[Federal Register Volume 66, Number 126 (Friday, June 29, 2001)]
[Rules and Regulations]
[Pages 34762-34766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16470]



[[Page 34761]]

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Part III





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; Final Rule

  Federal Register / Vol. 66, No. 126 / Friday, June 29, 2001 / Rules 
and Regulations  

[[Page 34762]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685


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

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: This document contains technical corrections and changes to 
the regulations for the Federal Family Education Loan (FFEL) Program in 
34 CFR part 682 and the William D. Ford Federal Direct Loan (Direct 
Loan) Program in 34 CFR part 685. The regulations govern the Federal 
Stafford Loan Program, the Federal Supplemental Loans for Students 
(Federal SLS) Program, the Federal PLUS Program, and the Federal 
Consolidation Loan Program, collectively referred to as the FFEL 
Program and the Federal Direct Stafford Loan Program, the Federal 
Direct PLUS Loan Program, and the Federal Direct Consolidation Loan 
Program, collectively referred to as the Direct Loan Program.

EFFECTIVE DATE: These regulations are effective July 1, 2001.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Ms. Patricia 
Beavan, or for the Direct Loan Program, Ms. Nicki Meoli, U.S. 
Department of Education, 400 Maryland Avenue, S.W. (Room 3053, ROB-3) 
Washington, D.C. 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 one of the contact persons listed in the 
preceding paragraph.

SUPPLEMENTARY INFORMATION: These corrections and changes incorporate 
technical corrections to the existing FFEL and Direct Loan program 
regulations in 34 CFR parts 682 and 685 and final regulations published 
in the Federal Register on November 1, 2000 (65 FR 65616, 65624, and 
65632).
    In addition, these final regulations change the existing 
regulations to reflect the change in the formula for calculating 
interest rates for certain Federal PLUS Loans and Federal Direct PLUS 
Loans made by Section 318 of Appendix D to Pub. L. 106-554, the 
Consolidated Appropriations Act 2001. The final regulations also add to 
the existing regulations a reference to a statutory termination date 
for the exemption from certain loan disbursement requirements for 
schools with cohort default rates below 10 percent.

Waiver of Proposed Rulemaking and Negotiated Rulemaking

    It is the practice of the Secretary to offer interested parties the 
opportunity to comment on proposed regulations. However, the provisions 
in these final regulations reflect needed technical corrections and 
other clarifying changes to the FFEL and Direct Loan program 
regulations. These corrections and changes do not affect the 
substantive rights or obligations of any affected parties. Therefore, 
the Secretary has concluded that solicitation of public comment is 
unnecessary and contrary to the public interest under 5 U.S.C. 
553(b)(B) and that a deferred effective date is not required under 5 
U.S.C. 553(d).
    For the same reasons, the Secretary has determined, under section 
492(b)(2) of the Higher Education Act of 1965, as amended, that these 
regulations should not be subject to negotiated rulemaking.

Regulatory Flexibility Act Certification

    The Secretary certifies that these final regulations will not have 
a significant economic impact on a substantial number of small 
entities. Small entities affected by these regulations are small 
institutions of higher education. These regulations also affect 
guaranty agencies and lenders that participate in the FFEL Program, as 
well as individual FFEL and Direct Loan borrowers, as described in the 
NPRM published on July 27, 2000 (65 FR 46316). These regulations 
contain technical corrections and other changes to current regulations. 
The technical corrections and changes will not have a significant 
economic impact.

Paperwork Reduction Act of 1995

    These regulations have been examined under the Paperwork Reduction 
Act of 1995 and have been found to contain no information collection 
requirements.

Assessment of Educational Impact

    Based on our own review, we have determined that the regulations in 
this document do not require transmission of information that is being 
gathered by or is available from any other agency or authority of the 
United States.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text of Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
www.ed.gov/legislation/FedRegister
    To use PDF, you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using 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 a 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, and 84.268 William D. Ford Federal 
Direct Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

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

    Dated: June 26, 2001.
Maureen A. McLaughlin,
Deputy Assistant Secretary, Policy, Planning and Innovation, Office of 
Postsecondary Education.

