[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: 94-29263]


[[Page Unknown]]

[Federal Register: November 30, 1994]


_______________________________________________________________________

Part IV





Department of Education





_______________________________________________________________________



34 CFR Part 682




Federal Family Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AC09

 
Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Final Regulations.

-----------------------------------------------------------------------

SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL) 
Program regulations. The FFEL Program consists of the Federal Stafford, 
Federal Supplemental Loans for Students (SLS), Federal PLUS, and the 
Federal Consolidation Loan Programs. These amendments are needed to 
implement certain changes made to the Higher Education Act of 1965, as 
amended (HEA), by the Omnibus Budget Reconciliation Act of 1993 (OBRA), 
enacted August 10, 1993, and by the Higher Education Technical 
Amendments of 1993, enacted December 20, 1993. These regulations also 
amend the FFEL Program regulations to permit a lender to issue a 
``master check'' to an institution for purposes of disbursing Federal 
Stafford loan proceeds to an institution, to prohibit a subsequent 
holder of a loan to bill the Secretary for any applicable interest 
benefits or special allowance on a loan for which origination fees have 
not been paid, and to limit the collection charges that may be assessed 
a borrower with a defaulted loan that is paid off through loan 
consolidation. These regulations also clarify a change made to the HEA 
by the Improving America's Schools Act of 1994 (Pub. L. 103-382).

EFFECTIVE DATE: These regulations take effect July 1, 1995. However, 
affected parties do not have to comply with the information collection 
requirements in Secs. 682.305, 682.401, 682.404, and 682.603 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 number 
notifies the public that OMB has approved these information collection 
requirements under the Paperwork Reduction Act of 1980.

FOR FURTHER INFORMATION CONTACT: Mr. Douglas D. Laine, Program 
Specialist, Federal Family Education Loan Program Section, Loans 
Branch, U.S. Department of Education, 600 Independence Avenue, SW., 
room 4310, Regional Office Building 3, Washington, DC 20202-5343, 
telephone: (202) 708-8242. Individuals who use a telecommunications 
device for the deaf (TDD) may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern 
time, Monday through Friday.

SUPPLEMENTARY INFORMATION:

Background

    The FFEL Program regulations (34 CFR Part 682) govern the Federal 
Stafford Loan Program, the Federal Unsubsidized Stafford Loan Program, 
the Federal SLS Program, the Federal PLUS Program, and the Federal 
Consolidation Loan Program (formerly the Guaranteed Student Loan 
programs).
    The Secretary is amending 34 CFR Part 682 to implement changes made 
to the HEA by the Omnibus Budget Reconciliation Act of 1993 (OBRA) 
(Pub. L. 103-66) and the Higher Education Technical Amendments of 1993 
(the Technical Amendments) (Pub. L. 103-208).
    These amendments reflect changes made to the HEA by OBRA, such as 
the payment of lender referral fees to guaranty agencies, the reduction 
of the reinsurance coverage and reinsurance rates for a guaranty 
agency's losses on default claims and the reduction of insurance 
coverage a guaranty agency may pay on default claims.
    These amendments also reflect changes to the HEA made by the 
Technical Amendments, such as a lender's obligation to rebate excess 
interest on certain Federal Stafford loans to either the borrower or 
the Secretary and require lenders to convert the interest rates on 
certain Federal Stafford loans to a variable interest rate.
    These amendments also permit a lender to disburse Federal Stafford 
loan proceeds to a school via a master check, prohibit a subsequent 
holder of a loan to bill the Secretary for any applicable interest 
benefits or special allowance on a loan for which origination fees have 
not been paid, and limit the collection charges that may be assessed a 
borrower with a defaulted loan that is paid off through loan 
consolidation.
    These amendments also exclude loans made under a guaranty agency's 
lender-of-last-resort program from the guaranty agency's reinsurance 
percentage determined under Sec. 682.404.
    On October 13, 1994, the Secretary published a notice of proposed 
rulemaking (NPRM) for the FFEL Program in the Federal Register (59 FR 
52038). The NPRM included a discussion of the issues surrounding the 
proposed changes which will not be repeated here. The following list 
summarizes those issues and identifies the pages of the preamble to the 
NPRM on which a discussion may be found:
      Returning excess interest to certain Stafford loan 
borrowers or the Secretary and converting the interest rate on certain 
Federal Stafford loans to a variable interest rate (page 52038);
      Disbursement of a Federal Stafford loan via a master 
check (page 52038);
      The obligation of an originating lender to pay 
origination fees to the Secretary (page 52039);
      Payment of a lender referral fee to each guaranty agency 
with whom the Secretary has a lender referral agreement in an amount 
equal to 0.5 percent of the principal amount of a loan made as a result 
of the agency's referral services (page 52039);
      The limitation of a guaranty agency to paying 98 percent 
of the unpaid principal balance of each loan on default claims on loans 
disbursed on or after October 1, 1993 (page 52039);
      The limitation of collection charges and late fees a 
guaranty agency may guarantee when a defaulted loan is consolidated 
(page 52039); and
      The rates at which the Secretary will reinsure a guaranty 
agency's default claims (page 52039).

