[Federal Register Volume 65, Number 149 (Wednesday, August 2, 2000)]
[Proposed Rules]
[Pages 47634-47646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19508]



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Part IV





Department of Education





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34 CFR Parts 674, 682, and 685



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

  Federal Register / Vol. 65, No. 149 / Wednesday, August 2, 2000 / 
Proposed Rules  

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DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

RIN 1845-AA12


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

AGENCY: Office of Postsecondary Education, Department of Education

ACTION: Notice of proposed rulemaking

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SUMMARY: The Secretary proposes to amend the regulations governing the 
Federal Perkins (Perkins) Loan Program, Federal Family Education Loan 
(FFEL) Program, and William D. Ford Federal Direct Loan (Direct Loan) 
Program regulations in order to strengthen and improve the processes 
for granting loan discharges based on a borrower's death or total and 
permanent disability.

DATES: We must receive your comments on or before September 18, 2000.

ADDRESSES: Address all comments about these proposed regulations to Mr. 
Brian Smith or Mr. Jon Utz, P.O. Box 23272, Washington, DC 20026-3272. 
If you prefer to send your comments through the Internet, use the 
following address: [email protected]
    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 and Perkins Loan 
Programs, Mr. Brian Smith, or for the Direct Loan Program, Mr. Jon Utz; 
U.S. Department of Education, 400 Maryland Avenue, SW., Room 3045, 
Regional Office Building 3, Washington, DC 20202-5345. 
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.
    Under Sec. 482(c) of the Higher Education Act of 1965, as amended 
(HEA), final regulations published before November 1 are generally 
effective on July 1 of the following year. We realize, however, that 
implementation of these proposed regulations might require significant 
operational changes for lenders, guaranty agencies, schools, and the 
Department. Therefore, we invite your comments on whether a later 
effective date should be considered for these 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 program.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations in Room 3045, Regional Office 
Building 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.

General

Background

    In the Perkins Loan, FFEL, and Direct Loan programs, a borrower's 
obligation to repay a loan is discharged if the borrower dies or 
becomes totally and permanently disabled. In all three programs current 
regulations define a ``total and permanent disability'' as a medical 
impairment that (1) prevents an individual from working and earning 
money or attending school, and (2) is expected to continue indefinitely 
or result in death.
    In June 1999, the Department of Education's Inspector General (IG) 
issued a report on the process of granting loan discharges in the FFEL 
Program due to death or total and permanent disability. The report, 
``Improving the Process for Forgiving Student Loans'' (audit control 
number 06-80001), is available in Adobe Portable Document Format (PDF) 
on the Internet at the following site: www.ed.gov/offices/OIG/Areports.htm The IG identified the borrowers who received death or 
disability discharges on FFEL Program loans from July 1, 1994 through 
December 31, 1996, and matched the list against the Social Security 
Administration's master earnings record. The IG found that 23 percent 
of borrowers who received total and permanent disability discharges and 
two percent of borrowers who received death discharges during the 
period covered by the report earned wages, in some cases in excess of 
$30,000 per year, after their loans were discharged. The IG also found 
that a significant number of borrowers whose loans had been discharged 
based on a total and permanent disability returned to school and 
received new loans within one year after having the previous loan 
discharged.
    The IG concluded that inappropriate discharges were being granted 
because of weaknesses in the current procedures for determining 
eligibility for discharge. Although the IG looked only at discharges in 
the FFEL Program, current regulations in the Perkins Loan and Direct 
Loan programs are essentially the same as the FFEL regulations. In 
response to the IG's findings, we are proposing regulatory changes that 
would strengthen the current processes for approving discharges based 
on death or total and permanent disability.

Negotiated Rulemaking

    Section 492 of the 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

[[Page 47635]]

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 were 
discussed with Negotiating Committee I (the 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
     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 not reached on the 
proposed regulations in this document.
    During the negotiations, we proposed a conditional approach to 
granting loan discharges based on total and permanent disability. As 
reflected in these proposed regulations, a borrower who is initially 
determined to be totally and permanently disabled would receive a 
conditional discharge for a period of three years. A final discharge 
would be granted only if the borrower continues to meet the discharge 
eligibility requirements over the three-year conditional discharge 
period.
    We believe that the conditional discharge approach proposed in 
these regulations is the proper response to the IG's findings. The IG's 
report indicates that the current approach of granting total and 
permanent disability discharges based on a physician's one-time 
certification of a borrower's condition has resulted in a significant 
number of inappropriate discharges being granted to borrowers who, 
although previously certified as totally and permanently disabled, 
subsequently had substantial earnings from work. The proposed 
conditional approach would allow for a more accurate assessment of a 
borrower's condition by monitoring the borrower's income over an 
extended period after the onset of the disabling condition. If a 
borrower had significant earnings from wages during the conditional 
discharge period, we believe it would be reasonable to conclude that 
the borrower was not totally and permanently disabled as we define that 
term in our regulations. The conditional discharge approach 
acknowledges that, as a result of advances in medicine and 
rehabilitative technologies, many individuals with conditions that once 
would have been totally and permanently disabling are now able to 
return to work. Moreover, the conditional discharge approach is 
consistent with other major government programs that provide disability 
benefits. We are not aware of any other major Federal program that 
provides disability-related benefits based on a one-time review of an 
individual's condition.
    The non-Federal negotiators generally opposed our proposed approach 
for granting disability discharges. They felt that our proposal to 
place loans in a conditional discharge status would be unfair to 
borrowers, and that the conditional discharge approach would be 
complicated, confusing, and difficult to administer. The non-Federal 
negotiators believed that other steps should be taken to address the 
concerns raised by the IG's report, rather than significantly changing 
the process for granting total and permanent disability discharges. 
Several of the non-Federal negotiators pointed out that the IG's report 
had already increased awareness of the problem in the financial aid 
industry. Some of the non-Federal negotiators referred to a separate 
pilot program initiated by the Department to address some aspects of 
the deficiencies identified in the report. Some of the non-Federal 
negotiators recommended that we make further revisions to the 
disability discharge request form, in addition to changes that we 
already made in response to the IG's report. These negotiators 
expressed the view that a more comprehensive form might make it easier 
for a physician to determine whether a patient meets the criteria for a 
total and permanent disability discharge, and would enhance the ability 
of loan holders to review physician's certifications.
    During the negotiations the non-Federal negotiators offered an 
alternative proposal. Under this proposal, the initial process for 
granting total and permanent disability discharges would remain 
substantially unchanged from current practice. However, if a borrower 
who had received a discharge worked and earned money over a certain 
income threshold, or took out another title IV loan within two years of 
receiving a discharge, the Secretary would revoke the discharge.
    It is the position of the non-Federal negotiators that most loans 
discharged are for borrowers who are totally and permanently disabled 
in accordance with the regulations. The non-Federal negotiators stated 
that their alternative proposal would allow us to address the concerns 
raised by the IG's report by focusing directly on cases of potentially 
erroneous discharges, thus preventing unnecessary confusion and anxiety 
for all affected borrowers.
    We understand the non-Federal negotiators' concerns about the

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proposed conditional discharge approach. However, in light of the IG's 
findings, we are convinced that significant changes to the current 
procedures for granting discharges based on total and permanent 
disability are necessary. We believe that the conditional discharge 
approach proposed in these regulations would be the most fair method to 
discharge a borrower's loans, and would best protect the interests of 
taxpayers.
    Some non-Federal negotiators also objected to our original proposal 
to require that a request for a loan discharge based on the death of 
the borrower (or student in the case of a PLUS loan) be supported by a 
certified or original copy of a death certificate. They felt that 
requiring a certified copy or original of a death certificate was not 
necessary in every case. Many of the negotiators proposed that the loan 
holder and guaranty agency be authorized to accept alternative 
documentation in certain circumstances.
    We have decided to accept this proposal, in part. These draft 
regulations would authorize the chief executive officer of the guaranty 
agency (for FFEL loans) or the chief financial officer of the 
institution (for Perkins loans) to grant a discharge based on other 
evidence in exceptional circumstances.

