[Federal Register Volume 61, Number 230 (Wednesday, November 27, 1996)]
[Rules and Regulations]
[Pages 60490-60498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30117]



[[Page 60489]]

_______________________________________________________________________

Part IX





Department of Education





_______________________________________________________________________



34 CFR Part 668, et al.



Postsecondary Education: Student Assistance General Provision; Final 
Rule

  Federal Register / Vol. 61, No. 230 / Wednesday, November 27, 1996 / 
Rules and Regulations  

[[Page 60490]]



DEPARTMENT OF EDUCATION

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

RIN 1840-AC39


Student Assistance General Provisions

AGENCY: Department of Education.

ACTION: Final regulations.

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

SUMMARY: The Secretary amends the Student Assistance General Provisions 
regulations, 34 CFR Part 668, to implement an amendment made to the 
General Education Provisions Act (GEPA) by the Improving America's 
Schools Act of 1994 (IASA). That amendment decreased from five years to 
three years the length of time that a recipient of federal funds is 
required to maintain records. In addition, the Secretary is 
consolidating and clarifying existing records retention rules, and 
reducing administrative burden on institutions.

DATES: Effective Date: These regulations take effect July 1, 1997. 
However, affected parties do not have to comply with the information 
collection requirements in Sec. 668.24 until the Department of 
Education publishes in the Federal Register the control numbers 
assigned by the Office of Management and Budget (OMB) to these 
information collection requirements. Publication of the control numbers 
notifies the public that OMB has approved these information collection 
requirements under the Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Paula Husselmann or Kenneth Smith, 
U.S. Department of Education, 600 Independence Avenue, SW, ROB-3, Room 
3045, Washington, DC 20202-5346. The telephone number for Paula 
Husselmann is (202)708-4902. The telephone number for Kenneth Smith is 
(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: On September 13, 1996, the Secretary 
published a notice of proposed rulemaking (NPRM) for the Student 
Assistance General Provisions (Part 668) in the Federal Register (61 FR 
48564-48569). The NPRM included a discussion of the major issues 
surrounding the proposed changes that will not be repeated here. The 
following list summarizes those issues and identifies the pages of the 
preamble to the NPRM on which a discussion of those changes can be 
found:

Section 668.24  Record Retention and Examinations

    The Secretary proposed to reduce from five years to three years the 
length of time that a recipient of title IV, HEA program funds must 
maintain records. (page 48564)
    The Secretary proposed that the recordkeeping period should be the 
same for all programs, to the extent possible. The Secretary proposed 
as a general rule that, other than records relating to student loans, 
an institution must keep records relating to its administration of a 
title IV, HEA program for an award year for three years after the end 
of that award year. (page 48564)
    The Secretary proposed the following requirements for certain types 
of records that do not fit within the general rule. With regard to 
records relating to student loans under the FFEL Program and the 
William D. Ford Federal Direct Loan (Direct Loan) Program, the 
Secretary proposed that an institution keep those records for three 
years after the end of the award year in which the student borrower 
last attended the institution. (page 48564)
    The Secretary proposed that an institution keep loan records 
relating to the repayment of Federal Perkins Loans in accordance with 
the regulations governing that program, 34 CFR 674.19. (page 48564)
    The Secretary proposed that an institution keep the Fiscal 
Operations Report and Application to Participate in the Federal Perkins 
Loan, Federal Supplemental Educational Opportunity Grant (FSEOG), and 
Federal Work-Study (FWS) Programs (FISAP) and the records supporting 
information contained in a FISAP, including income grid information, 
for three years after the end of the award year in which the FISAP was 
submitted. (page 48564)
    The Secretary proposed to accommodate new technology by allowing an 
institution to satisfy its recordkeeping requirements under various 
electronic formats. The Secretary proposed that all record information, 
except those records required to be retained in electronic format, be 
retrievable in a coherent hard copy or in other media format acceptable 
to the Secretary. (pages 48564-48565)
    The Secretary proposed that an institution make its records readily 
available for review at an institutional location designated by the 
Secretary. (page 48565)

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, thirty-three 
parties submitted comments on the proposed regulations. The Secretary 
notes that many of the commenters are groups representing significant 
numbers of people and entities. Therefore, when the Secretary refers to 
a commenter, the Secretary is, in most cases, referring to groups of 
individuals or entities.
    An analysis of the comments and of the changes in the regulations 
since publication of the NPRM is published as an appendix to these 
final regulations. Substantive issues are discussed under the section 
of the regulations to which they pertain. Technical and other minor 
changes--and suggested changes the Secretary is not legally authorized 
to make under the applicable statutory authority--generally are not 
addressed.

Assessment of Educational Impact

    In the notice of proposed rulemaking, the Secretary requested 
comments on whether the proposed regulations would require transmission 
of information that is being gathered by or is available from any other 
agency or authority of the United States.
    Based on the response to the proposed rules and on its own review, 
the Department has determined that the regulations in this document do 
not require transmission of information that is being gathered by or is 
available from any other agency or authority of the United States. This 
issue is further discussed in the Appendix to these regulations, under 
the analysis of comments and changes for Sec. 668.24, ``General'' 
comments, and for Sec. 682.414(a)(3).

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, Reporting and recordkeeping requirements, 
Student aid.

34 CFR Part 675

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

34 CFR Part 676

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

[[Page 60491]]

34 CFR Parts 682 and 685

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

34 CFR Part 690

    Colleges and universities, Education of disadvantaged, Grant 
programs--education, Reporting and recordkeeping requirements, Student 
aid, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 Federal 
Stafford Loan Program; 84.032 Federal PLUS Program; 84.032 Federal 
Supplemental Loans for Students Programs; 84.033 Federal Work-Study 
Program; 84.038 Federal Perkins Loan Program 84.063 Federal Pell 
Grant Program; 84.069 State Student Incentive Grant Program; 84.268 
Federal Direct Student Loan Program; and 84.272 National Early 
Intervention Scholarship and Partnership Program. Catalog of Federal 
Domestic Assistance Number for the Presidential Access Scholarship 
Program has not been assigned.)

