[Federal Register Volume 68, Number 33 (Wednesday, February 19, 2003)]
[Rules and Regulations]
[Pages 8142-8152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3947]



[[Page 8141]]

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

Part IV





Department of Education





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



34 CFR Part 34



Administrative Wage Garnishment; Final Rule

  Federal Register / Vol. 68, No. 33 / Wednesday, February 19, 2003 / 
Rules and Regulations  

[[Page 8142]]


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

DEPARTMENT OF EDUCATION

34 CFR Part 34


Administrative Wage Garnishment

AGENCY: Office of the Chief Financial Officer, Department of Education.

ACTION: Final regulations.

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

SUMMARY: These regulations implement for the Department of Education 
the provisions for administrative wage garnishment in the Debt 
Collection Improvement Act of 1996 (DCIA). The DCIA authorizes Federal 
agencies to garnish administratively, that is, without court order, the 
disposable pay of an individual who is not a Federal employee to 
collect a delinquent nontax debt owed to the United States. These 
regulations implement this authority for a debt owed to the United 
States under a program administered by the Department of Education.

DATES: These regulations are effective March 21, 2003.

FOR FURTHER INFORMATION CONTACT: Marian E. Currie, U.S. Department of 
Education, Union Center Plaza Room 41B4, 830 First Street NE, 
Washington DC 20202, Telephone: (202) 377-3212 or via Internet: 
[email protected].
    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: On April 12, 2002, the Secretary published 
in the Federal Register a notice of proposed rulemaking (NPRM) (67 FR 
18072) for implementation of the wage garnishment authority in the 
DCIA. This document contains the final regulations for the rules that 
were proposed in that NPRM. These final regulations contain a few 
changes from the NPRM.

Analysis of Comments and Changes

    In response to the NPRM, we received comments from two parties. An 
analysis of the comments and of the changes in the regulations since 
publication of the NPRM is published as an appendix at the end of these 
final regulations.

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations will not have a 
significant economic impact on a substantial number of small entities.
    Although a substantial number of small entities will be subject to 
these regulations and to the certification requirement in these 
regulations, as explained in the NPRM, the requirements will not have a 
significant economic impact on these entities.

Paperwork Reduction Act of 1995

    These regulations do not contain any information collection 
requirements.

Assessment of Educational Impact

    In the NPRM we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not 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, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://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, DC, area at (202) 512-1530.
    You may also view this document in PDF at the following site: 
http://ifap.ed.gov.

    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 Number does not apply.)

List of Subjects in 34 CFR Part 34

    Administrative practice and procedure, Claims, Debts, Garnishment 
of wages, Hearing and appeal procedures, Salaries, Wages.

    Dated: February 12, 2003.
Rod Paige,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary amends 
title 34 of the Code of Federal Regulations by adding a new part 34 to 
read as follows:

PART 34-- ADMINISTRATIVE WAGE GARNISHMENT

Sec.
34.1 Purpose of this part.
34.2 Scope of this part.
34.3 Definitions.
34.4 Notice of proposed garnishment.
34.5 Contents of a notice of proposed garnishment.
34.6 Rights in connection with garnishment.
34.7 Consideration of objection to the rate or amount of 
withholding.
34.8 Providing a hearing.
34.9 Conditions for an oral hearing.
34.10 Conditions for a paper hearing.
34.11 Timely request for a hearing.
34.12 Request for reconsideration.
34.13 Conduct of a hearing.
34.14 Burden of proof.
34.15 Consequences of failure to appear for an oral hearing.
34.16 Issuance of the hearing decision.
34.17 Content of decision.
34.18 Issuance of the wage garnishment order.
34.19 Amounts to be withheld under a garnishment order.
34.20 Amount to be withheld under multiple garnishment orders.
34.21 Employer certification.
34.22 Employer responsibilities.
34.23 Exclusions from garnishment.
34.24 Claim of financial hardship by debtor subject to garnishment.
34.25 Determination of financial hardship.
34.26 Ending garnishment.
34.27 Actions by employer prohibited by law.
34.28 Refunds of amounts collected in error.
34.29 Enforcement action against employer for noncompliance with 
garnishment order.
34.30 Application of payments and accrual of interest.

    Authority: 31 U.S.C. 3720D, unless otherwise noted.


Sec.  34.1  Purpose of this part.

    This part establishes procedures the Department of Education uses 
to collect money from a debtor's disposable pay by means of 
administrative wage garnishment to satisfy delinquent debt owed to the 
United States.

(Authority: 31 U.S.C. 3720D)


Sec.  34.2  Scope of this part.

    (a) This part applies to collection of any financial obligation 
owed to the United States that arises under a program we administer.
    (b) This part applies notwithstanding any provision of State law.
    (c) We may compromise or suspend collection by garnishment of a 
debt in accordance with applicable law.
    (d) We may use other debt collection remedies separately or in 
conjunction with administrative wage garnishment to collect a debt.

[[Page 8143]]

    (e) To collect by offset from the salary of a Federal employee, we 
use the procedures in 34 CFR part 31, not those in this part.

(Authority: 31 U.S.C. 3720D)

Sec.  34.3  Definitions.

    As used in this part, the following definitions apply:
    Administrative debt means a debt that does not arise from an 
individual's obligation to repay a loan or an overpayment of a grant 
received under a student financial assistance program authorized under 
Title IV of the Higher Education Act.
    Business day means a day Monday through Friday, unless that day is 
a Federal holiday.
    Certificate of service means a certificate signed by an authorized 
official of the U.S. Department of Education (the Department) that 
indicates the nature of the document to which it pertains, the date we 
mail the document, and to whom we are sending the document.
    Day means calendar day. For purposes of computation, the last day 
of a period will be included unless that day is a Saturday, a Sunday, 
or a Federal legal holiday; in that case, the last day of the period is 
the next business day after the end of the period.
    Debt or claim means any amount of money, funds, or property that an 
appropriate official of the Department has determined an individual 
owes to the United States under a program we administer.
    Debtor means an individual who owes a delinquent nontax debt to the 
United States under a program we administer.
    Disposable pay. This term--
    (a)(1) Means that part of a debtor's compensation for personal 
services, whether or not denominated as wages, from an employer that 
remains after the deduction of health insurance premiums and any 
amounts required by law to be withheld.
    (2) For purposes of this part, ``amounts required by law to be 
withheld'' include amounts for deductions such as social security taxes 
and withholding taxes, but do not include any amount withheld under a 
court order; and
    (b) Includes, but is not limited to, salary, bonuses, commissions, 
or vacation pay.
    Employer. This term--
    (a) Means a person or entity that employs the services of another 
and that pays the latter's wages or salary;
    (b) Includes, but is not limited to, State and local governments; 
and
    (c) Does not include an agency of the Federal Government.
    Financial hardship means an inability to meet basic living expenses 
for goods and services necessary for the survival of the debtor and his 
or her spouse and dependents.
    Garnishment means the process of withholding amounts from an 
employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order.
    We means the United States Department of Education.
    Withholding order. (a) This term means any order for withholding or 
garnishment of pay issued by this Department, another Federal agency, a 
State or private non-profit guaranty agency, or a judicial or 
administrative body.
    (b) For purposes of this part, the terms ``wage garnishment order'' 
and ``garnishment order'' have the same meaning as ``withholding 
order.''
    You means the debtor.

(Authority: 31 U.S.C. 3720D)

Sec.  34.4  Notice of proposed garnishment.

    (a) We may start proceedings to garnish your wages whenever we 
determine that you are delinquent in paying a debt owed to the United 
States under a program we administer.
    (b) We start garnishment proceedings by sending you a written 
notice of the proposed garnishment.
    (c) At least 30 days before we start garnishment proceedings, we 
mail the notice by first class mail to your last known address.
    (d)(1) We keep a copy of a certificate of service indicating the 
date of mailing of the notice.
    (2) We may retain this certificate of service in electronic form.

(Authority: 31 U.S.C. 3720D)


Sec.  34.5  Contents of a notice of proposed garnishment.

    In a notice of proposed garnishment, we inform you of--
    (a) The nature and amount of the debt;
    (b) Our intention to collect the debt through deductions from pay 
until the debt and all accumulated interest, penalties, and collection 
costs are paid in full; and
    (c) An explanation of your rights, including those in Sec.  34.6, 
and the time frame within which you may exercise your rights.

(Authority: 31 U.S.C. 3720D)

Sec.  34.6  Rights in connection with garnishment.

    Before starting garnishment, we provide you the opportunity--
    (a) To inspect and copy our records related to the debt;
    (b) To enter into a written repayment agreement with us to repay 
the debt under terms we consider acceptable;
    (c) For a hearing in accordance with Sec.  34.8 concerning--
    (1) The existence, amount, or current enforceability of the debt;
    (2) The rate at which the garnishment order will require your 
employer to withhold pay; and
    (3) Whether you have been continuously employed less than 12 months 
after you were involuntarily separated from employment.

(Authority: 31 U.S.C. 3720D)

Sec.  34.7  Consideration of objection to the rate or amount of 
withholding.