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.

Sections 674.61, 682.402, and 685.212 Death Discharge

    Statute: Sections 437(a) and 455(a)(1) of the HEA provide for a 
discharge of a borrower's FFEL or Direct Loan program loan if the 
borrower, or the student for whom a parent takes out a PLUS loan, dies. 
Section 464(c)(1)(F) of the HEA provides for the cancellation of a 
borrower's Perkins loan if the borrower dies.
    Current Regulations: The current Perkins Loan and FFEL Program 
regulations require a death certificate or other proof of death 
acceptable under State law in order to discharge a loan based on death. 
The FFEL Program regulations further provide that if a death 
certificate or other proof of death under State law is not available, a 
guaranty agency may discharge the loan based on other evidence 
establishing that the borrower has died.
    The current Direct Loan Program regulations require acceptable 
documentation of a borrower's death. In practice, acceptable 
documentation for this purpose is the same types of documentation that 
are required in the FFEL Program.
    Proposed Regulations: The proposed Perkins Loan and FFEL Program 
regulations would (1) require that the death certificate must be an 
original or certified copy, and (2) specify that other documentation of 
death may be used to support a discharge only under exceptional 
circumstances and only with the approval of the chief executive officer 
of the guaranty agency (for the FFEL Program) or the institution's 
chief financial officer (for the Perkins Loan Program).
    The proposed Direct Loan Program regulations would (1) specify that 
an original or certified copy of the death certificate is required, and 
(2) provide for loan discharge based on other documentation of death 
only with the Secretary's approval.
    Reasons: The proposed regulations address concerns raised in the 
IG's report. Specifically, the IG found that two percent of borrowers 
whose loans were discharged due to death during the period covered by 
the report had earnings from wages after the date of discharge. In 
reviewing a random sample of death certificates that were used as the 
basis for loan discharge, the IG found documents that had been typed, 
except for the deceased's name, which was hand-written. In one case, a 
guaranty agency reported receiving a death certificate that had been 
altered by changing the name and social security number of the deceased 
individual.
    We believe that requiring an original or certified copy of the 
death certificate would help to ensure that death discharges are based 
on valid documentation. We also believe that this practice would be 
consistent with the evidence required by insurance companies and other 
government programs. However, we recognize that, in rare cases, an 
original or certified copy of the death certificate may not be 
available. The non-Federal negotiators representing guaranty agencies 
strongly urged us to permit the use of alternative documentation in 
some circumstances and to allow the decision to rest with the agency. 
We have decided to accept this proposal. However, the proposed 
regulations would limit the conditions under which other documentation 
may serve as the basis for discharge by requiring a senior official of 
the agency or school to approve the use of any alternative 
documentation.
    This exception to the general requirement that an original or 
certified copy of a death certificate be obtained is intended to ensure 
that alternative documentation of death would be used only rarely, in 
exceptional circumstances. We expect guaranty agencies and schools to 
maintain separate records of their use of this exception and to make 
those records available to us upon request.

Sections 674.51, 682.200, and 685.102 Definitions.

    Current Regulations: The current definition of ``totally and 
permanently disabled'' provides that an individual must be unable to 
work and earn money or attend school because of the disabling 
condition.
    Proposed Regulations: The proposed regulations would remove the 
requirement that an individual be unable to attend school from the 
definition of ``total and permanent disability.''
    Reasons: We believe that with the development of new technologies 
to aid disabled individuals and the increased availability of distance 
learning, it is no longer meaningful to use ability to attend school as 
a measure of whether an individual is totally and permanently disabled. 
Moreover, we have determined that our current definition of totally and 
permanently disabled could have the unintended consequence of 
discouraging disabled individuals from pursuing further education or 
retraining. Accordingly, we are proposing to remove the requirement 
that an individual be unable to attend school from the definition of a 
``total and permanent disability.''

Sections 674.61, 682.402, 685.212, and 685.213  Total and Permanent 
Disability Discharge

    Statute: Sections 437(a) and 455(a)(1) of the HEA provide for 
discharging a borrower's FFEL or Direct Loan program loan if the 
borrower becomes permanently and totally disabled. Section 464(c)(1)(F) 
of the HEA similarly provides for canceling a borrower's Perkins loan 
if the borrower becomes permanently and totally disabled. In all three 
programs, permanent and total disability must be determined in 
accordance with regulations of the Secretary.
    Current Regulations: Under current regulations, schools (for 
Perkins loans), guaranty agencies (for FFEL loans), or the Secretary 
(for all Direct Loans, and any Perkins or FFEL loans held by the 
Secretary) discharge title IV loans after determining that a borrower 
meets the criteria for a total and permanent

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disability discharge. Traditionally, in granting these discharges, the 
Secretary, schools, and guaranty agencies have primarily relied on a 
physician's certification to make that determination. The FFEL and 
Direct Loan program regulations define a ``total and permanent 
disability'' as ``the condition of an individual who is unable to 
attend school because of an injury or illness that is expected to 
continue indefinitely or result in death.'' In the Perkins Loan Program 
the definition is ``the inability to work and earn money or to attend 
an institution because of an impairment that is expected to continue 
indefinitely or result in death.''
    If a borrower sends payments to the loan holder after it has 
discharged the loan the loan holder returns those payments to the 
borrower, with a notification that the loan has been discharged and 
that any further payments are unnecessary.
    Under the current regulations, a borrower whose title IV loan has 
been discharged due to a disability may receive another title IV loan 
only if a physician certifies that the borrower now can engage in 
substantial gainful activity. The borrower must also acknowledge that 
any additional loans that are received cannot be discharged due to the 
same disability, unless the disability substantially deteriorates.
    Proposed Regulations: Under the proposed regulations, a borrower 
would apply to the loan holder for a disability discharge. Approval of 
a request for a disability discharge would be based on either a 
physician's certification or documentation from the Social Security 
Administration that supports the conclusion that the borrower's 
condition meets our requirements. If the loan holder (and guaranty 
agency, for FFEL loans) approves the request, the loan would be 
assigned to us. We would review the documentation that is submitted. If 
we denied the request for a discharge, we would continue to hold the 
loan and resume collection activity. If we approved the request for a 
discharge, the borrower would receive a conditional discharge of the 
loan. During the conditional discharge period, which would last for up 
to three years, the borrower would not be required to make payments on 
the loan. At the end of the conditional discharge period we would make 
a final determination of eligibility for a disability discharge. If, 
during the conditional discharge period, the borrower's annual earnings 
from work are below the poverty line for a family of two, and the 
borrower does not receive any additional title IV loans, we would grant 
a final discharge of the loan. At that time, we would return any 
payments made on the loan after the onset of the disabling condition.