    Dated: November 20, 1996.
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.

    2. Section 668.24 is revised to read as follows:


Sec. 668.24  Record retention and examinations.

    (a) Program records. An institution shall establish and maintain, 
on a current basis, any application for title IV, HEA program funds and 
program records that document--
    (1) Its eligibility to participate in the title IV, HEA programs;
    (2) The eligibility of its educational programs for title IV, HEA 
program funds;
    (3) Its administration of the title IV, HEA programs in accordance 
with all applicable requirements;
    (4) Its financial responsibility, as specified in this part;
    (5) Information included in any application for title IV, HEA 
program funds; and
    (6) Its disbursement and delivery of title IV, HEA program funds.
    (b) Fiscal records. (1) An institution shall account for the 
receipt and expenditure of title IV, HEA program funds in accordance 
with generally accepted accounting principles.
    (2) An institution shall establish and maintain on a current 
basis--
    (i) Financial records that reflect each HEA, title IV program 
transaction; and
    (ii) General ledger control accounts and related subsidiary 
accounts that identify each title IV, HEA program transaction and 
separate those transactions from all other institutional financial 
activity.
    (c) Required records. (1) The records that an institution must 
maintain in order to comply with the provisions of this section include 
but are not limited to--
    (i) The Student Aid Report (SAR) or Institutional Student 
Information Record (ISIR) used to determine eligibility for title IV, 
HEA program funds;
    (ii) Application data submitted to the Secretary, lender, or 
guaranty agency by the institution on behalf of the student or parent;
    (iii) Documentation of each student's or parent borrower's 
eligibility for title IV, HEA program funds;
    (iv) Documentation relating to each student's or parent borrower's 
receipt of title IV, HEA program funds, including but not limited to 
documentation of--
    (A) The amount of the grant, loan, or FWS award; its payment 
period; its loan period, if appropriate; and the calculations used to 
determine the amount of the grant, loan, or FWS award;
    (B) The date and amount of each disbursement or delivery of grant 
or loan funds, and the date and amount of each payment of FWS wages;
    (C) The amount, date, and basis of the institution's calculation of 
any refunds or overpayments due to or on behalf of the student; and
    (D) The payment of any refund or overpayment to the title IV, HEA 
program fund, a lender, or the Secretary, as appropriate;
    (v) Documentation of and information collected at any initial or 
exit loan counseling required by applicable program regulations;
    (vi) Reports and forms used by the institution in its participation 
in a title IV, HEA program, and any records needed to verify data that 
appear in those reports and forms; and
    (vii) Documentation supporting the institution's calculations of 
its completion or graduation rates under Secs. 668.46 and 668.49.
    (2) In addition to the records required under this part--
    (i) Participants in the Federal Perkins Loan Program shall follow 
procedures established in 34 CFR 674.19 for documentation of repayment 
history for that program;
    (ii) Participants in the FWS Program shall follow procedures 
established in 34 CFR 675.19 for documentation of work, earnings, and 
payroll transactions for that program; and
    (iii) Participants in the FFEL Program shall follow procedures 
established in 34 CFR 682.610 for documentation of additional loan 
record requirements for that program.
    (d) General. (1) An institution shall maintain required records in 
a systematically organized manner.
    (2) An institution shall make its records readily available for 
review by the Secretary or the Secretary's authorized representative at 
an institutional location designated by the Secretary or the 
Secretary's authorized representative.
    (3) An institution may keep required records in hard copy or in 
microform, computer file, optical disk, CD-ROM, or other media formats, 
provided that--
    (i) Except for the records described in paragraph (d)(3)(ii) of 
this section, all record information must be retrievable in a coherent 
hard copy format or in other media formats acceptable to the Secretary;
    (ii) An institution shall maintain the Student Aid Report (SAR) or 
Institutional Student Information Record (ISIR) used to determine 
eligibility for title IV, HEA program funds in the format in which it 
was received by the institution, except that the SAR may be maintained 
in an imaged media format;
    (iii) Any imaged media format used to maintain required records 
must be capable of reproducing an accurate, legible, and complete copy 
of the original document, and, when printed, this copy must be 
approximately the same size as the original document;
    (iv) Any document that contains a signature, seal, certification, 
or any other image or mark required to validate the authenticity of its 
information must be maintained in its original hard copy or in an 
imaged media format; and
    (v) Participants in the Federal Perkins Loan Program shall follow 
procedures established in 34 CFR 674.19 for maintaining the original 
promissory notes and repayment schedules for that program.
    (4) If an institution closes, stops providing educational programs, 
is terminated or suspended from the title IV, HEA programs, or 
undergoes a change of ownership that results in a

