[Federal Register Volume 62, Number 186 (Thursday, September 25, 1997)]
[Proposed Rules]
[Pages 50462-50466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25377]



[[Page 50461]]

_______________________________________________________________________

Part VI





Department of Education





_______________________________________________________________________



34 CFR Parts 682 and 685



Federal Family Education Loan Program and William D. Ford Federal 
Direct Loan Program; Proposed Rule

  Federal Register / Vol. 62, No. 186 / Thursday, September 25, 1997 / 
Proposed Rules  

[[Page 50462]]



DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1840-AC45


Federal Family Education Loan Program and William D. Ford Federal 
Direct Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the Federal Family Education 
Loan (FFEL) Program regulations and the William D. Ford Federal Direct 
Loan (Direct Loan) Program regulations to modify requirements in these 
programs. These proposed modifications are intended to eliminate 
certain differences in the requirements of the FFEL and Direct Loan 
programs and to reduce burden.

DATES: Comments must be received on or before November 3, 1997.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to: Mr. Kenneth Smith, U.S. Department of Education, P.O. Box 
23272, Washington, DC 20026-3272, or to the following internet address: 
[email protected].
    To ensure that public comments have maximum effect in developing 
the final regulations, the Department urges that each comment clearly 
identify the specific section or sections of the regulations that the 
comment addresses and that comments be in the same order as the 
regulations.
    Comments that concern information collection requirements should be 
sent to the Office of Management and Budget at the address listed in 
the Paperwork Reduction Act section of this preamble. A copy of those 
comments may also be sent to the Department representative named above.

FOR FURTHER INFORMATION CONTACT: Mr. Kenneth Smith, U.S. Department of 
Education, 600 Independence Avenue, SW, ROB-3, Room 3045, Washington, 
DC 20202-5346, telephone 202-708-8242. Individuals who use a 
telecommunications device for the deaf (TDD) may call the Federal 
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 
p.m., Eastern time, Monday through Friday.
    Individuals with disabilities may obtain this document in an 
alternate format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in the preceding 
paragraph.

SUPPLEMENTARY INFORMATION: Section 455(a) of the Higher Education Act 
of 1965, as amended (HEA), provides that, unless otherwise specified in 
statute, Federal Direct Stafford/Ford (Direct Subsidized) Loans, 
Federal Direct Unsubsidized Stafford/Ford (Direct Unsubsidized) Loans, 
and Federal Direct PLUS (Direct PLUS) Loans shall have the same terms, 
conditions, and benefits, and be available in the same amounts, as 
Federal Stafford Loans, Federal Unsubsidized Stafford Loans, and 
Federal PLUS Loans.
    The Direct Loan Program regulations (34 CFR part 685) provide 
terms, conditions, benefits, and amounts for Direct Subsidized Loans, 
Direct Unsubsidized Loans, and Direct PLUS Loans. The FFEL Program 
regulations (34 CFR part 682) provide terms, conditions, benefits, and 
amounts for Federal Stafford Loans, Federal Unsubsidized Stafford 
Loans, and Federal PLUS Loans.
    The Secretary is proposing to amend 34 CFR parts 682 and 685 to 
change certain requirements and procedures in the FFEL and Direct Loan 
programs. These proposed changes are intended to eliminate certain 
differences in the requirements of these programs and to reduce burden 
on program participants.
    A summary of each proposed change is provided below, in the order 
of its first occurrence in the proposed regulatory text.

