[Federal Register Volume 72, Number 211 (Thursday, November 1, 2007)]
[Rules and Regulations]
[Pages 62014-62034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21083]



[[Page 62013]]

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

Part III





Department of Education





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



34 CFR Parts 668, 674, 676 et al.



Federal Student Aid Programs; Final Rule

  Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / 
Rules and Regulations  

[[Page 62014]]


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

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: Final regulations.

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

SUMMARY: The Secretary amends the regulations on the 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; Academic Competitiveness Grant (ACG) Program; and National 
Science and Mathematics Access to Retain Talent Grant (National SMART 
Grant) Program. The regulations reduce administrative burden for 
program participants, provide benefits to students and borrowers, and 
protect taxpayers' interests.

DATES: Effective Date: These regulations are effective July 1, 2008.
    Implementation Date: The Secretary has determined, in accordance 
with section 482(c)(2)(A) of the Higher Education Act of 1965, as 
amended (HEA) (20 U.S.C. 1089(c)(2)(A)), that institutions, lenders, 
guaranty agencies, and loan servicers that administer Title IV, HEA 
programs may, at their discretion, choose to implement all provisions 
of these final regulations on or after November 1, 2007. For further 
information, see the section entitled Implementation Date of These 
Regulations in the SUPPLEMENTARY INFORMATION section of this preamble.

FOR FURTHER INFORMATION CONTACT: Michelle Belton, U.S. Department of 
Education, 1990 K Street, NW., 8th Floor, Washington, DC 20006-8502. 
Telephone: (202) 502-7821 or via the Internet at: 
[email protected].
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in this section.

SUPPLEMENTARY INFORMATION: On August 8, 2007, the Secretary published a 
notice of proposed rulemaking (NPRM) for the Student Assistance General 
Provisions, Perkins Loan Program, FSEOG Program, FFEL Program, Direct 
Loan Program, Pell Grant Program, ACG Program, and National SMART Grant 
Program in the Federal Register (72 FR 44620).
    In the preamble to the NPRM, the Secretary discussed on pages 44621 
through 44635 the major changes proposed in that document to strengthen 
and improve the administration of the Federal student financial aid 
programs authorized under Title IV of the Higher Education Act of 1965, 
as amended (HEA). These include the following:
     Amending Sec.  668.2 to add a definition for 
``professional degree'' and to harmonize and consolidate definitions 
for ``full-time student,'' ``graduate or professional student,'' 
``half-time student,'' ``three-quarter time student,'' and 
``undergraduate student.''
     Amending Sec. Sec.  668.4, 668.22, 668.164, 682.200, 
682.604, and 685.301 to align disbursements, with a few exceptions, for 
all Title IV grant and loan programs on a payment period basis.
     Amending Sec.  668.10 to 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.
     Amending Sec. Sec.  668.21, 682.604, and 685.303 to 
consolidate all requirements addressing the treatment of Title IV funds 
(except Federal Work Study) 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.
     Amending Sec.  668.22 to allow institutions to make a 
direct disbursement of any Title IV grant funds that make up a post-
withdrawal disbursement without notifying a student and obtaining the 
student's permission.
     Amending Sec.  668.164 to establish 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.
     Amending Sec.  668.164 to allow institutions to pay for 
prior-year charges of up to $200.
     Amending Sec.  668.164(c) to modify the provisions for 
issuing a check and add new provisions expanding the use of electronic 
funds transfers (EFTs) to bank accounts that underlie stored-value 
cards and other transaction devices.
     Amending Sec.  668.164(g) to extend the period within 
which an institution is allowed to make a late disbursement from 120 to 
180 days and to eliminate an institution's ability to request funds 
after that period expires.
     Amending Sec.  668.165(a) to require institutions to 
either obtain affirmative confirmation from a student prior to 
disbursing a loan or notify a student no earlier than 30 days before, 
but no later than seven days after crediting a student's account with 
loan proceeds, and give students 30 days to cancel all or a portion of 
the loan.
     Amending Sec.  668.166 to 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; 
to eliminate the three percent excess cash tolerance option; and to 
simplify the provisions addressing the consequences for maintaining 
excess cash.
     Amending Sec. Sec.  674.16 and 676.16 to eliminate the 
single disbursement provisions that currently exist in the Perkins Loan 
and FSEOG programs.
     Amending Sec. Sec.  682.603 and 685.301 to allow 
institutions that use credit hours with terms that are at least nine 
weeks and substantially equal in length to make a full loan for a 
single term; and to allow institutions that use credit hours without 
terms or without terms that are substantially equal in length with no 
term less than nine weeks in length, or that use clock hours to certify 
a loan for the remaining balance of the student's annual loan limit for 
the remaining portion of a program for a transfer student or a student 
who has completed one degree and will immediately begin another degree 
at the same institution.
     Amending Sec. Sec.  682.603 and 685.301 to allow students 
to progress to the next annual loan limit if they complete 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.
     Amending Sec. Sec.  690.63 and 690.66 to allow 
institutions that offer programs with semesters, trimesters, or 
quarters and have terms for different cohorts of students that start 
periodically to use the same Pell formula as that used for traditional 
programs; to amend the Pell calculation for programs using clock hours 
or credit hours without terms; and to adjust the Pell calculation for 
correspondence study programs.

[[Page 62015]]

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under Title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulation may 
choose to implement earlier and the conditions under which the entity 
may implement the provisions early.
    Consistent with the intent of this regulatory effort to strengthen 
and improve the administration of the Title IV, HEA programs, the 
Secretary is using the authority granted her under section 482(c) to 
designate all of the regulations included in this document for early 
implementation at the discretion of each institution, lender, guaranty 
agency, or servicer, as appropriate.

Analysis of Comments and Changes

    The regulations in this document were developed through the use of 
negotiated rulemaking. Section 492 of the HEA requires that, before 
publishing any proposed regulations to implement programs under Title 
IV of the HEA, the Secretary obtain public involvement in the 
development of the proposed regulations. After obtaining advice and 
recommendations, the Secretary must conduct a negotiated rulemaking 
process to develop the proposed regulations. All proposed regulations 
must conform to agreements resulting from the negotiated rulemaking 
process unless the Secretary reopens that process or explains any 
departure from the agreements to the negotiated rulemaking 
participants.
    These regulations were published in proposed form on August 8, 
2007, in conformance with the consensus of the negotiated rulemaking 
committee. Under the committee's protocols, consensus meant that no 
member of the committee dissented from the agreed-upon language. The 
Secretary invited comments on the proposed regulations by September 7, 
and in response to the Secretary's invitation, 22 parties submitted 
comments on the proposed regulations. An analysis of the comments and 
the changes in the regulations since publication of the NPRM follows.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not respond to technical and other minor 
changes--and suggested changes the law does not authorize the Secretary 
to make. We also do not respond to comments pertaining to issues that 
were not within the scope of the NPRM.

General Definitions (Sec.  668.2)

