[Federal Register Volume 65, Number 145 (Thursday, July 27, 2000)]
[Proposed Rules]
[Pages 46316-46322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18953]



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Part V





Department of Education





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34 CFR Parts 682 and 685



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

  Federal Register / Vol. 65, No. 145 / Thursday, July 27, 2000 / 
Proposed Rules  

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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA16


Federal Family Education Loan (FFEL) Program and William D. Ford 
Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Education.

ACTION: Notice of proposed rulemaking.

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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. The Secretary is amending these 
regulations to reduce administrative burden for program participants, 
provide benefits to borrowers, and protect the taxpayers' interests.

DATES: We must receive your comments on or before September 11, 2000.

ADDRESSES: Address all comments about these proposed regulations to Ms. 
Pamela A. Moran, U.S. Department of Education, P.O. Box 23272, 
Washington, DC 20026-3272. If you prefer to send your comments through 
the Internet, use the following address: [email protected].
    You must include the term ``Team 1 FFEL'' in the subject line of 
your electronic message.
    If you want to comment on the information collection requirements, 
you must send your comments to the Office of Management and Budget at 
the address listed in the Paperwork Reduction Act section of this 
preamble. You may also send a copy of these comments to the Department 
representative named in this section.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Mr. George 
Harris, or for the Direct Loan Program, Mr. Jon Utz; U.S. Department of 
Education, 400 Maryland Avenue, SW., room 3045, ROB-3, Washington, DC 
20202-5449. Telephone: (202) 708-8242. If you use a telecommunications 
device for the deaf (TDD) you may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the proposed regulations that each of 
your comments addresses and to arrange your comments in the same order 
as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations in room 3045, ROB-3, 7th and 
D Streets, SW., Washington, DC, between the hours of 8:30 a.m. and 4 
p.m., Eastern time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the 
Rulemaking Record

    On request, we will supply 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 record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the Federal 
Information Relay Service at 1-800-877-8339.

Negotiated Rulemaking

    Section 492 of the Higher Education Act of 1965, as amended (HEA) 
requires that, before publishing any proposed regulations for programs 
under Title IV of the HEA, the Secretary obtain public involvement in 
the development of the proposed regulations. After obtaining advice and 
recommendations, the Secretary must conduct a negotiated rulemaking 
process to develop the proposed regulations. All published proposed 
regulations must conform to agreements resulting from the negotiated 
rulemaking process unless the Secretary reopens the negotiated 
rulemaking process or provides a written explanation to the 
participants in that process why the Secretary has decided to depart 
from the agreements.
    To obtain public involvement in the development of the proposed 
regulations, we held listening sessions in Washington, DC, Atlanta, 
Chicago, and San Francisco. Four half-day sessions were held on 
September 13 and 14, 1999, in Washington, DC. In addition, we held 
three regional sessions in Atlanta on September 17, in Chicago on 
September 24, and in San Francisco on September 27, 1999. The Office of 
Student Financial Assistance's Customer Service Task Force also 
conducted listening sessions to obtain public involvement in the 
development of our regulations.
    We then published a notice in the Federal Register (64 FR 73458, 
December 30, 1999) to announce our intention to establish two 
negotiated rulemaking committees to draft proposed regulations 
affecting Title IV of the HEA. The notice requested nominations for 
participants from anyone who believed that his or her organization or 
group should participate in this negotiated rulemaking process. The 
notice announced that we would select participants for the process from 
the nominees of those organizations or groups. The notice also 
announced a tentative list of issues that each committee would 
negotiate.
    Once the two committees were established, they met to develop 
proposed regulations over the course of several months, beginning in 
February. The proposed regulations contained in this NPRM reflect the 
final consensus of Negotiating Committee I (committee), which was made 
up of the following members:

 American Association of Collegiate Registrars and 
Admissions Officers
 American Association of Cosmetology Schools
 American Association of State Colleges and Universities (in 
coalition with American Association of Community Colleges)
 American Council on Education
 Career College Association
 Coalition of Higher Education Assistance Organizations
 Consumer Bankers Association
 Education Finance Council
 Education Loan Management Resources
 Legal Services
 National Association of College and University Business 
Officers
 National Association of Independent Colleges and 
Universities
 National Association of State Universities and Land-Grant 
Colleges
 National Association of Student Financial Aid 
Administrators
 National Association of Student Loan Administrators
 National Council of Higher Education Loan Programs
 National Direct Student Loan Coalition

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 Sallie Mae, Inc.
 Student Loan Servicing Alliance
 The College Fund/United Negro College Fund
 United States Department of Education
 United States Student Association
 US Public Interest Research Group

    As stated in the committee protocols, consensus means that there 
must be no dissent by any member in order for the committee to be 
considered to have reached agreement. Consensus was reached on all of 
the proposed regulations in this document.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect. The proposed regulations address changes that are specific to 
the FFEL Program and changes that are common to both the FFEL and 
Direct Loan programs.

