[Federal Register Volume 68, Number 239 (Friday, December 12, 2003)]
[Rules and Regulations]
[Pages 69312-69318]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30781]


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 682, and 685


Federal Student Aid Programs (Student Assistance General 
Provisions, Federal Perkins Loan Program, Federal Direct Loan Program, 
Federal Family Education Loan Program and the Federal Pell Grant 
Program)

AGENCY: Department of Education.

ACTION: Notice of waivers and modifications of statutory and regulatory 
provisions pursuant to the Higher Education Relief Opportunities for 
Students Act of 2003, Pub. L. 108-76.

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SUMMARY: The Secretary of Education announces waivers and modifications 
of statutory and regulatory provisions that are appropriate to assist 
individuals (referred to in this notice as ``affected individuals'') 
who are applicants and recipients of student financial assistance under 
title IV of the Higher Education Act of 1965, as amended (HEA), and 
who--
    [sbull] Are serving on active duty during a war or other military 
operation or national emergency;
    [sbull] Are performing qualifying National Guard duty during a war 
or other military operation or national emergency;
    [sbull] Reside or are employed in an area that is declared a 
disaster area by any Federal, State, or local official in connection 
with a national emergency; or
    [sbull] Suffered direct economic hardship as a direct result of a 
war or other military operation or national emergency, as determined by 
the Secretary.
    The Secretary is issuing these waivers and modifications under the 
authority of section 2(a) of the Higher Education Relief Opportunities 
for Students (HEROES) Act of 2003, Pub. L. 108-76. Section 2(b) of the 
HEROES Act requires the Secretary to publish, in a notice in the 
Federal Register, the waivers or modifications of statutory or 
regulatory provisions applicable to the student financial assistance 
programs under title IV of the HEA that the Secretary believes are 
appropriate to ensure that:

[[Page 69313]]

    [sbull] Individuals who are recipients of student financial 
assistance under title IV are not placed in a worse position 
financially in relation to that student financial assistance because 
they are affected individuals;
    [sbull] Affected individuals who are recipients of student 
financial assistance are not unduly subject to administrative burden or 
inadvertent, technical violations or defaults;
    [sbull] Affected individuals are not penalized when a determination 
of need for student financial assistance is calculated;
    [sbull] Affected individuals are not required to return or repay an 
overpayment of grant funds based on the HEA's Return of Title IV Funds 
provision; and
    [sbull] Entities that participate in the student financial 
assistance programs under title IV of the HEA and that are located in 
areas that are declared disaster areas by any Federal, State, or local 
official in connection with a national emergency, or whose operations 
are significantly affected by such a disaster, receive temporary relief 
from administrative requirements.
    Section 2(b)(1) of the HEROES Act further provides that section 437 
of the General Education Provisions Act (20 U.S.C. 1232) and Section 
553 of the Administrative Procedure Act (5 U.S.C. 553) do not apply to 
the contents of this notice.
    Section 5 of the HEROES Act defines the following terms used in 
this notice:
    Active duty--The term ``active duty'' has the meaning given that 
term in 10 U.S.C. section 101(d)(1), but does not include active duty 
for training or attendance at a service school (e.g., the U.S. Military 
Academy or U.S. Naval Academy).
    Military operation--The term ``military operation'' means a 
contingency operation as that term is defined in 10 U.S.C. section 
101(a)(13).
    National emergency--The term ``national emergency'' means a 
national emergency declared by the President of the United States.
    Serving on active duty--The term ``serving on active duty during a 
war or other military operation or national emergency'' includes 
service by an individual who is--
    (A) a Reserve member of an Armed Force ordered to active duty under 
10 U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306, or any retired 
member of an Armed Force ordered to active duty under 10 U.S.C. 688, 
for service in connection with a war or other military operation or 
national emergency, regardless of the location at which that active 
duty service is performed; and
    (B) any other member of an Armed Force on active duty in connection 
with any war, operation, or emergency or subsequent actions or 
conditions who has been assigned to a duty station at a location other 
than the location at which the individual is normally assigned.
    Qualifying National Guard duty--The term ``qualifying National 
Guard duty during a war or other military operation or national 
emergency'' means service as a member of the National Guard on full-
time National Guard duty (as defined in 10 U.S.C. 101(d)(5)) under a 
call to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days under 32 U.S.C. 
502(f), in connection with a war, another military operation, or a 
national emergency declared by the President and supported by Federal 
funds.
    Section 2(c) of the HEROES Act requires the Secretary to provide an 
impact report to the Committee on Education and the Workforce of the 
U.S. House of Representatives and the Committee on Health, Education, 
Labor, and Pensions of the U.S. Senate not later than 15 months after 
first exercising the authority to issue a waiver or modification under 
section 2(a) of the HEROES Act. The report will describe the impact of 
any waivers or modifications on affected individuals and the programs 
under title IV of the HEA, and the basis for that determination, and 
will include the Secretary's recommendations for changes to the 
statutory or regulatory provisions that were the subject of the waivers 
or modifications. Therefore, a guaranty agency, lender, or institution 
must document its application of a waiver or modification made in 
accordance with this notice in such a manner that the institution can, 
upon request, report to the Secretary on the effect of the waivers and 
modifications.