[[Page 60492]]

change of control as described in 34 CFR 600.31, it shall provide for--
    (i) The retention of required records; and
    (ii) Access to those records, for inspection and copying, by the 
Secretary or the Secretary's authorized representative, and, for a 
school participating in the FFEL Program, the appropriate guaranty 
agency.
    (e) Record retention. Unless otherwise directed by the Secretary--
(1) An institution shall keep records relating to its administration of 
the Federal Perkins Loan, FWS, FSEOG, or Federal Pell Grant Program for 
three years after the end of the award year for which the aid was 
awarded and disbursed under those programs, provided that an 
institution shall keep--
    (i) The Fiscal Operations Report and Application to Participate in 
the Federal Perkins Loan, FSEOG, and FWS Programs (FISAP), and any 
records necessary to support the data contained in the FISAP, including 
``income grid information,'' for three years after the end of the award 
year in which the FISAP is submitted; and
    (ii) Repayment records for a Federal Perkins loan, including 
records relating to cancellation and deferment requests, in accordance 
with the provisions of 34 CFR 674.19;
    (2)(i) An institution shall keep records relating to a student or 
parent borrower's eligibility and participation in the FFEL or Direct 
Loan Program for three years after the end of the award year in which 
the student last attended the institution; and
    (ii) An institution shall keep all other records relating to its 
participation in the FFEL or Direct Loan Program, including records of 
any other reports or forms, for three years after the end of the award 
year in which the records are submitted; and
    (3) An institution shall keep all records involved in any loan, 
claim, or expenditure questioned by a title IV, HEA program audit, 
program review, investigation, or other review until the later of--
    (i) The resolution of that questioned loan, claim, or expenditure; 
or
    (ii) The end of the retention period applicable to the record.
    (f) Examination of records. (1) An institution that participates in 
any title IV, HEA program and the institution's third-party servicer, 
if any, shall cooperate with an independent auditor, the Secretary, the 
Department of Education's Inspector General, the Comptroller General of 
the United States, or their authorized representatives, a guaranty 
agency in whose program the institution participates, and the 
institution's accrediting agency, in the conduct of audits, 
investigations, program reviews, or other reviews authorized by law.
    (2) The institution and servicer must cooperate by--
    (i) Providing timely access, for examination and copying, to 
requested records, including but not limited to computerized records 
and records reflecting transactions with any financial institution with 
which the institution or servicer deposits or has deposited any title 
IV, HEA program funds, and to any pertinent books, documents, papers, 
or computer programs; and
    (ii) Providing reasonable access to personnel associated with the 
institution's or servicer's administration of the title IV, HEA 
programs for the purpose of obtaining relevant information.
    (3) The Secretary considers that an institution or servicer has 
failed to provide reasonable access to personnel under paragraph 
(f)(2)(ii) of this section if the institution or servicer--
    (i) Refuses to allow those personnel to supply all relevant 
information;
    (ii) Permits interviews with those personnel only if the 
institution's or servicer's management is present; or
    (iii) Permits interviews with those personnel only if the 
interviews are tape recorded by the institution or servicer.
    (4) Upon request of the Secretary, or a lender or guaranty agency 
in the case of a borrower under the FFEL Program, an institution or 
servicer promptly shall provide the requester with any information the 
institution or servicer has respecting the last known address, full 
name, telephone number, enrollment information, employer, and employer 
address of a recipient of title IV funds who attends or attended the 
institution.

(Authority: 20 U.S.C. 1070a, 1070b, 1078, 1078-1, 1078-2, 1078-3, 
1082, 1087, 1087a et seq., 1087cc, 1087hh, 1088, 1094, 1099c, 1141, 
1232f; 42 U.S.C. 2753; and section 4 of Pub. L. 95-452, 92 Stat. 
1101-1109)


Sec. 668.25  [Amended]

    3. Section 668.25(c)(4)(i) is amended by removing 
``Sec. 668.23(h)'' and adding, in its place, ``Sec. 668.24''.


Sec. 668.26  [Amended]

    4. Section 668.26(b)(3) is amended by removing the word ``five'' 
and adding, in its place, the word ``three''.

PART 674--FEDERAL PERKINS LOAN PROGRAM

    5. 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.

    6. Section 674.19 is amended by revising paragraph (d); removing 
paragraph (e)(4)(v) and redesignating paragraph (e)(4)(vi) as paragraph 
(e)(4)(v); and revising paragraphs (e)(1) and (e)(3), and the heading 
of paragraph (e)(4) to read as follows:


Sec. 674.19  Fiscal procedures and records.

* * * * *
    (d) Records and reporting. (1) An institution shall establish and 
maintain program and fiscal records that are reconciled at least 
monthly.
    (2) Each year an institution shall submit a Fiscal Operations 
Report plus other information the Secretary requires. The institution 
shall insure that the information reported is accurate and shall submit 
it on the form and at the time specified by the Secretary.
    (e) * * *
    (1) Records. An institution shall follow the record retention and 
examination provisions in this part and in 34 CFR 668.24.
* * * * *
    (3) Period of retention of repayment records. An institution shall 
retain repayment records, including cancellation and deferment 
requests, for at least three years from the date on which a loan is 
assigned to the Department of Education, canceled, or repaid.
    (4) Manner of retention of promissory notes and repayment 
schedules.
* * * * *

PART 675--FEDERAL WORK-STUDY PROGRAMS

    7. The authority citation for Part 675 continues to read as 
follows:

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

    8. Section 675.19 is amended by removing paragraphs (b)(2)(v) 
through (b)(2)(vii), (b)(4), (b)(5), and (c); adding the word ``and'' 
at the end of paragraph (b)(2)(iii); removing the semicolon at the end 
of paragraph (b)(2)(iv), and adding, in its place, a period; and 
revising paragraph (b)(1) to read as follows:


Sec. 675.19  Fiscal procedures and records.

* * * * *
    (b) * * *
    (1) An institution shall follow the record retention and 
examination provisions in this part and in 34 CFR 668.24.
* * * * *

[[Page 60493]]

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM

    9. The authority citation for Part 676 continues to read as 
follows:

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

    10. Section 676.19 is amended by removing paragraph (c); and 
revising paragraph (b) to read as follows:


Sec. 676.19  Fiscal procedures and records.

* * * * *
    (b) Records and reporting. (1) An institution shall follow the 
record retention and examination provisions in this part and in 34 CFR 
668.24.
    (2) An institution shall establish and maintain program and fiscal 
records that are reconciled at least monthly.
    (3) Each year an institution shall submit a Fiscal Operations 
Report plus other information the Secretary requires. The institution 
shall insure that the information reported is accurate and shall submit 
it on the form and at the time specified by the Secretary.