    (a) We consider objections to the rate or amount of withholding 
only if the objection rests on a claim that withholding at the proposed 
rate or amount would cause financial hardship to you and your 
dependents.
    (b) We do not provide a hearing on an objection to the rate or 
amount of withholding if the rate or amount we propose to be withheld 
does not exceed the rate or amount agreed to under a repayment 
agreement reached within the preceding six months after a previous 
notice of proposed garnishment.
    (c) We do not consider an objection to the rate or amount of 
withholding based on a claim that by virtue of 15 U.S.C. 1673, no 
amount of wages are available for withholding by the employer.

(Authority: 31 U.S.C. 3720D)


Sec.  34.8  Providing a hearing.

    (a) We provide a hearing if you submit a written request for a 
hearing concerning the existence, amount, or enforceability of the debt 
or the rate of wage withholding.
    (b) At our option the hearing may be an oral hearing under Sec.  
34.9 or a paper hearing under Sec.  34.10.

(Authority: 31 U.S.C. 3720D)


Sec.  34.9  Conditions for an oral hearing.

    (a) We provide an oral hearing if you--
    (1) Request an oral hearing; and
    (2) Show in the request a good reason to believe that we cannot 
resolve the issues in dispute by review of the documentary evidence, by 
demonstrating that the validity of the claim turns on the credibility 
or veracity of witness testimony.
    (b) If we determine that an oral hearing is appropriate, we notify 
you how to receive the oral hearing.
    (c)(1) At your option, an oral hearing may be conducted either in-
person or by telephone conference.

[[Page 8144]]

    (2) We provide an in-person oral hearing with regard to 
administrative debts only in Washington D.C.
    (3) We provide an in-person oral hearing with regard to debts based 
on student loan or grant obligations only at our regional service 
centers in Atlanta, Chicago, or San Francisco.
    (4) You must bear all travel expenses you incur in connection with 
an in-person hearing.
    (5) We bear the cost of any telephone calls we place in order to 
conduct an oral hearing by telephone.
    (d)(1) To arrange the time and location of the oral hearing, we 
ordinarily attempt to contact you first by telephone call to the number 
you provided to us.
    (2) If we are unable to contact you by telephone, we leave a 
message directing you to contact us within 5 business days to arrange 
the time and place of the hearing.
    (3) If we can neither contact you directly nor leave a message with 
you by telephone--
    (i) We notify you in writing to contact us to arrange the time and 
place of the hearing; or
    (ii) We select a time and place for the hearing, and notify you in 
writing of the time and place set for the hearing.
    (e) We consider you to have withdrawn the request for an oral 
hearing if--
    (1) Within 15 days of the date of a written notice to contact us, 
we receive no response to that notice; or
    (2) Within five business days of the date of a telephone message to 
contact us, we receive no response to that message.

(Authority: 31 U.S.C. 3720D)


Sec.  34.10  Conditions for a paper hearing.

    We provide a paper hearing--
    (a) If you request a paper hearing;
    (b) If you requested an oral hearing, but we determine under Sec.  
34.9(e) that you have withdrawn that request;
    (c) If you fail to appear for a scheduled oral hearing, as provided 
in Sec.  34.15; or
    (d) If we deny a request for an oral hearing because we conclude 
that, by a review of the written record, we can resolve the issues 
raised by your objections.

(Authority: 31 U.S.C. 3720D)


Sec.  34.11  Timely request for a hearing.

    (a) A hearing request is timely if--
    (1) You mail the request to the office designated in the 
garnishment notice and the request is postmarked not later than the 
30th day following the date of the notice; or
    (2) The designated office receives the request not later than the 
30th day following the date of the garnishment notice.
    (b) If we receive a timely written request from you for a hearing, 
we will not issue a garnishment order before we--
    (1) Provide the requested hearing; and
    (2) Issue a written decision on the objections you raised.
    (c) If your written request for a hearing is not timely--
    (1) We provide you a hearing; and
    (2) We do not delay issuance of a garnishment order unless--
    (i) We determine from credible representations in the request that 
the delay in filing the request for hearing was caused by factors over 
which you had no control; or
    (ii) We have other good reason to delay issuing a garnishment 
order.
    (d) If we do not complete a hearing within 60 days of an untimely 
request, we suspend any garnishment order until we have issued a 
decision.

(Authority: 31 U.S.C. 3720D)


Sec.  34.12  Request for reconsideration.

    (a) If you have received a decision on an objection to garnishment 
you may file a request for reconsideration of that decision.
    (b) We do not suspend garnishment merely because you have filed a 
request for reconsideration.
    (c) We consider your request for reconsideration if we determine 
that--
    (1) You base your request on grounds of financial hardship, and 
your financial circumstances, as shown by evidence submitted with the 
request, have materially changed since we issued the decision so that 
we should reduce the amount to be garnished under the order; or
    (2)(i) You submitted with the request evidence that you did not 
previously submit; and
    (ii) This evidence demonstrates that we should reconsider your 
objection to the existence, amount, or enforceability of the debt.
    (d)(1) If we agree to reconsider the decision, we notify you.
    (2)(i) We may reconsider based on the request and supporting 
evidence you have presented with the request; or
    (ii) We may offer you an opportunity for a hearing to present 
evidence.

(Authority: 31 U.S.C. 3720D)


Sec.  34.13  Conduct of a hearing.

    (a)(1) A hearing official conducts any hearing under this part.
    (2) The hearing official may be any qualified employee of the 
Department whom the Department designates to conduct the hearing.
    (b)(1) The hearing official conducts any hearing as an informal 
proceeding.
    (2) A witness in an oral hearing must testify under oath or 
affirmation.
    (3) The hearing official maintains a summary record of any hearing.
    (c) Before the hearing official considers evidence we obtain that 
was not included in the debt records available for inspection when we 
sent notice of proposed garnishment, we notify you that additional 
evidence has become available, may be considered by the hearing 
official, and is available for inspection or copying.
    (d) The hearing official considers any objection you raise and 
evidence you submit--
    (1) In or with the request for a hearing;
    (2) During an oral hearing;
    (3) By the date that we consider, under Sec.  34.9(e), that a 
request for an oral hearing has been withdrawn; or
    (4) Within a period we set, ordinarily not to exceed seven business 
days, after--
    (i) We provide you access to our records regarding the debt, if you 
requested access to records within 20 days after the date of the notice 
under Sec.  34.4;
    (ii) We notify you that we have obtained and intend to consider 
additional evidence;
    (iii) You request an extension of time in order to submit specific 
relevant evidence that you identify to us in the request; or
    (iv) We notify you that we deny your request for an oral hearing.

(Authority: 31 U.S.C. 3720D)


Sec.  34.14  Burden of proof.

    (a)(1) We have the burden of proving the existence and amount of a 
debt.
    (2) We meet this burden by including in the record and making 
available to the debtor on request records that show that--
    (i) The debt exists in the amount stated in the garnishment notice; 
and
    (ii) The debt is currently delinquent.
    (b) If you dispute the existence or amount of the debt, you must 
prove by a preponderance of the credible evidence that--
    (1) No debt exists;
    (2) The amount we claim to be owed on the debt is incorrect, or
    (3) You are not delinquent with respect to the debt.
    (c)(1) If you object that the proposed garnishment rate would cause 
financial hardship, you bear the burden of proving by a preponderance 
of the credible evidence that withholding the

[[Page 8145]]

amount of wages proposed in the notice would leave you unable to meet 
the basic living expenses of you and your dependents.
    (2) The standards for proving financial hardship are those in Sec.  
34.24.
    (d)(1) If you object on the ground that applicable law bars us from 
collecting the debt by garnishment at this time, you bear the burden of 
proving the facts that would establish that claim.
    (2) Examples of applicable law that may prevent collection by 
garnishment include the automatic stay in bankruptcy (11 U.S.C. 
362(a)), and the preclusion of garnishment action against a debtor who 
was involuntarily separated from employment and has been reemployed for 
less than a continuous period of 12 months (31 U.S.C. 3720D(b)(6)).
    (e) The fact that applicable law may limit the amount that an 
employer may withhold from your pay to less than the amount or rate we 
state in the garnishment order does not bar us from issuing the order.

(Authority: 31 U.S.C. 3720D)


Sec.  34.15  Consequences of failure to appear for an oral hearing.

    (a) If you do not appear for an in-person hearing you requested, or 
you do not answer a telephone call convening a telephone hearing, at 
the time set for the hearing, we consider you to have withdrawn your 
request for an oral hearing.
    (b) If you do not appear for an oral hearing but you demonstrate 
that there was good cause for not appearing, we may reschedule the oral 
hearing.
    (c) If you do not appear for an oral hearing you requested and we 
do not reschedule the hearing, we provide a paper hearing to review 
your objections, based on the evidence in your file and any evidence 
you have already provided.

(Authority: 31 U.S.C. 3720D)


Sec.  34.16  Issuance of the hearing decision.