EFFECTIVE DATE: December 12, 2003. The provisions of Pub. L. 108-76, 
and the waivers and modifications in this document, expire on September 
30, 2005.

FOR FURTHER INFORMATION CONTACT: For provisions related to the title IV 
loan programs (Federal Perkins Loan Program, Federal Family Education 
Loan (FFEL) Program, and Federal Direct Loan (Direct Loan) Program): 
Ms. Gail McLarnon or Mr. George Harris, Office of Postsecondary 
Education, U.S. Department of Education, 1990 K Street, NW., (8th 
Floor), Washington, DC 20006. Internet and Telephone: 
[email protected] and (202) 219-7048 or [email protected] and 
(202) 502-7521.
    For other provisions: Ms. Wendy Macias, U.S. Department of 
Education, 1990 K Street, NW. (8th Floor), Washington, DC 20006. 
Internet and Telephone: [email protected] and (202) 502-7526.
    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 program contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:
    Category 1: The Secretary is waiving or modifying the following 
provisions of title IV of the HEA and the Department's regulations for 
ALL affected individuals specified in the SUMMARY section of this 
notice:

Need Analysis

    Section 480 of the HEA provides that, in the calculation of an 
applicant's expected family contribution (EFC), the term ``total 
income,'' which is used in the determination of ``annual adjusted 
family income'' and ``available income,'' is equal to adjusted gross 
income plus untaxed income and benefits for the preceding tax year 
minus excludable income. The HEROES Act allows an institution to 
substitute adjusted gross income plus untaxed income and benefits 
received in the first calendar year of the award year for which such 
determination is made for any affected individual, and for his or her 
spouse and dependents, if applicable, in order to reflect more 
accurately the financial condition of an affected individual and his or 
her family. The Secretary has determined that an institution has the 
option of using the applicant's original EFC or the EFC based on the 
data from the first calendar year of the award year.
    If an institution chooses to use the alternate EFC, it should use 
the administrative Professional Judgment procedures established by the 
Secretary as discussed in the following section on ``Professional 
Judgement.''

Professional Judgment

    Section 479A of the HEA specifically gives the financial aid 
administrator (FAA) the authority to use professional judgment to make 
adjustments on a case-by-case basis to the cost of attendance or to the 
values of the items used in calculating the EFC to reflect a student's 
special circumstances. The

[[Page 69314]]

Secretary is modifying this provision by removing the requirement that 
adjustments be made on a case-by-case basis for affected individuals. 
The use of professional judgment in Federal need analysis is discussed 
in the Student Financial Aid Handbook.
    The Secretary encourages FAAs to use professional judgment in order 
to reflect more accurately the financial need of affected individuals. 
To that end, the Secretary encourages institutions to determine need 
for any affected individual by determining the most beneficial of:
    [sbull] The individual's need as determined using the adjusted 
gross income plus untaxed income and benefits received in the first 
calendar year of the award year;
    [sbull] The individual's need as determined using professional 
judgment; or
    [sbull] The individual's need as determined making no 
modifications. (For example, in some cases, an individual's income will 
increase as a result of serving on active duty or performing qualifying 
National Guard duty.)
    The FAA must clearly document the reasons for any adjustment. As 
usual, any professional judgment decisions made by an FAA that affect a 
student's eligibility for a Federal Pell Grant must be reported to the 
Central Processing System (CPS).