Sections 682.201 and 685.301  Students With Need of $200 or Less

    Under FFELP regulations, at Sec. 682.201(a)(2)(i), a student with a 
calculated need of $200 or less is not required to file an application 
for a Subsidized Stafford Loan with a lender before applying for a 
Federal Supplemental Loans for Students (SLS) loan. The final rule for 
these proposed regulations would include a technical correction to 
apply Sec. 682.201(a)(2)(i) to a borrower's application for an 
Unsubsidized Stafford loan, because Unsubsidized Stafford loans are 
effectively the replacement for SLS loans. This technical correction 
reflects a long-standing FFEL Program policy and has been included in 
this NPRM so that changes to FFEL and Direct Loan program regulatory 
text are made simultaneously.
    Essentially, this technical correction to Sec. 682.201(a)(2)(i) 
clarifies a method by which a school participating in the FFEL Program 
may choose not to certify a Subsidized Stafford Loan for a student with 
a calculated need of $200 or less, and may instead certify an 
Unsubsidized Stafford Loan that includes the amount of $200 or less 
that would have been awarded in the Subsidized Stafford Loan.
    This provision is necessary to avoid processing delays and 
increased costs in delivering funds to students. Because of the 
proportionally higher cost of small loans, many lenders under the FFEL 
Program do not make loans of $200 or less. Without this provision, a 
school would be required to submit an application to a lender for a 
Subsidized Stafford Loan amount when it is already aware that the loan 
will be refused by the lender.
    To make the practices of schools participating in the FFEL and 
Direct Loan programs more consistent, the Secretary proposes to 
establish a provision for the Direct Loan Program similar to that 
described above for the FFEL Program. The proposed regulations would 
allow, but not require, a school to choose not to originate a Direct 
Subsidized Loan for a student with a calculated need of $200 or less. 
Instead, a school participating in the Direct Loan Program would be 
able to originate a Direct Unsubsidized Loan that includes the $200 or 
less that would have been originated as a Direct Subsidized Loan. For 
example, a student with a cost of attendance of $2,000, estimated 
financial assistance of $0, and an expected family contribution of 
$1,850 would have a calculated need of $150. The school could choose to 
originate one Direct Unsubsidized Loan for $2,000 for this student, 
rather than a Direct Subsidized Loan for $150 and a Direct Unsubsidized 
Loan for $1,850.
    This proposal is consistent with guidance provided in the preamble 
to the Direct Loan Program final rule published in the Federal Register 
on December 1, 1994 (59 FR 61669), in which the Secretary stated that 
``an institution may establish a minimum loan amount.'' The proposed 
regulations would provide a ceiling of $200 to the ``minimum loan 
amount'' allowed in that preamble language, and would provide a 
regulatory basis for this action by a school. It is important to note 
that the Department has not established a minimum Direct Loan amount 
that it will process, and a school participating in the Direct Loan 
Program may continue to originate loans of $200 or less to meet 
borrower needs.
    The Secretary realizes that an additional interest cost is incurred 
by a student who is awarded an amount in an unsubsidized loan rather 
than in a subsidized loan, even if the loan amount is $200 or less, 
because the government does not charge interest on a subsidized loan if 
it is not in repayment status or in a deferment. The Department 
estimates a maximum cost to a student of $66, for interest accruing on 
$200 over four years. However, this provision

[[Page 50463]]

was established for a school participating in the FFEL Program for the 
reasons described above, and it is proposed for a school participating 
in the Direct Loan Program to provide parity with the FFEL Program and 
to allow a school to control its administrative costs in making loans. 
The Secretary expects the proposed regulations to have little actual 
effect on costs to borrowers for receiving FFEL or Direct Loan program 
funds because current FFEL Program policy would remain unchanged and 
current Direct Loan Program policy would only be defined in 
regulations. The only change to current Direct Loan Program policy in 
the proposed regulations is the provision of a $200 limit to replace 
the currently unspecified ``minimum loan amount,'' so a school would no 
longer be able to establish a minimum loan amount higher than $200.

Sections 682.202(c)(5), 682.401(b)(10), and 685.202(c)(4)  Refund of 
FFEL Program Origination Fees and Insurance Premiums and of Direct Loan 
Program Loan Fees