    Comments: In general, commenters supported the proposed changes in 
Sec.  668.2. With regard to the definition of ``full-time student,'' 
one commenter requested that the Department not increase the number of 
clock hours required to be considered full-time as that would affect 
the amount of time a student must be enrolled to be considered part-
time.
    Discussion: These regulations do not include any provisions that 
increase the number of clock hours required for full-time students. The 
Department originally considered changing the number of clock hours 
required for a student to be considered a full-time student, but 
withdrew this proposal during the negotiated rulemaking sessions 
because this change could unfavorably affect part-time clock hour 
students.
    Change: None.
    Comments: We received comments from two institutions regarding the 
definitions of ``graduate or professional student'' and ``undergraduate 
student'' and the clarification of when a student is considered an 
undergraduate in a dual degree program. One of the commenters noted 
that this clarification is welcomed in light of the fact that ``there 
has been considerable growth in such programs, often co-mingling 
undergraduate coursework, making it difficult to determine exact 
eligibility for Title IV aid. By considering such students to be 
undergraduates for the first three years of the academic program, this 
confusion will be greatly reduced.'' The other commenter agreed with 
this regulatory change but only if institutions are allowed to use 
their own definition of academic year when determining the ``third 
year.''
    Discussion: The term ``academic year'' is defined in section 481 of 
the HEA. Generally, institutions that participate in the Title IV, HEA 
programs and measure their program length in credit hours are required 
to define their academic year as at least 30 weeks of instructional 
time during which a full-time student in an undergraduate program is 
expected to complete at least 24 semester or trimester credit hours or 
36 quarter credit hours of study. Institutions that participate in the 
Title IV, HEA programs and measure their program length in clock hours 
are required to define their academic year as at least 26 weeks of 
instructional time during which a full-time student in an undergraduate 
program is expected to complete at least 900 clock hours. However, the 
statutory purpose behind the definition of an academic year is to 
determine the minimum period of time for which we will pay a student an 
academic year's worth of financial aid. Determining ``grade level'' for 
the purpose of categorizing a student as either a graduate or 
professional student or an undergraduate student is not related to the 
issue the HEA addresses with the definition of an academic year. 
Therefore, we agree with the commenter who suggested that an 
institution can, without reference to the statutory definition of an 
academic year, define what a year is in its programs for purposes of 
determining when a student is an undergraduate student or a graduate or 
professional student.
    Change: The definition of ``graduate or professional student'' in 
Sec.  668.2 is amended by using the term ``year'' instead of ``academic 
year'' in paragraph (3). In addition, the definition of ``undergraduate 
student'' in Sec.  668.2 is similarly amended by using the term 
``year'' instead of ``academic year'' in those places that describe the 
length of a course of study or a program.
    Comment: We received one comment requesting the Department to 
consider altering the definitions for ``graduate or professional 
student'' and ``undergraduate student'' to reflect the language that is 
currently used in the Department's Federal Student Aid (FSA) Handbook 
for consistency and clarity. In particular, the commenter asked the 
Department to (1) consider adopting the definition for an 
``undergraduate student'' as it appears in the handbook, (2) use the 
term ``program'' consistently throughout the regulations, (3) change 
the term ``institution of higher education'' to ``eligible 
institution'' since the term ``institution of higher education'' is 
defined in the regulations to exclude proprietary institutions, (4) 
drop the word ``first'' in the phrases ``first professional degree'' 
and ``first degree at the baccalaureate level,'' and (5) use the term 
``mixed-degree programs'' rather than ``dual degree programs.''
    Discussion: The definition of an ``undergraduate student'' in the 
FSA Handbook is ``a student who is enrolled in a program of study that 
usually does not exceed four (and can be up to five) academic years in 
length and that is designed to lead to a degree or certificate at or 
below the baccalaureate level.'' While this definition is correct, it 
does not address certain student eligibility or program specific

[[Page 62016]]

requirements that are covered in the more comprehensive definition in 
Sec.  668.2. The definition of ``undergraduate student'' in Sec.  
668.2, which contains definitions that are relevant to all of the Title 
IV, HEA programs, was intended to incorporate requirements from the 
definition of ``undergraduate student'' currently in different program 
regulations. However, in proposing the definition of ``undergraduate 
student,'' we inadvertently omitted certain provisions currently in 
Sec. Sec.  674.2, 675.2, and 676.2. Specifically, these sections 
describe an undergraduate student as a student enrolled in a course of 
study that usually does not exceed four years, or is enrolled in a four 
or five year program designed to lead to a degree. A student enrolled 
in a program of any longer period is considered an undergraduate 
student for only the first four years of that program.
    The HEA refers to a student following a course of study, while 
institutions offer programs. A course of study refers to a student's 
particular academic path in a program. For example, a student's major 
would be considered a course of study. Program, as it appears in the 
HEA, refers to the overall bachelor's program, which includes not only 
the course of study but also any other general coursework that may be 
required by an institution.
    We understand the commenter's concerns that the term ``institution 
of higher education,'' as defined in the regulations, appears to 
exclude proprietary institutions. Additionally, this term is not used 
in the definition of undergraduate student. Therefore, to address the 
commenter's concerns and for consistency, we are removing the reference 
to an institution of higher education in the definition of graduate or 
professional student.
    We agree with the commenter's point regarding the use of the term 
``first degree at the baccalaureate level'' in paragraph (1) of the 
definition for ``undergraduate student'' and the term ``first 
professional degree.'' Because a student can be considered an 
undergraduate student when taking courses below the baccalaureate level 
even after receiving a bachelor's degree for purposes of the FFEL, 
Direct Loan, and Perkins Loan programs, the term ``first degree at the 
baccalaureate level'' in paragraph (1) will be amended. It is not 
necessary to specify whether a professional degree is a first 
professional degree for Title IV, HEA program purposes and, therefore, 
we will amend the definitions for ``graduate or professional student'' 
and ``undergraduate student.'' We will also amend the term ``first 
professional degree'' to ``professional degree'' to clarify the 
Department's intention when using this term in the regulations.
    Finally, we believe the term ``dual degree programs'' is commonly 
used in the academic community. It is more descriptive of the types of 
programs to which the definitions apply and is less confusing than the 
term ``mixed degree programs.''
    Changes: Section 668.2 is amended by removing the word ``first'' in 
paragraphs (1), (2), and (3) of the definition for an ``undergraduate 
student'' and from paragraph (2) of the definition for ``graduate or 
professional student.'' Section 668.2 is further amended by removing 
the term ``institution of higher education'' from the definition of a 
``graduate or professional student'' and by removing the word ``first'' 
from the term ``first professional degree.'' In addition, the 
definition of ``undergraduate student'' is amended to reflect the 
omitted provisions in Sec. Sec.  674.2, 675.2, and 676.2.

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

    Comments: One commenter believed that the regulatory provisions 
allowing an institution to disburse Title IV grant funds at such times 
and in such installments in each payment period as the institution 
determines best meets the student's needs should also apply to the 
disbursement of FFEL and Direct Loan funds. Along these lines, the 
commenter asked the Department to clarify that an institution may delay 
the disbursement of an FFEL or Direct Loan until after the 60 percent 
point in the payment period, or pay in two substantially equal 
installments that coincide with the beginning dates of two consecutive 
modules that the student is scheduled to attend within a standard term.
    Discussion: Nothing in the HEA or the regulations prohibits an 
institution from paying an FFEL or Direct Loan in installments during a 
payment period, provided that the disbursements are substantially equal 
and that no more than half of the loan amount for the period of 
enrollment is disbursed to the borrower prior to the mid-point of the 
period of enrollment. However, for an FFEL loan, an institution should 
confer with the lender or guaranty agency to confirm that they would 
permit such disbursements. For a Direct Loan, an institution may make 
such disbursements at the institution's discretion and does not need to 
contact the Department. The Department notes that the provisions 
allowing an institution to pay a student at such times and in such 
amounts as it determines best meet the student's needs also applies to 
Perkins Loan funds.
    The purpose of the provisions allowing an institution to disburse 
Title IV funds in installments within a payment period is to give 
institutions the ability to apportion the payment if doing so will be 
in the best interest of the student. For example, if a payment period 
is particularly long, an institution might choose to pay in multiple 
installments to ensure that a student will have funds to pay rent later 
in the payment period. However, as a general matter, Title IV funds 
must be provided to students in a timely manner to best assist them in 
paying their educational expenses. Consequently, an institution may not 
delay the disbursement of funds until after the 60 percent point, for 
example, to avoid the administrative burden of performing a Return of 
Title IV Funds calculation and the requirements that go along with it, 
or to prevent the student from having to return funds upon withdrawal.
    Change: Section 668.164(b)(1)(ii) is amended to make clear that an 
institution may disburse Perkins Loan funds, within each payment 
period, at such time and in such amounts as it determines best meets 
the student's needs.
    Comments: One commenter asked the Department to clarify any 
difference between the term ``successfully completes'' as defined in 
the NPRM for completion of a payment period in certain types of 
educational programs, and the term ``successfully completed'' as used 
in the late disbursement provisions under Sec.  668.164(g)(4)(ii). The 
commenter believes that the provision for making a late disbursement, 
which provides that an institution may not make a second or subsequent 
late disbursement of FFEL or Direct Loan funds unless the student 
successfully completed the period of enrollment for which the loan was 
intended, does not require the student to have passed the coursework 
associated with the hours in the period of enrollment. Two commenters 
suggested that the Secretary define ``standard terms,'' ``nonstandard 
terms,'' and ``substantially equal in length'' in the General 
Provisions Regulations under Sec.  668.2 so that these terms would 
apply to all of the Title IV programs.
    Discussion: The term ``successfully completes,'' or a variation of 
that term, has the same meaning for payment period purposes as it does 
for making late disbursements, i.e., the institution must consider the 
student to have passed the coursework associated with

