[Federal Register Volume 61, Number 202 (Thursday, October 17, 1996)]
[Rules and Regulations]
[Pages 54292-54298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26070]


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DEPARTMENT OF AGRICULTURE
7 CFR Parts 272 and 273

[Amendment No. 374]
RIN 0584-AB93


Food Stamp Program: Treatment of Educational and Training 
Assistance

AGENCY: Food and Consumer Service, USDA.

ACTION: Final rule.

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SUMMARY: On November 1, 1993, the Department published a proposed rule 
regarding the eligibility of students for the Food Stamp Program and 
the treatment of educational and training assistance for food stamp 
purposes. Public comments were solicited and considered. This rule 
finalizes the provisions regarding educational and training assistance. 
The provisions regarding student eligibility were published final in a 
separate rule.

EFFECTIVE DATE: This rule is effective December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Certification Policy Branch, Program 
Development Division, Food Stamp Program, Food and Consumer Service, 
USDA, 3101 Park Center Drive, Alexandria, Virginia 22302; telephone: 
(703) 305-2520.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be significant and was 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule in 7 CFR Part 3015, Subpart V and related Notice (48 FR 29115, 
June 24, 1983), this Program is excluded from the scope of Executive 
Order 12372 which requires intergovernmental consultation with State 
and local officials.

Regulatory Flexibility Act

    This action has been reviewed with regard to the requirements of 
the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The Under 
Secretary for Food, Nutrition, and Consumer Services has certified that 
this action does not have a significant economic impact on a 
substantial number of small entities. State welfare agencies are 
affected to the extent that they must implement the provisions 
described in this action. Potentially eligible and currently 
participating households are affected to the extent that they contain 
members who are eligible students and who receive assistance excluded 
from income and resources under this action. Some currently 
participating student households could realize an increase in benefits 
as a result of this action.

Executive Order 12778

    This proposed rulemaking has been reviewed under Executive Order 
12778, Civil Justice Reform. This rule is intended to have preemptive 
effect with respect to any State or local laws, regulations or policies 
which conflict with its provisions or which would otherwise impede its 
full implementation. This rule is not intended to have retroactive 
effective dates unless so specified in the ``Dates'' section of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions all applicable administrative 
procedures must be exhausted. In the Food Stamp Program the 
administrative procedures are as follows: (1) for program benefit 
recipients--state administrative procedures issued pursuant to 7 U.S.C. 
2020(e)(1)) and 7 CFR 273.15; (2) for State agencies--administrative 
procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for 
rules related to non-quality control (QC) liabilities) or Part 283 (for 
rules related to QC liabilities); (3) for program retailers and 
wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023 
set out at 7 CFR 278.8.
    The Department received one comment concerning Executive Order 
12778. One commenter said that administrative procedures do not have to 
be exhausted before judicial challenge and that the Department should 
correct this misstatement and avoid making such statements in future 
rulemakings. While we believe that it would have been fully within the 
Secretary's discretionary authority, as granted in section 4(c) of the 
Food Stamp Act (7 U.S.C. Sec. 2013(c)), to establish an exhaustion 
requirement, this matter has now been specifically addressed by 
statute. Section 212(e) of the Federal Crop Insurance Reform and 
Department of Agriculture Reorganization Act of 1994, P. L. 103-354, 
requires persons to exhaust all administrative appeal procedures 
established by the Secretary or required by law before the person may 
bring an action in a court of competent jurisdiction against the 
Secretary, the Department or an agency, office, officer, or employee of 
the Department.

Paperwork Reduction Act

    This rule does not contain reporting or recordkeeping requirements 
subject

[[Page 54293]]

to review by the Office of Management and Budget under the Paperwork 
Reduction Act of 1995 (P.L. 104-13).
    This rule removes 7 CFR 273.9(c)(10)(xi) which contains 
verification requirements for educational assistance, and instructs 
State agencies to follow the verification requirements already outlined 
in 273.2(f).
    This rule refers to but does not affect the current information 
collection requirements for 7 CFR 273.2(f). State welfare agencies must 
verify certain information which affects household eligibility and 
benefits. Applicant households are required to provide the necessary 
information to the State agency. The reporting and recordkeeping burden 
associated with the application, certification, and continued 
eligibility of food stamp applicants has been approved by the Office of 
Management and Budget (OMB) under OMB No. 0584-0064. OMB approval 
includes the burden associated with verification of information 
provided on the food stamp application.

