[Federal Register Volume 72, Number 152 (Wednesday, August 8, 2007)]
[Proposed Rules]
[Pages 44620-44653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15314]



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Part II





Department of Education





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34 CFR Parts 668, 674, et al.



Federal Student Aid Programs; Proposed Rule

  Federal Register / Vol. 72, No. 152 / Wednesday, August 8, 2007 / 
Proposed Rules  

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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 676, 682, 685, 690, and 691

[Docket ID ED-2007-OPE-0134]
RIN 1840-AC91


Federal Student Aid Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations on Student 
Assistance General Provisions; Federal Perkins Loan (Perkins Loan) 
Program; Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program; Federal Family Education Loan (FFEL) Program; William D. Ford 
Federal Direct Loan (Direct Loan) Program; Federal Pell Grant (Pell 
Grant) Program; and Academic Competitiveness Grant (ACG) and National 
Science and Mathematics Access to Retain Talent Grant (National SMART 
Grant) Programs. The proposed regulations would reduce administrative 
burden for program participants, provide benefits to students and 
borrowers, and protect taxpayers' interests.

DATES: We must receive your comments on or before September 7, 2007.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by e-mail. Please submit your comments only 
one time, in order to ensure that we do not receive duplicate copies. 
In addition, please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Under ``Search Documents'' go to ``Optional Step 
2'' and select ``Department of Education'' from the ``Federal 
Department or Agency'' drop-down menu, then click ``Submit.'' In the 
Docket ID column, select ED-2007-OPE-0134 to add or view public 
comments and to view supporting and related materials available 
electronically. Information on using Regulations.gov, including 
instructions for submitting comments, accessing documents, and viewing 
the docket after the close of the comment period, is available through 
the site's ``User Tips'' link.
     Postal Mail, Commercial Delivery, or Hand Delivery. If you 
mail or deliver your comments about these proposed regulations, address 
them to Michelle Belton, U.S. Department of Education, 1990 K Street, 
NW., room 8037, Washington, DC 20006-8502.
    Privacy Note: The Department's policy for comments received from 
members of the public (including those comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing on the Federal eRulemaking Portal at 
http://www.regulations.gov. All submissions will be posted to the 
Federal eRulemaking Portal without change, including personal 
identifiers and contact information.

FOR FURTHER INFORMATION CONTACT: For information related to General 
definitions and Defining Independent Study for Direct Assessment 
Programs, Michelle Belton. Telephone: (202) 502-7821 or via Internet: 
[email protected].
    For information related to Payment periods, Treatment of Title IV 
grant and loan funds if a recipient does not begin attendance, Post-
withdrawal disbursements of grant funds directly to a student, and 
Annual loan limit progression, Wendy Macias. Telephone: (202) 502-7526 
or via Internet: [email protected].
    For information related to all Cash Management issues and Single 
disbursement provision for Perkins Loan and the FSEOG, John Kolotos. 
Telephone: (202) 502-7762 or via Internet: [email protected].
    For information related to Minimum period for certifying a loan, 
and Pell Grant calculations, Brian Kerrigan. Telephone: (202) 219-7058 
or via Internet: [email protected].
    If you use a telecommunications device for the deaf, you may call 
the Federal Relay Service 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 first contact person listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    As outlined in the section of this notice entitled ``Negotiated 
Rulemaking,'' significant public participation, through four public 
hearings and three negotiated rulemaking sessions, has occurred in 
developing this NPRM. Therefore, in accordance with the requirements of 
the Administrative Procedure Act, the Department invites you to submit 
comments regarding these proposed regulations within 30 days. To ensure 
that your comments have maximum effect in developing the final 
regulations, we urge you to identify clearly the specific section or 
sections of the proposed regulations that each of your comments 
addresses and to arrange your comments in the same order as the 
proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments, in person, in room 8037, 1990 K 
Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4:00 
p.m., Eastern time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, please contact the first 
person listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

    Section 492 of the Higher Education Act of 1965, as amended (HEA), 
requires the Secretary, before publishing any proposed regulations for 
programs authorized by Title IV of the HEA, to obtain involvement in 
the development of the proposed regulations. After obtaining advice and 
recommendations from individuals and representatives of groups involved 
in the Federal student financial assistance programs, the Secretary 
must subject the proposed regulations to a negotiated rulemaking 
process. All proposed regulations that the Department publishes must 
conform to final agreements resulting from that process unless the 
Secretary reopens the process or provides a written explanation to the 
participants stating why the Secretary has decided to depart from the 
agreements. Further information on the negotiated rulemaking process 
can be found at:

[[Page 44621]]

http://www.ed.gov/policy/highered/reg/hearulemaking/2007/nr.html.
    On August 18, 2006, the Department published a notice in the 
Federal Register (71 FR 47756) announcing our intent to establish up to 
four negotiated rulemaking committees to prepare proposed regulations. 
One committee would focus on issues related to the ACG and National 
SMART Grant programs. A second committee would address issues related 
to the Federal student loan programs. A third committee would address 
programmatic, institutional eligibility, and general provisions issues. 
Lastly, a fourth committee would address accreditation. The notice 
requested nominations of individuals for membership on the committees 
who could represent the interests of key stakeholder constituencies on 
each committee. The four committees met to develop proposed regulations 
over the course of several months, beginning in December 2006. This 
notice of proposed rulemaking (NPRM) proposes regulations relating to 
the programmatic, institutional eligibility, and general provisions 
issues that were discussed by the third committee mentioned in this 
paragraph (the Committee or the General Provisions Committee).
    The Department developed a list of proposed regulatory changes from 
advice and recommendations submitted by individuals and organizations 
in testimony submitted to the Department in a series of four public 
hearings held on:
     September 19, 2006, at the University of California-
Berkeley in Berkeley, California.
     October 5, 2006, at the Loyola University in Chicago, 
Illinois.
     November 2, 2006, at the Royal Pacific Hotel Conference 
Center in Orlando, Florida.
     November 8, 2006, at the U.S. Department of Education in 
Washington, DC.
    In addition, the Department accepted written comments on possible 
regulatory changes submitted directly to the Department by interested 
parties and organizations. A summary of all comments received orally 
and in writing is posted as background material in the docket. 
Transcripts of the regional meetings can be accessed at http://www.ed.gov/policy/highered/reg/hearulemaking/2007/hearings.html. Staff 
within the Department also identified issues for discussion and 
negotiation.
    At its first meeting, the General Provisions Committee reached 
agreement on its protocols and proposed agenda. These protocols 
provided that the non-Federal negotiators would not represent the 
interests of stakeholder constituencies, but would instead participate 
in the negotiated rulemaking process based on each Committee member's 
experience and expertise in the Title IV, HEA programs.
    The following members made up the General Provisions Committee:
     Rebecca Thompson and Justin Klander (alternate), United 
States Student Association and Minnesota State College Student 
Association, respectively.
     Elaine Neely-Eacona and Susan Little (alternate), Kaplan 
Higher Education and University of Georgia, respectively.
     David Glezerman and Anne Gross (alternate), Temple 
University and National Association of College and University Business 
Officers, respectively.
     Stephen Sussman and Maureen R. Budetti (alternate), Barry 
University and National Association of Independent Colleges and 
Universities, respectively.
     Linda Michalowski and Carol Mowbray (alternate), 
California Community Colleges and Northern Virginia Community College, 
respectively.
     Kay Noah Stroud and Beverly Young (alternate), Appalachian 
State University and California State University, respectively.
     Stacey Ludwig and Paula Luff (alternate), Western 
Governors University and DePaul University, respectively.
     Steven Dill, Robert Collins (alternate), and Nancy Broff 
(alternate), Lincoln Education Services, Inc., Apollo Group, Inc., and 
Career College Association, respectively.
     Mary Ann Welch, representing National Association of State 
Student Grant and Aid Programs.
     Starlith Chiquita Carter and Ray Testa (alternate), 
National Accrediting Commission of Cosmetology Arts and Sciences and 
National Motion Member Schools/Regis, respectively.
     Lloyd Robertson, representing Chase EdFinance.
     Brian Kerrigan, representing U.S. Department of Education.
    During the later two meetings, the General Provisions Committee 
reviewed and discussed drafts of proposed regulations. At the final 
meeting in April 2007, the General Provisions Committee reached 
consensus on all of the proposed regulations in this document. More 
information on the work of this Committee can be found at: http://www.ed.gov.policy/highered/reg/hearulemaking/2007/gp.html.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect.

General Definitions (Sec.  668.2)

    Statute: The HEA does not include these definitions.
    Current Regulations: Current Sec.  668.2 contains definitions that 
are relevant to all of the Title IV, HEA Federal financial aid 
programs. However, separate definitions for full-time student, graduate 
or professional student, half-time student, three-quarter time student, 
and undergraduate student exist in other sections of the program 
regulations. Currently there is no definition for first professional 
degree.
    Proposed Regulations: The proposed regulations would harmonize and 
consolidate in Sec.  668.2 definitions for the terms, full-time 
student, graduate or professional student, half-time student, three-
quarter time student, and undergraduate student.
    The definition of first professional degree would be based on the 
definition currently used by the National Center for Educational 
Statistics (NCES). Under this definition a first professional degree 
would be limited to degree programs that require a level of 
professional skill beyond that normally required for a bachelor's 
degree as well as a professional license.
    The definition of full-time student in Sec.  668.2(b) does not 
adequately address students in a nonstandard term program. The proposed 
regulation adds the calculation that the Pell Grant Program uses to 
determine whether or not such students are eligible to receive a full-
time award. It also adds language to clarify the Department's position 
concerning the status of students in correspondence programs.
    The proposed regulations would move the definitions of half-time 
student and three-quarter time student from Sec.  690.2(c), in the 
current Pell Grant regulations, to Sec.  668.2(b). As a result, a half-
time student and three-quarter time student would be defined as a 
student who is carrying a work load that is at least half or three-
quarters, respectively, of the minimum full-time student definition 
contained in the regulations, rather than at least half or three-
quarters, respectively, of the full-time student definition established 
by the institution, as it is currently defined for Title IV, HEA 
program loans and direct assessment programs.
    The proposed regulations would move the definition of graduate or

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professional student from Sec.  674.2(b), in the current Perkins Loan 
Program regulations, to Sec.  668.2 and rearrange the definition to 
highlight the Department's policy that graduate or professional 
students may not receive aid from undergraduate programs, such as the 
Pell Grant Program, while also receiving graduate or professional level 
aid.
    The proposed definition of undergraduate student incorporates 
requirements from the definitions of undergraduate student currently in 
different program regulations. It also defines students in 
postbacculaureate teacher certification programs as undergraduates for 
purposes of the Pell Grant Program.
    Upon consolidation in Sec.  668.2(b), these definitions would be 
removed from the individual program regulations.
    Reasons: Prior to this negotiated rulemaking, there were six 
definitions for half-time student, four definitions of undergraduate 
student, and three definitions of graduate or professional student. To 
eliminate this redundancy and avoid confusion, the proposed regulations 
consolidate these definitions in one section of the regulations.
    As part of the rulemaking discussions, the Department also 
recommended changing the full-time student definition for clock hour 
programs by raising the required number of hours per week from 24 to 30 
(this is the mathematical equivalent of 900 hours divided by 30 weeks). 
The Department later modified its proposal to have the clock hours per 
week for a full-time student be related to the weeks of instructional 
time associated with the academic year. For example, where 30 clock 
hours per week would be associated with a 30-week academic year, 35 
clock hours per week would be associated with a 26-week academic year. 
Some non-Federal negotiators objected, arguing that the proposal would 
significantly increase the clock hour requirements, particularly for 
half-time students attending evening classes. They noted that the 
current requirements have been in effect for over 30 years without 
incident or concern. The Department withdrew its proposal.

Payment Periods (Sec. Sec.  668.4, 668.22, 668.164, 682.200, 682.604, 
685.301)

Payment Periods and Disbursements of Title IV Grant and Loan Funds
    Statute: Section 428G(a) of the HEA requires that the interval 
between the first and second installment of FFEL (and, by extension, 
Direct Loan) payments not be less than one-half of the period of 
enrollment, except in the case of programs offered in semesters, 
quarters, or a similar division of the period of enrollment.
    Current Regulations: Current regulations in Sec.  668.4 define 
payment periods for Title IV, HEA program funds for three types of 
academic programs: (1) Programs that measure progress in credit hours 
and have academic terms; (2) programs that measure progress in credit 
hours and do not have terms; and (3) programs that measure progress in 
clock hours. Also, Sec.  668.164 requires an institution to disburse 
Title IV, HEA program funds, except for Federal Work Study (FWS) funds, 
on a payment period basis. Accordingly, Pell Grant, ACG, National SMART 
Grant, FSEOG, Perkins Loan and some FFEL and Direct Loan funds are 
disbursed by the payment period. However, Sec. Sec.  682.604(c) and 
685.301(b) contain provisions that require an institution to disburse 
FFEL and Direct Loan funds on a different basis for (1) nonstandard 
term credit hour programs with terms that are not substantially equal 
in length, (2) nonterm credit hour programs, and (3) clock hour 
programs. A chart that illustrates the current disbursement 
requirements is published as Appendix A to the preamble--Current 
Disbursement Requirements.
    Specifically, for a standard term (semester, trimester, or quarter) 
credit hour program or a nonstandard term credit hour program (with or 
without terms that are substantially equal in length), Sec.  668.4(a) 
defines payment periods to be the terms. Title IV grant and loan funds 
are disbursed to students in these programs by the payment period--the 
term--except for nonstandard term credit hour programs with terms that 
are not substantially equal in length. For those programs, Sec. Sec.  
682.604(c)(7) and 685.301(b)(5) require an institution to make the 
second disbursement of FFEL and Direct Loan funds, respectively, at the 
later of (1) the calendar midpoint of the loan period, or (2) the date 
the student has completed half of the coursework in the loan period.
    For a nonterm credit hour program, under Sec.  668.4(b) payment 
periods are considered to be completed when the student has completed 
half of the number of credit hours and half of the number of weeks of 
instructional time in the academic year or program, as appropriate. 
Title IV grant and loan funds are disbursed to students in these 
programs by the payment period (i.e., a second disbursement is made 
when the first payment period is complete), except for FFEL and Direct 
Loan funds. When paying FFEL and Direct Loan funds to a student in a 
nonterm credit hour program, an institution may not make a second 
disbursement until the later of (1) the calendar midpoint of the loan 
period, or (2) the date that the student has completed half of the 
academic coursework in the loan period (Sec. Sec.  682.604(c)(7) and 
685.301(b)(5)). Section 668.4(b)(3) provides that, if an institution is 
unable to determine when a student in a nonterm credit hour program has 
completed half of the credit hours in a program, academic year, or 
remainder of a program in order to determine when a student begins a 
new payment period, the student is considered to begin the second 
payment period at the later of the date, as determined by the 
institution, when the student has completed half of the academic 
coursework in the program, academic year, or remainder of a program, or 
the calendar midpoint of the program, academic year, or remainder of a 
program.
    For a clock hour program, Sec.  668.4(c) defines the payment period 
as the point when a student has completed half of the clock hours in 
the academic year or program, as appropriate. Again, Title IV grant and 
loan funds are disbursed to students in these programs by the payment 
period, except for FFEL and Direct Loan funds. When paying FFEL and 
Direct Loan funds to a student in a clock hour program, an institution 
may not make a second disbursement until the later of (1) the calendar 
midpoint of the loan period, or (2) the date that the student has 
completed half of the clock hours in the loan period (Sec. Sec.  
682.604(c)(8) and 685.301(b)(6)). Section 668.164(b)(3) contains 
requirements that address when an institution may count excused 
absences as completed clock hours for purposes of determining 
completion of a payment period.
    Currently, for the remainder of a program equal to or less than 
one-half of an academic year for clock hour programs and nonterm credit 
hour programs, the remainder of the program is the payment period 
(Sec.  668.4(b)(2)(iii) and (c)(2)(iii)).
    The regulations contain a few exceptions to these disbursement 
regulations. Section 668.4(d) allows an institution to choose to have 
more than the defined two payment periods for nonterm credit hour 
programs and clock hour programs. In addition, the FFEL and Direct Loan 
regulations in Sec. Sec.  682.604(c)(6)(ii) and 685.301(b)(3)(ii) 
require that, for a loan period that is one payment period, the loan 
funds must be paid in two installments, the second not being delivered 
until the calendar midpoint of the loan period, unless the institution 
is exempt under the cohort