Sections 674.61(b)(3)(ii), 682.402(c)(2)(ii), and 685.213(b)(2) Use of 
Social Security Administration Disability Documentation

    Proposed Regulations: Under the proposed regulations a borrower 
could submit, in lieu of the physician's certification, documentation 
from the Social Security Administration (SSA) that supports the 
borrower's claim of total and permanent disability. Documentation from 
the SSA must establish that the borrower is totally and permanently 
disabled as defined in these proposed regulations. We are also 
proposing that documentation from the SSA could be used when a 
borrower, in order to qualify for additional title IV loan funds, needs 
to document that the borrower's medical condition has improved to the 
extent that the borrower is capable of substantial gainful activity.
    Reasons: Individuals who are eligible to receive disability 
benefits from the SSA have already gone through an extensive medical 
review process. For this reason, we are proposing regulations that 
would permit a borrower who is eligible for SSA disability benefits to 
receive a disability discharge without obtaining an additional 
certification from a physician, if the borrower can provide comparable 
documentation from the SSA establishing that he or she is totally and 
permanently disabled. Similarly, in the case of a borrower who wishes 
to receive a title IV loan after having had a previous loan discharged 
(or conditionally discharged) due to a total and permanent disability, 
the proposed regulations would not require an additional physician's 
certification if the borrower provides documentation from the SSA 
showing that the borrower is able to engage in substantial gainful 
activity.
    The standard that an individual must meet to qualify for SSA 
disability benefits is not the same as the total and permanent 
disability standard in the proposed regulations. Some individuals who 
are eligible to receive SSA disability benefits would not be considered 
totally and permanently disabled according to our regulatory 
definition. Therefore, we do not believe that it would be appropriate 
to accept SSA documentation as an alternative to a physician's 
certification in all cases.
    We are working with the SSA to determine if there is specific 
documentation that the SSA provides to some individuals that would be 
comparable to a physician's certification that a borrower is totally 
and permanently disabled as defined in our regulations. If we determine 
that the SSA provides such documentation to some borrowers, we will 
provide guidance on the specific documentation that a borrower would 
have to provide.
    We welcome your comments on the feasibility of using documentation 
of eligibility for SSA disability benefits, in some cases, as an 
alternative to a physician's certification of total and permanent 
disability. We are especially interested in comments on how the use of 
SSA documentation might affect administrative burden, borrower 
understanding of the discharge eligibility requirements, and program 
integrity.

Sections 674.61(b)(3)-(6), 682.402(c)(2)-(12), and 685.213(b)  Initial 
Determination of Total and Permanent Disability

    Proposed Regulations: As noted earlier, the proposed regulations 
would modify the current regulations and establish a new process for 
evaluating disability discharge applications. Under the proposed 
regulations, a FFEL or Perkins loan borrower would initiate the 
discharge application process by submitting a discharge application to 
the loan holder. If the loan holder, based on a review of the 
application, determines that the borrower met the requirements for a 
disability discharge, the loan would be assigned to the Department. We 
would notify the borrower that we would be reviewing the application 
and assorted documentation. We would also continue to review disability 
discharge applications submitted by Direct Loan borrowers. In all three 
loan programs, we could ask the borrower to provide additional 
documentation to support the request for discharge.
    Under the proposed regulations, if we determine that a borrower 
meets the eligibility criteria for a conditional disability discharge, 
we would place the loan into a conditional discharge status for up to 
three years.
    If we determine that the borrower does not qualify for a total and 
permanent disability discharge, we would notify the borrower that we 
had denied the request and that we would resume collection activity on 
the loan.
    Reasons: Under the proposed regulations, we would determine whether 
a borrower meets the eligibility criteria for a total and permanent 
disability discharge. During the negotiated rulemaking sessions, some 
negotiators for FFEL loan holders, Perkins Loan schools, and guaranty 
agencies indicated that they did not believe that they could properly

[[Page 47638]]

evaluate disability discharge applications. They felt that they had 
neither the staff, the resources, nor the expertise to thoroughly 
review or question a physician's certification of a borrower's 
disability. The IG found that, in some cases, disability discharges 
were approved based on an insufficient review of medical documentation. 
Disability discharges were granted based on physicians' diagnoses that 
were illegible, or for impairments that clearly were neither 
``permanent'' nor ``total.'' The proposed regulations would require the 
loan holder (or guaranty agency) to thoroughly review the documentation 
provided by a borrower requesting a discharge due to a total and 
permanent disability. However, we would assume the responsibility for 
making the ultimate decision as to whether to grant the discharge. We 
believe that this proposed process will help ensure that conditional 
and final disability discharges are granted based on adequate medical 
documentation, and that there is a consistent application of the 
standards for granting those discharges.

Sections 674.61(b)(1), (6), and (7), 682.402(c)(1), (12), and (13), and 
685.213(a)(1) and (d)  Conditional Discharge

    Proposed Regulations: Under the proposed regulations, if we make a 
conditional determination that a borrower is totally and permanently 
disabled, we would place the borrower's loan in a conditional discharge 
status for a period of up to three years from the date of the onset of 
the disabling condition. We would not require the borrower to make 
payments on the loan.
    If, at the end of the conditional discharge period, the borrower 
still meets the discharge eligibility requirements, we would make a 
final determination of eligibility for a total and permanent disability 
discharge. We would discharge the loan, including any accrued interest, 
and we would return any payments made on the loan after the onset of 
the disability.
    If the borrower ceased to meet the discharge eligibility 
requirements during or at the end of the conditional discharge period, 
we would cancel the conditional discharge, and collection activity 
would resume on the loan. The borrower would not be required to repay 
any interest that accrued on the loan during the period when collection 
activity was suspended.
    Reasons: The definition of ``totally and permanently disabled'' 
states, in part, that a borrower must be unable to work and earn money 
because of an impairment that is expected to continue indefinitely or 
result in death. However, the IG found that a significant number of 
borrowers who received a total and permanent disability discharge 
earned wages after their loans were discharged. We believe it is 
reasonable to conclude that a borrower is not totally and permanently 
disabled if there is evidence that the borrower has received income 
from wages in excess of a very modest amount. Under the conditional 
discharge approach proposed in these regulations, we would monitor a 
borrower's income--as an indicator of whether the borrower is working--
over an extended period of time. We believe that this approach 
addresses the concerns raised in the IG's report by providing for a 
more accurate assessment of whether a borrower is totally and 
permanently disabled than the ``snapshot'' approach in the current 
regulations.
    To minimize the administrative burden, and allow for final 
determinations of discharge eligibility in a reasonable period of time, 
we are proposing a conditional discharge period of up to three years. 
We are especially interested in receiving comments on whether that 
conditional discharge period is an appropriate length of time.

Sections 674.61(b)(2),(8), and (9), 682.402(c)(14) and (15), and 
685.213(a)(2) and (c)  Final Determination of Total and Permanent 
Disability