[[Page 62017]]

the hours in the payment period or period of enrollment.
    A standard term, as specifically noted in, for example, Sec. Sec.  
668.22(a)(ii)(5) and 690.63(a)(1), is a semester, trimester, or 
quarter. By inference, a nonstandard term is something other than that. 
The Department does not believe it is necessary to add definitions of 
``standard terms'' and ``nonstandard terms'' in regulations that go 
beyond these general concepts. The only places the term ``substantially 
equal in length'' is used outside of the FFEL and Direct Loan 
regulations are where it is specifically needed in Sec. Sec.  668.4 and 
668.22 of the General Provisions regulations. The Department believes 
it is necessary to define the term in those two sections only. 
Therefore, we are adding in these final regulations in Sec.  668.2 the 
same definition of ``substantially equal in length'' that we are adding 
in Sec.  668.4.
    Change: Section 668.22(l) is amended to include a definition of the 
term ``substantially equal in length.''

Transferring to a New Program at the Same Institution (Sec.  668.4)

    Comments: One commenter asked whether the proposed regulations 
allowing a student to be considered to remain in the same payment 
period when the student transfers into a second program would apply 
when the student transfers from a Business program to an Information 
Technology (IT) program at the same institution. In this case, the 
student is continuously enrolled, the payment periods are substantially 
equal in length, and the charges are the same, but the credits from the 
Business program that the student took in that payment period do not 
transfer to the IT program.
    Discussion: The Department's response, based on these facts, is no. 
We intend that Sec.  668.4(g) will address those cases where there is 
very little change to a student's academic circumstances and the 
student is changing over to the new program in a nearly seamless 
manner. In the commenter's case, the coursework in the payment period 
the student is transferring out of would not be considered to be 
substantially similar to the coursework the student will be taking in 
the new program because none of the credits associated with that 
coursework transfer over to the new program. Therefore, the institution 
must treat the student as a withdrawal from the Business program, and 
calculate new payment periods for the student's enrollment in the IT 
program. Based on this comment, the Department believes that it would 
be beneficial to clarify Sec.  668.4(g).
    Changes: Section 668.4(g)(3) is amended to clarify that for an 
institution to consider the student to remain in the same payment 
period the credits from the payment period the student is transferring 
out of must be accepted toward the new program.

Return of Title IV Funds Calculated on a Payment Period Basis 
(Sec. Sec.  668.4 and 668.22)

    Comment: One commenter did not agree with the proposed change that 
would require the use of the payment period that ends later for Return 
of Title IV Funds calculations for a student who withdrew from a credit 
hour program that is measured in nonstandard terms that are not 
substantially equal in length, when the student received aid under both 
payment period definitions--one for Title IV grant and Perkins Loan 
funds, and one for FFEL and Direct Loan funds. The commenter noted that 
a student who received aid under both payment period definitions would 
earn a different percentage of aid than a student with the same 
withdrawal date who received aid under only the shorter of the two 
payment periods. The commenter felt that students with the same 
withdrawal date should always earn the same percentage of aid, 
irrespective of the type of programs from which the student receives 
aid.
    Discussion: As stated in the NPRM (72 FR 44626), to simplify the 
Return of Title IV Funds calculation and ease administrative burden, we 
believe that institutions should use consistent Title IV payment 
periods to the extent permitted under the HEA and regulations. However, 
as there are two payment period definitions to take into account for 
nonstandard term credit hour programs with terms that are not 
substantially equal in length, the Department sought a solution that is 
as equitable as possible without being exceedingly complicated. 
Although, as the commenter points out, a student who received aid under 
both payment period definitions would earn a different percentage of 
aid than a student with the same withdrawal date who received aid under 
only the shorter of the two payment periods, we believe the approach 
taken in these regulations is the best solution because the use of the 
shorter payment period would be substantially more complicated.
    Change: None.

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

    Comments: Three commenters supported the proposed regulations 
consolidating the requirements for the treatment of Title IV funds when 
a student does not begin attendance. However, two other commenters felt 
that the proposed requirement that an institution return the amount of 
FFEL and Direct Loan funds paid to the institution on behalf of the 
student was new and did not reflect current regulations.
    Two commenters suggested that regulatory language be added to 
reflect the statements in the preamble to the NPRM that (1) 
institutions would not be responsible for returning FFEL and Direct 
Loan funds that are disbursed directly to the student by the lender for 
a study-abroad program or for a student enrolled in a foreign school, 
and (2) a final demand letter must be issued to these students for such 
funds.
    One commenter believed that the timeframe for an institution to 
return Title IV funds should be as soon as possible, but no later than 
45 days after the date that the institution becomes aware that the 
student will not or has not begun attendance, rather than the proposed 
30 days, to match the timeframe in Sec.  668.22 for an institutional 
return of funds to the Title IV programs when a student withdraws.
    Discussion: The Department notes that although the proposed 
requirements in Sec. Sec.  682.604(d)(4)(ii) and 685.303(b)(3)(ii) did 
not specifically state that FFEL and Direct Loan funds paid to the 
institution on behalf of a student (i.e., parent PLUS loan funds) must 
be returned by the institution, the Department has previously 
interpreted the requirement that the institution return funds paid by 
the student to include parent PLUS loan funds. By including the phrase 
``on behalf of'' in Sec.  668.21 we intended to reflect this 
longstanding interpretation in the regulations.
    We agree with the commenters' suggestions to add regulatory 
language to address the treatment of FFEL and Direct Loan funds 
disbursed directly to the student by the lender for a study-abroad 
program or for a student enrolled in a foreign school when the student 
does not begin attendance.
    As stated in the NPRM (72 FR 44628), the Department does not 
believe that an additional 15 days in the timeframe are necessary 
because, unlike the Return of Title IV Funds requirements in Sec.  
668.22, no calculation is required to determine

[[Page 62018]]

the amount of funds an institution must return.
    Changes: Section 668.21(a)(2)(ii) is amended to make clear that an 
institution is not responsible for returning FFEL and Direct Loan funds 
that are disbursed directly to the student by the lender for a study-
abroad program or for a student enrolled in a foreign school when the 
student does not begin attendance. In addition, Sec.  668.21(a)(2)(ii) 
states that a final demand letter must be issued to students for such 
funds.