Substantive Revisions to the Notice of Proposed Rulemaking

    The Secretary has decided not to issue proposed section 682.418 
which would implement section 428(n) of the HEA (State Share of Default 
Costs). As discussed below, the Secretary has determined that further 
consideration of the regulations is necessary.
     The final regulations have been revised to clarify that a 
borrower's loan proceeds disbursed via a master check are treated, for 
operational purposes, the same way as loan proceeds are treated that 
are disbursed via electronic funds transfer. These technical changes 
are reflected throughout the regulations.
     The final regulations have been revised to provide that a 
loan made under a guaranty agency's lender-of-last-resort program are 
not included in the guaranty agency's reinsurance rate determined under 
Sec. 682.404.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 129 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and changes made to the regulations that differ from the NPRM 
follows.
    Major issues are grouped according to subject, with the reference 
to the appropriate sections of the regulations. Other substantive 
issues are discussed under the section of the regulations to which they 
pertain. Technical and other minor changes, and suggested changes the 
Secretary is not legally authorized to make under the applicable 
statutory authority are generally not addressed.

General

    Comments: Some commenters noted that the proposed regulations did 
not reflect other changes made to the HEA as a result of OBRA and the 
Technical Amendments. The commenters expressed concern that the 
Department's decision not to reflect these statutory changes in the 
regulations would result in a delay in their implementation under the 
master calendar provisions of the HEA.
    Discussion: The Secretary agrees that the statutory changes noted 
by the commenters should be incorporated into the FFEL regulations and 
is preparing a regulations package of technical corrections and self-
implementing changes that the Department plans to publish shortly. As 
self-implementing provisions of the statute, these requirements are 
currently in effect.
    Changes: None.
    Comments: Many commenters asked the Secretary not to implement 
proposed section 682.418, which would implement the requirement in 
section 428(n) of the HEA, which requires States to pay a share of the 
costs of defaults in the FFEL Program. Many of the commenters raised 
concerns or questions about a number of the proposed regulatory 
provisions. In addition, some commenters informed the Secretary that 
the implementation of this rule in fiscal year 1995 would not give the 
States enough time to appropriate money to pay their fees and to enact 
laws under which they could pass a portion of their fees on to schools. 
Further, the commenters argued that the States would not be able to 
develop any criteria for exceptional mitigating circumstances that 
could be approved by the Secretary before the fee is due to the 
Secretary. In addition, many commenters argued that the formula 
prescribed by section 428(n) of the HEA would impose undue penalties on 
States and schools.
    Discussion: Based on the comments received in response to the NPRM, 
the Secretary has determined that more time is needed to review and 
address the concerns raised by the commenters regarding implementation 
of section 428(n) of the HEA. Therefore, the Secretary has decided not 
to issue regulations implementing that provision at this time. The 
Secretary will further evaluate the statutory requirements and pursue 
further rulemaking during 1995 to implement section 428(n) of the HEA 
for fiscal year 1996. Moreover, the Secretary will exercise his 
authority under section 432(a)(5) and (6) of the HEA to waive any fee a 
State would be responsible to pay under section 428(n) of the HEA for 
fiscal year 1995.
    Changes: The Secretary has decided that more time is needed to 
review the concerns raised by the commenters and, therefore, is not 
publishing the final rule to implement section 428(n) of the HEA in 
these regulations. The Secretary expects to fully implement this 
provision in fiscal year 1996 and will publish the final regulations at 
a later date.

