changes: The Secretary is amending this provision to allow for an 
annual statement of account.

Section 674.45  Collection Procedures

    Comments: While a few commenters strongly supported the provision 
in this section that preempts state collection laws as they relate to 
allowing a collection agency to collect a Federal Perkins loan if the 
collection agency is not physically located in the state, they also 
recommended that the Secretary apply similar language to billing 
procedures, Sec. 674.43.
    Discussion: The Secretary is not aware of any state law that 
prohibits a collection agency from billing a borrower if that 
collection agency does not have residence in that particular state. 
Moreover, the Secretary has not been informed of any problem with a 
state that is prohibiting the billing of borrowers in this 
circumstance. Until such time as a problem develops, the Secretary sees 
no reason to add this provision.
    Changes: None.

Section 674.47  Costs Chargeable to the Fund

    Comments: There were a number of comments on this section, and they 
all recommended that institutions should be allowed to write-off non-
defaulted small balances, in amounts of less than $25. The commenters 
felt that collecting on small balance loans is not cost-effective and 
this change would ease the paperwork and administrative burdens.
    Discussion: While it has been a longstanding policy, and, more 
recently, a regulatory provision, at the Department to allow 
institutions to write off defaulted accounts with balances of less than 
$25.00, it is not the policy to allow, nor do the current regulations 
allow, the write-off of non-defaulted loans, regardless of the size of 
the balance. This issue cannot be addressed in this final regulation, 
because the Secretary is required to provide the public an opportunity 
to make proposals and to provide comments in this area. However, the 
Secretary is sensitive to the issue raised by these commenters and will 
revisit this issue at a later date.
    Changes: The Secretary is making a minor modification to the 
language of this provision to incorporate the word ``defaulted.''

Section 674.51  Special Definitions

    Comments: A large number of commenters objected to the definition 
of medical technician, because it excluded physical therapists, who are 
an integral component in providing health care services. One commenter 
also suggested that the Secretary provide the institutions with job 
titles for positions that qualify such as medical technicians.
    Discussion: The Secretary regrets any confusion that this section 
might have caused the commenters. The NPRM used the term ``allied 
health professional'' which became confused with the American Medical 
Association's Twenty-Eight Allied Health Careers. These twenty-eight 
careers are those areas in which the American Medical Association (AMA) 
accredits programs and only comprise a small proportion of ``allied 
health professions.'' ``Allied health professional'' is a generic term 
used to designate a large group of health-related personnel who assist, 
facilitate, or complement the work of physicians and other specialists 
in the health care system. ``Allied health professionals'' range from 
therapists and counselors to health care assistants. The Secretary 
intends ``allied health professional'' to be interpreted in its generic 
sense. The Secretary's intent was to include those health care 
professionals who might be working full-time except that the employment 
takes the form of part-time employment at more than one facility as 
well as those health care professionals who might be providing health 
care services in an environment that would not qualify as a health care 
facility (such as a school), or who might be working in a private 
facility. The Secretary believes that Congress did not intend to 
exclude any qualified nurses or medical technicians, as long as they 
are working full-time and providing health care services. The Secretary 
will not provide a list of ``allied health professions'' because the 
list of professions is too lengthy and does not remain static. The 
Secretary provides further clarification of issues such as this in the 
Student Financial Aid Handbook.
    Changes: The Secretary is revising sections 674.51(i), 674.51(m), 
674.52(b), and 674.56(a) for clarity to ensure that all qualifying 
nurses and medical technicians will receive cancellation benefits.

Federal Work-Study Programs

Section 675.2  Definitions

Low-Income Individual
    Comments: Four commenters responded to the Secretary's proposal to 
define ``low-income individual'' for the purpose of community service 
under the FWS program. The commenters wanted either clarification or 
elimination of the definition.
    One commenter acknowledged that the Secretary had been asked to 
clarify the meaning of low-income clientele in reference to individuals 
served through a community service program; however, the commenter 
believed that the proposed language adds another layer of eligibility 
to FWS program administration. This commenter also believed that the 
proposed definition of ``low-income individual'' unduly encumbers the 
FWS community service concept and strongly suggested that a much more 
simplified approach be considered.
    Another commenter suggested that efforts to increase participation 
in community service activities through the FWS program might be 
hampered if institutions were required to verify the income levels of 
clientele served by various community organizations.
    Discussion: The Secretary has taken these comments under 
consideration and has determined that at this time there is no need to 
burden institutions with a formal definition of ``low-income 
individual'' for purposes of providing community service under the FWS 
program. There is no requirement under the statute that a particular 
number or proportion of the individuals must be low-income persons. 
However, the Secretary reminds institutions of the statutory emphasis 
placed on the human, educational, environmental, and public safety 
needs of low-income individuals.
    Changes: The Secretary has deleted this definition from the final 
regulations for the FWS program.
Community Services
    Comments: One commenter requested that more clarity be provided on 
whether the service has to be ``direct'' under the community service 
component of the FWS program. Several commenters were concerned that 
the Secretary's interpretation of the meaning of providing community 
service as being ``hands-on'' or ``direct contact'' will do a great 
disservice to student workers by eliminating many behind-the-scene 
jobs. In general, commenters believed that a successful community 
services agency requires all types of jobs to operate efficiently and 
that clerical jobs serve an important function in any organization.
    Discussion: The Secretary did not propose in the NPRM a change to 
the definition of ``community services.'' The Secretary reminds the 
commenters that the current definition of ``community services'' in 
Sec. 675.2 does not require that the service provided by the FWS 
student must be ``direct'' to be considered community service. The job 
duties must include providing services that are designed to improve the 
quality of life for community residents or solve particular problems 
related to their needs. In determining whether the service is community 
service, the institution must always consider whether the service 
provided by the FWS student primarily benefits the community as opposed 
to the agency or institution.
    The Secretary at this time is leaving flexibility to the 
institutions in determining what jobs provide service to the community. 
This approach is adopted to minimize the burden on institutions in 
administering the community service component of the FWS program.
    The Secretary encourages institutions to develop jobs that instill 
a sense of social responsibility in the students and touch the lives of 
community residents in a meaningful and lasting way. The Secretary 
believes that the best way to provide ``community services'' is for the 
students' jobs to put them in ``direct'' contact where possible with 
the recipients of the services or involve some type of ``hands on'' 
service in the community. However, the Secretary does not intend to 
indicate that certain activities are more important than others or that 
only jobs that have ``direct'' contact with community members are 
acceptable. For example, an FWS student working for a ``meals on 
wheels'' program for the elderly may prepare those meals without any 
``direct'' contact with the community recipients, yet the service is 
very important in meeting the needs of the elderly.
    Changes: None.

Section 675.4  Allocation and Reallocation

    Comments: Three commenters discussed the proposal required by 
section 442(e) of the HEA that only an institution that uses at least 
10 percent of its total amount of FWS Federal funds granted to 
compensate students employed in community service are eligible for 
reallocated FWS funds and that all the reallocated FWS funds must be 
used for community service. One of these commenters suggested that the 
Secretary should clarify this proposal in the regulations. The other 
two commenters expressed the concern that the provision that requires 
institutions to have a fair-share shortfall in order to receive these 
reallocated supplemental FWS funds presents a disincentive to 
institutions, with no shortfall, to strive for the 10 percent figure.
    The commenters suggested that the Secretary consider an alternative 
to the current process of awarding unexpended funds. They would like to 
see the fair-share requirement changed to consider also those 
institutions that meet or exceed the 10 percent rule, but do not have a 
shortfall. In addition, one of these commenters further noted that the 
use of the reallocated funds should not be restricted to community 
service wages. Instead, since the institution had already done 100 
percent above the requirement, it should be allowed to use reallocated 
funds in any FWS program or for administrative costs.
    Discussion: Under current FWS regulations in Sec. 675.4, the 
Secretary allocates and reallocates funds to institutions participating 
in the FWS program in accordance with section 442 of the HEA. 
Therefore, this provision will not be codified in the regulations. 
Under section 442 of the HEA, the Secretary reallocates funds on a pro 
rata basis, i.e., the amount of an institution's fair-share shortfall 
as a percentage of the fair-share shortfalls of all participating 
institutions with an unmet FWS request. The Secretary continues to 
believe this position to be the most equitable formula for awarding 
unexpended funds. The statutory provision that mandates this new rule 
for receipt of unexpended FWS funds, section 442(e)(1) of the HEA, 
provides that these funds will only go to institutions that expend at 
least 10 percent of their total amount of FWS funds (initial and 
supplemental) to employ students in community service jobs, and that 
the reallocated FWS funds must also be used only for that purpose. 
Congress amended this section to encourage students to participate in 
community service activities.
    Changes: None.

