[Federal Register Volume 73, Number 212 (Friday, October 31, 2008)]
[Rules and Regulations]
[Pages 64861-64868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26013]


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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 537

RIN 3206-AK51


Repayment of Student Loans

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The U.S. Office of Personnel Management is issuing final 
regulations to revise the rules governing the authority to offer 
student loan repayment benefits to Federal job candidates or current 
Federal employees when necessary to recruit or retain highly qualified 
personnel. These revisions include certain policy changes and 
clarifications to assist agencies in the administration of the Federal 
student loan repayment program.

[[Page 64862]]


DATES: The regulations are effective December 1, 2008.

FOR FURTHER INFORMATION CONTACT: Mark Harrington by telephone at (202) 
606-2858; by fax at (202) 606-0824; or by e-mail at [email protected].

SUPPLEMENTARY INFORMATION: On January 9, 2007, the U.S. Office of 
Personnel Management (OPM) published proposed regulations (72 FR 914) 
to revise the rules implementing 5 U.S.C. 5379, which authorizes 
agencies to offer student loan repayment benefits to candidates for 
Federal jobs or current Federal employees when necessary to recruit or 
retain highly qualified personnel. The primary purpose of the revision 
was to make part 537 more readable and usable. However, we have also 
made substantive changes that will improve the agencies' program 
administration and promote alignment between this authority and related 
authorities that support recruitment and retention efforts.
    The 60-day comment period for the proposed regulations ended on 
March 12, 2007. During the comment period, OPM received comments from 
four Federal agencies, one union, and two individuals.

Definitions

    An agency recommended we clarify the definition of student loan 
repayment benefit in Sec.  537.102 by adding a reference to Sec.  
537.106(b), which describes student loans that qualify for repayment. 
We agree and have added the reference.
    We also have made two additional minor revisions in the definitions 
section. Specifically, we have added language clarifying that the 
definitions in Sec.  537.102 apply only for purposes of part 537. We 
also have revised the definition of time-limited appointment to refer 
to a ``non-permanent appointment'' rather than an ``appointment of 
temporary duration'' to ensure there is no confusion with the use of 
the term ``temporary'' in other regulations (e.g., 5 CFR part 316, 
subpart D).

Comment on Authorizing Student Loan Repayment Benefits To Retain an 
Employee Likely To Leave for a Different Position in the Federal 
Service

    One agency commented on proposed Sec.  537.105(a)(2)(ii), which 
requires an agency to make a written determination that an employee 
would otherwise be likely to leave the agency for employment outside 
the Federal service and that it is essential to retain the employee 
based on the employee's high or unique qualifications or a special need 
of the agency before authorizing student loan repayment benefits to 
retain a current agency employee. The agency recommended we remove the 
requirement that the employee be likely to leave for employment outside 
the Federal service to permit agencies to offer student loan repayment 
benefits to retain an employee likely to leave for a different position 
in the Federal service. The agency noted the authorizing statute does 
not prohibit agencies from offering student loan repayment benefits to 
current employees who are likely to leave for a different position in 
the Federal service.

Comments on Authorizing Student Loan Repayment Benefits To Recruit an 
Employee From Another Federal Agency

    Two agencies, one union, and one individual submitted comments in 
opposition to proposed Sec.  537.105(c), which provides that an agency 
may not authorize student loan repayment benefits to recruit an 
individual from outside the agency who is currently employed in the 
Federal service. One agency and the union commented that it is 
inequitable for a newly appointed employee to be eligible for student 
loan repayment benefits while an employee transferring from another 
Federal agency is not. The agency stated this provision will make it 
extremely difficult for agencies to recruit for mission-critical 
positions from other agencies. The agency also commented that all 
Federal agencies compete with each other for job candidates and each 
agency offers different benefits and opportunities based on various 
factors, including budget and certain flexibilities available solely to 
the particular agency. The union asserted the focus should be on 
filling the position with the best qualified individual, with all the 
benefit options open to an agency, regardless of the job candidate's 
current position.