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default rate exception in Sec.  682.604(c)(10) or Sec.  685.301(b)(8). 
In addition, FSEOG, Pell Grant, ACG, and National SMART Grant 
regulations permit an institution to pay the grant funds for the 
payment period in installments to best meet the student's needs 
(Sec. Sec.  676.16(a)(3), 690.76, and 691.76).
    Proposed Regulations: By making a number of changes to the payment 
period definitions and disbursement requirements, these proposed 
regulations would, with a few exceptions, align disbursements for all 
Title IV grant and loan programs. A chart that illustrates the proposed 
disbursement requirements is published as Appendix B to the preamble--
Proposed Disbursement Requirements.
    Section 668.164(b) would now specify that an institution must 
disburse all Title IV grant and loan funds on a payment period basis, 
and would require, generally, that an institution disburse all Title IV 
grant and loan funds once each payment period. As a result, FFEL and 
Direct Loan funds would now be disbursed using the payment period 
definitions in Sec.  668.4 for all types of programs.
    To facilitate this change, several changes to the payment period 
definitions in Sec.  668.4 would be necessary. First, the proposed 
regulations would divide nonstandard term credit hour programs into two 
categories. Nonstandard term credit hour programs with terms that are 
substantially equal in length would, along with standard term programs, 
continue to use the academic term as the payment period for both Title 
IV grant and loan funds.
    Payment periods for nonstandard term credit hour programs with 
terms that are not substantially equal in length would be addressed in 
new Sec.  668.4(b). The proposed regulations would specify two sets of 
payment periods for these programs: one for Title IV grant and Perkins 
Loan funds, and one for FFEL and Direct Loan funds. The payment periods 
for Title IV grant and Perkins Loan funds would be the academic term, 
as in current regulations. The proposed FFEL/Direct Loan payment 
periods are based on the current FFEL/Direct Loan disbursement 
requirements found in Sec. Sec.  682.604(c)(7) and 685.301(b)(5). 
However, an institution would not be permitted to make a second 
disbursement until a student had successfully completed half of the 
coursework and half of the weeks of instructional time rather than 
making that disbursement at the later of the calendar midpoint, or the 
student's completion of half of the coursework. The definition of terms 
that are substantially equal in length (if no term in the program is 
more than two weeks of instructional time longer than any other term in 
the program) would be moved from Sec. Sec.  682.604(c)(7)(ii) and 
685.301(b)(5)(ii) to new Sec.  668.4(h)(1).
    The second change to Sec.  668.4 would add a time component to the 
definition of payment periods for clock hour programs so that, in 
addition to requiring a student to complete half of the clock hours, 
the proposed regulations would require that a student complete half of 
the weeks of instructional time before a second disbursement may be 
made. As a result of this change and the change requiring FFEL and 
Direct Loan funds to be disbursed on a payment period basis, proposed 
Sec.  668.4(c) would require that all Title IV grant and loan funds, 
including FFEL and Direct Loan funds, for students in nonterm credit 
hour and clock hour programs be disbursed when the student successfully 
completes half of the weeks of instructional time and half of the 
credit hours/clock hours in the academic year/program. The added time 
component (for clock hour programs) would be new for second 
disbursements of Title IV grant and Perkins Loan fund disbursements, 
and second disbursements of FFEL and Direct Loan funds would no longer 
be disbursed at the later of the calendar midpoint of the loan period, 
or the student's successful completion of half of the coursework/clock 
hours for nonterm credit hour and clock hour programs, respectively.
    In addition, the proposed regulations would remove current Sec.  
668.4(d) so that an institution would no longer be permitted to choose 
to have more than the defined two payment periods for nonterm credit 
hour programs and clock hour programs. The proposed regulations would 
require that, for example, an institution with a clock hour program of 
900 hours, must disburse funds using two 450-hour payment periods, not 
three 300-hour payment periods. The requirements that address when an 
institution may count excused absences as completed clock hours for 
purposes of determining completion of a payment period would be moved 
from Sec.  668.164(b)(3) to new Sec.  668.4(e).
    Originally, the Department suggested changing the payment period 
definition for a remainder of a program equal to or less than one-half 
of an academic year for clock hour programs, nonterm credit hour 
programs, and nonstandard term credit hour programs with terms that are 
not substantially equal in length. Rather than treating the entire 
remainder of a program as the payment period, the Department suggested 
dividing the remainder into two payment periods to be consistent with 
how the HEA requires that FFEL and Direct Loan funds be disbursed. Some 
non-Federal negotiators felt that such a change would not be in the 
best interest of students who currently benefit from receiving the 
entire Title IV grant or Perkins Loan amount for the payment period up 
front. Ultimately, the Committee agreed to continue to define the 
payment period for a remainder of a program equal to or less than one-
half of an academic year to be the remainder of the program for 
nonstandard term credit hour programs with terms that are not 
substantially equal in length, nonterm credit hour programs, and clock 
hour programs (see proposed Sec. Sec.  668.4(b)(2)(ii) and 
668.4(c)(2)(iii)).
    Disbursements of FFEL and Direct Loan funds for these payment 
periods would still have to be made in two installments. The 
regulations in Sec. Sec.  682.604(c)(6)(ii) and 685.301(b)(3)(ii) would 
continue to require that, for a loan period that is one payment period, 
the loan funds must be paid in two installments, unless the institution 
is exempt under the cohort default rate exception in Sec.  
682.604(c)(10) or Sec.  685.301(b)(8). However, instead of requiring 
that the institution not deliver a second installment until the 
calendar midpoint of the loan period, these proposed regulations would 
require an institution to wait until the student has successfully 
completed half of the number of credit hours or clock hours, as 
appropriate, and half of the number of weeks of instructional time in 
the payment period.
    Section 668.164(b) would include cross-references to this FFEL/
Direct Loan exception to the requirement that an institution disburse 
Title IV grant and loan funds once each payment period. In addition, 
Sec.  668.164(b) would include cross-references to the other existing 
exceptions to these regulations, whereby an institution is permitted to 
disburse a student's FSEOG, Pell Grant, ACG, and National SMART Grant 
for the payment period in installments to best meet the student's needs 
(Sec. Sec.  676.16(a)(3), 690.76, and 691.76).
    Changes would be made to the definitions of payment periods for 
nonterm credit hour programs, clock hour programs and, with respect to 
the FFEL/Direct Loan payment periods definition, for nonstandard term 
credit hour programs with terms that are not substantially equal in 
length, to require that a student successfully complete half of the 
credit hours or clock hours, as appropriate, to progress to the next

[[Page 44624]]

payment period. This same change would also be made to the requirement 
that, for a loan period that is one payment period, the loan funds must 
be paid in two installments; and the second installment may not be 
delivered until the student has successfully completed half of the 
number of credit hours or clock hours, as appropriate, and half of the 
number of weeks of instructional time in the payment period.
    Successfully completes would be defined in Sec.  668.4(h)(2) to 
have occurred when the institution considers the student to have passed 
the coursework associated with those hours.
    Another change to the payment period definitions in Sec.  668.4 
would extend to clock hour programs the provision that addresses how to 
identify the end of a payment period when an institution is unable to 
determine when a student in a nonterm credit hour program has completed 
half of the credit hours in a program, academic year, or remainder of a 
program. In addition, the measure of time used to make the 
determination would be changed from the calendar midpoint to completion 
of half of the weeks of instructional time. Thus, under new Sec.  
668.4(c)(3), if an institution is unable to determine when a student in 
a nonterm credit hour program or a clock hour program has completed 
half of the hours in a program, academic year, or remainder of a 
program in order to determine when a student begins a new payment 
period, the student is considered to begin the second payment period at 
the later of (1) the date, as determined by the institution, when the 
student has completed half of the academic coursework in the program, 
academic year, or remainder of a program, or (2) the date, as 
determined by the institution, when the student has completed half of 
the number of weeks of instructional time in the program, academic 
year, or remainder of the program.
    Finally, a new paragraph (d) would be added to Sec.  668.4 to make 
clear that, when an institution qualifies for the cohort default rate 
exemption in Sec.  682.604(c)(10) or Sec.  685.301(b)(8) for a 
nonstandard term credit hour program, a nonterm credit hour program, or 
a clock hour program, the payment period for purposes of FFEL or Direct 
Loan funds is the loan period for those portions of the program to 
which the cohort default rate exemption applies. For example, if the 
loan period for a nonterm credit hour program is three months in length 
and the institution meets the cohort default rate exemption, that 
three-month loan period is the payment period and only one disbursement 
of the loan is required for that period.
    Reasons: The Department seeks to align disbursements for all Title 
IV grant and loan programs to the extent possible. Inconsistent 
requirements for disbursing Title IV grant and loan funds for certain 
types of programs can result in a student receiving the second or 
subsequent disbursements of his or her grant funds or Perkins Loan 
funds at a different point in time than second disbursements of his or 
her FFEL or Direct Loan funds. Changes to the regulations that would 
achieve greater consistency in the timing of the disbursements of Title 
IV grant and loan funds are proposed to reduce this burden and 
confusion for institutions and students. These proposed changes 
include--(1) Modifying Sec.  668.164(b) to specify that an institution 
must disburse all Title IV grant and loan funds on a payment period 
basis; (2) requiring, generally, that an institution disburse all Title 
IV grant and loan funds once each payment period; (3) adding a time 
component to the payment period definitions for clock hour programs to 
make the disbursements of Title IV grant and Perkins Loan funds conform 
with the disbursements of FFEL and Direct Loan funds, which must, by 
law, include a time component; (4) using weeks of instructional time as 
the time component for determining all Title IV grant and loan 
disbursements; (5) removing the institutional option to have more than 
two payment periods for nonterm credit hour programs and clock hour 
programs; and (6) extending to clock hour programs the provision that 
addresses how to identify the end of a payment period when an 
institution is unable to determine when a student in a nonterm credit 
hour program has completed half of the credit hours in a program, 
academic year, or remainder of a program.
    Where these proposed regulations would deviate from this alignment, 
they would do so for the reasons that follow.
    Traditionally, for credit hour term based programs, including 
nonstandard term credit hour programs with terms that are not 
substantially equal in length, the payment periods have been the terms. 
Because, under section 428G(a) of the HEA, disbursements of FFEL funds 
(and, by extension, Direct Loan funds) for these programs must be 
disbursed in two equal installments for the period of enrollment, Title 
IV grant and loan disbursements have not always aligned. To align them 
in all cases, Title IV grant and Perkins Loan funds would have to be 
disbursed on the same basis as FFEL and Direct Loan funds. However, the 
Committee agreed that inconsistency was acceptable in this case because 
of the benefit students receive from receiving Title IV grant and 
Perkins Loan funds more frequently. For this same reason, the Committee 
ultimately decided to define payment periods for the remainder of a 
program less than half of an academic year to be the remainder of the 
program for nonterm credit hour programs, clock hour programs, and, for 
FFEL and Direct Loan funds, nonstandard term credit hour programs with 
terms that are not substantially equal in length. Terms that are 
substantially equal in length would continue to be defined as they were 
in the FFEL and Direct Loan regulations.
    To continue to allow an institution some flexibility to meet a 
student's individual circumstances, no change would be made to the 
FSEOG, Pell Grant, ACG, and National SMART Grant regulations that 
permit an institution to pay the grant amount for the payment period at 
such times and in such installments in each payment period as the 
institution determines will best meet the student's needs. So, 
although, an institution with a 900 clock hour program that currently 
has three 300 clock hour payment periods would be required to change to 
two 450 clock hour payment periods, the institution could choose to pay 
FSEOG, Pell Grant, ACG, or National SMART Grant funds in, for example, 
two installments each payment period if it determines that apportioning 
those funds best meets the student's needs.
    New paragraph (d) would be added to Sec.  668.4 to reflect the 
statutory provisions that affect disbursements for institutions that 
qualify for the cohort default rate exemption in Sec.  682.604(c)(1) or 
Sec.  685.301(b)(8) for a nonstandard term credit hour program, a 
nonterm credit hour program, or a clock hour program.
    The proposed regulations would incorporate the Department's 
longstanding policy that a student must successfully complete half of 
the clock hours or credit hours, as appropriate, to progress to the 
next payment period for clock hour programs, for nonterm credit hour 
programs, and, under the FFEL/Direct Loan payment periods definition, 
for nonstandard term credit hour programs with terms that are not 
substantially equal in length. So that these requirements would be 
consistently applied by institutions, some non-Federal negotiators 
asked, and the Committee agreed, to add a definition of successfully 
completes to the proposed regulations. The proposed regulations base 
the definition on when the institution considers the student to

[[Page 44625]]

have passed the coursework associated with those hours, rather than 
requiring a passing grade, because not all institutions assign grades 
to completed coursework.
Transferring to a New Program at the Same Institution
    Statute: The HEA does not specifically address the issue of payment 
period requirements for students transferring to a new program at the 
same institution.
    Current Regulations: The payment period regulations in Sec.  
668.4(f) require an institution to calculate new payment periods for 
students who re-enter a program after 180 days or transfer to a new 
program at a different institution or the same institution at any time.
    Proposed Regulations: The payment period requirements for students 
who re-enter a program after 180 days or transfer to a new program 
would be amended to add in new Sec.  668.4(g)(3) guidance currently 
found in the Federal Student Aid (FSA) Handbook available at: http://ifap.ed.gov/IFAPWebApp/currentSFAHandbooksPag.jsp. The proposed 
regulations would permit an institution to consider a student who 
transfers into another program at the same institution to remain in the 
same payment period if four conditions are met: (1) The student is 
continuously enrolled at the institution; (2) the coursework in the 
payment period the student is transferring out of is substantially 
similar to the coursework the student will be taking upon beginning the 
new program; (3) the payment periods are substantially equal in length 
in weeks of instructional time and credit hours or clock hours, as 
applicable; and (4) there are little or no changes to the charges to 
the student for the payment period.
    Reasons: The Committee made this change to address situations where 
a student's transfer to a new program at the same institution results 
in very little change to the student's academic circumstance--for 
example, a change that is really nothing more than a change in majors. 
The Committee believes that when this occurs it is appropriate to spare 
the institution the burden of withdrawing a student, performing a 
Return of Title IV Funds calculation to determine how much of the 
student's Title IV grant or loan funds he or she has earned, 
potentially returning Title IV grant or loan funds, and awarding Title 
IV, HEA program funds for the new payment period(s).
Disbursements of FFEL and Direct Loan Funds to Less Than Full-Time 
Students
    Statute: Section 428G(a) of the HEA requires that the interval 
between the first and second installment of FFEL funds (and, by 
extension, Direct Loan funds) may not be less than one-half of the 
period of enrollment, except in the case of programs offered in 
semesters, quarters, or a similar division of the period of enrollment.
    Current Regulations: Current disbursement requirements in 
Sec. Sec.  682.604(c)(6), (7), and (8) and 685.301(b)(3), (5), and (6) 
use calendar time as the time component for determining when second 
disbursements of FFEL and Direct Loan funds are made to students in 
nonstandard term credit hour programs with terms that are not 
substantially equal in length, nonterm credit hour programs, and clock 
hour programs. In addition, Sec. Sec.  682.200(b) and 685.102(b) 
require that a period of enrollment coincide with a bona fide academic 
term for which institutional charges are generally assessed, including 
a semester, trimester, quarter, or length of the student's program or 
academic year.
    As a result of the use of calendar time as the time component, 
second disbursements of FFEL and Direct Loan funds for less than full-
time students in nonstandard term credit hour programs with terms that 
are not substantially equal in length, nonterm credit hour programs, 
and clock hour programs may be made at the midpoint of the period of 
enrollment in calendar time, even if the student has not completed half 
of the hours in the period of enrollment. That is, a less than full-
time student in one of these programs may receive the annual loan limit 
for the period of enrollment regardless of his or her enrollment 
status. However, the student is not eligible for another loan until he 
or she has completed all the credit hours or clock hours, as 
applicable, and the weeks in the period of enrollment.
    Proposed Regulations: The proposed use of weeks of instructional 
time, rather than calendar time, as the time component for 
disbursements of Title IV grant and loan funds (see the discussion of 
this change under ``Payment periods and disbursements of Title IV grant 
and loan funds''), would affect significantly the timing of second 
disbursements to less than full-time students in nonterm credit hour 
programs, clock hour programs, and, for the FFEL/Direct Loan payment 
periods definition, for nonstandard term credit hour programs with 
terms that are not substantially equal in length.
    Instead of receiving the second disbursement at the calendar 
midpoint of the period of enrollment (the academic year or program, as 
applicable), the student would receive the second disbursement after he 
or she completes half of the credit hours or clock hours, as 
applicable, and half of the weeks of instructional time in the payment 
period. An example of the effects of this change is published as 
Appendix C to the preamble--Title IV disbursements--Less-than-full-time 
enrollment. The example shows that, under current requirements, the 
student would receive the second loan disbursement at the calendar 
midpoint of the period of enrollment (the academic year). Under the 
proposed change, the student would receive the second disbursement 
after completion of half of the credit hours and half of the weeks of 
instructional time in the academic year. Because the student in the 
example is a half-time student, this would not occur until the student 
has successfully completed 24 credit hours and 30 weeks of 
instructional time.
    A conforming change would be made to the definition of period of 
enrollment in Sec. Sec.  682.200(b) and 685.102(b) to specify that a 
period of enrollment is measured in weeks of instructional time. By 
definition an academic year is measured in weeks of instructional time, 
so no change would be necessary to that example of a period of 
enrollment.
    Reasons: Under the current approach, the period of time between a 
less than full-time student's first and second disbursement of an FFEL 
or Direct Loan would be relatively short compared to the period of time 
between the point when the student receives all of his or her first 
loan and when the student is eligible for a second loan. The Committee 
proposes that the disbursement of FFEL and Direct Loan funds be in line 
with our general approach that a student's award is paid in 
approximately equal increments over the course of the student's 
program--like the disbursement requirements for Perkins Loan and Title 
IV grant funds--as we believe it is more fiscally responsible and 
equitable between programs.
Return of Title IV Funds Calculated on a Payment Period Basis
    Statute: Section 484B of the HEA provides that earned Title IV 
grant and loan funds for a student who withdraws from an institution 
may be calculated on a payment period or period of enrollment basis.
    Current Regulations: Section 668.22(e)(5) provides that, for 
students

[[Page 44626]]

who withdraw from a nonstandard term credit hour program, nonterm 
credit hour, or clock hour program, an institution has the choice of 
calculating earned Title IV aid on either a payment period basis, as 
that term is defined in Sec.  668.4, or on a period of enrollment 
basis. When an institution is not disbursing all types of Title IV, HEA 
program assistance for these programs by the same payment period 
(either because the regulations prohibit it or because the institution 
chooses to disburse this way), and it uses the payment period for a 
Return of Title IV Funds calculation, it must attribute any aid that 
should be associated with the payment period used, but that is not 
disbursed on that payment period, to the payment period used. Section 
668.4(d) allows an institution to choose to have more than the defined 
two payment periods for nonterm credit hour programs and clock hour 
programs.
    Proposed Regulations: As noted under ``Payment periods and 
disbursements of Title IV grant and loan funds'' these proposed 
regulations would remove current Sec.  668.4(d) so that an institution 
would no longer be able to choose to have more than the defined two 
payment periods for nonterm credit hour programs and clock hour 
programs. As a result, payment periods for nonterm credit hour programs 
and clock hour programs would always be the same for all Title IV grant 
and loan programs.
    For nonstandard term credit hour programs with terms that are not 
substantially equal in length, the proposed regulations would specify 
two sets of payment periods: One for Title IV grant and Perkins Loan 
funds, and one for FFEL and Direct Loan funds (again, see the 
discussion under ``Payment periods and disbursements of Title IV grant 
and loan funds''). As only one payment period may be used for 
determining earned Title IV grant and loan funds for a student who 
withdraws, the institution would have to choose, or the regulations 
could provide, which payment period to use. Changes to Sec.  
668.22(e)(5) would require an institution to always use the payment 
period during which the student withdrew that ends later, for Return of 
Title IV Funds calculations for a credit hour program that is measured 
in nonstandard terms that are not substantially equal in length, when 
the student receives aid under both payment period definitions. Aid 
that is disbursed for the payment periods that overlap the payment 
period that ends later would have to be attributed to the payment 
period that ends later.
    An example of this change is published as Appendix D to the 
preamble--Return of Title IV Funds--Payment periods for nonstandard 
term credit hour programs with terms not substantially equal in length. 
The student in this example withdrew on the 50th day after the start of 
classes. The student's FFEL/Direct Loan funds were disbursed for the 
first FFEL/Direct Loan payment period--i.e., the first half of the 
academic year. The student's Pell Grant funds were disbursed for the 
first Pell Grant payment period--i.e., the first term, which is 10 
weeks in length. The FFEL/Direct Loan payment period is the payment 
period during which the student withdrew that ends later, so that is 
the payment period that the institution would be required to use for 
the Return of Title IV Funds calculation under these proposed 
regulations. The first two Pell Grant payment periods overlap with the 
first FFEL/Direct Loan payment period, so aid that was disbursed or 
could have been disbursed for those two payment periods would be 
attributed to the first FFEL/Direct Loan payment period. All of the 
first Pell Grant payment period falls within the first FFEL/Direct Loan 
payment period, so all of the Pell Grant funds that were disbursed for 
the first payment period would be included in the calculation. The 
second Pell Grant payment period of six weeks overlaps with the first 
FFEL/Direct Loan payment period for five of those weeks. To determine 
the amount of Pell Grant funds that could have been disbursed that are 
attributable to the five weeks, the institution would take the full 
amount of Pell Grant funds that could have been disbursed for the 
second Pell Grant payment period, and multiply it by five-sixths.
    If a student who withdraws from a nonstandard term credit hour 
program with terms that are not substantially equal in length is 
disbursed aid or could have been disbursed aid using only one of the 
two payment period definitions, that is the payment period that would 
be used for the calculation of earned aid, and no attribution of funds 
would be necessary.
    Reasons: To simplify the Return of Title IV Funds calculation and 
ease administrative burden, we believe that institutions should use 
consistent FFEL/Direct Loan and Title IV grant/Perkins Loan payment 
periods to the extent permitted under the law and regulations. Removing 
the provision that allows an institution to choose to have more than 
the defined two payment periods for nonterm credit hour programs and 
clock hour programs would result in the use of the same payment period 
definition for Title IV grant and Perkins Loan funds and FFEL/Direct 
Loan funds for nonterm credit hour programs and clock hour programs. 
Because the payment periods would coincide for nonterm credit hour 
programs and clock hour programs, the calculation of a Return of Title 
IV Funds would be less burdensome as an institution would not have to 
attribute any Title IV, HEA program funds.
    In the one case where an institution would not be allowed to use 
consistent disbursement periods, i.e., for a credit hour program that 
is measured in nonstandard terms that are not substantially equal in 
length (see the discussion under ``Payment periods and disbursements of 
Title IV grant and loan funds''), the Department originally suggested 
that Sec.  668.22 be changed to require an institution to select and 
consistently use either the Title IV grants/Perkins loan payment period 
or the FFEL/Direct Loan payment period for the Return of Title IV Funds 
calculations and attribute to that payment period the aid that was 
disbursed or could have been disbursed for the overlapping payment 
periods. However, under this proposal, if the payment period that ended 
sooner is used and funds for the overlapping payment period that ended 
later had already been disbursed, an institution would have to return 
immediately the amount of Title IV funds attributed to a period beyond 
the payment period being used. Using the example in Appendix D to the 
preamble--Return of Title IV Funds--Payment periods for nonstandard 
term credit hour programs with terms not substantially equal in length, 
if the institution chose to use the Pell Grant payment period during 
which the student withdrew for the Return of Title IV Funds 
calculation, the funds from the FFEL/Direct Loan payment period, which 
ends five weeks after the Pell Grant payment period, would have to be 
attributed. To determine the amount of FFEL/Direct Loan funds 
attributable to the Pell Grant payment period, the institution would 
multiply the full amount of the FFEL/Direct Loan disbursement by ten-
fifteenths (two-thirds). The remaining amount of the disbursed FFEL/
Direct Loan would be attributed to the second Pell Grant payment 
period. Because the second Pell Grant payment period is after the 
period used in the Return of Title IV Funds calculation, all funds 
attributed to that period would have to be returned.
    Such a result would raise issues such as how soon the institution 
would have to return those funds, would the institution be required to 
return any amount disbursed directly to the

[[Page 44627]]

student, or would the institution be required to help collect those 
funds from the student. As a result, the Department subsequently 
suggested requiring an institution to always use the payment period 
that ends later for Return of Title IV Funds calculations for a credit 
hour program that is measured in nonstandard terms that are not 
substantially equal in length. This was considered a simpler approach 
that would still treat students in an equitable manner. The Committee 
agreed with this approach.