Section 675.8  Program Participation Agreement

    Comments: Several commenters believed that the jobs performed by an 
institution's FWS students that provide support services solely to the 
institution's own students with disabilities should be counted toward 
meeting the community service requirements under the FWS program. Many 
commenters believed that not to do this would cause an undue hardship 
for the institution. One commenter questioned why under the FWS program 
it is permissible to develop programs that support services to an 
institution's own students with disabilities yet under the community 
service component this is not allowed. Two commenters asked for 
consistency between the program participation agreement and the 
community service definition concerning the meaning of support services 
to students with disabilities.
    Discussion: Section 441(c) of the HEA under the definition of 
community service states that an institution may include as part of its 
community service component support services to students with 
disabilities. Section 443(b)(9) of the HEA requires institutions under 
the program participation agreement to assure that employment under the 
FWS program may be used to support programs for supportive services to 
students with disabilities.
    The Secretary believes the intention of the community service 
requirement in the statute is for an institution's FWS students to work 
with elementary and secondary school students as well as students 
attending other postsecondary institutions, and provide services to the 
disabled, and not just for an institution to provide services solely to 
its own students with disabilities. As allowed by section 443(b)(9) of 
the HEA, an institution may use FWS funds to provide support services 
to its own institutional students with disabilities. However, to be 
providing community service in accordance with section 441(c) of the 
HEA, the FWS students providing the service must be providing the 
service to students with disabilities in the community. The fact that 
the FWS students also provide the services to the institution's own 
students with disabilities would not necessarily prevent the job from 
being considered community service.
    Changes: The definition of ``community services'' in Sec. 675.2 has 
been revised to emphasize that the support services must be provided to 
students other than an institution's own students to satisfy the 
community service component of the FWS program. No changes have been 
made to Sec. 675.8.

Section 675.18  Use of Funds

Community Service Waiver
    Comments: Section 443(b)(2)(A) of the HEA provides that for the 
1994-95 award year and succeeding award years, an institution shall use 
at least 5 percent of the total amount of FWS Federal funds granted to 
such institution to compensate students employed in community service, 
except that the Secretary may waive this requirement if the Secretary 
determines that enforcing it would cause hardship for students at an 
institution.
    In the NPRM, the Secretary requested comments regarding the 
conditions under which the Secretary should grant waivers of this 
provision. Some commenters believed that means and costs of 
transportation are major issues the Secretary needs to consider in 
granting a waiver. The commenters believed that students from low-
income backgrounds do not have cars, and some institutions are located 
in areas that have no public transportation. One commenter believed 
that there are many institutions located in rural areas and that 
community service jobs may not be accessible. Some commenters believed 
it would be a hardship on institutions that could only locate community 
service jobs with agencies that could not afford to pay a portion of 
the non-Federal share. Other commenters wanted the Department to 
regulate the criteria that the Secretary would use to determine this 
waiver. One commenter expressed concern for the safety of students 
providing community service in some locations. This same commenter 
noted that performance of community service might conflict with student 
class schedules. One commenter believed that private technical 
universities have very few degree programs offered that are geared 
toward community service and that placements in this area are somewhat 
rare.
    Discussion: Section 443(b)(2)(A) of the amended HEA mandates that 
at least 5 percent of an institution's total amount of Federal FWS 
funds granted must be used to compensate students employed in community 
service jobs, unless the Secretary waives the requirement.
    Based on public comment, the Secretary does not foresee many 
instances in which a waiver would be granted. However, to allow 
flexibility to consider factors that are valid reasons for a waiver, 
the Secretary is not specifying the specific circumstances that would 
receive a waiver. The fact that it may be difficult for the institution 
to comply with this provision is not a basis for granting a waiver. The 
Secretary will consider providing more specific regulatory guidance on 
this issue as he gains more experience in processing these kinds of 
waiver requests.
    Changes: The language in Sec. 675.18(h) has been revised to 
emphasize that to receive a waiver, an institution must demonstrate 
that the 5 percent requirement would cause a hardship for students at 
the institution.
Administrative Cost Allowance
    Comments: Two commenters requested that the additional 
Administrative Cost Allowance (ACA) available for the expired Community 
Service Learning program be continued for the community service 
component under the FWS program. These commenters believed that the 
regular campus-based ACA provided institutions was already fully 
utilized and the additional expenses incurred for the new community 
service mandate will have to be absorbed by the institutions. One 
commenter believed that the statute should be interpreted to allow use 
of up to 10 percent of the entire campus-based ACA for the purpose of 
paying the costs for community service, but no more than the portion of 
the ACA attributable to the FWS program. The commenter wanted the 
flexibility to be given to the institutions in using the ACA at no 
additional cost to the Federal government.
    Discussion: The Amendments changed sections 447 and 489(a) of the 
HEA to eliminate the special ACA for work-study for community service 
learning. In accordance with the requirements of the HEA, the Secretary 
removed the special ACA from Sec. 675.18(b)(5). However, the Amendments 
did amend section 447 of the HEA to permit an institution to use up to 
10 percent of the funds available for the institution's regular campus-
based ACA and attributable to the institution's FWS program 
expenditures to cover expenses incurred for its program of community 
service. The Secretary, in accordance with the requirements of the HEA, 
further amended Sec. 675.18(b)(5) to provide an institution with this 
authority.
    Changes: None.

Subpart C--Work-Colleges Program

Authorization of Appropriations
    Comments: One commenter suggested that under the Work-Colleges 
subpart of the regulations the Department should provide for the 
allocation and reallocation of funds as it does under Sec. 675.4 of the 
FWS program regulations even though no funds are appropriated.
    Discussion: The Secretary will implement the allocation and 
reallocation process for the Work-Colleges program based on the 
institutions' requests. The funds will be allocated and reallocated 
based on each institution's approved request for Federal funds for the 
Work-Colleges program as a percent of the total of such approved 
requests for all applicant institutions.
    Changes: This section is amended to add an allocation and 
reallocation process.

Executive Order 12866

    These final regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering this program effectively 
and efficiently. Burdens specifically associated with information 
collection requirements were identified and explained in the NPRM.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these regulations, the Secretary has determined 
that the benefits of the regulations justify the costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Paperwork Reduction Act of 1980

    Section 674.34(e) contains information collection requirements. As 
required by the Paperwork Reduction Act of 1980, the U.S. Department of 
Education will submit a copy of this section to the Office of 
Management and Budget (OMB) for its review.

Waiver of Proposed Rulemaking

    In addition to the changes made to these regulations 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 Schools Act of 1994 (Pub. L. 103-382), and the Bankruptcy 
Reform Act of 1994 (Pub. L. 103-394), 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. 5532(b)(B) that public comment on the 
regulations is unnecessary and contrary to the public interest.

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

34 CFR Part 674

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

34 CFR Part 675

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

34 CFR Part 676

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

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.033 Federal 
Work-Study Program; and 84.038 Federal Perkins Loan Program)

    Dated: November 21, 1994.
Richard W. Riley,
Secretary of Education.
    The Secretary amends parts 674, 675, and 676 of title 34 of the 
Code of Federal Regulations as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

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

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

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


Sec. 674.2  Definitions.

* * * * *
    (b) * * *
    Enter repayment: The day following the expiration of the initial 
grace period or the day the borrower waives the initial grace period. 
This date does not change if a forbearance, deferment, or cancellation 
is granted after the borrower enters repayment.
* * * * *
    Making of a loan: When the borrower signs for an advance of loan 
funds and those funds are disbursed.
* * * * *
    National credit bureau: Any one of the national credit bureaus with 
which the Secretary has an agreement.
* * * * *
    Satisfactory arrangements to repay the loan: The establishment of a 
new written repayment agreement and the making of one payment each 
month for six consecutive months.
* * * * *
    Total monthly gross income: The gross amount of income received by 
the borrower from employment (either full-time or part-time) and from 
other sources.
    Undergraduate student: A student enrolled at an institution of 
higher education who is in an undergraduate course of study which 
usually does not exceed four academic years, or is enrolled in a four 
to five academic year program designed to lead to a first degree. A 
student enrolled in a program of any other length is considered an 
undergraduate student for only the first four academic years of that 
program.
* * * * *
    3. Section 674.4 is amended by revising paragraph (b) and by adding 
new paragraphs (e) and (f) to read as follows:


Sec. 674.4  Allocation and reallocation.

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


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

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

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

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


Sec. 674.6  Default reduction plan.

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

(Approved by the Office of Management and Budget under control 
number 1840-0535)

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

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


Sec. 674.7  Expanded lending option (ELO).

