[Federal Register Volume 61, Number 114 (Wednesday, June 12, 1996)]
[Rules and Regulations]
[Pages 29898-29901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14820]



      

[[Page 29897]]


_______________________________________________________________________

Part VI





Department of Education





_______________________________________________________________________



34 CFR Part 600, et al.



William D. Ford Federal Direct Loan Program; Final Rule

  Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / 
Rules and Regulations  

[[Page 29898]]



DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, and 685

RIN 1840-AC18


William D. Ford Federal Direct Loan Program; Institutional 
Eligibility Under the Higher Education Act of 1965, as Amended; Student 
Assistance General Provisions

AGENCY: Department of Education.

ACTION: Final Regulations.

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

SUMMARY: This document contains corrections and other technical changes 
to the William D. Ford Federal Direct Loan (Direct Loan) Program final 
regulations published in the Federal Register on December 1, 1994 (59 
FR 61664). These regulations apply to loans under the Federal Direct 
Stafford/Ford Loan Program, the Federal Direct Unsubsidized Stafford/
Ford Loan Program, the Federal Direct PLUS Program, and the Federal 
Direct Consolidation Loan Program, collectively referred to as the 
Direct Loan Program. The Secretary also corrects minor technical errors 
and omissions in the Institutional Eligibility regulations contained in 
34 CFR Part 600, Subpart A, and the Student Assistance General 
Provisions regulations contained in 34 CFR Part 668, Subpart B.

EFFECTIVE DATE: These regulations take effect July 12, 1996.

FOR FURTHER INFORMATION CONTACT: Ms. Meredith Merrill, Program 
Specialist, U.S. Department of Education, 600 Independence Avenue, S.W. 
(ROB-3, Room 3053), Washington, DC 20202-5400. Telephone: (202) 708-
9406. Individuals who use a telecommunications device for the Deaf 
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through 
Friday.
SUPPLEMENTARY INFORMATION: The following regulations are amended to 
clarify the regulations and to correct errors and omissions in the text 
of the Direct Loan Program final regulations published on December 1, 
1994 (59 FR 61664), the Institutional Eligibility regulations, 34 CFR 
Part 600, and the Student Assistance General Provisions regulations, 34 
CFR Part 668.