Section 682.202  Permissible Charges by Lenders to Borrowers

    Comments: Many commenters suggested that the Secretary calculate a 
borrower's refund of excess interest paid on a Federal Stafford loan 
based on the ending principal balance of the loan for the quarter 
instead of the daily principal balance. The commenter noted that using 
the average daily principal balance of the loan for the quarter would 
be more burdensome to a lender than using the ending principal balance. 
Other commenters noted that the guidance in the regulations was not 
consistent with guidance the Department has previously issued.
    Discussion: The Secretary is aware that using the average daily 
principal balance of a loan for a quarter requires a lender to track 
more information than if the lender used the ending principal balance 
of the loan. The Secretary is also aware that the regulatory provisions 
differ from the guidance the Department has issued with respect to 
rebates of excess interest. However, these regulations reflect the 
provisions that are contained in section 427A(i) of the HEA. The 
Secretary does not have the authority to change these statutory 
requirements.
    Changes: None.
    Comments: Many commenters suggested that the Secretary extend the 
30-day period to credit the refund to 45 or 60 days. The commenters 
believed that a lender with a large volume of loans for which a refund 
was required may not be able to make the appropriate refunds within 30 
days from the last day of the calendar year in which the quarter falls.
    Discussion: The Secretary realizes that a lender that has a large 
number of loans for which a rebate is required may have difficulty 
making the appropriate refunds within the 30-day period. However, the 
30-day time period is expressly mandated by section 427(i)(5) of the 
HEA. The Secretary does not have the authority to change this statutory 
requirement.
    Changes: None.

Section 682.207  Due Diligence in Disbursing a Loan

    Comments: A commenter suggested that a school, when receiving FFEL 
proceeds via check, should be given the option to receive those 
proceeds via a master check or individual checks. The commenter pointed 
out that the disbursement of FFEL Program loan proceeds via a master 
check will place the extra administrative burden and costs associated 
with processing the master check and cutting individual checks to 
borrowers at a school in cases when a school would otherwise endorse an 
individual loan check and deliver it to the borrower.
    Discussion: The Secretary agrees with the commenter that 
disbursement of a loan proceeds via a master could impose such a 
burden. The Secretary agrees with the commenter that a school should be 
provided the authority to choose if it wishes loan proceeds to be 
disbursed via a master check.
    Changes: A change has been made. The final regulations provide that 
FFEL Program loan proceeds may be disbursed via a master check if both 
the lender and school agree to the use of a master check.
    Comments: Many commenters suggested that the Secretary should 
require a school to obtain a borrower's written authorization to 
release FFEL Program loan proceeds that are disbursed via a master 
check. The commenters believed that this is a necessary control to 
ensure that the borrowers are aware they are receiving their loan 
proceeds.
    Discussion: The Secretary agrees with the commenters that requiring 
the borrower's written authorization for the release of the initial and 
any subsequent disbursement of each FFEL loan to be made is a necessary 
control to ensure that a borrower is aware he or she is receiving the 
loan proceeds.
    Changes: A change has been made. The final regulations have been 
amended in Sec. 682.604 to require a borrower's written authorization 
for the release of his or her loan proceeds via a master check.