Defining Independent Study for Direct Assessment Programs (Sec.  
668.10)

    Statute: The HEA does not include a definition of independent 
study.
    Current Regulations: The current regulations mention independent 
study, but the term is not defined.
    Proposed Regulations: The proposed regulations would define 
independent study as a course of study with predefined objectives where 
a student works with a faculty member to decide how those objectives 
will be met. In this context, the student and faculty member must agree 
on what the student will do, how the student's work will be evaluated, 
and the relative timeframe for completing the required work. In 
addition, the course of study would need to include regular and 
substantive interaction between the student and faculty member to 
assure that the student is progressing within the course or program. 
This definition would apply only to direct assessment programs.
    Reasons: Under Sec.  668.10(a)(3)(iii) the term independent study 
is specifically identified as an educational activity in a direct 
assessment program, but that term is not currently defined in the 
regulations. The proposed regulations address this omission.
    The Department initially proposed a definition of independent study 
that would apply not only to direct assessment programs but to other 
courses and programs offered by institutions under other pedagogical 
methods. Several non-Federal negotiators were concerned about the last 
sentence in the proposed definition that would require ``a student to 
interact with a faculty member on a regular and substantive basis to 
assure progress with the course or program.'' The negotiators opined 
that it should be the sole responsibility of an institution to 
establish the level and frequency of the interaction between a student 
and a faculty member, and not left to the Department or another 
compliance entity to determine later that the interaction was 
inadequate. The Committee agreed to narrow the scope of the definition 
so that it would apply only to direct assessment programs.
    The phrase ``regular and substantive interaction,'' which is also 
used in the definition of telecommunications course in Sec.  600.2, is 
not meant to dictate a particular teaching method. Rather, it is meant 
to establish a general requirement that interaction about academic 
issues between students and faculty members take place at regular 
intervals.

Treatment of Title IV Grant and Loan Funds if a Recipient Does Not 
Begin Attendance (Sec. Sec.  668.21, 682.604, and 685.303)

    Statute: The HEA does not specifically address the issue of the 
treatment of Title IV grant and loan funds if a recipient does not 
begin attendance at an institution.
    Current regulations: Section 668.21 prescribes the general 
regulations for the treatment of funds disbursed to a student who 
leaves the institution before beginning class. These regulations apply 
to all the Title IV program funds except for FFEL, Direct Loan, and FWS 
funds. Under these requirements, an institution must return any Perkins 
Loan, FSEOG, Pell Grant, ACG, and National SMART Grant funds that were 
disbursed to a student before the student begins attendance, even if 
those funds were disbursed directly to the student. There is no 
existing timeframe for returning these Title IV funds. A student is 
considered not to have begun attendance if the institution is unable to 
document the student's attendance at any class.
    The treatment of FFEL and Direct Loan funds when a student leaves 
the institution before beginning class is addressed in Sec. Sec.  
682.604(d)(3) and (4) and 685.303(b)(3), respectively. An institution 
must return any loan proceeds credited to the student's account, as 
well as the amount paid to the institution by or on behalf of the 
student, not to exceed the total amount of loan funds disbursed. If any 
FFEL funds have been disbursed to the institution but have not been 
delivered to the student, the institution must return those funds in 
accordance with the Title IV cash management requirements in Sec.  
668.167.
    Proposed regulations: Section 668.21 would be changed to 
consolidate all the requirements addressing the treatment of Title IV 
funds (except FWS) when a student does not begin attendance in a 
payment period or period of enrollment by moving the requirements for 
FFEL and Direct Loan funds from Sec. Sec.  682.604 and 685.303, 
respectively, to Sec.  668.21. As under current regulations, an 
institution would be required to return any Perkins Loan, FSEOG, Pell 
Grant, ACG, and National SMART Grant funds that are disbursed to a 
student for a payment period or period of enrollment before the student 
begins attendance, even if those funds were disbursed directly to the 
student.
    The regulations for FFEL and Direct Loan funds would mirror 
existing requirements whereby, in addition to being required to return 
the amount of FFEL and Direct Loan funds credited to the student's 
account, an institution would be responsible for returning the amount 
paid to the institution by or on behalf of the student, not to exceed 
the total amount of loan funds disbursed. Also in accordance with 
current requirements, an institution would not be responsible for 
returning any FFEL and Direct Loan funds that are disbursed directly to 
a student before the student begins attendance, other than as noted 
above. The proposed regulations would specify that an institution must 
notify the lender or Secretary, as appropriate, of amounts disbursed 
directly to the student that are outstanding, so that the lender or 
Secretary can issue a 30-day demand letter to the student as required 
under current regulations. Institutions would not be responsible for 
returning loan funds that are disbursed directly to the student by the 
lender for a student in a study-abroad program or for a student 
attending a foreign school.
    A new requirement would be added to require an institution to 
return FFEL or Direct Loan funds that it disbursed directly to a 
student if the institution knew that the student would not begin 
attendance prior to disbursing the funds directly to the student. This 
would apply, for example, if a student notified the institution that he 
or she would not be attending or if the institution expelled the 
student prior to directly disbursing the funds.
    The proposed regulations would require an institution to return 
those funds as soon as possible, but no later than 30 days after the 
date that the institution becomes aware that the student will not 
attend or has not begun attendance. The proposed regulations would 
specify when a return is considered to have been made in a timely 
manner. Specifically, the regulations would provide that an institution 
returns funds when it-- (1) Deposits or transfers the funds into the 
bank account it maintains for Federal funds; (2) initiates an 
electronic funds transfer (EFT) to transfer the funds; (3) initiates an 
electronic transaction that instructs an FFEL lender to adjust a 
borrower's loan for the amount of the ``returned funds;'' or (4) issues 
a check.

[[Page 44628]]

However, if a check is used to return funds, the proposed regulations 
would also require that (1) the institution's records show that the 
check was issued no more than 30 days after the date it became aware 
that the student will not attend or has not begun attendance; or (2) 
the check must be received by an FFEL lender or the Secretary no later 
than 45 days after the institution became aware that the student will 
not attend or has not begun attendance.
    The regulations would make clear that, as with the current 
requirements in Sec.  668.21, these provisions apply if an institution 
is unable to document the student's attendance at any class. Finally, 
Sec.  682.604 has been changed to clarify how to handle FFEL funds that 
an institution has delivered, versus those that were disbursed to the 
institution, but were not delivered by the institution.
    Reasons: The current FFEL and Direct Loan regulations for the 
treatment of Title IV funds when a student does not begin attendance 
are complex and contain numerous cross references, making them hard to 
follow. By consolidating the FFEL and Direct Loan regulations with 
those of the other Title IV programs in this area, as well as rewriting 
the FFEL and Direct Loan regulations, we hope to achieve greater 
consistency and clarity.
    The Department originally suggested changing the FFEL and Direct 
Loan requirements to mirror those applicable to Title IV grant and 
Perkins Loan funds. That is, an institution would be responsible for 
returning any FFEL and Direct Loan funds that were disbursed to a 
student before the student began attendance, even if the institution 
had disbursed the funds directly to the student. Some non-Federal 
negotiators felt, and the Department agreed, that such a change would 
cause institutions to reduce their potential liability by refusing to 
disburse FFEL and Direct Loan funds prior to the start of classes, 
thereby denying funds needed by students to begin classes. As a result, 
the Committee agreed to language that would reflect the current 
regulations for the treatment of FFEL and Direct Loan funds when a 
student does not begin attendance, with one addition. The Committee 
agreed that an institution should be liable for any FFEL and Direct 
Loan funds that the institution disbursed to a student if the 
institution knew that the student would not be beginning attendance 
because the institution should have known not to make the disbursement.
    The establishment of a 30-day timeframe for the return of funds for 
which an institution is responsible would ensure that institutions 
return Title IV funds in a timely manner. Some negotiators felt that 
the timeframe should be consistent with the 45-day timeframe for the 
return of funds by an institution in accordance with the ``Return of 
Title IV Funds'' requirement in Sec.  668.22, which prescribes the 
requirements for returning Title IV grant and loan funds when a student 
withdraws during a payment period or period of enrollment. The 
Department stated that it does not believe the additional 15 days is 
necessary because, unlike the Return of Title IV Funds requirements, no 
calculation is required to determine the amount of funds an institution 
must return.
    The timely return requirements are the same as those currently 
found in Sec.  668.173 and were added to provide consistency with the 
requirements applicable to returns made in accordance with the Return 
of Title IV Funds requirements in Sec.  668.22 for students who 
withdraw during a payment period or period of enrollment.

Post-Withdrawal Disbursements of Grant Funds Directly to a Student 
(Sec.  668.22)

    Statute: Section 484B(a)(4) of the HEA requires an institution to 
contact a borrower before making a post-withdrawal disbursement of 
Title IV loan funds to a student who has withdrawn, including post-
withdrawal disbursements that would be disbursed directly to the 
student. No such statutory requirement exists for Title IV grant funds.
    Current regulations: Under Sec.  668.22(a)(5), prior to making any 
disbursement of Title IV loan funds, an institution is required to 
notify and obtain the withdrawn student's (or parent's, for a parent 
PLUS loan) permission to make that disbursement regardless of whether 
the funds are credited to the student's account or disbursed directly 
to the student or parent, for a parent PLUS loan. For Title IV grant 
funds that make up a post-withdrawal disbursement, Sec.  668.22(a)(5) 
requires an institution to notify and obtain the student's permission 
prior to making any disbursement directly to the student. An 
institution is not required to obtain the student's permission prior to 
crediting Title IV grant funds to the student's account.
    In accordance with Sec.  668.22(a)(5)(iii)(C), if an institution 
receives confirmation from the student, or parent for a PLUS loan, that 
he or she wants the Title IV loan funds credited to the student's 
account or paid directly to the student or parent, the institution must 
make the post-withdrawal disbursement within 120 days of the date that 
it determined that the student withdrew.
    Proposed regulations: Under proposed Sec.  668.22, an institution 
would no longer be required to notify and obtain the student's 
permission prior to making a direct disbursement of any Title IV grant 
funds that make up a post-withdrawal disbursement. An institution would 
be required to make a direct disbursement of Title IV grant funds that 
make up a post-withdrawal disbursement as soon as possible, but no 
later than 30 days after the date of the institution's determination 
that the student withdrew (as defined in current Sec.  668.22(l)(3)).
    A corresponding change would make clear that, after receiving 
confirmation from a student, or parent in the case of a PLUS loan, that 
he or she wants a post-withdrawal disbursement of Title IV loan funds 
credited to his or her account, or disbursed directly, an institution 
must make the post-withdrawal disbursement as soon as possible, but no 
later than 120 days after the date of the institution's determination 
that the student withdrew (as defined in current Sec.  668.22(l)(3)).
    Reasons: Non-Federal negotiators felt, and we agreed, that 
permission was not necessary to disburse Title IV grant funds directly 
to a student as potentially harmful consequences to the student do not 
exist, as may be the case when a student who withdraws incurs a loan 
debt. We believe that 30 days from the date that the institution 
determines that a student withdrew is an appropriate amount of time for 
an institution to make a direct disbursement of a post-withdrawal 
disbursement of grant funds. Although an institution has 45 days to 
return any unearned Title IV funds for which it is responsible when a 
student withdraws, the administrative functions that institutions have 
indicated they must perform with such a return do not apply to the 
direct disbursement of funds to a student. Therefore, the timeframe for 
making a direct disbursement need not be as long.
    Although the non-Federal negotiators agreed that it is implied that 
required institutional actions must be done as soon as possible, the 
Committee agreed that it was beneficial to specify this in the 
regulations. Prompt action is more likely to ensure that contact will 
be made with a student who is no longer in attendance at the 
institution.

Cash Management--Recovery of Unclaimed Title IV Funds (Sec.  668.161)

    Statute: Under section 487(a) of the HEA, when an institution 
enters into a

[[Page 44629]]

program participation agreement with the Secretary the institution 
agrees, in part, to use the funds it receives under any Title IV, HEA 
program (and any interest or other earnings on those funds) solely for 
the purpose of that program.
    Current Regulations: An institution's fiduciary responsibilities 
for using funds it receives under the Title IV, HEA programs are 
currently described in Sec. Sec.  668.14(b)(1) and 668.161(b). The 
regulations provide that Title IV, HEA program funds are held in trust 
for the intended student beneficiary, the Secretary, FFEL lender, or 
guaranty agency and cannot be used for any other purpose.
    Proposed Regulations: The proposed regulations would incorporate in 
Sec.  668.164 timeframes for returning Title IV, HEA program funds that 
an institution attempts to disburse directly to a student or parent, 
but the student or parent does not receive or negotiate those funds.
    If an institution issues a check but the check is not cashed or is 
returned as undeliverable to the institution, the proposed regulations 
would require the institution to send the funds back to the Secretary 
or FFEL lender no later than 240 days after the date the check was 
issued.
    In cases where an institution attempts to disburse the funds by 
issuing a check or initiating an EFT to the student's or parent's bank 
account, and the check or EFT is returned as undeliverable, the 
proposal would allow the institution to make subsequent attempts to 
disburse the funds as long as those attempts are made within 45 days of 
the date the check or EFT were returned. If the institution makes a 
subsequent attempt by issuing a check, and that check is not cashed or 
is returned as undeliverable, the institution would be required to send 
the funds back to the Department or lender no later than 240 days after 
the date it initially attempted to disburse the funds.
    In addition, the proposed regulations would make clear that Title 
IV, HEA program funds never escheat to a State, regardless of any State 
law.
    Reasons: These proposed regulations would establish for the first 
time in regulations timeframes for returning unclaimed or undeliverable 
funds for two reasons. First, as a program integrity matter the 
Department believes that Title IV, HEA program funds should not remain 
outstanding for long periods, which increases the risk the funds will 
be used for other purposes or that the funds would escheat to the 
State. Second, the Department believes it increases the likelihood that 
a student will receive the benefit of the funds in a more timely 
manner; either a concerted effort is made by an institution to disburse 
the funds (particularly for funds that are returned undeliverable) or 
the funds are returned more quickly to a lender or the Department to 
reduce the student's loan balance.
    Originally the Department proposed a 180-day timeframe for 
returning funds. The non-Federal negotiators noted that this timeframe 
would be difficult to meet since many checks are valid for 180 days. 
Instead, they suggested timeframes ranging from 210 days to one year or 
more (the 210-day timeframe would accommodate a typical 180-day check 
and allow for one monthly bank reconciliation to see if the check was 
still outstanding). The Department agreed that more time was needed and 
subsequently proposed a maximum 240-day timeframe. The Committee agreed 
to this timeframe.
    With regard to a check or EFT that is returned as undeliverable, 
the Department originally proposed that an institution could make one 
more attempt. This proposal was later modified to allow as many 
attempts as an institution wanted to make as long as it made those 
attempts promptly (within 45 days after the date the check or EFT is 
returned).

Cash Management--Minor Prior-Year Charges (Sec.  668.164)

    Statute: Under Part E--Need Analysis of the HEA (particularly 
sections 471 through 473), a student's need for most Title IV, HEA 
program funds is determined by subtracting the expected family 
contribution (EFC) and other estimated financial assistance from the 
student's cost of attendance. The cost of attendance is based on 
current year educational expenses. The EFC is the amount that can 
reasonably be contributed toward meeting the student's educational 
expenses for the academic year for which a need determination is made.
    Current Regulations: Under Sec.  668.164(d)(2), an institution may 
use a student's current year Title IV, HEA program funds to pay for 
minor prior-award year charges if the charges are less than $100, or 
the charges are $100 or more and the payment of those charges does not 
prevent the student from paying his or her current educational costs. 
In either case, the institution must first obtain the student's 
permission.
    Proposed Regulations: The proposal would amend the regulations in 
three ways. First, the amount of prior-year charges that could be paid 
with current year funds would increase to not more than $200. Second, 
an institution would not have to obtain the student's permission to pay 
for prior-year charges for tuition and fees, or room or board. Finally, 
the provision allowing an institution to pay for prior-year charges of 
$100 or more (now more than $200) would be removed.
    Reasons: The non-Federal negotiators recommended revising these 
regulations. They argued that the $100 prior-year threshold, 
established approximately 10 years ago, should be increased to account 
for inflation. In addition, they questioned the need to obtain a 
student's permission to pay for prior-year tuition and fees, or room or 
board charges since the regulations allow an institution to pay these 
charges for the current year without getting the student's permission. 
The Department agreed. However, the Department proposed to limit the 
payment of prior-year charges to truly minor charges (i.e., those of 
not more than $200) to avoid potential conflicts with the statutory 
intent that current year awards are used for current year educational 
expenses. The Committee agreed to this $200 limitation.