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

    11. The authority citation for Part 682 continues to read as 
follows:

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

    12. Section 682.414 is amended by revising paragraph (a)(2); 
redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) and 
(a)(5), respectively; adding a new paragraph (a)(3); removing the 
citation ``(a)(3)(iv)'' in redesignated paragraph (a)(4)(iii), and 
adding, in its place, ``(a)(4)(iv)''; adding the words ``required under 
Sec. 682.305(c)'' after the words ``audit report'' in redesignated 
paragraph (a)(4)(iv); removing ``paragraphs (a)(3)(ii)(C)-(K) of this 
section on microfilm, optical disk, or other machine readable format'' 
in redesignated paragraph (a)(5)(i), and adding, in its place, 
``paragraphs (a)(4)(ii)(C)-(K) of this section in accordance with 34 
CFR 668.24(d)(3) (i) through (iv)''; removing paragraph (c) 
introductory text; removing paragraphs (c)(1) and (c)(2); adding a new 
paragraph (c)(1); redesignating paragraph (c)(3) as (c)(2); removing 
``Sec. 682.401(b) (19) and (20)'' in redesignated paragraph (c)(2), and 
adding in its place, ``Sec. 682.401(b) (21) and (22)'' to read as 
follows:


Sec. 682.414  Records, reports, and inspection requirements for 
guaranty agency programs.

    (a) * * *
    (2) The guaranty agency shall retain records for each loan for at 
least five years after the loan is paid in full or has been determined 
to be uncollectible in accordance with the agency's write-off 
procedures. However, in particular cases the Secretary may require the 
retention of records beyond this minimum period. For the purpose of 
this section, the term ``paid in full'' includes loans paid by the 
Secretary due to the borrower's death (or student's death in the case 
of a PLUS loan), the borrower's permanent and total disability or 
bankruptcy, the discharge of the borrower's loan obligation because of 
attendance at a closed school, or because the student's eligibility to 
borrow had been falsely certified by the school.
    (3) A guaranty agency shall retain a copy of the audit report 
required under Sec. 682.410(b) for not less than five years after the 
report is issued.
* * * * *
    (c) Inspection requirements. (1) For purposes of examination of 
records, references to an institution in 34 CFR 668.24(f) (1) through 
(3) shall mean a guaranty agency or its agent.
* * * * *
    13. Section 682.610 is amended by revising paragraphs (a) and (b); 
removing the word ``or'' at the end of paragraph (c)(2)(ii); removing 
the period at the end of paragraph (c)(2)(iii), and adding, in its 
place, ``; or''; redesignating paragraph (f)(2) as paragraph 
(c)(2)(iv); removing the words ``the school'' the first time they 
appear in redesignated paragraph (c)(2)(iv), and adding, in their 
place, ``it''; removing the words ``the school shall notify the holder 
of the loan within 30 days thereafter, either directly or through the 
guaranty agency'' in redesignated paragraph (c)(2)(iv); and removing 
paragraphs (d), (e), and (f) to read as follows:


Sec. 682.610  Administrative and fiscal requirements for participating 
schools.

    (a) General. Each school shall--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in the regulations in 
this part and in 34 CFR part 668;
    (2) Follow the record retention and examination provisions in this 
part and in 34 CFR 668.24; and
    (3) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Loan record requirements. In addition to records required by 34 
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on 
behalf of its students, a school shall maintain a copy of the loan 
application or data electronically submitted to the lender, that 
includes--
    (1) The name of the lender;
    (2) The address of the lender;
    (3) The amount of the loan and the period of enrollment for which 
the loan was intended;
    (4) For loans delivered to the school by check, the date the school 
endorsed each loan check, if required;
    (5) The date or dates of delivery of the loan proceeds by the 
school to the student or to the parent borrower; and
    (6) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's written authorization required under 
Sec. 682.604(c)(3) to deliver the initial and subsequent disbursements 
of each FFEL program loan.
* * * * *

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

    14. The authority citation for Part 685 continues to read as 
follows:

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

    15. Section 685.309 is amended by revising paragraphs (a)(1), (c), 
and (d); removing paragraphs (e), (f), and (g); redesignating 
paragraphs (h), (i), and (j) as paragraphs (e), (f), and (g), 
respectively to read as follows:


Sec. 685.309  Administrative and fiscal control and fund accounting 
requirements for schools participating in the Direct Loan Program.

    (a) * * *
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in this part and in 
34 CFR part 668; and
* * * * *
    (c) Record retention requirements. An institution shall follow the 
record retention and examination requirements in this part and in 34 
CFR 668.24.
    (d) Accounting requirements. A school shall follow accounting 
requirements in 34 CFR 668.24(b).
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

    16. The authority citation for Part 690 continues to read as 
follows:

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

    17. Section 690.81 is amended by revising paragraph (a) to read as 
follows:


Sec. 690.81  Fiscal control and fund accounting procedures.

    (a) An institution shall follow provisions for maintaining general 
fiscal

[[Page 60494]]

records in this part and in 34 CFR 668.24(b).
* * * * *
    18. Section 690.82 is revised to read as follows:


Sec. 690.82  Maintenance and retention of records.

    (a) An institution shall follow the record retention and 
examination provisions in this part and in 34 CFR 668.24.
    (b) For any disputed expenditures in any award year for which the 
institution cannot provide records, the Secretary determines the final 
authorized level of expenditures.

(Approved by the Office of Management and Budget under control 
number 1840-0681)

(Authority: 20 U.S.C. 1070a, 1232f)

Appendix--Analysis of Comments and Changes

(Note: This Appendix will not be codified in the Code of Federal 
Regulations.)