    (a) Date of decision. The hearing official issues a written opinion 
stating his or her decision, as soon as practicable, but not later than 
60 days after the date on which we received the request for hearing.
    (b) If we do not provide you with a hearing and render a decision 
within 60 days after we receive your request for a hearing--
    (1) We do not issue a garnishment order until the hearing is held 
and a decision rendered; or
    (2) If we have already issued a garnishment order to your employer, 
we suspend the garnishment order beginning on the 61st day after we 
receive the hearing request until we provide a hearing and issue a 
decision.

(Authority: 31 U.S.C. 3720D)


Sec.  34.17  Content of decision.

    (a) The written decision is based on the evidence contained in the 
hearing record. The decision includes--
    (1) A description of the evidence considered by the hearing 
official;
    (2) The hearing official's findings, analysis, and conclusions 
regarding objections raised to the existence or amount of the debt;
    (3) The rate of wage withholding under the order, if you objected 
that withholding the amount proposed in the garnishment notice would 
cause an extreme financial hardship; and
    (4) An explanation of your rights under this part for 
reconsideration of the decision.
    (b) The hearing official's decision is the final action of the 
Secretary for the purposes of judicial review under the Administrative 
Procedure Act (5 U.S.C. 701 et seq.).

(Authority: 31 U.S.C. 3720D)


Sec.  34.18  Issuance of the wage garnishment order.

    (a)(1) If you fail to make a timely request for a hearing, we issue 
a garnishment order to your employer within 30 days after the deadline 
for timely requesting a hearing.
    (2) If you make a timely request for a hearing, we issue a 
withholding order within 30 days after the hearing official issues a 
decision to proceed with garnishment.
    (b)(1) The garnishment order we issue to your employer is signed by 
an official of the Department designated by the Secretary.
    (2) The designated official's signature may be a computer-generated 
facsimile.
    (c)(1) The garnishment order contains only the information we 
consider necessary for your employer to comply with the order and for 
us to ensure proper credit for payments received from your employer.
    (2) The order includes your name, address, and social security 
number, as well as instructions for withholding and information as to 
where your employer must send the payments.
    (d)(1) We keep a copy of a certificate of service indicating the 
date of mailing of the order.
    (2) We may create and maintain the certificate of service as an 
electronic record.

(Authority: 31 U.S.C. 3720D)


Sec.  34.19  Amounts to be withheld under a garnishment order.

    (a)(1) After an employer receives a garnishment order we issue, the 
employer must deduct from all disposable pay of the debtor during each 
pay period the amount directed in the garnishment order unless this 
section or Sec.  34.20 requires a smaller amount to be withheld.
    (2) The amount specified in the garnishment order does not apply if 
other law, including this section, requires the employer to withhold a 
smaller amount.
    (b) The employer must comply with our garnishment order by 
withholding the lesser of--
    (1) The amount directed in the garnishment order; or--
    (2) The amount specified in 15 U.S.C. 1673(a)(2) (Restriction on 
Garnishment); that is, the amount by which a debtor's disposable pay 
exceeds an amount equal to 30 times the minimum wage. (See 29 CFR 
870.10.)

(Authority: 31 U.S.C. 3720D)


Sec.  34.20  Amount to be withheld under multiple garnishment orders.

    If a debtor's pay is subject to several garnishment orders, the 
employer must comply with our garnishment order as follows:
    (a) Unless other Federal law requires a different priority, the 
employer must pay us the amount calculated under Sec.  34.19(b) before 
the employer complies with any later garnishment orders, except a 
family support withholding order.
    (b) If an employer is withholding from a debtor's pay based on a 
garnishment order served on the employer before our order, or if a 
withholding order for family support is served on an employer at any 
time, the employer must comply with our garnishment order by 
withholding an amount that is the smaller of--
    (1) The amount calculated under Sec.  34.19(b); or
    (2) An amount equal to 25 percent of the debtor's disposable pay 
less the amount or amounts withheld under the garnishment order or 
orders with priority over our order.
    (c)(1) If a debtor owes more than one debt arising from a program 
we administer, we may issue multiple garnishment orders.
    (2) The total amount withheld from the debtor's pay for orders we 
issue under paragraph (c)(1) of this section does not exceed the 
amounts specified in the orders, the amount specified in Sec.  
34.19(b)(2), or 15 percent of the debtor's disposable pay, whichever is 
smallest.

[[Page 8146]]

    (d) An employer may withhold and pay an amount greater than that 
amount in paragraphs (b) and (c) of this section if the debtor gives 
the employer written consent.

(Authority: 31 U.S.C. 3720D)


Sec.  34.21  Employer certification.

    (a) Along with a garnishment order, we send to an employer a 
certification in a form prescribed by the Secretary of the Treasury.
    (b) The employer must complete and return the certification to us 
within the time stated in the instructions for the form.
    (c) The employer must include in the certification information 
about the debtor's employment status, payment frequency, and disposable 
pay available for withholding.

(Authority: 31 U.S.C. 3720D)


Sec.  34.22  Employer responsibilities.

    (a)(1) Our garnishment order indicates a reasonable period of time 
within which an employer must start withholding under the order.
    (2) The employer must promptly pay to the Department all amounts 
the employer withholds according to the order.
    (b) The employer may follow its normal pay and disbursement cycles 
in complying with the garnishment order.
    (c) The employer must withhold the appropriate amount from the 
debtor's wages for each pay period until the employer receives our 
notification to discontinue wage garnishment.
    (d) The employer must disregard any assignment or allotment by an 
employee that would interfere with or prohibit the employer from 
complying with our garnishment order, unless that assignment or 
allotment was made for a family support judgment or order.

(Authority: 31 U.S.C. 3720D)

Sec.  34.23  Exclusions from garnishment.

    (a) We do not garnish your wages if we have credible evidence that 
you--
    (1) Were involuntarily separated from employment; and
    (2) Have not yet been reemployed continuously for at least 12 
months.
    (b) You have the burden of informing us of the circumstances 
surrounding an involuntary separation from employment.

(Authority: 31 U.S.C. 3720D)

Sec.  34.24  Claim of financial hardship by debtor subject to 
garnishment.

    (a) You may object to a proposed garnishment on the ground that 
withholding the amount or at the rate stated in the notice of 
garnishment would cause financial hardship to you and your dependents. 
(See Sec.  34.7)
    (b) You may, at any time, object that the amount or the rate of 
withholding which our order specifies your employer must withhold 
causes financial hardship.
    (c)(1) We consider an objection to an outstanding garnishment order 
and provide you an opportunity for a hearing on your objection only 
after the order has been outstanding for at least six months.
    (2) We may provide a hearing in extraordinary circumstances earlier 
than six months if you show in your request for review that your 
financial circumstances have substantially changed after the notice of 
proposed garnishment because of an event such as injury, divorce, or 
catastrophic illness.
    (d)(1) You bear the burden of proving a claim of financial hardship 
by a preponderance of the credible evidence.
    (2) You must prove by credible documentation--
    (i) The amount of the costs incurred by you, your spouse, and any 
dependents, for basic living expenses; and
    (ii) The income available from any source to meet those expenses.
    (e)(1) We consider your claim of financial hardship by comparing--
    (i) The amounts that you prove are being incurred for basic living 
expenses; against
    (ii) The amounts spent for basic living expenses by families of the 
same size and similar income to yours.
    (2) We regard the standards published by the Internal Revenue 
Service under 26 U.S.C. 7122(c)(2) (the ``National Standards'') as 
establishing the average amounts spent for basic living expenses for 
families of the same size as, and with family incomes comparable to, 
your family.
    (3) We accept as reasonable the amount that you prove you incur for 
a type of basic living expense to the extent that the amount does not 
exceed the amount spent for that expense by families of the same size 
and similar income according to the National Standards.
    (4) If you claim for any basic living expense an amount that 
exceeds the amount in the National Standards, you must prove that the 
amount you claim is reasonable and necessary.

(Authority: 31 U.S.C. 3720D)

Sec.  34.25  Determination of financial hardship.

    (a)(1) If we conclude that garnishment at the amount or rate 
proposed in a notice would cause you financial hardship, we reduce the 
amount of the proposed garnishment to an amount that we determine will 
allow you to meet proven basic living expenses.
    (2) If a garnishment order is already in effect, we notify your 
employer of any change in the amount the employer must withhold or the 
rate of withholding under the order.
    (b) If we determine that financial hardship would result from 
garnishment based on a finding by a hearing official or under a 
repayment agreement we reached with you, this determination is 
effective for a period not longer than six months after the date of the 
finding or agreement.
    (c)(1) After the effective period referred to in paragraph (b) of 
this section, we may require you to submit current information 
regarding your family income and living expenses.
    (2) If we conclude from a review of that evidence that we should 
increase the rate of withholding or payment, we--
    (i) Notify you; and
    (ii) Provide you with an opportunity to contest the determination 
and obtain a hearing on the objection under the procedures in Sec.  
34.24.

(Authority: 31 U.S.C. 3720D)

Sec.  34.26  Ending garnishment.

    (a)(1) A garnishment order we issue is effective until we rescind 
the order.
    (2) If an employer is unable to honor a garnishment order because 
the amount available for garnishment is insufficient to pay any portion 
of the amount stated in the order, the employer must--
    (i) Notify us; and
    (ii) Comply with the order when sufficient disposable pay is 
available.
    (b) After we have fully recovered the amounts owed by the debtor, 
including interest, penalties, and collection costs, we send the 
debtor's employer notification to stop wage withholding.