Return of Title IV Funds--Grant Overpayments Owed by the Student

    Section 484B(b)(2) of the HEA and 34 CFR 668.22(h)(3)(ii) require a 
student to return or repay, as appropriate, 50 percent of any unearned 
grant funds for which the student is responsible under the Return of 
Title IV Funds calculation. For a student who withdraws from an 
institution because of his or her status as an affected individual, the 
Secretary is waiving these statutory and regulatory requirements so 
that a student is not required to return or repay an overpayment of 
grant funds based on the Return of Title IV Funds provisions. For these 
students, the Secretary also waives 34 CFR 668.22(h)(4), which:
    [sbull] Requires an institution to notify a student of a grant 
overpayment and the actions the student must take to resolve the 
overpayment;
    [sbull] Denies eligibility to a student who owes an overpayment and 
does not take an action to resolve the overpayment; and
    [sbull] Requires an institution to refer an overpayment to the 
Secretary under certain conditions.
    Therefore, an institution is not required to contact the student, 
notify NSLDS, or refer the overpayment to the Department. Note that 
this is a change from previous guidance that instructed institutions to 
refer these overpayments to the Department. However, the institution 
must document in the student's file the amount of any overpayment as 
part of the documentation of the application of this waiver. The 
student is not required to return or repay an overpayment of grant 
funds based on the Return of Title IV Funds provision; therefore, an 
institution must not apply any title IV credit balance to the grant 
overpayment before paying any amount of the title IV credit balance to 
the student or parent, in the case of a PLUS loan.

Return of Title IV Funds--Amount of Unearned Funds Owed by the 
Institution

    If the Return of Title IV Funds calculation results in the 
institution being required to return funds to one or more of the title 
IV programs, the institution must do so as it must for any student who 
withdraws. In many cases a return of funds by the institution will 
reduce the student's loan debt.
    Section 484B(b)(1) of the HEA and 34 CFR 668.22(g) provide that an 
institution must return the lesser of (1) the total amount of unearned 
aid to be returned; or (2) an amount equal to the student's total 
institutional charges for the payment period or period of enrollment 
multiplied by the percentage of unearned aid. The total (initial) 
amount of institutional charges is used even if the institution fully 
refunds or otherwise adjusts the amount of institutional charges after 
the student withdraws. For a student who withdraws because of his or 
her status as an affected individual, the Secretary is modifying this 
provision to exclude from the amount of a student's total institutional 
charges any institutional charges that the institution is required to 
cover, and has covered, with non-title IV sources of aid. For example, 
assume a student receives a state grant of $800 that must be used only 
for tuition charges. The institution applies the state grant toward the 
total institutional charges of $1,000. The student withdraws. The 
institution uses $200, the difference between the full institutional 
charges and the amount of the state grant the institution was required 
to apply to the institutional charges, as the student's total 
institutional charges for the payment period or period of enrollment 
when determining the amount of unearned title IV funds that the 
institution must return.

Verification of AGI and U.S. Income Tax Paid

    34 CFR 668.57(a)(3) provides that when an individual whose income 
was used in the calculation of the EFC of an applicant for title IV 
assistance has not filed an income tax return because he or she has 
been granted a filing extension by the IRS, an institution must accept, 
in lieu of an income tax return for verification of AGI or income tax 
paid:
    [sbull] A copy of IRS Form 4868, ``Application for Automatic 
Extension of Time to File U.S. Individual Income Tax Return,'' that the 
individual filed with the IRS for the base year, or a copy of the IRS's 
approval of an extension beyond the automatic four-month extension if 
the individual requested an additional extension of the filing time; 
and
    [sbull] A copy of each W-2 received for the base year, or for a 
self-employed individual, a statement signed by the individual 
certifying the amount of AGI for the base year.
    The Secretary is modifying this provision so that the submission of 
a copy of IRS Form 4868 or a copy of the IRS extension approval is not 
required if an individual whose income was used in the calculation of 
the EFC:
    [sbull] Has not filed and was not required to file an income tax 
return by the filing deadline because he or she was called up for 
active duty or for qualifying National Guard duty during a war or other 
military operation or national emergency; and
    [sbull] Was not required to file for an extension.
    For these individuals, an institution must accept, in lieu of an 
income tax return for verification of AGI or income tax paid:
    [sbull] A statement from the individual certifying that he or she 
has not filed and was not required to file an income tax return or a 
request for a filing extension because he or she was called up for 
active duty or for qualifying National Guard duty during a war or other 
military operation or national emergency; and
    [sbull] A copy of each W-2 received for the base year, or for a 
self-employed individual, a statement signed by the individual 
certifying the amount of AGI for the base year.
    The student must submit the tax return to the institution once it 
is filed with the IRS for the institution to re-verify the AGI and 
taxes paid.
    Category 2: The Secretary is waiving or modifying the following 
provisions of title IV of the HEA and the Department's regulations for 
affected individuals who are serving on active duty, performing

