[Federal Register Volume 60, Number 231 (Friday, December 1, 1995)]
[Rules and Regulations]
[Pages 61796-61817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29180]




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Part VII





Department of Education





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34 CFR Part 668, et al.



Higher Education Act of 1965; Student Financial Assistance Programs; 
Federal Regulatory Review; Final Rule

  Federal Register / Vol. 60, No. 231 / Friday, December 1, 1995 / 
Rules and Regulations  
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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 675, 676, 682, 685, and 690

RIN 1840-AC20


Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Work-Study Programs, Federal Supplemental Educational 
Opportunity Grant Program, Federal Family Education Loan Programs, 
William D. Ford Federal Direct Loan Program, and Federal Pell Grant 
Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations governing the student 
financial assistance programs authorized under title IV of the Higher 
Education Act of 1965, as amended (title IV, HEA programs). These 
programs include the campus-based programs (Federal Perkins Loan, 
Federal Work-Study (FWS), and Federal Supplemental Educational 
Opportunity Grant (FSEOG) programs), the Federal Family Education Loan 
(FFEL) programs, the William D. Ford Federal Direct Loan (Direct Loan) 
programs, the Federal Pell Grant Program, and the State Student 
Incentive Grant (SSIG) program. These amendments, which eliminate 
unnecessary regulations and improve the existing regulations, are part 
of a planned series of regulatory reform and relief measures for the 
title IV, HEA programs. The Secretary is making these changes in 
response to the President's Regulatory Reform Initiative.
    The title IV, HEA programs support the National Education Goals by 
enhancing opportunities for postsecondary education. The National 
Education Goals call for increasing the rate at which students graduate 
from high school and pursue high quality postsecondary education, and 
for supporting life-long learning.

EFFECTIVE DATE: These regulations take effect on July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Harold McCullough or Rachael 
Sternberg, U.S. Department of Education, 600 Independence Avenue SW., 
Regional Office Building 3, Room 3053, Washington, D.C. 20202, (202) 
708-7888; or
    1. For the Student Assistance General Provisions: Claude Denton, 
Student Eligibility and Verification Section, General Provisions Branch 
at (202) 708-7888;
    2. For the Federal Perkins Loan Program: Sylvia R. Ross, Campus-
Based Loan Programs Section, Loans Branch at (202) 708-8242;
    3. For the FWS and FSEOG programs: Kathy S. Gause, Campus-Based 
Programs Section, Grants Branch at (202) 708-4690;
    4. For the FFEL Programs: Ralph Madden, GSL Programs Section, Loans 
Branch at (202) 708-8242;
    5. For the Direct Loan Programs: Doug Laine, Direct Loan Policy 
Group at (202) 708-9406; and
    6. For the Federal Pell Grant Program: Mike Oliver, Pell and State 
Grant Section, Grants Branch at (202) 708-4607. 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: On March 4, 1995, the President directed 
every Federal agency to review its rules and procedures to reduce 
regulatory and paperwork burden, and directed Federal agencies to 
eliminate or revise those regulations that are outdated or otherwise in 
need of reform. Responding to the President's Regulatory Reform 
Initiative, the Secretary announced plans to eliminate or revise 93 
percent of the Department's regulations. To launch the Department's 
reinvention effort, the Secretary published a notice in the May 23, 
1995 Federal Register (60 FR 27223-27226) eliminating more than 30 
percent of the Department's regulations, primarily in areas not related 
to student financial assistance.
    The Secretary is conducting a page-by-page review of all student 
financial assistance regulations to identify those that should be 
eliminated or improved. The Secretary is also considering developing 
proposals for statutory amendments to eliminate unnecessary 
administrative burden.
    As part of his response to the President's regulatory reinvention 
initiative, on September 21, 1995 the Secretary published a Notice of 
Proposed Rulemaking (NPRM) for parts 668, 674, 675, 676, 682, 685, and 
690 in the Federal Register (60 FR 49114). The NPRM included a 
discussion of the proposed changes that will not be repeated here. The 
following list summarizes those changes and identifies the pages of the 
preamble to the NPRM on which the discussion can be found.

Part 668--Student Assistance General Provisions

Subpart A--General

    The Secretary proposed to remove and reserve Sec. 668.7 ``Student 
Eligibility,'' and move the ``eligible student'' provisions to a 
revised subpart C of 34 CFR 668 (page 49114).

Subpart B--Standards for Participation in Title IV, HEA Programs

    The Secretary proposed to allow institutions to obtain information 
from the National Student Loan Data System (NSLDS) that would otherwise 
be found on a financial aid transcript, once the Secretary publishes a 
notice in the Federal Register informing institutions that the NSLDS 
can be used to satisfy this purpose (pages 49114-49115).

Subpart C--Student Eligibility

    The Secretary proposed to expand the data match with the Social 
Security Administration (SSA), starting in the 1996-97 award year, in 
order to confirm claims of U.S. citizenship by applicants for title IV, 
HEA program assistance on the Free Application for Federal Student Aid 
(FAFSA) (page 49115).
    The Secretary proposed to allow students to satisfy the requirement 
of filing a Statement of Educational Purpose with the institution by 
completing the FAFSA, which will include this statement starting with 
the 1996-97 award year.The Secretary's proposal did not affect current 
FFEL requirements with regard to this statement on loan applications 
(page 49115).
    The Secretary proposed to eliminate the model Statement of 
Educational Purpose. A model statement would be duplicative because the 
statement will appear on the FAFSA (page 49115). The Secretary proposed 
to eliminate the Statement of Registration Status. A male student's 
Selective Service registration status is now confirmed through a data 
match with the Selective Service System. This data match eliminates the 
need for the collection of a separate statement (page 49115).
    The Secretary proposed to amend and reorganize the provisions under 
which a student who owes a debt under the HEA or to the United States 
may nevertheless be eligible to receive title IV, HEA program 
assistance. The Secretary also proposed to conform the regulations to 
existing statutory requirements pertaining to bankruptcy (pages 49115-
49116). 

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Subpart I--Immigration Status Confirmation

    The Secretary proposed to amend Sec. 668.133(b) to remove the 
requirements for requesting secondary confirmation from the Immigration 
and Naturalization Service for a student if (1) the student presents 
documents to his or her institution verifying his or her immigration 
status that are identical to documents presented to that institution in 
a previous year, (2) that institution determined the student to be an 
eligible noncitizen using secondary confirmation of those same 
documents in a previous award year, and (3) the institution does not 
have conflicting information or reason to doubt the student's claim of 
eligible noncitizen status (page 49116).

Subpart K--Cash Management

    The Secretary proposed to amend Sec. 668.164(a)(2) to eliminate the 
UCC-1 filing requirement for institutions that (1) disclose clearly in 
the name of the account in which Federal funds are deposited that 
Federal funds are maintained in that account, or (2) are backed by the 
full faith and credit of a State (page 49116).
    The Secretary proposed to modify Sec. 668.165(b)(1) to provide an 
institution with as much flexibility as possible with respect to how it 
notifies a student or parent borrower that FFEL or Direct Loan program 
funds have been credited to the student's account. That flexibility 
allows an institution to provide notification electronically or through 
the use of telecommunication devices (page 49116).
    The Secretary proposed to amend Sec. 668.165(b)(1) and (3) to 
provide that under certain circumstances, and with the student's 
permission, an institution may use current year title IV, HEA program 
funds to pay for minor charges from a prior year (pages 49116-49117).

Parts 674, 675, and 676--Campus-Based Programs

    The Secretary proposed to eliminate the duplicative definitions of 
``full-time graduate or professional student'' and ``full-time 
undergraduate student from Secs. 674.2(b), 675.2(b), and 676.2(b), as 
applicable, and instead incorporate the definition of ``full-time 
student'' set forth in Sec. 668.2(b) for all three of the campus-based 
programs (page 49117).
    The Secretary proposed to eliminate the provisions of 
Secs. 674.17(a), 675.17, and 676.17 which provide that title IV, HEA 
program funds are held in trust for the Secretary and intended student 
beneficiaries and cannot be used or hypothecated for any other purpose, 
because these very provisions are included in Sec. 668.161(b) of the 
Student Assistance General Provisions regulations (page 49117).
    The Secretary proposed to amend Secs. 674.19(e)(4)(v), 
675.19(c)(3), and 676.19(c)(3) to allow institutions the additional 
flexibility of using optical disk technology in complying with record 
retention requirements (page 49117).

Part 674--Federal Perkins Loan Program

    The Secretary proposed to amend the definition of ``making of a 
loan'' under Sec. 674.2(b) by removing the reference to a borrower 
signing for each advance of funds (page 49117).
    The Secretary proposed to eliminate the requirement under 
Sec. 674.16 that a student sign for each loan advance, and require 
instead that the institution simply must obtain the borrower's 
signature on a promissory note for each award year before it disburses 
any loan funds under that promissory note for that award year (page 
49117).
    The Secretary proposed to amend Sec. 674.31(a) to indicate that the 
Secretary will provide sample promissory notes to institutions, and 
that institutions may add items to the sample notes so long as the new 
items do not alter the substance of these sample notes (page 49117).
    The Secretary proposed to amend Sec. 674.33(a)(2) by allowing 
institutions to combine the last scheduled Federal Perkins loan payment 
with the next-to-the-last payment if the last payment is $25 or less 
(page 49117).
    The Secretary proposed to amend Sec. 674.47(g) to allow an 
institution to cease collection activity on a defaulted account with a 
balance of less than $25, while continuing to require the institution 
to consider the loan as in default for purposes of calculating its 
cohort default rate. The Secretary further proposed to amend 
Sec. 674.47 by adding a new paragraph (h) to allow institutions to 
cease collection activity and write off loan accounts with a balance of 
less than $1, including outstanding principal, accrued interest, 
collection costs, and late fees (pages 49117-49118).

Part 675--Federal Work-Study Programs

Appendix B--Model Off-Campus Agreement

    The Secretary proposed to eliminate this sample agreement as an 
appendix to the FWS regulations. The Secretary will include a model 
off-campus agreement in the Federal Student Financial Aid Handbook 
(page 49118).

Parts 682 and 685--Federal Family Education Loan Program and Direct 
Loan Program

    The Secretary proposed to expand the pool of borrowers under 
Secs. 682.201 and 685.200 of the Federal PLUS and Federal Direct PLUS 
programs, respectively, to include the spouse of a student's parent if 
that parent remarried (page 47118).
    The Secretary proposed to eliminate Sec. 682.600 (a) through (c) 
because they duplicate provisions in 34 CFR part 600 or 668. The 
provisions of Sec. 682.600(d) that deal with foreign schools, however, 
are necessary and the Secretary proposed to include those provisions in 
a new section, Sec. 682.611 (page 49118).
    The Secretary proposed to eliminate the provisions contained in 
Sec. 682.602 that deal with students enrolled in correspondence 
programs, because those students are not eligible to receive FFEL 
program funds unless they are enrolled in a program that leads to an 
associate, bachelor's, or graduate degree (page 49118).

Part 690--Federal Pell Grant Program

Subpart A--Scope, Purpose and General Definitions

    The Secretary proposed to revise Sec. 690.7 by deleting paragraph 
(a)(1) because the provisions contained in that paragraph duplicate 
provisions in 34 CFR part 600 or 668 (page 49118).

Subpart G--Administration of Grants Payments

    The Secretary proposed to eliminate the last sentence in 
Secs. 690.71, 690.72, 690.73, and 690.74, respectively, because they 
duplicate provisions contained in 34 CFR part 668 (page 49118).
    The Secretary proposed to revise Sec. 690.83 by consolidating in 
one paragraph the procedures that allow institutions to receive payment 
or credit for Federal Pell Grants they previously disbursed if that 
situation is disclosed by an initial audit or program review (page 
49118).

Substantive Changes to the NPRM

    The following discussion reflects substantive changes made to the 
NPRM in the final regulations. The provisions are discussed in the 
order in which they appear in the proposed rules.

Student Assistance General Provisions

Subpart C--Student Eligibility

    The proposed subpart C is further reorganized to clarify the 
difference between what the general provisions for student eligibility 
are, and how each of 

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those elements of student eligibility are established.

Subpart I--Immigration-Status Confirmation

Section 668.133  Conditions Under Which an Institution Shall Require 
Documentation and Request Secondary Confirmation
    Currently, in the absence of a data match with the Immigration and 
Naturalization Service (INS) confirming a student as an eligible 
noncitizen, institutions are required to use the secondary confirmation 
process to determine if a student is an eligible noncitizen in 
accordance with section 484(a)(5) of the HEA. Secondary confirmation 
requires institutions to mail requests for immigration status 
information to the INS and to use INS responses (also by mail) in 
determining the student's noncitizen eligibility. This determination 
has been required for each award year that the student applies for 
title IV, HEA assistance. The NPRM proposed to delete secondary 
confirmation requirements, in most cases, if the student produces 
immigration status documents that are identical to documents received 
by the institution in a previous award year. In response to comments 
received, this section is further revised to eliminate the need for the 
student to produce immigration status documents in subsequent award 
years if the documents previously submitted by the student remain 
valid.

Subpart K--Cash Management

Section 668.163  Requesting Funds
    The Secretary amends this section to require that for any request 
for cash, an institution must identify the title IV, HEA program under 
which it requests funds by its Catalog of Federal Domestic Assistance 
(CFDA) number and the total amount of funds for each CFDA number 
included in that request.
Section 668.164  Maintaining Funds
    In response to public comment, this section is revised to exclude 
all public institutions from the UCC-1 filing requirement.
Section 668.165  Disbursing Funds
    In response to public comment, this section is revised to clarify 
that if an institution provides an electronic notice to a student or 
parent that title IV, HEA loan program funds were credited to the 
student's account, it must request confirmation from the student or 
parent of the receipt of that notice and maintain a record of that 
confirmation. In addition, this section is revised to provide that an 
institution may consider prior-year charges that do not exceed $100 to 
be minor charges.

Federal Perkins Loan Program

Section 674.5  Definitions
    The definition of ``satisfactory arrangements to repay the loan'' 
for purposes of the Federal Perkins Loan Program will be amended to 
include those loans that are ``paid in full.'' This change allows an 
institution to exclude a defaulted loan that has been paid in full from 
the institution's cohort default rate.
Section 674.31  Promissory Note
    The proposal to provide ``sample'' Federal Perkins loan promissory 
notes to participating institutions has been removed. A national 
promissory note will be maintained for the Federal Perkins Loan 
Program. Institutions may make only nonsubstantive changes to these 
notes.
Section 674.47  Costs Chargeable to the Fund
    The September 21, 1995 NPRM offered a proposal to allow an 
institution to cease collection activity on a defaulted account with a 
balance of less than $25. In an effort to reduce administrative burden 
on institutions that are handling defaulted accounts with balances 
larger than $25, the cessation of collection activity provision has 
been modified. Institutions will be allowed to cease collection 
activity on a defaulted account with a balance of less than $200, if 
all due diligence has been performed in attempting to collect the 
defaulted account and there has not been any activity on the account 
for at least four years.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 74 parties 
submitted comments on the proposed reform and relief regulations. An 
analysis of the comments and of the changes in the regulations since 
publication of the NPRM follows. Major 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

Regulatory Reform and Relief Effort

    Comments: Numerous commenters indicated support for the Secretary's 
efforts to eliminate unnecessary regulations and to improve the 
existing regulations. However, some commenters stated that more needs 
to be done to streamline the regulations for the title IV, HEA 
programs.
    Discussion: The Secretary is encouraged by the expression of 
support from the public for the reform and relief regulation activities 
that are part of the Department's reinvention effort. The Secretary 
realizes that additional amendments to the regulations for the title 
IV, HEA programs are possible. The amendments in this regulatory 
package represent only one part of a planned series of regulatory 
reform and relief amendments for the student financial assistance 
regulations. The Secretary restates his plans to propose additional 
reform and relief regulatory changes for the title IV, HEA programs in 
the upcoming months.
    Changes: None.