    (Authority: 31 U.S.C. 3720D)


Sec.  34.27  Actions by employer prohibited by law.

    An employer may not discharge, refuse to employ, or take 
disciplinary action against a debtor due to the issuance of a 
garnishment order under this part.

(Authority: 31 U.S.C. 3720D)

Sec.  34.28  Refunds of amounts collected in error.

    (a) If a hearing official determines under Sec. Sec.  34.16 and 
34.17 that a person does not owe the debt described in our notice or 
that an administrative wage garnishment under this part was barred by 
law at the time of the collection

[[Page 8147]]

action, we promptly refund any amount collected by means of this 
garnishment.
    (b) Unless required by Federal law or contract, we do not pay 
interest on a refund.

(Authority: 31 U.S.C. 3720D)

Sec.  34.29  Enforcement action against employer for noncompliance with 
garnishment order.

    (a) If an employer fails to comply with Sec.  34.22 to withhold an 
appropriate amount from wages owed and payable to an employee, we may 
sue the employer for that amount.
    (b)(1) We do not file suit under paragraph (a) of this section 
before we terminate action to enforce the debt as a personal liability 
of the debtor.
    (2) However, the provision of paragraph (b)(1) of this section may 
not apply if earlier filing of a suit is necessary to avoid expiration 
of any applicable statute of limitations.
    (c)(1) For purposes of this section, termination of an action to 
enforce a debt occurs when we terminate collection action in accordance 
with the FCCS, other applicable standards, or paragraph (c)(2) of this 
section.
    (2) We regard termination of the collection action to have occurred 
if we have not received for one year any payments to satisfy the debt, 
in whole or in part, from the particular debtor whose wages were 
subject to garnishment.

(Authority: 31 U.S.C. 3720D)

Sec.  34.30  Application of payments and accrual of interest.

    We apply payments received through a garnishment in the following 
order--
    (a) To costs incurred to collect the debt;
    (b) To interest accrued on the debt at the rate established by--
    (1) The terms of the obligation under which it arises; or
    (2) Applicable law; and
    (c) To outstanding principal of the debt.

(Authority: 31 U.S.C. 3720D)


    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix

Analysis of Comments and Changes

    An analysis of the comments and of the changes in the 
regulations since publication of the NPRM follows.
    We discuss issues according to subject, under the sections of 
the regulations to which they pertain.

Scope of Garnishment Authority; Collection of Student Loans (Sec. Sec.  
34.1 and 34.2)

    Comment: One commenter contended that the Department lacks legal 
authority to use the garnishment power in the DCIA to collect 
student loans, because the commenter views section 488A of the 
Higher Education Act, 20 U.S.C. 1095a, as restricting the 
Department's garnishment authority to ten percent of disposable pay.
    Discussion: The commenter bases this contention not on the terms 
of the DCIA, but on a rule of statutory construction that where two 
statutes authorize an action, the more specific of the two sets the 
limits to that authority. Section 488A of the HEA authorizes the 
Secretary of Education and guaranty agencies to garnish up to ten 
percent of debtor pay to collect student loans, while the DCIA 
authorizes Federal agencies to garnish up to fifteen percent of 
debtor pay. The commenter views the HEA as the more specific of the 
two statutes, and contends that the HEA limits the Department's 
garnishment power to the ten percent rate it authorizes. We disagree 
that the HEA is the more specific of the two statutes; both statutes 
apply to a distinctive category of entities. The HEA extended 
garnishment authority to the Department and to some 36 separate 
State and non-profit entities operating as guaranty agencies, and 
empowers the latter group to collect both on their own behalf and on 
behalf of the Federal government.\1\ The DCIA applies only to 
Federal agencies, and applies exclusively to collection of debts 
owed to the Federal Government.
---------------------------------------------------------------------------

    \1\ Guarantors are authorized to collect ``the amount owed'' by 
the defaulter, 20 U.S.C. 1095a(a), which includes that portion of 
the loan debt not covered by Federal reinsurance, as well as that 
portion of the recovery that the guarantor is authorized to retain. 
20 U.S.C. 1078(c)(1), 1078(c)(6).
---------------------------------------------------------------------------

    Even if the HEA were the more specific of the two authorities, 
the rule that the more specific of two potentially applicable 
statutes controls is merely one of several tools used to discern the 
intent of Congress. Another way to determine the intent of Congress 
when two potentially-applicable statutes adopt inconsistent terms is 
to view the more recent of the two as embodying the current intent 
of Congress. The 1996 DCIA is the more recent of the two statutes. 
Thus, Congress' intent to allow garnishment at 15 percent supersedes 
the HEA's more limited authority.
    Looking to the more recent of two statutes to discern Congress' 
intent is particularly apt because the DCIA garnishment provision is 
both more recently enacted and part of a comprehensive scheme 
inconsistent with the limits of the earlier HEA authority. The DCIA 
supersedes the more limited authority in HEA section 488A because 
the DCIA garnishment authority is an addition to a comprehensive 
statutory scheme (31 U.S.C. 3701-3720E) for enforcement of Federal 
debts, including student loan debts. That scheme includes, for 
example, authority under 31 U.S.C. 3720A to collect Federal debt by 
tax refund offset, and, under 31 U.S.C. 3711(g), to report 
delinquent Federal debt to credit bureau. Thus, because Congress 
intended this statutory scheme as in effect before the 1996 DCIA 
amendments to apply to student loans, there is no reason to infer 
that Congress did not intend the garnishment provision added by the 
DCIA to this scheme in 1996 to apply to student loans as well.
    Changes to the roles of specific Federal agencies made by the 
DCIA show that Congress intended that the tools available under this 
statutory scheme, including garnishment, be used to collect student 
loans. For the first time, the DCIA required Federal agencies to 
transfer collection responsibility for their delinquent debt to 
Treasury, or to other Federal agencies which were designated ``debt 
collection centers.'' The DCIA authorizes Treasury, as well as these 
designated ``debt collection centers,'' to use all the collection 
tools provided in the DCIA, including its garnishment provision, to 
collect debts which they ``cross-service.'' Education has been 
designated a debt collection center for student loans, thus, it is 
illogical to infer any congressional intent to bar Education from 
using the same DCIA garnishment authority to collect Federal student 
loan debts that Treasury and other agencies are meant to use to 
collect Federal debts.
    Moreover, if Education had not been designated a debt collection 
center, the DCIA would have required Education to transfer its 
student loan debts to Treasury (or another agency designated as a 
collection center) for cross-servicing. Treasury plainly has full 
authority to use DCIA garnishment to collect any debts transferred 
to it for servicing, including student loans from Education. Thus, 
because Treasury or other Federal agencies would have power to 
collect those very student loans at the 15 percent rate, it is 
illogical to infer any congressional intent to restrict garnishment 
to the lesser HEA level when those same loans are serviced by 
Education itself.
    The text of the DCIA itself shows that the absence of any 
language excluding student loans from garnishment under 31 U.S.C. 
3720D was no oversight. The DCIA expanded the scope of Federal 
offsets by amending 31 U.S.C. 3716 to authorize offset by Treasury 
against such Federal payments as Social Security benefits, 31 U.S.C. 
3716(b)(3), but expressly excluded title IV HEA student assistance 
payments from offset. 31 U.S.C. 3716(b)(1)(C). That express 
exclusion of student aid from the DCIA offset provision, contrasted 
against the absence of any reference to student loans in the DCIA 
garnishment provision--a provision copied almost verbatim from HEA 
section 488A--shows that Congress spoke clearly when it meant to 
exclude student aid from the reach of the DCIA tools, and intended 
no exclusion of student loans from the DCIA garnishment provision.
    In addition to the language of the statute itself, the 
legislative context of the garnishment provision shows that Congress 
intended the Department to use this DCIA authority to collect 
student loans. The subcommittee in which the provision originated 
understood from testimony before it that the provision would 
increase Education's authority to 15 percent to garnish

[[Page 8148]]

debtor wages to collect student loans.\2\ Subsequent oversight 
action by that subcommittee \3\ and by the General Accounting Office 
\4\ at the request of the subcommittee demonstrate the 
subcommittee's expectation, and Education's intention, that 
Education would implement the DCIA 15 percent wage garnishment 
authority to collect student loans.
---------------------------------------------------------------------------