FFEL and Direct Loan Program Changes

Sections 682.210 and 685.204--Deferment

    Current Regulations: In the FFEL and Direct Loan programs, the 
current regulations and policy provide that, except in the case of an 
in-school deferment, a deferment may not be granted for a period 
beginning more than 6 months before the date the lender (or the 
Department on a Direct Loan) receives the request and the documentation 
required for the deferment.
    For a borrower who requests an unemployment deferment on the basis 
of providing documentation of employer contacts, current regulations 
require the name of the employer contacted, the employer's address and 
telephone number, and the name or title of the person contacted.
    Proposed Regulations: Proposed Sec. 682.210(a)(5) would remove the 
6-month limitation from all deferment categories except for the 
unemployment deferment. No change to the Direct Loan regulations is 
needed because the explicit 6-month limitation is not included in the 
Direct Loan regulations and only applies to Direct Loans through a 
cross-reference to the FFEL deferment regulations.
    The proposed regulations would also modify the requirement that 
loan holders obtain specific documentation of employment contact from 
borrowers who request an unemployment deferment. These requirements 
only apply to borrowers who request continuations of their deferments 
based on their attempts to get employment, and not to borrowers who 
apply for an initial period of unemployment deferment or to those 
borrowers who qualify based on their eligibility for unemployment 
benefits. These changes will allow loan holders to accept alternative 
documentation that provides sufficient information to support a 
borrower's claim that he or she is seeking employment as required. No 
change to the Direct Loan regulations is needed because the explicit 
unemployment deferment rules are not included in the Direct Loan 
regulations. Instead, unemployment deferments in the Direct Loan 
Program are granted using the same provisions that exist in the FFEL 
unemployment deferment regulations.
    Reasons: On October 29, 1999 (64 FR 58622), the Department 
eliminated the 6-month limitation for retroactive application of a 
deferment for the in-school deferment only. During this year's 
negotiated rulemaking, the committee agreed to make the deferment rules 
more consistent for borrowers and for the parties that administer the 
FFEL Program by removing the 6-month limitation from all other 
deferment categories except the unemployment deferment.
    The 6-month limitation on retroactively granting deferments was 
intended, in part, to motivate borrowers to make timely deferment 
requests and provide the necessary deferment documentation. However, 
the committee concluded that the limitation does not serve that 
purpose. Instead, the limitation causes confusion and complexity for 
borrowers. Moreover, the limitation reduces the usefulness of 
deferments for borrowers who are delinquent on payments and are trying 
to avoid default. The 6-month limitation means that the application of 
a deferment to which the borrower is entitled might still leave the 
borrower significantly delinquent. We hope the elimination of this 
limitation will allow loan holders to better assist borrowers to avoid 
default.
    The committee considered removing the 6-month limitation on 
retroactive application of the unemployment deferment but decided not 
to do so. Under the current regulations, (including the rule that the 
deferment may not begin earlier than 6 months before the date the 
lender receives the borrower's deferment request) a borrower can be 
granted an initial period of unemployment deferment without documenting 
a search for full-time employment. This provision, unique to the 
unemployment deferment for borrowers who do not qualify based on their 
eligibility for unemployment benefits, is based on the understanding 
that borrowers may not immediately begin a job search on the date they 
become unemployed. However, it means that, unlike in other cases, the 
borrower is able to get a deferment without proving that he or she 
meets all the conditions for the deferment.
    In light of this situation, the committee decided to retain the 6-
month retroactive limit for an unemployment deferment that was granted 
based on an ongoing search for employment. The Secretary believes the 
integrity of the FFEL and Direct Loan programs would be jeopardized if 
there was no retroactive limit for granting this kind of unemployment 
deferment.
    Several of the non-federal negotiators also proposed to modify the 
types of documentation required from a borrower to show that he or she 
had conducted a diligent search for employment. The committee discussed 
situations in which job announcements do not specify some or most of 
the information required under current regulations, such as the name of 
the employer, or the name and title of the person to be contacted. In 
response to these concerns, the committee agreed to propose regulations 
that include less prescriptive language so that borrowers could provide 
various forms of employment contact documentation acceptable to the 
loan holder.