Section 682.305  Procedures for Payment of Interest Benefits and 
Special Allowance

    Comments: Many commenters suggested that the Secretary notify a 
guaranty agency, or a new holder of a loan, that the originating lender 
has failed to pay the origination fees. The commenters argued that a 
guaranty agency or a new holder will not know if the origination fees 
have been paid on a loan.
    Discussion: The Secretary does not agree with the commenters. The 
Secretary believes that the most practical way for a lender or guaranty 
agency to find out if the origination fees have been paid on a loan is 
through the lender selling the loan or the lender that is submitting 
the claim. It would not be practicable for the Secretary to verify if 
the origination fees have been paid on a loan every time a loan is sold 
or a default claim is filed. The Secretary is not informed by lenders 
when a loan is sold.
    Changes: None.
    Comments: Many commenters believed that a guaranty agency should 
not be penalized by loss of eligibility for reinsurance on a loan 
because a lender did not pay the origination fees. The commenters 
believed that the lender should be held responsible and be penalized 
for failing to pay the origination fees on loans that it has made.
    Discussion: The Secretary does not agree with the commenters. It 
has been the longstanding policy of the Secretary that an FFEL Program 
loan is not eligible for reinsurance if the lender or agency has failed 
to comply with all Federal requirements with respect to the loan. 
However, the Secretary agrees with the commenters that a lender that 
fails to pay the origination fees should be penalized for failing to do 
so. The Secretary will take whatever action necessary against a lender 
to ensure that the origination fees are promptly being paid.
    Changes: None.
    Comments: Many commenters suggested that the Secretary amend this 
provision to permit a lender that purchases a loan to pay the 
origination fees to the Secretary. The commenters argued that many 
originating lenders sell their loans upon disbursement and have 
contractual agreements with the purchasing lenders that provide that 
the purchasing lender will pay the origination fees.
    Discussion: The Secretary does not believe that such an amendment 
is necessary. The Secretary has promulgated this rule because, in many 
cases, such origination fees are not being paid to the Secretary. The 
Secretary believes that it is necessary to hold an originating lender 
responsible for such fees because this will decrease the incidence of 
origination fees not being paid to the Secretary. A purchasing lender 
may reimburse the originating lender for the origination fees.
    Changes: None.

Section 682.401  Basic Program Agreement

    Comments: Many commenters suggested that the Secretary provide in 
the regulations that a guaranty agency may (generally) not insure less 
than 98 percent of the unpaid principal balance of loans insured under 
its program. The commenters suggested this change because they believed 
this reflected the language of the HEA.
    Discussion: The Secretary does not agree with the commenters. The 
Secretary believes that Congress intended to bar a guaranty agency from 
paying lenders more than 98 percent of the unpaid principal and accrued 
interest on default claims filed on loans made on or after October 1, 
1993. The Secretary believes therefore it would be a misuse of a 
guaranty agency's reserve fund to pay more than 98 percent of the 
unpaid principal and interest on a defaulted loan.
    Changes: None.
    Comments: Many commenters suggested that the Secretary's limitation 
of collection costs that may be included in a Federal Consolidation 
Loan to 18.5 percent was unreasonable. The commenters believed that 
18.5 percent would not cover the collection costs incurred on some 
loans. The commenters also argued that this provision debilitates the 
deterring effect collection costs have with respect to a borrower 
repaying his or her loan.
    Discussion: The Secretary does not agree with the commenters that 
limiting collection costs to 18.5 percent of the borrower's outstanding 
balance is unreasonable. The Secretary wishes to clarify that this 
provision is intended to encourage a borrower with a defaulted loan to 
consolidate the loan in order to get the loan out of default and 
reestablish his or her eligibility for student financial aid. The 
Secretary believes that limiting the collection costs that may be 
included in a Federal Consolidation loan will provide an incentive for 
a borrower to get out of default.
    Changes: None.