Part 668--Student Assistance General Provisions

Subpart B--Standards for Participation in Title IV, HEA Programs

Section 668.19  Financial Aid Transcript
    Comments: Most commenters supported the Secretary's proposal to 
allow use of the National Student Loan Data System (NSLDS) in lieu of 
the financial aid transcript when the NSLDS becomes operational. A few 
commenters were concerned about the accuracy of the NSLDS and urged the 
Secretary to fully test the system before requiring its use and 
suggested the National Student Loan Clearinghouse as an acceptable 
alternative while the testing takes place. One commenter requested 
sufficient notice before the NSLDS is placed into operation to allow 
institutions with limited computer resources to obtain the necessary 
equipment and expertise. One commenter questioned the frequency with 
which the Secretary would require institutions to access the NSLDS, and 
expressed concern that NSLDS inquiries would be required at the time of 
each disbursement. Several commenters suggested that the terms ``loan 
period or period of enrollment for which the loan is made'' be used in 
lieu of ``award year'' as it pertains to FFEL and Direct Loans because 
annual loan limits are not based on award years. They also suggested 
that annual loan limits could be affected by loans made in the 
preceding award year, and that the financial aid transcripts should 
include this information. One commenter was concerned about obtaining 
information from institutions that are unable to use, or fail to meet 
requirements for providing information to, the NSLDS. One commenter 
asked whether an 

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institution could assume, if the NSLDS contains no financial data on a 
particular student, that the student did not receive aid from any 
previously-attended institution, or if no data appears for a given 
institution, that the student did not receive aid from that particular 
institution. One commenter inquired as to whether the NSLDS will 
provide data regarding the student's receipt of title IV, HEA 
assistance at a closed institution, and whether the NSLDS will provide 
notice that the institution is closed. One commenter expressed concern 
that institutions would not be able to ascertain from the NSLDS that a 
student transferred during the current award year. One commenter 
questioned why paragraph (a)(3) continues to address the withholding or 
limited disbursement of title IV, HEA assistance pending receipt of 
financial aid transcripts, but does not address those issues for the 
NSLDS, and whether the Secretary intends to provide for limited 
disbursements in the event the NSLDS becomes temporarily inoperative. 
The same commenter suggested that the Secretary provide regulatory 
instructions with regard to how the institution should proceed when 
NSLDS data conflicts with other information available to the 
institution.
    Discussion: With regard to the concerns expressed about the 
accuracy of NSLDS data, the Secretary notes that the NSLDS underwent 
extensive testing of its executable programs and support functions and 
successfully passed those initial test reviews prior to becoming 
operational in November, 1994. The National Student Loan Clearinghouse 
would not be an acceptable alternative because it serves only a few of 
the institutions currently participating in title IV, HEA programs, and 
because it contains information pertaining to students who are not 
title IV, HEA recipients in addition to those who are. The 
Clearinghouse also does not include any financial aid history 
information but only enrollment data.
    With regard to the concern about limited computing resources at 
some institutions, the Secretary specifically designed the NSLDS to 
require minimal computer equipment. The NSLDS can be accessed using a 
personal computer with 486 megahertz of processing power, eight 
megabytes of random access memory, and 50 megabytes of hard disk 
storage space. In addition, the NSLDS will be available as an 
alternative to, not as a replacement for, the paper financial aid 
transcript, so that institutions with insufficient computer equipment 
can continue to use the paper financial aid transcript. An institution 
receiving a paper financial aid transcript request will continue to be 
required to complete and return it to the requesting institution, in 
accordance with 34 CFR 668.19.
    With regard to the comment concerning required frequency of access, 
the Secretary has taken steps to include NSLDS financial aid history 
information in the Student Aid Report/Institutional Student Information 
Record (SAR/ISIR). The SAR/ISIR will, at a minimum, inform the 
institution as to whether the student previously received title IV, HEA 
financial aid. If there is no financial aid history, the institution 
will not be required to obtain a financial aid transcript or access the 
NSLDS since it can be assumed that the student either did not attend 
another school or attended but did not receive any title IV aid. With 
regard to the comments that suggested that the proposed financial aid 
transcript does not provide the necessary information on FFEL loan 
history to compute annual loan limits, the Secretary agrees with these 
commenters' concerns and will reinstate provisions requiring inclusion 
of ``period of enrollment'' or ``loan period'' and loans made in 
preceding award years under the FFEL as well as the Direct Loan 
programs. With regard to the concern about institutions who are unable 
to use, or fail to meet requirements for providing information to, the 
NSLDS, the Secretary assures the commenter that complete guidance to 
institutions will be provided in using the NSLDS, and that compliance 
with regular reporting requirements will be monitored and enforced. 
With regard to closed institutions, the NSLDS contains the cumulative 
loan history of title IV, HEA aid recipients, including aid awarded at 
institutions that are closed at the time of inquiry. The NSLDS will 
not, however, provide specific notification that any particular 
institution has closed. With regard to the concern about whether 
institutions will be able to determine from the NSLDS that a student 
has transferred during the current award year, the Secretary assures 
the commenter that the NSLDS will receive information on current year 
awards from guaranty agencies, the Direct Loan servicers, and from 
institutions. However, the Secretary notes that the flexible reporting 
requirements of data providers does present a problem with so called 
``mid-year transfers'' and is committed to keeping any burden related 
to the accessing of financial aid history for such students to a 
minimum. With regard to the applicability of the withholding and 
limited disbursement provisions to the NSLDS, the Secretary believes 
that the provisions of Sec. 668.19 are applicable only to the paper 
financial aid transcript process. If the NSLDS becomes temporarily 
inoperative, the paper financial aid transcript process could be used 
and these provisions would apply. However, the Secretary believes that 
any such ``downtime'' of the NSLDS would be brief and encourages 
institutions to re-query the NSLDS as soon as it is available. If NSLDS 
data conflicts with other information available to the institution, the 
conflict must be resolved before any title IV, HEA disbursement can be 
made.
    Changes: Paragraph (c) is revised to provide that a financial aid 
transcript must include the loan period covered by each loan made under 
the FFEL and Direct Loan programs, and the loan history must also 
include information concerning loans made in preceding award years. 
Paragraph (a)(2)(ii) is revised to clarify that in a Federal Register 
Notice, the Secretary will inform institutions both when, and under 
what conditions, the NSLDS may be used.

Subpart C--Student Eligibility

    Comments: Many commenters expressed support for the proposal to 
move the student eligibility regulations to subpart C.
    Discussion: The Secretary appreciates the favorable comments 
received regarding the reorganization of the student eligibility 
provisions. After further examination, the Secretary believes that 
additional refinements are warranted to minimize any confusion that may 
be caused by the proposed organization. In particular, the Secretary 
believes that the basic requirements for establishing a student's 
eligibility for title IV, HEA assistance (formerly Sec. 668.7(a)) 
should be clearly separated from requirements placed on institutions 
(formerly Sec. 668.7(b)) for assessing the student's compliance with 
these requirements.
    Changes: The Secretary has made technical revisions that establish 
a general student eligibility section, followed by sections addressing, 
in detail, how each of the elements of student eligibility are 
established.
Section 668.32  Student Eligibility--General (Section 668.33 in NPRM)
Compulsory School Attendance
    Comments: Several commenters noted that the Secretary has removed 
provisions requiring students to be above the age of compulsory school 
attendance to be eligible for title IV, HEA assistance. One commenter 

[[Page 61800]]
questioned the wisdom of allowing very young students to borrow these 
funds. Another commenter expressed concern that the removal of these 
provisions would increase the potential of abuse in the use of title 
IV, HEA funds.
    Discussion: In proposing this deletion of regulatory language, the 
Secretary had no intention of removing the policy regarding compulsory 
school attendance. Since the definitions of ``institution of higher 
education'' in Sec. 600.4 and ``proprietary institution of higher 
education'' in Sec. 600.5 include provisions containing this 
requirement, the Secretary believes there is no reason to duplicate the 
requirement in the student eligibility regulations.
    Changes: None.
Statement of Educational Purpose
    Comments: Most commenters supported the Secretary's proposal to 
provide a Statement of Educational Purpose on the Free Application for 
Student Aid (FAFSA) that satisfies Sec. 668.33(e) requirements for 
filing the Statement of Educational Purpose. One commenter suggested 
that the regulations specifically authorize use of the FAFSA in this 
manner.
    Discussion: The Secretary prefers to use non-specific regulatory 
language to minimize the potential of redrafting regulations each time 
the application delivery system changes.
    Changes: None.
Section 668.33  Citizenship/Residency Requirements U.S. Citizenship 
Match
    Comments: Several commenters expressed support for the proposed 
enhancement of the existing social security match to include matching 
on U.S. citizenship data. They predicted that this enhancement would 
improve the integrity of the title IV, HEA application process by 
making it more difficult to avoid checking eligibility status with the 
INS. Other commenters, however, expressed concern that the proposed 
enhancement represents an additional unjustified burden caused by the 
need to collect evidence of U.S. citizenship. These commenters 
suggested that the Secretary should provide data to support the claim 
that misreporting of U.S. citizenship is a significant problem. If 
misreporting exists, one commenter questioned whether detection of a 
few such cases justifies the additional burden that would be imposed on 
the many applicants who complete this item truthfully. Another 
commenter questioned the accuracy of the Social Security Administration 
(SSA) data to be used for this matching program in light of information 
received by the commenter that citizenship data has only been collected 
by SSA since the early 1980's. Several commenters expressed concern 
that a student's U.S. citizenship status that was not confirmed would 
also prevent or delay that student from receiving confirmation of the 
accuracy of the student's social security number, or that such 
interference could also occur in reverse order.
    Discussion: The Secretary disagrees with the comments portraying 
the U.S. citizenship match as an unjustified burden. On September 9, 
1994, the Department's Office of Inspector General issued an audit 
report indicating that, during the 1992-1993 award year, 45,000 Federal 
Pell Grant awards were made to students claiming U.S. citizenship on 
their applications for federal student assistance who were not 
confirmed as U.S. citizens by the Social Security Administration (SSA). 
Since SSA records do not contain alien registration numbers, it is 
virtually impossible to track the status of these 45,000 individuals to 
determine whether they were naturalized citizens or eligible 
noncitizens at the time they applied. However, if even only 10% of the 
45,000 applications were completed by ineligible aliens, the savings 
more than offset the expense of matching, and will provide additional 
grant funds for eligible students. The Secretary disagrees with the 
commenters who are concerned about additional burden being placed on 
students who will be required to provide evidence of U.S. citizenship. 
The vast majority of students will be confirmed by SSA as U.S. 
citizens, and no further action will be required. Many noncitizens who 
falsely claim U.S. citizenship will provide alien registration numbers, 
and their applications will be processed using the INS data match in 
the same manner as other noncitizen applications. Undocumented illegal 
aliens will tend to drop out of the application process without burden 
to the institution. For the most part, the Secretary believes that only 
naturalized citizens who have not kept their records updated with SSA 
are likely to be affected by this new requirement. With regard to the 
commenter's concern that SSA has only collected citizenship data since 
the early 1980's, the Secretary confirms this fact. However, SSA has 
collected ``place of birth'' data for many years, and the match will 
access both ``place of birth'' and ``citizenship'' data elements before 
issuing match results. With regard to concerns about delays and other 
impacts of U.S. citizenship matching on social security number 
matching, the Secretary wishes to assure the commenter that there will 
be no impact of one match on the other. Social security numbers and 
U.S. citizenship status are generated from separate data fields within 
the SSA data base, and will generate separate messages.
    Changes: None.
Section 668.35 Student Debts Under the HEA and to the U.S. (Section 
668.34 in NPRM)
    Comments: One commenter suggested that the Secretary reverse the 
order of proposed paragraphs (b)(2)(i) and (b)(2)(ii) to prevent the 
possibility of a student making six consecutive monthly payments on a 
defaulted loan before approaching a lender to make satisfactory 
repayment arrangements. Another commenter noted that the definition of 
``satisfactory repayment arrangement'' in Sec. 682.200 already provides 
for six consecutive monthly payments, and that the language proposed in 
paragraph (b)(2) could be interpreted as requiring twelve consecutive 
monthly payments. One commenter suggested that proposed paragraph 
(d)(1)(ii) be revised to include the phrase ``satisfactory to the 
holder'' instead of ``satisfactory to the institution,'' which the 
commenter believes is inappropriate for the FFEL and Direct Loan 
programs. Several commenters urged the Secretary to reinstate 
references in proposed paragraph (d)(2) to the specific title IV, HEA 
programs for which overpayments are applicable, asserting that such a 
correction would alleviate confusion concerning the relevance of 
overpayments to the FFEL and William D. Ford Federal Direct Loan 
programs.
    Discussion: The Secretary agrees with the commenters' concerns with 
regard to the order of proposed paragraphs (b)(2)(i) and (b)(2)(ii). 
Although the phrase ``makes arrangements, satisfactory to the holder'' 
used in this paragraph is not identical to the phrases used in the 
individual title IV, HEA loan programs, the Secretary emphasizes that 
those specific provisions that govern how a defaulted borrower can 
regain eligibility are found in the individual title IV, HEA loan 
program regulations. The Secretary also agrees with the comment 
suggesting that proposed paragraph (d)(1)(ii) be revised to require a 
student who has received a grant or loan overpayment to make 
arrangements, satisfactory to the holder of the overpayment debt, to 
pay the overpayment. With regard to the comment requesting 
reinstatement in proposed paragraph (d)(2) of the specific programs for 
which overpayments are applicable, the Secretary agrees and has 