    Proposed Regulations: These proposed regulations would describe the 
basis for the decision as to whether to grant a final disability 
discharge. Under the proposed regulations, the loan would generally be 
discharged if, during the conditional discharge period, the borrower's 
income from employment did not exceed the poverty line for a family of 
two for any 12-month period, and the borrower did not take out any 
additional title IV loans. If the borrower did earn income from 
employment above this threshold or did take out additional loans or was 
otherwise determined not to be totally and permanently disabled, we 
would not grant the final discharge.
    A borrower could not apply for a total and permanent disability 
discharge on a loan that has gone back into active collection status 
after being conditionally discharged, unless the borrower's medical 
condition substantially deteriorated.
    Reasons: Under the proposed regulations, a borrower whose loan is 
in a conditional discharge status would lose eligibility for a final 
discharge if the borrower's earnings from work exceeded the poverty 
line for a family of two for any 12-month period. The poverty 
guidelines are updated annually in the Federal Register by the U.S. 
Department of Health and Human Services (HHS) and are a reliable 
indicator of current economic conditions that can be used as a measure 
of minimal earnings. The poverty guidelines are posted on HHS' web site 
at the following address: 
http://aspe.hhs.gov/poverty/poverty.htm
    The IG found that some borrowers who had received disability 
discharges were earning substantial wages after the discharge, in some 
cases over $30,000 a year. We do not believe that a borrower who has 
worked consistently for a significant period of time, as indicated by 
earnings above the poverty line, is totally and permanently disabled in 
accordance with our regulations.
    On the other hand, we also believe that terminating a conditional 
discharge if the borrower had any earnings at all from work during the 
three-year conditional discharge period could have the undesirable 
effect of discouraging disabled borrowers from attempting to overcome 
their disabilities. A disabled borrower might be able to generate 
modest earnings from work, but find those earnings wiped out if the 
conditional discharge was immediately cancelled as a result. Therefore, 
the proposed regulations would not penalize a borrower who has minimal 
earnings from work. However, a borrower who is clearly capable of 
engaging in substantial gainful activity (as indicated by earnings in 
excess of the poverty line) would lose eligibility for the total and 
permanent disability discharge because, by definition, he or she would 
not be totally and permanently disabled.
    Under the proposed regulations, if a borrower seeks another title 
IV loan during the conditional discharge period, we would cancel the 
conditional discharge before the borrower could receive an additional 
title IV loan. To receive another title IV loan, a borrower who has had 
a prior loan discharged (or conditionally discharged) due to a total 
and permanent disability must provide a certification, from a physician 
or from the SSA, that the borrower can engage in substantial gainful 
activity. By definition, a borrower who is totally and permanently 
disabled must be unable to work and earn money. In our view, a borrower 
no longer meets the eligibility requirements for a total and permanent 
disability if a physician or the SSA has certified that the borrower is 
capable of substantial gainful activity. Therefore, the borrower should 
remain obligated to

[[Page 47639]]

repay the loan for which the discharge was previously sought.

Sections 674.61(b)(11) and (12), 682.402(r)(2) and (3), 685.212(g)(2) 
Payments Received After the Onset of the Disabling Condition

    Proposed Regulations: Under the proposed regulations, any payments 
sent to an institution (on a Perkins Loan) or a lender or guaranty 
agency (on an FFEL loan) by or on behalf of a borrower whose loan has 
been assigned to us after the borrower has applied for a disability 
discharge must be forwarded to us. If those payments are made on a loan 
that we have placed in a conditional discharge status, the payments 
will be applied to the loan. Similarly, we will apply any payments we 
receive for a Direct Loan that we have conditionally discharged to that 
loan. If we discharge the loan at the end of the conditional discharge 
period, we will return to the sender payments we received after the 
date of the onset of the disability.
    Reasons: Once a loan is assigned to us, the prior holder of the 
loan may not know the loan's current status. We could still be in the 
process of determining if the borrower meets the eligibility 
requirements for a conditional discharge, the loan could be in the 
conditional discharge status, or a final determination could have been 
made and the loan already discharged. While a discharge application is 
pending or a loan is in a conditional discharge period, a final 
determination of eligibility for a total and permanent disability 
discharge has not been made. Until we have made a final determination 
that a borrower qualifies for a total and permanent disability 
discharge, any payments made on a loan should be applied to the loan. 
If it turns out that the borrower was not eligible for a final 
discharge of the loan, the payments would have reduced the outstanding 
balance due at the time of that determination. If, on the other hand, 
the loan is discharged at the end of the conditional discharge period, 
all payments received after the onset of the disability will be 
returned to the sender.

Sections 674.9, 682.201 and 685.200 Eligibility for Title IV Loans

    Current Regulations: The current regulations state that a borrower 
who has received a discharge of a previous title IV loan based on total 
and permanent disability may receive another title IV loan only if a 
physician certifies that the borrower can now engage in substantial 
gainful activity. In addition, the borrower must sign a statement 
acknowledging that the new title IV loan cannot be discharged in the 
future based on any current impairment, unless that impairment 
substantially deteriorates.
    Proposed regulations: The proposed regulations would establish 
similar eligibility requirements for a borrower who seeks a title IV 
loan while a previous title IV loan is in a conditional discharge 
period. Under the proposed regulations, in this situation, the borrower 
would be eligible to receive another title IV loan only if (1) a 
physician or the SSA certifies that the borrower is able to engage in 
substantial gainful activity, (2) the borrower acknowledges that 
neither the conditionally discharged loan nor the new loan could be 
discharged on the basis of a pre-existing impairment (unless the 
impairment substantially deteriorates), and (3) collection activity 
resumes on the conditionally discharged loan.
    Reasons: The proposed requirements for the physician's (or SSA's) 
certification and borrower's acknowledgement would ensure that a 
borrower whose previous loan was approved for a conditional discharge 
or was permanently discharged is potentially capable of repaying the 
new loan before receiving that new title IV loan. When the borrower 
receives the new loan, he or she promises to repay the loan. We do not 
believe it is appropriate to provide a new loan to a borrower who has 
no prospect of repaying the loan. These students should request other 
financial aid that does not require repayment.
    The proposed regulations would also prevent a borrower from 
obtaining a new loan and later having that loan discharged based on a 
medical condition that the borrower used as the basis for an earlier 
conditional or permanent discharge. The proposed regulations would 
allow the certification to be provided by either a physician or the 
SSA, as in the case with the documentation required for a conditional 
determination of total and permanent disability.
    Under the proposed regulations, a conditional discharge on a 
borrower's prior loan must be cancelled and collection activity resume 
on the loan before a borrower may receive an additional loan during the 
conditional discharge period. This requirement reflects the fact that a 
borrower who has been certified as capable of substantial gainful 
activity no longer meets the eligibility requirements for a total and 
permanent disability discharge.

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.
    These proposed regulations implement new procedures for borrowers 
who apply for loan discharges due to death or total and permanent 
disability. As more fully described elsewhere in this preamble, under 
these regulations a borrower who is initially determined to be totally 
and permanently disabled would receive a conditional discharge for a 
period of three years. The Department of Education has estimated that 
the proposed regulations would result in $72 million in Federal savings 
over FY 2001-2005 as a result of borrowers who previously would have 
received a discharge losing eligibility during the three-year 
conditional period.
    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.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.

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. 682.201  Eligible Borrowers).
     Could the description of the proposed regulations in the

[[Page 47640]]

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 institutions of 
higher education, lenders, and guaranty agencies that participate in 
title IV, HEA programs, and individual loan borrowers. The U.S. Small 
Business Administration (SBA) Size Standards define for-profit or 
nonprofit institutions with total annual revenue below $5,000,000 or 
institutions controlled by governmental entities with populations below 
50,000, and lenders with total assets under $100 million, as ``small 
entities.'' Guaranty agencies are State and private nonprofit entities 
that act as agents of the Federal government, and as such are not 
considered ``small entities'' under the Regulatory Act. Individuals are 
not defined as ``small entities'' under the Regulatory Flexibility Act.
    A significant percentage of the over 4,000 lenders participating in 
the FFEL program meet the definition of ``small entities.'' While these 
lenders and a number of institutions of higher education fall within 
the SBA size guidelines, the proposed regulations do not impose 
significant new costs on these entities.
    The Secretary invites comments from small institutions and lenders 
as to whether the proposed changes would have a significant economic 
impact on them.

Paperwork Reduction Act of 1995

    Sections 674.9(h), 674.9(i), 674.61(a), 674.61(b), 682.201(a), 
682.402(b), 682.402(c), 685.200(a), 685.212(a), 685.212(b), and 
685.213(b) 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.