Sections 682.210(s)(6) and 685.204(b)(3)--Economic Hardship Deferment

    Statute: Section 435(o)(1) of the HEA uses the borrower's 
``adjusted gross income'' as the income measurement to determine if a 
borrower would have an economic hardship in repaying a loan, but also 
authorizes the Department to establish additional criteria.
    Current Regulations: Current regulations only refer to the 
borrower's total monthly gross income in identifying the income that is 
used when determining a borrower's eligibility for an economic hardship 
deferment.
    Proposed Regulations: The committee agreed that the regulations 
should be modified to incorporate the adjusted gross income standard 
included in the HEA. Accordingly, in these proposed regulations, 
Sec. 682.210(s)(6) would be revised so that a borrower could qualify 
for an economic hardship deferment based on either his or her monthly 
gross income from all sources, or a monthly amount calculated as one-
twelfth of the borrower's adjusted gross income, as recorded on the 
borrower's most

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recently filed Federal income tax return. No change to the Direct Loan 
regulations is needed because the Direct Loan regulations implement the 
statutory requirements through a cross-reference to the FFEL economic 
hardship deferment regulations.
    Reasons: The committee noted that section 435(o)(1)(B) of the HEA 
used ``adjusted gross income'' when referring to a borrower's income. 
It was agreed that the regulations should add the statutory standard to 
the regulations while retaining the existing regulatory standard to 
provide greater flexibility for any borrower to document his or her 
income. The committee believed that some borrowers found it difficult 
to document their total monthly income from all sources, as is required 
under current Sec. 682.210(s)(6)(x). The committee believed that a 
borrower should be given the option of using the adjusted gross income 
amount from the borrower's most recent Federal income tax return as a 
simplified way to demonstrate that he or she qualifies for an economic 
hardship deferment.

Sections 682.402 and 685.214--False Certification Discharge

    Current Regulations: The FFEL and Direct Loan regulations on false 
certification discharges have the same rules with respect to a 
discharge based on an improper determination of the student's ability-
to-benefit (ATB). Under those rules, if a valid ATB determination was 
not made, the borrower can qualify for a false certification loan 
discharge if the student is unable to obtain employment in the 
occupation for which the training was intended, or if the student finds 
a job only after receiving training that was not provided by the school 
that certified the borrower's loan application. Current regulations in 
both programs require borrowers who want a false certification 
discharge to file an application for the discharge.
     Proposed Regulations: With regard to a false certification 
discharge based upon an ATB issue, all requirements related to a 
student's employment after leaving school are being removed from the 
FFEL and Direct Loan regulations. In addition, for both programs, the 
proposed rules would permit an ATB false certification discharge to be 
granted without an application if it is determined that the borrower 
qualifies based on information in the possession of the Secretary or 
guaranty agency.
    Reasons: On November 16, 1999, the U.S. Court of Appeals for the 
District of Columbia, in Jordan v. Riley (99-5024), ruled invalid the 
employment attempt provisions in the false certification discharge 
regulations. The Court of Appeals found that section 437(c) of the HEA 
does not authorize us to include criteria in the regulations that 
attempt to measure whether, despite any deficient ATB certification, 
the student nevertheless had the ability to benefit from the training 
offered by the school. The Court concluded that a student's post-
training employment experience is irrelevant to the truth or falsity of 
the certification. Rather, the Court ruled that the HEA only authorizes 
us to determine whether the school properly tested the student and the 
student passed the test. We have decided to extend the Court's ruling 
to all borrowers, not just those covered by the Court's ruling. Thus, 
we will no longer consider the student's employment or employment 
attempts in resolving false certification discharge claims.
    We (or a guaranty agency) occasionally learn of information that 
strongly suggests that all borrowers in a certain category would likely 
qualify for a false certification discharge. For example, we might 
determine that all students at a specific school during a certain time 
period had incorrect ATB determinations. In the interest of assisting 
those borrowers, (many of whom may be unaware of the possibility of 
receiving a loan discharge), the committee decided that it would be 
appropriate to discharge those loans without an individual discharge 
request from each borrower. On October 29, 1999 (64 FR 58622), we 
issued regulations that authorized the granting of closed school loan 
discharges in certain cases without individual requests from each 
borrower. These proposed regulations would extend that approach to 
false certification discharges.
    During the negotiations, the committee agreed that a borrower 
should be able to receive a false certification discharge based on an 
invalid ATB determination, even if the school was not directly involved 
in the invalid testing or other determination of the student's ATB 
because the invalid testing was done by an independent test 
administrator. Although we believed that this was consistent with the 
current regulations, to avoid potential confusion, we agreed to remove 
the words ``the school's'' in the reference to invalid testing of a 
student's ATB in Sec. 682.402(e)(3)(ii) and Sec. 685.214(c)(1). The 
committee agreed that the regulatory language that would remain after 
that deletion was sufficient to apply to all invalid ATB determinations 
made, regardless of who made them.