Cash Management--Electronic Disbursements of Title IV Funds (Sec. Sec.  
668.164(c) and 668.165(b)(i))

    Statute: The HEA does not address the issue of electronic 
disbursement of Title IV funds.
    Current Regulations: The current regulations in Sec.  668.164(c) 
provide that an institution issues a check on the date it releases or 
mails the check to a student, or on the date it notifies a student that 
the check is available for immediate pickup. The regulations also allow 
an institution to make a direct payment to a student by initiating an 
EFT to the student's bank account or by paying the student in cash. If 
an institution wishes to make an EFT, it must obtain the student's 
authorization under Sec.  668.165(b)(1)(i).
    Proposed Regulations: The proposed regulations would modify the 
provisions for issuing a check and add new provisions expanding the use 
of EFTs to bank accounts that underlie stored-value cards and other 
transaction devices. In addition, Sec.  668.165(b) would be amended to 
remove the requirement that an institution obtain a student's 
authorization to make an EFT payment and add a provision allowing an 
institution to issue a stored-value card or similar device.
    The proposed regulations would require an institution to identify 
in its notice to a student the specific location at the institution 
where the student can

[[Page 44630]]

pick up his or her check. A student would have 21 days to pick up the 
check, after which the institution would have to mail the check to the 
student, initiate an EFT to the student's bank account, or return the 
funds to the appropriate Title IV, HEA program account.
    With regard to bank accounts, an institution may not require or 
rely on a student to open an account. In cases where the institution 
opens a bank account on behalf of a student, establishes a process the 
student follows to open a bank account, or similarly assists the 
student in opening the account, the institution would need to satisfy 
the following provisions:
    1. It must obtain written consent from the student to open the bank 
account.
    2. It must inform the student of the terms and conditions of 
accepting and using the account.
    3. It must not make any claims against the funds in the account 
unless it obtains the student's permission or the institution is 
correcting an error in transferring funds in accordance with banking 
protocols.
    4. It must ensure that the student does not incur any costs in 
opening the account or initially receiving any type of automated teller 
machine (ATM) card, stored-value card, or other similar device that is 
used to access funds in the account.
    5. It must ensure that the student has convenient access to a 
branch office of the bank or ATMs of the bank in which the account was 
opened (or ATMs of another bank) so that the student does not incur any 
cost in making cash withdrawals.
    6. It must ensure that the debit card, stored-value card, ATM card, 
or other device can be widely used (the institution may not limit the 
use of the card or device to particular vendors).
    7. It must not market or portray the account, card, or device as a 
credit card or subsequently convert it to a credit card.
    As used in the context of these proposed regulations, ``bank 
account'' means a Federal Deposit Insurance Corporation (FDIC) insured 
account such as a checking or savings account, or a similar account 
that underlies a stored-value card or other transaction device.
    Also, the proposed regulations would amend the provision under 
which an institution (with the student's permission) holds credit 
balance funds for a student by providing that the institution may issue 
a stored-value card or other similar device that enables the student to 
access those funds.
    Reasons: The Department proposes the changes to issuing a check in 
response to situations where an institution notifies a student that a 
check is available for immediate pickup, but there is no check. 
Instead, the student is directed to take other actions to get his or 
her credit balance, and in some cases does not receive the credit 
balance until those actions are completed. We wish to make clear that 
under the current or proposed regulations, a student is not required to 
take any actions to obtain his her credit balance. It is the sole 
responsibility of the institution to pay, or make available, any Title 
IV credit balance within the 14-day regulatory timeframes.
    To address this situation, the Department initially proposed to the 
non-Federal negotiators that a check is issued on the date it is 
mailed, or handed over, to the student. The non-Federal negotiators 
argued that this approach was too limiting and would unnecessarily 
force institutions to mail checks to students who intended to pick up 
their checks or to students who did not update their mailing address. A 
compromise was reached under which the check pickup provision would be 
maintained, but if the student did not pick up the check within 21 days 
the institution would have to immediately disburse the credit balance 
funds some other way or return the funds.
    With regard to expanding the use of EFTs for making direct payments 
to students, the proposal generally mirrors the guidance published in 
the Department's Dear Colleague Letter GEN-05-16 of October 17, 2005, 
questions and answers 18 through 21, by identifying certain provisions 
that an institution must satisfy when it makes an EFT to a student's 
bank account. The Dear Colleague Letter is available at http://ifap.ed.gov/dpcletters/GEN0516.html. However, under the proposal these 
provisions would apply only to an institution that is purposefully and 
actively involved in opening bank accounts for or on behalf of 
students, or facilitating the opening of such bank accounts, including 
accounts underlying transaction devices. An institution that merely 
recommends a bank where a student might open an account, or simply 
invites banks to its campus to present their services to students and 
where students can open bank accounts, would not be subject to these 
provisions.
    Finally, in response to questions from the non-Federal negotiators 
relating to school-issued smart cards, or similar transaction devices, 
the proposal would allow the use of such cards where an institution 
already has the student's permission to hold Title IV credit balance 
funds on his or her behalf.

Cash Management--Late Disbursements (Sec.  668.164(g))

    Statute: The HEA does not specifically address the issue of late 
disbursements.
    Current Regulations: Section 668.164(g) allows a student who is no 
longer eligible to receive Title IV, HEA program funds to qualify for 
those funds if certain conditions are satisfied. If a student 
qualifies, an institution has 120 days from the date the student 
becomes ineligible to disburse the funds to the student. In cases where 
the institution does not disburse the funds within the 120-day period, 
and the reason the funds were not disbursed was not the student's 
fault, the institution may request approval from the Secretary to 
disburse the funds.
    Proposed Regulations: The proposed regulations would extend from 
120 to 180 days the period within which an institution would be allowed 
to make a late disbursement, but would eliminate an institution's 
ability to request funds after that period expires.
    Reasons: We believe the current provision allowing an institution 
to request a late disbursement after 120 days is not always in keeping 
with the institution's fiduciary responsibilities to (1) promptly 
identify students who should have but did not receive their funds 
either while they were eligible or within four months after they ceased 
to be eligible, and (2) make disbursements to students in a timely 
manner. However, we recognize that in some cases, despite the best 
efforts of an institution, more time may be needed to resolve a 
complicated situation before a disbursement can be made.
    The Department initially proposed to maintain the current 120-day 
late disbursement period but eliminate any subsequent requests. Some 
non-Federal negotiators argued that the post 120-day late disbursement 
provision benefited students who did everything they were asked to do 
and should be maintained in its current form or as part of some type of 
appeal procedure. Other non-Federal negotiators believed that the 120-
day period afforded institutions adequate time to make late 
disbursements. If the disbursements were not made, the negotiators 
stated that the institution should assume responsibility and use its 
own funds to make the disbursements. In the end, an agreement was 
reached providing 180 days to make a late disbursement.

[[Page 44631]]

Loan Cancellation Notice and Affirmative Confirmation of a Loan (Sec.  
668.165(a))

    Statute: Section 432(m)(1)(D)(i) of the HEA provides that a master 
promissory note (MPN) must allow eligible borrowers to receive initial 
and subsequent loans through a student confirmation process approved by 
the Secretary.
    Current Regulations: Section 682.401(d)(4)(vi) requires an 
institution and a lender to develop and document a confirmation process 
in accordance with guidelines established by the Secretary for loans 
made under the multi-year feature of an MPN. The guidelines allow an 
institution to use either an active or passive confirmation process.
    In addition, the regulations in Sec.  668.165(a)(2) provide that an 
institution must notify a student whenever it credits a student's 
account with funds from a Title IV, HEA program loan. The institution 
must send the notice no earlier than 30 days before, and no later than 
30 days after, it credits the student's account. A student then has 14 
days to inform the institution if he or she wishes to cancel all or a 
portion of the loan or loan disbursement. If the institution receives a 
cancellation request within this 14-day period, it must comply with the 
student's request and cancel the loan, return the loan proceeds, or do 
both.
    Proposed Regulations: These proposed regulations would condition 
the loan cancellation provisions in Sec.  668.165 on whether an 
institution obtains affirmative (active) confirmation from a student 
that he or she wants a loan.
    If the institution obtains affirmative confirmation, then it would 
continue to comply with the current loan cancellation provisions.
    If the institution does not obtain affirmative confirmation, it 
would be required to notify the student no earlier than 30 days before, 
but no later than seven days after, it credits the student's account 
with loan funds. Moreover, the institution would be required to give 
the student 30 days (instead of the current 14 days) to cancel all or a 
portion of the loan or loan disbursement.
    The proposed regulations would define affirmative confirmation as a 
process under which an institution obtains written confirmation of the 
types and amounts of Title IV, HEA program loans that a student wants 
for an award year before the institution credits the student's account 
with those loan funds. Also, the proposed regulations would clarify 
that, if an institution received a loan cancellation request, it would 
not have to return loan proceeds that the institution disbursed 
directly to a student or parent.
    Reasons: Under the current loan certification or origination 
processes, other than for the initial loan under an MPN, a student can 
continue to receive subsequent loans without doing anything. We believe 
that the process for obtaining a loan should, as an added consumer 
protection, provide the student with more control over the types and 
amounts of loans he or she wants.
    For this reason, we initially proposed that as part of the process 
for notifying a student of the amounts and types of loans he or she was 
eligible to receive for an award year, or through another process, the 
institution would obtain affirmative confirmation from the student for 
those loans. Some of the non-Federal negotiators noted that there are 
already several disclosures made to students regarding their loans and 
opined that affirmative confirmation was either not needed or that any 
marginal benefit would be outweighed by the cost and complexity of 
implementing it. Other non-Federal negotiators stated that their 
institutions currently use an affirmative confirmation process.
    In lieu of affirmative confirmation we then proposed to modify the 
loan cancellation provisions by (1) requiring an institution to notify 
a student no later than the date that loan funds were credited to his 
or her account (instead of up to 30 days after that), and (2) giving 
the student more time (30 days instead of 14) to cancel all or a 
portion of the loan. Some of the non-Federal negotiators countered by 
suggesting that the Department give institutions a choice between doing 
affirmative confirmation or complying with the expanded loan 
cancellation regulations. We agreed to provide this choice.

Cash Management--Excess Cash (Sec.  668.166)

    Statute: The HEA does not specifically address the issue of excess 
cash.
    Current Regulations: Under Sec.  668.166, excess cash is defined as 
any amount of Title IV, HEA program funds (except for Perkins Loan 
funds) an institution receives from the Secretary that is not disbursed 
to students or parents by the end of the third business day following 
the date the institution received those funds.
    An institution is allowed to maintain excess cash for seven days 
under two tolerance options. Under the first option, the institution 
may maintain excess cash for an amount up to one percent of the total 
amount of funds it drew down in the previous year. Under the second 
option, the institution may maintain excess cash for an amount up to 
three percent of its prior-year drawdowns, if the funds are drawn down 
during a period of peak enrollment.
    In instances where the Secretary finds that an institution 
maintains excess cash for an amount or time period greater than that 
allowed under the tolerance options, the regulations prescribe the 
method used to calculate a liability for maintaining those funds and 
provide that the Secretary may initiate a proceeding to fine, limit, 
suspend, or terminate the institution's participation in the Title IV, 
HEA programs.
    Proposed Regulations: The proposed regulations would expand the 
definition of excess cash to include Title IV, HEA program funds 
received from the Secretary that are deposited or transferred into the 
institution's Federal bank account as a result of an award 
cancellation, adjustment, or recovery.
    Also, the proposed regulations would eliminate the three percent 
excess cash tolerance option and simplify the provisions addressing the 
consequences for maintaining excess cash.
    Reasons: The proposed regulations clarify that any Title IV, HEA 
program funds that an institution has and does not use to make 
disbursements to students within three business days are considered 
excess cash.
    We initially proposed to eliminate both tolerance options in view 
of the progress the Department and institutions have made over the last 
10 years in moving more and more to a student-level reporting and 
authorization process, and the timeliness and predictability of 
transferring funds electronically. Some of the non-Federal negotiators 
objected, arguing that some tolerance is still needed. We agreed to 
keep the one percent tolerance option.
    With regard to the consequences for maintaining excess cash, we 
believe the current regulations are unnecessarily complex in specifying 
the method used to calculate an interest liability. In addition, the 
provision alerting institutions that the Secretary may initiate an 
adverse action for maintaining excess cash is redundant, since the 
Secretary may take an adverse action for any finding, depending on the 
gravity and materiality of the violation. Instead, and perhaps more 
likely, we note that the Secretary may place an institution on cash 
monitoring or reimbursement.

[[Page 44632]]

Single Disbursement for Perkins and FSEOG Awards (Sec. Sec.  674.16 and 
676.16)

    Statute: The HEA does not specifically address single disbursements 
for Perkins and FSEOG awards.
    Current Regulations: Under Sec. Sec.  674.16(g) and 676.16(e), an 
institution may make a single disbursement of a Perkins Loan or FSEOG 
award if the total amount of that award for an academic year is less 
than $501.
    Proposed Regulations: We propose to eliminate these single 
disbursement provisions.
    Reasons: These regulations are no longer needed--they were 
published in 1978 in response to administrative burdens and costs 
associated with paying students small amounts each payment period by 
check and maintaining manual accounting records.

Minimum Period for Certifying a Loan (Sec. Sec.  682.603 and 685.301)

    Statute: The HEA does not specifically address the issue of the 
minimum period for certifying a loan.
    Current Regulations: The current regulations indicate the minimum 
period of enrollment for which a school may certify (for an FFEL loan) 
or originate (for a Direct Loan Program loan) a loan. The minimum 
period is based on whether the program (1) measures academic progress 
in credit hours and uses a semester, trimester, or quarter credit hour 
system, or (2) measures progress in credit hours but does not use a 
semester, trimester, or quarter credit hour system or measures progress 
in clock hours. For the first category, the school may certify or 
originate a loan for a single term. For the second category, the school 
may certify or originate a loan for the lesser of the length of the 
program or the academic year.
    Proposed Regulations: The proposed regulations make several 
changes. First, with respect to allowing a school to make a loan for a 
single term, the proposals in Sec. Sec.  682.603(f)(1)(i) and 
685.301(a)(9)(i) treat terms that are substantially equal in length 
with no term less than nine weeks in length in the same way that 
semesters, trimesters, or quarters are treated. Terms are considered 
substantially equal in length if no term is more than two weeks longer 
than any other term. Second, with respect to programs that measure 
progress in credit hours but do not use a semester, trimester, or 
quarter system and do not have terms that are substantially equal in 
length with no term less than nine weeks in length, or measure progress 
in clock hours, the proposal clarifies that the school may certify a 
loan for the remaining portion of the program. Third, the proposal 
indicates that, under certain specified conditions, a school may 
certify or originate a loan for the remaining portion of the program or 
academic year for a transfer student. This would be allowed at a school 
that measures academic progress in credit hours but does not have terms 
that are substantially equal in length with no term less than nine 
weeks in length, or at a school that measures progress in clock hours, 
where there would be overlapping loan periods for the student at the 
two schools involved. The loan at the new school could not exceed the 
remaining balance of the student's annual loan limit, taking into 
consideration the amount of loan proceeds that the student had received 
at the prior school. Fourth, the proposal indicates that, under certain 
specified conditions, a school may certify or originate a loan for the 
remaining portion of the academic year for a student who completes a 
degree program at a school and then immediately begins a new degree 
program at the same school. This would be allowed at a school that 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, where the loan to complete the student's first degree program 
had been for less than an academic year. The second loan may not exceed 
the remaining balance of the student's annual loan limit at the loan 
level associated with the new program. For example, if a student in his 
or her third year at such a school received $1,500 for less than an 
academic year to complete his or her associate's degree program, and 
then immediately enrolled in a bachelor's degree program at the same 
school, the school could certify or originate a loan for $4,000 for the 
remainder of the academic year ($5,500 - $1,500 = $4,000). Once that 
period of time (the remainder of the academic year) is completed, the 
school could certify or originate a new loan for the next full academic 
year.
    Reasons: The Department proposed in Sec. Sec.  682.603(f)(1)(i) and 
685.301(a)(9)(i) to treat terms that are substantially equal in length 
with no term less than nine weeks in length in the same way as 
semesters, trimesters, or quarters for purposes of allowing schools to 
make a full loan for a single term. A quarter often is as short as 10 
weeks long in a three-quarter, 30-week academic year. If a school were 
to have three substantially equal terms (i.e., no term more than two 
weeks longer than any other term) in a 30-week academic year, it would 
have to have three terms of nine weeks, 10 weeks, and 11 weeks. Such 
terms would be substantially similar to quarters. Therefore, the 
Department believes that the school should be allowed to make a full 
loan for such a single term in the same way that it can for a single 
quarter. However, several negotiators, while agreeing that there should 
be a minimum number of weeks associated with this concept, suggested 
that the minimum should be eight weeks for programs that had four 
eight-week terms in a 32-week academic year. After some discussion, the 
Committee agreed to the original Departmental proposal to consider nine 
weeks to be the minimum length for such a term to be a period for which 
a full loan could be made.
    Another topic addressed by the Committee was the minimum period of 
time for which a loan may be certified or originated for transfer 
students. Currently transfer students in a program that measures 
academic progress in credit hours but does not use a semester, 
trimester, or quarter system or measures progress in clock hours are 
allowed to borrow only the remaining balance of their loan amounts when 
they have already had a loan for an academic year (or a program of less 
than an academic year) made to them at a previous school where the loan 
period at the previous school overlaps the loan period at the school 
the students transfer into. Since the minimum period of time for which 
a school can certify a loan is the lesser of the program (or remaining 
portion of the program) or the academic year, transfer students with 
one academic year or more remaining in their program often are eligible 
to borrow only a small amount of money (the remaining balance) for a 
period of time associated with the first full academic year (usually 30 
weeks) remaining in their program.
    One non-Federal negotiator believed that this was unfair, and 
suggested that transfer students in these types of programs should be 
allowed to obtain loans for the remaining portion of the program or 
academic year, instead of for the whole program or academic year when 
the prior school certified or originated a loan for a period of 
enrollment that overlaps the period of enrollment at the new school. 
That negotiator and other non-Federal negotiators argued that this 
should be the case because the new school is only certifying or 
originating a loan for the remaining balance of the students' annual 
loan amount, not for the entire

[[Page 44633]]

annual loan limit. After discussion of this topic, the Committee agreed 
with this position.
    Another non-Federal negotiator pointed out that often when students 
complete a degree program at a school that measures academic progress 
in credit hours but does not use a semester, trimester, or quarter 
system, and then immediately start another degree program, they are 
allowed to borrow only the remaining balance of their annual loan 
amount for the first academic year of their second degree program. This 
occurs when the last loan made to complete the first degree program had 
been for less than an academic year. Since the minimum period of time 
for which a school can certify a loan is the lesser of the program (or 
remaining portion of the program) or the academic year, students 
finishing one degree program and starting a second degree program in 
the situation noted above are eligible to borrow only a small amount of 
money (the remaining balance) for a period of time associated with the 
first full academic year (usually 30 weeks) of their second degree 
program.
    Therefore, the Committee agreed that, for these students in these 
types of programs, where the school certified or originated a loan for 
less than an academic year for the completion of one degree program, it 
should be allowed to certify or originate a loan for the beginning of 
the second degree program for the remaining portion of the academic 
year, instead of for the whole academic year.