    (a) To participate in the expanded lending option in any award 
year, an eligible institution shall enter into a special ELO 
participation agreement with the Secretary. The agreement provides that 
the institution shall--
    (1) Deposit ICC equal to 100 percent of the FCC described in 
Sec. 674.8(a)(1) for that award year into the Fund;
    (2) Maintain a cohort default rate that is equal to or less than 15 
percent; and
    (3) Have participated in the Federal Perkins Loan program for at 
least two years.
    (b) The maximum annual amount of Federal Perkins Loans and Direct 
Loans an eligible student who attends an institution that participates 
in the ELO may borrow in any academic year is--
    (1) $4,000 for a student who has not successfully completed a 
program of undergraduate education; and
    (2) $6,000 for a graduate or professional student.
    (c) The aggregate maximum amount of Federal Perkins and Direct 
Loans an eligible student who attends an institution that participates 
in the ELO may borrow is--
    (1) $8,000 for a student who has not successfully completed two 
years of a program leading to a bachelor's degree;
    (2) $20,000 for a student who has successfully completed two years 
of a program leading to a bachelor's degree but who has not received 
the degree; and
    (3) $40,000 for a graduate or professional student.
    (d) The maximum annual amounts described in paragraph (b) of this 
section and the aggregate maximum amounts described in paragraph (c) of 
this section may be exceeded by 20 percent if the student is engaged in 
a program of study abroad that is approved for credit by the home 
institution at which the student is enrolled and that has reasonable 
costs in excess of the home institution's cost of attendance.
    (e) For each student, the maximum annual amounts described in 
paragraphs (b) and (d) of this section and the aggregate maximum 
amounts listed in paragraphs (c) and (d) of this section include any 
amount borrowed previously by that student under title IV, part E of 
the HEA at any institution, including any amounts that may have been 
repaid to the Fund at any institution.
    (f) The institution shall deposit into its Fund an amount required 
under paragraph (a)(1) of this section whether or not the institution 
makes loans in the amount authorized under paragraphs (b) and (c) of 
this section.

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

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


Sec. 674.8  Program participation agreement.

* * * * *
    (a) * * *
    (2) Except as provided in paragraph (a)(1) of Sec. 674.7--
    (i) ICC equal to at least three-seventeenths of the FCC described 
in paragraph (a)(1) of this section in award year 1993-94; and
    (ii) ICC equal to at least one-third of the FCC described in 
paragraph (a)(1) of this section in award year 1994-95 and succeeding 
award years;
    (3) ICC equal to the amount of FCC described in paragraph (a)(1) of 
Sec. 674.7 for an institution that has been granted permission by the 
Secretary to participate in the ELO under the Federal Perkins Loan 
program;
* * * * *
    (c) The institution shall submit an annual report to the Secretary 
containing information that determines its cohort default rate that 
includes--
    (1) For institutions in which 30 or more of its current or former 
students first entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in 
the award year; and
    (ii) The number of those borrowers in default by the end of the 
following award year; or
    (2) For institutions in which less than 30 of its current or former 
students entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in 
any of the three most recent award years; and
    (ii) The number of those borrowers in default before the end of the 
award year immediately following the year in which they entered 
repayment.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    8. Section 674.9 is amended by revising paragraph (b); by removing 
the word ``and'' after the semicolon in paragraph (d)(2); by removing 
the phrase ``, including a loan discharged in bankruptcy,'' from 
paragraph (e); by removing the period at the end of paragraph (e) and 
adding, in its place, a semicolon; and by adding new paragraphs (f), 
(g), (h), and (i) to read as follows:


Sec. 674.9  Student eligibility.

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

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

    9. Section 674.10 is amended by revising paragraph (b); and by 
republishing the OMB control number to read as follows:


Sec. 674.10  Selection of students for loans.

* * * * *
    (b) If an institution's allocation of FCC is directly or indirectly 
based in part on the financial need demonstrated by students attending 
the institution as less-than-full-time or independent students, and if 
the total financial need of those students exceeds 5 percent of the 
total financial need of all students at the institution, the 
institution shall offer to those students at least 5 percent of the 
dollar amount of those loans made under this part.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    10. Section 674.12 is revised to read as follows:


Sec. 674.12  Loan maximums.

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

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


Sec. 674.13  [Amended]

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


Sec. 674.14  Overaward.

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


Sec. 674.16  Making and disbursing loans.

    (a)(1)* * *
    (ii) The principal amount of the loan and a statement that the 
institution will report the amount of the loan to a national credit 
bureau at least annually.
* * * * *
    (x) A definition of default and the consequences to the borrower, 
including a statement that the institution may report the default to a 
national credit bureau.
* * * * *
    (d)(1) The institution may advance the loan proceeds to the 
borrower directly by check or by crediting his or her account with the 
institution. The institution shall notify the student of the amount he 
or she can expect to receive and of how and when that amount will be 
paid. In either case, the borrower must sign for each advance of funds 
on the promissory note, except as provided in paragraph (d)(2) of this 
section.
    (2)(i) In the case of a borrower enrolled in a study-abroad program 
approved for credit by the home institution in which the borrower is 
enrolled, the borrower may not be required to sign for any advance of 
funds made while the borrower is studying abroad if obtaining the 
borrower's signature would pose an undue hardship on the institution.
    (ii) The institution shall properly document the reason for not 
obtaining the borrower's signature.
* * * * *
    (g)(1) An institution may disburse Federal Perkins Loan funds in 
accordance with paragraphs (g)(2) and (3) of this section after the 
student has ceased to be enrolled.
    (2) A disbursement described in paragraph (g)(1) of this section 
may be made--
    (i) Only if the loan is awarded to the student while he or she is 
still an eligible student; and
    (ii) Only if the loan funds are used to cover documented 
educational costs to the student that are normally included in a 
borrower's cost of attendance under section 472 of the HEA for the 
payment period for which the loan was intended and the student was 
actually enrolled.
    (3) The institution shall document in the student's file the reason 
for the late disbursement.
* * * * *
    (j) An institution shall report to any one national credit bureau--
    (1) The amount of each disbursement;
    (2) The date the disbursement was made; and
    (3) Information as specified in section 430A of the Act.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    14. Section 674.18 is amended by adding a new paragraph (c) to read 
as follows:


Sec. 674.18  Use of funds.

* * * * *
    (c) Transfer of funds. (1) An institution may transfer up to 25 
percent of the sum of its initial and supplemental Federal Perkins Loan 
allocations for an award year to the Federal Work-Study program or 
Federal Supplemental Educational Opportunity Grant program, or to both.
    (2) An institution may transfer up to the total of the sum of its 
initial and supplemental Federal Perkins Loan allocations for an award 
year to the Work-Colleges program.
    (3) An institution shall use transferred funds according to the 
requirements of the program to which they are transferred.
    (4) An institution shall report any transferred funds on the Fiscal 
Operations Report required under Sec. 674.19(d).
    (5) An institution shall transfer back to the Federal Perkins Loan 
program any funds unexpended at the end of the award year that it 
transferred to the FWS program, the FSEOG program, or the Work-Colleges 
program from the Federal Perkins Loan program.
* * * * *
    15. Section 674.19 is amended by revising paragraph (e)(2)(ii) to 
read as follows:


Sec. 674.19  Fiscal procedures and records.

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


Sec. 674.31  Promissory note.

    (a) * * *
    (2) * * *
    (ii) * * *
    (A) The note requires the signature of the borrower on each page; 
or
* * * * *
    (iii) The promissory note must state the exact amount of the 
minimum monthly repayment amount if the institution chooses the option 
under Sec. 674.33(b).
    (b) * * *
    (6) Security and endorsement. The promissory note must state that 
the loan shall be made without security and endorsement.
* * * * *
    (10) Disclosure of information. The promissory note must state 
that--
    (i) The institution shall disclose to any one national credit 
bureau the amount of the loan made to the borrower, along with other 
relevant information;
    (ii) If the borrower defaults on the loan, the institution shall 
disclose that the borrower has defaulted on the loan, along with other 
relevant information, to the same national credit bureau to which it 
originally reported the loan; and
    (iii) If the borrower defaults on the loan and the loan is assigned 
to the Secretary for collection, the Secretary may disclose to a 
national credit bureau that the borrower has defaulted on the loan, 
along with other relevant information.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    17. Section 674.33 is amended by redesignating paragraph (a)(3) as 
paragraph (a)(4); by adding a new paragraph (a)(3); by revising 
paragraph (b); by revising paragraph (c)(1); and by adding new 
paragraphs (d) and (e) to read as follows:


Sec. 674.33  Repayment.