Background

    On November 1, 1993, the Department proposed procedures to 
implement amendments to the Food Stamp Act of 1977, as amended, (7 
U.S.C. 2011 et seq.) (Food Stamp Act), as set forth in Sections 1715 
and 1727 of Pub. L. 101-624, the Mickey Leland Memorial Domestic Hunger 
Relief Act of 1990 (Mickey Leland Act), enacted November 28, 1990, and 
Section 903 of Title IX of the Food, Agriculture, Conservation, and 
Trade Act Amendments of 1991 (1991 Technical Amendments), enacted 
December 13, 1991. Section 1715 of the Mickey Leland Act, as amended by 
Section 903 of the 1991 Technical Amendments, establishes procedures 
for determining an income exclusion for certain educational assistance 
received by eligible student households. Section 1727 of the Mickey 
Leland Act amended the Food Stamp Act to grant eligibility for 
participation in the Food Stamp Program (Program) to certain college 
students currently considered ineligible to participate.
    Procedures were also proposed for implementing amendments to the 
Higher Education Act of 1965 as set forth in Sections 471 and 1345 of 
Pub. L. 102-325, the Higher Education Amendments of 1992, enacted July 
23, 1992. Those sections prohibit certain Federal educational 
assistance from being considered as income and resources for food stamp 
purposes.
    Lastly, procedures were proposed for implementing a provision of 
Pub. L. 101-392, the Carl D. Perkins Vocational and Applied Technology 
Education Act Amendments of 1990 (Perkins Act), enacted September 25, 
1990, which prohibits counting certain educational assistance received 
by students from a program funded by the Perkins Act as income or 
resources when determining the eligibility and benefits of student 
households.
    The Department accepted comments on this rulemaking through January 
2, 1994. Comments were received from eight State agencies, one public 
interest group, and one advocate. The comments concerning educational 
income are discussed below. Comments not related to the proposed 
changes are not addressed.
    The proposed rule contained provisions on student eligibility and 
the treatment of educational and training assistance. This rule 
finalizes only the provisions concerning educational and training 
assistance. The provisions regarding student eligibility have been 
finalized in a separate rule.
    A full explanation of the provisions in this final rule was 
contained in the preamble of the proposed rule (58 FR 58463). The 
reader should refer to the preamble of that rule for a full 
understanding of the provisions of this final rule.
    Since the proposed rule was published, the Department has 
undertaken a complete review of all the Food Stamp regulations in 
response to the President's Regulatory Reform Initiative. The 
Department has considered ways to reform the Program regulations in 
order to remove overly prescriptive provisions, eliminate outdated and 
redundant regulatory requirements and increase State flexibility. 
Several of the decisions the Department has made on this final rule 
have been made with the Regulatory Reform Initiative in mind and are 
noted as such in the preamble.

Resources

Resource Exclusions

    The November 1, 1993, regulation proposed to revise 7 CFR 
273.8(e)(11)(xi) to conform to provisions in the Higher Education Act 
and the Perkins Act. In the interim, 7 CFR 273.8(e)(11)(xi) has been 
redesignated as 273.8(e)(11)(x). These two laws exclude resources for 
student assistance funded in whole or in part under Title IV and Part E 
of Title XIII of the Higher Education Act and the Perkins Act.
    The Department received three comments concerning this provision. 
Two supported it. One suggested that a definition of Part E of Title 
XIII of the Higher Education Act be included in the preamble. Part E of 
Title XIII of the Higher Education Act refers to the Tribal Development 
Student Assistance Revolving Loan Program.
    During the Regulatory Reform Initiative, the Department concluded 
that it is not necessary to list all Federal statutes that exclude 
resources as the list is constantly changing and is quickly outdated. 
The Department routinely sends out policy memos updating the list of 
Federal statutes which provide for such exclusions. The Department 
believes that the regulations at 7 CFR 273.8(e)(11), which exclude 
resources that are excluded for food stamp purposes by express 
provision of Federal statute, provide adequate guidance. Therefore, the 
Department is not adopting the proposed revisions. Instead, the 
Department is removing 7 CFR 273.8(e)(11)(x), since it is obsolete, and 
is instructing State agencies to abide by 7 CFR 273.8(e)(11) and policy 
memos listing the Federal statutes which exclude resources for food 
stamp purposes.