    Under Sec. 682.202(c)(5), a lender must refund, by a credit against 
the borrower's loan balance, the applicable portion of the origination 
fee previously deducted from the loan if (1) the borrower repays a 
portion of the loan within 120 days of disbursement, (2) the funds are 
not delivered within 120 days of disbursement, or (3) the funds are 
returned by the school to the lender.1 Similarly, under 
Sec. 682.401(b)(10)(vi)(B), a lender must refund the applicable portion 
of the insurance premium previously deducted by application to the 
borrower's account if (1) the loan is paid in full within 120 days of 
disbursement, (2) the loan check has not been negotiated within 120 
days of disbursement, or (3) the loan or a portion of a loan is 
returned by the school to the lender. Direct Loan Program regulations 
at Sec. 685.202(c)(4) provide for the refund of the applicable portion 
of the loan fee previously deducted from the loan if a portion of the 
loan is repaid within 120 days or should have been repaid by the school 
within 120 days of disbursement.
---------------------------------------------------------------------------

    \1\ The introductory language for Sec. 682.202(c)(5) is 
incorrect as published in the Code of Federal Regulations (CFR), 
revised as of July 1, 1996. The CFR reflects the final rule 
published in the Federal Register on May 17, 1994 (59 FR 25745). 
However, a correction to the May 17, 1994, rule was published on 
July 13, 1994 (59 FR 35625). The correction was not included in the 
current CFR. To ensure that the correct introductory language is 
properly reflected in regulations, it is included in this NPRM and 
will be included in the final rule as a technical correction.
---------------------------------------------------------------------------

    The Secretary proposes to revise Secs. 682.202(c)(5)(i), 
682.401(b)(10)(vi)(B)(1), and 685.202(c)(4) to provide that the 
applicable portion of the origination fee, insurance premium, or loan 
fee is to be repaid or returned in cases in which loan funds are 
returned by the school in order to comply with the HEA or with 
applicable regulations.
    For example, the applicable portion of the origination fee, 
insurance premium, or loan fee would be repaid or returned to a 
borrower if during a program review it was determined that a school 
should have paid a larger refund to a student, even if that refund 
should have occurred more than 120 days after the disbursement was 
made. On the other hand, the applicable portion of the origination fee, 
insurance premium, or loan fee would not be repaid or returned to a 
borrower if a school assists the borrower by forwarding a prepayment to 
the lender more than 120 days after disbursement. In this example, the 
school would not be returning the funds in order to comply with the HEA 
or with applicable regulations; it would be returning the funds to 
comply with the borrower's request.
    This proposed revision clarifies current FFEL requirements. 
Further, it expands the circumstances under which the Secretary would 
reduce the Direct Loan Program loan fee charged to borrowers by 
removing the requirement that the repayment should have been made 
within 120 days of disbursement. Under the proposed provision, students 
in both the FFEL and Direct Loan programs would receive the same 
benefits.

Sections 682.402 and 685.212  Discharge of a Loan

    Under Sec. 682.402(c)(1), FFEL Program regulations provide for the 
discharge of a borrower's or endorser's obligation to repay a 
Consolidation Loan, due to a total and permanent disability, for a 
borrower who became disabled (or whose condition substantially 
deteriorated, so as to render the borrower totally and permanently 
disabled) after applying for all of the Consolidation Loan's underlying 
loans. This discharge is made even if a borrower's condition did not 
substantially deteriorate after the borrower applied for the 
Consolidation Loan itself. Corresponding Direct Loan Program 
regulations, at Sec. 685.212(b), do not allow for a discharge of a loan 
obligation for a Direct Consolidation Loan if the borrower did not 
become disabled (or whose condition did not substantially deteriorate, 
so as to render the borrower totally and permanently disabled) after 
the Direct Consolidation Loan was made.
    For example, a borrower who received several loans, then became 
totally and permanently disabled, and then consolidated those loans 
into a Direct Consolidation Loan, remains obligated to repay the loan. 
Under current Direct Loan Program regulations, a borrower is not 
considered totally and permanently disabled on the basis of a condition 
that existed at the time the borrower applied for the consolidation 
loan, unless the borrower's condition substantially deteriorated after 
the loan was made so as to render the borrower totally and permanently 
disabled. In the example above, since the borrower's condition existed 
at the time the borrower applied for the Direct Consolidation Loan and 
did not substantially deteriorate after the Direct Consolidation Loan 
was made, the borrower would remain obligated to repay the loan. By 
contrast, corresponding FFEL regulations would allow a discharge of the 
borrower's obligation to make further payments on the loan.
    The Secretary proposes to revise Direct Loan Program regulations to 
provide the same discharge conditions for a Direct Consolidation Loan 
as are currently provided for an FFELP Consolidation Loan. Because 
there has been some confusion regarding the FFEL rule on this issue, 
the Secretary also proposes to clarify the current FFEL Program 
provision and to make a conforming change to regulations at 
Sec. 682.402(k)(2)(iii).