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

    Comments: Four commenters agreed with the proposal to remove the 
requirement that an institution 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. One commenter 
believed the change would help streamline part of a complicated 
administrative process. However, one commenter urged the Department to 
establish one timeframe for late disbursements, disbursements of Title 
IV grant funds that make up a post-withdrawal disbursement, and post-
withdrawal disbursements of Title IV loan funds. Two commenters 
believed that an institution should 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 180 days after the 
date of the institution's determination that the student withdrew, 
rather than the proposed 30 days, to match the proposed timeframe for 
making a late disbursement. One commenter felt that an institution 
should be required to make such a disbursement as soon as possible, but 
no later than 45 days after the date of the institution's determination 
that the student withdrew, rather than the proposed 30 days, to match 
the timeframe for an institutional return of funds to the Title IV 
programs when a student withdraws. The commenter stated that most 
institutions are looking at this process at the same time a Return of 
Title IV Funds calculation is being done, so the timeframe should be 
the same. Four commenters felt that the requirement for making a post-
withdrawal disbursement of Title IV loan funds should be changed to as 
soon as possible, but no later than 180 days after the date of the 
institution's determination that the student withdrew, rather than the 
existing 120 days, to match the proposed timeframe for making a late 
disbursement. Another commenter asked if it was permissible for an 
institution not to issue the direct disbursement of Title IV grant 
funds that make up a post-withdrawal disbursement if a student should 
wish not to receive it. The commenter noted that some students who plan 
to transfer to another institution may wish to use their Title IV grant 
eligibility at the new institution.
    Discussion: Although the Secretary believes that, in the vast 
majority of cases, an institution will not need 45 days from the date 
it determines that a student withdrew to make a direct disbursement of 
Title IV grant funds to a student as a post-withdrawal disbursement, 
the Secretary agrees with the comment that making the timeframe 
consistent with the 45-day timeframe for the payment of an 
institutional return of unearned Title IV funds will give institutions 
one less timeframe to take into account. For the same reason, the 
Secretary agrees with the comment that the requirement for making a 
post-withdrawal disbursement of Title IV loan funds should be changed 
to ``as soon as possible, but no later than 180 days after the date of 
the institution's determination that the student withdrew'' to match 
the timeframe for making a late disbursement. These funds are intended 
to cover educational expenses that have already occurred and must be 
provided to the student in a timely manner.
    The Secretary does not agree with the suggestion that an 
institution should have 180 days to make a direct disbursement of Title 
IV grant funds to a student as a post-withdrawal disbursement. 
Additional time is provided for an institution to make a post-
withdrawal disbursement of loan funds to allow for the required 
notification to the student, or parent in the case of a PLUS loan, and 
to receive a response. The Secretary emphasizes that an institution 
must return or disburse funds as soon as possible after determining 
that a student has withdrawn.
    An institution must be able to document that its procedures call 
for it to get post-withdrawal disbursements to its students as soon as 
possible, and that it is consistently following those procedures.
    These regulations require an institution to disburse directly to a 
student, as soon as possible, but no later than 45 days after the date 
of the institution's determination that the student withdrew, any 
amount of a post-withdrawal disbursement of grant funds that is not 
credited to the student's account. An institution may not delay its 
disbursement processes in order to ascertain whether a student wishes 
to receive the grant funds to which the student is entitled. However, 
while the institution is processing the disbursement it may, at its 
discretion, notify the student that it may be beneficial to turn down 
all or a portion of the grant funds to preserve the student's grant 
eligibility for attendance at another institution. Of course, if a 
student independently contacts the institution and declines receipt of 
a grant disbursement, the institution is not required to make the 
disbursement.
    Changes: Section 668.22(a)(5)(ii)(B)(1) is changed to require an 
institution to make a direct disbursement of Title IV grant funds to a 
student as a post-withdrawal disbursement as soon as possible, but no 
later than 45 days after the date it determines that a student 
withdrew.
    Section 668.22(a)(5)(iii)(C) is changed to require that, after 
receiving confirmation that a student, or parent in the case of a PLUS 
loan, wants a post-withdrawal disbursement of Title IV loan funds 
credited to the student's account or disbursed directly, an institution 
must make a post-withdrawal disbursement of Title IV loan funds as soon 
as possible, but no later than 180 days after the date of the 
institution's determination that the student withdrew.

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

    Comments: With regard to returning Title IV funds for a check that 
is not cashed, one commenter asked the Department to clarify (1) how 
this provision applies to Federal Work-Study (FWS) payroll checks and 
(2) the timeframes and processes for handling FWS funds. Another 
commenter from an institution suggested a one-year timeframe for 
resolving issues with unclaimed funds to coincide with the 
institution's business practice for reviewing, recovering, and 
returning Title IV funds.
    Discussion: The Department agrees that it would be helpful to 
clarify how Sec.  668.164(h) applies to FWS funds. The timeframes and 
processes for returning FWS funds are the same as those for other Title 
IV funds. However, the FWS funds that must be returned consist of only 
the Federal share of the student's payroll check or EFT payment.
    With respect to the comment suggesting that we extend to one year 
the timeframe for returning unclaimed funds, we continue to believe 
that the Federal interest is better protected and the benefits to the 
student are greater (the student's loan balance is reduced) when the 
uncashed checks or

[[Page 62019]]

undeliverable Title IV payments are returned to the Secretary or FFEL 
Program lender sooner rather than later.
    Changes: The regulations in Sec.  668.164(h) are amended (1) to 
more clearly articulate the timeframes and processes for returning 
Title IV funds and (2) to specify that only the Federal share of FWS 
funds must be returned to the Secretary.

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

    Comments: Commenters generally agreed with the proposal to increase 
from $100 to $200 the amount of prior-year charges that may be paid 
with current-year funds. A few commenters suggested keeping the current 
provision that allows an institution to pay for more than $100 (or $200 
under the proposed regulations) of prior-year charges if this payment 
will not prevent the student from paying current educational costs. One 
of these commenters reasoned that as a student progresses through grade 
levels the combination of increases in the student's loan amount and 
the availability of ACG and SMART funds would enable the student to pay 
for both current-year and prior-year charges out of current-year funds. 
The commenter suggested that in this situation using the student's 
credit balance to pay for any prior-year charges would be more 
beneficial to the student than issuing the credit balance to the 
student.
    Discussion: As discussed in the preamble to the NPRM (72 FR 44629), 
the HEA provides that Title IV funds that a student is eligible to 
receive for an award year are intended to be used for that award year. 
The Department originally promulgated regulations allowing the use of 
current year Title IV funds to pay for minor prior-year charges 
strictly as an administrative convenience, not as a way for an 
institution to circumvent the law by maximizing a student's current-
year awards to pay for accumulated prior-year balances. In exchange for 
increasing from $100 to $200 the amount of minor prior-year charges 
that may be paid with current-year funds, the negotiated rulemaking 
committee agreed to remove the exception that allowed an institution to 
pay for more prior-year charges under certain circumstances.
    Change: None.

Cash Management--Electronic Disbursements of Title IV Funds (Sec.  
668.164(c))

    Comment: A commenter suggested expanding the proposed definition of 
``bank account'' in Sec.  668.164(c)(2) to include accounts at credit 
unions that are insured by the National Credit Union Share Insurance 
Fund (NCUSIF).
    Discussion: We agree. NCUSIF is an arm of the National Credit Union 
Administration (NCUA), which is the independent Federal agency that 
charters and supervises Federal credit unions. NCUA, backed by the full 
faith and credit of the U.S. government, operates the NCUSIF.
    Changes: The definition of ``bank account'' in Sec.  668.164(c)(2) 
is amended to include accounts insured by the NCUSIF.
    Comment: One commenter suggested extending from 21 to at least 45 
days the period during which a student could pick up a check at the 
institution. The commenter stated that institutions frequently have 
outdated addresses for students and that providing more time for 
students either to pick up checks or to arrange another method of 
disbursement would be preferable to returning student checks. The 
commenter also suggested that direct payments of less than $100 be 
exempt from the check-mailing requirement.
    Discussion: As mentioned in the preamble to the NPRM (72 FR 44630), 
the cases underlying this proposed provision were ones in which an 
institution would notify a student that a credit-balance check was 
available for immediate pick-up, but there was no check produced by the 
institution. Instead, the student would be directed to a Web site where 
the student would choose to receive the credit balance in one of three 
ways: (1) By an EFT to the student's bank account, (2) by an EFT to a 
bank account opened on behalf of the student by the institution, or (3) 
by a check. We have no issue with an institution asking a student to go 
to a Web site to make a disbursement selection as long as the 
institution pays any credit balance to the student within the 14-day 
regulatory timeframes regardless of whether the student makes a 
selection, chooses not to, or simply neglects to make one. However, we 
are concerned that an institution might request and receive Title IV 
funds and credit the student's account, but not pay the credit balance 
because the student did not make a disbursement selection. The 
Department emphasizes that it is the sole responsibility of the 
institution to make a timely credit balance payment to a student. This 
provision ensures that an institution produces a check that a student 
may pick up at a specified location at the institution. If the student 
does not pick up the check within 21 days, the institution must mail it 
to the student, disburse the credit balance to the student in some 
other way, or immediately return the credit-balance funds.
    With respect to the comment about exempting direct payments of less 
than $100 from the check-mailing requirement, the commenter did not 
provide, and we do not see, any basis for an exemption.
    Change: None.
    Comment: One commenter recommended amending the proposed provision 
in Sec.  668.164(c)(3) under which an institution must obtain written 
affirmative consent from a student or parent to open a bank account by 
permitting the institution to obtain the student's or parent's consent 
in accordance with the Electronic Signatures in the Global and National 
Commerce Act (E-Sign Act).
    Discussion: An institution must comply with the provisions of the 
E-Sign Act irrespective of whether those provisions are referenced in 
these Title IV regulations. The negotiated rulemaking committee agreed 
to include a simple but specific consent requirement in the regulations 
instead of relying solely on the E-Sign Act, which may be interpreted 
and implemented in different ways.
    Change: None.
    Comment: One commenter suggested two changes to the proposed 
provision under which an institution must ensure that a student has 
convenient access to branch offices of the bank or ATMs of the bank or 
affiliated bank for the purpose of making free cash withdrawals. First, 
the commenter recommended that the term ``affiliated'' be defined to 
mean a bank under the same common ownership and control as the bank in 
which the account was opened. Second, the commenter suggested defining 
the term ``convenient access'' to require that a branch office or ATM 
of the bank in which the account was opened be located within 10 miles 
of the main campus of an institution, except for students enrolled in a 
distance education program offered by the institution.
    Discussion: The suggested definition of ``affiliated'' is too 
narrow. In the context of these regulations, the term ``affiliated'' 
means any relationship or arrangement between the bank where an account 
is opened and any other bank that permits a student to make free cash 
withdrawals from the student's accounts. With regard to convenient 
access, we agree that some geographical limits are needed, but these 
limits apply only to students who are on or near the institution's 
campus. We believe it would be unreasonable to require an institution 
to ensure that students enrolled in its distance education