[[Page 61801]]
included specific references to the Federal Perkins Loan Program to 
eliminate any confusion.
    Changes: The Secretary reverses the order of proposed paragraphs 
(b)(2)(i) and (b)(2)(ii) and revises proposed paragraph (b)(2)(i) to 
clarify that the six consecutive monthly payments are to be 
incorporated as part of satisfactory arrangements to repay the loan 
balance, and that those arrangements are to be made in accordance with 
the individual title IV, HEA loan program. Proposed paragraph 
(d)(1)(ii) is revised to clarify that a student who receives a grant or 
Federal Perkins loan overpayment is to make arrangements, satisfactory 
to the holder of the overpayment debt, to repay the overpayment.
Section 668.36  Social Security Number Verification (Section 668.33 
NPRM)
    Comments: One commenter supported the change to proposed 
Sec. 668.33(d)(3)(iii) which clarifies that the student bears primary 
responsibility for reporting corrected social security numbers to the 
Secretary. In addition, the commenter also expressed support for the 
change to proposed Sec. 668.33(d)(4), which relaxes the prohibition 
from disbursing or certifying aid if the student fails to meet the 
institution's deadline for submission of a correct social security 
number. The commenter suggested that the Secretary provide similar 
``waiver'' authority to institutions in regulations governing the other 
data matches.
    Discussion: As explained in the discussion regarding the selective 
service match, the Secretary is amending regulatory sections governing 
data matches to consistently implement provisions of the Computer 
Matching and Privacy Protection Act of 1988. In particular, the revised 
provisions will clarify the Secretary's policy with respect to the 30-
day due process standard and the setting of deadlines by institutions 
for students submitting documents in order to contest match results.
    Changes: Proposed paragraph (b)(2) is revised to provide that the 
institution must give a student at least 30 days from the date the 
institution is notified of the results of the data match, or until the 
end of the award year, whichever is later, to produce evidence of an 
accurate social security number.
Section 668.37  Selective Service Registration (Sections 668.33(b) and 
668.36 in NPRM)
Statement of Registration Status
    Comments: One commenter requested a clarification concerning 
whether the Statement of Registration Status may be necessary if the 
Selective Service data match does not confirm the student's status, or 
if some other statement is required. Two commenters suggested that 
proposed Sec. 668.33(b)(1) be corrected to remove the unintended 
requirement that a student must provide evidence of exemption from the 
selective service registration requirement when the student's output 
document already confirms the student's exemption status. Another 
commenter requested that the model Statement of Registration Status be 
retained as an efficient way of collecting information concerning a 
student's exemption from selective service registration.
    Discussion: The Secretary envisions no circumstances in which the 
Statement of Registration Status would continue to be required. If the 
student's claim to have registered with Selective Service is not 
confirmed by the Selective Service data match, the student bears 
responsibility for submitting evidence to the institution that he 
registered, or is exempt from registration. The institution may consult 
the Federal Student Financial Aid Handbook to determine if this 
evidence is valid, or it may require the student to obtain a Status 
Information Letter from Selective Service to further clarify the 
student's status. Instructions for interpreting Status Information 
Letters are also available in the Handbook. Given the thorough 
procedures in place for verifying evidence of registration or 
exemption, the Secretary does not wish to retain vestiges of an earlier 
system based primarily on self-certification, and would prefer to 
completely eliminate the Statement of Registration Status. The 
Secretary finds little validity to the commenter's concern that the 
regulations would require students, confirmed as exempt from 
registration requirements by the data match, to nevertheless provide 
evidence of exemption. The data match is designed to automatically 
screen out certain applicants who are clearly exempt from these 
requirements. An output document containing a message attesting to the 
applicant's exemption is quite sufficient to establish that ``the 
student is not, or was not required to be, registered with Selective 
Service,'' as provided in proposed Sec. 668.33(b)(2)(i).
    Changes: None.
Selective Service Data Match
    Comments: One commenter noted that the Secretary has changed 
proposed paragraph (b)(2) with regard to the time period for providing 
documentation of Selective Service registration status. As currently 
worded, the student has 30 days from the date the institution is 
notified of the results of the data match or the end of the award year, 
whichever is later, to provide such documentation. The commenter noted 
that this language differs from Sec. 668.33(b)(2), which does not 
provide the ``end of the award year'' option.
    Discussion: In practice, the ``end of the award year'' option is 
not new. The institution can set its deadline for receiving 
documentation of Selective Service registration status on any date, as 
long as it allows the student the statutorily-required minimum of 30 
days to produce the documents. By rephrasing the requirement in this 
manner, the Secretary is clarifying that institutions need not impose 
arbitrary deadlines that prevent the student from establishing 
eligibility later in the award year and receiving title IV, HEA 
assistance for that award year, if the institution's overall policy 
would not normally set such deadlines for all students. The Secretary 
is aware that the phrasing of this requirement is inconsistent among 
the various regulatory provisions governing the data matches, and will 
revise all applicable sections to resolve this inconsistency.
    Changes: The Secretary is revising sections that govern data 
matches to include the requirement that the student must provide 
evidence of his or her eligibility, within 30 days from the date the 
institution is notified of the results of the data match, or until the 
end of the award year, whichever is later.

Subpart I--Immigration Status Confirmation

Section 668.133  Conditions Under Which an Institution Shall Require 
Documentation and Request Secondary Confirmation
    Comments: Many commenters supported the Secretary's proposal to 
limit secondary confirmation requirements. Many also suggested that the 
Secretary should take the additional step of waiving collection of 
immigration status documents if the documents collected in a previous 
award year remain valid.
    Discussion: The Secretary agrees with commenters who questioned the 
need for students to present immigration status documents in subsequent 
award years if they had been confirmed as eligible noncitizens in a 
previous award year. The Secretary cautions institutions, however, that 
some eligible noncitizen statuses are subject to expiration and that 
institutions should consult the student's file from that previous award 
year to determine if the 

[[Page 61802]]
student's immigration status remains valid.
    Changes: Section 668.133(b) is revised to delete the provision 
requiring a student to present evidence of immigration status in years 
subsequent to an award year in which secondary confirmation with INS 
was used to confirm the student's eligible noncitizen status.

Subpart K--Cash Management

Section 668.163  Requesting Funds
    Comments: None. Proposed rulemaking waived under 5 U.S.C. 553 
(b)(A).
    Discussion: The Secretary amends Sec. 668.163, which describes the 
procedures under which institutions request and receive title IV, HEA 
program funds The amendment requires an institution to include in any 
request for cash (1) the Catalog of Federal Domestic Assistance (CFDA) 
number identifying the source of program funds, and (2) the amount of 
funds for each CFDA number included in that request. Under current 
practice, an institution reports its expenditure of title IV, HEA 
funds, by program, on a quarterly basis. However, to monitor the 
expenditure of Federal appropriations, the Department of the Treasury 
and the Office of Management and Budget require the Department of 
Education to report on a monthly basis the amount and source of program 
funds provided to participating institutions. Obviously, the Secretary 
cannot provide to Treasury and OMB an accurate and timely report of the 
Department's use of appropriated funds, unless institutions identify 
the title IV, HEA funds by program and amount when those funds are 
requested.
    The Secretary will use the information provided by this new report 
format not only to give more timely reports of amounts provided to 
institutions, but will consider whether this information can be used to 
reduce the number of expenditure reports institutions would otherwise 
be required to make. Moreover, this minor procedural change poses 
almost no additional burden on institutions.
    In accordance with this subpart and the procedures contained in the 
Recipients Guide for the Department of Education Payment Management 
System, under the advance payment method, an institution must first 
determine its immediate disbursement needs before submitting a request 
for cash; under the reimbursement payment method, an institution 
requests funds for specific students whom the institution demonstrates 
to the satisfaction of the Secretary are eligible to receive the 
requested amount of program funds. In either case, the institution will 
know both the program for which it seeks funds and the amount needed to 
make disbursements to students. This change merely requires the 
institution to disclose that information on a standardized form.
    Changes: Section 668.163(a)(2) and (3) are amended to require that 
in any request for cash, an institution must identify the title IV, HEA 
program under which the institution requests funds by its appropriate 
Catalog of Federal Domestic Assistance (CFDA) number and the total 
amount of program funds for each CFDA number included in the request.
Section 668.164  Maintaining Funds
Comments Regarding UCC-1 Filings
    Comments: Most of the commenters agreed with the proposal to 
eliminate the UCC-1 filing requirement for institutions that are backed 
by the full faith and credit of a State, and for bank accounts that do 
not contain the phrase ``Federal funds'' in their name.
    One commenter writing on behalf of business officers opined that 
the term ``backed by the full faith and credit of the State'' is a poor 
designator of institutional control, estimating that about one-half of 
all public institutions would not meet this requirement due to the 
diversity of governing arrangements for State-supported institutions. 
According to the commenter, these State-supported institutions pose no 
greater risk to Federal funds than other public institutions that 
technically satisfy the proposed requirement. One other commenter 
echoed these sentiments, adding that a UCC-1 filing is not appropriate 
for government agencies. Another commenter expressed concern that many 
State auditors and offices of general counsel are interpreting the 
phrase ``backed by the full faith and credit of the State'' quite 
literally and concluding that it does not apply to State schools. All 
of these commenters recommend that the Secretary modify the proposed 
requirement to exempt all public institutions from having to file UCC-1 
statements.
    One commenter writing on behalf of business officers stated that a 
UCC-1 filing is unnecessary for any institution because institutions 
are otherwise required to provide written notification to their bank of 
the accounts that contain Federal funds.
    Discussion: The commenters have convinced the Secretary that for 
the purpose of protecting Federal funds, a UCC-1 filing is not 
necessary for public institutions, regardless of whether these 
institutions are backed by the full faith and credit of the State.
    The Secretary disagrees with the commenter that written 
notification to the bank in which the account is maintained provides 
sufficient protection of Federal funds. The abuse cited by the 
Secretary in the final regulations for the cash management regulations 
(see, 59 FR 61724), that certain institutions have used or 
misrepresented Federal funds to obtain a loan or secure credit, may 
continue to occur where an institution seeks to obtain a loan or credit 
from a bank other than the bank to which it provided written 
notification. It is this situation where a UCC-1 filing provides an 
additional safeguard because it serves to alert other banks or 
potential creditors that the institution's account contains Federal 
funds.
    Changes: Section 668.164(a)(2) is revised to exempt all public 
institutions from filing a UCC-1 statement.
Section 668.165  Disbursing Funds
Comments Regarding Electronic Notification of Student and Parent 
Borrowers
    Comments: Most commenters supported the proposal under which an 
institution could notify a student or parent borrower that his or her 
account was credited with Direct Loan or FFEL Program funds 
electronically or through the use of telecommunications devices. Two 
commenters contended that the ``return receipt'' requirement for 
documenting notifications transmitted via electronic mail (e-mail), as 
discussed in the preamble to the proposed rules, departs from and 
exceeds the documentation requirements for written notifications 
delivered by regular mail. The commenters saw no reason why a return 
receipt should be required for e-mail transmissions when no 
corresponding proof of delivery is required for notifications sent by 
regular mail.
    For the following reasons, one commenter writing on behalf of a 
student legal services organization strongly urged the Secretary to 
delete the proposed electronic notification provisions. First, the 
commenter contended that electronic notification would allow schools 
short on time or resources to cut corners on notice to students, 
thereby diminishing a borrower's rights. At worst, it would open the 
door to abuse by unscrupulous schools or individuals who want to 
minimize borrower knowledge about his or her control over loan funds. 
Given the increasing use of electronic funds 

[[Page 61803]]
transfers (EFT), the commenter contended that students have lost their 
key means of control over loan proceeds, i.e., their power to refuse to 
endorse the loan check. Amplifying this point, the commenter asserted 
that when the EFT process is used, timely, clear notice that the loan 
proceeds have been credited to the student's account is the equivalent 
of requesting a check endorsement--it triggers the student's ability to 
refuse the loan in whole or part. Thus, the commenter concluded that 
adequate, verifiable notice of receipt of loan proceeds has serious 
legal and financial implications for borrowers. Moreover, the commenter 
implied that adequate and verifiable notice is notably absent in the 
proposed rules, despite the preamble explanation that the Secretary 
expects schools to ``have a means of documenting that the student or 
parent received this information.'' According to the commenter, the 
reality is that schools will use, or purport to use, telephone or in-
person conversations as the means of notification and document that 
notification with notes to a borrower's file. Armed with only notes of 
such alleged contacts, the Secretary would be hard pressed to prove 
violations of the disclosure rule. The commenter concluded by saying 
the minimal requirement that schools notify a student in witting that 
his or her account has been credited--implicit notice that the 
borrower's legal liability for loan has begun--should not be abandoned.
    Discussion: The Secretary disagrees that requiring a ``return 
receipt'' for e-mail transmissions expands any documentation 
requirements. In fact, the Secretary believes the opposite is true.
    As a general rule, in the absence of any documentation specified by 
the Secretary to satisfy a particular requirement, an institution must 
be able to document that it satisfied that requirement. Thus, the 
Secretary believes that the burden and cost of documenting that a 
written notification was mailed to a student far exceed the burden and 
cost of a receipted e-mail notification.
    With regard to whether e-mail should be subject to a return receipt 
requirement because there is no corresponding proof of delivery for 
notices sent by regular mail, the Secretary notes that the courts have 
developed a presumption that mail deposited with the U.S. Postal 
Service is actually received (See, Cook v. Providence Hospital, 820 
F.2d 176,n.3 (6th Cir. 1987); and McPartlin v. Commissioner, 653 F.2d 
1185, 1191 (7th Cir. 1981)). The same presumption does not apply to e-
mail messages.
    In response to the comment by student legal services, the Secretary 
disagrees that the proposed change minimizes borrower rights. Rather, 
in recognition of the less burdensome and more cost effective methods 
afforded by electronic technologies, the Secretary sought only to 
expand the means by which an institution may notify a student or 
parent. That the notice may now be provided by additional, equivalent 
means has no bearing on borrower rights.
    The purpose of the notice, whether that notice is provided in 
writing or electronically, is to remind students of their loan 
obligation and to give students the opportunity to replace credited 
loan proceeds with other funds thereby reducing their loan when an 
institution return the loan proceeds. The Secretary wishes to make 
clear that an institution cannot be compelled to return loan proceeds 
that were properly disbursed or delivered to the student solely at the 
request of a student.
    On the other hand, the Secretary agrees that telephonic and in-
person conversations are not adequate and verifiable methods of 
providing notice.
    The Secretary did not propose that this requirement apply to 
Federal Perkins Loan Program funds because under that program the 
student had to sign for each loan advance. However, since the Secretary 
has decided to eliminate this Federal Perkins Loan Program requirement, 
this section is amended to provide that an institution must also notify 
a borrower that his or her account was credited with Federal Perkins 
loan funds.
    Changes: Section 668.165(b)(1) is amended to clarify that an 
electronic notice must be the equivalent of a written notice by 
incorporating the NPRM preamble statement that if an institution 
notifies a student or parent electronically, it must request a return 
receipt and maintain a record of that receipt. In addition, the phrase 
``by other means'' is removed to preclude the use of telephone or in-
person conversations as the sole means by which an institution may 
notify a student. Also, this section is revised to include notification 
to Federal Perkins Loan Program borrowers.
Comments Regarding Prior-Year Charges
    Comments: Most of the commenters supported the proposal allowing an 
institution, under limited circumstances and with a student's 
permission, to use a student's current year title IV, HEA program funds 
to pay for minor prior year charges. A few of these commenters, mostly 
business officers, stated that the current prohibition on the payment 
of prior-year charges has created difficulties for many students and 
institutions, resulting in increased transaction costs. These 
commenters believed that the proposed change will allow for smoother 
processing of student accounts and expedite the registration process. 
One commenter, writing on behalf of a higher education association, 
suggested that a student be asked to approve a specific amount of funds 
that an institution could use to pay for prior-year charges when the 
institution obtains the student's permission. The commenter believed 
that this would protect the student's need to have sufficient current 
year funds to pay for living and other necessary expenses. Another 
commenter suggested that after this provision is tested, some room for 
refinement may become evident, such as whether it is necessary to 
actually credit funds for current year charges before identifying that 
funds will be left over to pay prior year balances. Still another 
commenter questioned the role and authority of an aid officer in 
determining whether the payment of ``minor prior-year charges'' would 
hamper a student's ability to satisfy current year obligations, 
particularly when the aid officer and the student are not in agreement 
as to the amount of funds needed for current obligations.
    While the majority of commenters appreciated that the Secretary did 
not specify a dollar amount for minor prior-year charges, a few 
commenters lamented this lack of specificity. One of these commenters 
argued that the small dollar amount involved in most cases where this 
provision would apply does not warrant the administrative burden 
associated with obtaining a student's permission. Instead, the 
commenter suggested that the Secretary define minor prior-year charges 
as falling between $250 to $500 and not require written permission from 
the student.
    Two commenters argued that the cost and burden imposed by this 
proposal on students and institutions is unwarranted since any 
outstanding balance must be paid before a student is allowed to enroll 
or continue at an institution. These commenters suggested that the 
Secretary either simplify the process under which prior-year charges 
may be paid or, notwithstanding the concerns expressed by the Secretary 
in the NPRM, allow these charges to be paid without restriction.
    One commenter writing on behalf of a student legal services 
organization contended that schools should not be allowed to control 
student credit 