The Direct Loan Program

    Section 685.102 has been amended to correct a typographical error 
in a reference to the Federal Family Education Loan (FFEL) Program and 
to include a reference to grace period, which was inadvertently omitted 
in the description of a Direct Subsidized Consolidation Loan under the 
definition of the Federal Direct Consolidation Loan Program. In order 
to reflect a statutory change made by the Higher Education Technical 
Amendments of 1993, Public Law 103-208, this section also has been 
amended to clarify that a borrower may make satisfactory repayment 
arrangements on a defaulted Direct Loan for the purposes of regaining 
title IV eligibility only one time.
    Section 685.200 has been amended to accurately reflect the 
requirement that a student must be enrolled or accepted for enrollment 
on at least a half-time basis in order to be eligible to receive a 
Direct Loan. Paragraph (c) of this section has been amended to clarify 
the definition of ``satisfactory repayment arrangement'' for the 
purpose of consolidating a defaulted loan. Further, this section has 
been amended to correct a grammatical error in the text and an error in 
a cross-reference to another section in Part 685.
    Section 685.202 clarifies the interest rate calculations for Direct 
Subsidized and Direct Unsubsidized Loans. The 2.5 percentage point 
adjustment on the interest rate for in-school, grace, and deferment 
periods only applies to loans first disbursed on or after July 1, 1995. 
For loans disbursed prior to July 1, 1995, the interest rate 
calculation for all periods is based on a 3.1 percentage point 
adjustment.
    Paragraphs (b)(1) through (5) of Sec. 685.202 clarify that the 
Secretary does not capitalize all interest that has accrued on a 
borrower's principal balance. Instead, the Secretary only capitalizes 
the amount of interest that accrues on the loan amount that the 
borrower has not paid.
    Paragraph (b)(2) of Sec. 685.202 is amended to clarify that, when a 
borrower enters repayment, the Secretary will capitalize the unpaid 
interest that accrued during the in-school and grace periods on a 
Direct Unsubsidized Consolidation Loan that is eligible for a grace 
period.
    Paragraph (b)(3) of Sec. 685.202 also clarifies the Secretary's 
intent that the limit on the amount of interest that is capitalized 
under the Income Contingent Repayment and Alternative Repayment plans 
does not apply during periods of deferment for unsubsidized loans and 
does not apply during periods of forbearance for any Direct Loan.
    Section 685.204 has been amended to clarify that a Direct Loan 
borrower who has an outstanding balance on a FFEL Program loan made 
prior to July 1, 1993, at the time he or she applies for a first Direct 
Loan, will remain eligible for the FFEL Program deferments on all 
Direct Loans until all loans with those deferments are fully repaid, 
even if the borrower repays the FFEL Program loans in full before the 
Direct Loans are paid in full.
    Section 685.204 also has been amended to add language that reflects 
the existing policy in the Direct Loan Program that a borrower who has 
defaulted on the repayment of a Direct Loan generally is not eligible 
for a deferment. However, comparable to Sec. 682.210(a)(8) in the FFEL 
Program, Sec. 685.204(e) allows a borrower who has defaulted on a 
Direct Loan to be eligible for a deferment if the borrower contacts the 
Direct Loan Servicing Center and makes payment arrangements 
satisfactory to the Secretary.
    Section 685.205 has been corrected to state that a borrower, not 
the endorser, must be the recipient of a national service educational 
award in order to qualify for forbearance.
    Section 685.212 has been amended to clarify which payments the 
Secretary returns to a borrower when a loan is discharged. Once the 
Secretary receives acceptable documentation that a borrower is eligible 
for a specific discharge, any payments received during the period 
between the date the borrower met the eligibility requirements and the 
date the discharge was approved will be returned to the person who sent 
the payment. Furthermore, any payments received after the date the 
discharge was approved will be returned to the person who sent the 
payment.
    Section 685.214 has been amended to conform with the technical 
corrections made in Sec. 685.301.
    Section 685.215 has been amended to specify which loans under 
subpart II of part A of title VII of the Public Health Service Act may 
be consolidated into a Direct Consolidation Loan. Paragraph (d) of this 
section is amended to reflect terminology consistent with the 
definitions in Sec. 685.102(b). This section also has been amended to 
specify that the limit on collection costs charged to a borrower who 
consolidates a defaulted loan applies only to defaulted Direct Loans 
and FFEL Program loans.
    Section 685.301 clarifies that, although certain circumstances 
allow for a late disbursement of a loan, a school must originate a loan 
while the student meets the borrower eligibility requirements in 
Sec. 685.200. The terminology in this section has been changed to 
reflect that schools certify loan information in the Direct Loan 
Program by means of the origination process.
    Section 685.301 also has been amended to clarify that a Direct Loan 
may be disbursed in a single installment

[[Page 29899]]

prior to the midpoint of the loan period if the date of the scheduled 
disbursement coincides with the beginning of the next scheduled term 
for which the school has an anticipated disbursement date. For example, 
a borrower at a term-based school that uses quarter hours would be 
allowed to receive the first and second Direct Loan disbursements in a 
single installment at the beginning of the second quarter even though 
this may occur prior to the mid-point of the loan period.
    Section 685.303 has been amended to clarify that a school must 
determine whether or not a student has continuously maintained 
eligibility before Direct PLUS proceeds are disbursed to the parent 
borrower. Paragraph (d) of this section has been amended to clarify 
that a school may not make a late disbursement to a borrower that 
exceeds the student's cost of attendance for the period of enrollment 
completed by the student. Further, paragraph (d) clarifies that a 
school may not make a late disbursement if the student's last recorded 
date of attendance is earlier than the 30th day of the period of 
enrollment if the loan was subject to the 30-day delayed disbursement 
requirements for first-year, first-time borrowers. These requirements 
are the same as in the FFEL Program.
    Section 685.305 has been amended to clarify those procedures a 
school must follow for determining the withdrawal date for a student 
who did not return for the next scheduled term following a summer 
break. This section also is amended to correct an error in the cross-
reference to the Student Assistance General Provisions regulations.