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


Secs. 674.34 through 674.39  [Redesignated as Secs. 674.35 through 
674.40]

    18. Sections 674.34 through 674.39 are redesignated as Secs. 674.35 
through 674.40 respectively and a new Sec. 674.34 is added to read as 
follows:


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

    (a) The borrower may defer making scheduled installment repayment 
on a Federal Perkins loan or a Direct loan made on or after July 1, 
1993, during the periods described in this section.
    (b)(1) The borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is--
    (i) Enrolled and in attendance as a regular student in at least a 
half-time course of study at an eligible institution;
    (ii) Enrolled and in attendance as a regular student in a course of 
study that is part of a graduate fellowship program approved by the 
Secretary;
    (iii) Engaged in graduate or post-graduate fellowship-supported 
study (such as a Fulbright grant) outside the United States; or
    (iv) Enrolled in a course of study that is part of a rehabilitation 
training program for disabled individuals approved by the Secretary as 
described in paragraph (g) of this section.
    (2) No borrower is eligible for a deferment under paragraph (b)(1) 
of this section while serving in a medical internship or residency 
program, except for a residency program in dentistry.
    (3) The institution of higher education at which the borrower is 
enrolled does not need to be participating in the Federal Perkins Loan 
program for the borrower to qualify for a deferment.
    (4) If a borrower is attending an institution of higher education 
as at least a half-time regular student for a full academic year and 
intends to enroll as at least a half-time regular student in the next 
academic year, the borrower is entitled to a deferment for 12 months.
    (5) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c)(1) The borrower of a Federal Perkins loan need not repay 
principal, and interest does not accrue, for any period during which 
the borrower is engaged in service described in Secs. 674.53, 674.54, 
674.56, 674.57, 674.58, 674.59, and 674.60.
    (2) The borrower of a Direct loan need not repay principal, and 
interest does not accrue, for any period during which the borrower is 
engaged in service described in Secs. 674.53, 674.54, 674.56, 674.57, 
674.58, and 674.59.
    (d) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is seeking and unable to find full-time employment.
    (e) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is suffering an economic hardship. To qualify for this deferment, the 
borrower must provide documentation satisfactory to the institution 
showing that the borrower--
    (1) Has been granted an economic hardship deferment under either 
the FDSL or FFEL programs for the period of time for which the borrower 
has requested an economic hardship deferment for his or her Federal 
Perkins loan;
    (2) 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;
    (3) Is working full-time and earning a total monthly gross income 
that does not exceed the greater of--
    (i) The monthly earnings of an individual earning the minimum wage 
described in section 6 of the Fair Labor Standards Act of 1938; or
    (ii) 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;
    (4) Is not receiving total monthly gross income that exceeds twice 
the amount specified in paragraph (e)(3) of this section and, after 
deducting an amount equal to the borrower's monthly payments on federal 
postsecondary education loans, as determined under paragraph (e)(8) of 
this section, the remaining amount of that income does not exceed the 
amount specified in paragraph (e)(3) of this section; or
    (5) Is working full-time and has a Federal educational debt burden 
that equals or exceeds 20 percent of the borrower's adjusted gross 
income and the difference between the borrower's adjusted gross income 
minus such burden is less than 220 percent of the greater of--
    (i) The annual earnings of an individual earning the minimum wage 
under section 6 of the Fair Labor Standards Act of 1938; or
    (ii) the income official poverty line (as defined by the Office of 
Management and Budget, and revised annually in accordance with section 
673(2) of the Community Services Block Grant Act) applicable to a 
family of two.
    (6) For a deferment granted under paragraph (e)(4) of this section, 
the institution shall require the borrower to submit at least the 
following documentation to qualify for an initial period of deferment--
    (i) Evidence showing the amount of the borrower's most recent total 
monthly gross income, as defined in section 674.2; and
    (ii) Evidence that would enable the institution 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 (e)(8) of 
this section.
    (7) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraphs (e) (3) or (4) of this section, the institution 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.
    (8) For purposes of paragraphs (e)(3) and (e)(5) 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.
    (9) In determining a borrower's eligibility for an economic 
hardship deferment under paragraph (e) of this section, the institution 
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.
    (f) To qualify for a deferment for study as part of a graduate 
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a 
borrower must provide the institution certification that the borrower 
has been accepted for or is engaged in full-time study in the 
institution's graduate fellowship program.
    (g) To qualify for a deferment for study in a rehabilitation 
training program, pursuant to paragraph (b)(1)(iv) of this section, the 
borrower must be receiving, or be scheduled to receive, services under 
a program designed to rehabilitate disabled individuals and must 
provide the institution with the following documentation:
    (1) A certification from the rehabilitation agency that the 
borrower is either receiving or scheduled to receive rehabilitation 
training services from the agency.
    (2) A certification from the rehabilitation agency that the 
rehabilitation program--
    (i) Is licensed, approved, certified, or otherwise recognized by 
one of the following entities as providing rehabilitation training to 
disabled individuals--
    (A) A State agency with responsibility for vocational 
rehabilitation programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment 
by the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that would normally prevent an individual from engaging in full-
time employment either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation.
    (h) The institution may not include the deferment periods described 
in paragraphs (b), (c), (d), (e), (f) and (g) of this section when 
determining the 10-year repayment period.
    (i) The borrower need not pay principal and interest does not 
accrue until six months after completion of any period during which the 
borrower is in deferment under paragraphs (b), (c), (d), (e), (f), and 
(g) of this section.

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

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


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

    (a) The borrower may defer repayment on a Federal Perkins Loan made 
before July 1, 1993, during the periods described in this section.
* * * * *
    (c) * * *
    (5) * * *
    (iii) The borrower does not receive compensation that exceeds the 
rate prescribed under section 6 of the Fair Labor Standards Act of 1938 
(the Federal minimum wage), except that the tax-exempt organization may 
provide health, retirement, and other fringe benefits to the volunteer 
that are substantially equivalent to the benefits offered to other 
employees of the organization.

(Approved by the Office of Management and Budget under control 
number 1940-0535)
* * * * *
    20. Redesignated Sec. 674.36 is amended by revising the heading of 
the section; by revising paragraph (a); by adding the word ``Federal'' 
before the words ``Perkins Loan program'' in paragraph (b)(2); and by 
revising paragraph (c)(4)(iii) to read as follows:


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

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


Sec. 674.38  Deferment procedures.

* * * * *
    (d) The institution shall determine the continued eligibility of a 
borrower for a deferment at least annually.
    22. Redesignated Sec. 674.39 is amended by adding the word 
``Federal'' before the word ``Perkins'' in paragraph (b) and by 
revising the heading of the section to read as follows:


Sec. 674.39  Postponement of loan repayments in anticipation of 
cancellation--loans made before July 1, 1993.

* * * * *


Sec. 674.41  [Amended]

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


Sec. 674.42  Contact with the borrower.

    (a) * * *
    (1) * * *
    (ii) The borrower's rights to forbearance, deferment, cancellation, 
or postponement of repayment and the procedures for filing for those 
benefits.
* * * * *
    (3) The institution shall require the borrower to provide to the 
institution, during the exit interview--
    (i) The borrower's expected permanent address after leaving the 
institution, regardless of the reason for leaving;
    (ii) The name and address of the borrower's expected employer after 
leaving the institution;
    (iii) The name and address of the borrower's next of kin; and
    (iv) Any corrections in the institution's records relating to the 
borrower's name, address, social security number, personal references, 
and driver's license number.
* * * * *
(Approved under the Office of Management and Budget under control 
number 1840-0581)

    25. Section 674.43 is amended by adding a new paragraph (a)(3) to 
read as follows:


Sec. 674.43  Billing procedures.

    (a) * * *
    (3) Notwithstanding paragraph (a)(2)(ii) of this section, if the 
borrower elects to make payment by means of an electronic transfer of 
funds from the borrower's bank account, the institution shall send to 
the borrower an annual statement of account.
* * * * *
    26. Section 674.44 is amended by revising paragraph (a)(3) and by 
revising paragraph (d)(1) to read as follows:


Sec. 674.44  Address searches.

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


Sec. 674.45  Collection procedures.

    (a) * * *
    (1) Report the defaulted account to any one national credit bureau; 
and
* * * * *
    (b) An institution shall report to the same national credit bureau 
to which it originally reported the default, according to the reporting 
procedures of the national credit bureau, any changes in account status 
and shall respond within one month of its receipt to any inquiry from 
any credit bureau regarding the information reported on the loan 
amount.
* * * * *
    (d) If the institution is unable to place the loan in repayment as 
described in paragraph (c)(1) of this section after following the 
procedures in paragraphs (a), (b), and (c) of this section, the 
institution shall continue to make annual attempts to collect from the 
borrower until--
    (1) The loan is recovered through litigation;
    (2) The account is assigned to the United States; or
    (3) The account is written off under Sec. 674.47(g).
* * * * *
    (g) Preemption of State law. The provisions of this section preempt 
any State law, including State statutes, regulations, or rules, that 
would conflict with or hinder satisfaction of the requirements or 
frustrate the purposes of this section.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0581)

    28. Section 674.46 is amended by revising paragraph (a)(1) 
introductory text to read as follows:


Sec. 674.46  Litigation procedures.

    (a)(1) If the collection efforts described in Sec. 674.45 do not 
result in the repayment of a loan, the institution shall determine at 
least annually whether--
* * * * *
    29. Section 674.47(g) is amended by revising paragraph (g) to read 
as follows:


Sec. 674.47  Costs Chargeable to the Fund.