Earned Income

Work Study and Fellowships as Earned Income

    The November 1, 1993, regulation proposed to add a new paragraph, 7 
CFR 273.9(b)(1)(vi) and to make a conforming amendment to 7 CFR 
273.9(b)(2)(iv) which would define income from work study or a 
fellowship with a work requirement as earned income. As such, it would 
be subject to the provisions of 7 CFR 273.9(d)(2), which provide for a 
20 percent earned income deduction. The Department received three 
comments, all in support of the provision.
    It has come to the Department's attention that there are also 
assistantships which have a work requirement, such as working as a lab 
assistant or teacher's aide. To be consistent with the treatment of 
income from work study and fellowships with a work requirement, the 
Department is adopting the proposed change at 7 CFR 273.9(b)(1)(vi) 
with a modification. It will now state that earned income includes 
educational assistance which has a work requirement (such as work 
study, an assistantship or fellowship with a work requirement) in 
excess of the amount excluded under 7 CFR 273.9(c)(3). The Department 
is making a conforming amendment at 7 CFR 273.9(b)(2)(iv), the 
definition of unearned income, adding a more general phrase, ``other 
than educational assistance with a work requirement,'' in order to 
capture work study, fellowships

[[Page 54294]]

and assistantships with a work requirement.
    The November 1, 1993, rule proposed to include at 7 CFR 273.9(c)(3) 
a provision that the 20 percent earned income deduction required by 
paragraph (d)(2) of this section shall be applied to income from work 
study and income from a fellowship with a work requirement after 
allowable exclusions are made pursuant to paragraph (c)(3) of this 
section. This is already covered by 7 CFR 273.9(b)(1)(vi), as amended 
by this rule, and 7 CFR 273.9(d)(2). To include a similar provision at 
7 CFR 273.9(c)(3) would be redundant. Therefore, the Department is not 
adopting the proposed addition to 7 CFR 273.9(c)(3).

Allowable Expenses

Mandatory School Fees

    The November 1, 1993, rule proposed to expand the definition of 
mandatory school fees to include the costs of rental or purchase of 
equipment, materials, and supplies related to the pursuit of the course 
of study involved. Two commenters supported this change. This provision 
is specifically provided for in the Mickey Leland Act. The provision is 
being adopted as final at 7 CFR 273.9(c)(3).

Miscellaneous Personal and Normal Living Expenses

    The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) to allow 
an educational income exclusion based on earmarking or use for 
miscellaneous personal expenses.
    The proposed rule used the definition of miscellaneous personal 
expenses as set forth in Section 5(d) of the Food Stamp Act: expenses 
(other than normal living expenses) of the student incidental to 
attending such school, institution or program. The Department 
interpreted this definition of miscellaneous personal expenses as 
meaning things such as subscriptions to educational publications or 
dues for a professional association. The Department defined normal 
living expenses as food, rent, board, clothes, laundry, haircuts and 
personal hygiene items.
    The Department received three comments regarding this proposal. In 
general, the commenters were opposed to the revised definitions of 
miscellaneous personal and normal living expenses. One commenter 
suggested that all items other than room and board should be considered 
miscellaneous personal expenses. Another commenter suggested that since 
the Perkins Act defines miscellaneous personal expenses as ``other than 
room and board'', at least for assistance provided under the Perkins 
Act, miscellaneous personal expenses should be defined as such.
    The Department believes that using the same definitions for 
educational income received from various sources will simplify the 
treatment of educational assistance. The Food Stamp Act offers the 
Department some discretion in this area. Therefore, the Department has 
decided to adopt one of the commenter's suggestions and revise its 
definition of miscellaneous personal expenses and normal living 
expenses. In this final rule at 7 CFR 273.9(c)(3), miscellaneous 
personal expenses will include all personal expenses other than room 
and board. Normal living expenses will include only room and board.

Handling of Normal Living Expenses

    As mentioned above, normal living expenses, defined as room and 
board, are not excludable. The November 1, 1993, rule proposed at 7 CFR 
273.9(c)(3) that amounts earmarked as miscellaneous personal expenses 
which were obviously intended for normal living expenses shall not be 
excluded. It has come to the Department's attention that the grantor 
often cannot delineate any further sums earmarked for miscellaneous 
personal expenses. If delineation is not possible, the entire amount 
earmarked for miscellaneous personal expenses is excludable. Therefore, 
the Department is not adopting the proposed change. Instead the 
Department is instructing States to refer to 273.9(c)(3), as revised by 
this rule, and exclude all amounts earmarked for miscellaneous personal 
expenses.