[[Page 61804]]
balances (particularly if those balances contain loan proceeds) in this 
manner even with the student's permission. The commenter's contention 
was based on the following reasons.
    The commenter's first reason was based on the Secretary's failure 
to specify a dollar amount of prior-year charges. As a result, the 
commenter believed that fly-by-night schools, whose motivation is to 
maximize profits rather than maintain credibility with the Department, 
would take advantage of this provision. The commenter indicated that 
while a university might define a ``minor charge'' as up to $10 in 
library fines, a high-cost trade school could define it as several 
hundred dollars of overpriced vocational equipment. The commenter 
warned that the Secretary will be left to assess the reasonableness of 
school practices in program reviews, i.e., after the fact and after the 
student's loan proceeds have been used.
    The commenter's second reason was that prior-year charges may have 
been unpaid because they were contested by the student. The commenter 
saw no valid reason to allow the school to determine the validity of 
the charges and then use loan proceeds to cover them. The commenter 
asserted that the fact that the borrower has to give permission for 
these sorts of charges provides little comfort since the authorization 
will probably be a generic, blanket authorization given at the 
beginning of the term with a sheaf of other forms before specific 
charges are ever incurred.
    Further, the commenter noted that in order to accommodate this 
change in the regulation, Sec. 668.165(b)(1) has also been amended to 
delete the current generic bar on applying title IV, HEA program funds 
``to any charges assessed the student in a prior award year or period 
of enrollment.'' Thus, it appeared to the commenter that the proposed 
rules open the door to using current year funds to pay for prior year 
tuition, room, board, or other miscellaneous charges. For these 
reasons, the commenter urged the Secretary to leave the regulation as 
currently written.
    Discussion: The Secretary offers the following guidance with 
respect to the comments dealing with student authorizations. An 
authorization must contain an explanation of the provisions regarding 
the activities that an institution seeks to perform on behalf of a 
student. This does not mean that the authorization must detail every 
aspect pertaining to an activity. On the other hand, the Secretary does 
not consider acceptable a blanket authorization which only identifies 
the activities to be performed.
    Regarding the comment that an institution must first credit a 
student's account with title IV, HEA program funds before the 
institution may use any balance that remains to pay for prior-year 
charges, the Secretary notes that while this is technically correct, it 
has broader implications. The proposed language ``provided that a 
student has or will have a title IV, HEA program credit balance'' was 
intended to extend the benefits of this provision to institutions that 
draw down funds after a student starts classes. These institutions 
would have the assurance that agreed-to prior-year charges will be 
paid.
    The Secretary has carefully considered the arguments made by 
student legal services asking the Secretary to retract the proposed 
prior-year charges provisions. The Secretary acknowledges that while it 
may be possible for an unscrupulous school to benefit from an abuse of 
these provisions, the Secretary notes that prior-year balances occur 
mainly at established two- and four-year schools--such schools can not 
be characterized as ``fly-by-night.''
    In response to comment that the current prohibition on the payment 
of prior-year charges has now created problems for students and 
institutions, the Secretary reminds institutions that title IV, HEA 
program funds have never been permitted to be used to pay prior-year 
charges. However, it appears from these comments, and from comments 
previously received on the cash management regulations, that some 
institutions were either unaware of or ignored this prohibition. The 
Secretary does not wish to admonish institutions that otherwise 
administer the title IV, HEA programs properly, but believes that had 
these institutions structured student billing and accounting systems 
that identified and prevented the payment of prior-year charges with 
current year funds, they would not now be experiencing difficulties 
brought about by the policy change allowing for the payment of these 
charges under limited circumstances.
    Moreover, the Secretary cannot in these regulations make the 
changes that would be necessary to allow institutions to use a 
student's funds without restriction. To do so would require changes in 
the statutory provisions that limit, without permission, the use of a 
student's title IV, HEA program funds to specified allowable charges 
and in the Secretary's longstanding interpretation of the precepts 
underlying need analysis and award determinations. The proposal to 
allow for the payment of prior-year charges under limited circumstances 
is consistent with current law and, as a policy matter, was formulated 
merely as an administrative convenience to students and institutions in 
recognition of a problem that the Secretary believes should not occur 
with regularity or involve large sums of money. The Secretary did not 
intend to take sides in disputes between students and institutions 
regarding the legitimacy of prior-year charges. In putting forth this 
proposal, the Secretary was mindful of the need to protect student 
rights while at the same time meeting the administrative needs of 
institutions.
    To this end, the Secretary will keep the general prohibition 
against using a student's current year title IV, HEA program funds to 
pay for prior-year charges. The Secretary will allow for payment of 
minor prior-year charges as proposed, but with one modification. The 
modification addresses the comments regarding whether a student may 
authorize in advance a specific amount of funds to pay for prior-year 
charges and whether the Secretary will establish a dollar amount for 
these charges. The Secretary believes that it would be difficult to 
determine in advance what the specific amount should be, and whether 
the payment of that amount in a future period would create financial 
problems for a student. Such a determination should be made in view of 
the student's circumstances when the situation arises. However, an 
institution may consider prior-year charges that do not exceed $100 to 
be minor without making this determination and may obtain a student's 
authorization in advance to pay for these charges should they occur.
    Changes: Section 668.165(b)(1) is revised to reinstate the general 
prohibition that a student's current year title IV, HEA program funds 
may not be used to pay for prior-year charges. This section is also 
amended by removing proposed paragraph (b)(3)(iv)(C) and adding a new 
paragraph (e) that provides that an institution may use a student's 
current year funds to pay for minor prior-year charges if the student's 
current year institutional charges are satisfied and the institution 
obtains the student's permission. In addition, an institution may 
consider prior-year charges that do not exceed $100 to be minor. To pay 
prior-year charges for amounts over $100, an institution must determine 
if that payment would prevent the student from paying for his or her 
educational expenses. 

[[Page 61805]]


Campus-Based Programs

Sections 674.2, 675.2, and 676.2  Definitions

    Comments: Two commenters expressed their support for the proposal 
to delete the duplicative definitions of the terms ``full-time graduate 
or professional student'' and ``full-time undergraduate student'' from 
Sec. 674.2(b) and Sec. 675.2(b) and the term ``full-time undergraduate 
student'' from Sec. 676.2(b). One commenter felt clarification was 
needed in the ``full-time student'' definition in Sec. 668.2 of the 
Student Assistance General Provisions regulations to distinguish a 
full-time course load for undergraduate students from that of graduate/
professional students.
    Discussion: The Secretary believes that the definition of ``full-
time student'' in the Student Assistance General Provisions regulations 
adequately addresses the determination of a full-time course load for 
both undergraduates and graduate/professional students. As stated in 
Sec. 668.2, in the definition of a ``full-time student,'' ``* * * 
academic workload (other than by correspondence) as determined by the 
institution under a standard applicable to all students enrolled in a 
particular educational program. The student's workload may include any 
combination of courses, work, research, or special studies that the 
institution considers sufficient to classify the student as a full-time 
student.'' This part of the definition provides the institution with 
the discretion to determine a full-time course load for all 
classifications of students. The definition then proceeds to provide 
minimum standards for an undergraduate student.
    Changes: None.

Sections 674.17, 675.17, and 676.17  Federal Interest in Allocated 
Funds

    Comments: Several commenters supported the proposal to delete the 
provisions in Sec. 674.17(a), Sec. 675.17, and 676.17 that provide that 
Federal Perkins Loan, FWS, and FSEOG program funds are to be held in 
trust for the intended students and the Secretary and cannot be used or 
hypothecated for any other purpose. The commenters agreed that the 
elimination of these sections reduces redundancy since this provision 
is contained in the Student Assistance General Provisions regulations, 
Sec. 668.161(b).
    One commenter, while agreeing that regulations should not be 
repetitive, pointed out that Sec. 668.161(b) of the General Provisions 
regulations only excepts funds used for administrative expenses, 
whereas Sec. 675.17 of the FWS Program regulations, includes other 
allowable uses besides awards to students, such as use of funds for 
establishment of a Job Location and Development (JLD) Program.
    The commenter also observed that under the Federal Perkins Loan 
Program regulations certain collection costs may also be charged to the 
fund; these charges are outside of the administrative expense 
allowance. The commenter further indicated that Sec. 674.17(a) also 
reinforces the requirement that funds received by the institution 
includes repayments on loans. The commenter suggested clarifying 
Sec. 668.161(b) to include other uses of campus-based funds.
    Discussion: Federal Perkins Loan Program. The Secretary does not 
agree with the comment that Sec. 668.161(b) needs clarification if 
Sec. 674.17(a) is deleted. Section Sec. 668.161(b) provides for uses of 
title IV, HEA allocated funds. Once loans are made and students begin 
making repayments, the repayments on these loans become part of the 
Federal Perkins Loan Program Fund (Fund). Also the charges for certain 
costs incurred in collecting a loan, when not paid by the borrower, are 
to be made against the Fund. Uses of the Fund are provided for in other 
sections of the Federal Perkins Loan Program regulations.
    Federal Work-Study Program. The Secretary agrees with the commenter 
that Sec. 668.161(b) excepts only funds used for administrative 
expenses, whereas Sec. 675.17 allows funds allocated under the FWS 
Program to also be used for establishment of a Job Location and 
Development Program; and that if Sec. 675.17 is deleted, 
Sec. 668.161(b) needs clarification.
    Changes: The Secretary is amending the language of this provision 
in Sec. 668.161(b) to incorporate the uses of allocated FWS funds for 
certain activities under the Job Location and Development Program.

Sections 674.19, 675.19 and 676.19  Fiscal Procedures and Records

    Comment: Several commenters commended the Secretary for the 
proposal to allow institutions the additional flexibility of using 
optical disk technology in complying with recordkeeping requirements. 
The commenters viewed this as additional proof of the Department's goal 
to simplify and modernize the regulations, and they commended the 
Secretary on his recognition of the importance of paper reduction. One 
of these commenters stated that this change will greatly enhance their 
ability to comply with the regulations to maintain records while 
utilizing their personnel and physical spaces more efficiently.
    One commenter, while recognizing the benefit to schools in reducing 
the paper they have to retain, expressed concern of the danger for 
borrowers and the Department in having records that are more difficult 
to read or use as proof in legal cases. This commenter pointed out the 
fact that forgeries and alterations are not likely to be discernible 
under these alternative formats. The commenter recommended against 
allowing alternative forms of record retention for key Federal Perkins 
loan documents, such as promissory notes.
    Discussion: The Secretary appreciates the commenters' support for 
new technology for the maintenance of records. However, the Secretary 
recognizes that he needs to allow for future technologies that provide 
an actual image of the original document. In response to the one 
commenter who was concerned about alternative forms of record 
retention, it has never been the Secretary's intention to allow 
alternative means of recordkeeping for key documents. Section 
674.19(e)(4)(i) of the Federal Perkins Loan Program regulations 
provides that institutions must keep the original promissory notes and 
repayment schedules in a locked, fireproof container. These provisions 
remain and are not affected by the addition of the use of optical disk 
technology for maintaining other records.
    Changes: The Secretary is amending this provision to provide for 
additional optical imaging technology.

Federal Perkins Loan Program

Section 674.2  Definitions

    Comments: The commenters supported the Secretary's proposal to 
redefine the term ``making of a loan.'' However, several commenters 
requested that the Secretary clarify when a Federal Perkins loan is 
made, because the date on which the student signs the promissory note 
and the date on which the funds are disbursed may differ.
    Discussion: In response to the commenters' clarification requests, 
under the provisions of this regulation, the Secretary considers that a 
Federal Perkins loan has been ``made'' when two events have occurred: 
the borrower has signed the Federal Perkins loan promissory note and 
the institution makes the first disbursement of loan funds to the 
borrower under that note. This new definition represents a significant 
departure from long-standing Federal Perkins Loan Program policy, 
because under the old policy, each 

[[Page 61806]]
disbursement of a Federal Perkins loan to a borrower was considered a 
separate Federal Perkins loan.
    Changes: The Secretary is modifying the definition of ``making of a 
loan'' to state that a Federal Perkins loan is ``made'' when the 
borrower has signed the promissory note and the first disbursement of 
loan funds has occurred.

Section 674.16  Making and Disbursing Loans

    Comments: Many commenters strongly supported the Secretary's 
proposal to eliminate the requirement that a student sign for each loan 
advance. Most commenters agreed that this was the single most important 
proposal to reduce burden in the administration of the Federal Perkins 
Loan Program. One commenter strongly objected to the elimination of the 
requirement that a student sign for each loan advance. This commenter 
stated that signing for each advance reinforced in the students' minds 
the amounts they borrowed. This commenter was also concerned that, 
without the borrower's signature authorizing each loan advance, the 
institution may not be able to obtain a judgment or assign the loan 
without incurring additional legal costs to prove that the student had 
actually borrowed the total amount owed on the loan.
    Discussion: The Secretary appreciates the support the community has 
shown for this regulatory effort. The Secretary respects the 
commenter's concern for the integrity of the Federal Perkins Loan 
Program. However, the Secretary believes that the value of the 
borrower's signing for each advance is outweighed by the burden this 
requirement imposes on institutions and borrowers. On the other hand, 
under the regulations, an institution may choose to continue to require 
that the borrower sign for each advance. Moreover, the Secretary 
disagrees with the commenter that the failure to obtain a signature for 
each advance will preclude the institution from assigning the note or 
obtaining a judgment against the borrower.
    The Secretary notes that Sec. 668.165(b)(1) is being amended to 
require an institution to notify a student that a disbursement of 
Federal Perkins loan funds is being credited to the student's account.
    Changes: None.