[[Page 62020]]

programs have convenient access to branch offices or ATMs that offer 
free cash withdrawals regardless of where those students reside.
    Changes: Section 668.164(c)(3)(v) is amended by replacing 
``affiliated bank'' with ``another bank.'' Section 668.164(c)(3)(v) is 
amended to describe ``convenient access'' as having a branch office of 
the bank or an ATM located (1) on the institution's campus, (2) in 
institutionally-owned or operated facilities, or (3) immediately 
adjacent to and accessible from the campus, consistent with the 
definition of ``Public Property'' in Sec.  668.46(a).
    Comment: One commenter suggested that the regulations clarify that 
service providers who help institutions disburse credit-balance funds 
electronically are ``third-party servicers'' as provided in Sec.  668.2 
and, therefore, subject to annual audit and financial responsibility 
requirements. The commenter contended that a number of service 
providers do not comply with these requirements and requested that the 
Department act proactively to reduce the Federal financial risk and the 
risk posed to the institutions involved.
    Discussion: As provided under Sec.  668.23(a)(3) and (c), third-
party servicers for institutions must submit compliance audits but are 
not subject to financial standards and are not required to submit 
financial audits. If the commenter's description of service providers 
refers to banks that enter into agreements with institutions to issue 
and service stored-value cards, we have heretofore not considered the 
third-party servicer definition in Sec.  668.2 to apply to banking 
services provided to institutions.
    With regard to any information the commenter may have about any 
parties that should, but do not, comply with Title IV regulations, the 
commenter should notify the Department's Office of the Inspector 
General.
    Change: None.
    Comments: One commenter disagreed with the provision in Sec.  
668.164(c)(3), under which an institution may request, but not require 
or rely upon, the student to open a bank account. The commenter 
believed that an institution should have the flexibility to require a 
student to authorize an EFT, noting that this practice is used by many 
employers for payroll purposes.
    Discussion: The Department intended to make it easier for an 
institution to make EFT payments by removing the requirement in Sec.  
668.165(b)(1)(i) that the institution first obtain authorization to 
disburse Title IV funds to a bank account designated by the student or 
parent. The provisions proposed in Sec.  668.164(c)(3) relate to 
situations where the institution opens a bank account on behalf of the 
student (or is actively involved in opening the account) for the 
purpose of making EFT payments of Title IV funds to that account. For 
these cases only, the institution must obtain the consent of the 
student or parent before it opens the bank account. In all other cases, 
the Department agrees that an institution may establish a policy 
requiring a student to provide bank account information or open an 
account at a bank of the student's choosing, as long as this policy 
does not delay the disbursement of Title IV funds to the student. Thus, 
if a student does not provide bank account information or does not 
maintain a bank account--e.g., the student does not qualify for a bank 
account or refuses to open an account--the institution must 
nevertheless disburse the Title IV funds to the student in a timely 
manner by some other means.
    Changes: Section 668.164(c)(3) is amended to provide that an 
institution may establish a policy requiring students to provide bank 
account information or open an account at a bank of the student's 
choosing.

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

    Comment: One commenter representing a guaranty agency urged the 
Department to consider an exception appeal process under which a late 
disbursement could be made after the proposed 180-day period. The 
commenter stated that a student should not be harmed by an oversight or 
anomaly in the institution's or lender's process and offered that the 
FFEL Program guarantor could monitor and manage this exception process, 
eliminating the need for the institution to contact the Department.
    Discussion: While we appreciate the guaranty agency's offer, this 
change is not being made to respond to a workload issue. Rather, our 
experience with providing an exception process for making late 
disbursements is that institutions tend to rely on this process rather 
than implementing effective administrative controls for making timely 
disbursements. We believe that extending the timeframe from 120 days to 
180 days provides institutions, lenders, and guaranty agencies more 
than sufficient time to identify and make late disbursements to 
students who may be affected by oversight and process anomalies.
    Change: None.

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

    Comments: Several commenters agreed with the flexible approach in 
the NPRM allowing an institution to either affirmatively confirm that a 
student wants a loan or comply with more stringent loan notification 
and cancellation provisions. A few commenters requested that the 
Department provide examples of an affirmative confirmation of a loan.
    Discussion: The Department would consider an affirmative 
confirmation to be a student response, either in electronic form or on 
paper, accepting the loan or loans offered by the institution. Examples 
of affirmative confirmation by a student are an award letter signed by 
the student accepting the loan award or a process whereby the student 
accesses a secure Web site to inform the institution that the student 
accepts the loan.
    Change: None.

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

    Comments: Several commenters supported the proposed change allowing 
transfer students to obtain the remaining portion of their current 
annual loan limit for the remaining portion of their program or 
academic year. However, one commenter questioned how this would work in 
practice. The commenter asked whether the number of transfer credits 
accepted or the number of transfer credits earned during the 
overlapping loan period would have any bearing on the implementation of 
this proposed change. The commenter asked us to consider the example of 
a student with a loan period of 11/12/06 to 9/30/07 at a previous 
institution that transferred with 18 credits to a new institution where 
the student had a loan period of 8/15/07 to 5/25/08. The student 
received $2,000 (out of a possible $3,500) at the first institution for 
a loan period that overlapped the loan period at the second 
institution. The commenter stated that under the previous regulations 
the second institution could only provide the student, for the second 
loan period of 8/15/07 to 5/25/08, with $1,500, i.e., the difference 
between what the student could have received at the first institution 
($3,500) and what the student did receive there ($2,000). The commenter 
wondered how the second institution could award loan funds to the 
student in this example under the proposed regulations.