    \2\ Hearing on H.R. 2234, the Debt Collection Improvement Act of 
1995, before the Subcommittee on Government Management, Information 
and Technology of the Committee on Government Reform and Oversight, 
104th Cong., 1st Sess. on H.R. 2234, Sept. 8, 1995 at 70, 159, 253. 
Moreover, the Congressional Budget Office estimated substantial 
increased recoveries on defaulted loans from these DCIA proposals. 
See 142 Cong. Rec. S1825 (Memorandum from John Righter, CBO, to 
Patrick Windham, Sen. Committee on Commerce, Science, and 
Transportation, regarding Preliminary scoring of the ``Debt 
Collection Improvement Act of 1996,'' Chapter 2 of a proposed 
amendment to H.R. 3019). As explained by cognizant staff, CBO based 
its estimates on the understanding that Education would use fully 
these DCIA tools, including garnishment, to collect defaulted 
student loans.
    \3\ Hearing on Federal Debt Collection Practices before the 
Subcommittee on Government Management, Information and Technology of 
the Committee on Government Reform and Oversight, 105th Cong., 1st 
Sess., Nov. 12, 1997, at 90, 91.
    \4\ General Accounting Office: Debt Collection Improvement Act 
of 1996: Status of Selected Agencies' Implementation of 
Administrative Wage Garnishment (GAO-02-313).
---------------------------------------------------------------------------

    For these reasons, the Department considers unfounded the view 
that the HEA garnishment authority precludes use of the DCIA 
garnishment authority to collect student loans.
    Changes: None.
    Comment: One commenter objected that the explanation for the 
Department's implementation of DCIA garnishment authority in these 
regulations left confusion about whether current FFELP regulations, 
which address garnishment under HEA section 488A by student loan 
guarantors, will continue to apply to those guarantors, and invited 
speculation about whether student loan guarantors would continue to 
garnish to collect debts they held, and if so, whether the HEA, 
rather than the DCIA, authorized them to do so.
    Discussion: The statements made by the Department regarding its 
intention to use DCIA garnishment authority make no suggestion that 
the role and authority of student loan guarantors has changed. The 
HEA expressly authorizes student loan guarantors to collect by 
garnishment, and nothing in the DCIA expressly or implicitly 
addresses the authority of guarantors to garnish. Regulations 
adopted under the Federal Family Education Loan Program (FFELP) at 
34 CFR 682.410(b)(9) to implement that authority for guarantors 
expressly apply to action by FFELP loan guarantors to conduct 
garnishment under HEA section 488A. Those regulations do not state 
or imply that they apply to the Department, either when the 
Department conducted garnishment under HEA section 488A or under any 
other authority. Because the FFELP regulations in most instances 
closely track the language of HEA section 488A, the Department, by 
following the provisions of the statute itself, generally conformed 
to those regulations. Because the DCIA garnishment provision mirrors 
HEA section 488A, the Department's reasons for interpreting and 
implementing several DCIA provisions apply with equal force to 
identical terms of HEA section 488A, which the Department has 
authority to interpret. That reasoning therefore helps clarify the 
intent of identical language found in both statutes. Discussion of 
the HEA in the explanation for this rule did not suggest that the 
Department considered student loan guarantors to be authorized to 
collect under the DCIA authority.
    Changes: None.

Computation of Time and System Changes (Sec.  34.3)

    Comment: A commenter objects that adopting definitions of 
``day'' and ``business day'' may require modification of current 
systems for mailings. As an example, the commenter stated that the 
garnishment order cannot be issued until 30 days after the date of 
the notice, and the proposed rule provides that if the last day of a 
period is a Saturday, Sunday, or Federal holiday, the period runs to 
the next business day. Thus, the rule would be violated if a 
contractor were to mail a garnishment order exactly 30 days after 
the date of the notice, if that 30th day fell on a Saturday or 
Sunday.
    Discussion: These rules adopt verbatim the definitions and 
approach adopted by Treasury in its rule, which mirror rules almost 
invariably applied in litigation. The only act we take under this 
rule within a specified number of days after an event or deadline is 
the issuance of the garnishment order; Sec.  34.4 states that we 
provide notice of the proposed garnishment ``at least'' 30 days 
before we begin garnishment, and Sec.  34.18(a)(1) provides that we 
issue a garnishment order ``within 30 days after the deadline for 
timely requesting a hearing'' or ``within 30 days after a 
decision.'' The Department is responsible for ensuring that its 
garnishment activities, and the actions of contractors as needed to 
support those activities, conform to this rule. We therefore see no 
basis for the complaint that the rule would require modification of 
systems used to create and mail the notices and orders Education now 
uses in its garnishment process.
    Changes: None.

Rights in Connection With Garnishment (Sec.  34.6)

    Comment: A commenter objected that the regulations do not 
articulate specific defenses that may be available to the debtor as 
grounds for objection to the proposed garnishment, and urged that 
the rule should mandate use of a form request for hearing of the 
kind now used by the Department for garnishment action to collect 
student loans.
    Discussion: The Department has used, and will continue to use 
for collection of student loan debts, a form Request for Hearing 
that lists potentially available grounds for objection. Because this 
regulation applies to garnishment to collect any debts held by the 
Department, the Department did not consider it necessary to adopt 
any specific provisions applicable only to some debts. The 
Department has no intention to change this procedure for student 
loans. However, neither the statute, Treasury regulations, nor due 
process requires use of a notice that lists potentially available 
defenses. There is no need to include in these regulations 
provisions that would imply that such a duty exists.
    Changes: None.
    Comment: A commenter urged that the regulations should 
specifically require the Department to give notice that a debtor may 
object to garnishment on the ground that the debtor was recently 
reemployed after involuntary separation.
    Discussion: The Department agrees that debtors may not be aware 
that they may object on the grounds that the debtor has been 
recently been reemployed after involuntary separation from 
employment. The notice and the request for hearing now used by the 
Department for HEA garnishment explain this option. Because this 
objection applies regardless of the nature of the debt to be 
collected, the Department agrees that the regulations should commit 
to providing express notice of this option.
    Changes: The regulations are modified in Sec.  34.6 to provide 
that the pre-garnishment notice includes an explanation of the 
availability of objection on the grounds of recent reemployment 
after involuntary separation.
    Comment: A commenter urged that the regulations should 
specifically require notice to the debtor that limits on withholding 
imposed by 15 U.S.C. 1671 et seq. may preclude actual withholding of 
pay.
    Discussion: Neither the Department, nor any other garnishing 
creditor, can reliably determine whether, and for what period, 15 
U.S.C. 1673 may bar an employer from honoring a particular 
garnishment order. That statute imposes the duty on the employer to 
honor its limits, because only the employer actually knows both the 
amount of the debtor's disposable pay and the number, amount, 
relative priority, and duration of all withholding orders that may 
affect the debtor. The court or administrative body that issues a 
garnishment order meets its duty under 15 U.S.C. 1673(c) by stating 
in the garnishment order that the employer must pay no more than the 
amount permitted by that statute. Standard Form 329B, the 
garnishment order prescribed for Federal agencies by Treasury, thus 
directs the employer to pay the lesser of the amount permitted under 
15 U.S.C. 1673 or the amount determined by the agency (either 15 
percent of disposable pay or a lesser amount).
    Therefore, these regulations, consistent with Treasury 
regulations, do not recognize as a valid defense to a garnishment 
action a contention by the debtor that the proposed withholding 
order, if honored by the employer, would result in withholding 
amounts greater than those permitted by 15 U.S.C. 1673. Because this 
statute provides no defense to the debtor in a proceeding under this 
part, it does not affect the debtor's ability to respond in a 
meaningful manner in the proposed garnishment. We note that neither 
15 U.S.C. 1671 et seq., the garnishment statutes themselves (HEA 
section 488A or 31

[[Page 8149]]

U.S.C. 3720D), nor Treasury regulations require the creditor who 
intends to garnish to include in the notice or complaint initiating 
collection action an explanation of the effect of 15 U.S.C. 1673. 
There appears to be little value in including an explanation of this 
statute in the notice, which is intended to explain the debtor's 
rights in the garnishment proceeding.
    Changes: None.
    Comment: A commenter stated that the regulations lacked language 
to mirror the assurance in the preamble that the Department provides 
hearings even if the request for a hearing is not made timely, and 
that the regulations should include this assurance.
    Discussion: Section 34.8 requires the debtor to make any request 
for a hearing in writing, regardless of the type of hearing sought. 
Section 34.11(c)(1) expressly states that we provide a hearing even 
if that written request for a hearing is untimely. That provision 
contains the assurance that the commenter describes, and no 
additional language is needed to ensure that right.
    Changes: None.
    Comment: A commenter stated that regulations should require that 
the Department make available for inspection by the debtor prior to 
the hearing any evidence on which the Department intends to rely to 
establish the existence and amount of the debt.
    Discussion: The proposed rule, in Sec. Sec.  34.5 and 34.6(a), 
stated that the Department would explain in the pre-garnishment 
notice that the debtor may inspect and copy records regarding the 
debt, and in Sec.  34.14(a)(2) further provided that the Department 
would, on request, make available to the debtor, as part of the 
hearing process, the evidence which we believe establishes the 
existence and amount of the debt. These provisions ensure that the 
debtor has an opportunity to examine the evidence on which the 
Department's claim rests, in a timely manner, that permits the 
debtor effectively to respond with evidence and argument before a 
decision is issued. No change is needed.
    Changes: None.