[[Page 69315]]

qualifying National Guard duty during a war or other military operation 
or national emergency, or who reside or are employed in a disaster area 
as described in the SUMMARY section of this notice:

Return of Title IV Funds--Postwithdrawal Disbursements

    Under 34 CFR 668.22(a)(4)(ii)(A)(3) and (B), a student (or parent 
for a PLUS loan) must be provided a postwithdrawal disbursement if the 
student (or parent) responds to an institution's notification of the 
postwithdrawal disbursement within 14 days of the date that the 
institution sent the notice. If a student or parent submits a late 
response, an institution may, but is not required to, make the 
postwithdrawal disbursement. The Secretary is modifying this 
requirement so that, for a student who withdraws because of his or her 
status as an affected individual in this category and is eligible for a 
postwithdrawal disbursement, the 14-day time period in which the 
student (or parent) must normally respond to the offer of the post-
withdrawal disbursement is extended to 45 days. If the student or 
parent submits a response after the 45-day period, the institution may, 
but is not required to, make the postwithdrawal disbursement. As 
required under the current regulations, if the student or parent 
submits the timely response instructing the institution to make all or 
a portion of the postwithdrawal disbursement, or the institution 
chooses to make a postwithdrawal disbursement based on receipt of a 
late response, the institution must disburse the funds within 120 days 
of the date of the institution's determination that the student 
withdrew.

Leaves of Absence

    34 CFR 668.22(d)(4)(iii)(B) requires a student to provide a 
written, signed, and dated request, which includes the reason for that 
request, for an approved leave of absence prior to the leave of 
absence, or at a later date if the student is prevented from providing 
a prior written request by unforeseen circumstances. It may be 
appropriate in certain limited cases for an institution to provide an 
approved leave of absence to a student who must interrupt his or her 
enrollment because he or she is an affected individual. Therefore, the 
Secretary is waiving the requirement that the student provide a written 
request for affected individuals who would have difficulty providing a 
written request as a result of being an affected individual. The 
institution's documentation of its decision to grant the leave of 
absence must include, in addition to the reason for the leave of 
absence, the reason for waiving the requirement that the waiver be 
requested in writing.

Treatment of Title IV Credit Balances When a Student Withdraws

    Under 34 CFR 668.164(e), an institution must pay any credit balance 
to the student, or parent in the case of a PLUS loan, within 14 days 
after the balance occurred. However, if a student (or parent) has 
provided permission, an institution may use a title IV credit balance 
to reduce the borrower's loan debt.
    Therefore, for students who withdraw because they are affected 
individuals, the Secretary is modifying 34 CFR 668.164(e) to consider 
an institution to have met the 14-day requirement if, within that 
timeframe, the institution attempts to contact the student to suggest 
that permission be given to the institution allowing it to return the 
credit balance to the loan program(s). Based upon the instructions of 
the student (or parent), the institution must promptly return the funds 
to the title IV loan programs or pay the credit balance to the student 
(or parent).
    If an institution chooses to attempt to contact the student (or 
parent), it must allow the student (or parent) 45 days to respond. If 
there is no response within 45 days, the institution must promptly 
return the funds to the title IV programs. The institution may also 
choose to pay the credit balance to the student (or parent) without 
first requesting permission to return the funds to the loan program in 
order to reduce the borrower's debt.

Cash Management--Borrower Request for Loan Cancellation

    Under 34 CFR 668.165(a)(4)(ii), an institution must return loan 
proceeds or cancel the loan, or both, if the institution receives a 
loan cancellation request from a borrower within 14 days after the date 
of the institution's notice to the borrower, or by the first day of the 
payment period if the institution sends the notice more than 14 days 
before the first day of the payment period. If an institution receives 
a late loan cancellation request from a borrower, the institution may, 
but is not required to, comply with the request. For a borrower who is 
an affected individual in this category, the Secretary is modifying 
this provision to require an institution to allow at least 60 days, 
rather than at least 14 days, for the borrower to request the 
cancellation of all or a portion of loan proceeds that have been 
credited to the account at the institution. If an institution receives 
a loan cancellation request from a borrower after the 60-day period, 
the institution may, but is not required to, comply with the request.