Institutional Eligibility

    Section 600.5 has been amended to correct a technical error which 
references the manner in which certified public accountants must 
examine the accuracy of a proprietary institution's calculations 
regarding the 85 percent rule contained in Sec. 600.5(a)(8). Paragraph 
(e) of this section was mistakenly amended in the Federal Register of 
November 29, 1994, to reference an accountant performing an ``agreed-
upon procedures attestation engagement.'' This paragraph has been 
corrected to accurately reflect the Secretary's intent that a certified 
public accountant must engage in an ``examination'' level attestation 
agreement under which he or she examines management's assertions that 
it satisfied the 85 percent requirement.

General Provisions

    Section 668.15 has been amended to clarify that the audit described 
in paragraph (e)(1) also may be performed by State auditors if they 
meet the independence requirements of Government Auditing Standards.

Waiver of Proposed Rulemaking

    In accordance with 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 regulations. However, the regulatory 
changes in this document are necessary to correct minor technical 
errors and omissions in the Direct Loan Program final regulations 
published on December 1, 1994, the Institutional Eligibility 
regulations, 34 CFR Part 600, and the Student Assistance General 
Provisions regulations, 34 CFR Part 668. The changes in this document 
do not establish any new substantive rules. Therefore, the Secretary 
has determined that publication of a proposed rule is unnecessary and 
contrary to the public interest under 5 U.S.C. 553(b)(B).

Executive Order 12866

    These final regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order, the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with these final regulations are 
those resulting from statutory requirements and those determined by the 
Secretary as necessary for administering these programs effectively and 
efficiently. Burdens specifically associated with information 
collection requirements, if any, are identified and explained elsewhere 
in this preamble under the heading Paperwork Reduction Act of 1995.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these final regulations, the Secretary has 
determined that the benefits of the regulations justify the costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

Paperwork Reduction Act of 1995

    These regulations have been examined under the Paperwork Reduction 
Act of 1995 and have been found to contain no information collection 
requirements.

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations will not have 
significant economic impact on a substantial number of small entities. 
Small entities affected by these regulations are small institutions of 
higher education. These regulations contain technical amendments 
designed to clarify and correct current regulations. The changes will 
not have a significant economic impact on the institutions affected.

Assessment of Educational Impact

    The Secretary has determined that the regulations in this document 
would 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 Parts 600 and 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 685

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

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Education Opportunity Grant 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: June 3, 1996.
Richard W. Riley,
Secretary of Education.

    The Secretary amends Parts 600, 668, and 685 of title 34 of the 
Code of Federal Regulations as follows:

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

    1. The authority citation for Part 685 is revised to read as 
follows:

    Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.


Sec. 685.102  [Amended]

    2. In Sec. 685.102, paragraph (a)(3), introductory text, after the 
word ``Loan''

[[Page 29900]]

remove the word ``Program''; in paragraph (b), in the definition of 
``Federal Direct Consolidation Loan Program'', in paragraph (1), add 
``, grace,'' after ``in-school''; in the definition of ``Satisfactory 
repayment arrangement'', at the end of paragraph (1), add a new 
sentence to read, ``A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.''.
    3. In Sec. 685.200, paragraph (a)(1)(i), add ``, or accepted for 
enrollment, on at least a half-time basis'' after the word 
``enrolled''; in paragraph (b)(7)(iii), remove the word ``is'' after 
the word ``history''; and paragraph (c) is revised to read as follows:


Sec. 685.200   Borrower eligibility.