Conditions for an Oral Hearing (Sec.  34.9)

    Comment: A commenter objected to the requirement that the 
objecting debtor who seeks an oral hearing must state reasons why 
the objection cannot be satisfactorily reviewed based on the 
records, including any material provided by the debtor. The 
commenter objected that this requirement places an unfair burden on 
borrowers, many of whom may be low-income or unsophisticated.
    Discussion: By requiring the debtor to show that an oral hearing 
is actually needed to resolve the disputed facts, the regulations 
adopt the same approach used in judicial proceedings, the paradigm 
of due process. Courts routinely dispose of defenses--including 
those raised by pro se or unsophisticated defendants--through 
summary judgment rulings, and that disposition meets constitutional 
due process standards. The Department has limited resources 
available to conduct oral hearings; published statistics show that 
the Department received approximately 9000 requests for hearings in 
its HEA garnishment actions in FY 2000. General Accounting Office: 
Debt Collection Improvement Act of 1996: Status of Selected 
Agencies' Implementation of Administrative Wage Garnishment (GAO-02-
313) p. 16. Limitations on resources do not warrant curtailing the 
rights of debtors, but do militate in favor of the Department, like 
Federal courts exercising summary judgment authority, avoiding 
unnecessary hearings.
    Consistent with Treasury regulations applicable to offset 
proceedings, 31 CFR 901.3(e), and to DCIA garnishment actions, 31 
CFR 285.11(e), the Department in these regulations simply requires 
the debtor who seeks an oral hearing to show a good reason why we 
cannot resolve the disputed issues by reviewing the debt records. 
This is a common-sense standard that we have generously applied for 
years in Federal offset proceedings. The Department sees no readily 
articulated and sensible lesser standard, and no reason to commit in 
these regulations to provide an oral hearing on request regardless 
of the nature of the objection or the kind of evidence available.
    Proposed Sec.  34.10(a) stated that a paper hearing would be 
held upon request, but inadvertently omitted the word ``or'' before 
stating that paper hearings would be provided if we conclude that we 
can resolve the issues raised by an objection without an oral 
hearing.
    Changes: Section 34.10(a) of the proposed rule is revised to 
state that we provide a paper hearing upon request by the debtor or 
if an oral hearing was requested but we determine that we can 
resolve the issues raised by the objection through a review of the 
written record regarding the debt.
    Comment: A commenter urged that, for in-person or telephone 
hearings, the regulations be revised to state that the Department 
must send a copy of the hearing file to the debtor prior to the 
hearing.
    Discussion: The Department has used, and will continue to use, a 
pre-garnishment notice that encourages the debtor to request copies 
of the records that pertain to the debt to be collected by 
garnishment, and to do so before the hearing, and indeed before the 
submission of the actual objection to the proposed garnishment. The 
proposed rule in Sec.  34.5(c)(1) provides that the Department makes 
these records available on request. If the debtor does not choose to 
request and review these records, we see no need to incur the 
expense of sending the records to the debtor.
    Changes: None.

Conduct of Hearings (Sec.  34.13)

    Comment: One commenter disagreed with the statement in the 
preamble that contractors cannot rule on debtor objections. The 
commenter considered the statement that this activity was an 
inherently governmental function to imply that student loan 
guarantors could not use independent hearing officials, including 
administrative law judges and other parties, whom they retain by 
contract.
    Discussion: The Department intended no inference that student 
loan guarantors could not use contracts to retain independent 
hearing officials. HEA section 488A requires student loan guarantors 
to appoint administrative law judges or to retain independent 
hearing officials, not under the supervision or control of the 
guarantor, to adjudicate debtor objections to the proposed 
garnishment; that retainer agreement will obviously be embodied in a 
contract with the hearing official. As Treasury stated in 
promulgating controlling regulations, Federal agencies ``may not 
contract out `inherently governmental functions,' . . . [but] 
contractors can[ ] assist agencies'' by mailing notices, orders 
authorized by the agency, receiving documents from debtors and 
employers, and arranging repayment agreements approved by the 
agency. 63 FR 25137. Unlike these supporting functions, adjudication 
of debtor disputes to the compulsory taking of a portion of their 
wages by garnishment is an inherently governmental function. The 
Department therefore cannot use contractors to decide debtor 
objections. The Department recognizes that the HEA requires 
guarantors to use individuals, including administrative law judges, 
who are independent of the guarantor to perform this adjudication 
function. We fully agree that guarantors can arrange for these 
services by contracts.
    Changes: None.
    Comment: One commenter agreed with the statement that only 
qualified employees of the Department may conduct hearings, but 
objected to the statement that the Department may use contracted 
services to analyze debtor objections and propose appropriate 
findings to those objections. The commenter requested that the 
Department clarify that any findings proposed by contractors are not 
final, and that Department hearing officials must exercise 
independent judgment and provide independent rationales for 
decisions. The commenter further urged that the regulations bar use 
of employees of collection agencies or other agencies collecting 
debts on behalf of the Department to analyze objections. The 
commenter urged that contractors receive specific training on 
borrower defenses and other critical hearing procedures.
    Discussion: The Department agrees with the commenter that 
Department contractors cannot conduct hearings or rule on objections 
to garnishment, because those are inherently governmental functions. 
As discussed earlier, HEA section 488A expressly requires guarantors 
to use independent hearing officials not under the control of the 
guarantor to judge debtor objections to garnishment. In contrast, 
both HEA section 488A and 31 U.S.C. 3720D direct the Department 
itself to provide a hearing and decide debtor objections. The 
Department cannot, therefore, delegate this duty to a contractor. 
This does not, however, preclude use of contractors to analyze 
debtor objections and propose resolutions on those objections.
    Department officials must therefore consider the objections 
raised by each debtor, and must issue a decision on those 
objections. Unless and until a Department official makes findings 
and issues a decision, there is no ruling on a debtor's objections.

[[Page 8150]]

The Department agrees that contractors used to prepare 
recommendations should be trained to properly analyze debtor 
objections. However, because contractor analyses of those objections 
are clearly no more than recommendations to Department staff and 
have no binding effect whatever on the debtor, we see no need to 
include language in the regulations to characterize contractor 
analyses.
    Debtors have the right, under these regulations, to avoid 
garnishment by entering a voluntary repayment agreement. The 
Department uses its collection contractors to negotiate repayment 
terms with those debtors sent notice of garnishment who wish to 
repay voluntarily. Collection contractors have a financial interest 
in recovery, whether by garnishment or by voluntary payment, and the 
Department does not use them to prepare recommended analysis for a 
hearing on any objection, including hardship objections. These 
regulations ensure a hearing by a designated Department official for 
any debtor who does not agree to repay voluntarily and has requested 
a hearing.
    Changes: None.
    Comment: A commenter opined that the regulations should adopt 
guidelines and training procedures for any Department staff 
designated to conduct hearings of debtor objections. The commenter 
urged that the regulations should require the Department to provide 
debtors a list of hearing officials available for review of their 
objections so that they may object to those they consider 
unqualified or biased.
    Discussion: Any decision issued by the Department on debtor 
objections to garnishment is subject to judicial review under 
Administrative Procedure Act (APA). The Department has a strong 
interest in seeing that Department staff who conduct hearings do so 
in conformance with applicable substantive and procedural law. 
Therefore, the Department sees little value in adding generalized 
language to this part that would purport to govern its own internal 
training procedures.
    The commenter points to no administrative or judicial tribunal 
that allows debtors to select the individual to hear their cases, 
and shows no good reason to adopt that course in this part. The 
commenter urged that this would permit a debtor to reject a 
particular individual who the debtor considers biased against the 
debtor. A debtor who objects to a hearing official as biased, can 
object as part of the hearing process to that individual serving as 
hearing official.\5\ Hearings under this part are not subject to 5 
U.S.C. 556, which requires the agency to consider and include in the 
administrative record its ruling on any objection to a proposed 
hearing official. However, the Department must meet that test, 
because it must consider and rule on any objection raised by the 
debtor, including an objection that the hearing official is biased. 
That determination, and any claim that a decision was the result of 
bias by the hearing official, may be tested on judicial review.
---------------------------------------------------------------------------

    \5\ Grounds for disqualification in proceedings under this part 
would include those applicable to Federal court proceedings; as 
pertinent here, Federal law requires disqualification of a judge in 
a Federal court proceeding who has personal bias or prejudice 
concerning a party, or personal knowledge of disputed evidentiary 
facts. 28 U.S.C. 455(b)(1).
---------------------------------------------------------------------------

    No Department hearing official benefits financially from the 
outcome of a hearing, and Federal ethics rules prohibit a hearing 
official from participating in a matter in which the individual has 
a financial interest. 5 CFR 2635.402(a). The Department therefore 
sees no need to add provisions to these regulations offering debtors 
a choice of hearing officials as a remedy for speculation that some 
Department official may harbor bias against a particular debtor.
    Changes: None.