Section 674.31  Promissory Note

    Comments: While many commenters supported the proposal to allow the 
Secretary's promissory note under the Federal Perkins Loan Program to 
be used as a sample note, thereby allowing institutions to add items to 
the note as long as the substance of the note remains unchanged, many 
also requested clarification of this provision. Commenters asked 
whether changing the ``substance'' of the note meant changing the 
format of the note. Several commenters asked the Secretary to define 
``substance.'' Several commenters asked whether new items on the 
promissory note that imposed additional requirements, penalties, or 
benefits were acceptable to the Secretary, and if not, what was an 
acceptable additional item. One commenter recommended that the 
Secretary not make the proposed change. This commenter stated that 
other federal loan programs use a national note that requires no 
additions by the schools. This commenter felt strongly that the 
language and provisions used in the Federal Perkins Loan Program 
promissory notes should be consistent across the Program and urged the 
Secretary to maintain Sec. 674.31 unchanged.
    Discussion: The Secretary has reevaluated his proposal to amend 
Sec. 674.31(a). The Secretary agrees with commenters that the proposed 
change allowing institutions to make nonsubstantive additions to the 
sample promissory notes is too vague. The Secretary believes that the 
addition of provisions to the promissory note that would impose 
additional requirements, penalties, or benefits constitutes a 
substantive change to the note.
    The Secretary agrees with the commenter who recommended that the 
promissory note should remain a national note and with consistent 
provisions. The Secretary is, therefore, requiring institutions to use 
the promissory notes approved by the Secretary, rather than providing 
``sample'' promissory notes. An institution may not change the text of 
the promissory note or rearrange the order of the text. An institution 
may make nonsubstantive changes, such as changing the size or style of 
the type or requiring a student to include his or her driver's license 
number.
    Changes: The Secretary is changing Sec. 674.31(a) to provide that 
institutions must use the promissory note provided by the Secretary and 
that institutions may only make changes to the notes provided that are 
nonsubstantive.

Section 674.33  Repayment

    Comments: Commenters unanimously supported the Secretary's proposal 
to combine the last scheduled Federal Perkins loan payment with the 
next-to-last payment if the last payment is $25 or less, an increase 
from $15. One commenter suggested that institutions be allowed to 
combine the last scheduled payment with the next-to-last payment if the 
last payment is $50 or less.
    Discussion: The Secretary's purpose in amending Sec. 674.33 is to 
remove administrative burden and to improve an institution's success in 
collecting small loan balances. However, the Secretary does not wish to 
overly burden student borrowers. The Secretary believes that combining 
the last scheduled payment with the next-to-last payment if the last 
payment is $50 or less may place a financial strain on student 
borrowers, thereby compromising the borrower's ability to pay off his 
or her loan.
    Changes: None.

Section 674.47  Costs Chargeable to the Fund

Section 674.47 (g)

    Comments: Of all the Federal Perkins Loan Program proposals in the 
NPRM, the Secretary's proposals related to ceasing collection activity 
generated the most comments. Most of these commenters made suggestions 
on ways to amend this provision. One commenter felt that, rather than 
ceasing collection activity, this provision should be modified to 
permit the write-off of defaulted accounts with outstanding balances 
between $5 and $25 after sending a first overdue notice. The commenter 
further noted that the proposed rule would require institutions to 
maintain accounts which would continue to accrue interest and would age 
over the years. Thus, loans under $25 would eventually reach $25. At 
that point the institution would have to perform due diligence on that 
loan under subpart C. The commenter noted that as a result there is no 
net gain to the institution in terms of administrative costs.
    A commenter applauded the Secretary's attempt to provide relief for 
institutions handling defaulted accounts with outstanding balances of 
less than $25, but the commenter felt the regulations should reflect a 
higher amount, i.e. $100 or less.
    Discussion: The Secretary does not agree with the commenter's 
suggestion to write off defaulted accounts with outstanding balances 
between $5 and $25 because it is inappropriate to write off debts of 
that amount. These are borrowers who are in default on a Federal loan. 
The borrower owes these amounts and the failure to collect these funds 
affects the future level of the Fund. However, the Secretary agrees 
with other commenters' suggestions to 

[[Page 61807]]
raise the level at which an institution can stop collection efforts on 
a loan.
    The Secretary agrees with the commenters that it may not be cost 
effective for an institution to continue collection efforts on small 
loan balances. Therefore, the Secretary will allow an institution to 
cease collection activity on defaulted accounts with balances of 
between $25 and $200, if the institution carried out the subpart C due 
diligence requirements and the account has not had any activity for 
four years. The Secretary chose a $200 threshold because $200 is the 
level at which an institution must make an annual determination to 
litigate a defaulted account.
    If an institution chooses this option, these accounts may be 
included in its cohort default rate, if applicable. The borrower will 
still be in default and ineligible for further title IV, HEA program 
funds.
    The Secretary agrees with the commenter's point regarding an 
institution's election to cease collection efforts on an account under 
$25. Therefore, the institution will not have to exercise due diligence 
required under subpart C, even though interest will continue to accrue 
and may put the account over $25, if it documents that it ceased 
collection activity when the account was under $25. However, the 
institution would not be able to assign the account to the Secretary 
and the borrower will remain responsible for repaying the account, 
including accrued interest. In addition, the Secretary notes that these 
accounts will still be included in the institution's cohort default 
rate, if applicable, and the borrower is still in default and 
ineligible for title IV, HEA program funds.
    Changes: The Secretary has modified paragraph (g)(1) to reflect the 
noted changes.
    Comments: One commenter felt that there should be some way for an 
institution to use its own funds to pay off larger balance accounts 
with outstanding balances as high as $100. The commenter did not feel 
it was cost effective to continue to track small amounts as defaults.
    Discussion: An institution may pay off loan balances of its 
borrowers. However, under section 462(h)(2)(D) of the HEA, any such 
loans will be considered in default for purposes of calculating the 
institution's cohort default rate.
    Changes: None.
    Comments: A few commenters wanted a further explanation from the 
Secretary regarding proposed Sec. 674.47(g)(2). These commenters did 
not understand how a loan which is not closed or paid-in-full could 
reduce the assets of the Fund. One commenter felt that this proposal 
would not only be counter-intuitive, since loans in this category would 
remain as balances due, accruing interest and carrying penalties 
associated with default, but would also create a new area of 
administrative complexity for this new category of loans ``in limbo.'' 
These commenters indicated that this change would burden institutions 
with additional costs in order to maintain this category of ``due'' but 
``non-asset'' loans.
    Discussion: The Secretary agrees with the commenters' points and 
apologizes for any confusion this proposed provision might have caused. 
It was the Secretary's intent to reduce burden in the administration of 
the Federal Perkins Loan Program. It was not the Secretary's intent to 
burden institutions with additional costs and a new systems design. 
Because these accounts are still ``open,'' institutions must include 
the amounts of these accounts as assets of the Fund when they choose to 
cease collection activities of defaulted accounts. However, when an 
institution writes off an account, in accordance with paragraph (h) of 
this section, these accounts would not remain an asset of the Fund.
    Changes: The Secretary is amending paragraph (g) to remove the 
provision that would require an account on which the institution has 
chosen to cease collection activity to no longer be considered as an 
asset of the Fund.

Section 674.47(h)

    Comments: While most commenters appreciated the Secretary's 
proposal to allow institutions to write off loan accounts with balances 
of less than $1.00, all commenters were unanimously opposed to the 
proposed write-off amount. Commenters felt that $1.00 was too 
stringent, that it was not cost effective in terms of real 
administration and collection costs, and that it would not accomplish 
the proposal's intended purpose: to provide relief to institutions in 
the administration of the Federal Perkins Loan Program. Commenters 
encouraged the Secretary to consider a higher amount, with the 
commenters suggesting amounts ranging from $2 to $25. A few commenters 
stated that the majority of their accounts with small remaining 
balances were $5.00 or less, and that it would be clearly more 
effective and efficient to raise the amount to $5.00.
    Discussion: The commenters have convinced the Secretary that the 
proposed $1 figure was too low. The Secretary has adopted the 
commenters' suggestions that the amount be raised to $5. Once these 
accounts have been written off, the account is considered as paid-in-
full. The account will no longer be considered as an asset to the Fund, 
the account will not be counted in the institution's cohort default 
rate, if applicable, and the promissory note will be returned to the 
borrower marked as paid-in-full.
    Changes: The Secretary is amending 674.47(h) to increase the write-
off threshold to $5.00. The Secretary is also amending paragraph (h) to 
provide that an account that has been written off may not be considered 
as an asset to the Fund.

Federal Work-Study Programs

Appendix B--Model Off-Campus Agreement

    Comments: Four commenters supported the Secretary's proposal to 
remove the model off-campus agreement from regulation and include the 
agreement in the Federal Student Financial Aid Handbook. They felt that 
the Handbook is a more appropriate document and that this will make the 
sample agreement more easily accessible by aid administrators. One of 
these commenters suggested that the Secretary also include a model 
community service agreement in the Handbook.
    Discussion: The off-campus agreement in Appendix B is a suggested 
model for the development of a written agreement between an institution 
of higher education and a federal, state, or local public agency or 
private nonprofit organization which employs students participating in 
the FWS Program. As stated in the model, institutions and agencies or 
organizations may devise additional or substitute paragraphs that are 
consistent with the statute or regulations and add any pertinent 
information that orients the agreement towards community services. 
Therefore, one sample off-campus agreement will be provided in the 
Federal Student Financial Aid Handbook for use in the FWS Program.
    Changes: None.

Federal Family Educational Loan Program, and Direct Loan Program

Sections 682.201 and 685.200  Eligible Borrowers

    Comments: Many commenters supported the proposal in the FFEL and 
Direct Loan Programs to allow a student's stepparent to borrow under 
the PLUS and Federal Direct PLUS Programs.
    One commenter suggested that a stepparent should remain eligible to 
borrow on behalf of a stepchild if the 

[[Page 61808]]
natural or adoptive parent to whom the stepparent is married, dies. The 
commenter indicated that a situation may arise where, if the other 
natural parent is still alive, the student will not become an 
independent student. The commenter indicated that the student's 
relationship with the surviving stepparent may be more akin to a 
parental bond than is the student's relationship with the surviving 
parent.
    Another commenter suggested that the language of the regulations be 
amended to provide that a stepparent would be eligible to borrow on 
behalf of a stepchild if the stepparent's income was not used to 
determine the expected family contribution (EFC) of the stepchild. The 
commenter indicated that a parent could marry after the Free 
Application for Federal Student Aid (FAFSA) had been filed. The 
commenter believed that the new stepparent should be eligible to borrow 
a PLUS loan on behalf of the student.
    Discussion: The Secretary appreciates the mostly positive comments 
he received on his proposal to allow stepparents to borrow under the 
FFEL and Direct Loan PLUS programs. While the Secretary agrees that the 
situation suggested by the commenter could, on rare occasions happen, 
he points out that he would expect that, in most instances, the 
financial aid officer would use professional judgement and make the 
student independent, while perhaps assessing some amount of untaxed 
income to the student as a result of support received from the 
stepparent. In this instance the student would be considered eligible 
for additional unsubsidized loans to replace whatever PLUS proceeds are 
not available. For these reasons, the Secretary does not believe there 
is need to make additional changes to the eligibility criteria for 
stepparents to borrow under the title IV PLUS programs.
    The Secretary acknowledges, as pointed out by the second commenter, 
that the proposed language could have been interpreted to exclude 
certain stepparents from participation in PLUS Loan Programs because 
their income and assets were not taken into account when determining 
the student's EFC. Such a condition could exist when the student did 
not complete a FAFSA or in the case cited by the commenter when the 
natural parent married after the FAFSA was filed. The Secretary will 
change the eligibility requirement under which a stepparent may borrow 
a PLUS loan to include the income and assets ``that would have been 
taken into account'' rather than ``are taken into account'' when 
determining the student's EFC.
    Changes: Sections 682.201 and 685.200 are changed to allow a 
stepparent to borrow under the FFEL and Direct Loan PLUS programs ``if 
that spouse's income and assets would have been taken into account when 
calculating a dependent student's expected family contribution.''

Section 682.600  Agreement Between an Eligible School and the Secretary 
for Participation in the FFEL Programs

    Comments: All commenters supported the proposal to eliminate the 
provisions of Sec. 682.600 (a) through (c) and to include the 
provisions that deal with foreign schools (Sec. 682.600(d)) in a new 
Sec. 682.611. One commenter requested clarification of the Secretary's 
intent to eliminate Sec. 682.600.
    Discussion: The Secretary noted in the preamble of the NPRM (60 FR 
49118) that the provisions of Sec. 682.600(a) through (c) are 
unnecessary because they duplicate existing provisions found in 34 CFR 
Part 600 (Institutional Eligibility Under the Higher Education Act of 
1965, As Amended) and 34 CFR Part 668 (Student Assistance General 
Provisions). The Secretary also noted that the provisions included in 
Sec. 682.600(d) that deal with foreign schools are needed and would be 
retained in a new section, Sec. 682.211.
    Changes: None.

Section 682.602  Schedule Requirements for Courses of Study by 
Correspondence

    Comments: All commenters supported the proposal to eliminate the 
provisions contained in Sec. 682.602.
    Discussion: Commenters agreed with the Secretary that the 
provisions of Sec. 682.602 are no longer needed since students enrolled 
in correspondence programs are not eligible to receive FFEL Program 
loans unless they are enrolled in a program that leads to an associate, 
bachelor, or graduate degree.
    Changes: None.

Federal Pell Grant Program

    Comments: Various commenters expressed support for the proposed 
changes to the Federal Pell Grant Program.
    Discussion: The Secretary appreciates the commenters' support of 
efforts to eliminate duplicative provisions from the regulations.
    Changes: None.

Executive Order 12866

    These regulations have been reviewed in accordance with Executive 
Order 12866. Under the terms of the order the Secretary has assessed 
the potential costs and benefits of the regulatory action.
    The potential costs associated with the 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. Burdens specifically associated with 
information collection requirements, if any, are identified and 
explained elsewhere in the preamble under the heading Paperwork 
Reduction Act of 1995.
    In assessing the potential costs and benefits--both qualitative and 
quantitative--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.

Summary of Potential Costs and Benefits

    The potential costs and benefits of these final regulations are 
discussed elsewhere in this preamble under the following heading: 
Analysis of Comments and Changes.

Regulatory Flexibility Certification

    The Secretary certifies that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
Small entities affected by these regulations are small institutions of 
higher education.

Waiver of Proposed Rulemaking

    In accordance with section 431(b)(2)(A) of the General Education 
provisions Act, 20 U.S.C. 1232(b)(2)(A), and the Administrative 
Procedure Act, 5 U.S.C. 553, it is the practice of the Secretary to 
offer interested parties the opportunity to comment on proposed rules 
and regulations. However, the Secretary amends Sec. 668.163(a)(2) and 
(3) as a final rule to revise the procedure for presenting cash 
requests to the Department under the exemption from rulemaking 
requirements in 5 U.S.C. 553(b)(A) for rules of agency procedure.

Assessment of Educational Impact

    In the NPRM published September 21, 1995, the Secretary requested 
comment on whether the proposed regulations in this document would 
require transmission of information that is being gathered by, or is 
available from, any other agency or authority of the United States.

[[Page 61809]]

    Based on the response to the proposed rules 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 668

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

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.