Response to Comments on Authorizing Student Loan Repayment Benefits To 
Retain an Employee Likely To Leave for a Different Position in the 
Federal Service or To Recruit an Employee From Another Federal Agency

    Ensuring agencies have an effective civilian workforce to achieve 
their goals is one of the primary objectives of strategic human capital 
management in the Government. To meet this objective, agencies must 
have the necessary human resources tools to recruit and retain 
essential employees to perform mission-critical work. The student loan 
repayment authority is one of several tools providing agencies 
substantial flexibility to help recruit and retain key employees.
    We carefully considered the comments recommending the regulations 
be amended to provide agencies with additional flexibility to authorize 
student loan repayment benefits to either retain a current employee 
likely to leave for a different position in the Federal service or to 
recruit an individual from outside the agency who is currently employed 
in the Federal service. In determining whether to provide additional 
flexibility, we must balance the workforce needs of a single agency 
with the workforce needs of other agencies. An employee providing 
valuable services to one agency also may possess the competencies that 
are valuable to another agency. We also need to be cautious when 
establishing new flexibilities that have the potential to result in 
costly and inefficient interagency competition.
    We have not amended proposed Sec.  537.105(a)(2)(ii) to permit 
agencies to authorize student loan repayment benefits to retain an 
employee likely to leave for a different position in the Federal 
service. We note that this policy was established at Sec.  537.105(c) 
in OPM's original final regulations on the repayment of student loans, 
which were published on January 11, 2001 (66 FR 2790).
    We also have not amended proposed Sec.  537.105(c) to permit 
agencies to authorize student loan repayment benefits to recruit an 
employee from outside the agency who is currently employed in the 
Federal service. While not previously addressed in OPM's regulations, 
it has been OPM's longstanding guidance that agencies should not use 
the student loan repayment authority to recruit current Federal 
employees from other agencies.
    The legislative history of 5 U.S.C. 5379 indicates Congress 
intended student loan repayment benefits to be a tool used to improve 
the Federal Government's ability to compete for top college graduates 
by allowing Federal agencies to repay the student loans of those 
individuals. (See House Report 101-402, February 7, 1990.) The student 
loan repayment authority is designed to be used at an agency's 
discretion as part of a set of flexibilities--including recruitment 
incentives under 5 CFR part 575, subpart A, and the superior 
qualifications and special needs pay-setting authority under 5 CFR 
531.212--allowing agencies to tailor employment offers to the needs of 
individual job candidates to compete with non-Federal employers for the 
best and brightest

[[Page 64863]]

personnel. The authority is not intended to assist agencies in 
competing with other Federal agencies for current Federal employees.
    We understand interagency competition already exists, and some 
agencies are disadvantaged because other agencies have the flexibility 
to pay higher salaries or provide other unique incentives. However, we 
must balance single agency needs against the Governmentwide interest of 
avoiding costly and inefficient interagency competition. If these 
regulations were to permit agencies to use student loan repayment 
benefits to retain current employees likely to leave for a different 
position in the Federal service and to recruit current employees from 
other agencies, they could result in student loan repayment bidding 
wars between the current and prospective agencies. We do not intend to 
discourage interagency movements, which provide certain benefits to 
both Federal agencies and employees. However, we do not think it is 
appropriate for Federal agencies to use student loan repayment benefits 
as a financial incentive to compete with each other for current Federal 
employees.

Request for Clarification Regarding Advertising a Student Loan 
Repayment Program and the Eligibility of Employees Who Previously 
Transferred From Another Federal Agency

    One agency asked for clarification concerning what constitutes 
recruitment for the purpose of Sec.  537.105(c). The agency would like 
to retain its ability to advertise its student loan repayment program 
and be assured that simply advertising the program will not be 
prohibited. In addition, the agency is concerned the new provision 
would adversely impact the eligibility of an employee with prior 
Federal work experience if he or she otherwise would be eligible to 
participate in the agency's student loan repayment program.
    Although these final regulations prohibit agencies from authorizing 
student loan repayment benefits expressly to recruit an individual from 
outside the agency who is currently employed in the Federal service, 
there is no restriction prohibiting an agency from advertising its 
student loan repayment program as part of a general recruitment effort. 
In addition, the regulations do not prohibit an agency from offering 
student loan repayment benefits to an employee who previously 
transferred from another agency. In other words, an agency may not 
include student loan repayment benefits as part of a job offer in an 
effort to recruit a current Federal employee from another agency. 
However, if at some point after entering the new position the 
individual meets the agency's requirements for participation in its 
student loan repayment program, the agency may provide student loan 
repayment benefits to the employee.