FFEL Changes

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

    Current Regulations: In collecting on defaulted loans, a guaranty 
agency currently must follow the regulatory requirements contained in 
Sec. 682.410(b). Those regulations state, with a great amount of 
specificity, precisely when certain collection activities must occur in 
collecting a defaulted loan. They also restrict a guaranty agency's use 
of litigation in collecting defaulted loans. The collection rules in 
current Sec. 682.410(b) were developed when guaranty agencies used 
Federal money to pay for their collection activities and were designed 
to require certain collection activities while ensuring the proper use 
of Federal funds.
    Proposed Regulations: We would generally no longer require a 
guaranty agency to perform routine collection activities (collection 
letters and telephone calls) within the specific time periods, 
prescribed in the current regulations. The guaranty agency could 
develop its own collection strategy, as long as, for a non-paying 
borrower, the guaranty agency performed at least one activity every 180 
days to collect the debt, locate the borrower (if necessary), or 
determine if the borrower has the means to repay the debt. The proposed 
regulations would also eliminate the general prohibition against a 
guaranty agency suing borrowers who owe defaulted loans. The proposed 
regulations would permit a guaranty agency to file a civil suit against 
a borrower to compel repayment if the borrower had no garnishable wages 
or the guaranty agency determined that the borrower had sufficient 
attachable assets or non-garnishable income that could be used to repay 
the debt, and the use of litigation would be more effective in 
collection of the debt.
    The proposed regulations would require a guaranty agency to 
undertake a small number of required activities and borrower 
notifications that the committee believed would protect borrowers and 
comply with other applicable laws. The proposed regulations would 
require that, within 45 days after paying a lender's default claim, the 
guaranty agency must send a notice advising the borrower that a default 
claim has been paid and that the borrower has an opportunity to enter 
into a repayment agreement with the guaranty agency and to request an 
administrative review of the status of the debt. In addition, the 
guaranty agency must notify the borrower that he or she may have 
certain legal rights in

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the collection of debts, and that the borrower may wish to contact a 
counselor or lawyer regarding those rights. The guaranty agency must 
also warn the borrower that it may: (1) Report the default to credit 
bureaus (if it does so, the guaranty agency must notify the borrower of 
that action and that the borrower's credit rating may thereby have been 
damaged); (2) assess collection costs against the borrower; (3) 
administratively garnish the borrower's wages; (4) file a civil suit to 
compel repayment; (5) offset the borrower's State and Federal income 
tax refunds and other payments made by the Federal Government to the 
borrower; (6) assign the loan to the Secretary in accordance with 
Sec. 682.409; and (7) take other lawful collection means to collect the 
debt, at the discretion of the guaranty agency.
    Reasons: As a result of changes made to the HEA in 1998, a guaranty 
agency now pays for collection activities on defaulted loans with money 
in its ``Operating Fund,'' which is the property of the guaranty 
agency. Thus, guaranty agencies now have strong financial incentives to 
collect defaults in a cost effective manner. A guaranty agency that is 
an effective collector of defaulted loans will be financially better 
off than one that is an ineffective collector. The committee believed 
that these financial incentives eliminate the need for the prescriptive 
collection activities found in the current regulations (other than the 
borrower protection provisions discussed under ``proposed 
regulations''). The current sequence of required phone calls and 
letters, and the general restrictions against litigation, served a 
purpose when guaranty agencies funded their collection efforts with 
Federal Reserve Fund money. The new financing structure for guaranty 
agencies created by the 1998 Amendments to the HEA reduced the need for 
those prescriptive regulations.
    Guaranty agencies have frequently expressed the view that they 
could do a better job in collecting defaults if they were free to 
develop their own collection strategies unhindered by the current 
default due diligence rules. The proposed regulations would give the 
agencies that flexibility.

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

    Current Regulations: Guaranty agencies generally are required to 
maintain records for 5 years after a loan has been paid in full or 
determined to be uncollectible.
    Proposed Regulations: The length of time a guaranty agency must 
retain required loan records for loans paid in full by the borrower 
would be reduced from 5 years to 3 years from the date the loan is 
repaid in full by the borrower. For all other loans for which a 
guaranty agency receives payment in full from any other source (for 
example, payoff of a loan by a consolidation loan), or for those loans 
that are not paid in full, the 5-year retention period would continue 
to be in effect. In particular cases, we could require a guaranty 
agency to retain records beyond the 3-year or 5-year minimum periods.
    Reasons: On October 29, 1999 (64 FR 58622), we issued regulations 
that generally reduced record retention requirements for lenders in the 
FFEL Program from 5 years to 3 years from the date the loan is repaid 
in full by the borrower. Several non-federal negotiators involved in 
this year's negotiated rulemaking session proposed a similar reduction 
in guaranty agency record retention requirements for defaulted loans 
paid in full by borrowers as a result of guaranty agency collection 
efforts. The committee generally agreed that reducing the record 
retention period to 3 years in these limited cases would not diminish 
program integrity and borrower protections, and would greatly reduce 
the costs of maintaining records for this portion of the guaranty 
agency's portfolio.