34 CFR Part 682

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

34 CFR Part 685

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

34 CFR Part 690

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

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 
Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032 
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students 
Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins 
Loan Program; 84.063 Federal Pell Grant Program; 84.069 Federal 
State Student Incentive Grant Program; 84.268 William D. Ford 
Federal Direct Loan Program; and 84.272 National Early Intervention 
Scholarship and Partnership Program.)

    Dated: November 24, 1995.
Richard W. Riley,
Secretary of Education.

    The Secretary amends parts 668, 674, 675, 676, 682, 685, and 690 of 
title 34 of the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    1. The authority citation for part 668 continues to read as 
follows:

    Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099c, and 
1141, unless otherwise noted.


Sec. 668.2  [Amended]

    2. In Sec. 668.2, paragraph (b) is amended by revising paragraph 
(1) of the definition of ``Payment period'' and by adding a sentence to 
the end of the definition of ``Federal Perkins Loan Program'' to read 
as follows:


Sec. 668.2  General definitions.

* * * * *
    Federal Perkins Loan Program: * * * Unless otherwise noted, as used 
in this part, the Federal Perkins Loan Program includes the National 
Direct Student Loan Program and the National Defense Student Loan 
Program.
* * * * *
    Payment period: (1) With respect to the Federal Pell Grant Program, 
a payment period as defined in 34 CFR 690.3;
* * * * *


Sec. 668.7  [Removed and Reserved]

    3. Section 668.7 is removed and reserved.
    4. Section 668.19 is revised to read as follows:


Sec. 668.19  Financial aid transcript.

    (a) (1) An institution shall determine whether a student who is 
applying for assistance under any title IV, HEA program has previously 
attended another eligible institution.
    (2) Before a student who previously attended another eligible 
institution may receive any title IV, HEA program assistance the 
institution the student is, or will be, attending--
    (i) Must request each eligible institution the student previously 
attended to provide to it a financial aid transcript; or
    (ii) May use information it obtains from the National Student Loan 
Data System (NSLDS) to satisfy the requirements of paragraphs (a)(1) 
and (a)(2)(i) of this section, after the Secretary informs institutions 
through a Notice in the Federal Register that the NSLDS is available 
for this purpose, and information on how the NSLDS can be used.
    (3) Except as provided in paragraph (b)(5) of this section, if an 
institution requests a financial aid transcript from any institution a 
student previously attended, until the institution receives each 
requested financial aid transcript; the institution--
    (i) May withhold payment of Federal Pell Grant and campus-based 
funds to the student;
    (ii) May disburse Federal Pell Grant and campus-based funds to the 
student for one payment period only;
    (iii) May decline to certify the student's Federal Stafford Loan 
application or the parent's Federal PLUS application under the FFEL 
Program;
    (iv) May decline to originate the student's Federal Direct Stafford 
Loan or the parent's Federal Direct PLUS under the Direct Loan Program;
    (v) May not deliver Federal Stafford or disburse Federal Direct 
Stafford Loan proceeds to a student; and
    (vi) May not deliver Federal PLUS or disburse Federal Direct PLUS 
proceeds to a parent or student.
    (4) (i) An institution may not hold Federal Stafford or Federal 
PLUS loan proceeds under paragraph (b)(3) of this section for more than 
45 days. If an institution does not receive all required financial aid 
transcripts for a student within 45 days of the receipt of such 
proceeds, the institution shall return the loan proceeds to the 
appropriate lender.
    (ii) An institution that certifies a Federal Stafford or Federal 
PLUS loan application before receiving all required financial aid 
transcripts shall return to the lender the appropriate amount of any 
Federal Stafford or Federal PLUS proceeds if it receives a financial 
aid transcript indicating that the student is not eligible for all, or 
a part, of the loan proceeds.
    (5) An institution may disburse title IV, HEA program funds to a 
student without receiving a financial aid transcript from an eligible 
institution the student previously attended if the institution the 
student previously attended--
    (i) Has closed, and information concerning the student's receipt of 
title IV, HEA program assistance for attendance at that institution is 
not available;
    (ii) Is not located in a State; or
    (iii) Provides the disbursing institution with the written 
certification described in paragraph (b)(2)(ii) of this section.
    (b) Upon request, each institution located in a State shall 
promptly 

[[Page 61810]]
provide to the institution that requested a financial aid transcript--
    (1) All information in its possession concerning whether the 
student in question attended institutions other than itself and the 
requesting institution; and
    (2) (i) A financial aid transcript for that student, if the student 
received or benefitted from any title IV, HEA program assistance while 
attending the institution; or
    (ii) A written certification that--
    (A) The student did not receive or benefit from any title IV, HEA 
program assistance while attending the institution; or
    (B) The transcript would cover only years for which the institution 
no longer has records and is no longer required to keep records under 
the applicable title IV, HEA program recordkeeping requirements.
    (c) An institution must disclose on a financial aid transcript for 
a student--
    (1) The student's name and social security number;
    (2) To the extent the institution is aware, whether the student is 
in default on any title IV, HEA program loan;
    (3) To the extent the institution is aware, whether the student 
owes an overpayment on any title IV, HEA program grant or Federal 
Perkins Loan;
    (4) For the award year for which a financial aid transcript is 
requested, the student's Scheduled Federal Pell Grant and the amount of 
Pell Grant funds disbursed to the student;
    (5) The aggregate amount of loans made to the student under each of 
the title IV, HEA loan programs for attendance at the institution;
    (6) For the award year in which a financial aid transcript is 
requested, the total amount of Federal Perkins loan funds disbursed to 
the student;
    (7) Whether the student owed an outstanding balance on July 1, 1987 
on either a National Direct Student Loan made for attendance at the 
institution;
    (8) Whether the student owed an outstanding balance on October 1, 
1992 on either a Federal Perkins loan or a National Direct Student Loan 
made for attendance at the institution; and
    (9) The amount of, and period of enrollment for, the most current 
loan made to the student under the FFEL, and Direct Loan programs for 
attendance at the institution.
    (d) (1) A financial aid transcript must be signed by an official 
authorized by the institution to disclose information in connection 
with title IV, HEA programs.
    (2) An institution must base the information it includes on 
financial aid transcripts on records it maintains under the title IV, 
HEA programs recordkeeping requirements.
(Approved by the Office of Management and Budget under control 
number 1840-0537)

(Authority: 20 U.S.C. 1091, 1094)

    5. The heading for Sec. 668.21 is revised to read as follows:


Sec. 668.21  Treatment of Federal Perkins Loan, FSEOG, and Federal Pell 
Grant program funds if the recipient withdraws, drops out, or is 
expelled before his or her first day of class.

    6. Section 668.22 is amended by removing paragraph (h)(1)(i) and 
redesignating paragraphs (h)(1)(ii) through (xiii) as paragraphs 
(h)(1)(i) through (xii), respectively; and by revising paragraph 
(d)(1)(i) to read as follows:


Sec. 668.22  Institutional refunds and repayments.

* * * * *
    (d) * * *
    (1) * * *
    (i) If a student withdraws, drops out, or is expelled from the 
institution before the first day of classes for the period of 
enrollment for which the student was charged, the institution must 
follow the provisions under Sec. 668.21 for the treatment of Federal 
Perkins Loan, FSEOG, and Federal Pell Grant Program funds, the 
provisions under Sec. 682.604(d)(3) or (4) for the treatment of FFEL 
Program funds, and the provisions under Sec. 685.303(b)(3) for the 
treatment of Direct Loan Program funds, as appropriate;
* * * * *
    7. Subpart C is revised to read as follows:

Subpart C--Student Eligibility

Sec.
668.31  Scope.
668.32  Student eligibility - general.
668.33  Citizenship and residency requirements.
668.34  Satisfactory progress.
668.35  Student debts under the HEA and to the U.S.
668.36  Social security number.
668.37  Selective Service registration.
668.38  Enrollment in telecommunications and correspondence courses.
668.39  Study abroad programs.

Subpart C--Student Eligibility


Sec. 668.31  Scope.

    This subpart contains rules by which a student establishes 
eligibility for assistance under the title IV, HEA programs. In order 
to qualify as an eligible student, a student must meet all applicable 
requirements in this subpart.

(Authority: 20 U.S.C. 1091)


Sec. 668.32  Student eligibility--general.

    A student is eligible to receive title IV, HEA program assistance 
if the student--
    (a)(1) (i) Is a regular student enrolled, or accepted for 
enrollment, in an eligible program at an eligible institution;
    (ii) For purposes of the FFEL and Direct Loan programs, is enrolled 
for no longer than one twelve-month period in a course of study 
necessary for enrollment in an eligible program; or
    (iii) For purposes of the Federal Perkins Loan, FWS, FFEL, and 
Direct Loan programs, is enrolled or accepted for enrollment as at 
least a half-time student at an eligible institution in a program 
necessary for a professional credential or certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State;
    (2) For purposes of the FFEL and Direct Loan programs, is at least 
a half-time student;
    (b) Is not enrolled in either an elementary or secondary school;
    (c)(1) For purposes of the Federal Pell Grant, FSEOG, and SSIG 
programs, does not have a baccalaureate or first professional degree; 
and
    (2)(i) For purposes of the Federal Perkins Loan, FFEL, and Direct 
Loan programs, is not incarcerated; and
    (ii) For purposes of the Federal Pell Grant program, is not 
incarcerated in a Federal or State penal institution;
    (d) Satisfies the citizenship and residency requirements contained 
in Sec. 668.33 and subpart I of this part;
    (e)(1) Has a high school diploma or its recognized equivalent;
    (2) Has obtained within 12 months before the date the student 
initially receives title IV, HEA program assistance, a passing score 
specified by the Secretary on an independently administered test in 
accordance with subpart J of this part; or
    (3) Is enrolled in an eligible institution that participates in a 
State ``process'' approved by the Secretary under subpart J of this 
part;
    (f) Maintains satisfactory progress in his or her course of study 
according to the institution's published standards of satisfactory 
progress that satisfy the provisions of Sec. 668.16(e), and, if 
applicable, the provisions of Sec. 668.34;
    (g) Except as provided in Sec. 668.35--
    (1) Is not in default, and certifies that he or she is not in 
default, on a loan made under any title IV, HEA loan program;
    (2) Has not obtained loan amounts that exceed annual or aggregate 
loan limits made under any title IV, HEA loan program;
    (3) Does not have property subject to a judgment lien for a debt 
owed to the United States; and
    (4) Is not liable for a grant or Federal Perkins loan overpayment. 
A student 

[[Page 61811]]
receives a grant or Federal Perkins loan overpayment if the student 
received grant or Federal Perkins loan payments that exceeded the 
amount he or she was eligible to receive; or if the student withdraws, 
that exceeded the amount he or she was entitled to receive for non-
institutional charges;
    (h) Files a Statement of Educational Purpose in accordance with the 
instructions of the Secretary, or in the case of a loan made under the 
FFEL Program, with the lender;
    (i) Has a correct social security number as determined under 
Sec. 668.36, except that this requirement does not apply to students 
who are residents of the Federated States of Micronesia, Republic of 
the Marshall Islands, or the Republic of Palau;
    (j) Satisfies the Selective Service registration requirements 
contained in Sec. 668.37, and, if applicable, satisfies the 
requirements of Sec. 668.38 and Sec. 668.39 involving enrollment in 
telecommunication and correspondence courses and a study abroad 
program, respectively; and
    (k) Satisfies the program specific requirements contained in--
    (1) 34 CFR 674.9 for the Federal Perkins Loan program;
    (2) 34 CFR 675.9 for the FWS program;
    (3) 34 CFR 676.9 for the FSEOG program;
    (4) 34 CFR 682.201 for the FFEL programs;
    (5) 34 CFR 685.200 for the Federal Direct Student Loan programs;
    (6) 34 CFR 690.75 for the Federal Pell Grant program; and
    (7) 34 CFR 692.40 for the SSIG program.

(Authority: 20 U.S.C. 1091, 28 U.S.C. 3201(e))


Sec. 668.33  Citizenship and residency requirements.

    (a) Except as provided in paragraph (b) of this section, to be 
eligible to receive title IV, HEA program assistance, a student must--
    (1) Be a citizen or national of the United States; or
    (2) Provide evidence from the U.S. Immigration and Naturalization 
Service that he or she--
    (i) Is a permanent resident of the United States; or
    (ii) Is in the United States for other than a temporary purpose 
with the intention of becoming a citizen or permanent resident;
    (b) (1) A citizen of the Federated States of Micronesia, Republic 
of the Marshall Islands, or the Republic of Palau is eligible to 
receive funds under the FWS, FSEOG, and Federal Pell Grant programs if 
the student attends an eligible institution in a State, or a public or 
nonprofit private eligible institution of higher education in those 
jurisdictions.
    (2) A student who satisfies the requirements of paragraph (a) of 
this section is eligible to receive funds under the FWS, FSEOG, and 
Federal Pell Grant programs if the student attends a public or 
nonprofit private eligible institution of higher education in the 
Federated States of Micronesia, Republic of the Marshall Islands, or 
the Republic of Palau.
    (c) (1) If a student asserts that he or she is a citizen of the 
United States on the Free Application for Federal Student Aid (FAFSA), 
the Secretary attempts to confirm that assertion under a data match 
with the Social Security Administration. If the Social Security 
Administration confirms the student's citizenship, the Secretary 
reports that confirmation to the institution and the student.
    (2) If the Social Security Administration does not confirm the 
student's citizenship assertion under the data match with the 
Secretary, the student can establish U.S. citizenship by submitting 
documentary evidence of that status to the institution. Before denying 
title IV, HEA assistance to a student for failing to establish 
citizenship, an institution must give a student at least 30 days notice 
to produce evidence of U.S. citizenship.

(Authority: 20 U.S.C. 1091, 5 U.S.C. 552a)


Sec. 668.34  Satisfactory progress.

    (a) If a student is enrolled in an program of study of more than 
two academic years, to be eligible to receive title IV, HEA program 
assistance after the second year, in addition to satisfying the 
requirements contained in Sec. 668.32(f), the student must be making 
satisfactory under the provisions of paragraphs (b), (c) and (d) of 
this section.
    (b) A student is making satisfactory progress if, at the end of the 
second year, the student has a grade point average of at least a ``C'' 
or its equivalent, or has academic standing consistent with the 
institution's requirements for graduation.
    (c) An institution may find that a student is making satisfactory 
progress even though the student does not satisfy the requirements in 
paragraph (b) of this section, if the institution determines that the 
student's failure to meet those requirements is based upon--
    (1) The death of a relative of the student;
    (2) An injury or illness of the student; or
    (3) Other special circumstances.
    (d) If a student is not making satisfactory progress at the end of 
the second year, but at the end of a subsequent grading period comes 
into compliance with the institution's requirements for graduation, the 
institution may consider the student as making satisfactory progress 
beginning with the next grading period.
    (e) At a minimum, an institution must review a student's academic 
progress at the end of each year.

(Authority: 20 U.S.C. 1091(d))


Sec. 668.35  Student debts under the HEA and to the U.S.