Dependent Care

    The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) to allow 
an exclusion from educational assistance for amounts earmarked or used 
for dependent care. The Department received two comments in support of 
this provision. It is being adopted final at 7 CFR 273.9(c)(3).
    The rule also proposed to amend 7 CFR 273.10(d)(1)(i) to prohibit 
amounts excluded from educational income for dependent care costs 
pursuant to 7 CFR 273.9(c)(3) from also being deducted from income 
under the current provision at 7 CFR 273.9(d)(4). Two commenters 
supported this provision. It has come to the Department's attention 
that there are expenses other than dependent care which should be 
subject to the same restrictions. Therefore, this final rule amends 7 
CFR 273.10(d)(1)(i), adding a more general phrase providing that any 
expense, in whole or part, covered by educational income which has been 
excluded pursuant to the provisions of 7 CFR 273.9(c)(3) shall not be 
deductible.
    One commenter suggested that the Department clarify that there is 
no maximum amount of dependent care that can be excluded. The 
Department intended that there should be no limit as to the amount of 
dependent care expenses that may be excluded from educational 
assistance based on earmarking. However, if a student pays more for 
dependent care than is earmarked, the additional amount may be deducted 
in accordance with 7 CFR 273.9(d)(4). This additional amount is then 
subject to 7 CFR 273.9(d)(4) which provides for a maximum limit per 
dependent. The final rule, at 7 CFR 273.9(c)(3), provides that 
dependent care costs which exceed the amount excludable from income 
shall be deducted from income in accordance with paragraph 7 CFR 
273.9(d)(4) and be subject to a cap.
    In the preamble of the proposed rule, the Department stated its 
intention to include a provision that would prohibit amounts excluded 
from educational assistance for dependent care from also being excluded 
under the general reimbursement provision at 7 CFR 273.9(c)(5)(i)(C). 
No comments opposed this provision. However, this provision was 
inadvertently left out of the proposed regulation itself. Therefore, 
this rule, at 7 CFR 273.9(c)(3) includes a provision stating that 
amounts excluded for dependent care costs under the provisions of 7 CFR 
273.9(c)(3) shall not be excluded under the general exclusion 
provisions of paragraph 7 CFR 273.9(c)(5)(i)(C).

Exclusions From Income

Types of Schools

    The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) two 
additional types of educational programs which qualify a student for 
income exclusions based on allowable educational expenses: (1) 
vocational and technical schools, and (2) any program in which students 
would receive a high school diploma or its equivalent.
    The Department received three comments supporting the proposed 
revision. Accordingly, the language is being adopted as final without 
change at 7 CFR 273.9(c)(3).
    In the preamble of the proposed rule, the Department stated its 
intention to retain the definition of an institution of post-secondary 
education. However, this definition was inadvertantly left out of the 
the proposed regulations itself.

[[Page 54295]]

Therefore, this final rule, at 7 CFR 273.9(c)(3), retains the 
definition of post-secondary education currently in the regulations.

Order of Income Exclusions

    The November 1, 1993, rule proposed to totally revise 7 CFR 
273.9(c)(3) to include a three-part procedure for excluding educational 
assistance. The first step was to totally exclude all educational 
income excluded by other Federal laws. The second step was to exclude 
allowable educational expenses based on earmarking. The third step was 
to exclude allowable educational expenses the student could verify were 
used for excludable expenses. If earned educational income such as work 
study were involved, the expenses would be excluded from unearned 
educational income first and the remainder of the expenses would be 
excluded from earned educational income.
    The Department received nine comments on this proposal. Three 
supported the income exclusion process as written. Six opposed the 
process for various reasons. For example, they found the process 
unnecessarily complex, unjustifiably error-prone, and difficult to 
automate. All six suggested alternative ways of determining the amount 
of countable student assistance.
    In light of the alternative processes suggested by the commenters 
and within the context of the Regulatory Reform Initiative, the 
Department has decided to give States the flexibility to design 
procedures for excluding student assistance that are more appropriate 
to their specific circumstances. Therefore, the Department is not 
adopting the proposed provision on the process that States must follow 
to exclude income, but is amending 7 CFR 273.9(c)(3) to include 
provisions on what shall be excluded, as explained in further detail 
below.

Amounts Excluded by Other Federal Laws

    The November 1, 1993, rule proposed to amend 7 CFR 273.9(c)(3) to 
include a provision that States shall first exclude all educational 
income specifically excluded from consideration as income by other 
Federal statutes. The regulations at 7 CFR 273.9(c)(10) already provide 
for this. The Department has decided that to include a similar 
provision in 7 CFR 273.9(c)(3) would be redundant. Therefore, the 
Department is not adopting the proposed provision and is instead 
instructing States to abide by 7 CFR 273.9(c)(10).