[[Page 62021]]

    Another commenter inquired about the proposed regulation that 
allows institutions to certify or originate new loans for students when 
they complete a degree program using a loan period of less than an 
academic year and then begin another degree program for the remainder 
of the same academic year at the same institution. The commenter 
suggested that students in non-degree programs should receive similar 
treatment. Another commenter asked whether this proposal would address 
a student who finished a bachelor's degree and immediately began a 
master's degree at the same institution in the same way that it 
addressed a student who finished an associate's degree and immediately 
began a bachelor's degree.
    Another commenter asked us to clarify whether the meaning of the 
phrase ``substantially equal in length'' in Sec. Sec.  682.603(g)(4) 
and 685.301(c)(4), is applicable to all references in Sec. Sec.  
682.603 and 685.301 where that phrase is used.
    Discussion: In the first commenter's example, a student, eligible 
for $3,500, who received a loan of $2,000 for a loan period of 11/12/06 
to 9/30/07 at one institution and who transferred with 18 credits to a 
second institution where the student would normally have a loan period 
of 8/15/07 to 5/25/08, could, under these final regulations, receive a 
loan at the second institution for the balance of the annual loan limit 
for the balance of the academic year that started at the first 
institution. Neither the number of credits transferred into the second 
institution nor the number of credits earned during the overlapping 
loan period is relevant. Thus, this student, if otherwise eligible, 
could receive a loan of $1500 for a loan period of 8/15/07 to 9/30/07. 
Note that if the overlapping loan period were sufficiently short 
(perhaps less than a month) some lenders might decline to make a loan. 
In that case, the student would not receive a loan for that short 
period of time and would end up with a new loan period starting on the 
day after the old loan period ended. After the balance of the loan 
period from the first institution ends (i.e., starting on 10/1/07), the 
student could receive a new loan for a new academic year (or for the 
remainder of the program if there were less than an academic year 
remaining in the student's program), irrespective of whether the 10/1/
07 date coincided with the start of the student's classes, as long as 
the student was enrolled and eligible at that time.
    With regard to the comment about whether a student who finished a 
bachelor's degree and immediately began a master's degree at the same 
institution would be treated in the same way as a student who finished 
an associate's degree and immediately began a bachelor's degree, we 
note that the regulations do not differentiate between types of degree 
programs. And with regard to the suggestion that students in non-degree 
programs should be treated the same way as students in degree programs 
are treated, we agree that they should be. Accordingly, all situations 
are addressed in the same manner when a student finishes one program 
for which the student's last loan was for less than an academic year 
and immediately starts another program at the same institution. That 
is, the institution may certify or originate a loan for the remainder 
of the academic year for the remaining balance of the student's annual 
loan limit at the loan level associated with the new program.
    Finally, because it would more accurately describe our intent, we 
agree with the commenter's suggestion to apply the meaning of the 
phrase ``substantially equal in length'' to all of Sec. Sec.  682.603 
and 685.301.
    Changes: Sections 682.603(f)(1)(iii) and 685.301(a)(9)(iii) are 
amended by removing the wording that restricted these regulations to 
degree programs. Also, we have clarified that the meaning of 
``substantially equal in length'' in Sec. Sec.  682.603(g)(4) and 
685.301(c)(4) is applicable to all of Sec. Sec.  682.603 and 685.301.

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

    Comments: One commenter stated that a student in a nonstandard term 
credit hour program with terms that are substantially equal in length, 
where the terms are at least eight weeks in length rather than the 
proposed nine weeks in length, should progress to the next loan limit 
when the student completes an academic year in calendar time. The 
commenter noted that eight-week terms are a natural subdivision of the 
16-week standard semester used for traditional students, and should be 
treated in the same manner as standard terms.
    Another commenter stated that a student in any nonstandard term 
credit hour program with terms that are substantially equal in length, 
not just those with terms that are at least nine weeks in length, 
should progress to the next loan limit when the student completes an 
academic year in calendar time. The commenter noted that the 
disbursement requirements in the regulations published in the Federal 
Register on November 1, 2000 (65 FR 65616), with which these 
regulations are supposed to be consistent, did not make such a 
distinction. The commenter also noted that a student in a nonstandard 
term credit hour program, with terms that are substantially equal in 
length but not at least nine weeks in length, does not have to 
successfully complete a payment period to advance to the next payment 
period. The commenter suggests that the student could progress to the 
next payment period even if the student failed some or all of the 
courses in the payment period. However, under the proposed changes, the 
student who failed some or all of the courses in the payment period 
would not progress to the next annual loan limit until the student 
successfully completes the failed hours.
    One commenter asked the Department to clarify that an institution 
may certify or originate a Stafford loan increase for a student 
attending a nonstandard term program with substantially equal terms of 
the appropriate length when that student's grade level standing 
advances and that student gains eligibility for a higher Stafford 
annual loan limit during an academic year. The commenter also asked the 
Department to clarify whether an institution must prorate the FFEL or 
Direct Loan Stafford annual loan limit for a student attending an 
undergraduate program offered in nonstandard terms that are 
substantially equal in length, and of the appropriate minimum length, 
when the student is enrolled in a final period of study consisting of 
fewer terms than are in the academic year.
    Discussion: The Department proposed the nine-week minimum for 
purposes of defining when a single term loan may be made in a 
nonstandard term program with terms that are substantially equal in 
length. As noted in the preamble to the NPRM (72 FR 44632 and 44633), 
the Department believes that the minimum length should be close to the 
length of the shortest standard term, a quarter, in order to justify 
single term loan certification or origination and standard term-based 
annual loan limit progression. We do not believe that eight-week terms 
are sufficiently close to 10-week quarters for this expanded purpose.
    The commenter is correct that the requirements for completion of a 
payment period for purposes of disbursement within the loan period for 
students in nonstandard-term credit hour programs with terms that are 
substantially equal in length do not distinguish between those terms 
that are at least nine weeks in length and those that are not. For 
completion of a payment period, all students in nonstandard term credit 
hour programs with terms that are substantially equal

[[Page 62022]]

in length, irrespective of the length of those terms, are treated the 
same as students in standard term programs. That is, they do not have 
to successfully complete (i.e., pass the coursework in) a payment 
period to advance to the next payment period. However, the student who 
failed to complete the coursework in an academic year would not 
progress to the next academic year, and thus regain eligibility for the 
next annual loan limit, until the student successfully completes the 
failed hours. This restriction has historically been applied to clock 
hour programs, non-term credit hour programs, and nonstandard term 
credit hour programs. Many of these programs have tended to be shorter 
in duration and more focused on providing vocational skills. Although 
we have provided more flexibility in making loan disbursements by 
payment period for all nonstandard term credit hour programs with terms 
that are substantially equal in length within the loan period, we do 
not believe that we should extend similar flexibility to these programs 
in the area of loan certification or origination and annual loan limit 
progression. We believe doing so would result in increasing student 
loan indebtedness for students who are not making adequate progress 
toward their educational goals and who, as a result, may by at greater 
risk of dropping out and defaulting on their student loans.
    For the same reason, an institution may not certify or originate a 
FFEL or Direct Loan increase for a student attending a nonstandard term 
credit hour program with terms substantially equal in length, that are 
not at least nine weeks in length, when that student's grade level 
standing advances. That is, we would not allow a student to gain 
eligibility for a higher Stafford annual loan limit during an academic 
year in this situation. Likewise, an undergraduate student attending a 
final period of study in any nonstandard term credit hour program is 
subject to proration of the annual loan limit while enrolled in the 
defined number of terms in the program's academic year but attending 
less than the number of credit hours for that defined academic year.
    Change: None.

Processing the Borrower's Loan Proceeds and Counseling Borrowers 
(Sec. Sec.  682.604 and 685.301)

    Comment: None.
    Discussion: FFEL and Direct loans may be certified or originated 
for a single payment period (e.g., a single semester) for institutions 
that measure progress in credit hours and use a semester, trimester, or 
quarter system, or have terms that are substantially equal in length 
with no term less than nine weeks in length. Sections 682.604(c)(6)(ii) 
and 685.301(b)(3)(ii) address the delivery and disbursement of loan 
proceeds when a loan is certified or originated for a single payment 
period. Basically, loans made for a single payment period must be paid 
to the student in two installments. However, in proposing changes to 
these sections of the regulations in the NPRM, we inadvertently 
included language that would modify that basic requirement for standard 
terms and terms that are substantially equal in length with no term 
less than nine weeks in length when no change was intended for those 
terms. Currently an institution may not make the second payment of 
funds until the calendar midpoint of the loan period. The NPRM proposed 
to change that requirement to one in which the institution could not 
make the second payment of funds until the student successfully 
completes half the number of credit or clock hours and half the number 
of weeks of instructional time in the payment period. This change was 
not intended for standard terms and terms that are substantially equal 
in length with no term less than nine weeks in length and, indeed, 
would create a situation most of the time for those terms in which a 
student would not be able to receive the second half of the loan until 
the student was finished with the loan period (e.g., until the student 
was finished with the semester for which the student was borrowing 
money).
    Change: Sections 682.604(c)(6)(ii) and 685.301(b)(3)(ii) are 
amended, with respect to the required two deliveries of loan proceeds 
(FFEL) and two payments of a loan (Direct Loan) when the loan is made 
for a single term, to apply the current requirements for single 
(standard) term loans to standard terms and terms that are 
substantially equal in length with no term less than nine weeks in 
length.