Content of Decision; Basis of Decision on Evidence Considered at 
Hearing (Sec.  34.17)

    Comment: A commenter stated that regulations should require that 
hearing decisions be based only on evidence presented at the hearing 
and should clearly state the grounds for denial of an objection.
    Discussion. Section 34.17 of the proposed rule provided that the 
decision would include the hearing official's conclusions and 
reasoning for each objection presented. We agree that the decision 
must rest on evidence presented in the hearing, but that hearing 
process is informal and may extend beyond the actual oral hearing. 
The regulations do not bar debtors from presenting in oral hearings 
objections not raised in the request for hearing, and do not require 
debtors who seek oral hearings to disclose all the evidence on which 
they will rely to support an objection. Because new objections and 
evidence first presented by the debtor during an oral hearing may 
require the Department to obtain further evidence in order to 
evaluate, the hearing official may leave the record open both for 
the Department and for the debtor. We may need to obtain additional 
evidence to respond to objections and evidence submitted by a debtor 
in either an oral or paper hearing.
    To ensure that evidence we may obtain after the notice is sent 
is fairly considered in the hearing process, the debtor must have an 
opportunity to examine and respond to that evidence before the 
hearing official makes his or her decision. Therefore, if we intend 
to consider evidence that was not included in our records of the 
debt that were available for inspection prior to the hearing, the 
hearing official will consider that evidence only after we notify 
the debtor, make that evidence available to the debtor, and provide 
a reasonable period for rebuttal evidence and argument by the 
debtor.
    The proposed regulations did not address the situation in which 
the debtor learns after filing the request for hearing that specific 
relevant evidence is available, and wishes to submit that evidence 
and have it considered in the proceeding. We believe that the debtor 
should have the opportunity to do so, if that evidence can be 
promptly acquired and produced. To ensure that this opportunity does 
not unduly delay completion of the hearing and issuance of the 
decision, it is reasonable to expect the debtor to make a specific 
request that the record be held open for consideration of such 
evidence, and to describe in that request what the evidence is, and 
why it is relevant.
    The proposed regulations did not address situations in which a 
debtor requests access to records, and then seeks to submit evidence 
and objection based on a review of our records of the debt, or 
seeks--but is denied--an oral hearing at which he or she would offer 
evidence and objections. Department regulations for the Treasury 
Offset Program assure a debtor who seeks access to Department debt 
records with reasonable diligence--within 20 days of the date of the 
notice of proposed offset--an extended deadline for presenting 
evidence and argument opposing the offset. 34 CFR 30.33(d). A 
similar assurance is appropriate in these proceedings. Finally, the 
regulations can clarify that a debtor who intended to present 
evidence and objection at an oral hearing should have an opportunity 
to submit both in written form if that request for an oral hearing 
is denied.
    The time provided for submission of evidence and objections not 
included in the request for hearing may vary depending on the 
situation. We believe that this period should ordinarily be at least 
seven business days, but could in particular circumstances be 
shorter, or, as resources may permit, longer. In any event, the 
particular deadline applicable in each situation should be 
communicated to the debtor.
    Changes: Section 34.17 is modified to provide that the decision 
rests on evidence in the hearing record, and includes a description 
of the evidence considered in making that decision. Section 34.13 is 
modified to add a new paragraph (d) to state the instances in which 
the hearing official will accept evidence and argument not included 
in the request for hearing or presented during an oral hearing. 
Section 34.13(d)(4)(i) provides that if the debtor requests access 
to records within 20 days of the date of the notice, the debtor may 
submit evidence and objection for a limited time after we provide 
the requested records. Section 34.13(d)(4)(ii) and (c) provide that 
if we obtain and intend to have considered in the hearing process 
evidence that was not included in the records that were available 
for inspection by the debtor when notice was sent, we first notify 
the debtor regarding the new evidence, make this evidence available 
to the debtor, and provide a reasonable period for rebuttal evidence 
and argument. Section 34.13(d)(4)(iii) provides for a brief 
extension of time, upon request, for a debtor to submit 
specifically-identified evidence not previously presented, and to 
raise an objection based on that evidence. Section 34.13(d)(4)(iv) 
provides an opportunity to submit evidence and argument after a 
request for an oral hearing is denied.
    Comment: A commenter urged that the regulations require that 
information about reconsideration and appeal rights be included in 
the decision, and that this information be displayed in the decision 
in large bold letters.
    Discussion: The regulations now state that the garnishment 
hearing decision is final agency action for purposes of the judicial 
review under the APA. We have no administrative appeal procedures 
for garnishment decisions, and therefore no administrative appeal 
rights to explain in the

[[Page 8151]]

decision. We currently state in a garnishment decision that the 
debtor may contest the ruling by filing suit in Federal district 
court and we expect to continue to do so. These regulations do 
create reconsideration rights, and we agree that the decision offers 
a useful vehicle for presenting those rights to the debtor.
    Changes: Section 34.17(a) is modified to provide that the 
decision includes an explanation of reconsideration rights available 
to the debtor.
    Comment: A commenter believed that we should state that the 
position taken in the proposed rule regarding the effect of a 
failure to issue a decision within 60 days of an untimely request 
for a hearing applies as well to garnishment action by guarantors 
under the HEA.
    Discussion: We stated in the preamble that the statutory 
requirement that a hearing decision be issued within 60 days of the 
debtor's request does no more than require the garnishing party to 
suspend any outstanding garnishment order if a hearing decision is 
not issued within 60 days of the debtor's request, but does not bar 
resumption of garnishment, or, if an order has not been issued, 
issuance of the order, after an adverse hearing decision is issued. 
As explained there, this conclusion follows from well-established 
case law addressing the effect of statutory deadlines on agency 
action. United States v. James Daniel Good Real Property, 510 U.S. 
43, 63 (1993); United States v. Montalvo-Murillo, 495 U.S. 711 
(1990); Brock v. Pierce County, 476 U.S. 253 (1986). Pursuant to the 
principle articulated in these rulings, failure by a guarantor to 
meet the HEA 60-day decision requirement, like a failure to meet the 
same duty under the DCIA addressed in these rules, does no more than 
suspend the garnishor's right to issue or continue in effect an 
existing garnishment order.
    Changes: None

Financial Hardship; Reconsideration (Sec. Sec.  34.24, 34.25)

    Comment: A commenter stated that provisions regarding the right 
to claim financial hardship were inconsistent and should be 
clarified to allow the debtor to raise hardship at any time.
    Discussion: The regulations provide that the debtor may object 
to garnishment on financial hardship grounds at any time, but that 
the Department in general commits to provide a hearing on a hardship 
objection no earlier than six months after we issue a garnishment 
order. The Department recognizes that in some instances, financial 
circumstances may change substantially within a relatively short 
time, so that a debtor not faced with hardship at the time of the 
notice or hearing may suffer financial setbacks before six months of 
garnishment have been completed. The regulations therefore provide 
that the Department will consider a hardship objection raised within 
that six-month period if in the judgment of the Department, the 
debtor shows in the request for review that his or her financial 
circumstances have substantially worsened after the notice of 
proposed garnishment on account of an event such as disability, 
divorce, or catastrophic illness.
    Section 34.7 of the proposed regulations stated that we provided 
no hearing regarding objection to the rate or amount of withholding 
on a new garnishment action if, within the past 12 months, we had 
begun garnishment proceedings and determined in those proceedings an 
appropriate withholding amount, either by decision or by terms of 
voluntary agreement. This section applies to those circumstances in 
which we start garnishment to collect a different debt than that 
which we have already issued a garnishment order, or we start 
garnishment action to enforce a debt after the debtor breached an 
agreement to repay that debt after we had given notice of intent to 
collect that debt by garnishment. In both voluntary repayment 
agreements and hardship determinations, the Department typically 
states that the determination is effective for a period of six 
months, after which the debtor must demonstrate that he or she 
cannot pay more than the installment amount agreed to or the 
withholding rate determined to be appropriate. The 12-month period 
in proposed Sec.  34.7(b) would have been inconsistent with this 
practice and with the general commitment in proposed Sec.  
34.24(c)(1) to consider a hardship objection within six months after 
the garnishment took effect.
    Changes. Section 34.7(b) is revised first to state that a 
hearing is available to contest the amount or rate of a proposed 
garnishment only if the rate or amount there proposed exceeds the 
rate or amount we had agreed to within the preceding six months in 
an agreement resolving a prior garnishment proposal. Second, the 
same provision is revised to remove the restriction of hardship 
objection where a hearing decision within the preceding 12 months 
had set the withholding rate or amount.
    Comment: A commenter objected that the grounds for hardship 
should not be compared to the grounds for undue hardship discharge 
of student loans in bankruptcy. The commenter disagrees that the 
case law interpreting the undue hardship requirement provides useful 
guidance, because a hardship determination under this rule is 
binding for six months, while a bankruptcy hardship determination in 
bankruptcy is permanent and takes into account the expected long-
term financial difficulties of the debtor.
    Discussion: The commenter suggests that the degree of financial 
hardship that merits a financial hardship under this rule differs 
from, and is less than, the kind of financial hardship needed to 
support a claim of undue hardship in bankruptcy. The observation is 
accurate, because these regulations measure hardship using the 
national standards, which compare the debtor's expenses to the 
average amounts incurred by families of similar size and income, 
while bankruptcy hardship analysis compares the debtor's expenses to 
those needed to maintain what case law refers to as a ``minimal 
standard of living.'' Brunner v. N.Y. Higher Educ. Serv. Corp., 831 
F.2d 395, 396 (2nd Cir. 1987). The amounts spent for living expenses 
by peers of the debtor will in many instances significantly exceed 
those justifiable for a minimal standard of living.\6\
---------------------------------------------------------------------------