Amounts Earmarked for Allowable Expenses

    The November 1, 1993, rule proposed to amend 7 CFR 273.9(c)(3) to 
include a provision that after excluding amounts excluded by other 
Federal law, States shall then exclude educational assistance 
identified (earmarked) by the institution, program or other grantor for 
the specific costs of tuition, mandatory school fees (including the 
rental or purchase of any equipment, materials, and supplies related to 
the pursuit of the course of study involved), books, supplies, 
dependent care, transportation, and miscellaneous personal expenses 
(other than normal living expenses).
    The Department received two comments regarding earmarking, each 
suggesting different ways States could determine what constitutes 
earmarking. The comments illustrate that each institution, program or 
grantor earmarks student assistance differently. Since the Food Stamp 
Act does not specify how this assistance is to be earmarked, the 
Department has decided to give States the flexibility to decide what 
constitutes earmarking.
    One commenter wanted to verify that the institution, school, 
program, or grantor is able to earmark allowable expenses. It was 
always the Department's intention that this be the case as it is 
clearly stated in the Food Stamp Act that amounts identified by the 
school, institution, program, or other grantor as allowable expenses 
shall be excluded.
    The Department received four comments disagreeing with the proposal 
to allow multiple exclusions based on earmarking. For example, when a 
student receives two grants earmarked for tuition costs, both amounts 
earmarked for tuition shall be excluded, even though the total may be 
greater than the amount of the tuition. However, Section 5(d) of the 
Food Stamp Act, as amended, states that amounts made available as an 
allowance (earmarked) for tuition, mandatory fees, books, supplies, 
transportation and other miscellaneous personal expenses, must be 
excluded regardless of whether or not the grants were actually used to 
pay all or part of these expenses. The Department does not have the 
discretion to adopt these comments.
    The proposed provision to exclude earmarked amounts is being 
adopted as final at 7 CFR 273.9(c)(3) with a modification. The 
Department is not adopting the provision that states shall exclude 
these amounts first.

Exclusions Based on Use

    The November 1, 1993, rule proposed to allow an exclusion of 
educational assistance if the student could show it was used for 
allowable expenses, or if the amount used was in excess of earmarked 
amounts. The Department received one comment disagreeing with the 
proposal to allow an exclusion based on use if a grant has already been 
earmarked for the same expense. However, the Food Stamp Act of 1977, as 
amended, specifically states that an exclusion shall be granted for 
allowable expenses to the extent that they do not exceed the amount 
used for or made available for allowable expenses.
    This final rule at 7 CFR 273.9(c)(3) states that amounts used for 
the allowable expenses of tuition, mandatory fees (including the rental 
or purchase of any equipment, materials, and supplies related to the 
pursuit of the course of study involved), books, supplies, dependent 
care, transportation, or miscellaneous personal expenses (other than 
normal living expenses which are room and board) of the student 
incidental to attending a school, institution or program shall be 
excluded.

Additional Educational Assistance Issues

Income Averaging

    The November 1, 1993, rule proposed in 7 CFR 273.9(c)(3) to include 
a provision on income averaging. However, 7 CFR 273.10(c)(3)(iii) 
already addresses income averaging. The Department has decided that it 
is redundant to address income averaging in two places. Therefore, in 
this final rule, this provision is incorporated into the educational 
proration provision at 7 CFR 273.10(c)(3)(iii).
    The November 1, 1993, rule proposed that the first month 
educational income would be counted is the month in which it is 
received, although it would still be prorated over the period it is 
intended to cover. One State agency supported prorating the income over 
the period it is intended to cover, but said that not counting it until 
the student receives it would require additional reporting by the 
student. The State agency suggested budgeting student income when it 
has been approved rather than when it is received.
    The Department disagrees with the recommendation of the commenter 
because it would result in students having income counted before it is 
received. However, the Department would like to avoid imposing 
burdensome requirements on households or eligibility workers.

[[Page 54296]]

Therefore, the Department has decided to amend 7 CFR 273.10(c)(3)(iii) 
to give States the option of counting the income either in the month it 
is received, or in the month the household anticipates receiving it or 
receiving the first installment payment, although it would still be 
prorated over the period it is intended to cover.
    The November 1, 1993, rule also proposed at 7 CFR 273.9(c)(3) that 
when work study income (earned educational income) is received monthly 
and costs of attendance are incurred on a less frequent basis, the 
State agency would anticipate the work study income for the appropriate 
quarter, semester, or year; exclude the allowable costs; and prorate 
the remainder over the quarter, semester, or year. One commenter 
supported treating work study income the same way as unearned 
educational assistance and prorating it over the period it is intended 
to cover.
    One commenter objected to this proposal because eligibility workers 
are not in the position to anticipate anything beyond the amount 
verified by the institution. This same commenter suggested that the 
regulations should mandate the use of the verified amount.
    The Department believes that, in the interest of consistency, work 
study income should be treated the same way as unearned educational 
income. States may count it in the month it is received, or count it 
the month the household anticipates receiving it or receiving the first 
installment payment, although it is still prorated over the period it 
is intended to cover.
    The final rule amends 7 CFR 273.(10)(c)(3)(iii) to provide that 
earned and unearned educational income, after allowable exclusions, 
shall be averaged over the period it is intended to cover. The first 
month that educational income shall be counted is either the month in 
which the income or the first installment payment is received, or the 
month in which the income or first installment payment is anticipated 
to be received, although it is still prorated over the period it is 
intended to cover.