Section 668.24  Record retention and examinations--General

    Comments: Most of the commenters applauded the Secretary for his 
efforts to reduce the record retention requirements for institutions. 
The commenters encouraged the Secretary to continue to examine 
regulations for standardization among provisions, and to maintain the 
dual goals of data and program integrity and burden reduction. 
Organizations representing institutions and other participants in the 
title IV, HEA programs expressed their gratitude for the reduction in 
the amount of time that a recipient of federal funds must maintain 
records, and for the Secretary's efforts to consolidate and clarify 
existing record retention rules.
    Two commenters indicated that the reduced time period should be 
accompanied by a reduction in the number of records that institutions 
are required to retain. The commenters encouraged the Secretary to 
review the data available in the Department's various databases, 
identify duplication of data collection, and seek to transfer data 
maintenance from institutions to the Department in an effort to reduce 
administrative burden on institutions.
    Some commenters preferred that records be retained longer than 
three years and asked the Secretary to encourage institutions to retain 
records for a longer period. The commenters believe that the National 
Student Loan Data System and other technological initiatives will 
facilitate the retention of records for an indefinite period of time. 
Some commenters approved of the inclusion of a more comprehensive list 
of records in the SFA Handbook; one commenter recommended that the 
Secretary also include the list in the Audit Guide, Compliance Audits 
(Attestation Engagements) of Federal Student Financial Assistance 
Programs at Participating Institutions.
    Discussion: The Secretary appreciates the commenters' responses and 
will continue to evaluate regulations for burden reduction. The 
Secretary agrees that a more comprehensive list of records should be 
included in the Audit Guide. The Secretary does not agree that an 
institution does not have to maintain records that it has provided to 
ED databases because institutions are responsible for maintaining the 
records necessary to show their compliance with applicable statutes and 
regulations and their expenditure of title IV, HEA program funds.
    Changes: None.

Section 668.24(a)  Program Records

    Comments: One commenter recommended that paragraph (a)(5) of this 
section be removed. The commenter explained that the application 
information requirement is provided for in the introductory language of 
paragraph (a) and is, therefore, redundant under (a)(5).
    Discussion: The Secretary does not agree that paragraph (a)(5) 
repeats the introductory language of paragraph (a). The introductory 
language refers to the application itself, while paragraph (a)(5) 
refers to program records that document the information included in an 
application.
    Changes: None.

Section 668.24(c)  Required Records

    Comments: A few commenters recommended that proof of high school 
diploma, GED, or documentation of ``ability-to-benefit'' be added to 
the list of required records under this paragraph. A number of 
commenters expressed concern over the use of the term ``disbursement'' 
in paragraph (c)(1)(iv)(B) because of the difference between its use 
for the FFEL Program and its use for other title IV, HEA programs. (In 
the FFEL Program, lenders ``disburse'' loan proceeds to a borrower's 
institution and the institution ``delivers'' those proceeds to the 
borrower.) One commenter recommended that this provision list various 
documents currently included in Sec. 682.610 of the FFELP regulations. 
A few commenters recommended that the Secretary incorporate a reference 
to the Direct Loan Program regulations. One commenter recommended that 
the Secretary establish a future effective date for implementation of 
these regulations.
    Discussion: Records documenting that a student has a high school 
diploma, GED, or the ability-to-benefit are covered in paragraph 
(c)(1)(iii), student eligibility records. The Secretary believes that 
it is not necessary to list them separately in this section.
    The Secretary agrees with the commenters that the reference to 
disbursement should be expanded to include FFEL proceeds that are 
delivered to students and parents. The Secretary did not add the 
recommended FFELP items to the list of documentation because that would 
not be in keeping with the intent of these regulations to simplify and 
consolidate provisions. The Secretary did not reference the Direct Loan 
Program in this provision because there is no comparable provision 
under the Direct Loan Program. With respect to the effective date, 
these regulations will take effect July 1, 1997.
    Changes: The Secretary has revised Sec. 668.24(c)(1)(iv)(B) to 
include delivery of FFELP loan proceeds.

Section 668.24(d)  General Requirements

    Comments: One commenter requested clarification concerning the 
retention of records in a systematically organized manner. The 
commenter requested assurance that the Secretary is simply restating 
current policy and is not attempting to tell institutions how to keep 
files.
    Discussion: The Secretary is simply restating current requirements 
and current policy. The Secretary is not attempting to tell 
institutions how to keep files to comply with this requirement.
    Changes: None.
    Comments: Many commenters addressed the proposal that an 
institution maintain an electronic record in the format in which it was 
originally received or transmitted. The commenters overwhelmingly 
objected to the proposal, indicating that it was expensive, 
duplicative, time-consuming, and inconsistent with technological 
innovation. The commenters suggested that it should be sufficient for 
institutions to reproduce, on request, the data contained in the 
records of each title IV transaction that it has sent or received 
electronically.
    Some commenters recommended that the Secretary add lenders and 
guarantors specifically to Sec. 668.24(d)(4) for access to records.
    Discussion: The Secretary agrees with the points made by the 
commenters with respect to maintaining electronically transmitted 
records in the original format. However, the Secretary