* * * * *
    (g) Write-offs of defaulted accounts. (1) An institution may write 
off a defaulted account with a balance of less than $25.00, including 
outstanding principal, accrued interest, collection costs, and late 
charges.
    (2) An institution that writes off a defaulted account under this 
paragraph may no longer include the amount of the account as an asset 
of the Fund.
    30. Section 674.48 is amended by revising paragraph (c)(4)(iii); by 
revising paragraph (d)(1)(iii); and by republishing the OMB control 
number to read as follows:


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

* * * * *
    (c) * * *
    (4) * * *
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days; 
and
* * * * *
    (d) * * *
    (1) * * *
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days, 
after deducting its fees if authorized to do so by the institution; and
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0581)

    31. Section 674.49 is amended by revising paragraph (a); by 
removing paragraph (g); by redesignating paragraph (h) as paragraph 
(g); by removing redesignated paragraph (g)(3); by revising 
redesignated paragraph (g)(1) introductory text; and by republishing 
the OMB control number to read as follows:


Sec. 674.49  Bankruptcy of borrower.

    (a) General. If an institution receives notice that a borrower has 
filed a petition for relief in bankruptcy, usually by receiving a 
notice of meeting of creditors, the institution and its agents shall 
immediately suspend any collection efforts outside the bankruptcy 
proceeding against the borrower.
* * * * *
    (g) Termination of collection and write-off. (1) An institution 
shall terminate all collection action and write off a loan if it 
receives--
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0581)

    32. Section 674.50 is amended by revising paragraph (c)(10), and 
the OMB control number to read as follows:


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

* * * * *
    (c) * * *
    (10) Documentation that the institution has complied with all of 
the due diligence requirements described in paragraph (a)(1) of this 
section if the institution has a cohort default rate that is equal to 
or greater than 20 percent as of June 30 of the second year preceding 
the submission period.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

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


Sec. 674.51  Special definitions.

* * * * *
    (c) Title I Children: Children of ages 5 through 17 who are counted 
under section 1124(c)(1) of the Elementary and Secondary Education Act 
of 1965, as amended.
    (d) Children and youth with disabilities: Children and youth from 
ages 3 through 21, inclusive, who require special education and related 
services because they have disabilities as defined in section 602(a)(1) 
of the Individuals with Disabilities Education Act.
    (e) Early intervention services: Those services defined in section 
672(2) of the Individuals with Disabilities Education Act that are 
provided to infants and toddlers with disabilities.
* * * * *
    (h) High-risk children: Individuals under the age of 21 who are 
low-income or at risk of abuse or neglect, have been abused or 
neglected, have serious emotional, mental, or behavioral disturbances, 
reside in placements outside their homes, or are involved in the 
juvenile justice system.
    (i) Infants and toddlers with disabilities: Infants and toddlers 
from birth to age 2, inclusive, who need early intervention services 
for specified reasons, as defined in section 672(1) of the Individuals 
with Disabilities Education Act.
* * * * *
    (k) Low-income communities: Communities in which there is a high 
concentration of children eligible to be counted under title I of the 
Elementary and Secondary Education Act of 1965, as amended.
    (l) Medical technician: An allied health professional (working in 
fields such as therapy, dental hygiene, medical technology, or 
nutrition) who is certified, registered, or licensed by the appropriate 
State agency in the State in which he or she provides health care 
services. An allied health professional is someone who assists, 
facilitates, or complements the work of physicians and other 
specialists in the health care system.
    (m) Nurse: A licensed practical nurse, a registered nurse, or other 
individual who is licensed by the appropriate State agency to provide 
nursing services.
    (n) Qualified professional provider of early intervention services: 
A provider of services as defined in section 672(2) of the Individuals 
with Disabilities Education Act.
* * * * *
    (q) * * *
    (3) * * *
    (i) Speech and language pathology and audiology;
    (ii) Physical therapy;
    (iii) Occupational therapy;
    (iv) Psychological and counseling services; or
    (v) Recreational therapy.
    (r) Teaching in a field of expertise: The majority of classes 
taught are in the borrower's field of expertise.
* * * * *
    34. Section 674.52 is amended by adding a heading to paragraph (b); 
by redesignating paragraph (b)(1) as (b)(1)(i); by adding new paragraph 
(b)(1)(ii); by adding a heading to paragraph (c); by revising paragraph 
(d); and by adding new paragraph (e) to read as follows:


Sec. 674.52  Cancellation procedures.

* * * * *
    (b) Part-time employment. (l)(i) * * *
    (ii) An institution may refuse a request for cancellation based on 
a claim of simultaneous employment as a nurse or medical technician in 
two or more facilities if it cannot determine easily from the 
documentation supplied by the borrower that the combined employment is 
full-time. However, it shall grant the cancellation if one facility 
official certifies that a nurse or medical technician worked full-time 
for a full year.
    (c) Cancellation of a defaulted loan. (1) * * *
* * * * *
    (d) Concurrent deferment period. (1) For loans made prior to July 
1, 1993, the Secretary considers a borrower's loan deferment under 
Secs. 674.35, 674.36, and 674.37 to run concurrently with any period 
for which a cancellation for military, Peace Corps, or ACTION program 
service is granted.
    (2) For loans made on or after July 1, 1993, the Secretary 
considers a borrower's loan deferment under Sec. 674.34 to run 
concurrently with any period for which a cancellation under 
Secs. 674.53, 674.56, or 674.57 is granted.
    (e) National community service. No borrower who has received a 
benefit under subtitle D of title I of the National and Community 
Service Act of 1990 may receive a cancellation under this subpart.


Secs. 674.53 and 674.54  [Redesignated as Secs. 674.54 and 674.55]


Secs. 674.55 through 674.60  [Redesignated as Secs. 674.58 through 
674.63]

    35. Sections 674.55 through 674.60 are redesignated as Secs. 674.58 
through 674.63 respectively; Secs. 674.53 and 674.54 are redesignated 
as Secs. 674.54 and 674.55 respectively; and a new Sec. 674.53 is added 
to read as follows:


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

    (a) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students. (1) An institution shall 
cancel up to 100 percent of the outstanding loan balance on a Federal 
Perkins loan or a Direct loan made on or after July 23, 1992, for full-
time teaching in a public or other nonprofit elementary or secondary 
school that--
    (i) Is in a school district that qualified for funds, in that year, 
under title I of the Elementary and Secondary Education Act of 1965, as 
amended; and
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up 
of title I children.
    (2) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (a) of this 
section.
    (3) (i) The Secretary selects schools under paragraph (a)(1) of 
this section based on a ranking by the State education agency.
    (ii) The State education agency shall base its ranking of the 
schools on objective standards and methods. These standards must take 
into account the numbers and percentages of title I children attending 
those schools.
    (iii) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (a) of this 
section.
    (4) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Affairs (BIA) or operated on Indian 
reservations by Indian tribal groups under contract with BIA to qualify 
as schools serving low-income students.
    (5) A teacher, who performs service in a school that meets the 
requirement of paragraph (a)(1) of this section in any year and in a 
subsequent year fails to meet these requirements, may continue to teach 
in that school and will be eligible for loan cancellation pursuant to 
paragraph (a) of this section in subsequent years.
    (6) If a list of eligible institutions in which a teacher performs 
services under paragraph (a)(1) of this section is not available before 
May 1 of any year, the Secretary may use the list for the year 
preceding the year for which the determination is made to make the 
service determination.
    (b) Cancellation for full-time teaching in special education. An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made on or after 
July 23, 1992, for the borrower's service as a full-time special 
education teacher of infants, toddlers, children, or youth with 
disabilities, in a public or other nonprofit elementary or secondary 
school system.
    (c) Cancellation for full-time teaching in fields of expertise. An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made on or after 
July 23, 1992, for full-time teaching in mathematics, science, foreign 
languages, bilingual education, or any other field of expertise where 
the State education agency determines that there is a shortage of 
qualified teachers.
    (d) Cancellation rates. (1) To qualify for cancellation under 
paragraph (a), (b), or (c) of this section, a borrower shall teach 
full-time for a complete academic year or its equivalent.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time teaching;
    (ii) 20 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time teaching; 
and
    (iii) 30 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time teaching.
    (e) Teaching in a school system. The Secretary considers a borrower 
to be teaching in a public or other nonprofit elementary or secondary 
school system only if the borrower is directly employed by the school 
system.
    (f) Teaching children and adults. A borrower who teaches both 
adults and children qualifies for cancellation for this service only if 
a majority of the students whom the borrower teaches are children.