Annual Loan Limit Progression (Sec. Sec.  682.603 and 685.301)

    Statute: A student must complete an academic year to progress to 
the next FFEL or Direct Loan annual loan limit. Section 428(b)(1)(A) of 
the HEA authorizes insurance on a subsidized Stafford loan for any 
academic year. Unsubsidized Stafford loans, at the increased loan 
limits for such loans, are subject to the academic year limits in 
section 428(b)(1) of the HEA. Section 481(a)(2) of the HEA requires an 
academic year to be (1) a 26-week minimum period of instructional time 
for clock hour programs and a 30-week minimum period of instructional 
time for credit hour programs, unless the Secretary authorizes a 
reduced period of not less than 26 weeks as specified in regulations; 
and (2) for an undergraduate program, at least 24 semester or trimester 
credit hours, 36 quarter credit hours, or 900 clock hours.
    Current regulations: None.
    Proposed regulations: Under current policy, for a standard term 
based program, a student progresses to the next annual loan limit if he 
or she completes an academic year in calendar time. So, once the 
calendar time period associated with all of the terms in the academic 
year has elapsed, a student gains eligibility for a new annual loan 
limit. For nonstandard term credit hour, nonterm credit hour, and clock 
hour programs, a student does not progress to the next loan limit until 
he or she completes an academic year in both time and hours. The 
proposed regulations would incorporate this policy with one change. As 
in a standard term based program, a student would progress to the next 
loan limit if he or she completes an academic year in calendar time in 
a nonstandard term credit hour program if the terms in that program are 
substantially equal in length and are at least nine weeks in length.
    Reasons: The Department seeks to incorporate in regulations current 
policy regarding progression to the next annual loan limit to provide 
for greater clarity of the requirements. The change to apply the policy 
applicable to standard term credit hour programs to nonstandard term 
credit hour programs if the terms in those programs are substantially 
equal in length and are at least nine weeks in length would provide 
consistency with final regulations published in the Federal Register on 
November 1, 2000 (65 FR 65616), whereby the Department applied the 
disbursement requirements for standard term-based programs to credit 
hour programs measured in nonstandard terms that are substantially 
equal in length. The Committee agreed that the inclusion of these 
changes was desirable.

Calculation of a Pell Grant (Sec. Sec.  690.63 and 690.66)

    Statute: Section 401(e) of the HEA indicates that the Secretary 
will promulgate regulations to ensure that an eligible student is paid 
a Pell Grant for each academic year in the amount for which that 
student is eligible.
    Current Regulations: The current regulations provide institutions 
with a number of formulas for calculating a Pell Grant on a payment 
period basis depending on the academic calendar of the program that is 
being taken. Section 690.63(a)(1) indicates which formulas can be used 
for programs using standard terms with at least 30 weeks of 
instructional time, and provides the specific criteria that must be 
used to determine whether a program falls under that category. The 
section limits programs in that category to traditional semester, 
trimester, or quarter credit hour programs. Section 690.63(b), (c), and 
(d) provides the formulas that are used for programs that use credit 
hours and academic terms. Section 690.63(e) provides the formula for 
programs using clock hours or credit hours without terms. And Sec.  
690.66 provides formulas for correspondence study programs.
    Proposed Regulations: The proposed regulations make several 
changes. First, the proposed regulations in Sec.  690.63(a)(1) place 
semester, trimester, and quarter programs that have terms for different 
cohorts of students that start periodically (e.g., each month) in the 
same category as the traditional semester, trimester, or quarter 
programs and, thus, allow institutions with those types of programs to 
use the same formulas for those programs as are used for the 
traditional term programs. Second, the proposed regulations in Sec.  
690.63(e) would modify the calculation for programs using clock hours 
or credit hours without terms. The resulting calculation would 
determine the percentage of the academic year that would be used to 
determine the award amount for the payment period, considering both the 
hours and the weeks of instructional time in the payment period. The 
calculations would call for the student's scheduled award (the amount a 
full-time student would get for a full academic year) to be multiplied 
by the lesser of two fractions that represent (1) the credit or clock 
hours in the payment period divided by the credit or clock hours in the 
academic year, and (2) the weeks of instructional time in the payment 
period divided by the weeks of instructional time in the academic year. 
Third, the proposed regulations in Sec.  690.66(a) make a similar 
modification to the calculation for correspondence study programs 
without terms.
    Reasons: The formula most often used for traditional semester, 
trimester, or quarter credit hour programs is specified in current 
Sec.  690.63(b). These programs also have the option of using the 
formula specified in current Sec.  690.63(d). Under the formula in 
Sec.  690.63(b), a student's Pell Grant is calculated for a payment 
period (a term). The formula provides for a determination of the 
student's enrollment status for the term and use of the Payment 
Schedule or Disbursement Schedule associated with that enrollment 
status to determine the annual amount that the student would get at 
that enrollment status. The annual amount is then divided by the number 
of terms associated with the program's academic year. For example, for 
a full-time student in the fall semester in a traditional semester 
program, the

[[Page 44634]]

formula calls for the Scheduled Award (the amount a full-time student 
would get for a full academic year) to be divided by two (the number of 
semesters associated with the academic year for that program). Or, for 
a half-time student in the fall quarter in a traditional quarter 
program, the formula calls for the annual amount from the half-time 
Disbursement Schedule to be divided by three (the number of quarters 
associated with the academic year for that program). Traditional term-
based programs are allowed to use this formula if they meet the 
criteria in current Sec.  690.63(a)(1).
    Under the proposed change to Sec.  690.63(a)(1), traditional 
programs would continue to be allowed to use this formula. However, 
several non-Federal negotiators suggested that, because certain other 
programs (i.e., those that start their semesters, trimesters, or 
quarters on a periodic (e.g., monthly) basis for different cohorts of 
students) are substantially similar in nature to traditional semester, 
trimester, or quarter programs, they also should be allowed to use this 
formula. These negotiators suggested that this issue be added to the 
negotiated rulemaking agenda, and the Committee agreed to do so. After 
discussion of this issue, the Committee members agreed that, if these 
programs meet the criteria applicable to them in proposed Sec.  
690.63(a)(1), they should be allowed to use the same formulas that 
traditional semester, trimester, or quarter programs are allowed to 
use.
    The formula used for programs using credit hours without terms or 
clock hours is specified in current Sec.  690.63(e). It is used for 
such programs regardless of the program length and it generally works 
well when applied to programs that are an academic year or more in 
length; however, a non-Federal negotiator pointed out that, for certain 
short programs (less than an academic year in length), application of 
the formula results in the student qualifying for less of an award than 
might be deemed appropriate based on the length of the program. For 
example, a student with a Scheduled Pell Grant Award of $4050, 
generally receives $4050 for a program that is one academic year in 
length (e.g., a program of 900 clock hours scheduled to be taken over a 
30-week period). Such a student might expect to receive two-thirds of 
that Scheduled Award ($2700) for a shorter program that is two-thirds 
as long, e.g., a program of 600 clock hours scheduled to be taken over 
a 20-week period. However, currently such a student would receive only 
four-ninths of the Scheduled Award ($1800) instead of two-thirds of the 
Scheduled Award ($2700) for such a program. Therefore, the non-Federal 
negotiator suggested that this issue be added to the agenda, and the 
Committee agreed to do so.
    During negotiations, it was noted that the above result occurs 
because of the way the current formula addresses the fact that an 
academic year is measured in both (credit or clock) hours and weeks of 
instructional time. Consider, for example, the 600-hour, 20-week 
program mentioned above. Even though the program is less than an 
academic year long, it must have a defined academic year, and we will 
assume here that its defined academic year is 900 clock hours and 30 
weeks of instructional time. Because the definition of academic year 
includes hours and weeks, the Pell Grant formula calls for a reduction 
based on both factors when the program is less than an academic year in 
both hours and weeks. In this example, the first part of the 
calculation reduces the full Scheduled Award of $4050 to two-thirds of 
that amount ($2700) to address the fact that the program consists of 
only 20 weeks; and then it reduces that figure ($2700) by another two-
thirds to account for the fact that the program is only 600 hours. Note 
that the calculations are actually performed on a payment period basis 
and, while the numbers here show the result for the whole program, the 
program would actually be divided into two payment periods, and two 
separate calculations--each for one-third of the program--would 
actually be done.
    In response, the Department proposed an alternative calculation. 
This alternative continues to address the fact that an academic year is 
defined by both (credit or clock) hours and weeks of instructional 
time. However, the proposed calculation multiplies the student's 
Scheduled Award by only one of the two fractions that address 
reductions in program length and hours (the lesser of the two where the 
fractions are not the same), instead of multiplying the Scheduled Award 
by the two fractions sequentially. Note that while one of the two 
fractions used in the proposed regulations is slightly different than 
one of the two fractions in the current regulations, the two fractions 
in both the proposed and the current regulations basically attempt to 
account for (1) the weeks of instructional time for which the student 
is being paid compared to the weeks of instructional time in the 
academic year, and (2) the credit or clock hours for which the student 
is being paid compared to the credit or clock hours in the academic 
year. The first fraction in the current regulations was primarily 
designed to address course compression--that is, for example, to the 
extent that a one academic year program (in terms of credit or clock 
hours) was scheduled to be completed in fewer weeks of instructional 
time than was a similar program taken over the full 30 weeks in the 
defined academic year, the student's award was going to be reduced. 
However, to the extent that there would be a full complement of credit 
or clock hours in the program compared to the credit or clock hours in 
the academic year, the second fraction would not result in a further 
reduction. While this formula generally worked as intended for longer 
programs that were compressed, it ended up penalizing students in 
shorter programs that had not been compressed, because there would 
still be two reductions for those students instead of one. The first 
one occurred because there were fewer weeks of instructional time (even 
though the course had not been compressed) in the program compared to 
the weeks of instructional time in a full academic year, and the second 
one occurred because there were fewer credit or clock hours in the 
program compared to the credit or clock hours in a full academic year.
    Using the lesser of the two fractions (where they are not the same) 
to determine the amount for which the student qualifies results in the 
student's award being reduced by the greater amount when there could be 
a reduction in the award to account for (1) the program having fewer 
hours, and (2) the program having fewer weeks of instructional time. By 
using the lesser of the two fractions, the proposed regulations would 
continue to address both of these measures. However, because a student 
enrolling in a shorter program will attend school for fewer weeks 
compared to the time the student would have attended for enrollment in 
a longer program (other factors such as enrollment status being equal), 
having sequential reductions for both of those measures reduces the 
student's award twice for what is really only one reason, i.e., the 
program is just a shorter program. Therefore, to ensure that a 
student's award is not subject to such a double reduction, only the 
greater of the two possible reductions comes into play when those 
reductions would not be the same. The Committee agreed with this 
alternative approach proposed by the Department.
    Because the formula used for correspondence study programs without 
terms is similar to the formula used for programs using clock hours or 
credit hours without terms, the Department also proposed in Sec.  
690.66(a) to make a

[[Page 44635]]

similar modification to the calculation for correspondence study 
programs without terms. Part of that modification would remove the 
requirement that the institution prepare a written schedule for 
submission of lessons that reflects a workload of at least 12 hours of 
preparation per week to determine the length of the correspondence 
program, as that information is no longer needed in the new 
calculation. The Committee agreed to this proposal.
    The Committee agreed that if the proposed changes related to 
calculating payments for a payment period were adopted for the Pell 
Grant Program, comparable changes should be adopted for the ACG and 
National SMART Grant programs. Therefore, proposed changes in Sec.  
691.63 that track the proposed changes in Sec.  690.63 are also being 
published in this NPRM.
    The following appendices will not appear in the Code of Federal 
Regulations:
BILLING CODE 4000-01-P

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BILLING CODE 4000-01-C

[[Page 44640]]

Executive Order 12866

1. Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Section 3(f) of Executive Order 12866 
defines a ``significant regulatory action'' as an action likely to 
result in a rule that may (1) have an annual effect on the economy of 
$100 million or more, or adversely affect a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities in a 
material way (also referred to as an ``economically significant'' 
rule); (2) create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency; (3) materially alter the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raise novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive order.
    Pursuant to the terms of the Executive Order, we determined that 
this proposed regulatory action will not have an annual effect on the 
economy of more than $100 million. Therefore, this action is not 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. In accordance with the Executive 
order, the Secretary has assessed the potential costs and benefits of 
this regulatory action and has determined that the benefits justify the 
costs.
Need for Federal Regulatory Action
    These proposed regulations address a broad range of issues 
affecting students, borrowers, schools, lenders, guaranty agencies, 
secondary market participants, and third-party servicers participating 
in the Pell Grant, FSEOG, FWS, ACG, National SMART Grant, FFEL, Direct 
Loan, or Perkins Loan programs. Prior to the start of negotiated 
rulemaking, a list of proposed regulatory changes was developed from 
advice and recommendations by interested parties and organizations 
submitted through testimony at public hearings and written comments 
submitted directly to the Department of Education in Washington, DC. 
Staff within the Office of Postsecondary Education also identified 
issues for discussion and negotiation.
Regulatory Alternatives Considered
    A broad range of alternatives to the proposed regulations was 
considered as part of the negotiated rulemaking process. These 
alternatives are reviewed in detail under the Reasons sections 
accompanying the discussion of each proposed provision. In assessing 
the budgetary impact of these alternatives, the Department considered 
the effect of possible changes on the size or timing of Federal student 
aid disbursements. In all cases, the alternatives considered-which 
generally dealt with the consolidation or clarification of existing 
definitions, procedures, or processes to simplify program 
administration-did not have a measurable effect on Federal costs.
Benefits
    Many of the proposed regulations merely consolidate current 
regulations, codify the Department's guidance, or make relatively minor 
changes intended to establish consistent definitions or streamline 
program operations across the various Federal student aid programs; in 
the absence of data to the contrary, the Department believes the 
additional clarity and enhanced efficiency resulting from these changes 
represent benefits with little or no countervailing costs or additional 
burden. This belief is strongly supported by the fact that the 
Committee reached consensus on the proposed regulations. Nonetheless, 
the Department is interested in comments on possible administrative 
burdens related to the proposed regulations.
    Benefits provided in these regulations include the clarification or 
consolidation of regulations or definitions involving enrollment 
statuses, independent study for direct assessment programs, cash 
management rules, disbursement and payment periods, return of Title IV 
aid, and the calculation of Pell Grant awards.
Costs
    Because entities affected by these regulations already participate 
in the Title IV, HEA programs, these lenders, guaranty agencies, and 
schools must already have established systems and procedures in place 
to meet program eligibility requirements. All the proposed regulations 
involve discrete changes in specific parameters associated with 
existing guidance and regulations rather than entirely new 
requirements. Accordingly, entities wishing to continue to participate 
in the Federal student aid programs have already absorbed most of the 
administrative costs related to implementing these proposed 
regulations. Marginal costs over this baseline are primarily related to 
one-time system changes that, while possibly significant in some cases, 
are an unavoidable cost of continued program participation. The 
Department is particularly interested in comments on possible 
administrative burdens related to these system or process changes.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.
Accounting Statement
    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 1 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these proposed 
regulations. This table provides our best estimate of the changes in 
Federal student aid payments as a result of these proposed regulations.

   Table 1.--Accounting Statement: Classification of Estimated Savings
                              [In millions]
------------------------------------------------------------------------
                          Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.............................           $0
------------------------------------------------------------------------

2. Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum on ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec. '' and a numbered heading; for example, 
Sec.  682.209 Repayment of a loan.)
     Could the description of the proposed regulations in the

[[Page 44641]]

``Supplementary Information'' section of this preamble be more helpful 
in making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand, see the instructions 
in the ADDRESSES section of this preamble.

Regulatory Flexibility Act Certification

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

Paperwork Reduction Act of 1995

    Sections 668.4, 668.10, 668.21, 668.22, 668.164, 668.165, 674.16, 
676.16, 682.200, 682.603, 682.604, 685.301, and 685.303, contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)), the Department has submitted a copy of 
these sections to OMB for its review.
    Collection of Information: Student Assistance General Provisions; 
Perkins Loan Program; FSEOG Program; FFEL Program; and the Direct Loan 
Program.

Sections 668.4, 668.22, 668.164, 682.200, 682.604, 685.301--Payment 
Periods and Disbursements of Title IV Grant and Loan Funds

    By making a number of changes to the payment period definitions and 
disbursement requirements, these proposed regulations would, with few 
exceptions, align disbursements for all Title IV grant and loan 
programs.
    Inconsistent requirements for disbursing Title IV grant and loan 
funds for certain types of programs can result in a student receiving 
second or subsequent disbursements of his or her grant funds or Perkins 
Loan funds at a different point in time than second disbursements of 
his or her FFEL or Direct Loan funds. Changes to the regulations that 
would achieve greater consistency in the timing of the disbursements of 
Title IV grant and loan funds are proposed to reduce this burden and 
confusion for institutions and students.
    These proposed changes include--(1) Specifying that an institution 
must disburse all Title IV grant and loan funds on a payment period 
basis; (2) requiring, generally, that an institution disburse all Title 
IV grant and loan funds once each payment period; (3) adding a time 
component to the payment period definitions for clock hour programs to 
make the disbursements of Title IV grant and Perkins Loan funds conform 
with the disbursements of FFEL and Direct Loan funds, which must, by 
law, include a time component; (4) using weeks of instructional time as 
the time component for determining all Title IV grant and loan 
disbursements; (5) removing the institutional option to have more than 
two payment periods for nonterm credit hour programs and clock hour 
programs; and (6) extending to clock hour programs the provision that 
addresses how to identify the end of a payment period when an 
institution is unable to determine whether a student in a nonterm 
credit hour program has completed half of the credit hours in a 
program, academic year, or remainder of a program.
    We estimate that the proposed changes will decrease burden for 
individuals and schools. We estimate that the proposed changes will 
decrease burden for individuals and institutions by 3,599 hours and 
14,397 hours, respectively. Thus, we estimate that these proposed 
regulations will reduce burden by 17,996 hours in OMB Control Number 
1845-0022.

Section 668.10--Defining Independent Study for Direct Assessment 
Programs

    These proposed regulations would add a definition of independent 
study for direct assessment programs. The new definition would identify 
the conditions that must exist for a student in a direct assessment 
program who is taking all or a portion of that program through 
independent study to be eligible for Title IV, HEA program assistance. 
For example, students who are engaged in independent study would be 
expected to have regular and substantive interaction with their 
professor to assure progress within the course or program.
    In the short-term, we expect no additional burden to be associated 
with direct assessment programs. We are currently aware of only one 
institution that utilizes such programs. Therefore, this section is not 
subject to the Paperwork Reduction Act of 1995.