    \6\ The Brunner test includes two other steps not relevant to 
hardship claims in garnishment proceedings.
---------------------------------------------------------------------------

    Under these regulations, the debtor bears the burden of proving 
the necessity of any amounts claimed in excess of the average 
amounts spent by his or her peers. The debtor may contend that 
above-average expenses are needed for housing costs, retirement 
savings, tuition for private schools, charitable contributions, 
vehicles, utilities, and telephone charges which the debtor now 
incurs. Bankruptcy courts routinely address these claims in 
evaluating undue hardship claims; that case law can provide guidance 
in considering whether a debtor carries his or her burden under 
these regulations of proving that above-average expenses are 
necessary.
    Changes: None.
    Comment: A commenter urged that the Department include with the 
notice of proposed garnishment a separate form for debtors to use to 
claim financial hardship, which would explain the grounds for a 
hardship claim and how to obtain a hearing on the objection.
    Discussion: The notice currently used by the Department, and 
that which the Department intends to use for garnishment under these 
regulations, explains the debtor's right to contest the proposed 
garnishment on both substantive and hardship grounds. The Department 
may modify the format of the notice as experience demonstrates that 
particular changes are useful.
    The Department currently sends financial statement forms to 
those debtors who state on their request for hearing that they 
intend to object on hardship grounds. The overwhelming majority of 
objections to proposed garnishments that the Department now receives 
are based on financial hardship. The Department agrees that a self-
explanatory form has proven very useful to encourage debtors to 
present their financial circumstances in a way that makes analysis 
of the objection by the Department easier, but sees no reason to 
commit at this point in regulations to a particular form, or to a 
particular method of providing that form to debtors.
    Changes: None.
    Comment: A commenter asked that we state that positions taken in 
the proposed rule regarding the burden of proof of hardship and the 
need to present that claim by completing a financial statement 
disclosing the income and assets available to meet the needs of the 
debtor and his or her family, apply to garnishment proceedings by 
guaranty agencies under HEA section 488A.
    Discussion. Because the debtor alone has evidence needed to 
prove financial hardship, we believe that financial hardship is like 
an affirmative defense to a claim, such as repayment. As a matter of 
common sense and common law, the person who claims an affirmative 
defense bears the burden of proving that defense by a preponderance 
of the credible evidence. We provide a financial statement form for 
debtors who claim hardship to complete, and we intend to

[[Page 8152]]

continue to do so. The rule itself does not bar consideration of 
evidence presented in other forms.
    Fair consideration of hardship claims depends on full and 
accurate disclosure of the income and assets available to meet the 
needs of the debtor and his or her family. Hearing officials should 
reject as unsupported those hardship claims by debtors who fail to 
disclose completely and--for written records hearings--in a form 
that bears some indicia of trustworthiness, such as a statement or 
affirmation that the disclosure is made under penalty of perjury.
    Independent hearing officials conducting hearings under HEA 
section 488A must rule in accordance with applicable law, including 
Department program regulations.
    FFELP regulations do not contain any provision that expressly 
allocates the burden of proof of financial hardship. Section 
34.21(d) does not bind either debtors whose loans are collected by 
guarantors, or hearing officials used by the guarantors, but rests 
on principles that courts generally apply to allocating the burden 
of proof between litigants. Those principles, as well as common 
sense, should persuade FFELP hearing officials to place on the 
debtor the burden of proof and persuasion of a hardship claim.
    As noted above, Sec.  34.21 does not require the debtor to use a 
particular financial statement form to prove hardship in garnishment 
proceedings under these regulations; a guarantor may adopt a rule 
that requires debtors to use a particular form to prove hardship in 
its garnishment proceedings.
    Changes: None.
    Comment: A commenter urged that we state that the National 
Standards adopted by the Internal Revenue Service (IRS) also apply 
to evaluation of hardship claims raised in garnishment proceedings 
under the HEA.
    Discussion: As discussed in response to other comments, these 
rules apply only to debtors subject to Department garnishment action 
under the DCIA, and these regulations do not bind debtors in 
garnishment actions under the HEA by either the Department or 
guarantors. However, we strongly believe that the Standards provide 
unique and well-founded, empirically-based benchmarks of amounts 
needed for basic living expenses. These regulations stipulate that 
amounts spent up to these benchmarks are reasonable and necessary, 
and create an explicit rebuttable presumption that amounts claimed 
in excess of these benchmarks are not necessary.
    Under both the HEA and the DCIA, as discussed in response to 
other comments, the debtor bears the burden of proof and burden of 
persuasion that particular expense amounts are necessary. In absence 
of a FFELP regulation that expressly adopts the Standards, a hearing 
official could conceivably accept an expense claim as necessary 
based on the official's own judgment, even though the claimed amount 
exceeded the Standards and the debtor presented no evidence to 
support the need for that amount. We strongly believe that such a 
judgment would not be well-founded. The Department believes that 
hearing officials in HEA garnishment proceedings should accept the 
Standards as persuasive evidence of the amounts reasonable and 
necessary, and should require any debtor who claims larger amounts 
are needed to support that contention by persuasive evidence. If 
debtors in HEA garnishment proceedings are properly held to their 
burden of proof, there should be little practical difference between 
the presumption created in these regulations and the use of the 
Standards as reliable empiric evidence of reasonableness.
    Changes: None.

Amount Withheld Under Garnishment Order (Sec.  34.19)

    Comment: A commenter objected to the proposal that the 
Department might issue multiple garnishment orders under this rule 
regarding a debtor who owes several debts to the Department. The 
commenter believes that neither the DCIA nor the HEA allows multiple 
garnishment orders, and believes that Congress intended to limit 
garnishment to 10 percent of disposable pay.
    Discussion: Treasury rules interpret the DCIA to allow a Federal 
agency that holds several claims against a debtor to issue more than 
one garnishment order to recover those claims. 31 CFR 
285.11(i)(3)(iii). However, the comment is well taken that the total 
amount that may be withheld pursuant to orders issued by a single 
agency cannot exceed 15 percent of the debtor's disposable pay. 31 
CFR 285.11(i)(2), (3)(iii).
    Changes: The regulations are modified in Sec.  34.20(b) to state 
that the aggregate amount that may be withheld by an employer 
pursuant to one or more orders we issue may not exceed 15 percent of 
the debtor's disposable pay.
    Comment: A commenter urged that Sec.  34.19 be changed to state 
that the amount required to be withheld by the employer be 15 
percent of disposable pay, rather than the amount directed in the 
garnishment order. The commenter believed this change to be needed 
to make the employer and debtor both aware of their potential 
liability if they do not enter into voluntary repayment of the debt. 
The commenter also believed that the change to the proposed language 
would help the employer validate that the amount demanded in the 
order is accurate.
    Discussion: Section 34.19 describes the amount that the employer 
must withhold pursuant to the garnishment order. That order is sent 
to the employer, not the debtor, and therefore has no effect on the 
debtor's ability to repay voluntarily. The notice, on the other 
hand, is sent to the debtor and warns of the potential garnishment 
of 15 percent of disposable pay; the notice is intended to motivate 
the debtor to repay voluntarily. If we determine that withholding at 
that rate would cause hardship, but that withholding a smaller 
amount would not do so, we must order the employer to withhold that 
lesser amount. HEA section 488A similarly requires guarantors, and 
the Department when garnishing under that HEA authority, to order 
withholding of a lesser amount if the debtor proves that withholding 
ten percent would cause hardship. In any case, the order must always 
state clearly the amount to be withheld, whether as a percentage of 
disposable pay or as a specific amount. The employer has no standing 
to scrutinize or object to a garnishment order, and has no need to 
be assured that the amount claimed is accurate. That duty lies with 
the government or the guarantor; the employer is entitled to rely on 
the garnishing creditor's representation that the debt is owed, and 
no change is needed to facilitate a review that the employer need 
not conduct.
    Changes: None.
    Comment: A commenter urged that we state that the position taken 
in Sec.  34.24(c)(1) of the proposed rule, that we will consider or 
reconsider an objection on hardship grounds only after an order has 
been outstanding for six months, applies to garnishment action by 
student loan guarantors under the HEA.
    Discussion: These regulations allow the debtor to raise or renew 
a hardship claim after an order has been outstanding for six months, 
but also allow consideration of a hardship claim earlier if the 
debtor demonstrates substantially worsened financial circumstances. 
34 CFR 34.24(c)(2). This standard provides a reasonable balance 
between the debtor's interest in having potentially changed 
circumstances promptly evaluated and the government's need for 
finality for its determinations. This regulation is a procedural 
rule binding only in garnishment proceedings under this part. In the 
absence of a comparable FFELP regulation, however, whether and when 
a guarantor provides for reconsideration of a hardship claim remains 
a case-by-case determination.
    Changes: None.
[FR Doc. 03-3947 Filed 2-18-03; 8:45 am]
BILLING CODE 4000-01-P