    For the reasons discussed in the preamble, the Secretary amends 
title 34 of the Code of Federal Regulations parts 682 and 685 as 
follows:

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

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

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


Sec. 682.100  [Amended]

    2. Section 682.100(b)(2)(i)(C) is amended by removing the comma 
after ``1994'', and adding, in its place, a semi-colon.


Sec. 682.101  [Amended]

    3. Section 682.101(b) is amended by removing ``, technical, and 
correspondence'', and adding, in its place, ``technical''.

    4. Section 682.202(a)(2) is amended by adding a new paragraph (vi); 
and paragraph (a)(3) is amended by adding a new paragraph (iv) to read 
as follows:


Sec. 682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (2) * * *

[[Page 34763]]

    (vi)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(2)(ii) through (iv) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(2)(ii) of 
this section; or
    (2) 3.1 percent for loans described in paragraphs (a)(2)(iii) and 
(iv) of this section.
    (B) The interest rates calculated under paragraph (a)(2)(vi)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(2)(ii)(B), (a)(2)(iii)(B), and (a)(2)(iv)(B) of this section, as 
applicable.
    (3) * * *
    (iv)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(3)(ii) and (iii) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(3)(ii) of 
this section; or
    (2) 3.1 percent for loans described in paragraph (a)(3)(iii) of 
this section.
    (B) The interest rates calculated under paragraph (a)(3)(iv)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(3)(ii)(B) and (a)(3)(iii)(B) of this section, as applicable.
* * * * *


Sec. 682.204  [Amended]

    5. Section 682.204 is amended:
    A. In paragraph (a)(1)(iii), in the second formula, by removing 
``Number of weeks in program'', and adding, in its place, ``Number of 
weeks enrolled''.
    B. In paragraph (c)(2), by adding, ``under the conditions specified 
in Sec. 682.201(a)(3)'' after ``dependent undergraduate students''.
    C. In paragraph (d), by adding, ``under the conditions specified in 
Sec. 682.201(a)(3)'', after ``dependent undergraduate students''.
    D. In paragraph (f)(2)(ii), by removing the reference to 
``(f)(4)'', and adding, in its place, ``(f)(3)''.
    E. By redesignating paragraph (f)(4) as paragraph (f)(3).
    F. In redesignated paragraph (f)(3)(ii), by removing reference to 
``(f)(4)(i)'', and adding, in its place, ``(f)(3)(i)''.
    6. Section 682.206(e)(2) is amended to read as follows:


Sec. 682.206  Due diligence in making a loan.

* * * * *
    (e) * * *
    (2) A Federal PLUS Program Loan may be made to an eligible borrower 
with an endorser who is secondarily liable for repayment of the loan.
* * * * *


Sec. 682.207  [Amended]

    7. Section 682.207(b)(1)(ii)(B) is amended in the first sentence by 
removing ``a'', and adding, in its place, ``an''; by removing 
``Sec. 688.163'', and adding, in its place, ``Sec. 668.163''; by 
removing ``written''; by adding a period after the second occurrence of 
the word ``borrower''; and by removing the remainder of the sentence.


Sec. 682.209  [Amended]

    8. Section 682.209(a)(7)(viii)(C) is amended by removing ``Except 
in the case of a Consolidation Loan, if'', and adding in its place, 
``If''; and by removing ``maximum 10-year'', and adding, in its place, 
``applicable maximum''.


Sec. 682.210  [Amended]

    9. Section 682.210(s)(6) introductory text is amended by adding 
``of up to one year at a time'' after ``periods''.


Sec. 682.211  [Amended]

    10. Section 682.211 is amended by removing from paragraph (i)(4) 
``sections 672(a), 672(g), 673, 673(b), 674, or 688 of title 10,'', and 
adding, in its place, ``sections 688, 12301(a), 12301(g), 12302, 12304, 
and 12306 of title 10,''.