Sections 668.21, 682.604, and 685.303--Treatment of Title IV Grant and 
Loan Funds if a Recipient Does Not Begin Attendance

    The proposed regulations would consolidate requirements for 
returning any Perkins Loan, FSEOG, Pell Grant, ACG, National SMART 
Grant, and FFEL and Direct Loan funds under Sec.  668.21, and eliminate 
these requirements from Sec. Sec.  682.604(d)(3) and (4) and 
685.303(b)(3). The proposed regulations would hold the institution 
responsible for returning FFEL and Direct Loan funds disbursed or paid 
directly to the student, if the institution knew the student would not 
attend before the funds were disbursed and establishes a timeframe 
within which the FFEL and Direct Loan funds must be returned. Finally, 
the proposed regulations clarify the meaning of ``delivered'' vs. 
``disbursed'' FFEL and Direct Loan funds.
    The proposed changes do not increase burden for institutions, 
lenders, or guaranty agencies.

Section 668.22--Post-Withdrawal Disbursements of Grant Funds Directly 
to a Student

    The proposed regulations would eliminate the current requirement 
that an institution notify a student who has withdrawn from school and 
obtain the student's permission before making a post-withdrawal 
disbursement of Title IV grant funds directly to the student. In 
addition, the proposed regulations would require the institution to 
make a post-withdrawal disbursement of such grant funds to the student 
within 30 days of the date the institution

[[Page 44642]]

determines that the student withdrew. The proposed changes to the 
requirements for direct disbursement of post-withdrawal grant proceeds 
would reduce burden to the institutions by eliminating a notification 
and confirmation process. The reduction in burden will be reflected in 
OMB 1845-0022.
    For loan funds instead of grant funds, a change is proposed for 
making a post-withdrawal disbursement of Title IV loan proceeds which, 
although retaining the borrower notice and confirmation process in the 
current regulations, requires the disbursement ``as soon as possible,'' 
but no later than 120 days after determination of the student's 
withdrawal. Adding the language ``as soon as possible'' to the current 
120-day limit for disbursement of post-withdrawal Title IV loan 
proceeds will have no affect on paperwork burden.
    We estimate that the proposed changes will decrease burden for 
individuals and institutions by 201 hours and 302 hours, respectively. 
Thus, we estimate that this proposed regulation will reduce burden by 
503 hours as reflected in OMB Control Number 1845-0022.

Sections 668.164(c) and 668.165(b)(1)(i)--Electronic Disbursements of 
Title IV Funds

    The proposed regulations would modify current authorization and 
notification requirements related to making direct payments to a 
student. The proposed regulations would allow an institution to pay a 
student directly through expanded electronic funds transfer methods 
such as debit cards, stored-value cards, ATM cards or other transaction 
devices. We estimate that the proposed changes will decrease the burden 
for institutions through the ability to use expanded electronic 
processes for making direct payments.
    We estimate that the proposed changes will decrease burden for 
institutions by 254,475 hours as reflected in OMB Control Number 1845-
0038.

Section 668.165(a)--Loan Cancellation Notice and Affirmative 
Confirmation of a Loan

    The proposed regulations would provide institutions the choice 
between active and passive confirmation of a loan. In addition, the 
proposed regulations would codify existing practice that an institution 
is not responsible for returning loans that it disbursed directly to a 
student. If an institution chooses active confirmation, the process is 
unchanged from current requirements. If an institution chooses passive 
confirmation of a loan, the proposed regulations change the timeframes 
for notice to the student, but do not substantially change the content 
of such notice. Therefore, we estimate that there will be no change in 
the burden.

Sections 682.603 and 685.301--Minimum Period for Certifying a Loan

    The proposed regulations would clarify existing requirements for 
certifying FFEL and Direct Loans in certain situations. We believe 
there will be no overall change in the burden.

Sections 682.603 and 685.301--Annual Loan Limit Progression

    The proposed regulations would incorporate into Sec. Sec.  682.603 
and 685.301 the Department's longstanding policy that provides that (1) 
for standard term, credit hour programs, a student regains eligibility 
for a new annual loan limit after the calendar period associated with 
the academic year has elapsed, and (2) for nonstandard term credit 
hour, nonterm credit hour, and all clock hour programs, a student 
regains eligibility for a new annual loan limit only after completing 
both the credit or clock hours and the weeks of instructional time in 
the academic year.
    In addition, the proposed regulations would apply the policy for 
standard term, credit hour programs to nonstandard term credit hour 
programs with terms that are substantially equal in length and that are 
at least nine weeks in length regains. That is, a student enrolled in a 
nonstandard term, credit hour program with terms that are substantially 
equal in length and that are at least nine weeks in length would regain 
eligibility for a new annual loan limit when the calendar time 
associated with the academic year has elapsed. This proposed change 
would be consistent with final regulations published in the Federal 
Register on November 1, 2000 (65 FR 65616), which applied the same 
disbursement requirements to credit hour programs with standard terms 
and credit hour programs with nonstandard terms that are substantially 
equal in length. The proposed changes for Sec. Sec.  682.603 and 
685.301 have no effect on the burden for institutions, as they simply 
incorporate existing policy into the regulations. This existing burden 
has been approved by OMB under OMB 1845-0020.

Section 674.16 and 676.16--Single Disbursement for Perkins Loan and 
FSEOG Awards

    The proposed regulations eliminate an exception in the regulations 
that allows an institution to make a single disbursement of a Perkins 
Loan or FSEOG award if the total amount of that loan or award for an 
academic year is less than $501. Eliminating the exception merely 
harmonizes the disbursement requirements for these programs and has no 
impact on burden.
    Consistent with the discussion above, the following chart describes 
the sections of the proposed regulations involving information 
collections, the information being collected, and the collections the 
Department will submit to the Office of Management and Budget for 
approval and public comment under the Paperwork Reduction Act.

------------------------------------------------------------------------
      Regulatory section        Information collection     Collection
------------------------------------------------------------------------
Sec.   668.4, 668.22, 668.164,  This proposed              OMB 1845-0022
 682.200, 682.604, 685.301.      regulation will, with
                                 few exceptions, align
                                 disbursements for all
                                 Title IV grant and
                                 loan programs.
Sec.   668.22.................  This proposed              OMB 1845-0022
                                 regulation will
                                 eliminate the current
                                 requirement that an
                                 institution notify a
                                 student who has
                                 withdrawn from
                                 school, and receive
                                 confirmation from the
                                 student, before
                                 making a post-
                                 withdrawal
                                 disbursement of Title
                                 IV grant funds
                                 directly to the
                                 student.
Sec.  Sec.   668.164 and        This proposed              OMB 1845-0038
 688.165.                        regulation provides
                                 authority for an
                                 institution to pay
                                 Title IV credit
                                 balances through
                                 electronic funds
                                 transfer, debit card,
                                 stored-value card,
                                 ATM card or other
                                 device.
------------------------------------------------------------------------

    If you want to comment on the proposed information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. 
Department of

[[Page 44643]]

Education. Send these comments by e-mail to [email protected] or 
by fax to (202) 395-6974. Commenters need only submit comments via one 
submission medium. You may also send a copy of these comments to the 
Department contact named in the ADDRESSES section of this preamble. We 
consider your comments on these proposed collections of information 
in--
     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collections of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

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

Electronic Access to This Document

    You may view this document, 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. 
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(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 Federal 
Family Education Loan Program; 84.037 Federal Perkins Loan Program; 
84.063 Federal Pell Grant Program; 84.268 William D. Ford Federal 
Direct Loan Program; 84.375 Academic Competitiveness Grants; and 
84.376 SMART Grants)

List of Subjects

34 CFR Part 668

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

34 CFR Parts 674 and 676

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

34 CFR Parts 682 and 685

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

34 CFR Parts 690 and 691

    Colleges and universities, Elementary and secondary education, 
Grant programs--education, Student aid.

    Dated: August 2, 2007.
Margaret Spellings,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend parts 668, 674, 676, 682, 685, 690, and 691 of title 34 of the 
Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    1. The authority citation for part 668 continues to read as 
follows:

    Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092, 
1094, 1099c, and 1099c-1, unless otherwise noted.

    2. Section 668.2(b) is amended by adding, in alphabetical order, 
the definitions First professional degree, Graduate or professional 
student, Half-time student, Three-quarter time student, and 
Undergraduate student, and revising the definition of Full-time student 
to read as follows:


Sec.  668.2  General definitions.

* * * * *
    (b) * * *
    First professional degree: A degree that signifies both completion 
of the academic requirements for beginning practice in a given 
profession and a level of professional skill beyond that normally 
required for a bachelor's degree. Professional licensure is also 
generally required. Examples of a first professional degree include but 
are not limited to Pharmacy (Pharm.D.), Dentistry (D.D.S. or D.M.D.), 
Veterinary Medicine (D.V.M.), Chiropractic (D.C. or D.C.M.), Law 
(L.L.B. or J.D.), Medicine (M.D.), Optometry (O.D.), Osteopathic 
Medicine (D.O.), Podiatry (D.P.M., D.P., or Pod.D.), and Theology 
(M.Div., or M.H.L.).

(Authority: 20 U.S.C. 1082 and 1088)

    Full-time student: An enrolled student who is carrying a full-time 
academic workload as determined by the institution under a standard 
applicable to all students enrolled in a particular educational 
program. The student's workload may include any combination of courses, 
work, research, or special studies that the institution considers 
sufficient to classify the student as a full-time student. However, for 
an undergraduate student, an institution's minimum standard must equal 
or exceed one of the following minimum requirements:
    (1) For a program that measures progress in credit hours and uses 
standard terms (semesters, trimesters, or quarters), 12 semester hours 
or 12 quarter hours per academic term.
    (2) For a program that measures progress in credit hours and does 
not use terms, 24 semester hours or 36 quarter hours over the weeks of 
instructional time in the academic year, or the prorated equivalent if 
the program is less than one academic year.
    (3) For a program that measures progress in credit hours and uses 
nonstandard terms (terms other than semesters, trimesters or quarters) 
the number of credits determined by--
    (i) Dividing the number of weeks of instructional time in the term 
by the number of weeks of instructional time in the program's academic 
year; and
    (ii) Multiplying the fraction determined under paragraph (b)(3)(i) 
of

[[Page 44644]]

this definition by the number of credit hours in the program's academic 
year.
    (4) For a program that measures progress in clock hours, 24 clock 
hours per week.
    (5) A series of courses or seminars that equals 12 semester hours 
or 12 quarter hours in a maximum of 18 weeks.
    (6) The work portion of a cooperative education program in which 
the amount of work performed is equivalent to the academic workload of 
a full-time student.
    (7) For correspondence coursework, a full-time courseload must be--
    (i) Commensurate with the full-time definitions listed in 
paragraphs (1) through (6) of this definition; and
    (ii) At least one-half of the coursework must be made up of non-
correspondence coursework that meets one-half of the institution's 
requirement for full-time students.

(Authority: 20 U.S.C. 1082 and 1088)

    Graduate or professional student: A student who--
    (1) Is not receiving title IV aid as an undergraduate student for 
the same period of enrollment;
    (2) Is enrolled in a program or course above the baccalaureate 
level at an institution of higher education, or is enrolled in a 
program leading to a first professional degree; and
    (3) Has completed the equivalent of at least three academic years 
of full-time study at an institution of higher education, either prior 
to entrance into the program or as part of the program itself.

(Authority: 20 U.S.C. 1082 and 1088)

    Half-time student: (1) Except as provided in paragraph (2) of this 
definition, an enrolled student who is carrying a half-time academic 
work load, as determined by the institution, that amounts to at least 
half of the work load of the applicable minimum requirement outlined in 
the definition of a full-time student.
    (2) A student enrolled solely in a program of study by 
correspondence who is carrying a work load of at least 12 hours of work 
per week, or is earning at least six credit hours per semester, 
trimester, or quarter. However, regardless of the work, no student 
enrolled solely in correspondence study is considered more than a half-
time student.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
    Three-quarter time student: An enrolled student who is carrying a 
three-quarter-time academic work load, as determined by the 
institution, that amounts to at least three quarters of the work of the 
applicable minimum requirement outlined in the definition of a full-
time student.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
    Undergraduate student: (1) A student who is enrolled in an 
undergraduate course of study that usually does not exceed four 
academic years, or is enrolled in a longer program designed to lead to 
a first degree at the baccalaureate level. For purposes of 34 CFR 
690.6(c)(5) students who have completed a baccalaureate program of 
study and who are subsequently completing a State-required teacher 
certification program are treated as undergraduates.
    (2) In addition to meeting the definition in paragraph (1) of this 
definition, a student is only considered an undergraduate for purposes 
of the Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program, the Federal Pell Grant Program, the Academic Competitiveness 
Grant (ACG) Program, and National Science and Mathematics Access to 
Retain Talent (SMART) Grant Program if the student has not yet earned a 
baccalaureate or first professional degree. However, for purposes of 34 
CFR 690.6(c)(5) students who have completed a baccalaureate program of 
study and who are subsequently completing a State-required teacher 
certification program are treated as undergraduates.
    (3) For purposes of dual degree programs that allow individuals to 
complete a bachelor's degree and either a graduate or first 
professional degree within the same program, a student is considered an 
undergraduate student for at least the first three academic years of 
that program.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
    3. Section 668.4 is revised to read as follows:


Sec.  668.4  Payment period.

    (a) Payment periods for an eligible program that measures progress 
in credit hours and uses standard terms or nonstandard terms that are 
substantially equal in length. For a student enrolled in an eligible 
program that measures progress in credit hours and uses standard terms 
(semesters, trimesters, or quarters), or for a student enrolled in an 
eligible program that measures progress in credit hours and uses 
nonstandard terms that are substantially equal in length, the payment 
period is the academic term.
    (b) Payment periods for an eligible program that measures progress 
in credit hours and uses nonstandard terms that are not substantially 
equal in length. For a student enrolled in an eligible program that 
measures progress in credit hours and uses nonstandard terms that are 
not substantially equal in length--
    (1) For Pell Grant, ACG, National SMART Grant, FSEOG, and Perkins 
Loan program funds, the payment period is the academic term;
    (2) For FFEL and Direct Loan program funds--
    (i) For a student enrolled in an eligible program that is one 
academic year or less in length--
    (A) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours in 
the program and half of the number of weeks of instructional time in 
the program; and
    (B) The second payment period is the period of time in which the 
student successfully completes the program; and
    (ii) For a student enrolled in an eligible program that is more 
than one academic year in length--
    (A) For the first academic year and any subsequent full academic 
year--
    (1) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours in 
the academic year and half of the number of weeks of instructional time 
in the academic year; and
    (2) The second payment period is the period of time in which the 
student successfully completes the academic year;
    (B) For any remaining portion of an eligible program that is more 
than half an academic year but less than a full academic year in 
length--
    (1) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours in 
the remaining portion of the program and half of the number of weeks of 
instructional time remaining in the program; and
    (2) The second payment period is the period of time in which the 
student successfully completes the remainder of the program; and
    (C) For any remaining portion of an eligible program that is not 
more than half an academic year, the payment period is the remainder of 
the program.
    (c) Payment periods for an eligible program that measures progress 
in credit hours and does not have academic terms or for a program that 
measures progress in clock hours.

[[Page 44645]]

    (1) For a student enrolled in an eligible program that is one 
academic year or less in length--
    (i) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours or 
clock hours, as applicable, in the program and half of the number of 
weeks of instructional time in the program; and
    (ii) The second payment period is the period of time in which the 
student successfully completes the program or the remainder of the 
program.
    (2) For a student enrolled in an eligible program that is more than 
one academic year in length--
    (i) For the first academic year and any subsequent full academic 
year--
    (A) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours or 
clock hours, as applicable, in the academic year and half of the number 
of weeks of instructional time in the academic year; and
    (B) The second payment period is the period of time in which the 
student successfully completes the academic year;
    (ii) For any remaining portion of an eligible program that is more 
than half an academic year but less than a full academic year in 
length--
    (A) The first payment period is the period of time in which the 
student successfully completes half of the number of credit hours or 
clock hours, as applicable, in the remaining portion of the program and 
half of the number of weeks of instructional time remaining in the 
program; and
    (B) The second payment period is the period of time in which the 
student successfully completes the remainder of the program; and
    (iii) For any remaining portion of an eligible program that is not 
more than half an academic year, the payment period is the remainder of 
the program.
    (3) For purposes of paragraphs (c)(1) and (c)(2) of this section, 
if an institution is unable to determine when a student has 
successfully completed half of the credit hours or clock hours in a 
program, academic year, or remainder of a program, the student is 
considered to begin the second payment period of the program, academic 
year, or remainder of a program at the later of the date, as determined 
by the institution, on which the student has successfully completed--
    (i) Half of the academic coursework in the program, academic year, 
or remainder of the program; or
    (ii) Half of the number of weeks of instructional time in the 
program, academic year, or remainder of the program.
    (d) Application of the cohort default rate exemption. 
Notwithstanding paragraphs (a), (b), and (c) of this section, if 34 CFR 
682.604(c)(10) or 34 CFR 685.301(b)(8) applies to an eligible program 
that measures progress in credit hours and uses nonstandard terms, an 
eligible program that measures progress in credit hours and does not 
have academic terms, or an eligible program that measures progress in 
clock hours, the payment period for purposes of FFEL and Direct Loan 
funds is the loan period for those portions of the program to which 34 
CFR 682.604(c)(10) or 34 CFR 685.301(b)(8) applies.
    (e) Excused absences. For purposes of this section, in determining 
whether a student successfully completes the clock hours in a payment 
period, an institution may include clock hours for which the student 
has an excused absence (i.e., an absence that a student does not have 
to make up) if--
    (1) The institution has a written policy that permits excused 
absences; and
    (2) The number of excused absences under the written policy for 
purposes of paragraph (e) of this section does not exceed the lesser 
of--
    (i) The policy on excused absences of the institution's accrediting 
agency or, if the institution has more than one accrediting agency, the 
agency designated under 34 CFR 600.11(b);
    (ii) The policy on excused absences of any State agency that 
licenses the institution or otherwise legally authorizes the 
institution to operate in the State; or
    (iii) Ten percent of the clock hours in the payment period.
    (f) Re-entry within 180 days. If a student withdraws from a program 
described in paragraph (c) of this section during a payment period and 
then reenters the same program within 180 days, the student remains in 
that same payment period when he or she returns and, subject to 
conditions established by the Secretary or by the FFEL lender or 
guaranty agency, is eligible to receive any title IV, HEA program funds 
for which he or she was eligible prior to withdrawal, including funds 
that were returned by the institution or student under the provisions 
of Sec.  668.22.
    (g) Re-entry after 180 days or transfer. (1) Except as provided in 
paragraph (g)(3) of this section, and subject to the conditions of 
paragraph (g)(2) of this section, an institution calculates new payment 
periods for the remainder of a student's program based on paragraph (c) 
of this section, for a student who withdraws from a program described 
in paragraph (c) of this section, and--
    (i) Reenters that program after 180 days;
    (ii) Transfers into another program at the same institution within 
any time period; or
    (iii) Transfers into a program at another institution within any 
time period.
    (2) For a student described in paragraph (g)(1) of this section--
    (i) For the purpose of calculating payment periods only, the length 
of the program is the number of credit hours and the number of weeks of 
instructional time, or the number of clock hours and the number of 
weeks of instructional time, that the student has remaining in the 
program he or she enters or reenters; and
    (ii) If the remaining hours and weeks constitute half of an 
academic year or less, the remaining hours constitute one payment 
period.
    (3) Notwithstanding the provisions of paragraph (g)(1) of this 
section, an institution may consider a student who transfers into 
another program at the same institution to remain in the same payment 
period if--
    (i) The student is continuously enrolled at the institution;
    (ii) The coursework in the payment period the student is 
transferring out of is substantially similar to the coursework the 
student will be taking when he or she first transfers into the new 
program;
    (iii) The payment periods are substantially equal in length in 
weeks of instructional time and credit hours or clock hours, as 
applicable; and
    (iv) There are little or no changes in institutional charges 
associated with the payment period to the student.
    (h) Definitions. For purposes of this section--
    (1) Terms are substantially equal in length if no term in the 
program is more than two weeks of instructional time longer than any 
other term in that program; and
    (2) A student successfully completes credit hours or clock hours if 
the institution considers the student to have passed the coursework 
associated with those hours.