[[Page 60495]]

believes that the Student Aid Report (SAR) or Institutional Student 
Information Record (ISIR) used to determine eligibility for title IV, 
HEA program funds should be retained by the institution in the format 
in which it was received because, for program review purposes and audit 
purposes, it is essential that these basic eligibility records be 
available in a consistent, comprehensive, and verifiable format.
    Because the SAR is a hard copy document, for the purposes of these 
regulations it must be maintained in either its original hard copy 
format or in an imaged format. The ISIR, an electronic record, must be 
available in its original format, either as it was supplied by the 
Department to the institution on a magnetic tape or cartridge or as it 
was archived using EDExpress software supplied to the institution. This 
enables the Secretary's representative to access the ISIR 
electronically, to discriminate among data and to authenticate the 
record. The information contained on the ISIR can be cross-checked or 
verified against applicant information supplied by the student at the 
central processor.
    The Secretary does not believe that retention of an ISIR is 
burdensome because by using EDExpress the institution maintains the 
record during the applicable award year, and, after the award year has 
ended, the institution has the ability, again using EDExpress, to 
archive the data to a disk or other computer format. An institution 
that receives ISIR's on magnetic tapes or cartridges can simply make a 
copy of the file received from the Secretary.
    The Secretary agrees to include guarantors in the provision 
governing access to title IV, HEA records when an institution closes or 
ceases providing educational programs. The Secretary does not agree to 
include lenders in this provision. Lenders do not have the enforcement 
and monitoring responsibilities which would necessitate their 
inclusion.
    Changes: Proposed Sec. 668.24(d)(3)(ii) has been changed to require 
only that the SAR or ISIR used to determine eligibility for title IV, 
HEA funds be retained in the format in which it was received, under the 
conditions described above. In addition, guarantors have been added to 
the access provision.
    Comments: Several respondents commented on the issue of imaging 
documents. Several commenters asked the Secretary to remind 
institutions that an institution is not required to retain an original 
or imaged copy of a FFELP or Direct Loan Program promissory note, and 
that a photocopy or electronic record of data elements sent to the 
lender or the Secretary is permitted under existing regulations. A few 
commenters requested clarification of the storage requirement for 
Perkins Loan promissory notes, and student aid records in general, vis-
a-vis imaging requirements. One commenter encouraged the Secretary to 
require the maintenance of hard copy of promissory notes only if imaged 
copies of promissory notes have not served the Secretary well in court.
    Discussion: The commenters are correct that institutions are not 
required to maintain an original or imaged copy of a promissory note 
for FFELP or Direct Loan Program loans. The institution may maintain 
the information needed to recreate the promissory note data in an 
alternate format. However, the commenters should note that the formats 
available to institutions for this retention are not restricted to the 
commenter's list.
    With respect to a Perkins promissory note, an institution may image 
the note for administrative purposes, but retention of the original 
promissory note is necessary for legal purposes. An institution should 
refer to Sec. 674.19 of the Federal Perkins Loan regulations for 
further guidance. The imaging provision applies to all other student 
aid records.
    Changes: None.

Section 668.24(e)  Record Retention

    Comments: Generally speaking, the commenters strongly supported the 
reduction in the length of record retention. However, the commenters 
differed in their approach to records for the loan programs. Some 
commenters were concerned about the difference in retention 
requirements among the title IV loan programs. Some commenters 
recommended a longer retention period for Federal Perkins Loans, while 
other commenters recommended a shorter retention period; e.g. three 
years from the academic year in which the loan was made. A few 
commenters suggested that the requirements be the same for all loan 
programs; for example, bringing the Federal Perkins Loan Program into 
alignment with the FFEL and Direct Loan Programs, and requiring the 
retention of records until three years from the student's last day of 
attendance.
    Other commenters objected to the proposed loan retention record 
requirements and requested that the Secretary remind institutions that 
loan records may be retained longer than the regulations require, 
particularly records related to loan proceeds disbursed by electronic 
fund transfer (EFT). These commenters noted that the shorter period may 
cause problems. For example, since a lender or guaranty agency may not 
be aware of problems with a loan until repayment begins, institutions 
may need to retain records to respond to borrower defenses, and records 
may be needed to appeal a cohort default rate.
    Some commenters contended that the FFELP and Direct Loan 
requirements essentially nullify the reduction in retention 
requirements because most institutions purge all records for a student 
at one time. The commenters indicated that if a student obtained title 
IV, HEA program grant funds, the record retention requirements for the 
loan programs would in effect become the record retention requirement 
for the grant programs because of the interrelation of all the title 
IV, HEA programs.
    One commenter recommended that only the data that the institution 
used to process a loan application be retained. For example, the 
institution would retain only the actual expected family contribution 
(EFC) and estimated financial assistance (EFA); it would not have to 
retain supporting documentation. One commenter recommended that the 
Secretary encourage institutions to retain records for a longer period 
for undergraduate students who are enrolled in extended programs.
    Discussion: The Secretary carefully considered the various 
recommendations by the commenters. While the Secretary would prefer to 
have uniform requirements among all the title IV, HEA programs, the 
nature of the FFEL and Direct Loan Programs require a different 
treatment because problems may arise with regard to a loan many years 
after the student received the loan. The separate timeframe helps 
protect students from improper claims for repayment on loans by 
allowing them access to institutional enrollment, eligibility, and 
disbursement records; helps protect institutions against claims and 
liabilities; and provides additional substantiation to the validity of 
a loan when that loan is challenged.
    With respect to the longer retention period for loans records 
negating the shorter period required for other title IV, HEA programs, 
this is not a change. This difference in requirements is unavoidable 
given the interrelationship of the title IV, HEA programs.
    The Secretary also reminds institutions that records may always be 
retained longer than required by regulation.
    Changes: None.