Cash Management--Student and Parent Authorizations

    34 CFR 668.165(b)(1) provides that an institution must obtain a 
written authorization from a student or parent, as applicable, to:
    [sbull] Disburse title IV funds to a bank account designated by the 
student or parent;
    [sbull] Use title IV funds to pay for current charges other than 
tuition, fees, room, and board, if the student contracts with the 
school for room and board; and
    [sbull] Hold on behalf of the student or parent any title IV funds 
that would otherwise be paid directly to the student or parent.
    The Secretary is modifying these provisions to permit an 
institution to accept an authorization provided by a student (or parent 
for a PLUS loan) orally, rather than in writing, if the student or 
parent is prevented from providing a written authorization because of 
his or her status as an affected individual in this category.

Satisfactory Academic Progress

    Institutions may, in cases where a student failed to meet 
satisfactory academic progress standards as a direct result of being an 
affected individual in this category, apply the exception provision of 
``other special circumstances'' contained in 34 CFR 668.34(c)(3) of the 
regulations.

Borrowers in a Grace Period

    Sections 428(b)(7)(D) and 464(c)(7) of the HEA and 34 CFR 
674.31(b)(2)(i)(C), 682.209(a)(6), and 685.207(b)(2)(ii) and (c)(2)(ii) 
exclude from a Federal Perkins Loan, FFEL, or Direct Loan borrower's 
(title IV borrower's) initial grace period, any period, not to exceed 
three years, during which a borrower who is a member of an Armed Forces 
reserve component is called or ordered to active duty for a period of 
more than 30 days. The statutory and regulatory provisions further 
require that any single excluded period may not exceed three years and 
must include the time necessary for the borrower to resume enrollment 
at the next available regular enrollment period. Lastly, borrowers are 
entitled to another full six- or nine-month grace period, as 
applicable, upon completion of the excluded period of service.
    The Secretary is modifying these statutory and regulatory 
provisions to exclude from a title IV borrower's initial

[[Page 69316]]

grace period, any period, not to exceed three years, during which a 
borrower is an affected individual in this category. Any excluded 
period must include the time necessary for an affected individual in 
this category to resume enrollment at the next available enrollment 
period. Affected individuals in this category are also entitled to 
another full six- or nine-month grace period upon completion of the 
excluded period of service.

Borrowers in an ``In-School'' Period

    A title IV borrower is considered to be in an ``in-school'' status 
and is not required to make payments on a title IV loan that has not 
entered repayment as long as the borrower is enrolled at an eligible 
school on at least a half-time basis. Under sections 428(b)(7) and 
464(c)(1)(A) of the HEA and 34 CFR 674.31(b)(2), 682.209(a), and 
685.207(b), (c), and (e)(2) and (3), when a title IV borrower ceases to 
be enrolled at an eligible institution on at least a half-time basis, 
the borrower is obligated to begin repayment of the loan after a six- 
or nine-month grace period, depending on the title IV loan program and 
the terms of the borrower's promissory note. The Secretary is modifying 
the statutory and regulatory provisions that obligate an ``in-school'' 
borrower who has dropped below half-time status to begin repayment if 
the borrower is an affected individual in this category by requiring 
the holder of the loan to maintain the loan in an ``in-school'' status 
for a period not to exceed three years, including the time necessary 
for the borrower to resume enrollment in the next regular enrollment 
period, if the borrower is planning to go back to school. The Secretary 
will pay interest that accrues on a subsidized Stafford Loan as a 
result of the extension of a borrower's in-school status under this 
modification.