Loans

    The November 1, 1993, rule proposed to revise 7 CFR 273.9(c)(4) so 
that educational loans on which repayment is deferred shall be excluded 
pursuant to the provisions of 7 CFR 273.9(c)(3) and that a loan on 
which repayment must begin within 60 days after receipt would not be 
considered a deferred repayment loan.
    One commenter pointed out that this provision was not discussed in 
the preamble. This provision was included in the proposed rule for 
comment because it had previously come up as a policy inquiry. 
Repayment for most types of Federal loans for education is deferred 
until after the student graduates or until the student drops out of 
school. On most non-deferred repayment loans, repayment must begin 
within 60 days of receipt and is therefore, not excludable. The 
Department is adopting the proposed provision with a modification at 7 
CFR 273.9(c)(4). Reference to 7 CFR 273.9(c)(10)(xi) will no longer be 
included because this final rule deletes this section.

Reimbursements

    The November 1, 1993, rule proposed at 7 CFR 273.9(c)(5) that 
educational assistance provided for normal living expenses could not be 
excluded under the reimbursement provision and that all other 
reimbursements or allowances for educational assistance would be 
handled under the educational income exclusion section.
    The Department realizes that it is not necessary to list each type 
of educational assistance. Therefore, in this rule at 7 CFR 
273.9(c)(5)(ii)(B), the list of educational income sources in the first 
sentence has been removed and a general reference to educational 
assistance has been added. Also, for the purpose of clarity, the 
definition of normal living expenses (room and board) has been added.

Retrospective Budgeting

    One commenter requested that the regulations allow State agencies 
to retrospectively budget work study and fellowships as well as other 
educational assistance. A rule titled ``Miscellaneous Provisions of the 
Food, Agriculture, Conservation, and Trade Act Amendments of 1991 and 
Earned Income Tax Credit Amendment'' published August 29, 1994, changed 
the regulations to allow educational income (nonexcluded scholarships, 
deferred educational loans, and other educational grants) to be 
budgeted either prospectively or retrospectively. However, the 
Department agrees that, in the interest of consistency, earned 
educational income should be treated the same as unearned educational 
income. Accordingly, this rule revises 7 CFR 273.21(f)(2)(iii) so that 
earned and unearned educational income is required to be prorated over 
the period it is intended to cover in accordance with 7 CFR 
273.10(c)(3)(iii) and it shall be budgeted either prospectively or 
retrospectively.

Verification

    The November 1, 1993, rule proposed to include verification 
requirements for student income at 7 CFR 273.9(c)(3). The Department 
received six comments concerning this proposal. Two supported these 
provisions. Three suggested different procedures for verifying student 
income. One suggested the verification requirements be placed in one 
section of the regulations. The Department agrees with this commenter. 
Verification requirements are already outlined in 7 CFR 273.2(f). To 
include separate verification requirements for student income would be 
redundant. Therefore, the Department has decided not to adopt the 
verification procedures as proposed. Instead, it is instructing States 
to follow the verification requirements already outlined in 7 CFR 
273.2(f).

Technical Changes

    The reference to Section 1345(c) at 7 CFR 273.8 should have been 
1343(c). The Department is correcting the reference in this rule.

Implementation

    State welfare agencies have been instructed through agency 
directive to implement the provisions of the following laws as of the 
statutory effective dates without waiting for formal regulations: the 
Higher Education Act Amendments of 1986, as amended in 1987, for the 
1988-89 school year; the Perkins Act on July 1, 1991; the Mickey Leland 
Act (as amended by the 1991 Technical Amendments to the Food Stamp Act) 
on February 1, 1992, and the exclusions contained in the Higher 
Education Act Amendments of 1992 for the Tribal Development Student 
Assistance Revolving Loan Program on October 1, 1992, and for Title IV 
and BIA student assistance on July 1, 1993.
    One commenter asked if the Title IV and BIA exclusion applies to 
school periods beginning after July 1, 1993, or to income received 
after that date. It applies to income received for school periods 
beginning on or after July 1, 1993. The law specifically provides that 
the exclusion shall apply to award years beginning after July 1, 1993.
    Pursuant to Public Law 104-121, the Contract with America 
Advancement Act of 1996, this final rule is effective December 16, 
1996; State agencies must implement it no later than March 1, 1997.
    State agencies will be required to adjust the cases of ongoing 
households at the next recertification, at household request, or when 
the case is next