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

    36. Redesignated Sec. 674.54 is amended by revising the heading of 
the section; by revising paragraph (a)(1); by removing paragraph 
(a)(2); by redesignating paragraphs (a)(3) and (a)(4) as paragraphs 
(a)(2) and (a)(3) respectively; by removing the term ``Chapter 1'' and 
adding in its place ``title I'' in redesignated paragraph (a)(2); by 
adding new paragraphs (a)(4) and (a)(5); by revising paragraph (b)(1); 
and by revising the authority citation to read as follows:


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

    (a) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students. (1) An institution shall 
cancel up to 100 percent of the outstanding loan balance on a Federal 
Perkins loan or a Direct loan made before July 23, 1992, for full-time 
teaching in a public or other nonprofit elementary or secondary school 
that--
    (i) Is in a school district that qualifies for funds, in that year, 
under title I of the Elementary and Secondary Education Act of 1965, as 
amended; and
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up 
of title I children.
* * * * *
    (4) A teacher, who performs service in a school that meets the 
requirement of paragraph (a)(1) of this section in any year and in a 
subsequent year fails to meet these requirements, may continue to teach 
in that school and will be eligible for loan cancellation pursuant to 
paragraph (a) of this section, in subsequent years.
    (5) If a list of eligible institutions in which a teacher performs 
services under paragraph (a)(1) of this section is not available before 
May 1 of any year, the Secretary may use the list for the year 
preceding the year for which the determination is made to make the 
service determination.
    (b) Cancellation for full-time teaching of the handicapped. (1) An 
institution shall cancel up to 100 percent of the outstanding balance 
on a borrower's Federal Perkins loan or Direct loan made before July 
23, 1992, for full-time teaching of handicapped children in a public or 
other nonprofit elementary or secondary school system.
* * * * *
(Authority: 20 U.S.C. 1087ee)

    37. Redesignated section 674.55 is amended by revising paragraph 
(b)(1)(i); by removing paragraph (b)(2); by redesignating paragraphs 
(b)(3), (b)(4), (b)(5), and (b)(6) as paragraphs (b)(2), (b)(3), 
(b)(4), and (b)(5), respectively; and by removing the term ``Chapter 
1'' and adding in its place ``title I'' in redesignated paragraph 
(b)(2)(ii) to read as follows:
    (b) * * *
    (1) * * *
    (i) Is in a school district that qualifies for funds in that year 
under title I of the Elementary and Secondary Education Act of 1965, as 
amended; and
* * * * *
    38. A new Sec. 674.56 is added to read as follows:


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

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

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

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


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

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

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

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


Sec. 674.61   Cancellation for death or disability.

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


Sec. 674.63   Reimbursement to institutions for loan cancellation.

    (a) Reimbursement for Defense loan cancellation. (1) The Secretary 
pays an institution each award year its share of the principal and 
interest canceled under Secs. 674.55 and 674.59(a).
* * * * *
    (b) Reimbursement for Direct and Federal Perkins loan cancellation. 
The Secretary pays an institution each award year the principal and 
interest canceled from its student loan fund under Secs. 674.53, 
674.54, 674.56, 674.57, 674.58, 674.59(b), and 674.60. The institution 
shall deposit this amount in its Fund.
* * * * *


Appendices A through D   [Removed]

    43. Appendix A to Part 674--Promissory Note--Perkins Loan is 
removed.
    44. Appendix B to Part 674--Promissory Note--Direct Loan is 
removed.
    45. Appendix C to Part 674--Promissory Note--Perkins Loan--Less 
Than Half-Time Student Borrower is removed.
    46. Appendix D to Part 674--Promissory Note--Direct Loan--Less Than 
Half-Time Student Borrower is removed.
    47. In 34 CFR part 674 add the word ``Federal'' before the word 
``Perkins'' in the following places:


Sec. 674.1   [Amended]

    (a) Section 674.1 (a) and (b)(1).


Sec. 674.2   [Amended]

    (b) Section 674.2(a) (two times) and in the definitions of 
``Fund'', ``Initial grace period'', and ``Student loan'' in paragraph 
(b).


Sec. 674.3   [Amended]

    (c) Section 674.3 (a) and (b).


Sec. 674.4   [Amended]

    (d) Section 674.4(a).


Sec. 674.8   [Amended]

    (e) Section 674.8 introductory text.


Sec. 674.9   [Amended]

    (f) Section 674.9 introductory text.


Sec. 674.14   [Amended]

    (g) Section 674.14 (a)(1), (a)(2) introductory text, (b)(1)(x).


Sec. 674.17   [Amended]

    (h) Section 674.17 (a) and (b)(1) introductory text.


Sec. 674.18   [Amended]

    (i) Section 674.18 (a), (b)(1) (two times), (b)(2)(i), (b)(3), and 
(b)(4).


Sec. 674.19   [Amended]

    (j) Section 674.19 (a)(1), (a)(3)(i), (b) heading, (b)(1) 
introductory text, (b)(1)(ii), (b)(3), (b)(4) introductory text, 
(d)(4), and (e)(4)(iv).


Sec. 674.20   [Amended]

    (k) Section 674.20(b).


Sec. 674.31   [Amended]

    (l) Section 674.31 (b)(2)(i)(B), (b)(5)(ii)(A), and (b)(7)(ii).


Sec. 674.42   [Amended]

    (m) Section 674.42(b)(1)(i).


Sec. 674.46   [Amended]

    (n) Section 674.46(a)(1)(i).


Sec. 674.2   [Amended]

    48. In Sec. 674.2(a), remove the term ``College Work-Study (CWS) 
Program'' and add the term ``Federal Work-Study (FWS) Program'' in 
alphabetical order.
    49. In 34 CFR part 674, remove the term ``CWS'' and add, in its 
place, the term ``FWS'' in the following places:


Sec. 674.18   [Amended]

    (a) Section 674.18 (b)(2)(i), (b)(3), and (b)(4).


Sec. 674.19   [Amended]

    (b) Section 674.19(d)(4).


Sec. 674.2   [Amended]

    50. In Sec. 674.2(a), remove the term ``Supplemental Educational 
Opportunity Grant (SEOG) Program'' and add the term ``Federal 
Supplemental Educational Opportunity Grant (FSEOG) Program'' in 
alphabetical order.
    51. In 34 CFR part 674, remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:


Sec. 674.18   [Amended]

    (a) Section 674.18 (b)(2)(i) and (b)(4).


Sec. 674.19   [Amended]

    (b) Section 674.19(d)(4).


Sec. 674.14   [Amended]

    52. In 34 CFR part 674, remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in Sec. 674.14(b)(1)(iv).


Sec. 674.2   [Amended]

    53. In Sec. 674.2(a), remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL) 
programs'' in alphabetical order.


Sec. 674.2   [Amended]

    54. In Sec. 674.2(a), remove the term ``Pell Grant'' and add the 
term ``Federal Pell Grant'' in alphabetical order.
    55. In 34 CFR part 674, add the term ``Federal'' before the term 
``Pell Grant'' in the following places:


Sec. 674.9   [Amended]

    (a) Section 674.9 (d)(1) and (d)(2).


Sec. 674.14   [Amended]

    (b) Section 674.14(b)(1)(i) (two times).


Sec. 674.15   [Amended]

    (c) Section 674.15(c)(2).


Sec. 674.2   [Amended]

    56. In Sec. 674.2(a), remove the term ``Income Contingent Loan 
(ICL) Program''.


Sec. 674.2   [Amended]

    57. In Sec. 674.2(a), remove the terms ``PLUS Program'' and ``SLS 
Program'' and add the terms ``Federal PLUS Program'' and ``Federal SLS 
Program'' in alphabetical order.


Sec. 674.14   [Amended]

    58. In Sec. 674.14(b)(3), add the term ``Federal'' before the term 
``Supplemental Loan for Students (SLS)''.

PART 675--FEDERAL WORK-STUDY PROGRAMS

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

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

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


Sec. 675.1   Purpose and identification of common provisions.

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


Sec. 675.2  Definitions.

* * * * *
    (b) * * *
    Community services: Services which are identified by an institution 
of higher education, through formal or informal consultation with local 
nonprofit, governmental, and community-based organizations, as designed 
to improve the quality of life for community residents, particularly 
low-income individuals, or to solve particular problems related to 
their needs. These services include--
    (1) Such fields as health care, child care, literacy training, 
education (including tutorial services), welfare, social services, 
transportation, housing and neighborhood improvement, public safety, 
crime prevention and control, recreation, rural development, and 
community improvement;
    (2) Work in service opportunities or youth corps as defined in 
section 101 of the National and Community Service Act of 1990, and 
service in the agencies, institutions and activities designated in 
section 124(a) of that Act;
    (3) Support services to students (other than an institution's own 
students) with disabilities; and
    (4) Activities in which a student serves as a mentor for such 
purposes as--
    (i) Tutoring;
    (ii) Supporting educational and recreational activities; and
    (iii) Counseling, including career counseling.
* * * * *
    Undergraduate student: A student enrolled at an institution of 
higher education who is in an undergraduate course of study which 
usually does not exceed four academic years, or is enrolled in a four 
to five academic year program designed to lead to a first degree. A 
student enrolled in a program of any other length is considered an 
undergraduate student for only the first four academic years of that 
program.
    6. Section 675.4 is amended by revising the introductory text of 
paragraph (d) and adding new paragraph (e) to read as follows:


Sec. 675.4  Allocation and reallocation.

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


Sec. 675.8  Program participation agreement.

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


Sec. 675.10  Selection of students for FWS employment.