Executive Order 12866

1. Potential Costs and Benefits

    Under Executive Order 12866, we have 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 we have 
determined as necessary for administering these programs effectively 
and efficiently. Elsewhere in this SUPPLEMENTARY INFORMATION section we 
identify and explain burdens specifically associated with information 
collection requirements. See the heading Paperwork Reduction Act of 
1995.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of this regulatory action, we have determined that the 
benefits would justify the costs.

Summary of Potential Costs and Benefits

    These proposed regulations benefit borrowers and institutions by 
simplifying and providing additional flexibility in administering loan 
deferments. The proposed regulations also provide additional 
flexibility by permitting false certification discharges without an 
application for qualified borrowers on the basis of information 
possessed by the guaranty agency or the Secretary. Further flexibility 
is provided to guaranty agencies by proposed changes that simplify 
collection requirements by making them less prescriptive, and reduce 
the required retention of records from 5 years to 3 years for loans 
fully repaid by borrowers.

2. Clarity of the Regulations

    Executive Order 12866 and the President's Memorandum of June 1, 
1998 on ``Plain Language in Government Writing'' require each agency to 
write regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec. '' and a numbered heading; for example, 
Sec. 682.210 Deferment.)
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    Send any comments that concern how the Department could make these 
proposed regulations easier to understand to the person listed in the 
ADDRESSES section of the preamble.

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. These proposed regulations would affect guaranty agencies and 
lenders that participate in the FFEL Program, as well as individual 
FFEL and Direct Loan borrowers. The U.S. Small Business Administration 
Size Standards define institutions as ``small entities'' if they are 
for-profit or nonprofit institutions with total annual revenue below

[[Page 46320]]

$5,000,000 or if they are institutions controlled by governmental 
entities with populations below 50,000.
    The 36 guaranty agencies are State and private nonprofit entities 
that act as agents of the Federal government, and as such are not 
considered ``small entities'' for this purpose. Individual FFEL and 
Direct Loan borrowers also are not considered ``small entities'' under 
the Regulatory and Flexibility Act. A number of the over 4,000 lenders 
participating in the FFEL Program meet the definition of ``small 
entities.'' The Secretary has determined that the proposed regulations 
will not have a significant economic impact on these lenders.
    The Secretary invites comments on this determination, and welcomes 
proposals on any significant alternatives that would satisfy the same 
legal and policy objectives of these proposals while minimizing the 
economic impact on small entities.

Paperwork Reduction Act of 1995

    Sections 682.210, 682.402, 682.414, 685.204, and 685.214 contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted 
a copy of these sections to the Office of Management and Budget (OMB) 
for its review.
    Collection of Information: Federal Family Education Loan Program 
and William D. Ford Federal Direct Loan Program. Deferment 
documentation requirements.
    These proposed regulations would affect the potential ability of 
borrowers to qualify for an economic hardship deferment. A borrower 
could qualify for an economic hardship deferment based on one-twelfth 
of the borrower's adjusted gross income, as recorded on the borrower's 
most recently filed Federal income tax return, instead of the 
borrower's total monthly gross income as under current regulations. The 
total burden hour reduction (based on approximately 6 minutes per 
application) is not expected to be substantial because of the small 
number of borrowers who would choose this option.
    Collection of Information: Federal Family Education Loan Program 
and William D. Ford Federal Direct Loan Program. False certification 
discharge of a borrower's loan obligation without an application form.
    These proposed regulations would affect the potential loan 
discharge for borrowers if the Secretary or the guaranty agency, with 
the Secretary's permission, determines that a borrower qualifies for a 
discharge based on information in the Secretary's or guaranty agency's 
possession. In these cases, the borrower would not need to submit a 
false certification loan discharge application to receive a discharge. 
Included in this category would be FFEL borrowers who have received 
false certification discharges of their Federal Direct Loans based on 
the same qualifying conditions, and Direct Loan borrowers who have 
received the same discharges of their FFEL loans. The total burden hour 
reduction (based on approximately 30 minutes per application) is not 
expected to be substantial because of the small number of borrowers who 
would not be required to submit a false certification loan discharge 
application.
    Collection of Information: Reduction in the length of time a 
guaranty agency must retain loan records.
    These proposed regulations would affect all FFEL guaranty agencies 
by reducing the length of time a guaranty agency must retain required 
loan records for loans paid in full by the borrower from 5 years to 3 
years from the date the loan is repaid in full by the borrower. For all 
other loans for which the guaranty agency receives payment in full from 
any other source (for example, payoff of a loan by a consolidation 
loan), or for those loans that are not paid in full, the 5-year 
retention period will continue to be in effect, except that in 
particular cases, the Secretary may require the retention of records 
beyond the 3-year or 5-year minimum periods. The total burden hour 
reduction is not expected to be substantial because most of the burden 
in record retention is associated with the initial assembling and 
transfer of records to a retention system.
    If you want to comment on the information collection requirements, 
please send your comments to the Office of Information and Regulatory 
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC 
20503; Attention: Desk Officer for U.S. Department of Education. You 
may also send a copy of these comments to the Department representative 
named in the ADDRESSES section of this preamble.
    We consider your comments on these proposed collections of 
information in--
     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collections of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.