[[Page 54297]]

reviewed, whichever comes first. If implementation of the above Acts or 
this rule is delayed, benefits shall be restored, as appropriate, in 
accordance with the Food Stamp Act.
    The preamble to the proposed rule provided that any variance 
resulting from implementation of the provision of the subsequent final 
rule would be excluded from error analysis for 90 days from the 
specified implementation dates of such final rule.
    One commenter pointed out that the grace period should be 120 days. 
Section 13951 of the Mickey Leland Childhood Hunger Relief Act, P.L. 
102-66, enacted August 10, 1993, excludes from the payment error rate 
any errors resulting in the application of new procedures for 120 days 
from date of publication. Accordingly, variances resulting form 
implementation of the provisions of the final rule are excluded from 
error analysis for 120 days from March 1, 1997.

List of Subjects

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs--social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedures, Aliens, Claims, Food 
stamps, Fraud, Grant programs--social programs, Penalties, Reporting 
and recordkeeping requirements, Social Security, Students.

    Accordingly, 7 CFR Parts 272 and 273 are amended as follows:
    1. The authority citation for Parts 272 and 273 continues to read 
as follows:

    Authority: 7 U.S.C. 2011-2032.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

    2. In Sec. 272.1, a new paragraph (g)(149) is added to read as 
follows:


Sec. 272.1  General terms and conditions.

* * * * *
    (g) Implementation. * * *
    (149) Amendment No. 374. The Higher Education Act Amendments of 
1986, as amended in 1987, were effective and required to be implemented 
for the 1988-89 school year; the Perkins Act was effective and required 
to be implemented on July 1, 1991; the Mickey Leland Act (as amended by 
the 1991 Technical Amendments to the Food Stamp Act) was effective and 
required to be implemented on February 1, 1992, and the exclusions 
contained in the Higher Education Act Amendments of 1992 for the Tribal 
Development Student Assistance Revolving Loan Program were effective 
and required to be implemented on October 1, 1992, and for Title IV and 
BIA student assistance on July 1, 1993. The provisions of Amendment No. 
374 are effective December 16, 1996 and must be implemented by March 1, 
1997. The current caseload shall be converted to these provisions at 
the household's request, at the time of recertification, or when the 
case is next reviewed, whichever occurs first. If implementation of the 
acts referenced in this paragraph or this amendment is delayed, 
benefits shall be restored, as appropriate, in accordance with the Food 
Stamp Act. Any variance resulting from implementation of this amendment 
shall be excluded from error analysis for 120 days from March 1, 1997.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    3. In Sec. 273.8, paragraph (e)(11)(x) is removed.
    4. In Sec. 273.9:
    a. A new paragraph (b)(1)(vi) is added;
    b. paragraph (b)(2)(iv) is amended by removing ``fellowships'' and 
adding the phrase ``, other than educational assistance with a work 
requirement,'' after the word ``like'';
    c. paragraph (c)(3) is revised;
    d. paragraph (c)(4) is amended by removing all text appearing after 
the first sentence and adding two new sentences to the end of the 
paragraph.
    e. paragraph (c)(5)(i) is amended by removing paragraph 
(c)(5)(i)(D) and redesignating paragraphs (c)(5)(i)(E), (c)(5)(i)(F) 
and (c)(5)(i)(G) as paragraphs (c)(5)(i)(D), (c)(5)(i)(E) and 
(c)(5)(i)(F), respectively;
    f. paragraph (c)(5)(ii) is amended by revising paragraph 
(c)(5)(ii)(B) and by removing paragraph (c)(5)(ii)(C);
    g. paragraph (c)(10)(xi) is removed.
    The revisions and additions read as follows:


Sec. 273.9  Income and deductions.