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

    Comment: Several commenters supported the proposed change in the 
Pell Grant calculations for programs using credit hours without terms 
or clock hours and for correspondence courses using credit hours 
without terms. They stated that the proposed changes would provide 
greater equity for students attending clock hour institutions by 
removing the current double proration of Pell Grant awards that affects 
these students in some situations.
    Discussion: We appreciate the commenters' support.
    Change: None.

Method of Disbursement (Sec. Sec.  690.78 and 691.78)

    Comment: None.
    Discussion: During our intradepartmental review we found that the 
disbursement provisions in Sec. Sec.  690.78 and 691.78 have been 
replaced or superseded by the provisions in the Cash Management 
Regulations in subpart K of part 668 of the Title IV regulations. This 
change was inadvertently omitted from the proposed regulations.
    Changes: We have removed and reserved Sec. Sec.  690.78 and 691.78.

Executive Order 12866

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 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, it has been 
determined that this final 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 the interests of 
transparency and public information, the Secretary nonetheless has 
assessed the potential costs and benefits of this regulatory action and 
has determined the benefits justify the costs. This assessment was 
discussed in detail in the NPRM. The Department received no comments on 
the regulatory impact analysis portion of the NPRM.

Need for Federal Regulatory Action

    These final regulations address a broad range of issues affecting 
students,

[[Page 62023]]

borrowers, schools, lenders, guaranty agencies, secondary market 
participants, and third-party servicers participating in one or more of 
the Perkins Loan, FSEOG, FFEL, Direct Loan, Pell Grant, ACG, and 
National SMART Grant 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 were reviewed in detail in the NRPM under the Reasons 
sections accompanying the discussion of each proposed regulatory 
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. No comments or additional information have been received 
since the publication of the NPRM to cause the Department to reconsider 
this determination.

Benefits

    Many of the final regulations consolidate existing regulations, 
codify existing interpretations and guidance, or make minor changes 
intended to establish consistent definitions or streamline program 
operations across the various Federal student aid programs. The 
Department determined that the additional clarity and enhanced 
efficiency resulting from these changes represent benefits with little 
or no countervailing costs or additional burden. This determination is 
strongly supported by the fact that the negotiated rulemaking committee 
reached consensus on the proposed regulations. No comments or 
additional information have been received since the publication of the 
NPRM to cause the Department to reconsider this determination.
    Benefits provided in these regulations include the clarification or 
consolidation of rules 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. None of these provisions were 
determined to have a substantial economic impact.

Costs

    Because entities affected by these regulations already participate 
in the Title IV, HEA programs, these lenders, guaranty agencies, and 
institutions of higher education must have already established systems 
and procedures in place to meet program eligibility requirements. All 
of the final regulations involve changes in specific parameters 
associated with existing guidance 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 final regulations. 
Marginal costs associated with these regulations, which are not 
expected to be significant, are primarily related to one-time system 
changes that are an unavoidable cost of continued program 
participation. The provisions impose no costs to individual students 
and loan borrowers. None of these provisions were determined to have a 
substantial economic impact or impose a significant burden; and no 
comments or information has been received since the publication of the 
NPRM that would cause the Department to reconsider this determination.
    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 final regulations. 
This table provides our best estimate of the changes in Federal student 
aid payments as a result of these final regulations.

   Table 1.--Accounting Statement: Classification of Estimated Savings
                              [In millions]
------------------------------------------------------------------------
                        Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers..........................           $0.00
------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    The Secretary certifies that these final regulations will not have 
a significant economic impact on a substantial number of small 
entities. These final regulations would affect institutions of higher 
education, lenders, and guaranty agencies that participate in Title IV, 
HEA programs and 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 final regulations do not impose significant new costs 
on these entities. In the NPRM the Secretary invited comments from 
small institutions 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. The Department received no comments on 
the regulatory flexibility act portion of the NPRM.

Paperwork Reduction Act of 1995

    This regulation contains information collection requirements that 
were reviewed as part of the comment period on the NPRM. The Department 
received no comments on the Paperwork Reduction Act portion of the 
NPRM.
    In regard to other information collection requirements described in 
the NPRM, the Paperwork Reduction Act of 1995 does not require a 
response to a collection of information unless it displays a valid OMB 
control number. We display the valid OMB control numbers assigned to 
the collections of

[[Page 62024]]

information in these final regulations at the end of the affected 
sections of the regulations.

Assessment of Educational Impact

    In the NPRM, we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 Federal 
Family Education Loan Program; 84.037 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: October 23, 2007.
Margaret Spellings,
Secretary of Education.

0
For the reasons discussed in the preamble, the Secretary amends 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

0
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.


0
2. Section 668.2(b) is amended by adding, in alphabetical order, the 
definitions Graduate or professional student, Half-time student, 
Professional degree, 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) * * *
    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 (3)(i) of 
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 or is enrolled in a program leading to a professional degree; and
    (3) Has completed the equivalent of at least three years of full-
time study 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 
workload, as determined by the institution, that amounts to at least 
half of the workload 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 workload 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

[[Page 62025]]

enrolled solely in correspondence study is considered more than a half-
time student.

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

* * * * *
    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 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)

* * * * *
    Three-quarter time student: An enrolled student who is carrying a 
three-quarter-time academic workload, 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 years, 
or is enrolled in a longer program designed to lead to a 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 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 professional 
degree within the same program, a student is considered an 
undergraduate student for at least the first three years of that 
program.
    (4) A student enrolled in a four to five year program designed to 
lead to an undergraduate degree. A student enrolled in a program of any 
other, longer length is considered an undergraduate student for only 
the first four years of that program.

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

* * * * *

0
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. (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

[[Page 62026]]

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 this paragraph (e) 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;
    (iv) There are little or no changes in institutional charges 
associated with the payment period to the student; and
    (v) The credits from the payment period the student is transferring 
out of are accepted toward the new program.
    (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.)

0
4. Section 668.10 is amended by:
0
A. In paragraph (a)(3)(ii), removing the word ``or'' immediately after 
the reference ``668.4(a)'' and adding, in its place, the punctuation 
``,'', and by adding the words ``, or (c),'' immediately after the 
parenthetical ``(b)''.
0
B. Revising paragraph (a)(3)(iii).
0
C. Removing paragraphs (a)(3)(v) and (3)(vi).
    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

[[Page 62027]]

and substantive basis to assure progress within the course or program.
* * * * *

0
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--
    (1) The institution must 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) The institution must 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) The institution must 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, including funds that are disbursed directly to the student 
by the lender for a study-abroad program in accordance with Sec.  
682.207(b)(1)(v)(C)(1) or for a student enrolled in a foreign school in 
accordance with Sec.  682.207(b)(1)(v)(D), 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 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;
    (2) The institution initiates an electronic funds transfer (EFT) 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;
    (3) The institution initiates an electronic transaction, 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, 
that informs an FFEL lender to adjust the borrower's loan account for 
the amount returned; or
    (4) The institution issues a check 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. 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)

0
6. Section 668.22 is amended by:
0
A. Revising paragraph (a)(5).
0
B. Adding paragraphs (e)(5)(iii) and (l)(5).
    The revision and additions 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 45 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 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

[[Page 62028]]

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 180 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.
* * * * *
    (l) * * *
    (5) 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.
* * * * *

0
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.
* * * * *

0
8. Section 668.164 is amended by:
0
A. Revising paragraphs (b), (c), and (d).
0
B. Revising paragraph (g)(4)(i).
0
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;
    (ii) For Federal Perkins Loan, FSEOG, Federal Pell Grant, ACG, and 
National SMART Grant funds, an institution chooses to make more than 
one disbursement in each payment period in accordance with 34 CFR 
674.16(b)(3), 34 CFR 676.16(a)(3), 34 CFR 690.76, or 34 CFR 691.76, as 
applicable; or
    (iii) Other program regulations allow or require otherwise.
    (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.