Movement to a Position in a Different Geographic Location Within the 
Same Agency

    An agency recommended we revise the regulations to address a 
situation in which an employee receiving student loan repayment 
benefits moves to a position in a different geographic location within 
the same agency. Specifically, the agency suggested allowing agencies 
to make a determination regarding whether to terminate or continue 
providing student loan repayment benefits when an employee moves to a 
position in a different geographic location within the same agency. The 
agency stated the agency component in the new geographic location may 
not have the funds to continue providing student loan repayment 
benefits to the employee and also may not have the same circumstances 
to justify providing the incentive. As provided by Sec.  537.107(a), a 
written service agreement may specify any employment conditions the 
agency considers to be appropriate, including the individual's position 
and the duties he or she is expected to perform, his or her work 
schedule, and his or her level of performance. Also, Sec.  537.107(f) 
provides that an agency may include in a service agreement specific 
conditions (in addition to those required by law) that trigger the loss 
of eligibility for student loan repayment benefits and/or a requirement 
that the employee reimburse the agency for student loan repayment 
benefits already received. (Also see Sec. Sec.  537.108(a)(3) and 
537.109(a)(2).) Therefore, the regulations already provide agencies 
with the authority to make student loan repayment benefits contingent 
on an employee working in a position at a certain geographic location. 
However, to address the agency's comment, we have amended Sec.  
537.107(a) to clarify that an agency may add language to the service 
agreement to make the geographic location of an employee's position a 
condition of receiving student loan repayment benefits.

Suitability Determinations

    An agency recommended we expand on Sec.  537.109(b)(1) to add 
suitability determinations and failure to complete a probationary 
period to the types of involuntarily separations that trigger a 
requirement for an employee to reimburse his or her agency for student 
loan repayment benefits received. We agree in part. As provided by 
Sec. Sec.  537.107(f)(2) and 537.109(b)(1), a service agreement may not 
require reimbursement based on an involuntary separation for reasons 
other than misconduct or unacceptable performance. We have revised 
Sec. Sec.  537.107(f)(2) and 537.109(b)(1) to also require 
reimbursement when an employee is separated involuntarily prior to the 
completion of a service agreement as a result of a negative suitability 
determination under 5 CFR part 731. However, we are not adding language 
requiring reimbursement based on an involuntary separation due to a 
failure to complete a probationary period because we believe such an 
action would be considered an involuntary separation for misconduct or 
unacceptable performance, which are already covered by the regulations.

Comment on Reimbursement Requirements

    One agency questioned whether the provisions allowing agencies to 
require reimbursement for employees who are removed for poor 
performance or for non-suitability exceed the statutory authority 
granted to OPM under 5 U.S.C. 5379. We disagree, and for the reasons 
explained below, we are not changing our regulations in Sec. Sec.  
537.107(f)(2) and 537.109(b)(1).
    Section 5379 provides discretionary authority for agencies to set 
up programs for student loan reimbursement for eligible employees. 
(``The head of an agency may, in order to recruit or retain highly 
qualified personnel, establish a program under which the agency may 
agree to repay'' (emphasis added). See 5 U.S.C. 5379(b)(1).) Agencies 
are not required to set up such programs, and employees are not 
entitled to benefits under the authority. Entitlement begins only after 
a written agreement between the agency and the employee is signed, and 
the student loan reimbursement is subject to ``such terms, limitations, 
or conditions, as may be mutually agreed to by the agency and employee 
concerned.'' See 5 U.S.C. 5379(b)(2). If agencies decide to offer the 
program, there are only three statutory limitations. First, an agency 
may not pay more than $10,000 per calendar year or $60,000 total in 
student loan repayments for an individual employee (5 U.S.C. 
5379(b)(2)). Second, an agency may not reimburse an employee for 
repayments made by the employee before entering into an agreement with 
the agency (5 U.S.C. 5379(b)(3)). Third, an agency must require 
reimbursement if the employee