    (a) A student who is in default on a loan made under a title IV, 
HEA loan program may nevertheless be eligible to receive title IV, HEA 
program assistance if the student--
    (1) Repays the loan in full; or
    (2) (i) Makes arrangements, that are satisfactory to the holder of 
the loan and in accordance with the individual title IV, HEA loan 
program regulations, to repay the loan balance; and
    (ii) Makes at least six consecutive monthly payments under those 
arrangements.
    (b) A student who is not in default on a loan made under a title 
IV, HEA loan program, but has inadvertently obtained loan funds under a 
title IV, HEA loan program in an amount that exceeds the annual or 
aggregate loan limits under that program, may nevertheless be eligible 
to receive title IV, HEA program assistance if the student--
    (1) Repays in full the excess loan amount; or
    (2) Makes arrangements, satisfactory to the holder of the loan, to 
repay that excess loan amount.
    (c) A student who receives an overpayment under the Federal Perkins 
Loan Program, or under a title IV, HEA grant program may nevertheless 
be eligible to receive title IV, HEA program assistance if the 
student--
    (1) Pays the overpayment in full; or
    (2) Makes arrangements, satisfactory to the holder of the 
overpayment debt, to pay the overpayment.
    (d) A student who has property subject to a judgement lien for a 
debt owed to the United States may nevertheless be eligible to receive 
title IV, HEA program assistance if the student-
    (1) Pays the debt in full; or
    (2) Makes arrangements, satisfactory to the United States, to pay 
the debt.
    (e) (1) A student is not liable for a Federal Pell Grant 
overpayment received in an award year if the institution can eliminate 
that overpayment by adjusting subsequent 

[[Page 61812]]
Federal Pell Grant payments in that same award year.
    (2) A student is not liable for a FSEOG or SSIG overpayment or 
Federal Perkins loan overpayment received in an award year if the 
institution can eliminate that overpayment by adjusting subsequent 
title IV, HEA program (other than Federal Pell Grant) payments in that 
same award year.
    (f) A student who otherwise is in default on a loan made under a 
title IV, HEA loan program, or who otherwise owes an overpayment on a 
title IV, HEA program grant or Federal Perkins loan, is not considered 
to be in default or owe an overpayment if the student--
    (1) Obtains a judicial determination that the debt has been 
discharged or is dischargeable in bankruptcy; or
    (2) Demonstrates to the satisfaction of the holder of the debt 
that--
    (i) When the student filed the petition for bankruptcy relief, the 
loan, or demand for the payment of the overpayment, had been 
outstanding for the period required under 11 U.S.C. 523(a)(8)(A), 
exclusive of applicable suspensions of the repayment period for either 
debt of the kind defined in 34 CFR 682.402(m); and
    (ii) The debt otherwise qualifies for discharge under applicable 
bankruptcy law.

(Authority: 20 U.S.C. 1091 and 11 U.S.C. 523 and 525)


Sec. 668.36  Social security number.

    (a) (1) Except for residents of the Federated States of Micronesia, 
the Republic of the Marshall Islands, and the Republic of Palau, the 
Secretary attempts to confirm the social security number a student 
provides on the Free Application for Federal Student Aid (FAFSA) under 
a data match with the Social Security Administration. If the Social 
Security Administration confirms that number, the Secretary notifies 
the institution and the student of that confirmation.
    (2) If the student's verified social security number is the same 
number as the one he or she provided on the FAFSA, and the institution 
has no reason to believe that the verified social security number is 
inaccurate, the institution may consider the number to be accurate.
    (3) If the Social Security Administration does not verify the 
student's social security number on the FAFSA, or the institution has 
reason to believe that the verified social security number is 
inaccurate, the student can provide evidence to the institution, such 
as the student's social security card, indicating the accuracy of the 
student's social security number. An institution must give a student at 
least 30 days, or until the end of the award year, whichever is later, 
to produce that evidence.
    (4) An institution may not deny, reduce, delay, or terminate a 
student's eligibility for assistance under the title IV, HEA programs 
because verification of that student's social security number is 
pending.
    (b) (1) An institution may not disburse any title IV, HEA program 
funds to a student until the institution is satisfied that the 
student's reported social security number is accurate.
    (2) The institution shall ensure that the Secretary is notified of 
the student's accurate social security number if the student 
demonstrates the accuracy of a social security number that is not the 
number the student included on the FAFSA.
    (c) If the Secretary determines that the social security number 
provided to an institution by a student is incorrect, and that student 
has not provided evidence under paragraph (a)(3) of this section 
indicating the accuracy of the social security number, and a loan has 
been guaranteed for the student under the FFEL program, the institution 
shall notify and instruct the lender and guaranty agency making and 
guaranteeing the loan, respectively, to cease further disbursements of 
the loan, until the Secretary or the institution determines that the 
social security number provided by the student is correct, but the 
guaranty may not be voided or otherwise nullified before the date that 
the lender and the guaranty agency receive the notice.
    (d) Nothing in this section permits the Secretary to take any 
compliance, disallowance, penalty or other regulatory action against--
    (1) Any institution of higher education with respect to any error 
in a social security number, unless the error was the result of fraud 
on the part of the institution; or
    (2) Any student with respect to any error in a social security 
number, unless the error was the result of fraud on the part of the 
student.

(Authority: 20 U.S.C. 1091)


Sec. 668.37  Selective Service registration.

    (a) (1) To be eligible to receive title IV, HEA program funds, a 
male student who is subject to registration with the Selective Service 
must register with the Selective Service.
    (2) A male student does not have to register with the Selective 
Service if the student--
    (i) Is below the age of 18, or was born before January 1, 1960;
    (ii) Is enrolled in an officer procurement program the curriculum 
of which has been approved by the Secretary of Defense at the following 
institutions:
    (A) The Citadel, Charleston, South Carolina;
    (B) North Georgia College, Dahlonega, Georgia;
    (C) Norwich University, Northfield, Vermont; or
    (D) Virginia Military Institute, Lexington, Virginia; or
    (iii) Is a commissioned officer of the Public Health Service and/or 
a member of the Reserve of the Public Health Service who is on active 
duty as provided in section 6(a)(2) of the Military Selective Service 
Act.
    (b) (1) When the Secretary processes a male student's FAFSA, the 
Secretary determines whether the student is registered with the 
Selective Service under a data match with the Selective Service.
    (2) Under the data match, Selective Service reports to the 
Secretary whether its records indicate that the student is registered, 
and the Secretary reports the results of the data match to the student 
and the institution the student is attending.
    (c) (1) If the Selective Service does not confirm through the data 
match, that the student is registered, the student can establish that 
he--
    (i) Is registered;
    (ii) Is not, or was not required to be, registered;
    (iii) Has registered since the submission of the FAFSA; or
    (iv) Meets the conditions of paragraph (d) of this section.
    (2) An institution must give a student at least 30 days, or until 
the end of the award year, whichever is later, to provide evidence to 
establish the condition described in paragraph (c)(1) of this section.
    (d) An institution may determine that a student, who was required 
to, but did not register with the Selective Service, is not ineligible 
to receive title IV, HEA assistance for that reason, if the student can 
demonstrate by submitting clear and unambiguous evidence to the 
institution that--
    (1) He was unable to present himself for registration for reasons 
beyond his control such as hospitalization, incarceration, or 
institutionalization; or
    (2) He is over 26 and when he was between 18 and 26 and required to 
register--
    (i) He did not knowingly and willfully fail to register with the 
Selective Service; or
    (ii) He served as a member of one of the U.S. Armed Forces on 
active duty 

[[Page 61813]]
and received a DD Form 214, ``Certificate of Release or Discharge from 
Active Duty,'' showing military service with other than the reserve 
forces and National Guard.
    (e) For purposes of paragraph (d)(2)(i) of this section, an 
institution may consider that a student did not knowingly and willfully 
fail to register with the Selective Service only if--
    (1) The student submits to the institution an advisory opinion from 
the Selective Service System that does not dispute the student's claim 
that he did not knowingly and willfully fail to register; and
    (2) The institution does not have uncontroverted evidence that the 
student knowingly and willfully failed to register.
    (f) (1) A student who is required to register with the Selective 
Service and has been denied title IV, HEA program assistance because he 
has not proven to the institution that he has registered with Selective 
Service may seek a hearing from the Secretary by filing a request in 
writing with the Secretary. The student must submit with that request--
    (i) A statement that he is in compliance with registration 
requirements;
    (ii) A concise statement of the reasons why he has not been able to 
prove that he is in compliance with those requirements; and
    (iii) Copies of all material that he has already supplied to the 
institution to verify his compliance.
    (2) The Secretary provides an opportunity for a hearing to a 
student who--
    (i) Asserts that he is in compliance with registration 
requirements; and
    (ii) Files a written request for a hearing in accordance with 
paragraph (f)(1) of this section within the award year for which he was 
denied title IV, HEA program assistance or within 30 days following the 
end of the payment period, whichever is later.
    (3) An official designated by the Secretary shall conduct any 
hearing held under paragraph (f)(2) of this section. The sole purpose 
of this hearing is the determination of compliance with registration 
requirements. At this hearing, the student retains the burden of 
proving compliance, by credible evidence, with the requirements of the 
Military Selective Service Act. The designated official shall not 
consider challenges based on constitutional or other grounds to the 
requirements that a student state and verify, if required, compliance 
with registration requirements, or to those registration requirements 
themselves.
    (g) Any determination of compliance made under this section is 
final unless reopened by the Secretary and revised on the basis of 
additional evidence.
    (h) Any determination of compliance made under this section is 
binding only for purposes of determining eligibility for title IV, HEA 
program assistance.

(Authority: 20 U.S.C. 1091 and 50 App. 462)


Sec. 668.38  Enrollment in telecommunications and correspondence 
courses.

    (a) If a student is enrolled in correspondence courses, the student 
is eligible to receive title IV, HEA program assistance only if the 
correspondence courses are part of a program that leads to an 
associate, bachelor's, or graduate degree.
    (b) (1) For purposes of this provision, the Secretary considers 
that a student enrolled in a ``telecommunications course'' is enrolled 
in a correspondence course unless the total number of telecommunication 
and correspondence courses the institution provides is fewer than 50 
percent of the courses the institution provides during an award year 
and the student is enrolled in a program that leads to an associate, 
bachelor's, or graduate degree.
    (2) In making the determination required under paragraph (b)(1) of 
this section, the institution shall use its latest complete award year, 
and shall calculate the number of courses using the provisions 
contained in 34 CFR 600.7(b)(2).

(Authority: 20 U.S.C. 1091)


Sec. 668.39  Study abroad programs.

    A student enrolled in a program of study abroad is eligible to 
receive title IV, HEA program assistance if--
    (a) The student remains enrolled as a regular student in an 
eligible program at an eligible institution during his or her program 
of study abroad; and
    (b) The eligible institution approves the program of study abroad 
for academic credit. However, the study abroad program need not be 
required as part of the student's eligible degree program.

(Authority: 20 U.S.C. 1091(o))

    8. Section 668.133 is amended by revising paragraph (b) to read as 
follows:


Sec. 668.133  Conditions under which an institution shall request 
documentation and request secondary confirmation.

* * * * *
    (b) Exclusions from secondary confirmation. (1) An institution may 
not require the student to produce the documentation requested under 
Sec. 668.33(a)(2) and may not request that INS perform secondary 
confirmation, if the student--
    (i) Demonstrates eligibility under the provisions of Sec. 668.33 
(a)(1) or (b); or
    (ii) Demonstrated eligibility under the provisions of 
Sec. 668.33(a)(2) in a previous award year as a result of secondary 
confirmation and the documents used to establish that eligibility have 
not expired; and
    (iii) The institution does not have conflicting documentation or 
reason to believe that the student's claim of citizenship or 
immigration status is incorrect.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0650)

    9. Section 668.161 is amended by revising paragraph (b) to read as 
follows:


Sec. 668.161  Scope and purpose.

* * * * *
    (b) Federal interest in title IV, HEA program funds. Except for 
funds received by an institution for administrative expenses and for 
funds used for the Job Location and Development Program, under the 
Federal Work-Study Programs, funds received by an institution under the 
title IV, HEA programs are held in trust for the intended student 
beneficiaries and the Secretary. The institution, as a trustee of 
Federal funds, may not use or hypothecate (i.e., use as collateral) 
title IV, HEA program funds for any other purpose.

(Authority: 20 U.S.C. 1094)
* * * * *
    10. Section 668.163 is amended by adding a new paragraph 
(a)(2)(iii); and by revising paragraph (a)(3)(i)(A) to read as follows:


Sec. 668.163  Requesting funds.

* * * * *
    (a) * * *
    (2) * * *
    (iii) In submitting a request for cash, an institution must 
identify the title IV, HEA program under which the institution requests 
funds by its appropriate Catalog of Federal Domestic Assistance (CFDA) 
number and the total amount of program funds for each CFDA number 
included in the request.
* * * * *
    (3) * * *
    (i) * * *
    (A) Identify the students for whom the institution is seeking 
reimbursement that will be included in the institution's request for 
cash. The institution's request for cash must identify the title IV, 
HEA program under which the institution seeks reimbursement by its 
appropriate CFDA number and the total 

[[Page 61814]]
amount of program funds for each CFDA number included in the request;
* * * * *
    11. Section 668.164, paragraph (a)(2)(iii) is revised to read as 
follows:


Sec. 668.164  Maintaining funds.

* * * * *
    (a) * * *
    (2) * * *
    (iii) Except for public institutions, file with the appropriate 
State or municipal government entity a UCC-1 statement disclosing that 
the account contains Federal funds and maintain a copy of that 
statement in its records.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0697)

    12. Section 668.165 is amended by revising paragraph (b)(1); and by 
adding a new paragraph (e) to read as follows:


Sec. 668.165  Disbursing funds.

* * * * *
    (b) Crediting a student's account at the institution (1) General. 
An institution may disburse title IV, HEA program funds by crediting 
the student's account at the institution. Except as provided in 
paragraph (e) of this section, in crediting the student's account with 
title IV, HEA program funds, the institution may use those funds only 
to satisfy allowable charges described under paragraph (b)(3) of this 
section for the current award year or period of enrollment. An 
institution must notify expeditiously a student or parent borrower in 
writing or by equivalent electronic means that the institution has 
credited the student's account with Direct Loan, FFEL, or Federal 
Perkins Loan program funds. If an institution notifies a student or 
parent electronically, it must request the student or parent to confirm 
the receipt of the notice and maintain a record of that confirmation.
* * * * *
    (e) Prior-year charges. An institution may use a student's title 
IV, HEA program funds to pay minor prior-year institutional charges 
if--
    (1) The student has, or will have, a title IV, HEA credit balance 
as determined under paragraph (b)(2) of this section;
    (2) The institution obtains the student's authorization to pay 
these charges; and
    (3) The prior-year charges do not exceed $100; or
    (4) The payment of these charges does not, or will not, prevent the 
student from paying his or her current-year education costs.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0697)

PART 674--FEDERAL PERKINS LOAN PROGRAM

    13. 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.