[[Page 60496]]

    Comments: With regard to the retention of FISAP records for the 
campus-based programs, commenters requested that the Secretary change 
the retention requirement from three years after the end of the award 
year in which the institution submits the FISAP to three years after 
the year for which data are reported. Some commenters viewed the 
proposed regulations as an increase rather than a decrease in retention 
time from existing regulations.
    Discussion: In the current regulations, institutions are required 
to maintain the FISAP and the records supporting it for five years 
after the FISAP's submission. Therefore, under the existing 
regulations, assuming that an institution submitted its FISAP in 
October, 1996, to request funds for the 1997-98 award year and to 
report expenditures for the 1995-96 award year, the institution would 
have to keep the FISAP and FISAP information until October, 2001.
    While reducing the record retention period from five year to three 
years, the Secretary also determined to standardize the period for 
which institutions have to keep records and that standard period, to 
the extent possible, runs from the end of an award year. However, 
because institutions in a FISAP request funds in one award year, for 
expenditure in the following award year, based on events in the 
preceding award year, several alternative were possible to align the 
FISAP and FISAP records to this standard.
    The revised legal standard for keeping records requires an 
institution to keep records for three years after the activity for 
which funds are used. Thus, for example, when an institution submitted 
a FISAP in October, 1996, for funds to be expended in award year 1997-
98, the Secretary could have proposed that the institution keep FISAP 
and FISAP records until three years after the award year in which the 
requested funds were used, i.e. June 30, 2001. However, consistent with 
the purpose of reducing the record retention period, the Secretary has 
chosen to require institutions to keep FISAP and FISAP records for 
three years after the end of the award year in which the funds were 
requested, i.e. June 30, 2000 in this example.
    The commenters' suggestion that the record period begin after the 
end of the award year on which the funds were based, i.e. June 30, 
1999, three years after June 30, 1996, would amount to only a one-year 
retention period for the year in which requested funds were expended, 
and two years and nine months from the date the FISAP was submitted. 
Moreover, that suggestion would allow the Department only one year 
after the year in which funds were expended to review whether the 
institution's income grid information supported the amount the 
institution received and expended. The Secretary believes that such a 
short period is inappropriate and unacceptable.
    The recommendation that a common date be established for all 
records created during an award year is available to institutions at 
their option. An institutions is free to establish its own common date 
for purging records as long as all minimum regulatory requirements are 
met.
    Changes: None.

Section 668.24(f)  Examination of Records

    Comments: Some commenters asked the Secretary to provide for a 
review by guarantors whether or not the institution participates in the 
FFEL Program when the review occurs. A few commenters asked the 
Secretary to include a borrower's phone number and enrollment 
information in the list of information that an institution must provide 
to a requestor. A few commenters asked the Secretary to include 
language to clarify that third party servicers must comply with these 
regulations. One commenter recommended that instead of providing timely 
access to the Secretary or his representative, the institution should 
promptly provide that access.
    Discussion: The Secretary would encourage an institution that no 
longer participates in a guaranty agency's program under the FFEL 
program to cooperate with a review by that guaranty agency, but since 
the institution no longer participates in the program, the Secretary 
will not impose this requirement.
    Third-party servicers are specifically subject to the provisions of 
paragraph (f). The requirements contained in paragraphs (a) through (e) 
apply to participating institutions, and institutions are responsible 
for complying with those requirements, regardless of whether they use a 
third-party servicer. It is the responsibility of the institution to 
make sure that its third-party servicer satisfies all the regulatory 
requirements contained in paragraphs (a) through (e) because it will 
suffer the consequence for the servicer's failure to comply.
    The Secretary agrees with the suggestion of the commenters 
regarding the provision of additional information. Finally, the 
Secretary believes that the term ``timely access'' is sufficient to 
ensure promptness and has, therefore, not changed the regulation to 
accommodate this recommendation.
    Changes: Section 668.24(f)(4) has been changed to include 
information about a borrower's telephone number and enrollment status.

Section 682.414  Records, Reports, and Inspection Requirements for 
Guaranty Agency Programs

    Comments: Many commenters noted that while the record retention 
requirement for institutions was reduced from five to three years, FFEL 
Program lenders and guaranty agencies must continue to maintain their 
records for five years under paragraph (a)(2). Commenters stated that a 
three-year period is sufficient for enforceability, and asked that 
record retention requirements for lenders and guaranty agencies be the 
same as those for institutions.
    One commenter believed that an inconsistency exists between this 
NPRM and an FFEL program NPRM that was published in the Federal 
Register on September 19, 1996 (61 FR 49382). The commenter noted that 
in the September 19, 1996, NPRM, the Secretary considers guaranty 
agencies to be trustees of the federal government and fiduciaries, 
because they receive and process federal funds, but that for the 
purposes of these regulations, guaranty agencies are not considered 
recipients of program funds.
    Other commenters stated that they understood that the amended GEPA 
provisions did not apply to guaranty agencies and lenders. However they 
indicated that the five-year record retention requirement imposed on 
lenders and guaranty agencies was not statutorily required and 
therefore the Secretary could reduce that period by regulation. Many of 
the commenters who suggested a reduction in the record retention 
requirements for lenders and guaranty agencies suggested that this 
reduction be issued in a separate NPRM.
    Discussion: The GEPA provision, 20 U.S.C. Sec. 1232f(a), applies 
only to entities that receive federal funds through a grant, loan, or 
similar process and hold federal funds for a period of time. Lenders 
and guaranty agencies receive contractually required payments and funds 
to which GEPA does not apply. Moreover, as a fiduciary, a guaranty 
agency is held to a very strict standard of accountability and would be 
well advised to maintain records for a long period. On the other hand, 
the fact that the Secretary considers that a guaranty agency a 
fiduciary does not make the guaranty agency a recipient of federal 
funds under GEPA.
    The records of lenders and guaranty agencies are critical in 
enforcing the loan obligations of the borrower and for determining 
institutional eligibility