[[Page 62029]]

    (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 EFT to a bank account designated by the student 
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 account 
insured by the Federal Deposit Insurance Corporation (FDIC) or the 
National Credit Union Share Insurance Fund (NCUSIF). This account may 
be a checking, savings, or similar account that underlies a stored-
value card or other transaction device.
    (3) An institution may establish a policy requiring its students to 
provide bank account information or open an account at a bank of their 
choosing as long as this policy does not delay the disbursement of 
title IV, HEA program funds to students. Consequently, if a student 
does not comply with the institution's policy, the institution must 
nevertheless disburse the funds to the student using a method described 
in paragraph (c) of this section in accordance with any timeframes 
required under subpart k of this part. In cases where 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 an ATM of the bank in which the account was 
opened (or an ATM of another bank), so that the student does not incur 
any cost in making cash withdrawals from that office or these ATMs. 
This branch office or these ATMs must be located on the institution's 
campus, in institutionally-owned or operated facilities, or, consistent 
with the meaning of the term ``Public Property'' as defined in Sec.  
668.46(a), immediately adjacent to and accessible from the campus;
    (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) Returning funds. (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, any title IV, HEA 
program funds, except FWS 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. For FWS program funds, the 
institution is required to return only the Federal portion of the 
payroll disbursement.
    (2) If an institution attempts to disburse the funds by check and 
the check is not cashed, the institution must return the funds no later 
than 240 days after the date it issued that check.
    (3)(i) If a check is returned to the institution, or an EFT is 
rejected, the institution may make additional attempts to disburse the 
funds, provided that those attempts are made not later than 45 days 
after the funds were returned or rejected. In cases where the 
institution does not make another attempt, the funds must be returned 
before the end of this 45 day period; and
    (ii) No later than the 240 day period described in paragraph (h)(2) 
of this section, the institution must cease any additional disbursement 
attempts and immediately return those funds.
* * * * *

0
9. Section 668.165 is amended by:
0
A. Revising paragraph (a).
0
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

[[Page 62030]]

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.
    (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.
* * * * *

0
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 that 
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

0
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]

0
12. Section 674.2 is amended by:
0
A. In paragraph (a), adding to its list, in alphabetical order, the 
terms Graduate or professional student, Half-time student, and 
Undergraduate student.
0
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]

0
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

0
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]

0
15. Section 676.2 is amended by:
0
A. In paragraph (a), adding to its list, in alphabetical order, the 
term Undergraduate student.
0
B. In paragraph (b), removing the definition for Undergraduate student.


Sec.  676.16  [Amended]

0
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

0
17. The authority citation for part 682 continues to read as follows:


[[Page 62031]]


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

0
18. Section 682.200 is amended by:
0
A. In paragraph (a)(1), adding to its list, in alphabetical order, the 
terms Graduate and professional student, Half-time student, and 
Undergraduate student.
0
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.
    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 one or 
more bona fide academic terms established by the school for which 
institutional charges are generally assessed (e.g., a semester, 
trimester, or quarter in weeks of instructional time, an academic year, 
or the length of the student's program of study in weeks of 
instructional time). The period of enrollment is also referred to as 
the loan period.
* * * * *


Sec.  682.207  [Amended]

0
19. Section 682.207(e) is amended by removing the parenthetical 
``(10)'' and adding, in its place, the parenthetical ``(8)''.


Sec.  682.208  [Amended]

0
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)''.
0
21. Section 682.603 is amended by:
0
A. Revising paragraph (f)(1).
0
B. Redesignating paragraphs (g), (h), and (i) as paragraphs (h), (i), 
and (j), respectively.
0
C. Adding a new paragraph (g).
0
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 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 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 credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress 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 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.
* * * * *

0
22. Section 682.604 is amended by:
0
A. Revising paragraph (c)(6).
0
B. Removing paragraphs (c)(7) and (c)(8).

0
C. Redesignating paragraphs (c)(9), (c)(10), and (c)(11) as paragraphs 
(c)(7), (c)(8), and (c)(9), respectively.
0
D. In newly redesignated paragraph (c)(9), removing the parenthetical 
``(g)'' and adding, in its place, the parenthetical ``(h)''.
0
E. Revising paragraph (d)(3).
0
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.
    (A) For a loan certified under Sec.  682.603(f)(1)(i)(A), the 
school may not make the second delivery until the calendar midpoint 
between the first and last scheduled days of class of the loan period; 
or

[[Page 62032]]

    (B) For a loan certified under Sec.  682.603(f)(1)(i)(B), 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.
* * * * *

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

0
23. The authority citation for part 685 continues to read as follows:

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


0
24. Section 685.102 is amended by:
0
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.
0
B. In paragraph (a)(3), removing from its list, the terms Full-time 
student, Graduate or professional student, and Undergraduate student.
0
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 bona fide academic terms 
established by the school for which institutional charges are generally 
assessed (e.g., a semester, trimester, or quarter in weeks of 
instructional time; an academic year; or the length of the program of 
study in weeks of instructional time). The period of enrollment is also 
referred to as the loan period.
* * * * *

0
25. Section 685.301 is amended by:
0
A. Redesignating paragraph (a)(9)(ii) as paragraph (a)(9)(iv).
0
B. Revising paragraph (a)(9)(i).
0
C. Adding new paragraphs (a)(9)(ii) and (iii).
0
D. Revising paragraphs (b)(2) and (b)(3).
0
E. Removing paragraphs (b)(5) and (b)(6).
0
F. Redesignating paragraphs (b)(7) and (b)(8) as paragraphs (b)(5) and 
(b)(6), respectively.
0
G. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e), 
respectively.
0
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 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 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 disbursements during that payment period.
    (A) For a loan originated under Sec.  685.301(a)(9)(i)(A), the 
school may not make the second disbursement until the calendar midpoint 
between the first and last scheduled days of class of the loan period; 
or
    (B) For a loan originated under Sec.  685.301(a)(9)(i)(B), the 
school may not make the second disbursement 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 credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress 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

[[Page 62033]]

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 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.
* * * * *

0
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 handled in accordance with 
34 CFR 668.21.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

0
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]

0
28. Section 690.2 is amended by:
0
A. In paragraph (b), adding to its list, in alphabetical order, the 
terms Half-time student, Three-quarter-time student, and Undergraduate 
student.
0
B. In paragraph (c), removing the definitions for Half-time student, 
Less-than-half-time student, Three-quarter-time student, and 
Undergraduate student.

0
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)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.000
    

or
    (ii)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.001
    
* * * * *
0
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)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.002
    

or
    (ii)

[[Page 62034]]

[GRAPHIC] [TIFF OMITTED] TR01NO07.003

* * * * *


Sec.  690.78  [Removed]

0
31. Section 690.78 is removed and reserved.
* * * * *

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

0
32. 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]

0
33. Section 691.2 is amended by:
0
A. In paragraph (b), adding to its list, in alphabetical order, the 
term Undergraduate student.
0
B. In paragraph (d), removing the definition for Undergraduate student.


Sec.  691.8  [Amended]

0
34. Section 691.8 is amended by removing paragraph (c).
0
35. Section 691.63 is amended by:

0
A. Revising paragraphs (a)(1) and (e).
0
B. In paragraph (h)(2), removing the words ``, and, for a credit-hour 
program, weeks of instructional time,'' and, adding in their place, the 
words `` and weeks of instructional time''.
    The revisions 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)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.004
    

or
    (ii)
    [GRAPHIC] [TIFF OMITTED] TR01NO07.005
    
* * * * *


Sec.  691.78  [Removed]

0
36. Section 691.78 is removed and reserved.

 [FR Doc. E7-21083 Filed 10-31-07; 8:45 am]
BILLING CODE 4000-01-P