Sections 682.604(g)(2) and 685.304(b)(2)  Exit Counseling

    Section 485(b)(1)(A)(i) of the HEA requires a school to inform a 
student of ``the average anticipated monthly repayments'' during exit 
counseling. For an FFEL borrower, under Sec. 682.604(g)(2)(i), a school 
is required to base the calculation of this amount on an average 
indebtedness for students at that school. Direct Loan Program 
regulations, at Sec. 685.304(b)(2)(i), go beyond the requirements in 
FFEL regulations and require a school to base its calculation of this 
amount on the individual student's actual indebtedness.
    The Secretary proposes to revise both FFEL and Direct Loan program 
regulations to allow a school to base its calculation of this amount 
upon either the student's individual indebtedness or upon the average 
indebtedness of students who have obtained loans for attendance at that 
school or in the borrower's program of study. This change would provide 
more flexibility in both loan programs, would promote

[[Page 50464]]

consistency in exit counseling, and would reduce burden for schools 
participating in both the FFEL and the Direct Loan programs.
    A Direct Loan borrower's ability to make an informed choice when 
selecting a repayment plan is not lessened by this change. A school 
participating in the Direct Loan Program may, and is encouraged to, 
continue to receive information regarding an individual borrower's 
anticipated Direct Loan Program monthly repayment amount for 
distribution to the borrower during exit counseling. If a borrower does 
not select a repayment plan by the 60th day of the loan's grace period, 
he or she is sent the individualized information by the Direct Loan 
Servicer. In addition, the individualized repayment information is 
always available to a borrower who calls the Direct Loan Servicer, both 
when the borrower is selecting an initial repayment plan and when the 
borrower is considering a change from one plan to another.
    Under Sec. 685.304(b)(2) (ii) and (iii), a school is required to 
review available repayment options with a borrower and to provide the 
borrower with options concerning debt-management strategies. Should 
these proposed regulations be included in the final rule, to comply 
with Sec. 685.304(b)(2) (ii) and (iii), a school that chooses not to 
provide the individualized repayment information to a student would be 
expected to advise the student of the availability of this information 
at the student's Direct Loan servicer and of its usefulness in 
selecting the most appropriate repayment plan.
    The Secretary requests specific comments on whether the timing and 
availability of the individualized Direct Loan Program repayment 
information, as described above, provides all Direct Loan Program 
borrowers with an adequate opportunity to select the most appropriate 
repayment plan. In particular, the Secretary requests comments on the 
ability of a borrower to make an informed choice when selecting a 
repayment plan if he or she does not receive individualized information 
until the 60th day of the loan's grace period because his or her school 
has chosen to supply repayment information based on average 
indebtedness during its exit counseling.

Executive Order 12866

1. Assessment of Costs and Benefits

    These proposed regulations have been reviewed in accordance with 
Executive Order 12866. Under the terms of the order the Secretary has 
assessed the potential costs and benefits of this regulatory action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those determined by the 
Secretary to be necessary for administering these programs effectively 
and efficiently. Burdens specifically associated with information 
collection requirements, if any, are identified and explained elsewhere 
in this preamble under the heading Paperwork Reduction Act of 1995.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these proposed regulations, the Secretary has 
determined that the benefits of the proposed regulations justify the 
costs.
    The Secretary has also determined that this regulatory action does 
not unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866, the Secretary invites comments 
on whether there may be further opportunities to reduce any potential 
costs or increase potential benefits resulting from these regulations 
without impeding the effective and efficient administration of these 
programs.