* * * * *
    (c) Part-time and independent students. If an institution's 
allocation of FWS funds is directly or indirectly based in part on the 
financial need demonstrated by students attending the institution as 
less-than-full-time or independent students, and if the total financial 
need of those students exceeds 5 percent of the total financial need of 
all students at the institution, the institution shall offer to those 
students at least 5 percent of its allocation under this part.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    9. Section 675.14 is amended by removing the words ``Guaranteed 
Students Loans'' and adding, in its place, the words ``Federal Family 
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and 
need-based ICLs'' after the words ``Direct Loans'' in paragraph 
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'', 
by removing the comma after the words ``PLUS loan'', and by removing 
the words ``or non-need-based ICL'' before the word ``as'' in paragraph 
(b)(3); by removing the dollar figure ``$200'' and adding, in its 
place, the dollar figure ``$300'' in paragraphs (c) introductory text, 
(c)(1), and (c)(2); and by revising paragraph (d)(2) to read as 
follows:


Sec. 675.14  Overaward.

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


Sec. 675.18  Use of funds.

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


Sec. 675.21  Institutional employment.

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


Sec. 675.26  FWS Federal share limitations.

    (a)(1) The Federal share of FWS compensation paid to a student 
employed other than by a private for-profit organization, as described 
in Sec. 675.23, may not exceed 75 percent for the 1993-94 award year 
and subsequent award years unless the Secretary approves a higher share 
under paragraph (d) of this section.
    (2) The Federal share of the compensation paid to a student 
employed by a private for-profit organization may not exceed 50 
percent.
    (3) An institution may not use FWS funds to pay a student after he 
or she has, in addition to other resources, earned $300 or more over 
his or her financial need.
* * * * *


Sec. 675.28  [Removed]

    13. Section 675.28 is removed.
    14. The heading for subpart B is amended by removing the ``s'' from 
the word ``Programs''.
    15. Section 675.31 is revised to read as follows:


Sec. 675.31  Purpose.

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

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

    16. Section 675.32 is revised to read as follows:


Sec. 675.32  Program description.

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

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

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


Sec. 675.34  Multi-institutional job location and development programs.

    (a) An institution participating in the FWS program may enter into 
a written agreement to establish and operate job location programs for 
its students with other participating institutions.
* * * * *
    (c) Each institution shall retain responsibility for the proper 
disbursement of the Federal funds it contributes under an agreement 
with other eligible institutions.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    18. Section 675.35 is amended by adding the word ``in'' before the 
word ``accordance'' in paragraph (b)(1); by revising paragraphs 
(b)(3)(i) and (b)(3)(v); and by republishing the OMB control number to 
read as follows:


Sec. 675.35  Agreement.

* * * * *
    (b) * * *
    (3) * * *
    (i) The institution will not use program funds to locate and 
develop jobs at an eligible institution;
* * * * *
    (v) If the institution uses Federal funds to contract with another 
institution, suitable performance standards will be part of that 
contract.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    19. A new subpart C is added to part 675 to read as follows:
* * * * *

Subpart C--Work-Colleges Program

Sec.
675.41  Special definitions.
675.42  Allocation and reallocation.
675.43  Purpose.
675.44  Program description.
675.45  Allowable costs, Federal share, and institutional share.
675.46  Unallowable costs.
675.47  Multi-institutional work-colleges arrangements.
675.48  Agreement.
675.49  Procedures and records.
675.50  Termination and suspension.
* * * * *

Subpart C--Work-Colleges Program


Sec. 675.41  Special definitions.

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

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


Sec. 675.42  Allocation and reallocation.

    The Secretary allocates and reallocates funds based on each 
institution's approved request for Federal funds for the Work-Colleges 
program as a percent of the total of such approved requests for all 
applicant institutions.

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


Sec. 675.43  Purpose.

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

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


Sec. 675.44  Program description.

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

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


Sec. 675.45  Allowable costs, Federal share, and institutional share.

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

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


Sec. 675.46  Unallowable costs.

    An institution participating in the Work-Colleges program may not 
use its allocated and reallocated program funds and transferred funds 
provided under its Federal Perkins Loan or its FWS program to pay costs 
related to the purchase, construction, or alteration of physical 
facilities or indirect administrative costs.

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


Sec. 675.47  Multi-institutional work-colleges arrangements.

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

(Approved by the Office of Management and Budget under control 
number 1840-0535)

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


Sec. 675.48  Agreement.

    To participate in the Work-Colleges program, an institution shall 
enter into an agreement with the Secretary. The agreement provides 
that, among other things, the institution shall--
    (a) Assure that it will comply with all the appropriate provisions 
of the HEA and the appropriate provisions of the regulations;
    (b) Assure that it satisfies the definition of ``work-college'' in 
Sec. 675.41(a);
    (c) Assure that it will match the Federal funds according to the 
requirements in Sec. 675.45(c); and
    (d) Assure that it will use funds only to carry out the activities 
in Sec. 675.45(a).

(Approved by the Office of Management and Budget under control 
number 1840-0535)

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


Sec. 675.49  Procedures and records.

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

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


Sec. 675.50  Termination and suspension.

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

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


Sec. 675.4  [Amended]

    20. In 34 CFR part 675 remove the term ``College Work-Study'' 
before the word ``program'' and add, in its place, the term ``FWS'' in 
Sec. 675.4(a).
    21. In 34 CFR part 675 remove the term ``CWS'' and add, in its 
place, the term ``FWS'' in the following places:


Sec. 675.3  [Amended]

    (a) Section 675.3(a) and (b).


Sec. 675.4  [Amended]

    (b) Section 675.4(d)(1) (two times).


Sec. 675.8  [Amended]

    (c) Section 675.8 introductory text, (b), (c), and (e).


Sec. 675.9  [Amended]

    (d) Section 675.9 introductory text.


Sec. 675.10  [Amended]

    (e) Section 675.10(a).


Sec. 675.14  [Amended]

    (f) Section 675.14 (a)(1), (a)(2) introductory text, (a)(2)(i), 
(a)(3), (c) introductory text, and (d)(1) (three times).


Sec. 675.15  [Amended]

    (g) Section 675.15(a) introductory text.


Sec. 675.16  [Amended]

    (h) Section 675.16(a)(3), (a)(4), (b)(1), (b)(2), and (b)(3).


Sec. 675.17  [Amended]

    (i) Section 675.17.


Sec. 675.18  [Amended]

    (j) Section 675.18(a) introductory text, (a)(1), redesignated 
(a)(5), (b)(1), (b)(2)(i), (b)(4), (c)(1) and (2), and (d).


Sec. 675.19  [Amended]

    (k) Section 675.19(a)(1), (a)(3)(i) introductory text, (a)(3)(ii), 
and (b)(4) (two times).


Sec. 675.20  [Amended]

    (l) Section 675.20(a) heading and introductory text, (b)(1), (c) 
heading, and (c)(2) introductory text.


Sec. 675.22  [Amended]

    (m) Section 675.22(b) heading.


Sec. 675.23  [Amended]

    (n) Section 675.23(a) (two times), and (b)(2)(ii).


Sec. 675.24  [Amended]

    (o) Section 675.24 heading, (a)(1), and (b).


Sec. 675.25  [Amended]

    (p) Section 675.25(a)(1) and (2), and (b).


Sec. 675.26  [Amended]

    (q) Section 675.26 heading and (d)(2)(ii).


Sec. 675.27  [Amended]

    (r) Section 675.27(a)(1) (two times), (a)(3), and (b).


Sec. 675.33  [Amended]

    (s) Section 675.33(b).


Sec. 675.35  [Amended]

    (t) Section 675.35(a).


Sec. 675.37  [Amended]

    (u) Section 675.37(a).


Sec. 675.14  [Amended]

    22. In 34 CFR part 675 remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in Sec. 675.14(b)(1)(iv).
    23. In 34 CFR part 675 remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:


Sec. 675.18  [Amended]

    (a) Section 675.18 redesignated (a)(5), (b)(2)(i), and (b)(4).


Sec. 675.19  [Amended]

    (b) Section 675.19(b)(4).


Sec. 675.2  [Amended]

    24. In Sec. 675.2, paragraph (a) is amended by removing the term 
``Supplemental Educational Opportunity Grant (SEOG) program'' and 
adding, the term ``Federal Supplemental Educational Opportunity Grant 
(FSEOG) program'' in alphabetical order.


Appendix B to Part 675  [Amended]

    25. Appendix B to 34 CFR part 675 is amended by removing the term 
``College Work-Study program'' and adding, in its place, ``Federal 
Work-Study program'', and removing the term ``CWS'' and adding, in its 
place, the term ``FWS'' each place these terms appear.


Sec. 675.2  [Amended]

    26. In Sec. 675.2(a) remove the term ``Perkins Loan Program'', and 
add the term ``Federal Perkins Loan Program'' in alphabetical order.
    27. In 34 CFR part 675 add the word ``Federal'' before the word 
``Perkins'' in the following places:


Sec. 675.14  [Amended]

    (a) Section 675.14(b)(1)(x).