* * * * *
    (b) Definition of income. * * *
    (1) * * *
    (vi) Educational assistance which has a work requirement (such as 
work study, an assistantship or fellowship with a work requirement) in 
excess of the amount excluded under Sec. 273.9(c)(3).
* * * * *
    (c) Income exclusions. * * *
    (3)(i) Educational assistance, including grants, scholarships, 
fellowships, work study, educational loans on which payment is 
deferred, veterans' educational benefits and the like.
    (ii) To be excluded, educational assistance referred to in 
paragraph (c)(3)(i) must be:
    (A) Awarded to a household member enrolled at a:
    (1) Recognized institution of post-secondary education (meaning any 
public or private educational institution which normally requires a 
high school diploma or equivalency certificate for enrollment or admits 
persons who are beyond the age of compulsory school attendance in the 
State in which the institution is located, provided that the 
institution is legally authorized or recognized by the State to provide 
an educational program beyond secondary education in the State or 
provides a program of training to prepare students for gainful 
employment, including correspondence schools at that level),
    (2) School for the handicapped,
    (3) Vocational education program,
    (4) Vocational or technical school,
    (5) Program that provides for obtaining a secondary school diploma 
or the equivalent;
    (B) Used for or identified (earmarked) by the institution, school, 
program, or other grantor for the following allowable expenses:
    (1) Tuition,
    (2) Mandatory school fees, including the rental or purchase of any 
equipment, material, and supplies related to the pursuit of the course 
of study involved,
    (3) Books,
    (4) Supplies,
    (5) Transportation,
    (6) Miscellaneous personal expenses, other than normal living 
expenses, of the student incidental to attending a school, institution 
or program,
    (7) Dependent care,
    (8) Origination fees and insurance premiums on educational loans,
    (9) Normal living expenses which are room and board are not 
excludable.
    (10) Amounts excluded for dependent care costs shall not also be 
excluded under the general exclusion provisions of paragraph 
Sec. 273.9(c)(5)(i)(C). Dependent care costs which exceed the amount 
excludable from income shall be deducted from income in accordance with 
paragraph Sec. 273.9(d)(4) and be subject to a cap.
    (iii) Exclusions based on use pursuant to paragraph (c)(3)(ii)(B) 
must be incurred or anticipated for the period the educational income 
is intended to cover regardless of when the educational income is 
actually received. If a student uses other income sources to pay for 
allowable educational expenses in months before the educational income 
is received, the

[[Page 54298]]

exclusions to cover the expenses shall be allowed when the educational 
income is received. When the amounts used for allowable expense are 
more than amounts earmarked by the institution, school, program or 
other grantor, an exclusion shall be allowed for amounts used over the 
earmarked amounts. Exclusions based on use shall be subtracted from 
unearned educational income to the extent possible. If the unearned 
educational income is not enough to cover the expense, the remainder of 
the allowable expense shall be excluded from earned educational income.
    (iv) An individual's total educational income exclusions granted 
under the provisions of paragraph (c)(3)(i) through (c)(3)(iii) of this 
section cannot exceed that individual's total educational income which 
was subject to the provisions of paragraph (c)(3)(i) through 
(c)(3)(iii) of this section.
    (4) * * * Educational loans on which repayment is deferred shall be 
excluded pursuant to the provisions of Sec. 273.9(c)(3)(i). A loan on 
which repayment must begin within 60 days after receipt of the loan 
shall not be considered a deferred repayment loan.
    (5) * * *
    (ii) * * *
    (B) No portion of any educational assistance that is provided for 
normal living expenses (room and board) shall be considered a 
reimbursement excludable under this provision.
* * * * *
    5. In Sec. 273.10, paragraph (c)(3)(iii) is revised and a new 
sentence is added to the beginning of paragraph (d)(1)(i). The addition 
and revision read as follows:


Sec. 273.10  Determining household eligibility and benefit levels.

* * * * *
    (c) Determining income. * * *
    (3) Income averaging. * * *
    (iii) Earned and unearned educational income, after allowable 
exclusions, shall be averaged over the period which it is intended to 
cover. Income shall be counted either in the month it is received, or 
in the month the household anticipates receiving it or receiving the 
first installment payment, although it is still prorated over the 
period it is intended to cover.
    (d) Determining deductions. * * *
    (1) Disallowed expenses.
    (i) Any expense, in whole or part, covered by educational income 
which has been excluded pursuant to the provisions of Sec. 273.9(c)(3) 
shall not be deductible. * * *
* * * * *
    6. In Sec. 273.21, the first sentence in paragraph (f)(2)(iii) is 
revised to read as follows:


Sec. 273.21  Monthly Reporting and Retrospective Budgeting (MRRB).

* * * *
    (f) Calculating allotments for households following the beginning 
months. * * *
    (2) Income and deductions. * * *
    (iii) Earned and unearned educational income shall be prorated over 
the period it is intended to cover in accordance with 
Sec. 273.10(c)(3)(iii), and it shall be budgeted either prospectively 
or retrospectively. * * *
* * * * *
    Dated: September 26, 1996.
Ellen Haas,
Under Secretary for Food, Nutrition, and Consumer Services.
[FR Doc. 96-26070 Filed 10-16-96; 8:45 am]
BILLING CODE 3410-30-U