Sec. 682.215  [Amended]

    11. Section 682.215 is amended:
    A. In paragraph (b), in the definition of Academic year, in the 
last sentence, by adding ``a minimum of'', before ``nine''.
    B. In paragraph (e)(1), by removing ``At the borrower's request, 
a'' and adding, in its place, ``A''.
    C. In paragraph (e)(1)(i), by removing the second occurrence of the 
word ``each'', and adding, in its place, ``the borrower's''.
    D. In paragraph (f)(2)(iii), by removing, ``on the loan'' both 
times it appears, and adding, in its place, ``on the discharged 
amount''.
    E. In paragraph (f)(3)(ii), by removing ``and (d)(2)'', and adding, 
in its place, ``, (d)(2), and (f)(2)(iii)''.


Sec. 682.300  [Amended]

    12. Section 682.300(b)(2)(viii) is amended by removing the 
reference to ``Sec. 682.402(d) or (e)'', and adding, in its place, 
``Sec. 682.402(d), (e), or (l)''.


Sec. 682.302  [Amended]

    13. Section 682.302 is amended:
    A. In paragraph (b)(2)(iv), by removing ``October 1, 1998'', and 
adding, in its place, ``July 1, 1998''.
    B. In paragraph (c)(2), by removing ``(c)(1)(iii)(D)'', and adding, 
in its place, ``(c)(1)(iii)(F)''.
    C. In paragraph (c)(3)(i), by removing ``(c)(1)(iii)(D)'', and 
adding, in its place, ``(c)(1)(iii)(F)''.
    D. In paragraph (c)(4), by adding ``tax-exempt'' before 
``obligations''.
    E. In paragraphs (d)(2)(i) and (ii), by removing ``restricted''.
    14. Section 682.401 is amended:
    A. In paragraph (b)(5)(ii), by removing ``Stafford or''.
    B. In paragraph (b)(5)(ii)(B), by removing ``to borrow or''.
    C. In paragraph (b)(5)(ii)(C), by removing ``by or''.
    D. By revising paragraph (d)(4)(iii) to read as follows:


Sec. 682.401  Basic program agreement.

* * * * *
    (d) * * *
    (4) * * *
    (iii) A student or parent borrower who is borrowing funds for 
attendance at a school for which the multi-year feature of the MPN has 
not been authorized must complete a new promissory note for each 
academic year.
* * * * *


Sec. 682.402  [Amended]

    15. Section 682.402 is amended:
    A. In paragraph (g)(1)(i), by removing ``accurate'', and adding, in 
its place, ``exact''.
    A. In paragraph (i)(1)(iii) by adding a new sentence at the end of 
the paragraph, ``If the guaranty agency has determined that the 
expected costs of opposing the discharge petition will exceed one-third 
of the total amount of the loan, it may, but is not required to, engage 
in the activities described in paragraph (i)(1)(iv) of this section.''
    C. In paragraph (l)(1), by adding, ``, in whole or in part,'', 
after ``disbursed''.
    D. In paragraph (l)(2), by adding, ``, in whole or in part,'', 
after ``disbursed''.
    E. In paragraph (l)(2)(i), by removing ``has ceased to attend'', 
and adding, in its place, ``is not attending''.
    F. In paragraph (l)(2)(ii), by removing ``borrower submits'', and 
adding, in its place, ``guarantor receives''.
    G. In paragraph (l)(4)(i)(A), by adding, ``, in whole or in 
part,'', after ``loan''.
    H. In paragraph (l)(5)(vii)(A), by removing ``The'', and adding, in 
its place, ``Within 30 days of the

[[Page 34764]]

guarantor's determination, the''; and by adding ``. The guaranty agency 
must make a determination'' after ``agency's determination''.
    I. In paragraph (l)(5)(vii)(B), by removing ``for the'', and 
adding, in its place, ``for any''; by adding, ``under this section'' 
after ``suspended''; and by removing ``the review period'' and adding, 
in its place, ``these periods''.