Summary of Potential Costs and Benefits

    Potential costs and benefits of these proposed regulations are 
discussed elsewhere in this preamble under the following heading: 
Regulatory Flexibility Act Certification, and in the information stated 
previously under Supplementary Information.

2. Clarity of Regulations

    Executive Order 12866 requires each agency to write regulations 
that are easy to understand.
    The Secretary invites comments on how to make these regulations 
easier to understand, including answers to questions such as the 
following: (1) Are the requirements in the proposed regulations clearly 
stated? (2) Do the regulations contain technical terms or other wording 
that interferes with their clarity? (3) Does the format of the 
regulations (grouping and order of sections, use of headings, 
paragraphing, etc.) aid or reduce their clarity? Would the regulations 
be easier to understand if they were divided into more (but shorter) 
sections? (A ``section'' is preceded by the symbol ``Sec. '' and a 
numbered heading; for example, Sec. 668.24 Records retention and 
examinations.) (4) Is the description of the proposed regulations in 
the ``Supplementary Information'' section of this preamble helpful in 
understanding the proposed regulations? How could this description be 
more helpful in making the proposed regulations easier to understand? 
(5) What else could the Department do to make the regulations easier to 
understand?
    A copy of any comments that concern how the Department could make 
these proposed regulations easier to understand should be sent to Mr. 
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of 
Education, 600 Independence Avenue, SW, Room 5121, FOB-10, Washington, 
DC 20202-2241.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. Small entities affected by these proposed regulations are 
small schools and loan holders participating in the federal student 
loan programs.
    The provisions of this regulation provide added flexibility to 
schools and loan holders, or reduce the administrative burden on 
schools. Thus, no significant adverse economic impacts on small 
entities are expected to occur.
    The Secretary particularly invites comments on the effect that 
these proposed regulations would have on small entities.

Paperwork Reduction Act of 1995

    Section 685.212 contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), 
the Department of Education has submitted a copy of this section to the 
Office of Management and Budget (OMB) for its review.
    Collection of Information: William D. Ford Federal Direct Loan 
Program--685.212--Discharge of a loan obligation. The Secretary 
proposes to provide for the discharge of a Direct Consolidation Loan 
due to a total and permanent disability for a borrower who would be 
eligible for the discharge of all the loans that were included in the 
Direct Consolidation Loan if those loans had not been consolidated. The 
Department may require additional certifications and information 
concerning the underlying loans in order to provide this benefit to the 
borrower. Annual public reporting burden for this collection of 
information is estimated to average 0.2 hours per response for 180 
respondents, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and

[[Page 50465]]

completing and reviewing the collection of information. The total 
estimated annual recordkeeping and reporting burden hours equals 36 
hours.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 10235, New Executive 
Office Building, Washington, D.C. 20503; Attention: Desk Officer for 
the U.S. Department of Education.
    The Department considers comments by the public on this proposed 
collection of information in--
     Evaluating whether the proposed collection of information 
is necessary for the proper performance of the functions of the 
Department, including whether the information will have practical 
utility;
     Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques of other forms of information technology; e.g., permitting 
electronic submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment to the Department on the 
proposed regulations.

Invitation To Comment

    Interested persons are invited to submit comments and 
recommendations regarding these proposed regulations.
    All comments submitted in response to these proposed regulations 
will be available for public inspection, during and after the comment 
period, in Room 3045, Regional Office Building 3, 7th and D Streets, 
SW, Washington, DC, between the hours of 8:30 a.m. and 4:00 p.m., 
Monday through Friday of each week, except Federal holidays.
    On request the Department supplies an appropriate aid, such as a 
reader or print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking docket for these proposed regulations. An individual with a 
disability who wants to schedule an appointment for this type of aid 
may call (202) 205-8113 or (202) 260-9895. An individual who uses a TDD 
may call the Federal Information Relay Service at 1-800-877-8339, 
between 8 a.m., and 8 p.m., Eastern time, Monday through Friday.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden, the Secretary invites comments on whether 
there may be further opportunities to reduce any regulatory burdens 
found in these proposed regulations.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether the 
proposed regulations in this document would require transmission of 
information that is being gathered by or is available from any other 
agency or authority of the United States.