Sections 674.9, 682.201, and 685.200--Borrower Eligibility

    We are proposing changes in the requirements for a borrower to re-
establish eligibility for title IV loans after receiving a disability 
discharge. Under the proposed regulations, a borrower has the 
additional option of submitting a statement from the SSA certifying 
that the borrower can engage in substantial gainful activity. This 
change gives the borrower more flexibility in re-establishing 
eligibility for title IV loans, and produces no additional burden.
    Under the proposed regulations, before a borrower receives another 
title IV loan, a conditional discharge on any prior loan must be 
cancelled and that loan placed in an active collection status. As a 
condition for receiving an additional title IV loan, the borrower must 
also sign a statement acknowledging that any new loan, or a loan for 
which a conditional or permanent discharge was previously granted, may 
not be discharged in the future on the basis of the same, pre-existing 
medical condition unless the borrower's medical condition substantially 
deteriorates.
    Borrowers are already required, under current regulations, to sign 
such a statement to regain eligibility for an additional title IV loan 
after receiving a total and permanent disability discharge. This change 
does not alter the burden to borrowers.

Sections 674.61, 682.402, 685.212--Loan Discharge Due to Death

    Guaranty agencies currently have the authority to discharge loans 
based on alternative documentation if a copy of the death certificate 
is unavailable. The proposed regulations maintain that requirement, but 
specify that the chief executive officer of the guaranty agency must 
make the decision to exercise that authority and limits the authority 
to exceptional circumstances. This change does not increase the burden 
on guaranty agencies.
    Currently, schools in the Perkins Loan Program must base their 
death cancellations on a death certificate or other evidence acceptable 
under state law. By allowing only the chief financial officer of the 
institution to grant total and permanent disability cancellations based 
on alternative evidence of death, the burden on the schools is not 
changed.

Sections 674.61, 682.402, 685.212, 695.213--Loan Discharge Due to 
Disability

    The proposed regulations do not alter the process for loan holders 
and guaranty agencies in the FFEL and Perkins programs to review 
requests for a discharge of a loan based on a total and permanent 
disability. The only difference under the proposed process is that the 
loan holder and guaranty agency will make a preliminary determination 
of eligibility for the discharge. After making that determination, the 
guaranty agency or other loan holder assigns the loan to us, and we 
decide whether to discharge the loan. This change does not increase the 
burden on loan holders or guaranty agencies.
    In the Direct Loan Program, we will continue to make determinations 
of eligibility for total and permanent disability discharges.
    In addition, the proposed regulations allow borrowers to qualify 
for a conditional discharge of their title IV loans by providing a 
certification of eligibility for disability benefits from the SSA. This 
allows borrowers increased flexibility in applying for the discharge, 
and does not increase burden.
    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

[[Page 47641]]

days of publication. This does not affect the deadline for your 
comments to us on the proposed regulations.

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 
you have questions about using the PDF, call the U.S. Government 
Printing Office (GPO), toll free, at 1-888-293-6498; or in the 
Washington, D.C., area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at:

http://www.access.gpo.gov/nara/index.html
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal 
Family Education Loan Program; 84.037 Federal Perkins Loan Program; 
and 84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 674, 682, and 685

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

    Dated: July 26, 2000.
Richard W. Riley,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend parts 674, 682, and 685 of Title 34 of the Code of Federal 
Regulations as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

    1. 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.

    2. Section 674.9 is amended by:
    A. Revising paragraph (h)(1).
    B. Redesignating paragraphs (i) and (j) as paragraphs (k) and (l).
    C. Adding a new paragraph (i).
    D. Adding a new paragraph (j).
    The additions and revisions read as follows:


Sec. 674.9  Student eligibility.

* * * * *
    (h)(1) In the case of a borrower whose previous loan under title IV 
of the HEA was discharged due to total and permanent disability, 
obtains a certification from a physician or from the Social Security 
Administration that the borrower's condition has improved and that the 
borrower is able to engage in substantial gainful activity; and
* * * * *
    (i) In the case of a borrower whose previous loan under title IV of 
the HEA was conditionally discharged based on a preliminary 
determination that the borrower was totally and permanently disabled, 
the borrower must--
    (1) Comply with the requirements of paragraph (h) of this section; 
and
    (2) Sign a statement acknowledging that the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability cannot be discharged in the future on the basis of 
any impairment present when the borrower applied for a total and 
permanent disability discharge, unless that impairment substantially 
deteriorates.
    (j) Does not have any loans under title IV of the HEA on which 
collection activity has been suspended based on a conditional 
determination that the borrower was totally and permanently disabled. 
If a borrower applies for a loan under title IV of the HEA during the 
conditional discharge period described in Secs. 674.61(b), 682.402(c), 
or 685.212(b), the suspension of collection activity must be ended 
before the borrower becomes eligible to receive any additional loans.
* * * * *
    3. Section 674.51 is amended by adding a new paragraph (s) to read 
as follows:


Sec. 674.51  Special definitions.

* * * * *
    (s) Total and permanent disability: The inability to work and earn 
money because of an impairment that is expected to continue 
indefinitely or result in death.
* * * * *
    4. Section 674.61 is amended by:
    A. Revising the section heading.
    B. Revising paragraph (a).
    C. Revising paragraph (b).


Sec. 674.61  Discharge for death or disability.

    (a) Death. An institution must discharge the unpaid balance of a 
borrower's Defense, NDSL, or Perkins loan, including interest, if the 
borrower dies. The institution must discharge the loan on the basis of 
an original or certified copy of the death certificate. Under 
exceptional circumstances and on a case-by-case basis, the chief 
financial officer of the institution may approve a discharge based upon 
reliable documentation other than a death certificate that supports the 
discharge request.
    (b) Total and permanent disability. (1) If the Secretary has made a 
conditional determination that the borrower is totally and permanently 
disabled, as defined in Sec. 674.51(s), the loan is conditionally 
discharged for up to three years from the date that the disabling 
condition began. The Secretary suspends collection activity on the loan 
from the date of the conditional determination of total and permanent 
disability until the end of the three-year conditional period. If the 
borrower satisfies the criteria for a total and permanent disability 
discharge during and at the end of the conditional discharge period, 
the balance of the loan is discharged at the end of the conditional 
discharge period and any payments received after the onset of the 
disability as certified under Sec. 674.61(b)(3) are returned to the 
sender.
    (2) A borrower satisfies the criteria for a discharge of a loan 
based on a total and permanent disability if, during and at the end of 
the three-year conditional discharge period described in paragraph 
(b)(1) of this section--
    (i) The borrower's annual earnings from employment do not exceed 
100 percent of the poverty line for a family of two, as determined in 
accordance with the Community Service Block Grant Act; and
    (ii) The borrower does not receive an additional loan under the 
FFEL, Direct Loan or Federal Perkins Loan Programs.
    (3) If a borrower becomes totally and permanently disabled after 
receiving a Defense, NDSL, or Perkins loan, the institution shall, 
pursuant to Sec. 674.50, assign the loan to the Secretary if--
    (i) The borrower submits a certification by a physician and the 
institution reviewed the application and determined that it is complete 
and that it supports the conclusion that the borrower meets the 
criteria for a total and permanent disability discharge, as defined in 
Sec. 674.51(s); or
    (ii) The borrower submits documentation from the Social Security 
Administration that the Secretary has identified as acceptable to 
support the