Sec. 682.405  [Amended]

    16. Section 682.405(b)(2) is amended by adding ``and that the 
default is to be removed from the borrower's credit history'' before 
the period.


Sec. 682.406  [Amended]

    17. Section 682.406 is amended:
    A. In paragraph (a)(11), by removing the period, and adding, in its 
place, a semi-colon.
    B. In paragraph (a)(12)(v), by removing ``preclaims'', and adding, 
in its place, ``default aversion''.


Sec. 682.410  [Amended]

    18. Section 682.410(a)(2) is amended by removing paragraph (iii); 
and by redesignating paragraphs (iv) through (xii) as paragraphs (iii) 
through (xi).
    19. Section 682.414 is amended:
    A. In paragraph (a)(1)(ii)(D), by removing ``preclaims and 
supplemental preclaims assistance'', and adding, in its place, 
``default aversion assistance''.
    B. In paragraph (a)(4)(i), by removing the reference to 
``(a)(3)(ii)'', and adding, in its place, ``(a)(4)(ii)''.
    C. In paragraph (a)(4)(ii)(J), by removing ``preclaims 
assistance'', and adding, in its place, ``default aversion 
assistance''.
    D. In paragraph (a)(5), by redesignating paragraph (a)(5)(ii) as 
paragraph (a)(5)(iii) and by adding a new paragraph (a)(5)(ii) to read 
as follows:


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

    (a) * * *
    (5) * * *
    (ii) A guaranty agency or lender may store a promissory note in 
accordance with 34 CFR 668.24(d)(3)(i) through (iv) only if the 
promissory note was signed electronically.
* * * * *


Sec. 682.415  [Amended]

    20. Section 682.415 is amended:
    A. In paragraph (a)(6)(iii), by removing the reference to 
``(a)(6)'', and adding, in its place, ``(a)(6)(ii)''.
    B. In paragraph (c)(2)(i), by removing ``Secs. 682.410(b)(6)(iii) 
through (xii), and 682.406(a)(8) and (a)(9), or Secs. 682.410(b)(7)'', 
and adding, in its place, ``Secs. 682.410(b)(6)(i) through (xii)''.
    C. In paragraph (c)(4), by removing ``Secs. 682.410(b)(6)(iii) 
through (xii) and 682.406(a)(8) and (a)(9) or Secs. 682.410(b)(7)'' and 
adding, in its place, ``Secs. 682.410(b)(6)(i) through (xii)''.
    D. In paragraph (c)(6)(i), by removing ``Secs. 682.410(b)(6)(iii) 
through (xii) and 682.406(a)(8) and (a)(9) or 682.410(b)(7)'', and 
adding, in its place, ``Secs. 682.410(b)(6)(i) through (xii)''.
    E. In paragraph (d)(1), by removing ``Secs. 682.410(b)(6)(iii) 
through (xii) and 682.406(a)(8) and (a)(9) or Secs. 682.410(b)(7)'', 
and adding, in its place, ``Secs. 682.410(b)(6)(i) through (xii)''.


Sec. 682.416  [Amended]

    21. Section 682.416(f) is amended by removing the reference to 
``Sec. 682.414(a)(3)(ii)'' and adding, in its place, 
``Sec. 682.414(a)(4)(ii)''.


Sec. 682.601  [Amended]

    22. Section 682.601(c)(1)(ii) is amended by removing ``, SLS,''.

    23. Section 682.603 is amended:
    A. By revising paragraphs (f)(1) and (f)(2).
    B. By revising paragraph (g).
    C. In paragraph (i) by removing ``(1)''; and by removing the 
reference to ``(b)(5)'' and adding, in its place, ``(b)(3)''.
    D. By removing paragraph (i)(2).
    The amendments read as follows:


Sec. 682.603  Certification by a participating school in connection 
with a loan application.