Borrowers in an In-School or Graduate Fellowship Deferment

    Under sections 427(a)(2)(C)(i), 428(b)(1)(M)(i), 428B(a)(2), 
428C(b)(4)(C), 455(f)(2)(A), and 464(c)(2)(A)(i)(I) of the HEA and 34 
CFR 674.34(b)(1), 682.210(b)(1)(i) and (ii), 682.210(s)(2), 
682.210(s)(3), and 685.204(b)(1)(i), a title IV borrower is eligible 
for a deferment on the loan during periods after the commencement or 
resumption of the repayment period on the loan when the borrower is 
enrolled and in attendance as a regular student on at least a half-time 
basis (or full-time, if required by the terms of the borrower's 
promissory note) at an eligible institution; enrolled and in attendance 
as a regular student in a course of study that is part of a graduate 
fellowship program; or engaged in graduate or post-graduate fellowship-
supported study outside the United States. The borrower's deferment 
period ends when the borrower no longer meets one of the above 
conditions. The Secretary is waiving the statutory and regulatory 
eligibility requirements for this deferment for title IV borrowers who 
were required to interrupt a graduate fellowship deferment or who were 
in an in-school deferment but who left school because of their status 
as an affected individual in this category. The holder of the loan is 
required to maintain the loan in a graduate fellowship deferment or in-
school deferment status for a period not to exceed three years during 
which the borrower is an affected individual. This period includes the 
time necessary for the borrower to resume his or her graduate 
fellowship program or resume enrollment in the next regular enrollment 
period if the borrower returns to school. The Secretary will pay 
interest that accrues on a subsidized Stafford Loan as a result of 
extending a borrower's eligibility for deferment under this waiver.

Forbearance

    Under section 464(e) of the HEA and 34 CFR 674.33(d)(2), there is a 
3-year cumulative limit on the length of forbearances that a Federal 
Perkins Loan borrower can receive. To assist Perkins borrowers who are 
affected individuals in this category, the Secretary is waiving these 
statutory and regulatory requirements so that any forbearance based on 
a borrower's status as an affected individual is excluded from the 3-
year cumulative limit.
    Under section 464(e) of the HEA and 34 CFR 674.33(d)(2) and (3), a 
school must receive a written request and supporting documentation from 
a Federal Perkins Loan borrower before granting the borrower a 
forbearance, the terms of which must be in the form of a written 
agreement. The Secretary is waiving these statutory and regulatory 
provisions to require an institution to grant forbearance based on the 
borrower's status as an affected individual in this category for a one-
year period, including a 3-month ``transition period'' that immediately 
follows that period, without supporting documentation or a written 
agreement, based on the written or oral request of the borrower, a 
member of the borrower's family, or another reliable source. The 
purpose of the 3-month ``transition period'' is to assist borrowers so 
that they will not be required to reenter repayment immediately after 
they are no longer affected individuals.
    In order to grant the borrower forbearance beyond the initial 
period, supporting documentation from the borrower, a member of the 
borrower's family, or another reliable source is required.
    34 CFR 682.211(i)(1) requires an FFEL borrower who requests 
forbearance because of a military mobilization to provide the loan 
holder with documentation showing that he or she is subject to a 
military mobilization. The Secretary is waiving this requirement to 
allow the borrower to receive forbearance at the request of the 
borrower, a member of the borrower's family, or another reliable source 
for a one-year period, including a three-month transition period that 
immediately follows that period, without providing the loan holder with 
documentation. In order to grant the borrower forbearance beyond this 
period, documentation supporting the borrower's military mobilization 
must be submitted to the holder of the loan.
    The Secretary will apply the forbearance waivers and modifications 
in this section to loans held by the Department of Education.

Collection of Defaulted Loans

    In accordance with 34 CFR Part 674, Subpart C-Due Diligence and 
682.410, schools and guaranty agencies must attempt to recover amounts 
owed from defaulted Perkins and FFEL borrowers. The Secretary is 
waiving the regulatory provisions that require schools and guaranty 
agencies to attempt collection on defaulted loans for the time period 
during which the borrower is an affected individual. The school or 
guaranty agency may stop collection activities upon notification by the 
borrower, a member of the borrower's family, or another reliable source 
that the borrower is an affected individual in this category. 
Collection activities must resume after the borrower has notified the 
school or guaranty agency that he or she is no longer an affected 
individual and must include the 3-month transition period. The loan 
holder must document in the loan file why it has suspended collection 
activities on the loan, and the loan holder is not required to obtain 
evidence of the borrower's status while collection activities have been 
suspended. The Secretary will apply the waivers described in this 
paragraph to loans held by the Department of Education.