[[Page 47642]]

conclusion that the borrower meets the criteria for a total and 
permanent disability discharge, as defined in Sec. 674.51(s).
    (4) At the time the loan is assigned to the Secretary the 
institution must notify the borrower that the loan has been assigned to 
the Secretary for determination of eligibility for a total and 
permanent disability discharge.
    (5) If the Secretary determines that the certification provided by 
the borrower does not support the conclusion that the borrower meets 
the criteria for a total and permanent disability discharge, the 
Secretary notifies the borrower that the application for a disability 
discharge has been denied, and that the loan is due and payable under 
the terms of the promissory note.
    (6) If the Secretary makes a conditional determination that the 
borrower is totally and permanently disabled, the Secretary notifies 
the borrower that the loan will be in a conditional discharge status 
for a period of up to three years after the onset of the disability as 
certified under Sec. 674.61(b)(3).
    (7) During the conditional discharge period, the borrower--
    (i) Is not required to make any payments on the loan beginning on 
the date the Secretary makes a conditional determination that the 
borrower is totally and permanently disabled;
    (ii) Is not considered past due or in default on the loan;
    (iii) Must promptly notify the Secretary of any changes in address 
or phone number;
    (iv) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(2)(i) of this section; and
    (v) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (8) If, during and at the end of the conditional discharge period, 
the borrower continues to satisfy the eligibility criteria for a total 
and permanent disability discharge, as described in paragraph (b)(2) of 
this section, the balance of the loan is discharged.
    (9) If, at any time during or at the end of the three-year 
conditional discharge period, the borrower does not continue to meet 
the eligibility requirements for total and permanent disability 
discharge, the Secretary resumes collection activity on the loan. The 
Secretary does not require the borrower to pay any interest that 
accrued on the loan from the date of the initial determination 
described in paragraph (b)(6) of this section through the end of the 
conditional discharge period.
    (10) The notification to the borrower described in paragraph (b)(6) 
of this section identifies the conditions of the conditional discharge 
period specified in paragraphs (b)(6) through (9) of this section.
    (11) If the institution receives any payments from or on behalf of 
the borrower on or attributable to a loan that has been assigned to the 
Secretary for determination of eligibility for a total and permanent 
disability discharge, the institution must forward those payments to 
the Secretary for crediting to the borrower's account. At the same time 
that the institution forwards the payment, it must notify the borrower 
that there is no obligation to make payments on the loan while it is 
conditionally discharged prior to a final determination of eligibility 
for a total and permanent disability discharge, unless the Secretary 
directs the borrower otherwise.
    (12) When the Secretary makes a final determination to discharge 
the loan, the Secretary returns to the sender 100 percent of any 
payments received, directly or indirectly, from or on behalf of the 
borrower.
* * * * *

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

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

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

    6. In Sec. 682.200(b) the definition of ``Totally and permanently 
disabled'' is revised to read as follows:


Sec. 682.200  Definitions.

* * * * *
    (b) * * *
    Totally and permanently disabled. The condition of an individual 
who is unable to work and earn money because of an injury or illness 
that is expected to continue indefinitely or result in death.
* * * * *
    7. Section 682.201 is amended by:
    A. Redesignating paragraphs (a)(5), (a)(6), and (a)(7) as 
paragraphs (a)(6), (a)(8), and (a)(9).
    B. Adding a new paragraph (a)(5).
    C. Revising redesignated paragraph (a)(6).
    D. Adding a new paragraph (a)(7).


Sec. 682.201  Eligible borrowers.

    (a) * * *
    (5) The suspension of collection activity has been lifted from any 
loan on which collection activity had been suspended based on a 
conditional determination that the borrower was totally and permanently 
disabled under Sec. 682.402(c).
    (6) In the case of a borrower whose prior loan under title IV of 
the Act was discharged after a final determination of total and 
permanent disability, the student must--
    (i) Obtain certification from a physician or from the Social 
Security Administration that the borrower is able to engage in 
substantial gainful activity; and
    (ii) Sign a statement acknowledging that the FFEL loan the borrower 
receives cannot be discharged in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates.
    (7) In the case of a borrower whose prior loan under title IV of 
the Act was conditionally discharged based on a preliminary 
determination that the borrower was totally and permanently disabled, 
the borrower must--
    (i) Comply with the requirements of paragraph (a)(6) of this 
section; and
    (ii) Sign a statement acknowledging that the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability cannot be discharged in the future on the basis of 
any impairment present when the borrower applied for a total and 
permanent disability discharge, unless that impairment substantially 
deteriorates.
* * * * *
    8. Section 682.402 is amended by:
    A. Revising paragraph (b)(2).
    B. Revising paragraph (b)(3).
    C. Revising paragraph (c)(1)(i).
    D. Redesignating paragraphs (c)(1)(ii) and (c)(1)(iii) as 
paragraphs (c)(1)(iii) and (c)(1)(iv), respectively.
    E. Adding a new paragraph (c)(1)(ii).
    F. Amending redesignated paragraph (c)(1)(iii) by removing the 
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place, 
``(c)(1)(iv)(A)''.
    G. Amending redesignated paragraph (c)(1)(iv)(A) by removing the 
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its 
place, ``(c)(1)(i) through (iii)''.
    H. Amending redesignated paragraph (c)(1)(iv)(B) by removing the 
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place, 
``(c)(1)(iv)(A)''.
    I. Amending redesignated paragraph (c)(1)(iv)(B) by removing the 
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its 
place, ``(c)(1)(i) through (iii)''.

[[Page 47643]]

    J. Amending redesignated paragraph (c)(1)(iv)(C) by removing the 
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place, 
``(c)(1)(iv)(A)''.
    K. Revising paragraph (c)(2).
    L. Revising paragraph (c)(3).
    M. Redesignating paragraph (c)(4) as paragraph (c)(5).
    N. Adding a new paragraph (c)(4).
    O. Revising redesignated paragraph (c)(5).
    P. Adding new paragraphs (c)(6) through (c)(16).
    Q. Revising paragraph (g)(1)(iii).
    R. Revising paragraph (g)(1)(iv).
    S. Revising paragraph (k)(5)(i).
    T. Redesignating paragraph (k)(5)(ii) as paragraph (k)(5)(iii).
    U. Adding a new paragraph (k)(5)(ii).
    V. Redesignating paragraphs (r)(2) and (r)(3) as paragraphs (r)(4) 
and (r)(5), respectively.
    W. Adding a new paragraph (r)(2).
    X. Adding a new paragraph (r)(3).
    Y. Revising redesignated paragraph (r)(5).