* * * * *
    (f)(1) The minimum period of enrollment for which a school may 
certify a loan application is--
    (i) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, a single academic term 
(e.g., a semester or quarter); or
    (ii) At a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system, the lesser of--
    (A) The length of the student's program at the school; or
    (B) The academic year as defined by the school in accordance with 
34 CFR 668.2.
    (2) The maximum period for which a school may certify a loan 
application is--
    (i) Generally an academic year, as defined by 34 CFR 668.2, except 
that a guaranty agency may allow a school to use a longer period of 
time, not to exceed 12 months, corresponding to the period to which the 
agency applies the annual loan limits under Sec. 682.401(b)(2)(ii); or
    (ii) For a defaulted borrower who has regained eligibility under 
Sec. 682.401(b)(4), the academic year in which the borrower regained 
eligibility.
* * * * *
    (g)(1) A school must cease certifying loans based on the exceptions 
in Sec. 682.604(c)(5)(i) and Sec. 682.604(c)(10)(i) no later than--
    (i) 30 days after the date the school receives notification from 
the Secretary of an FFEL cohort default rate, calculated under subpart 
M of 34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
Sec. 682.604(c)(5)(ii) and Sec. 682.604(c)(10)(ii) no later than 30 
days after the date the school receives notification from the Secretary 
of an FFEL cohort default rate, calculated under subpart M of 34 CFR 
part 668, that causes the school to no longer meet the qualifications 
outlined in those paragraphs.
* * * * *

    24. Section 682.604 is amended:
    A. In paragraph (a)(1) by removing ``, PLUS, or SLS'' and adding, 
in its place, ``or PLUS''.
    B. In paragraph (b)(1), by removing ``, SLS''.
    C. In paragraph (c)(3), by adding ``or'' after ``application''.
    D. By adding a new paragraph (c)(11).
    E. In paragraph (e)(1), by removing the reference to 
``Sec. 682.207(d)'' and adding, in its place, ``Sec. 682.207(f)''.
    The amendments read as follows:


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

* * * * *
    (c) * * *
    (11) A school may deliver loan proceeds in accordance with 
paragraphs (c)(5) and (c)(10) of this section, if the school certified 
the loan prior to the deadline as provided for in Sec. 682.603(g).
* * * * *


Sec. 682.610  [Amended]

    25. Section 682.610(b)(5) is amended by adding ``, if applicable,'' 
before ``to deliver''.


Sec. 682.705  [Amended]

    26. Section 682.705(b)(2)(v) is amended by removing the reference 
to ``(c)(8)'' and adding, in its place, ``(c)(9)''.

[[Page 34765]]

Sec. 682.707  [Amended]

    27. Section 682.707(a) introductory text is amended by removing the 
cross reference to ``Sec. 682.706(b)(9)'' and adding, in its place, 
``Sec. 682.706(b)(10)''.

Appendix D--[Amended]

    28. Appendix D is amended by:
    A. In the introduction, in paragraph (2), in the last sentence, by 
removing the references to ``682.300(b)(2)(vi), 682.300(b)(2)(vii)'' 
and adding, in their place, ``682.300(b)(2)(vii), 682.302(d)(1)(iv)''.
    B. In Appendix D, I.B.5., by removing ``180/270'' and adding, in 
its place, ``180/240''.
    C. In Appendix D, I.D.1.a., by removing ``ten-year repayment'', and 
adding, in its place, ``repayment period'', by removing the reference 
to ``682.209(a)(7)'' and adding, in its place, ``682.209(a)(8) and 
682.209(h)(2)''.
    D. In Appendix D, I.E.2., in the eighth sentence, by adding, ``and 
Sec. 682.402(f)(5)(ii) and (f)(6)'' after ``Sec. 682.211 (f)(4)''.