(Authority: 20 U.S.C. 1070 et seq.)

    4. Section 668.10 is amended by:
    A. In paragraph (a)(3)(ii), removing the word ``or'' immediately 
after the figure ``668.4(a)'' and adding, in its place, the punctuation 
``,'', and by adding the words ``, or (c),'' immediately after the 
parenthetical ``(b)''.
    B. Revising paragraph (a)(3)(iii).
    C. Removing paragraphs (a)(3)(v) and (3)(vi).

[[Page 44646]]

    The revision reads as follows:


Sec.  668.10  Direct Assessment Programs.

    (a) * * *
    (3) * * *
    (iii) A week of instructional time in a direct assessment program 
is any seven-day period in which at least one day of educational 
activity occurs. Educational activity in a direct assessment program 
includes regularly scheduled learning sessions, faculty-guided 
independent study, consultations with a faculty mentor, development of 
an academic action plan addressed to the competencies identified by the 
institution, or, in combination with any of the foregoing, assessments. 
It does not include credit for life experience. For purposes of direct 
assessment programs, independent study occurs when a student follows a 
course of study with predefined objectives but works with a faculty 
member to decide how the student is going to meet those objectives. The 
student and faculty member agree on what the student will do (e.g., 
required readings, research, and work products), how the student's work 
will be evaluated, and on what the relative timeframe for completion of 
the work will be. The student must interact with the faculty member on 
a regular and substantive basis to assure progress within the course or 
program.
* * * * *
    5. Section 668.21 is revised to read as follows:


Sec.  668.21  Treatment of title IV grant and loan funds if the 
recipient does not begin attendance at the institution.

    (a) If a student does not begin attendance in a payment period or 
period of enrollment, the institution must--
    (1) Return all title IV, HEA program funds that were credited to 
the student's account at the institution or disbursed directly to the 
student for that payment period or period of enrollment, for Federal 
Perkins Loan, FSEOG, Federal Pell Grant, ACG, and National SMART Grant 
program funds; and
    (2) For FFEL and Direct Loan funds--
    (i)(A) Return all FFEL and Direct Loan funds that were credited to 
the student's account at the institution for that payment period or 
period of enrollment; and
    (B) Return the amount of payments made directly by or on behalf of 
the student to the institution for that payment period or period of 
enrollment, up to the total amount of the loan funds disbursed;
    (ii) For remaining amounts of FFEL or Direct Loan funds disbursed 
directly to the student for that payment period or period of 
enrollment, the institution is not responsible for returning the funds, 
but must immediately notify the lender or the Secretary, as 
appropriate, when it becomes aware that the student will not or has not 
begun attendance so that the lender or Secretary will issue a final 
demand letter to the borrower in accordance with 34 CFR 682.412 or 34 
CFR 685.211, as appropriate; and
    (iii) Notwithstanding paragraph (a)(2)(ii) of this section, if an 
institution knew that a student would not begin attendance prior to 
disbursing FFEL or Direct Loan funds directly to the student for that 
payment period or period of enrollment (e.g., the student notified the 
institution that he or she would not attend, or the institution 
expelled the student), the institution must return those funds.
    (b) The institution must return those funds for which it is 
responsible under paragraph (a) of this section to the respective title 
IV, HEA program as soon as possible, but no later than 30 days after 
the date that the institution becomes aware that the student will not 
or has not begun attendance.
    (c) For purposes of this section, the Secretary considers that a 
student has not begun attendance in a payment period or period of 
enrollment if the institution is unable to document the student's 
attendance at any class during the payment period or period of 
enrollment.
    (d) In accordance with procedures established by the Secretary or 
FFEL Program lender, an institution returns title IV, HEA funds timely 
if--
    (1) The institution deposits or transfers the funds into the bank 
account it maintains under Sec.  668.163 no later than 30 days after 
the date that the institution becomes aware that the student will not 
or has not begun attendance;
    (2) The institution initiates an electronic funds transfer (EFT) no 
later than 30 days after the date that the institution becomes aware 
that the student will not or has not begun attendance;
    (3) The institution initiates an electronic transaction, no later 
than 30 days after the date that the institution becomes aware that the 
student will not or has not begun attendance, that informs an FFEL 
lender to adjust the borrower's loan account for the amount returned; 
or
    (4) The institution issues a check no later than 30 days after the 
date that the institution becomes aware that the student will not or 
has not begun attendance. An institution does not satisfy this 
requirement if--
    (i) The institution's records show that the check was issued more 
than 30 days after the date that the institution becomes aware that the 
student will not or has not begun attendance; or
    (ii) The date on the cancelled check shows that the bank used by 
the Secretary or FFEL Program lender endorsed that check more than 45 
days after the date that the institution becomes aware that the student 
will not or has not begun attendance.

(Authority: 20 U.S.C. 1094)

    6. Section 668.22 is amended by:
    A. Revising paragraph (a)(5).
    B. Adding paragraph (e)(5)(iii).
    The revision and addition read as follows:


Sec.  668.22  Treatment of title IV funds when a student withdraws.

    (a) * * *
    (5)(i) A post-withdrawal disbursement must be made from available 
grant funds before available loan funds.
    (ii)(A) If outstanding charges exist on the student's account, the 
institution may credit the student's account up to the amount of 
outstanding charges with all or a portion of any--
    (1) Grant funds that make up the post-withdrawal disbursement in 
accordance with Sec.  668.164(d)(1) and (d)(2); and
    (2) Loan funds that make up the post-withdrawal disbursement in 
accordance with Sec.  668.164(d)(1), (d)(2), and (d)(3) only after 
obtaining confirmation from the student or parent, in the case of a 
parent PLUS loan, that they still wish to have the loan funds disbursed 
in accordance with paragraph (a)(5)(iii) of this section.
    (B)(1) The institution must disburse directly to a student any 
amount of a post-withdrawal disbursement of grant funds that is not 
credited to the student's account. The institution must make the 
disbursement as soon as possible, but no later than 30 days after the 
date of the institution's determination that the student withdrew, as 
defined in paragraph (l)(3) of this section.
    (2) The institution must offer to disburse directly to a student, 
or parent in the case of a parent PLUS loan, any amount of a post-
withdrawal disbursement of loan funds that is not credited to the 
student's account, in accordance with paragraph (a)(5)(iii) of this 
section.
    (3) The institution must make a direct disbursement of any loan 
funds that make up the post-withdrawal disbursement only after 
obtaining the student's, or parent's in the case of a parent PLUS loan, 
confirmation that the student or parent still wishes to have

[[Page 44647]]

the loan funds disbursed in accordance with paragraph (a)(5)(iii) of 
this section.
    (iii)(A) The institution must provide within 30 days of the date of 
the institution's determination that the student withdrew, as defined 
in paragraph (l)(3) of this section, a written notification to the 
student, or parent in the case of parent PLUS loan, that--
    (1) Requests confirmation of any post-withdrawal disbursement of 
loan funds that the institution wishes to credit to the student's 
account in accordance with paragraph (a)(5)(ii)(A)(2) of this section, 
identifying the type and amount of those loan funds and explaining that 
a student, or parent in the case of a parent PLUS loan, may accept or 
decline some or all of those funds;
    (2) Requests confirmation of any post-withdrawal disbursement of 
loan funds that the student, or parent in the case of a parent PLUS 
loan, can receive as a direct disbursement, identifying the type and 
amount of these title IV funds and explaining that the student, or 
parent in the case of a parent PLUS loan, may accept or decline some or 
all of those funds;
    (3) Explains that a student, or parent in the case of a parent PLUS 
loan, who does not confirm that a post-withdrawal disbursement of loan 
funds may be credited to the student's account may not receive any of 
those loan funds as a direct disbursement unless the institution 
concurs;
    (4) Explains the obligation of the student, or parent in the case 
of a parent PLUS loan, to repay any loan funds he or she chooses to 
have disbursed; and
    (5) Advises the student, or parent in the case of a parent PLUS 
loan, that no post-withdrawal disbursement of loan funds will be made, 
unless the institution chooses to make a post-withdrawal disbursement 
based on a late response in accordance with paragraph (a)(5)(iii)(C) of 
this section, if the student or parent in the case of a parent PLUS 
loan, does not respond within 14 days of the date that the institution 
sent the notification, or a later deadline set by the institution.
    (B) The deadline for a student, or parent in the case of a parent 
PLUS loan, to accept a post-withdrawal disbursement under paragraph 
(a)(5)(iii)(A) of this section must be the same for both a confirmation 
of a direct disbursement of the post-withdrawal disbursement of loan 
funds and a confirmation of a post-withdrawal disbursement of loan 
funds to be credited to the student's account.
    (C) If the student, or parent in the case of a parent PLUS loan, 
submits a timely response that confirms that they wish to receive all 
or a portion of a direct disbursement of the post-withdrawal 
disbursement of loan funds, or confirms that a post-withdrawal 
disbursement of loan funds may be credited to the student's account, 
the institution must disburse the funds in the manner specified by the 
student, or parent in the case of a parent PLUS loan, as soon as 
possible, but no later than 120 days after the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section.
    (D) If a student, or parent in the case of a parent PLUS loan, 
submits a late response to the institution's notice requesting 
confirmation, the institution may make the post-withdrawal disbursement 
of loan funds as instructed by the student, or parent in the case of a 
parent PLUS loan (provided the institution disburses all the funds 
accepted by the student, or parent in the case of a parent PLUS loan), 
or decline to do so.
    (E) If a student, or parent in the case of a parent PLUS loan, 
submits a late response to the institution and the institution does not 
choose to make the post-withdrawal disbursement of loan funds, the 
institution must inform the student, or parent in the case of a parent 
PLUS loan, in writing of the outcome of the post-withdrawal 
disbursement request.
    (F) If the student, or parent in the case of a parent PLUS loan, 
does not respond to the institution's notice, no portion of the post-
withdrawal disbursement of loan funds that the institution wishes to 
credit to the student's account, nor any portion of loan funds that 
would be disbursed directly to the student, or parent in the case of a 
parent PLUS loan, may be disbursed.
    (iv) An institution must document in the student's file the result 
of any notification made in accordance with paragraph (a)(5)(iii) of 
this section of the student's right to cancel all or a portion of loan 
funds or of the student's right to accept or decline loan funds, and 
the final determination made concerning the disbursement.
* * * * *
    (e) * * *
    (5) * * *
    (iii) For a program that measures progress in credit hours and uses 
nonstandard terms that are not substantially equal in length, if the 
institution uses the payment period to determine the treatment of title 
IV grant or loan funds for a category of students found in paragraph 
(e)(5)(ii)(B) of this section, the institution must--
    (A)(1) For students in the category who are disbursed or could have 
been disbursed aid using both the payment period definition in Sec.  
668.4(b)(1) and the payment period definition in Sec.  668.4(b)(2), use 
the payment period during which the student withdrew that ends later; 
and
    (2) If in the payment period that ends later there are funds that 
have been or could have been disbursed from overlapping payment 
periods, the institution must include in the return calculation any 
funds that can be attributed to the payment period that ends later; and
    (B) For students in the category who are disbursed or could have 
been disbursed aid using only the payment period definition in Sec.  
668.4(b)(1) or the payment period definition in Sec.  668.4(b)(2), use 
the payment period definition for which title IV, HEA program funds 
were disbursed for a student's calculation under this section.
* * * * *
    7. Section 668.161 is amended by revising paragraph (b) to read as 
follows:


Sec.  668.161  Scope and purpose.

* * * * *
    (b) Federal interest in title IV, HEA program funds. Except for 
funds received by an institution for administrative expenses and for 
funds used for the Job Location and Development Program under the FWS 
Programs, funds received by an institution under the title IV, HEA 
programs are held in trust for the intended student beneficiaries, the 
Secretary, or lender or a guaranty agency under the FFEL programs. The 
institution, as a trustee of Federal funds, may not use or hypothecate 
(i.e., use as collateral) title IV, HEA program funds for any other 
purpose.
    8. Section 668.164 is amended by:
    A. Revising paragraphs (b), (c), and (d).
    B. Revising paragraph (g)(4)(i).
    C. Adding a new paragraph (h).
    The revisions and addition read as follows:


Sec.  668.164  Disbursing funds.

* * * * *
    (b) Disbursements by payment period. (1) Except as provided in 
paragraph (b)(2) of this section, an institution must disburse title 
IV, HEA program funds on a payment period basis. An institution must 
disburse title IV, HEA program funds once each payment period unless--
    (i) For FFEL and Direct Loan funds, 34 CFR 682.604(c)(6)(ii) or 34 
CFR 685.301(b)(3) applies; or
    (ii) For FSEOG, Federal Pell Grant, ACG, and National SMART Grant 
funds, an institution chooses to make more

[[Page 44648]]

than one disbursement in each payment period in accordance with 34 CFR 
676.16(a)(3), 34 CFR 690.76, or 34 CFR 691.76, as applicable.
    (2) The provisions of paragraph (b)(1) of this section do not apply 
to the disbursement of FWS Program funds.
    (3) Except as provided in paragraph (g) of this section, an 
institution may disburse title IV, HEA program funds to a student or 
parent for a payment period only if the student is enrolled for classes 
for that payment period and is eligible to receive those funds.
    (c) Direct payments. (1) An institution pays a student or parent 
directly by--
    (i) Releasing to the student or parent a check provided by a lender 
to the institution under the FFEL Program;
    (ii) Issuing a check payable to and requiring the endorsement of 
the student or parent. An institution issues a check on the date that 
it--
    (A) Mails the check to the student or parent; or
    (B) Notifies the student that the check is available for immediate 
pickup at a specified location at the institution. The institution may 
hold the check for up to 21 days after the date it notifies the 
student. If the student does not pick up the check within this 21-day 
period, the institution must immediately mail the check to the student 
or parent, initiate an EFT to the student's or parent's bank account, 
or return the funds to the appropriate title IV, HEA program;
    (iii) Initiating an electronic funds transfer (EFT) to a bank 
account designated by the student's or parent; or
    (iv) Dispensing cash for which the institution obtains a signed 
receipt from the student or parent.
    (2) For purposes of this section, ``bank account'' means an FDIC 
insured account such as a checking or savings account, or a similar 
account that underlies a stored-value card or other transaction device.
    (3) An institution may request, but not require or rely on, the 
student or parent to open a bank account. If the institution opens a 
bank account on behalf of a student or parent, establishes a process 
the student or parent follows to open a bank account, or similarly 
assists the student or parent in opening a bank account, the 
institution must--
    (i) Obtain in writing affirmative consent from the student or 
parent to open that account;
    (ii) Before the account is opened, inform the student or parent of 
the terms and conditions associated with accepting and using the 
account;
    (iii) Not make any claims against the funds in the account without 
the written permission of the student or parent, except for correcting 
an error in transferring the funds in accordance with banking 
protocols;
    (iv) Ensure that the student or parent does not incur any cost in 
opening the account or initially receiving any type of debit card, 
stored-value card, other type of automated teller machine (ATM) card, 
or similar transaction device that is used to access the funds in that 
account;
    (v) Ensure that the student has convenient access to a branch 
office of the bank or ATMs of the bank in which the account was opened 
(or ATMs of an affiliated bank), so that the student does not incur any 
cost in making cash withdrawals from that office or ATMs;
    (vi) Ensure that the debit, stored-value or ATM card, or other 
device can be widely used, e.g., the institution may not limit the use 
of the card or device to particular vendors; and
    (vii) Not market or portray the account, card, or device as a 
credit card or credit instrument, or subsequently convert the account, 
card, or device to a credit card or credit instrument.
    (d) Crediting a student's account at the institution. An 
institution may use title IV, HEA program funds to credit a student's 
account at the institution to satisfy--
    (1) Current year charges for--
    (i) Tuition and fees;
    (ii) Board, if the student contracts with the institution for 
board;
    (iii) Room, if the student contracts with the institution for room; 
and
    (iv) If the institution obtains the student's or parent's 
authorization under Sec.  668.165(b), other educationally related 
charges incurred by the student at the institution; and
    (2) Prior award year charges for a total of not more than $200 
for--
    (i) Tuition and fees, room, or board; and
    (ii) If the institution obtains the student's or parent's 
authorization under Sec.  668.165(b), other educationally related 
charges incurred by the student at the institution.
* * * * *
    (g) * * *
    (4) * * *
    (i) An institution may not make a late disbursement later than 180 
days after the date of the institution's determination that the student 
withdrew, as provided in Sec.  668.22, or for a student who did not 
withdraw, 180 days after the date the student otherwise becomes 
ineligible.
* * * * *
    (h)(1) Notwithstanding any State law (such as a law that allows 
funds to escheat to the State), an institution must return to the 
Secretary, lender, or guaranty agency, as applicable, any title IV, HEA 
program funds that it attempts to disburse directly to a student or 
parent but the student or parent does not receive or negotiate those 
funds.
    (2) If a disbursement is made by check and the check is not cashed, 
an institution must return those funds no later than 240 days of the 
initial attempt to disburse them.
    (i) If a check is returned to the institution, or an EFT is 
rejected, the institution may, as long as it does so within 45 days of 
the funds being returned to the institution, make additional attempts 
to disburse the funds. If the institution has not made another attempt 
to disburse those funds, they must be returned to the Secretary, 
lender, or guaranty agency, as applicable, before the 45 day period 
ends.
    (ii) All attempts to disburse the funds must end and the 
institution must return those funds to the Secretary, lender, or 
guaranty agency, as applicable, by the end of the 240-day period.
    9. Section 668.165 is amended by:
    A. Revising paragraph (a).
    B. Revising paragraph (b)(1).
    The revisions read as follows:


Sec.  668.165  Notices and authorizations.

    (a) Notices. (1) Before an institution disburses title IV, HEA 
program funds for any award year, the institution must notify a student 
of the amount of funds that the student or his or her parent can expect 
to receive under each title IV, HEA program, and how and when those 
funds will be disbursed. If those funds include Direct Loan or FFEL 
Program funds, the notice must indicate which funds are from subsidized 
loans and which are from unsubsidized loans.
    (2) Except in the case of a post-withdrawal disbursement made in 
accordance with Sec.  668.22(a)(5), if an institution credits a 
student's account at the institution with Direct Loan, FFEL, or Federal 
Perkins Loan Program funds, the institution must notify the student or 
parent of--
    (i) The anticipated date and amount of the disbursement;
    (ii) The student's right or parent's right to cancel all or a 
portion of that loan or loan disbursement and have the loan proceeds 
returned to the holder of that loan. However, if the institution 
releases a check provided by a lender under the FFEL Program, the 
institution is not required to provide this information; and
    (iii) The procedures and time by which the student or parent must 
notify the institution that he or she wishes to cancel the loan or loan 
disbursement.