Waiver of Proposed Rulemaking

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

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 these regulations are those 
resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering the Title IV, HEA programs 
effectively and efficiently. In assessing the potential costs and 
benefits--both quantitative and qualitative--of these proposed 
regulations, the Secretary has determined that the benefits of these 
regulations justify the costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Assessment of Educational Impact

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

List of Subjects in 34 CFR Part 682

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

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

    The Secretary proposes to amend part 682 of title 34 of the Code of 
Federal Regulations as follows:

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

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

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

    2. Section 682.202 is amended by adding new paragraphs (a)(6) and 
(a)(7) to read as follows:


Sec. 682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (6) Refund of excess interest paid on Stafford loans.
    (i) For a loan with an applicable interest rate of 10 percent made 
prior to July 23, 1992, and for a loan with an applicable interest rate 
of 10 percent made from July 23, 1992 through September 30, 1992, to a 
borrower with no outstanding FFEL Program loans--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.25 percent, is less than 10 percent, the lender shall 
calculate an adjustment and credit the adjustment as specified under 
paragraph (a)(6)(i)(B) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of the 
adjustment for a calendar quarter is equal to--
    (1) 10 percent minus the sum of the average of the bond equivalent 
rates of the 91-day Treasury bills auctioned for the applicable quarter 
plus 3.25 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) No later than 30 calendar days after the end of the calendar 
year, the holder of the loan shall credit any amounts computed under 
paragraph (a)(6)(i)(A) of this section to--
    (1) The Secretary, for amounts paid during any period in which the 
borrower is eligible for interest benefits;
    (2) The borrower's account to reduce the outstanding principal 
balance as of the date the holder adjusts the borrower's account, 
provided that the borrower's account was not more than 30 days 
delinquent on that December 31; or
    (3) The Secretary, for a borrower who on the last day of the 
calendar year is delinquent for more than 30 days.
    (ii) For a fixed interest rate loan made on or after July 23, 1992 
to a borrower with an outstanding FFEL Program loan--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.10 percent, is less than the applicable interest rate, 
the lender shall calculate an adjustment and credit the adjustment to 
reduce the outstanding principal balance of the loan as specified under 
paragraph (a)(6)(ii)(C) of this section if the borrower's account is 
not more than 30 days delinquent on December 31. The amount of an 
adjustment for a calendar quarter is equal to--
    (1) The applicable interest rate minus the sum of the average of 
the bond equivalent rates of the 91-day Treasury bills auctioned for 
the applicable quarter plus 3.10 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) For any quarter or portion thereof that the Secretary was 
obligated to pay interest subsidy on behalf of the borrower, the holder 
of the loan shall refund to the Secretary, no later than the end of the 
following quarter, any excess interest calculated in accordance with 
paragraph (a)(6)(ii)(A) of this section;
    (C) For any other quarter, the holder of the loan shall, within 30 
days of the end of the calendar year, reduce the borrower's outstanding 
principal by the amount of excess interest calculated under paragraph 
(a)(6)(ii)(A) of this section, provided that the borrower's account was 
not more than 30 days delinquent as of December 31;
    (D) For a borrower who on the last day of the calendar year is 
delinquent for more than 30 days, any excess interest calculated shall 
be refunded to the Secretary; and
    (E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this 
section, if the loan was disbursed during a quarter, the amount of any 
adjustment refunded to the Secretary or credited to the borrower for 
that quarter shall be prorated accordingly.
    (7) Conversion to Variable Rate.
    (i) A lender or holder shall convert the interest rate on a loan 
under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.
    (ii) The applicable interest rate for each 12-month period 
beginning on July 1 and ending on June 30 preceding each 12-month 
period is equal to the sum of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to June 1; and
    (B) 3.25 percent in the case of a loan described in paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of a loan 
described in paragraph (a)(6)(ii) of this section.
    (iii)(A) In connection with the conversion specified in paragraph 
(a)(6)(ii) of this section for any period prior to the conversion for 
which a rebate has not been provided under paragraph (a)(6) of this 
section, a lender or holder shall convert the interest rate to a 
variable rate.
    (B) The interest rate for each period shall be reset quarterly and 
the applicable interest rate for the quarter or portion shall equal the 
sum of--
    (1) The average of the bond equivalent rates of 91-day Treasury 
bills auctioned for the preceding 3-month period; and
    (2) 3.25 percent in the case of loans as specified under paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of loans as 
specified under paragraph (a)(6)(ii) of this section.
    (iv)(A) The holder of a loan being converted under paragraph 
(a)(7)(iii)(A) of this section shall complete such conversion on or 
before January 1, 1995.
    (B) The holder shall, not later than 30 days prior to the 
conversion, provide the borrower with--
    (1) A notice informing the borrower that the loan is being 
converted to a variable interest rate;
    (2) A description of the rate to the borrower;
    (3) The current interest rate; and
    (4) An explanation that the variable rate will provide a 
substantially equivalent benefit as the adjustment otherwise provided 
under paragraph (a)(6) of this section.
    (v) The notice may be provided as part of the disclosure 
requirement as specified under Sec. 682.205.
    (vi) The interest rate as calculated under this paragraph may not 
exceed the maximum interest rate applicable to the loan prior to the 
conversion.
* * * * *
    3. Section 682.207 is amended by removing the word ``or'' at the 
end of paragraph (b)(1)(ii)(A); removing the semicolon at the end of 
paragraph (b)(1)(ii)(B), and adding, in its place, a period and a new 
sentence; and removing the semicolon at the end of paragraph 
(b)(1)(v)(B)(1), and adding, in its place, a period and a new sentence; 
by adding a new paragraph (b)(1)(ii)(C) to read as follows:


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (b)(1) * * *
    (ii) * * *
    (B) * * * A disbursement made by electronic funds transfer must be 
accompanied by a list of the names, social security numbers, and loan 
amounts of the borrowers who are receiving a portion of the 
disbursement; or
    (C) If the school and the lender agree, a master check from the 
lender to the eligible institution to a separate account maintained by 
the school as trustee for the lender. A disbursement made by a master 
check must be accompanied by a list of the names, social security 
numbers, and loan amounts of the borrowers who are receiving a portion 
of the disbursement;
* * * * *
    (v) * * *
    (B) * * *
    (1) * * * A disbursement made by electronic funds transfer or 
master check must be accompanied by a list of the names, social 
security numbers, and loan amounts of the borrowers who are receiving a 
portion of the disbursement and the names and social security numbers 
of the students on whose behalf the parents are borrowing.
    4. Section 682.300 is amended by revising paragraph (b)(2)(ii)(B), 
paragraph (c)(3)(ii), and paragraphs (c)(4) (i) and (ii) to read as 
follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) The proceeds of the disbursement made by electronic funds 
transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) 
and (C) have not been released from the restricted account maintained 
by the school on or before that date;
* * * * *
    (c) * * *
    (3) * * *
    (ii) In the case of a loan disbursed by electronic funds transfer 
or master check, 3 days prior to the first day of the period of 
enrollment or, if the loan is disbursed after the first day of the 
period of enrollment, 3 days after disbursement.
    (4) * * *
    (i) The disbursement check is returned uncashed to the lender or 
the lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made 
by electronic funds transfer or master check has not been released from 
the restricted account maintained by the school before that date.
    5. Section 682.302 is amended by revising paragraphs (b)(3) (i) and 
(ii) and paragraph (d)(1)(vi)(B) to read as follows:


Sec. 682.302  Payment of special allowance on FFEL loans.

* * * * *
    (b) * * *
    (3) * * *
    (i) The disbursement check is returned uncashed to the lender or 
the lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made 
by electronic funds transfer or master check has not been released from 
the restricted account maintained by the school before that date.
* * * * *
    (d) * * *
    (1) * * *
    (vi) * * *
    (B) the loan proceeds disbursed by electronic funds transfer or 
master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have 
not been released from the restricted account maintained by the school 
on or before that date; or
    6. Section 682.305 is amended by revising paragraph (a)(4) to read 
as follows:


Sec. 682.305  Procedures for payment of interest benefits and special 
allowance.