Electronic Access to This Document

    Anyone may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or 
portable document format (pdf) on the World Wide Web at either of the 
following sites:

http://ocfo.ed.gov/fedreg.htm
http://www.ed.gov/news.html

To use the pdf you must have the Adobe Acrobat Reader Program with 
Search, which is available free at either of the previous sites. If you 
have questions about using the pdf, call the U.S. Government Printing 
Office toll free at 1-888-293-6498.
    Anyone may also view these documents in text copy only on an 
electronic bulletin board of the Department. Telephone: (202) 219-1511 
or, toll free, 1-800-222-4922. The documents are located under Option 
G--Files/Announcements, Bulletins and Press Releases.

    Note: The official version of this document is the document 
published in the Federal Register.

List of Subjects in 34 CFR Parts 682 and 685

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

(Catalog of Federal Domestic Assistance Numbers: 84.032: Federal 
Stafford Loan Program; 84.032: Federal PLUS Program; 84.032: Federal 
Supplemental Loans for Students Programs; 84.033 and 84.268: Federal 
Direct Student Loan Program.)

    Dated: September 17, 1997.
Richard W. Riley,
Secretary of Education.

    The Secretary proposes to amend parts 682 and 685 of title 34 of 
the Code of Federal Regulations as follows:

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

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

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


Sec. 682.201  [Amended]

    2. Section 682.201 is amended by removing the words ``receive an 
SLS loan'' in the introductory language of paragraph (a) and adding, in 
their place, ``receive an unsubsidized Stafford loan''; by removing the 
acronym ``SLS'' in paragraph (a)(1) and adding, in its place, 
``unsubsidized Stafford''; by removing the words ``who, for a period of 
enrollment that begins prior to July 1, 1994, seeks an SLS'' in the 
introductory language to paragraph (a)(2) and adding, in their place, 
``who seeks an unsubsidized Stafford''; and by removing the acronym 
``SLS'' in paragraph (a)(3) and adding, in its place, ``unsubsidized 
Stafford''.
    3. Section 682.202 is amended by revising paragraph (c)(5) to read 
as follows:


Sec. 682.202  Permissible charges by lenders to borrowers.

* * * * *
    (c) * * *
    (5) Shall refund by a credit against the borrower's loan balance 
the portion of the origination fee previously deducted from the loan 
that is attributable to any portion of the loan that is--
    (i) Returned by a school to a lender in order to comply with the 
Act or with applicable regulations;
    (ii) Repaid or returned within 120 days of disbursement; or
    (iii) Not delivered within 120 days of disbursement.
* * * * *
    4. Section 682.401 is amended by revising paragraphs 
(b)(10)(vi)(B)(1) and (b)(10)(vi)(B)(2) to read as follows:


Sec. 682.401  Basic program agreement.

* * * * *
    (b) * * *
    (10) * * *
    (vi) * * *
    (B) * * *
    (1) The loan or a portion of the loan is returned by the school to 
the lender

[[Page 50466]]

in order to comply with the Act or with applicable regulations;
    (2) Within 120 days of disbursement, the loan or a portion of the 
loan is repaid;
* * * * *
    5. Section 682.402 is amended by revising paragraph (c)(1) and by 
removing the words ``become totally and permanently disabled since 
applying for the Consolidation loan'' in paragraph (k)(2)(iii) and 
adding, in their place, ``is determined to be totally and permanently 
disabled under Sec. 682.402(c)'', to read as follows:


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

* * * * *
    (c) Total and permanent disability. (1) (i) If a lender determines 
that an individual borrower has become totally and permanently 
disabled, the obligation of the borrower and any endorser to make any 
further payments on the loan is discharged.
    (ii) Except as provided in paragraph (c)(1)(iii)(A) of this 
section, a borrower is not considered totally and permanently disabled 
based on a condition that existed at the time the borrower applied for 
the loan unless the borrower's condition substantially deteriorated 
after the loan was made so as to render the borrower totally and 
permanently disabled.
    (iii)(A) For a Consolidation Loan, a borrower who would be 
considered totally and permanently disabled under paragraphs (c)(1)(i) 
and (ii) of this section for all loans that were included in the 
Consolidation Loan, if those loans had not been consolidated, is 
considered totally and permanently disabled.
    (B) For the purposes of discharging a loan under paragraph 
(c)(1)(iii)(A) of this section, provisions in paragraphs (c)(1) (i) and 
(ii) of this section apply to all loans included in the Consolidation 
Loan.
    (C) If requested, a borrower seeking to discharge a loan obligation 
under paragraph (c)(1)(iii)(A) of this section must provide the lender 
with the disbursement dates of the underlying loans if the lender does 
not possess that information.
* * * * *
    6. Section 682.604 is amended by revising paragraph (g)(2)(i) to 
read as follows:


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

* * * * *
    (g) * * *
    (2) * * *
    (i) Inform the student of the average anticipated monthly repayment 
amount based on the student's indebtedness or on the average 
indebtedness of students who have obtained FFEL Program loans for 
attendance at that school or in the borrower's program of study.
* * * * *

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

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

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

    8. Section 685.202 is amended by revising paragraph (c)(4) to read 
as follows:


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

* * * * *
    (c) * * *
    (4) Applies to a borrower's loan balance the portion of the loan 
fee previously deducted from the loan that is attributable to a 
disbursement of the loan that is--
    (i) Repaid or returned within 120 days of disbursement; or
    (ii) Returned by a school in order to comply with the Act or with 
applicable regulations.
    9. Section 685.212 is amended by revising paragraph (b) to read as 
follows:


Sec. 685.212  Discharge of a loan obligation.

* * * * *
    (b) Total and permanent disability. (1) If the Secretary receives 
acceptable documentation that a borrower has become totally and 
permanently disabled, the Secretary discharges the obligation of the 
borrower and any endorser to make any further payments on the loan.
    (2) Except as provided in paragraph (b)(3)(i) of this section, a 
borrower is not considered totally and permanently disabled based on a 
condition that existed at the time the borrower applied for the loan 
unless the borrower's condition substantially deteriorated after the 
loan was made so as to render the borrower totally and permanently 
disabled.
    (3)(i) For a Direct Consolidation Loan, a borrower who would be 
considered totally and permanently disabled under paragraphs (b) (1) 
and (2) of this section for all loans that were included in the Direct 
Consolidation Loan, if those loans had not been consolidated, is 
considered totally and permanently disabled.
    (ii) For the purposes of discharging a loan under paragraph 
(b)(3)(i) of this section, provisions in paragraphs (b)(1) and (2) of 
this section apply to all loans included in the Consolidation Loan.
    (iii) If requested, a borrower seeking to discharge a loan 
obligation under paragraph (b)(3)(i) of this section must provide the 
Secretary with the disbursement dates of the underlying loans.
* * * * *
    10. Section 685.301 is amended by redesignating paragraphs (a)(6) 
and (a)(7) as paragraphs (a)(7) and (a)(8), respectively, and by adding 
a new paragraph (a)(6) to read as follows:


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

* * * * *
    (a) * * *
    (6) If a student has received a determination of need for a Direct 
Subsidized Loan that is $200 or less, a school may choose not to 
originate a Direct Subsidized Loan for that student and to include the 
amount as part of a Direct Unsubsidized Loan.
* * * * *
    11. Section 685.304 is amended by revising paragraph (b)(2)(i) to 
read as follows:


Sec. 685.304  Counseling borrowers.

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    (b) * * *
    (2) * * *
    (i) Inform the student of the average anticipated monthly repayment 
amount based on the student's indebtedness or on the average 
indebtedness of students who have obtained Direct Subsidized or Direct 
Unsubsidized Loans for attendance at that school or in the borrower's 
program of study.
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[FR Doc. 97-25377 Filed 9-24-97; 8:45 am]
BILLING CODE 4000-01-U