Loan Cancellation

    Depending on the loan program, borrowers may qualify for loan

[[Page 69317]]

cancellation if they are employed full-time in specified occupations, 
such as teaching, childcare, or law enforcement, pursuant to sections 
428J(b)(1), 428K(d)(1), 460(b)(1)(A), and 465(a)(2)(A)-(I) and (a)(3) 
of the HEA, and 34 CFR 674.53(d), 674.55(a)(2), 674.55(b)(5), 
674.55(c)(2), 674.56(d)(1), 674.57(b)(1), 674.58(b), 674.60(b), 
682.215, and 685.217. Generally, to qualify for loan cancellation, 
borrowers must perform uninterrupted, otherwise qualifying service for 
a specified length of time (for example, one year) or for consecutive 
periods of time, such as 5 consecutive years. For borrowers who are 
affected individuals in this category, the Secretary is waiving the 
requirements that apply to the various loan cancellations that such 
periods of service be uninterrupted and/or consecutive, if the reason 
for the interruption is related to the borrower's status as an affected 
individual. Therefore, the period during which the borrower is an 
affected individual in this category, including the 3-month transition 
period, will not be considered an interruption in the required service 
for the borrower to receive an otherwise eligible loan cancellation. 
The Secretary will apply the waivers described in this paragraph to 
loans held by the Department of Education.

Rehabilitation of Defaulted Loans

    A borrower of an HEA, title IV loan must make 12 consecutive, 
monthly, on-time payments to rehabilitate a defaulted loan in 
accordance with sections 428F(a) and 464(h)(1) of the HEA and 34 CFR 
674.39(a)(2), 682.405, and y685.211(f)(1). To assist title IV borrowers 
who are affected individuals in this category, the Secretary is waiving 
the statutory and regulatory requirements that payments made to 
rehabilitate a loan be consecutive. Loan holders should not treat any 
payment missed during the time that a borrower is an affected 
individual in this category, or the 3-month transition period, as an 
interruption in the number of consecutive, monthly, on-time payments 
required for loan rehabilitation. When the borrower is no longer 
considered to be an affected individual in this category, the required 
sequence of qualifying payments may resume at the point they were 
discontinued as a result of the borrower's status. The Secretary will 
apply the waivers described in this paragraph to loans held by the 
Department of Education.

Reinstatement of Title IV Eligibility

    Under sections 428F(b) and 464(h)(2) of the HEA and under the 
definition of ``satisfactory repayment arrangement'' in 34 CFR 
668.35(a)(2), 674.2(b), 682.200(b), and 685.102(b), a defaulted title 
IV borrower may make six consecutive, monthly, on-time payments to 
reestablish eligibility for title IV student financial assistance. To 
assist title IV borrowers who are affected individuals in this 
category, the Secretary is waiving statutory and regulatory provisions 
that require the borrower to make consecutive payments in order to 
reestablish eligibility for title IV student financial assistance. Loan 
holders should not treat any payment missed during the time that a 
borrower is an affected individual as an interruption in the six 
consecutive, monthly, on-time payments required for reestablishing 
title IV eligibility. When the borrower is no longer considered to be 
an affected individual or in the 3-month transition period for purposes 
of this notice, the required sequence of qualifying payments may resume 
at the point they were discontinued as a result of the borrower's 
status. The Secretary will apply the waivers described in this 
paragraph to loans held by the Department of Education.

Consolidation of Defaulted Loans

    Under the definition of ``satisfactory repayment arrangement'' in 
34 CFR 682.200(b) and 685.102(b), a defaulted FFEL or Direct Loan 
borrower may establish eligibility to consolidate a defaulted loan by 
making three consecutive, monthly, on-time payments on the loan. The 
Secretary is waiving the regulatory requirement that such payments be 
consecutive. FFEL loan holders should not treat any payment missed 
during the time that a borrower is an affected individual in this 
category as an interruption in the three consecutive, monthly, on-time 
payments required for establishing eligibility to consolidate a 
defaulted loan. When the borrower is no longer considered to be an 
affected individual in this category or in the 3-month transition 
period, the required sequence of qualifying payments may resume at the 
point they were discontinued as a result of the borrower's status as an 
affected individual. The Secretary will apply the waivers described in 
this paragraph to loans held by the Department of Education.
    Category 3: The Secretary is waiving or modifying the following 
provisions of title IV of the HEA and the Department's regulations for 
affected individuals who are serving on active duty or performing 
qualifying National Guard duty during a war or other military operation 
or national emergency as described in the SUMMARY section of this 
notice:

Military Deferment

    Under section 455(f)(4) of the HEA and 34 CFR 674.35(c)(1), 
674.36(c)(1), 674.37(c)(1), 682.210(b)(2), and 685.204(d), certain 
borrowers are eligible for a deferment on their title IV loans for 
periods, not to exceed 3 years, during which the borrower is on active 
duty status in the United States Armed Forces. This provision includes 
a member of the National Guard or the Reserves serving a period of 
full-time active duty in the Armed Forces. The Secretary is modifying 
the statutory and regulatory requirements that limit military 
deferments to a 3-year cumulative period so that the time during which 
affected individuals in this category are serving on active duty is 
excluded from this time limit. The Secretary will pay interest that 
accrues on subsidized Stafford Loans during an extended period of 
deferment under this modification.
    Under 34 CFR 674.38(a)(1) and 682.210(a)(4), a borrower must 
request the deferment and provide the institution or lender with 
supporting documentation to receive a deferment. The Secretary is 
modifying the regulations to allow a loan holder to grant an affected 
individual in this category a military deferment based on a request 
from a family member or another reliable source. The Secretary is also 
waiving documentation requirements to allow a loan holder to grant an 
affected individual in this category a military deferment for a one-
year period without documentation. In order to grant a military 
deferment beyond the initial period, supporting documentation from the 
borrower, a member of the borrower's family, or another reliable source 
is required. The Secretary will apply the waivers described in this 
paragraph to loans held by the Department of Education.

Institutional Charges and Refunds

    The HEROES Act encourages institutions to provide a full refund of 
tuition, fees, and other institutional charges for the portion of a 
period of instruction that a student was unable to complete, or for 
which the student did not receive academic credit, because he or she 
was called up for active duty or for qualifying National Guard duty 
during a war or other military operation or national emergency. 
Alternatively, the Secretary encourages institutions to provide a 
credit in a comparable amount against future charges.
    The HEROES Act also recommends that institutions consider providing 
easy and flexible reenrollment options to such students who are 
affected

[[Page 69318]]

individuals in this category. Specifically, institutions are urged to 
minimize deferral of enrollment or reapplication requirements and to 
provide the greatest flexibility possible with administrative deadlines 
related to those applications.
    Of course, an institution may provide such treatment to affected 
individuals other than those who are called up to active duty or for 
qualifying National Guard duty during a war or other military operation 
or national emergency.
    However, before an institution makes a refund of institutional 
charges, it must perform the required Return of title IV Funds 
calculations based upon the originally assessed institutional charges. 
After determining the amount that the institution must return to the 
title IV Federal student aid programs, any reduction of institutional 
charges may take into account the funds that the institution is 
required to return. In other words, we do not expect that an 
institution would both return funds to the Federal programs and also 
provide a refund of those same funds to the student.
    Category 4: The Secretary is waiving or modifying the following 
provisions of the HEA and regulations for dependents and spouses of 
affected individuals who are serving on active duty or performing 
qualifying National Guard duty during a war or other military operation 
or national emergency as described in the SUMMARY section of this 
notice:

Verification Signature Requirements

    34 CFR 668.57(b) and (c) require signatures to verify the number of 
family members in the household and the number of family members 
enrolled in postsecondary institutions. The Secretary is waiving the 
requirement that a dependent student submit a statement signed by one 
of the applicant's parents when no responsible parent can provide the 
required signature because of the parent's status as an affected 
individual in this category.

Required Signatures on the Free Application for Federal Student Aid 
(FAFSA), Student Aid Report (SAR), and Institutional Student 
Information Record (ISIR)

    Generally, when a dependent applicant for title IV aid submits an 
application (FAFSA) or submits corrections to a previously submitted 
application, at least one parental signature is required. The Secretary 
is waiving this requirement so that an applicant need not provide a 
parent's signature when there is no responsible parent who can provide 
the required signature because of the parent's status as an affected 
individual in this category. In these situations, a student's high 
school counselor or the FAA may sign on behalf of the parent as long as 
the applicant provides adequate documentation concerning the parent's 
inability to provide a signature due to the parent's status as an 
affected individual in this category.

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/news/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://www.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.gpoaccess.gov/nara/index.html.


Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 Federal 
Family Education Loan Program; 84.032 Federal PLUS Program; 84.033 
Federal Work Study Program; 84.038 Federal Perkins Loan Program; 
84.063 Federal Pell Grant Program and 84.268 William D. Ford Federal 
Direct Loan Program.

    Program Authority: 20 U.S.C. 1071, 1082, 1087a, 1087aa, Pub. L. 
108-76.

    Dated: December 8, 2003.
Sally L. Stroup,
Assistant Secretary, Office of Postsecondary Education.
[FR Doc. 03-30781 Filed 12-11-03; 8:45 am]
BILLING CODE 4000-01-P