    (a) * * *
    (4) If an originating lender sells or otherwise transfers a loan to 
a new holder, the originating lender remains liable to the Secretary 
for payment of the origination fees. The Secretary will not pay 
interest benefits or special allowance to the new holder or pay 
reinsurance to the guaranty agency until the origination fees are paid 
to the Secretary.
* * * * *
    7. Section 682.401 is amended by revising paragraph 
(b)(10)(vi)(B)(3); adding new paragraphs (b)(10)(iii) and (b)(27); and 
by revising paragraph (b)(14) to read as follows:


Sec. 682.401  Basic program agreement.

* * * * *
    (b) * * *
    (10) * * *
    (vi) * * *
    (B) * * *
    (3) The loan proceeds disbursed by electronic funds transfer or 
master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have 
not been released from the restricted account maintained by the school.
    (11) * * *
    (iii) The Secretary will pay a lender referral fee to each guaranty 
agency with whom the Secretary has a lender referral agreement, an 
amount equal to 0.5 percent of the principal amount of a loan made as a 
result of the agency's referral service.
* * * * *
    (14) Guaranty liability. The guaranty agency shall guarantee--
    (i) 100 percent of the unpaid principal balance of each loan 
guaranteed for loans disbursed before October 1, 1993; and
    (ii) Not more than 98 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after October 1, 
1993.
* * * * *
    (27) Collection Charges and Late Fees on Defaulted FFEL loans being 
Consolidated. A guaranty agency may not guarantee collection charges or 
late fees that exceed 18.5 percent of the outstanding principal and 
interest on a defaulted FFEL Program loan that is included in a Federal 
Consolidation loan.
* * * * *
    8. Section 682.402 is amended by revising paragraphs (e)(3)(iv) 
introductory text, (e)(3)(iv)(A), the heading of paragraph (e)(8), 
paragraph (e)(8)(iii) introductory text, the heading of paragraph 
(e)(10) and paragraph (e)(10)(iii) introductory text to read as 
follows:


Sec. 682.402  Death, disability, closed school, false certification, 
and bankruptcy payments.

* * * * *
    (e) * * *
    (3) * * *
    (iv) In the case of a borrower requesting a discharge because the 
school, without authorization of the borrower, endorsed the borrower's 
name on the loan check or signed the authorization for electronic funds 
transfer or master check, the borrower shall--
    (A) Certify that he or she did not endorse the loan check or sign 
the authorization for electronic funds transfer or master check, or 
authorize the school to do so;
* * * * *
    (8) Guaranty agency responsibilities with respect to a claim filed 
by a lender based only on the borrower's assertion that he or she did 
not sign the loan check or the authorization for the release of loan 
funds via electronic funds transfer or master check.
* * * * *
    (iii) If the agency determines that a borrower who asserts that he 
or she did not sign the electronic funds transfer or master check 
authorization satisfies the requirements for discharge under paragraph 
(e)(3)(iv) of this section, it shall, within 30 days after making that 
determination, pay the claim in accordance with Sec. 682.402(h) and--
* * * * *
    (10) Guaranty agency responsibilities in the case of a loan held by 
the agency for which a discharge request is submitted by a borrower 
based only on the borrower's assertion that he or she did not sign the 
loan check or the authorization for the release of loan proceeds via 
electronic funds transfer or master check.
* * * * *
    (iii) In the case of a borrower who requests a discharge because he 
or she did not sign the electronic funds transfer or master check 
authorization, if the agency determines that the borrower meets the 
conditions for discharge, it shall immediately terminate any collection 
efforts against the borrower with respect to the discharged loan amount 
and any charges imposed or costs incurred by the agency related to the 
discharged loan amount that the borrower is, or was, otherwise 
obligated to pay, and within 30 days after making that determination--
* * * * *
    9. Section 682.404 is amended by revising paragraphs (a)(1), 
(b)(1), and (b)(2), by removing paragraph (b)(4), by redesignating 
paragraph (b)(5) as paragraph (b)(4), by removing the period at the end 
of paragraph (b)(3)(iii) and adding a semi-colon in its place, and 
adding a new paragraph (b)(3)(iv).