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

* * * * *
    (b) * * *
    (2) To support a request for a discharge of a loan based on the 
death of the borrower (or student in the case of a PLUS loan), the 
borrower's representative (or the parent in the case of a PLUS loan) 
must provide the lender with an original or certified copy of the death 
certificate. Under exceptional circumstances and on a case-by-case 
basis, the chief executive officer of the guaranty agency may approve a 
discharge based upon other reliable documentation supporting the 
discharge request.
    (3) After receiving reliable information indicating that the 
borrower (or student) has died, the lender must suspend any collection 
activity against the borrower for up to 60 days and promptly request 
that the borrower's representative (or the student's parent in the case 
of a PLUS loan) provide the documentation described in paragraph (b)(2) 
of this section. If additional time is required to obtain the 
documentation, the period of suspension of collection activity may be 
extended up to an additional 60 days. If the lender is not able to 
obtain an original or certified copy of the death certificate or other 
documentation acceptable to the guaranty agency, under the provisions 
of paragraph (b)(2) of this section, during the period of suspension, 
the lender must resume collection activity from the point that it had 
been discontinued. The lender is deemed to have exercised forbearance 
as to repayment of the loan during the period when collection activity 
was suspended.
* * * * *
    (c) * * *
    (1)(i) If the Secretary has made a conditional determination that 
the borrower is totally and permanently disabled, as defined in 
Sec. 682.200(b), the loan is conditionally discharged for up to three 
years from the date that the disabling condition began. The Secretary 
suspends collection activity on the loan from the date of the 
conditional determination of total and permanent disability until the 
end of the conditional period. If the borrower satisfies the criteria 
for a total and permanent disability discharge during and at the end of 
the conditional discharge period, the balance of the loan is discharged 
at the end of the conditional discharge period and any payments 
received after the onset of the disability, as certified under 
Sec. 682.402(c)(2) are returned to the sender.
    (ii) A borrower satisfies the criteria for a discharge of a loan 
based on a total and permanent disability if, during and at the end of 
the three-year period described in paragraph (c)(1)(i) of this 
section--
    (A) The borrower's annual earnings from employment do not exceed 
100 percent of the poverty line for a family of two, as determined in 
accordance with the Community Service Block Grant Act; and
    (B) The borrower does not receive an additional loan under the 
FFEL, Direct Loan or Federal Perkins Loan Programs.
* * * * *
    (2) After being notified by the borrower or the borrower's 
representative that the borrower claims to be totally and permanently 
disabled, the lender promptly requests that the borrower or the 
borrower's representative--
    (i) Submit, on a form approved by the Secretary, a certification by 
a physician, who is a doctor of medicine or osteopathy and legally 
authorized to practice in a State, that the borrower is totally and 
permanently disabled as defined in Sec. 682.200(b); or
    (ii) Submit documentation from the Social Security Administration 
that the Secretary has identified as acceptable to support that the 
borrower is totally and permanently disabled as defined in 
Sec. 682.200(b).
    (3) The lender must continue collection activities until it 
receives either the certification of total and permanent disability 
from a physician, a letter from a physician stating that the 
certification has been requested and that additional time is needed to 
determine if the borrower is totally and permanently disabled, or 
documentation from the Social Security Administration, as described in 
paragraph (c)(2)(ii) of this section. Except as provided in paragraph 
(c)(5) of this section, after receiving the physician's certification 
or letter, or the documentation from the Social Security 
Administration, the lender may not attempt to collect from the borrower 
or any endorser.
    (4) The lender must submit a disability claim to the guaranty 
agency--
    (i) If the borrower submits a certification by a physician and the 
lender makes a preliminary determination that the certification 
supports the conclusion that the borrower meets the criteria for a 
total and permanent disability discharge, as defined in 
Sec. 682.200(b); or
    (ii) If the borrower submits documentation from the Social Security 
Administration that the Secretary has identified as acceptable to 
support that the borrower is totally and permanently disabled as 
defined in 682.200(b).
    (5) If the lender determines that a borrower who claims to be 
totally and permanently disabled is not totally and permanently 
disabled, or if the lender does not receive the physician's 
certification of total disability within 60 days of the receipt of the 
physician's letter requesting additional time, as described in 
paragraph (c)(3) of this section, the lender must resume collection and 
is deemed to have exercised forbearance of payment of both principal 
and interest from the date the lender received the physician's letter 
requesting additional time and may capitalize, in accordance with 
Sec. 682.202(b), any interest accrued and not paid during that period.
    (6) The guaranty agency must pay a claim submitted by the lender 
if--
    (i) In the case of a preliminary determination of total and 
permanent disability based on a physician's certification, the guaranty 
agency has reviewed the application and determined that it is complete 
and that it supports the conclusion that the borrower meets the 
criteria for a total and permanent disability discharge, as defined in 
Sec. 682.200(b); or
    (ii) In case of a preliminary determination of total and permanent 
disability based on a documentation from the Social Security 
Administration, the guaranty agency has determined that the 
documentation meets the requirements of Sec. 682.402(c)(2)(ii).

[[Page 47644]]

    (7) If the guaranty agency does not pay the disability claim, the 
lender must notify the borrower that the application for a disability 
discharge has been denied and the lender will continue to collect on 
the loan.
    (8) If the guaranty agency pays the disability claim, the lender 
must notify the borrower that the loan will be assigned to the 
Secretary for determination of eligibility for a total and permanent 
disability discharge.
    (9) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender.
    (10) The guaranty agency must assign the loan to the Secretary 
pursuant to Sec. 682.409(c) and (d) after the Secretary pays the 
disability claim.
    (11) If the Secretary determines that the certification and 
information provided by the borrower do not support the conclusion that 
the borrower meets the criteria for a total and permanent disability 
discharge, the Secretary notifies the borrower that the application for 
a disability discharge has been denied, and that the loan is due and 
payable under the terms of the promissory note.
    (12) If the Secretary makes a preliminary determination that the 
borrower is totally and permanently disabled, the Secretary notifies 
the borrower that the loan is conditionally discharged and that the 
conditional discharge period will last for up to three years after the 
onset of the disability as certified under Sec. 682.402(c)(2).
    (13) During the conditional discharge period, the borrower--
    (i) Is not required to make any payments on the loan beginning on 
the date the Secretary makes the conditional determination that the 
borrower is totally and permanently disabled;
    (ii) Is not considered delinquent or in default on the loan;
    (iii) Must promptly notify the Secretary of any changes in address 
or phone number;
    (iv) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(1)(ii)(A) of this section; and
    (v) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (14) If, during and at the end of the conditional discharge period, 
the borrower continues to satisfy the eligibility criteria for a total 
and permanent disability discharge, as described in 
Sec. 682.402(c)(1)(ii), the balance of the loan is discharged.
    (15) If, at any time during or at the end of the three-year 
conditional discharge period, the borrower does not continue to meet 
the eligibility requirements for total and permanent disability 
discharge, the Secretary resumes collection activity on the loan. The 
Secretary does not require the borrower to pay any interest that 
accrued on the loan from the date of the initial determination 
described in paragraph (k)(12) of this section through the end of the 
conditional discharge period.
    (16) The notification to the borrower described in paragraph 
(c)(12) of this section identifies the conditions of the conditional 
discharge period specified in paragraphs (c)(12) through (15) of this 
section.
* * * * *
    (g) * * *
    (1) * * *
    (iii) In the case of a death claim, an original or certified death 
certificate, or other documentation supporting the discharge request 
that formed the basis for the determination of death.
    (iv) In the case of a disability claim, a copy of the certification 
of disability described in either paragraph (c)(2)(i) or (c)(2)(ii) of 
this section.
* * * * *
    (k) * * *
    (5) * * *
    (i) For death or bankruptcy claims, the shorter of 60 days or the 
period from the date the guaranty agency determines that the borrower 
(or the student for whom a parent obtained a PLUS loan, or each of the 
co-makers of a PLUS loan) dies, or filed a petition for relief in 
bankruptcy until the Secretary authorizes payment;
    (ii) For disability claims, the shorter of 60 days or the period 
from the date the guaranty agency makes a preliminary determination 
that the borrower became totally and permanently disabled until the 
Secretary authorizes payment; or
* * * * *
    (r) * * *
    (2) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that has been assigned to 
the Secretary for determination of eligibility for a total and 
permanent disability discharge, the guaranty agency must forward those 
payments to the Secretary for crediting to the borrower's account. At 
the same time that the agency forwards the payment, it must notify the 
borrower that there is no obligation to make payments on the loan while 
it is conditionally discharged prior to a final determination of 
eligibility for a total and permanent disability discharge, unless the 
Secretary directs the borrower otherwise.
    (3) When the Secretary makes a final determination to discharge the 
loan, the Secretary returns to the sender 100 percent of any payments 
received, directly or indirectly, from or on behalf of the borrower.
* * * * *
    (5) If the guaranty agency has returned a payment to the borrower, 
or the borrower's representative, with the notice described in 
paragraph (r)(1) of this section, and the borrower (or representative) 
continues to send payments to the guaranty agency, the agency must 
remit all of those payments to the Secretary.
* * * * *

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

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

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

    10. Section 685.200 is amended by revising paragraph (a)(1)(iv) to 
read as follows:


Sec. 685.200  Borrower eligibility.