[[Page 60497]]

under the FFEL Program. For example, a three-year limit on keeping 
records would not provide adequate documentation for cohort default 
rate servicing appeals, on which ED and institutions rely.
    The Secretary remains committed to reducing burden and intends to 
continue exploring effective ways of reducing the recordkeeping burden 
of guaranty agencies and lenders. Though the requested change from five 
years to three years of record retention is not made in these final 
regulations, the Secretary will consider this suggestion along with 
other options for reducing burden, and will propose any resulting 
changes to regulations in a separate NPRM.
    Changes: None.
    Comments: Many commenters asked for clarification of the provision 
that ``in particular cases the Secretary may require the retention of 
records beyond this minimum period.'' They questioned the purpose of 
this provision, asked for clarification or examples of the specific 
records that are intended, and also asked that the requirement either 
be clarified or dropped.
    Several commenters noted that Sec. 682.414(a)(4)(iii) provides a 
requirement for lenders similar to that in Sec. 682.414(a)(2) and asked 
that it be either clarified with examples or removed.
    Discussion: Any record may be subject to this provision. For the 
most part, the purpose of this requirement is the same as that for 
Sec. 668.24(e)(3). It provides an additional retention period for 
records involved in an audit, review, or investigation. It may also be 
applied on a case-by-case basis, when the Secretary considers such an 
extension necessary.
    The requirement at Sec. 682.414(a)(2) was added as a technical 
correction, to conform requirements for guaranty agencies to those of 
lenders. As several commenters noted, this requirement exists in 
previous regulations for lenders, and is included in these regulations 
as Sec. 682.414(a)(4)(iii).
    Changes: None.
    Comments: Many commenters noted that the citation given in 
paragraph (a)(3), ``Sec. 682.305(c),'' is a reference to a lender 
audit, not to an audit of a guaranty agency. As the lender audits are 
not available to the guaranty agencies, the commenters recommended 
changing the citation to ``Sec. 682.410(b).''
    Several commenters noted that if the citation were not an error, 
they objected to its requirement. One commenter felt that this 
requirement was unnecessary, as the audit report is provided to the 
Secretary, and asked that the requirement be removed.
    Discussion: The technical correction recommended is correct. As for 
the commenter's feeling that the requirement to retain this information 
caused unnecessary duplication, the Secretary does not agree. The 
guaranty agency or lender is responsible for maintaining records 
necessary to show its compliance with applicable statute and 
regulations.
    Changes: The cross-reference in Sec. 682.414(a)(3) to ``Sec. 
682.305(c)'' is changed to Sec. 682.410(b).
    Comments: One commenter asked that Sec. 682.414(a)(5)(i) be revised 
to permit all loan records to be stored in electronic or imaged 
formats. The commenter noted that this would be consistent with the 
requirements for institutions in Sec. 668.24(d), and would recognize 
advancements in technology.
    Discussion: The records in question are the loan application and 
the signed promissory note, including the repayment instrument. These 
original, hard copy documents must be maintained in order to protect 
the enforceability of the loan. Allowing these documents to be stored 
in formats other than hard copy would not be consistent with the 
requirements for other programs. This requirement for FFEL is 
comparable to that for Federal Perkins Loans (see Sec. 674.19(e)(4)) 
and to the requirements for maintenance of Direct Loan Program 
promissory notes by the Direct Loan Servicing Center. However, the 
Secretary is continuing to monitor Courts' acceptance of other forms 
and may make changes in this area in the future.
    Changes: None.
    Comments: Many commenters noted the provision in 
Sec. 682.414(a)(5)(ii) that a lender or guaranty agency shall either 
return the original note to the borrower or notify the borrower under 
an alternate procedure that is acceptable under State law that the loan 
is paid in full. The commenters asked that the Secretary preempt State 
law in this instance and state that lenders and guaranty agencies shall 
inform borrowers that their loans are paid in full through a written 
notice. Commenters reasoned that this would protect the federal fiscal 
interest from an enforceability standpoint and would standardize the 
process.
    One commenter asked that this paragraph be revised to allow lenders 
to choose between the two options, and noted a risk of returning 
promissory notes, that they might be returned in error, thus damaging 
the enforceability of the loan, and that promissory notes for one or 
more loans might be especially prone to this.
    Discussion: The Secretary is merely moving this rule, not changing 
its substance. The Secretary believes that the current rule remains 
appropriate.
    Changes: None.

Section 682.610   Administrative and Fiscal Requirements for 
Participating Schools

Section 682.610(a)   General

    Comments: One commenter recommended that ``school'' in the 
introduction to this paragraph be changed to ``institution,'' for 
consistency.
    Discussion: The word ``school'' is used in 34 CFR 682 to 
distinguish between schools and other participants that could be 
considered ``institutions'' (for example, a lender is a financial 
institution). The use of the word ``school'' in this paragraph creates 
no inconsistency.
    Changes: None.

Section 682.610(b)   Loan Record Requirements

    Comments: Many commenters noted that PLUS loans are not included in 
paragraph (b)(4), and believe that they have been omitted 
unintentionally. The commenters ask that PLUS loans be included in this 
paragraph, and that other provisions of Sec. 682.610(b)(4) be modified 
to reflect that change.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.610(b) is revised to include PLUS loans.
    Comments: Many commenters requested that ``master check'' be added 
to language in Sec. 682.610(b)(6), which was designated as 
Sec. 682.610(b)(4)(iii) in the NPRM, in order to codify the inclusion 
of master check records for record retention purposes. One commenter 
noted that the citation ``Sec. 682.604(c)(3)'' applies to both EFT and 
master check.

[[Page 60498]]

    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.610(b)(6) has been amended to include master 
checks.
    Comments: Many commenters noted that Sec. 682.610(b)(9)(iv), as 
designated in current regulations, remains unchanged in these 
regulations, and request that ``master check'' be added to this 
paragraph in order to codify the inclusion of master check records for 
record retention.
    Discussion: The commenters are in error. All of Sec. 682.610(b) is 
replaced by new language in these final regulations; Sec. 682.610(b)(9) 
has become Sec. 682.610(b)(6), which has been discussed earlier.
    Changes: None.

[FR Doc. 96-30117 Filed 11-26-96; 8:45 am]
BILLING CODE 4000-01-P