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

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

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


Sec. 685.102  [Amended]

    30. Section 685.102(b) is amended as follows:
    A. By indenting paragraph (b)(2)(i)(C) as a separate paragraph.
    B. By removing, in the definition of ``Half-time student'', ``a 
school participating in the FFEL Program or the Direct Loan Program'' 
and adding, in its place, ``an institution of higher education''.


Sec. 685.200  [Amended]

    31. Section 685.200 is amended as follows:
    A. By removing in paragraph (a)(1)(v) ``any'' and adding, in its 
place, ``a''.
    B. By removing in paragraph (a)(1)(v) ``34 CFR 668.32(e)(2) or 
(3)'' and adding, in its place, ``34 CFR 668.32(e)(2), (3), or (4)''.
    C. By removing in paragraph (b)(1)(iii) ``34 CFR 668.7'' and 
adding, in its place, ``34 CFR 668.33''.

    32. Section 685.202 is amended as follows:
    A. By revising paragraph (a)(2)(i).
    B. By removing in paragraph (a)(3)(i)(C) ``District'' and adding, 
in its place, ``Direct''.
    The amendments read as follows:


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

    (a) * * *
    (2) * * *
    (i) Loans first disbursed before July 1, 1998. (A) Interest rates 
for periods ending before July 1, 2001. During all periods, the 
interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 preceding that period. 
The interest rate is equal to the bond equivalent rate of 52-week 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 3.1 percentage points, but does not exceed 9 percent.
    (B) Interest rates for periods beginning on or after July 1, 2001. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 26 
preceding that period. The interest rate is equal to the weekly average 
1-year constant maturity Treasury yield, as published by the Board of 
Governors of the Federal Reserve System, for the last calendar week 
ending on or before that June 26 plus 3.1 percentage points, but does 
not exceed 9 percent.
* * * * *


Sec. 685.205  [Amended]

    33. Section 685.205 is amended by redesignating paragraph (c)(9) as 
paragraph (b)(9).


Sec. 685.208  [Amended]

    34. Section 685.208(f)(2) is amended by removing ``borrowers's'' 
and adding, in its place, ``borrower's''.
    35. Section 685.211 is amended by italicizing the paragraph (c) 
heading to read as follows:


Sec. 685.211  Miscellaneous repayment provisions.

* * * * *
    (c) Refunds and returns of title IV, HEA program funds from 
schools. * * *
* * * * *


Sec. 685.212  [Amended]

    36. Section 685.212 is amended as follows:
    A. By adding in paragraph (d) ``, in whole or in part,'' after 
``disbursed''.
    B. By adding in paragraph (e) ``, in whole or in part,'' after 
``disbursed''.
    C. By adding in paragraph (f) ``, in whole or in part,'' after 
``disbursed''.


Sec. 685.214  [Amended]

    37. Section 685.214(c)(1)(i) is amended by adding ``, in whole or 
in part, on or after January 1, 1986'' after ``loan''.


Sec. 685.215  [Amended]

    38. Section 685.215(c)(1)(i) is amended by adding, ``, in whole or 
in part, on or after January 1, 1986'' after ``loan''.


Sec. 685.216  [Amended]

    39. Section 685.216 is amended as follows:
    A. By removing in paragraph (a)(2)(i)(A) ``has ceased to attend'' 
and adding, in its place, ``is not attending''.
    B. By adding in paragraph (c)(1)(i)(A) ``, in whole or in part,'' 
after ``loan''.
    40. Section 685.220 is amended by italicizing the paragraph (k) 
heading to read as follows:


Sec. 685.220  Consolidation.