    (a)(1) * * *
    (iv)(A) In the case of a borrower whose prior loan under title IV 
of the Act was discharged after a final determination of total and 
permanent disability, the borrower--
    (1) Obtains a certification from a physician or from the Social 
Security Administration that the borrower is able to engage in 
substantial gainful activity; and
    (2) Signs a statement acknowledging that the Direct Loan the 
borrower receives cannot be discharged in the future on the basis of 
any impairment present when the new loan is made, unless that 
impairment substantially deteriorates.
    (B) In the case of a borrower whose prior loan under title IV of 
the Act was conditionally discharged based on an initial determination 
that the borrower was totally and permanently disabled--
    (1) The suspension of collection activity on the previous loan has 
been lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section; and
    (3) The borrower signs a statement acknowledging that neither the 
previous loan nor the Direct Loan Program loan that the borrower 
receives may be discharged in the future on the basis of any impairment 
present when the new

[[Page 47645]]

loan is made, unless that impairment substantially deteriorates.
* * * * *
    11. Section 685.212 is amended as follows:
    A. By revising paragraphs (a) and (b).
    B. By revising paragraph (g)(1).
    C. By redesignating paragraph (g)(2) as (g)(3).
    D. By adding a new paragraph (g)(2).


Sec. 685.212  Discharge of a loan obligation.

    (a) Death. (1) If a borrower (or the student on whose behalf a 
parent borrowed a Direct PLUS Loan) dies, the Secretary discharges the 
obligation of the borrower and any endorser to make any further 
payments on the loan if the borrower's representative (or the parent in 
the case of a Direct PLUS Loan) provides the Secretary with an original 
or certified copy of the borrower's (or student's) death certificate.
    (2) If an original or certified copy of the death certificate is 
not available, the Secretary discharges the loan only if the borrower's 
representative (or the parent) provides the Secretary with other 
reliable documentation acceptable to the Secretary establishing that 
the borrower (or student) has died.
    (b) Total and permanent disability. If a borrower meets the 
requirements in Sec. 685.213(c), the Secretary discharges the 
obligation of the borrower and any endorser to make any further 
payments on the loan.
* * * * *
    (g) Payments received after eligibility for discharge. (1) For the 
discharge conditions in paragraphs (a), (c), (d), and (e) of this 
section. Upon receipt of acceptable documentation and approval of the 
discharge request, the Secretary returns to the sender, or, for a 
discharge based on death, the borrower's estate, any payments received 
after the date that the eligibility requirements for discharge were met 
but before the date the discharge was approved. The Secretary also 
returns any payments received after the date the discharge was 
approved.
    (2) For the discharge condition in paragraph (b) of this section. 
Upon making a final determination of eligibility for discharge based on 
total and permanent disability, the Secretary returns to the sender any 
payments received after the onset of the disability, as certified under 
Sec. 685.213(b). The Secretary also returns any payments received after 
the date the final discharge was approved.
* * * * *
    12. Section 685.214, 685.215, and 685.216 are redesignated as 
Secs. 685.215; 685.216, and 685.220 respectively.
    13. Section 685.213 is redesignated as Sec. 685.214; a new 
Sec. 685.213 is added to read as follows:


Sec. 685.213  Total and permanent disability discharge.

    (a) General. (1) If the Secretary makes an initial determination 
that a borrower is totally and permanently disabled, the Secretary--
    (i) Notifies the borrower that the loan will be in a conditional 
discharge status for up to three years from the date that the disabling 
condition began; and
    (ii) Suspends any efforts to collect on the loan from the date of 
the initial determination described in paragraph (a)(1) of this section 
until the end of the conditional discharge period.
    (2) If the borrower continues to meet the eligibility requirements 
for total and permanent disability discharge during and at the end of 
the three-year conditional discharge period, the Secretary--
    (i) Discharges the obligation of the borrower and any endorser to 
make any further payments on the loan at the end of that period; and
    (ii) Returns to the borrower any payments received--
    (A) During the three-year conditional discharge period; or
    (B) After the date a final discharge was approved under paragraph 
(a)(2)(i) of this section.
    (3) If the borrower does not continue to meet the eligibility 
requirements for total and permanent disability discharge at any time 
during or at the end of the three-year conditional discharge period, 
the Secretary resumes collection activity on the loan. The Secretary 
does not require the borrower to pay any interest that accrued on the 
loan from the date of the initial determination described in paragraph 
(a)(1) of this section through the end of the conditional discharge 
period.
    (4) Except as provided in paragraph (e)(1) 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.
    (b) Conditional determination of total and permanent disability. 
The Secretary makes a conditional determination that a borrower is 
totally and permanently disabled if the borrower (or the borrower's 
representative) provides the Secretary with--
    (1) A certification (on a form approved by the Secretary) by a 
physician who is a doctor of medicine or osteopathy and legally 
authorized to practice in a State that the borrower is totally and 
permanently disabled as defined in 34 CFR 682.200(b); or
    (2) Documentation from the Social Security Administration that the 
Secretary has identified as acceptable to support that the borrower is 
totally and permanently disabled as defined in Sec. 682.200(b).
    (c) Eligibility requirements for total and permanent disability 
discharge. A borrower meets the eligibility requirements for total and 
permanent disability discharge if, during and at the end of the three-
year conditional discharge period described in paragraph (a)(1) of this 
section--
    (1) The borrower's annual earnings from employment do not exceed 
100 percent of the poverty line for a family of two, as determined in 
accordance with the Community Service Block Grant Act; and
    (2) The borrower does not receive a new loan under the Direct Loan 
Program, the Federal Family Education Loan Program, or the Federal 
Perkins Loan Program.
    (d) Conditional discharge period. During the conditional discharge 
period described in paragraph (a)(1) of this section, the borrower--
    (1) Is not required to make any payments of principal or interest 
on the loan beginning on the date the Secretary makes a conditional 
determination that the borrower is totally and permanently disabled;
    (2) Is not considered to be delinquent or in default on the loan;
    (3) Must promptly notify the Secretary of any changes in the 
borrower's address or telephone number;
    (4) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(1) of this section; and
    (5) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (e) Provisions for discharge of Direct Consolidation Loans. (1) For 
a Direct Consolidation Loan, a borrower is considered totally and 
permanently disabled if he or she would be considered totally and 
permanently disabled under the provisions of this section for all of 
the loans that were included in the Direct Consolidation Loan if those 
loans had not been consolidated.
    (2) For the purposes of discharging a loan under paragraph (e)(1) 
of this section, the provisions of this section apply to each loan 
included in the

[[Page 47646]]

Direct Consolidation Loan, even if the loan is not a Direct Loan 
Program loan.
    (3) If requested, a borrower seeking to discharge a loan obligation 
under paragraph (e)(1) of this section must provide the Secretary with 
the disbursement dates of the underlying loans.

[FR Doc. 00-19508 Filed 8-1-00; 8:45 am]
BILLING CODE 4000-01-U