Sec. 675.18  [Amended]

    (b) Section 675.18(b)(2)(i) and (b)(4).


Sec. 675.19  [Amended]

    (c) Section 675.19(b)(4).


Sec. 675.2  [Amended]

    28. In Sec. 675.2(a) remove the term ``Pell Grant Program'' and add 
the term ``Federal Pell Grant Program'' in alphabetical order.
    29. In 34 CFR part 675 add the word ``Federal'' before the word 
``Pell'' in the following places:


Sec. 675.14  [Amended]

    (a) Section 675.14(b)(1)(i) (two times) and (c)(2).


Sec. 675.15  [Amended]

    (b) Section 675.15(c)(2).


Sec. 675.18  [Amended]

    (c) Section 675.18(b)(4).


Sec. 675.2  [Amended]

    30. In Sec. 675.2(a) remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL) 
programs'' in alphabetical order.


Sec. 675.2  [Amended]

    31. In Sec. 675.2(a) remove the term ``Income Contingent Loan 
Program''.


Sec. 675.2  [Amended]

    32. In Sec. 675.2(a) add the term ``Federal'' before the terms 
``PLUS Program'' and ``SLS Program''.


Sec. 675.14  [Amended]

    33. In Sec. 675.14(b)(3) add the term ``Federal'' before the term 
``Supplemental Loan for Students (SLS)''.


Sec. 675.17  [Amended]

    34. In Sec. 675.17 remove the term ``Programs'' after the term 
``Development'' and add the term ``Program''.

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM

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

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


Sec. 676.1  [Amended]

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


Sec. 676.4  Allocation and reallocation.

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


Sec. 676.10  Selection of students for FSEOG awards.

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


Sec. 676.14  Overaward.

* * * * *
    (c) Treatment of resources in excess of need. An institution shall 
take the following steps when it learns that a student has received 
additional resources not included in the calculation of FSEOG 
eligibility that would result in the student's total resources 
exceeding his or her financial need by more than $300:
    (1) The institution shall decide whether the student has increased 
financial need that was unanticipated when it awarded financial aid to 
the student. If the student demonstrates increased financial need and 
the total resources do not exceed this increased need by more than 
$300, no further action is necessary.
    (2) If no increased need is demonstrated, or the student's total 
resources still exceed his or her need by more than $300, as 
recalculated pursuant to paragraph (c)(1) of this section, the 
institution shall cancel any undisbursed loan or grant (other than a 
Federal Pell Grant).
    (3) If the student's total resources still exceed his or her need 
by more than $300, after the institution takes the steps required in 
paragraphs (c)(1) and (2) of this section, the institution shall 
consider the amount by which the resources exceed the student's 
financial need by more than $300 as an overpayment.
* * * * *
(Approved by the Office of Management and Budget under control 1840-
0535)

    6. Section 676.16 is amended by redesignating paragraphs (f) and 
(g) as paragraphs (g) and (h) respectively; by adding a new paragraph 
(f); and by republishing the OMB control number to read as follows:


Sec. 676.16  Payment of an FSEOG.

* * * * *
    (f)(1) An institution may disburse FSEOG funds after the student 
has ceased to be enrolled in accordance with paragraphs (f)(2) and (3) 
of this section.
    (2) A disbursement described in paragraph (f)(1) of this section 
may be made--
    (i) Only if the FSEOG is awarded to the student while he or she is 
still an eligible student; and
    (ii) Only if the FSEOG funds is used to cover documented 
educational costs to the student that are normally included in a 
student's cost of attendance under section 472 of the HEA for the 
payment period for which the FSEOG was intended and the student was 
actually enrolled.
    (3) The institution shall document in the student's file the reason 
for the late disbursement.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    7. Section 676.18 is amended by removing paragraph (a)(3); by 
adding the word ``and'' after the semicolon in paragraph (a)(1); by 
removing the word ``and'' after the semicolon in paragraph (a)(2); by 
removing the semicolon in paragraph (a)(2) and adding, in its place, a 
period; and by revising paragraph (c) to read as follows:


Sec. 676.18  Use of funds.

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


Sec. 676.20  Minimum and maximum FSEOG award.

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


Sec. 676.21  FSEOG Federal share limitations.

    (a) Except as provided in paragraph (b) of this section, for the 
1993-94 award year and subsequent award years, the Federal share of the 
FSEOG awards made by an institution may not exceed 75 percent of the 
amount of FSEOG awards made by that institution.
* * * * *
    10. In 34 CFR part 676 remove the term ``SEOG'' and add, in its 
place, the term ``FSEOG'' in the following places:


Sec. 676.3  [Amended]

    (a) Section 676.3(a) and (b).


Sec. 676.4  [Amended]

    (b) Section 676.4 redesignated (e)(1).


Sec. 676.8  [Amended]

    (c) Section 676.8 introductory text and (b).


Sec. 676.9  [Amended]

    (d) Section 676.9 introductory text.


Sec. 676.10  [Amended]

    (e) Section 676.10 heading, (a)(1), and (a)(2) (three times).


Sec. 676.14  [Amended]

    (f) Section 676.14(a)(1) (two times), (a)(2) introductory text, 
(a)(2)(i), (a)(3) (two times), and (d)(1) and (2).


Sec. 676.15  [Amended]

    (g) Section 676.15(a) introductory text.


Sec. 676.16  [Amended]

    (h) Section 676.16 heading, paragraph (a)(1), (a)(2) (three times), 
(b), (d)(1), (e)(1) introductory text, redesignated paragraphs (g) and 
(h).


Sec. 676.17  [Amended]

    (i) Section 676.17.


Sec. 676.18  [Amended]

    (j) Section 676.18(a) introductory text, (b)(1), (b)(2)(i), and 
(b)(4).


Sec. 676.19  [Amended]

    (k) Section 676.19(a)(1), (a)(2)(i) introductory text and (ii), and 
(b)(3).


Sec. 676.20  [Amended]

    (l) Section 676.20 heading and (b).


Sec. 676.21  [Amended]

    (m) Section 676.21 heading, (b)(2), and (c).
    11. In 34 CFR part 676 remove the term ``SEOGs'' and add, in its 
place, the term ``FSEOGs'' in the following places:


Sec. 676.14  [Amended]

    (a) Section 676.14 (b)(1)(iv).


Sec. 676.21  [Amended]

    (b) Section 676.21(b) introductory text.


Sec. 676.2  [Amended]

    12. In Sec. 676.2(a) remove the term ``Perkins Loan Program'' and 
add the term ``Federal Perkins Loan Program'' in alphabetical order.
    13. In 34 CFR part 676 add the term ``Federal'' before the term 
``Perkins'' in the following places:


Sec. 676.14  [Amended]

    (a) Section 676.14(b)(1)(x).


Sec. 676.18  [Amended]

    (b) Section 676.18(b)(2)(i), (b)(3), and (b)(4).


Sec. 676.19  [Amended]

    (c) Section 676.19(b)(3).


Sec. 676.2  [Amended]

    14. In Sec. 676.2(a) remove the term ``Pell Grant Program'' and add 
the term ``Federal Pell Grant Program'' in alphabetical order.
    15. In 34 CFR part 676 add the term ``Federal'' before the term 
``Pell'' in the following places:


Sec. 676.10  [Amended]

    (a) Section 676.10(a)(1) and (2).


Sec. 676.14  [Amended]

    (b) Section 676.14(b)(1)(i).


Sec. 676.15  [Amended]

    (c) Section 676.15(c)(2).


Sec. 676.18  [Amended]

    (d) Section 676.18(b)(4).
    16. In 34 CFR part 676 remove the ``CWS'' and add, in its place, 
``FWS'' in the following places:


Sec. 676.18  [Amended]

    (a) Section 676.18(b)(2)(i), (b)(3), and (b)(4).


Sec. 676.19  [Amended]

    (b) Section 676.19(b)(3).


Sec. 676.2  [Amended]

    17. In Sec. 676.2(a) remove the term ``College Work-Study (CWS) 
Program'' and add the term ``Federal Work-Study (FWS) Program'' in 
alphabetical order.
    18. In Sec. 676.2(a) remove the term ``Guaranteed Student Loan 
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL) 
programs'' in alphabetical order.
    19. In Sec. 676.2(a) remove the term ``Income Contingent Loan 
Program''.
    20. In Sec. 676.2(a) remove the terms ``PLUS Program'' and ``SLS 
Program'' and add the terms ``Federal PLUS Program'' and ``Federal SLS 
Program'' in alphabetical order.


Sec. 676.14  [Amended]

    21. In Sec. 676.14(b)(3) add the word ``Federal'' before the term 
``Supplemental Loan for Students (SLS)''.

[FR Doc. 94-29261 Filed 11-29-94; 8:45 am]
BILLING CODE 4000-01-P