[[Page 44649]]

    (3) The institution must provide the notice described in paragraph 
(a)(2) of this section in writing--
    (i) No earlier than 30 days before, and no later than 30 days 
after, crediting the student's account at the institution, if the 
institution obtains affirmative confirmation from the student under 
paragraph (a)(6)(i) of this section; or
    (ii) No earlier than 30 days before, and no later than seven days 
after, crediting the student account at the institution, if the 
institution does not obtain affirmative confirmation from the student 
under paragraph (a)(6)(i) of this section.
    (4)(i) A student or parent must inform the institution if he or she 
wishes to cancel all or a portion of a loan or loan disbursement.
    (ii) The institution must return the loan proceeds, cancel the 
loan, or do both, in accordance with program regulations provided that 
the institution receives a loan cancellation request--
    (A) The later of the first day of a payment period or 14 days after 
the date it notifies the student or parent of his or her right to 
cancel all or a portion of a loan, if the institution obtains 
affirmative confirmation from the student under paragraph (a)(6)(i) of 
this section; or
    (B) Within 30 days of the date the institution notifies the student 
or parent of his or her right to cancel all or a portion of a loan, if 
the institution does not obtain affirmative confirmation from the 
student under paragraph (a)(6)(i) of this section.
    (iii) If a student or parent requests a loan cancellation after the 
period set forth in paragraph (a)(4)(ii)(A) or (B) of this section, the 
institution may return the loan proceeds, cancel the loan, or do both, 
in accordance with program regulations.
    (5) An institution must inform the student or parent in writing 
regarding the outcome of any cancellation request.
    (6) For purposes of this section--
    (i) Affirmative confirmation is a process under which an 
institution obtains written confirmation of the types and amounts of 
title IV, HEA program loans that a student wants for an award year 
before the institution credits the student's account with those loan 
funds; and
    (ii) An institution is not required to return any loan proceeds 
that it disbursed directly to a student or parent.
    (b) * * *
    (1) If an institution obtains written authorization from a student 
or parent, as applicable, the institution may--
    (i) Use the student's or parent's title IV, HEA program funds to 
pay for charges described in Sec.  668.164(d)(2) that are included in 
that authorization; and
    (ii) Except if prohibited by the Secretary under the reimbursement 
or cash monitoring payment method, hold on behalf of the student or 
parent any title IV, HEA program, funds that would otherwise be paid 
directly to the student or parent under Sec.  668.164(e). Under this 
provision, the institution may issue a stored-value card or other 
similar device that allows the student or parent to access those funds 
at his or her discretion to pay for educationally related expenses.
* * * * *
    10. Section 668.166 is revised to read as follows:


Sec.  668.166  Excess cash.

    (a) General. (1) The Secretary considers excess cash to be any 
amount of title IV, HEA program funds, other than Federal Perkins Loan 
Program funds, that an institution does not disburse to students or 
parents by the end of the third business day following the date the 
institution--
    (i) Received those funds from the Secretary; or
    (ii) Deposited or transferred to its Federal account previously 
disbursed title IV, HEA program funds received from the Secretary, such 
as those resulting from award adjustments, recoveries, or 
cancellations.
    (2) The provisions of this section do not apply to the title IV, 
HEA program funds that an institution receives from the Secretary under 
the just-in-time payment method.
    (b) Excess cash tolerances. An institution may maintain for up to 
seven days an amount of excess cash that does not exceed one percent of 
the total amount of funds the institution drew down in the prior award 
year. The institution must return immediately to the Secretary any 
amount of excess cash over the one-percent tolerance and any amount 
remaining in its account after the seven-day tolerance period.
    (c) Consequences for maintaining excess cash. Upon a finding than 
an institution maintains excess cash for any amount or timeframe over 
that allowed in the tolerance provisions in paragraph (b) of this 
section, the actions the Secretary may take include, but are not 
limited to--
    (1) Requiring the institution to reimburse the Secretary for the 
costs the Secretary incurred in providing that excess cash to the 
institution; and
    (2) Providing funds to the institution under the reimbursement 
payment method or cash monitoring payment method described in Sec.  
668.163(d) and (e), respectively.

    (Authority: 20 U.S.C. 1094)

PART 674--FEDERAL PERKINS LOAN PROGRAM

    11. The authority citation for part 674 continues to read as 
follows:

    Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless 
otherwise noted.


Sec.  674.2  [Amended]

    12. Section 674.2 is amended by:
    A. In paragraph (a), adding to its list, in alphabetical order, the 
terms Graduate or professional student, Half-time student, and 
Undergraduate student.
    B. In paragraph (b), removing the definitions for Graduate or 
professional student, Half-time graduate or professional student, Half-
time Undergraduate student, and Undergraduate student.


Sec.  674.16  [Amended]

    13. Section 674.16 is amended by removing paragraph (g) and 
redesignating paragraphs (h) and (i) as paragraphs (g) and (h), 
respectively.

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM

    14. The authority citation for part 676 continues to read as 
follows:

    Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.


Sec.  676.2  [Amended]

    15. Section 676.2 is amended by:
    A. In paragraph (a), adding to its list, in alphabetical order, the 
term Undergraduate student.
    B. In paragraph (b), removing the definition for Undergraduate 
student.


Sec.  676.16  [Amended]

    16. Section 676.16 is amended by removing paragraph (e) and 
redesignating paragraph (f) as paragraph (e).

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

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

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

    18. Section 682.200 is amended by:
    A. In paragraph (a)(1), adding to its list, in alphabetical order, 
the terms Graduate and professional student, Half-time student, and 
Undergraduate student.
    B. In paragraph (b), removing the definitions for Graduate or 
professional student, Half-time student, and Undergraduate student and 
revising the definition of Period of Enrollment.

[[Page 44650]]

    The revision reads as follows:


Sec.  682.200  Definitions.

* * * * *
    (b) * * *
    Period of enrollment. The period for which a Stafford, SLS, or PLUS 
loan is intended. The period of enrollment must coincide with a bona 
fide academic term established by the school for which institutional 
charges are generally assessed (e.g., semester, trimester, or quarter 
in weeks of instructional time, length of the student's program in 
weeks of instructional time or academic year). The period of enrollment 
is also referred to as the loan period.
* * * * *


Sec.  682.207  [Amended]

    19. Section 682.207(e) is amended by removing the parenthetical 
``(10)'' and adding, in its place, the parenthetical ``(8)''.


Sec.  682.208  [Amended]

    20. Section 682.208(f)(1)(iii)(A) is amended by removing the figure 
``Sec.  682.604(d)(4)'' and adding, in its place, the figure ``34 CFR 
668.21(a)(2)(ii)''.
    21. Section 682.603 is amended by:
    A. Revising paragraph (f)(1).
    B. Redesignating paragraphs (g), (h), and (i) as paragraphs (h), 
(i), and (j), respectively.
    C. Adding a new paragraph (g).
    D. In the introductory text of newly redesignated paragraph (h)(1) 
and the text of newly redesignated paragraph (h)(2), removing the 
parenthetical ``(10)'' and adding, in its place, the parenthetical 
``(8)''.
    The revision and addition read as follows:


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

* * * * *
    (f)(1)(i) The minimum period of enrollment for which a school may 
certify a loan application is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or has terms that are 
substantially equal in length with no term less than nine weeks in 
length, a single term (e.g., a semester or quarter); or
    (B) Except as provided in paragraphs (f)(1)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion 
of that program if the student has less than the full program 
remaining) at the school; or
    (2) The academic year as defined by the school in accordance with 
34 CFR 668.3.
    (ii) For a student who transfers into a school with credit or clock 
hours from another school, and the prior school certified or originated 
a loan for a period of enrollment that overlaps the period of 
enrollment at the new school, the new school may certify a loan for the 
remaining portion of the program or academic year. In this case the 
school may certify a loan for an amount that does not exceed the 
remaining balance of the student's annual loan limit.
    (iii) For a student who completes a degree program at a school, 
where the student's last loan to complete that program had been for 
less than an academic year, and the student then begins a new degree 
program at the same school, the school may certify a loan for the 
remainder of the academic year. In this case the school may certify a 
loan for an amount that does not exceed the remaining balance of the 
student's annual loan limit at the loan level associated with the new 
program.
* * * * *
    (g)(1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic 
year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in nonstandard terms that are not substantially equal in length 
or each term is not at least nine weeks of instructional time in 
length, or in credit hours and does not have academic terms, a student 
is considered to have completed an academic year and progresses to the 
next annual loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of paragraphs (g)(1) and (g)(2) of this section, 
terms in a loan period are substantially equal in length if no term in 
the loan period is more than two weeks of instructional time longer 
than any other term in that loan period.
* * * * *
    22. Section 682.604 is amended by:
    A. Revising paragraph (c)(6).
    B. Removing paragraphs (c)(7) and (c)(8).
    C. Redesignating paragraphs (c)(9), (c)(10), and (c)(11) as 
paragraphs (c)(7), (c)(8), and (c)(9), respectively.
    D. In newly redesignated paragraph (c)(9), removing the 
parenthetical ``(g)'' and adding, in its place, the parenthetical 
``(h)''.
    E. Revising paragraph (d)(3).
    F. Removing paragraph (d)(4).
    The revisions read as follows:


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

* * * * *
    (c) * * *
    (6) Unless the provision of Sec.  682.207(d) applies--
    (i) If a loan period is more than one payment period, the school 
must deliver loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two deliveries of loan proceeds during that payment period. 
The school may not make the second delivery until the student 
successfully completes half of the number of credit hours or clock 
hours and half of the number of weeks of instructional time in the 
payment period.
* * * * *
    (d) * * *
    (3) If a student does not begin attendance in the period of 
enrollment--
    (i) Disbursed loan proceeds must be handled in accordance with 34 
CFR 668.21; and
    (ii) Undelivered loan funds held by the school must be handled in 
accordance with 34 CFR 668.167.
* * * * *

[[Page 44651]]

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

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

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

    24. Section 685.102 is amended by:
    A. In paragraph (a)(1), adding to its list, in alphabetical order, 
the terms Full-time student, Graduate or professional student, Half-
time student, and Undergraduate student.
    B. In paragraph (a)(3), removing from its list, the terms Full-time 
student, Graduate or professional student, and Undergraduate student.
    C. In paragraph (b), removing the definition of Half-time student 
and revising the definition of Period of enrollment.
    The revision reads as follows:


Sec.  685.102  Definitions.

* * * * *
    (b) * * *
    Period of enrollment: The period for which a Direct Subsidized, 
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of 
enrollment must coincide with one or more academic terms established by 
the school (such as semester, trimester, quarter in weeks of 
instructional time; academic year; and length of the program of study 
in weeks of instructional time), for which institutional charges are 
generally assessed. The period of enrollment is also referred to in 
this part as the loan period.
* * * * *
    25. Section 685.301 is amended by:
    A. Redesignating paragraph (a)(9)(ii) as paragraph (a)(9)(iv).
    B. Revising paragraph (a)(9)(i).
    C. Adding new paragraphs (a)(9)(ii) and (iii).
    D. Revising paragraphs (b)(2) and (b)(3).
    E. Removing paragraphs (b)(5) and (b)(6).
    F. Redesignating paragraphs (b)(7) and (b)(8) as paragraphs (b)(5) 
and (b)(6), respectively.
    G. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e), 
respectively.
    H. Adding a new paragraph (c).
    The revisions and additions read as follows:


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

    (a) * * *
    (9)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan application is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or has terms that are 
substantially equal in length with no term less than nine weeks in 
length, a single academic term (e.g., a semester or quarter); or
    (B) Except as provided in paragraph (a)(9)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion 
of that program if the student has less than the full program 
remaining) at the school; or
    (2) The academic year as defined by the school in accordance with 
34 CFR 668.3.
    (ii) For a student who transfers into a school with credit or clock 
hours from another school, and the prior school originated or certified 
a loan for a period of enrollment that overlaps the period of 
enrollment at the new school, the new school may originate a loan for 
the remaining portion of the program or academic year. In this case the 
school may originate a loan for an amount that does not exceed the 
remaining balance of the student's annual loan limit.
    (iii) For a student who completes a degree program at a school, 
where the student's last loan to complete that program had been for 
less than an academic year, and the student then begins a new degree 
program at the same school, the school may originate a loan for the 
remainder of the academic year. In this case the school may originate a 
loan for an amount that does not exceed the remaining balance of the 
student's annual loan limit at the loan level associated with the new 
program.
* * * * *
    (b) * * *
    (2) An institution must disburse the loan proceeds on a payment 
period basis in accordance with 34 CFR 668.164(b).
    (3) Unless paragraphs (b)(4) or (b)(8) of this section applies--
    (i) If a loan period is more than one payment period, the school 
must disburse loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two payments during that payment period. The school may not 
make the second payment until the student successfully completes half 
of the number of credit hours or clock hours and half of the number of 
weeks of instructional time in the payment period.
* * * * *
    (c) Annual loan limit progression based on completion of an 
academic year. (1) If a school measures academic progress in an 
educational program in credit hours and uses either standard terms 
(semesters, trimesters, or quarters) or nonstandard terms that are 
substantially equal in length, and each term is at least nine weeks of 
instructional time in length, a student is considered to have completed 
an academic year and progresses to the next annual loan limit when the 
academic year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in nonstandard terms that are not substantially equal in length 
or each term is not at least nine weeks of instructional time in 
length, or in credit hours and does not have academic terms, a student 
is considered to have completed an academic year and progresses to the 
next annual loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of paragraphs (c)(1) and (c)(2) of this section, 
terms in a loan period are substantially equal in length if no term in 
the loan period is more than two weeks of instructional time longer 
than any other term in that loan period.
* * * * *
    26. Section 685.303 is amended by revising paragraph (b)(3) to read 
as follows:


Sec.  685.303  Processing loan proceeds.

* * * * *
    (b) * * *
    (3) If a student does not begin attendance in the period of 
enrollment, disbursed loan proceeds must be

[[Page 44652]]

handled in accordance with 34 CFR 668.21.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

    27. The authority citation for part 690 continues to read as 
follows:

    Authority: 20 U.S.C. 1070a, unless otherwise noted.


Sec.  690.2  [Amended]

    28. Section 690.2 is amended by:
    A. In paragraph (b), adding to its list, in alphabetical order, the 
terms Half-time student, Three-quarter-time student, and Undergraduate 
student.
    B. In paragraph (c), removing the definitions for Half-time 
student, Less-than-half-time student, Three-quarter-time student, and 
Undergraduate student.
    29. Section 690.63 is amended by revising paragraphs (a)(1) and (e) 
to read as follows:


Sec.  690.63  Calculation of a Federal Pell Grant for a payment period.

    (a)(1) Programs using standard terms with at least 30 weeks of 
instructional time. A student's Federal Pell Grant for a payment period 
is calculated under paragraphs (b) or (d) of this section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters; and
    (C) Requires the student to enroll for at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (ii) The program uses an academic calendar that provides at least 
30 weeks of instructional time in--
    (A) Two semesters or trimesters in the fall through the following 
spring, or three quarters in the fall, winter, and spring, none of 
which overlaps any other term (including a summer term) in the program; 
or
    (B) Any two semesters or trimesters, or any three quarters where--
    (1) The institution starts its terms for different cohorts of 
students on a periodic basis (e.g., monthly);
    (2) The program is offered exclusively in semesters, trimesters, or 
quarters; and
    (3) Students are not allowed to be enrolled simultaneously in 
overlapping terms and must stay with the cohort in which they start 
unless they withdraw from a term (or skip a term) and re-enroll in a 
subsequent term.
* * * * *
    (e) Programs using credit hours without terms or clock hours. The 
Federal Pell Grant for a payment period for a student in a program 
using credit hours without terms or using clock hours is calculated 
by--
    (1) Determining the student's Scheduled Federal Pell Grant using 
the Payment Schedule; and
    (2) Multiplying the amount determined under paragraph (e)(1) of 
this section by the lesser of--

(i)
 

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; or

(ii)
 

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* * * * *
    30. Section 690.66 is amended by revising paragraph (a) to read as 
follows:


Sec.  690.66  Correspondence study.

    (a) An institution calculates the Federal Pell Grant for a payment 
period for a student in a program of study offered by correspondence 
courses without terms, but not including any residential component, 
by--
    (1) Determining the student's annual award using the half-time 
Disbursement Schedule; and
    (2) Multiplying the annual award determined from the Disbursement 
Schedule for a half-time student by the lesser of--

(i)
 

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; or

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(ii)
 

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* * * * *

PART 691--ACADEMIC COMPETITIVENESS GRANT (ACG) AND NATIONAL SCIENCE 
AND MATHEMATICS ACCESS TO RETAIN TALENT GRANT (NATIONAL SMART 
GRANT) PROGRAMS

    31. The authority citation for part 691 continues to read as 
follows:

    Authority: 20 U.S.C. 1070a-1, unless otherwise noted.


Sec.  691.2  [Amended]

    32. Section 691.2 is amended by:
    A. In paragraph (b), adding to its list, in alphabetical order, the 
term Undergraduate student.

B. In paragraph (d), removing the definition for Undergraduate student.


Sec.  691.8  [Amended]

    33. Section 691.8 is amended by removing paragraph (c).
    34. Section 691.63 is amended by revising paragraphs (a)(1) and (e) 
to read as follows:


Sec.  691.63  Calculation of a grant for a payment period.

    (a)(1) Programs using standard terms with at least 30 weeks of 
instructional time. A student's grant for a payment period is 
calculated under paragraphs (b) or (d) of this section if --
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters; and
    (C) Requires the student to enroll for at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (ii) The program uses an academic calendar that provides at least 
30 weeks of instructional time in--
    (A) Two semesters or trimesters in the fall through the following 
spring, or three quarters in the fall, winter, and spring, none of 
which overlaps any other term (including a summer term) in the program; 
or
    (B) Any two semesters or trimesters, or any three quarters where--
    (1) The institution starts its terms for different cohorts of 
students on a periodic basis (e.g., monthly);
    (2) The program is offered exclusively in semesters, trimesters, or 
quarters; and
    (3) Students are not allowed to be enrolled simultaneously in 
overlapping terms and must stay with the cohort in which they start 
unless they withdraw from a term (or skip a term) and re-enroll in a 
subsequent term.
* * * * *
    (e) Programs using credit hours without terms or clock hours. The 
grant for a payment period for a student in a program using credit 
hours without terms or using clock hours is calculated by--
    (1) Determining that the student is attending at least full-time;
    (2) Determining the student's ACG or National SMART Grant Scheduled 
Award; and
    (3) Multiplying the ACG or National SMART Grant amount determined 
under paragraph (e)(2) of this section by the lesser of--

(i)
 

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; or

(ii)
 

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* * * * *
[FR Doc. E7-15314 Filed 8-7-07; 8:45 am]
BILLING CODE 4000-01-P