Sec. 682.404  Federal reinsurance agreement.

    (a) General. (1)(i) The Secretary may enter into a reinsurance 
agreement with a guaranty agency that has a basic program agreement. 
Except as provided in paragraph (b) of this section, under a 
reinsurance agreement the Secretary reimburses the guaranty agency for 
98 percent of its losses on default claim payments to lenders.
    (ii) Notwithstanding paragraph (a)(1)(i) of this section, the 
Secretary reimburses a guaranty agency for 100 percent of its losses on 
default claim payments--
    (A) For loans made prior to October 1, 1993;
    (B) For loans made under an approved lender-of-last-resort program;
    (C) For loans transferred under a plan approved by the Secretary 
from an insolvent guaranty agency or a guaranty agency that withdraws 
its participation in the FFEL Program;
    (D) For a guaranty agency that entered into a basic program 
agreement under section 428(b) of the Act after September 30, 1976, or 
was not actively carrying on a loan guarantee program covered by a 
basic program agreement on October 1, 1976 for five consecutive fiscal 
years beginning with the first year of its operation.
* * * * *
    (b) * * *
    (1) If the total of reinsurance claims paid by the Secretary to a 
guaranty agency during any fiscal year reaches 5 percent of the amount 
of loans in repayment at the end of the preceding fiscal year, the 
Secretary's reinsurance payment on a default claim subsequently paid by 
the guaranty agency during that fiscal year equals--
    (i) 90 percent of its losses for loans made before October 1, 1993 
or transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation 
in the FFEL Program; or
    (ii) 88 percent of its losses for loans made on or after October 1, 
1993.
    (2) If the total of reinsurance claims paid by the Secretary to a 
guaranty agency during any fiscal year reaches 9 percent of the amount 
of loans in repayment at the end of the preceding fiscal year, the 
Secretary's reinsurance payment on a default claim subsequently paid by 
the guaranty agency during that fiscal year equals--
    (i) 80 percent of its losses for loans made before October 1, 1993 
or transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation 
in the FFEL Program; or
    (ii) 78 percent of its losses for loans made on or after October 1, 
1993.
    (3) * * *
    (iv) On loans made under a guaranty agency's approved lender-of-
last-resort program.
* * * * *
    10. Section 682.406 is amended by revising paragraph (a)(2)(ii) to 
read as follows:


Sec. 682.406  Conditions of reinsurance coverage.

    (a) * * *
    (2) * * *
    (ii) The proceeds of the disbursement made by electronic funds 
transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) 
and (C) have been released from the restricted account maintained by 
the school within 120 days after disbursement;
    11. Section 682.407 is removed and reserved.
    12. Section 682.604 is amended by revising paragraph (c)(3) 
introductory text to read as follows.


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

* * * * *
    (c) * * *
    (3) If the loan proceeds are disbursed by electronic funds transfer 
to an account of the school in accordance with 
Sec. 682.207(b)(1)(ii)(B), or by master check in accordance with 
Sec. 682.207(b)(1)(ii)(C), the school must, unless authorization was 
provided in the loan application, not more than 30 days prior to the 
first day of classes of the period of enrollment for which the loan is 
intended, obtain the student's, or in the case of a Federal PLUS loan, 
the parent borrower's written authorization for the release of the 
initial and any subsequent disbursement of each FFEL loan to be made, 
and after the student has registered either--
* * * * *
(Authority: 20 U.S.C. 1078)

[FR Doc. 94-29263 Filed 11-29-94; 8:45 am]
BILLING CODE 4000-01-P