* * * * *
    (k) Refunds and returns of title IV, HEA program funds received 
from schools.
* * * * *
    41. Section 685.301 is amended as follows:
    A. By adding new paragraph (a)(9).
    B. By adding new paragraphs (b)(3)(i) and (ii).
    C. By revising paragraph (b)(8)(ii).
    D. By adding a new paragraph (b)(8)(iii).
    E. By revising paragraph (d).
    The revisions and additions read as follows:


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

    (a) * * *
    (9)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, a single academic term 
(e.g., a semester or quarter); or
    (B) At a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system, the lesser of--
    (1) The length of the student's program at the school; or
    (2) The academic year as defined by the school in accordance with 
34 CFR 668.2.
    (ii) The maximum period for which a school may originate a Direct 
Loan is--
    (A) Generally an academic year, as defined by 34 CFR 668.2, except 
that a school may use a longer period of time, not to exceed 12 months, 
corresponding to the period to which the school applies the annual loan 
limits under Sec. 685.203; or

[[Page 34766]]

    (B) For a defaulted borrower who has regained eligibility, the 
academic year in which the borrower regained eligibility.
    (b) * * *
    (3) * * *
    (i) If a loan period is more than one payment period, the school 
must disburse loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two disbursements during that payment period. The school may 
not make the second disbursement until the calendar midpoint between 
the first and last scheduled days of class of the loan period.
* * * * *
    (8) * * *
    (ii) Paragraph (b)(8)(i)(A) of this section does not apply to any 
loans originated by the school beginning--
    (A) 30 days after the date the school receives notification from 
the Secretary of a cohort default rate, calculated under subpart M of 
34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in that paragraph; or
    (B) October 1, 2002.
    (iii) Paragraph (b)(8)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M of 34 CFR part 668, that causes the 
school to no longer meet the qualifications outlined in that paragraph.
* * * * *
    (d) Reporting to the Secretary. (1) A school that participates 
under school origination option 2 must submit the promissory note, loan 
origination record, and initial disbursement record for a loan to the 
Secretary no later than 30 days following the date of the initial 
disbursement. The school must submit subsequent disbursement records, 
including adjustment and cancellation records, to the Secretary no 
later than 30 days following the date the disbursement, adjustment, or 
cancellation is made.
    (2) A school that participates under school origination option 1 or 
standard origination must submit the initial disbursement record for a 
loan to the Secretary no later than 30 days following the date of the 
initial disbursement. The school must submit subsequent disbursement 
records, including adjustment and cancellation records, to the 
Secretary no later than 30 days following the date the disbursement, 
adjustment, or cancellation is made.

    42. Section 685.303 is amended as follows:
    A. By revising paragraph (b)(4)(ii).
    B. By adding a new paragraph (b)(4)(iii).
    C. By adding in the introductory text of paragraph (e) ``(except 
for Federal Work-Study Program funds up to $300)'' after ``eligible''.
    The amendments read as follows:


Sec. 685.303  Processing loan proceeds.

* * * * *
    (b) * * *
    (4) * * *
    (ii) Paragraph (b)(4)(i)(A) of this section does not apply to any 
loans originated by the school beginning--
    (A) 30 days after the date the school receives notification from 
the Secretary of a cohort default rate, calculated under subpart M of 
34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in that paragraph; or
    (B) October 1, 2002.
    (iii) Paragraph (b)(4)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under Subpart M of 34 CFR part 668, that causes the 
school to no longer meet the qualifications outlined in that paragraph.
* * * * *


Sec. 685.304  [Amended]

    43. Section 685.304 is amended in paragraph (a)(1) by removing 
``(a)(5)'' and adding, in its place, ``(a)(4)''.

    44. Section 685.400 is amended by revising the section heading to 
read as follows:


Sec. 685.400  School participation requirements.

* * * * *

    45. Section 685.402 is amended by revising the section heading to 
read as follows:


Sec. 685.402  Criteria for schools to originate loans.

* * * * *
[FR Doc. 01-16470 Filed 6-28-01; 8:45 am]
BILLING CODE 4001-01-P