* * * * *
    (c) Defaulted FFEL Program and Direct Loan borrowers. Except as 
noted in Sec. 685.215(d)(1)(ii)(F), in the case of a student or parent 
borrower who is currently in default on an FFEL Program or a Direct 
Loan Program Loan, the borrower shall make satisfactory repayment 
arrangements, as described in paragraph (2) of the definition of that 
term under Sec. 685.102(b), on the defaulted loan.
* * * * *
    4. In Sec. 685.202, paragraph (a)(1)(i), before the first sentence, 
add, ``Loans first disbursed prior to July 1, 1995.''; remove the 
words, ``in repayment'' and add, in their place, ``during all 
periods''; paragraph (a)(1)(ii) is revised; in paragraph (b)(1), add 
the word ``unpaid'' before the word ``accrued''; in paragraph (b)(2), 
add ``or a Direct Unsubsidized Consolidation Loan that qualifies for a 
grace period'' after ``Direct Unsubsidized Loan'', add the word 
``unpaid'' before the word ``interest''; in paragraph (b)(3), remove 
the word ``For'' and add ``Notwithstanding Sec. 685.208(g)(5) and 
Sec. 685.209(d)(3), for'' at the beginning of the sentence, add the 
word ``unpaid'' after the words ``capitalizes the''; in paragraph 
(b)(4), add the word ``unpaid'' after the word ``capitalizes'', remove 
the words, ``payable by the borrower''; in paragraph (b)(5), add the 
word ``unpaid'' after the word ``capitalize'', and remove the words 
``payable by the borrower'' to read as follows:


Sec. 685.202   Charges for which Direct Loan Program borrowers are 
responsible.

    (a) * * *
    (1) * * *
    (ii) Loans first disbursed on or after July 1, 1995.
    (A) During the in-school, grace, and deferment periods. The 
interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 immediately preceding 
that period. The interest rate is equal to the bond equivalent rate of 
91-day Treasury bills auctioned at the final auction held prior to that 
June 1 plus 2.5 percentage points, but does not exceed 8.25 percent.
    (B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 8.25 percent.
* * * * *
    5. In Sec. 685.204, in paragraph (b), remove ``paragraph (d)'' and 
add, in its place, ``paragraphs (d) and (e)''; in paragraph (d) 
introductory text, add ``borrower's first'' before ``Direct Loan'', and 
add new paragraph (e) to read as follows:


Sec. 685.204   Deferment.

* * * * *
    (e) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.


Sec. 685.205   [Amended]

    6. In Sec. 685.205, paragraph (a)(4), remove the words, ``or 
endorser''.
    7. In Sec. 685.212, paragraph (f) is revised to read as follows:


Sec. 685.212   Discharge of a loan obligation.

* * * * *
    (f) Payments received after eligibility for discharge. Upon receipt 
of acceptable documentation and approval of the discharge request, the 
Secretary returns to the sender, or, for a discharge based on death, 
the borrower's estate, those payments received after the date that the 
eligibility requirements for discharge were met but prior to the date 
the discharge was approved. The Secretary also returns any payments 
received after the date the discharge was approved.
* * * * *


Sec. 685.214   [Amended]

    8. In Sec. 685.214, paragraph (a)(1)(iii), before ``in the 
occupation,'' remove the word ``certified'' and add, in its place, the 
word, ``originated''; in paragraph (c)(1)(iii)(B), remove the word 
``certified'' and add, in its place, the word, ``originated''.
    9. In Sec. 685.215, paragraph (b)(19), add ``and Loans for 
Disadvantaged Students (LDS) made under subpart II of part A of title 
VII of the Public Health Service Act'' after ``(HPSL)''; paragraph 
(b)(21) is removed; paragraph (b)(22) is redesignated as (b)(21); in 
redesignated paragraph (b)(21), remove the word ``Loans'' and add, at 
the beginning of the paragraph, the words ``Nursing loans''; in 
paragraph (c)(3) remove ``(22)'' and add, in its place, ``(21)''; 
paragraph (d) (1)(ii)(E) is revised; and, in paragraph (f)(1)(iii), add 
``Direct Loan or FFEL Program'' before the word ``loan'' to read as 
follows:


Sec. 685.215  Consolidation.

* * * * *
    (d) * * *
    (1) * * *
    (ii) * * *
    (E) In default but has made satisfactory repayment arrangements, as 
defined in paragraph (2) of that term under Sec. 685.102(b), on the 
defaulted loan; or
* * * * *
    10. In Sec. 685.301, in the section heading, remove the word 
``Certification'' and add, in its place, ``Origination''; paragraph 
(a)(1) is revised; in paragraph (a)(3) introductory text, remove the 
word ``certify'' and add, in its place, ``originate''; in paragraph 
(a)(4)(ii), remove the word ``certifies'' and add, in its place, 
``originates''; in paragraph (b)(2)(iv), add ``or if the date of the 
first disbursement coincides with the beginning of the second or 
subsequent semester, quarter, or similar division of the loan period 
for which the loan was made,'' after ``made'' to read as follows:


Sec. 685.301  Origination of a loan by a Direct Loan Program school.