Intergovernmental Review

    The FFEL Program and the William D. Ford Federal Direct Loan 
Program are not subject to Executive Order 12372 and the regulations in 
34 CFR part 79.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether these 
proposed regulations would require transmission of information that any 
other agency or authority of the United States gathers or makes 
available.

Electronic Access to This Document

    You may view this document in text or Adobe Portable Document 
Format (PDF) on the Internet at the following sites:

http://ocfo.ed.gov/fedreg.htm
http://ifap.ed.gov/csb_html/fedlreg.htm

    To use the PDF, you must have the Adobe Acrobat Reader Program with 
Search, which is available free at the first of the previous sites. If 
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(Catalog of Federal Domestic Assistance Number 84.032 Federal Family 
Education Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

    Administrative practice and procedure, Colleges and universities,

[[Page 46321]]

Education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

    Dated: July 19, 2000.
Richard W. Riley,
Secretary of Education.
    For the reasons discussed in the preamble, 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.

    2. Section 682.210 is amended by:
    A. Revising paragraph (a)(5).
    B. Revising paragraph (h)(2)(i).
    C. Removing the words ``of up to one year at a time'' from 
paragraph (s)(6) introductory text.
    D. Revising paragraphs (s)(6)(iii), (iv), (v), (ix), and (x).
    The revisions read as follows:


Sec. 682.210  Deferment.

    (a) * * *
    (5) An authorized deferment period begins on the date that the 
holder determines is the date that the condition entitling the borrower 
to the deferment first existed, except that an initial unemployment 
deferment as described in paragraph (h)(2) of this section cannot begin 
more than 6 months before the date the holder receives a request and 
documentation required for the deferment.
* * * * *
    (h) * * *
    (2) * * *
    (i) Describing the borrower's diligent search for full-time 
employment during the preceding 6 months, except that a borrower 
requesting an initial period of unemployment deferment, which may not 
exceed 6 months prospectively, is not required to describe his or her 
search for full-time employment. To continue an unemployment deferment, 
the borrower's written certification must include information showing 
that the borrower made at least six diligent attempts to secure 
employment to support the period covered by the certification. This 
information could be the name of the employer contacted and the 
employer's address and telephone number, or other information 
acceptable to the holder showing that the borrower made six diligent 
attempts to obtain full-time employment;
* * * * *
    (s) * * *
    (6) * * *
* * * * *
    (iii) Is working full-time and has a monthly income that does not 
exceed the greater of (as calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 100 percent of the poverty line for a family 
of two, as determined in accordance with section 673(2) of the 
Community Services Block Grant Act.
    (iv) Is working full-time and has a Federal education debt burden 
that equals or exceeds 20 percent of the borrower's monthly income, and 
that income, minus the borrower's Federal education debt burden, is 
less than 220 percent of the amount described in paragraph (s)(6)(iii) 
of this section.
    (v) Is not working full-time and has a monthly income that--
    (A) Does not exceed twice the amount described in paragraph 
(s)(6)(iii) of this section; and
    (B) After deducting an amount equal to the borrower's Federal 
education debt burden, the remaining amount of the borrower's income 
does not exceed the amount described in paragraph (s)(6)(iii) of this 
section.
* * * * *
    (ix) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraphs (s)(6)(iii) through (v) of this section, the lender must 
require the borrower to submit evidence showing--
    (A) The amount of the borrower's most recent monthly income or a 
copy of the borrower's most recently filed Federal income tax return; 
and
    (B) For periods of deferment under paragraphs (s)(6)(iv) and (v) of 
this section, evidence that would enable the lender to determine the 
amount of the monthly payments to all other entities for Federal 
postsecondary education loans that would have been owed by the borrower 
during the deferment period.
    (x) For purposes of paragraph (s)(6) of this section, a borrower's 
monthly income is the gross amount of income received by the borrower 
from employment and from other sources, or one-twelfth of the 
borrower's adjusted gross income, as recorded on the borrower's most 
recently filed Federal income tax return.
* * * * *
    3. Section 682.402 is amended by:
    A. In paragraph (e)(3)(ii), removing the words ``the school's''.
    B. In paragraph (e)(3)(ii)(A) adding the word ``and'' after the 
semicolon, and in paragraph (e)(3)(ii)(B), removing the word ``and'' 
after the semi-colon.
    C. Removing paragraph (e)(3)(ii)(C).
    D. Revising paragraph (e)(13)(ii)(A).
    E. Revising paragraph (e)(13)(ii)(B) introductory text.
    F. In paragraph (e)(13)(ii)(B)(2), removing the word ``or'' that 
appears after the semi-colon.
    G. In paragraph (e)(13)(ii)(C), removing the period and adding in 
its place, ``; or''.
    H. Adding a new paragraph (e)(13)(ii)(D).
    I. Adding a new paragraph (e)(14).
    The additions and revisions read as follows:


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

* * * * *
    (e) * * *
    (13) * * *
    (ii) * * *
    (A) For periods of enrollment beginning prior to July 1, 1987, was 
determined by the school to have the ability to benefit from the 
school's training in accordance with the requirements of 34 CFR 668.6, 
as in existence at the time the determination was made;
    (B) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1996, achieved a passing grade on a test--
* * * * *
    (D) For periods of enrollment beginning on or after July 1, 1996--
    (1) Has a high school diploma or its recognized equivalent;
    (2) Has obtained within 12 months before the date the student 
initially receives title IV, HEA program assistance, a passing score 
specified by the Secretary on an independently administered test in 
accordance with subpart J of 34 CFR part 668; or
    (3) Is enrolled in an eligible institution that participates in a 
State process approved by the Secretary under subpart J of 34 CFR part 
668.
* * * * *
    (14) Discharge without an application. A borrower's obligation to 
repay all or a portion of an FFEL Program loan may be discharged 
without an application from the borrower if the Secretary, or the 
guaranty agency with the Secretary's permission, determines that the 
borrower qualifies for a discharge based on information in the 
Secretary or guaranty agency's possession.
* * * * *
    4. Section 682.406 is amended by revising paragraph (a)(11) to read 
as follows:

[[Page 46322]]

Sec. 682.406  Conditions for claim payments from the Federal Fund and 
for reinsurance coverage.

    (a) * * *
    (11) The agency exercised due diligence in collection of the loan 
in accordance with Sec. 682.410(b)(6).
* * * * *
    5. Section 682.410 is amended by:
    A. Amending paragraph (b)(5)(i) introductory text by removing the 
reference to paragraph ``(b)(6)(iii)'' and adding in its place 
``(b)(6)(v)''.
    B. Amending paragraph (b)(5)(ii) introductory text by removing the 
reference to paragraph ``(b)(6)(ii)'' and adding in its place 
``(b)(6)(v)''.
    C. Revising paragraph (b)(6).
    D. Removing paragraph (b)(7).
    E. Redesignating paragraphs (b)(8) through (b)(11) as paragraphs 
(b)(7) through (b)(10), respectively.
    F. Amending redesignated paragraph (b)(7)(ii) by removing the 
reference to paragraph ``(b)(8)(i)'' and adding in its place 
``(b)(7)(i)''.
    G. Amending redesignated paragraph (b)(7)(ii)(D) by removing the 
reference to paragraph ``(b)(6)(i)'' and adding in its place 
``(b)(6)''.
    H. Amending redesignated paragraph (b)(8) by removing the reference 
to paragraphs ``(b)(2), (5), (6), and (7)'' and adding in its place 
``(b)(2), (5), and (6)''.
    I. Amending redesignated paragraph (b)(9)(i)(E) by removing the 
references to paragraphs ``(b)(10)(i)(D)'' and ``(b)(10)(i)(J)'' and 
adding in their place ``(b)(9)(i)(D)'' and ``(b)(9)(i)(J)'', 
respectively.
    J. Amending redesignated paragraph (b)(9)(i)(F) by removing the 
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place 
``(b)(9)(i)(H)''.
    K. Amending redesignated paragraph (b)(9)(i)(I) by removing the 
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place 
``(b)(9)(i)(H)''.
    L. Amending redesignated paragraph (b)(9)(i)(K) by removing both 
references to paragraph ``(b)(10)(i)(B)'' and adding in their place 
``(b)(9)(i)(B)''.
    M. Amending redesignated paragraph (b)(9)(i)(L) by removing both 
references to paragraph ``(b)(10)(i)(B)'' and adding in their place 
``(b)(9)(i)(B)''.
    N. Amending redesignated paragraph (b)(10)(ii) by removing the 
reference to ``Sec. 682.410(b)(11)(i)'' and adding in its place 
``Sec. 682.410(b)(10)(i)''.
    The revisions read as follows:


Sec. 682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (6) Collection efforts on defaulted loans.
    (i) A guaranty agency must engage in reasonable and documented 
collection activities on a loan on which it pays a default claim filed 
by a lender. For a non-paying borrower, the agency must perform at 
least one activity every 180 days to collect the debt, locate the 
borrower (if necessary), or determine if the borrower has the means to 
repay the debt.
    (ii) A guaranty agency must attempt an annual Federal offset 
against all eligible borrowers. If an agency initiates proceedings to 
offset a borrower's State and Federal income tax refunds and other 
payments made by the Federal Government to the borrower, it may not 
initiate those proceedings sooner than 60 days after sending the notice 
described in paragraph (b)(5)(ii)(A) of this section.
    (iii) A guaranty agency must initiate administrative wage 
garnishment proceedings against all eligible borrowers, except as 
provided in paragraph (b)(6)(iv) of this section, by following the 
procedures described in paragraph (b)(9) of this section.
    (iv) A guaranty agency may file a civil suit against a borrower to 
compel repayment only if the borrower has no wages that can be 
garnished under paragraph (b)(9) of this section, or the agency 
determines that the borrower has sufficient attachable assets or income 
that is not subject to administrative wage garnishment that can be used 
to repay the debt, and the use of litigation would be more effective in 
collection of the debt.
    (v) Within 45 days after paying a lender's default claim, the 
agency must send a notice to the borrower that contains the information 
described in paragraph (b)(5)(ii) of this section. During this time 
period, the agency also must notify the borrower, either in the notice 
containing the information described in paragraph (b)(5)(ii) of this 
section, or in a separate notice, that if he or she does not make 
repayment arrangements acceptable to the agency, the agency will 
promptly initiate procedures to collect the debt. The agency's 
notification to the borrower must state that the agency may 
administratively garnish the borrower's wages, file a civil suit to 
compel repayment, offset the borrower's State and Federal income tax 
refunds and other payments made by the Federal Government to the 
borrower, assign the loan to the Secretary in accordance with 
Sec. 682.409, and take other lawful collection means to collect the 
debt, at the discretion of the agency. The agency's notification must 
include a statement that borrowers may have certain legal rights in the 
collection of debts, and that borrowers may wish to contact counselors 
or lawyers regarding those rights.
    (vi) Within a reasonable time after all of the information 
described in paragraph (b)(6)(v) of this section has been sent, the 
agency must send at least one notice informing the borrower that the 
default has been reported to all national credit bureaus (if that is 
the case) and that the borrower's credit rating may thereby have been 
damaged.
* * * * *
    6. Section 682.414 is amended by revising paragraph (a)(2) to read 
as follows:


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

    (a) * * *
    (2) A guaranty agency must retain the records required for each 
loan for not less than 3 years following the date the loan is repaid in 
full by the borrower, or for not less than 5 years following the date 
the agency receives payment in full from any other source. However, in 
particular cases, the Secretary may require the retention of records 
beyond this minimum period.
* * * * *

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. 1087 et seq., unless otherwise noted.

    8. Section 685.214 is amended by:
    A. Removing the words ``the school's'' in paragraph (c)(1).
    B. Adding the word ``and'' after the semicolon at the end of 
paragraph (c)(1)(i).
    C. Removing ``; and'' at the end of paragraph (c)(1)(ii) and 
adding, in its place, a period.
    D. Removing paragraph (c)(1)(iii).
    E. Adding a new paragraph (c)(6).
    The revisions read as follows:


Sec. 685.214  Discharge for false certification of student eligibility 
or unauthorized payment.

* * * * *
    (c) * * *
    (6) Discharge without an application. The Secretary may discharge a 
loan under this section without an application from the borrower if the 
Secretary determines, based on information in the Secretary's 
possession, that the borrower qualifies for a discharge.
* * * * *
[FR Doc. 00-18953 Filed 7-26-00; 8:45 am]
BILLING CODE 4000-01-U