Sec. 674.2  [Amended]

    14. Section 674.2 paragraph (a) is amended by adding, in 
alphabetical order, ``Full-time student''.
    15. Section 674.2 paragraph (b) is amended by removing the 
definitions of ``Full-time graduate or professional student'', ``Full-
time undergraduate student'', and ``Satisfactory arrangements to repay 
the loan'' and by revising the definition of ``making of a loan'' to 
read as follows:


Sec. 674.2  Definitions.

* * * * *
    (b) * * *
    Making of a loan: When the borrower signs the promissory note for 
the award year and the institution makes the first disbursement of loan 
funds under that promissory note for that award year.
* * * * *
    16. Section 674.5 is amended by redesignating paragraph (e) as 
paragraph (f), by adding new paragraph (e), and by revising 
redesignated paragraph (f) to read as follows:


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

* * * * *
    (e) Satisfactory arrangements to repay the loan. The Secretary 
considers that the borrower has made satisfactory arrangements to repay 
the loan when the borrower has--
    (1) Paid the loan in full; or
    (2) Executed a new written repayment agreement; and
    (3) Made one payment each month for six consecutive months.
    (f) Loan rehabilitation. (1) The Secretary considers that the 
borrower has rehabilitated the loan when the borrower has--
    (i) Paid the loan in full; or
    (ii) Executed a new written repayment agreement; and
    (iii) 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 any national credit 
bureau.
    17. Section 674.16 is amended by revising paragraph (d) to read as 
follows:


Sec. 674.16  Making and disbursing loans.

* * * * *
    (d)(1) The institution shall disburse funds to a student or the 
student's account in accordance with 34 CFR 668.165.
    (2) The institution shall obtain the borrower's signature on a 
promissory note for each award year before it disburses any loan funds 
to the borrower under that note for that award year.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)


Sec. 674.17  [Amended]

    18. Section 674.17 is amended by removing paragraph (a) and by 
redesignating paragraphs (b)(1) introductory text, (b)(1)(i), 
(b)(1)(ii), (b)(1)(iii), (b)(2), (b)(3), (b)(4) introductory text, 
(b)(4)(i), (b)(4)(ii), and (b)(5) as paragraphs (a) introductory text, 
(a)(1), (a)(2), (a)(3), (b), (c), (d) introductory text, (d)(1), 
(d)(2), and (e), respectively.
    19. Section 674.19 is amended by revising paragraph (e)(4)(v) to 
read as follows:


Sec. 674.19  Fiscal procedures and records.

* * * * *
    (e) * * *
    (4) * * *
    (v) An institution may keep the records required in this section on 
microforms, optical disk, other comparable imaging technology, or in 
computer format. If an institution keeps its records in computer 
format, it shall maintain, in either hard copy, microforms, optical 
disk, or other comparable imaging technology, the source documents 
supporting the computer input.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

    20. Section 674.31 is amended by revising paragraph (a)(1) to read 
as follows:


Sec. 674.31  Promissory note.

    (a) Promissory note. (1) An institution may use only the promissory 
note that the Secretary provides. The institution may make only 
nonsubstantive changes, such as changes to the type style or font, or 
the addition of items such as the borrower's driver's license number, 
to this note.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)


Sec. 674.33  [Amended]

    21. Section 674.33 paragraph (a)(2) is amended by removing ``$15'' 
and adding in its place ``$25'', by redesignating the second paragraph 

[[Page 61815]]
(d)(3) as paragraph (d)(6), by redesignating the second paragraph 
(d)(4) as paragraph (d)(7), and by removing ``(d)(2)(i)'' in 
redesignated paragraph (6) and adding in its place ``(d)(5)(i)''.
    22. Section 674.34 paragraphs (e)(4) and (e)(6)(ii) are amended by 
changing the reference to ``(e)(8)'' to read ``(e)(9)''; the 
introductory text of paragraph (e)(6) is amended by adding ``or 
(e)(5)'' after ``(e)(4)''; paragraph (e)(7) is amended by removing ``or 
(4)'' and adding in its place ``(e)(4), or (e)(5)''; and by revising 
paragraph (e)(5) to read as follows:


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

* * * * *
    (e) * * *
    (5) Is working full-time and has a Federal education debt burden 
that equals or exceeds 20 percent of the borrower's total monthly gross 
income, and the borrower's income minus such burden is less than 220 
percent of the amount calculated under paragraph (3) of this section.
* * * * *
    23. Section 674.47 is amended by revising paragraph (g) and by 
adding a new paragraph (h) to read as follows:


Sec. 674.47  Costs chargeable to the fund.

* * * * *
    (g) Cessation of collection activity of defaulted accounts. (1) An 
institution may cease collection activity on a defaulted account with a 
balance of less than $25, including outstanding principal, accrued 
interest, collection costs, and late charges, if the borrower has been 
billed for this balance in accordance with section 674.43(a).
    (2) An institution may cease collection activity on a defaulted 
account with a balance of less than $200, including outstanding 
principal, accrued interest, collection costs, and late charges, if--
    (i) The institution has carried out the due diligence procedures 
described in subpart C of the part with regard to this account; and
    (ii) For a period of at least 4 years, the borrower has not made a 
payment on the account, converted the account to regular repayment 
status, or applied for a deferment, postponement, or cancellation on 
the account.
    (h) Write-offs of accounts of less than $5. (1) Notwithstanding any 
other provision in this subpart, an institution may write off an 
account with a balance of less than $5, including outstanding 
principal, accrued interest, collection costs, and late charges.
    (2) An institution that writes off an account under this paragraph 
may no longer include the amount of the account as an asset of the 
Fund.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0581)

PART 675--FEDERAL WORK-STUDY PROGRAMS

Subpart A--Federal Work-Study Program

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

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


Sec. 675.2  [Amended]

    25. Section 675.2, paragraph (a) is amended by adding in 
alphabetical order, the term ``Full-time student''.
    26. Section 675.2, paragraph (b) is amended by removing the 
definitions of ``Full-time graduate or professional student'' and 
``Full-time undergraduate student''.


Sec. 675.17  [Removed and Reserved]

    27. Section 675.17 is removed and reserved.
    28. Section 675.19 is amended by revising paragraph (c)(3) to read 
as follows:


Sec. 675.19  Fiscal procedures and records.

* * * * *
    (c) * * *
    (3) An institution may keep the records required in this section on 
microforms, optical disk, other comparable imaging technology, or in 
computer format. If an institution keeps its records in computer 
format, it shall maintain, in either hard copy, microforms, optical 
disk, or other comparable imaging technology, the source documents 
supporting the computer input.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

Appendix B to Part 675--[Removed]

    29. Appendix B--Model Off-Campus Agreement is removed.

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM

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

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


Sec. 676.2  [Amended]

    31. Section 676.2, paragraph (a) is amended by adding in 
alphabetical order, the term ``Full-time student''.
    32. Section 676.2, paragraph (b) is amended by removing the 
definition of ``Full-time undergraduate student''.


Sec. 676.17  [Removed and Reserved]

    33. Section 676.17 is removed and reserved.
    34. Section 676.19 is amended by revising paragraph (c)(3) to read 
as follows:


Sec. 676.19  Fiscal procedures and records.

* * * * *
    (c) * * *
    (3) An institution may keep the records required in this section on 
microforms, optical disk, other comparable imaging technology, or in 
computer format. If an institution keeps its records in computer 
format, it shall maintain, in either hard copy, microforms, optical 
disk, or other comparable imaging technology, the source documents 
supporting the computer input.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0535)

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

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

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

    36. Section 682.201, paragraph (b) is amended by removing ``and'' 
at the end of paragraph (b)(6); redesignating paragraphs (b)(1) through 
(b)(6) as paragraphs (b)(1)(i) through (b)(1)(vi), respectively; by 
designating the undesignated introductory text following ``(b) Parent 
borrower.'' as the introductory text of paragraph (b)(1); by 
redesignating paragraphs (b)(7)(i) through (b)(7)(vi) as (b)(1)(vii)(A) 
through (b)(1)(vii)(F), respectively, and paragraphs (b)(7)(iii)(A) and 
(b)(7)(iii)(B) as (b)(1)(vii)(C)(1) and (b)(1)(vii)(C)(2), 
respectively; by redesignating paragraph (b)(8) as paragraph 
(b)(1)(viii) and removing the reference to ``(7)(iii)'' and adding, in 
its place ``(b)(1)(vii)(C)''; and by adding a new paragraph (b)(2) to 
read as follows:


Sec. 682.201  Eligible borrowers.

* * * * *
    (b) * * *
    (2) For purposes of paragraph (b)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 
34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution. 

[[Page 61816]]



Sec. 682.600  [Removed and Reserved]

    37. Section 682.600 is removed and reserved.


Sec. 682.602  [Removed and Reserved]

    38. Section 682.602 is removed and reserved.
    39. A new Sec. 682.611 is added to Subpart F to read as follows:


Sec. 682.611  Foreign schools.

    A foreign school is required to comply with the provisions of this 
part, except to the extent that the Secretary states in this part or in 
other official publications or documents that those schools need not 
comply with those provisions.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 
1088, and 1094)

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

    40. The authority citation for part 685 continues to read as 
follows:

    Authority: 20 U.S.C. Sec. 1078a et seq., unless otherwise noted.

    41. Section 685.200, paragraph (b) is amended by redesignating 
paragraphs (b)(1) through (b)(6) as paragraphs (b)(1)(i) through 
(b)(1)(vi), respectively; redesignating paragraph (b)(7) as 
(b)(1)(vii), paragraphs (b)(7)(i) through (b)(7)(iii) as (b)(1)(vii)(A) 
through (b)(1)(vii)(C), respectively, (b)(7)(i)(A) through (b)(7)(i)(C) 
as (b)(1)(vii)(A)(1) through (b)(1)(vii)(A)(3), respectively, and 
(b)(7)(ii)(A) and (b)(7)(ii)(B) as (b)(1)(vii)(B)(1) and 
(b)(1)(vii)(B)(2), respectively; by designating the undesignated 
introductory text following ``(b) Parent borrower.'' as the 
introductory text of paragraph (b)(1); by removing the references to 
``(b)(7)(i)'' in redesignated paragraphs (b)(1)(vii)(B) and 
(b)(1)(vii)(C) and adding, in their place ``(b)(1)(vii)(A)''; and by 
adding a new paragraph (b)(2) to read as follows:


Sec. 685.200  Borrower eligibility.

* * * * *
    (b) * * *
    (2) For purposes of paragraph (b)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 
34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

    42. The authority citation for part 690 continues to read as 
follows:

    Authority: 20 U.S.C. Sec. 1070a, unless otherwise noted.

    43. Section 690.2 is amended by removing the definition of 
``Payment Voucher'' and by adding, in alphabetical order, the 
definition of ``Payment Data'' to read as follows:


Sec. 690.2  Definitions.

* * * * *
    (b) * * *
    Payment Data: An electronic or magnetic record that is provided to 
the Secretary by an institution showing a student's expected family 
contribution, cost of attendance, enrollment status, and student 
disbursement information.


Sec. 690.7  [Amended]

    44. Section 690.7, paragraph (a)(1) is removed and paragraph (a)(2) 
is redesignated as paragraph (a).


Sec. 690.71  [Amended]

    45. Section 690.71 is amended by removing the second sentence.


Secs. 690.72, 690.73, 690.74  [Removed and Reserved]

    46. Sections 690.72, 690.73, and 690.74 are removed and reserved.
    47. Section 690.83 is amended by revising paragraphs (a) through 
(d) to read as follows:


Sec. 690.83  Submission of reports.

    (a) (1) An institution may receive either a payment from the 
Secretary for an award to a Federal Pell Grant recipient, or a 
corresponding reduction in the amount of Federal funds received in 
advance for which it is accountable, if--
    (i) The institution submits to the Secretary the student's Payment 
Data for that award year in the manner and form prescribed in paragraph 
(a)(2) of this section by September 30 following the end of the award 
year in which the grant is made, or, if September 30 falls on a 
weekend, on the first weekday following September 30; and
    (ii) The Secretary accepts the student's Payment Data.
    (2) The Secretary accepts a student's Payment Data that is 
submitted in accordance with procedures established through publication 
in the Federal Register, and that contain information the Secretary 
considers to be accurate in light of other available information 
including that previously provided by the student and the institution.
    (3) An institution that does not comply with the requirements of 
this paragraph may receive a payment or reduction in accountability 
only as provided in paragraph (d) of this section.
    (b) (1) An institution shall report to the Secretary any change in 
enrollment status, cost of attendance, or other event or condition that 
causes a change in the amount of a Federal Pell Grant for which a 
student qualifies by submitting to the Secretary the student's Payment 
Data that discloses the basis and result of the change in award for 
each student. Through publication in the Federal Register, the 
Secretary divides the award year into periods and establishes the 
deadlines by which the institution shall report changes occurring 
during each period. The institution shall submit the student's Payment 
Data reporting a change to the Secretary by the end of that reporting 
period that next follows the reporting period in which the change 
occurred.
    (2) An institution shall submit in accordance with deadline dates 
established by the Secretary, through publication in the Federal 
Register, other reports and information the Secretary requires in 
connection with the funds advanced to it and shall comply with the 
procedures the Secretary finds necessary to ensure that the reports are 
correct.
    (3) An institution that timely submits, and has accepted by the 
Secretary, the Payment Data for a student in accordance with this 
section shall report a reduction in the amount of a Federal Pell Grant 
award that the student received when it determines that an overpayment 
has occurred, unless that overpayment is one for which the institution 
is not liable under Sec. 690.79(a).
    (c) In accordance with 34 CFR 668.84 the Secretary may impose a 
fine on the institution if the institution fails to comply with the 
requirements specified in paragraphs (a) or (b) of this section.
    (d) (1) Notwithstanding paragraphs (a) or (b) of this section, if 
an institution demonstrates to the satisfaction of the Secretary that 
the institution has provided Federal Pell Grants in accordance with 
this part but has not received credit or payment for those grants, the 
institution may receive payment or a reduction in accountability for 
those grants in accordance with paragraphs (d)(4) and either (d)(2) or 
(d)(3) of this section.
    (2) The institution must demonstrate that it qualifies for a credit 
or payment by means of a finding contained in an audit report of an 
award year that was the first audit of that award year and that was 
conducted after December 31, 1988 and timely submitted to the Secretary 
under 34 CFR 668.23(c).
    (3) An institution that timely submits the Payment Data for a 
student in accordance with paragraph (a) of this section but does not 
timely submit to the Secretary, or have accepted by the Secretary, the 
Payment Data necessary 

[[Page 61817]]
to document the full amount of the award to which the student is 
entitled, may receive a payment or reduction in accountability in the 
full amount of that award, if--
    (i) A program review demonstrates to the satisfaction of the 
Secretary that the student was eligible to receive an amount greater 
than that reported in the student's Payment Data timely submitted to, 
and accepted by the Secretary; and
    (ii) The institution seeks an adjustment to reflect an underpayment 
for that award that is at least $100.
    (4) In determining whether the institution qualifies for a payment 
or reduction in accountability, the Secretary takes into account any 
liabilities of the institution arising from that audit or program 
review or any other source. The Secretary collects those liabilities by 
offset in accordance with 34 CFR part 30.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1840-0688)

[FR Doc. 95-29180 Filed 11-30-95; 8:45 am]
BILLING CODE 4000-01-P