    (a) * * *
    (1) A school participating in the Direct Loan Program shall ensure 
that any information it provides to the Secretary in connection with 
loan origination is complete and accurate. A school shall originate a 
Direct Loan while the student meets the borrower eligibility 
requirements of Sec. 685.200. Except as provided in 34 CFR Part 668, 
subpart E, a school may rely in good faith upon statements made in the 
application by the student.
* * * * *
    11. In Sec. 685.303, paragraph (b)(2)(i), add ``, or a parent in 
the case of a PLUS Loan,'' after ``student'', remove the words ``whom 
the school determines'' and add, in their place, ``if the school 
determines the student''; remove ``or'' at the end of paragraph 
(d)(3)(i), remove the period at the end of paragraph

[[Page 29901]]

(d)(3)(ii), and add, in its place, a semi-colon, and add new paragraphs 
(d)(3) (iii) and (iv) to read as follows:


Sec. 685.303  Processing loan proceeds.

* * * * *
    (d) * * *
    (3) * * *
    (iii) A late disbursement to a borrower if the student's last 
recorded day of attendance is earlier than the 30th day of the period 
of enrollment for which the loan is intended if the loan was subject to 
the delayed disbursement under Sec. 685.303(b)(4); or
    (iv) A late disbursement that, including all prior disbursements, 
exceeds a student's documented educational costs for the period of 
enrollment completed by the student before the student ceased to be 
enrolled at the school on at least a half-time basis.
* * * * *
    12. Section 685.305 is revised to read as follows:


Sec. 685.305  Determining the date of a student's withdrawal.

    (a) Except as provided in paragraph (b) of this section, a school 
shall follow the procedures in 34 CFR 668.22(j) for determining the 
student's date of withdrawal.
    (b) For a student who does not return for the next scheduled term 
following a summer break, which includes any summer term(s) in which 
classes are offered but students are not generally required to attend, 
a school shall follow the procedures in 34 CFR 668.22(j) for 
determining the student's date of withdrawal except that the school 
must determine the student's date of withdrawal no later than 30 days 
after the start of the next scheduled term.
    (c) The school shall use the date determined under paragraph (a) or 
(b) of this section for the purpose of reporting to the Secretary the 
student's date of withdrawal and for determining when a refund must be 
paid under Sec. 685.306.

(Authority: 20 U.S.C. 1087 et seq.)

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT 
OF 1965, AS AMENDED

    1. The authority citation for Part 600 continues to read as 
follows:

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

    2. Section 600.5 is amended by revising paragraph (e) to read as 
follows:


Sec. 600.5  Proprietary institution of higher education.

* * * * *
    (e)(1) An institution shall substantiate the required calculations 
in paragraph (a)(8) of this section by having the certified public 
accountant who prepares its audited financial statement required under 
34 CFR 668.15 report on the accuracy of its determination that the 
percentage of its revenues derived from title IV, HEA program funds is 
not more than 85 percent of its revenues.
    (2) The certified public accountant's report shall be based on 
performing an examination-level ``attestation engagement'' in 
accordance with the American Institute of Certified Public Accountants 
(AICPA's) Statement on Standards for Attestation Engagements #3, 
Compliance Attestation, and the certified public accountant shall 
include that attestation report with the audit report referenced in 
paragraph (e)(1) of this section.
    (3) The certified public accountant's attestation report shall 
indicate whether the institution's determination that the percentage of 
its revenues derived from title IV, HEA program funds is not more than 
85 percent of its revenues, is accurate, i.e. fairly presented in all 
material respects.
* * * * *

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, 1099c, and 1141, 
unless otherwise noted.


Sec. 668.15  [Amended]

    2. In Sec. 668.15, paragraph (e)(1), in the second sentence, 
remove, ``certified public accountant'' and add, in its place, 
``auditor''; remove ``generally accepted auditing standards'' and add, 
in its place, ``Government Auditing Standards''.

[FR Doc. 96-14820 Filed 6-11-96; 8:45 am]
BILLING CODE 4000-01-P