[[Page 64864]]

is involuntarily separated for misconduct or is voluntarily separated 
before the completion of the term of the agreement, (5 U.S.C. 5379(c)). 
In addition, agencies must follow regulations implemented by OPM under 
the authority of 5 U.S.C. 5379(g).
    Agencies may not expand a program to provide for more benefits to 
employees than are authorized by statute. However, where a benefit is 
discretionary, agencies may set conditions, limitations, or terms on 
the employee's eligibility for payment of the benefit. This is 
explicitly stated in the statute. The phrase ``terms, limitations, or 
conditions as may be mutually agreed to by the agency and employee 
concerned'' refers to aspects of the administration of the program 
relating to individual payments. OPM may properly use its regulatory 
authority to mandate that agencies uniformly include certain terms, 
limitations, and conditions in service agreements. (See 5 U.S.C. 
5379(g), which allows OPM to establish ``standards and requirements'' 
by regulation to ensure uniformity in appropriate areas.) We believe 
that requiring agencies to condition payment of the student loan 
repayment benefit on the employee's acceptance of reimbursement when 
involuntarily separated for performance or for non-suitability is 
within the letter and the spirit of the authority given under 5 U.S.C. 
5379(b)(2). It is good policy to require that agencies seek 
reimbursement when an employee has been found unsuitable, engaged in 
misconduct, or failed to perform adequately. In summary, the statute 
does not provide entitlement, and employees are required to sign 
agreements with conditions only if they wish to participate in their 
agencies' discretionary programs.

Commissioned Corps Officers of the Public Health Service

    One agency requested that OPM delegate it the authority to offer 
student loan repayment benefits to Commissioned Corps Officers of the 
Public Health Service. However, officers of the Commissioned Corps are 
not covered by the authorizing statute, and OPM cannot extend 
eligibility to Commissioned Corps officers by regulation. The statute 
authorizing student loan repayment benefits, 5 U.S.C. 5379, does not 
define ``employee.'' Therefore, the general title 5 definition of 
employee at 5 U.S.C. 2105 applies to the student loan repayment 
authority. As such, proposed Sec.  537.102 defines employee as ``an 
employee of an agency who satisfies the definition of the term in 5 
U.S.C. 2105.'' Under 5 U.S.C. 2105(a), the term ``employee'' includes 
officers and individuals appointed in the ``civil service.'' Section 
2101(1) of title 5, United States Code, states that ``the `civil 
service' consists of all appointive positions in the executive, 
judicial, and legislative branches of the Government of the United 
States, except positions in the uniformed services.'' Under 5 U.S.C. 
2101(3), the term ``uniformed services'' includes the Commissioned 
Corps of the Public Health Service. Officers of the Commissioned Corps 
are not employees under 5 U.S.C. 2105 and thus are not covered by the 
student loan repayment authority in 5 U.S.C. 5379. OPM may not extend 
an authority by regulation to employees who are not covered by the 
authorizing statute.

Other Comments

    An individual provided a comment generally opposing the authority 
for Federal agencies to repay student loans. We disagree. One of the 
biggest challenges for Federal agencies is attracting and retaining 
well-qualified, high-performing employees. We believe the student loan 
repayment authority is a valuable human capital management tool that 
enables agencies to recruit highly qualified candidates into Federal 
service and keep talented employees in the Federal workforce.
    A union recommended the sections pertaining to benefit caps and 
employee eligibility be looked at with an eye towards increasing the 
maximum total student loan repayment benefit. The union noted student 
loan debt burdens are continuously increasing and requested that 
wherever possible, efforts be made to give agencies the option of 
offering greater benefits to recruit and retain excellent employees. 
Under 5 U.S.C. 5379(b)(2), an agency may provide student loan repayment 
benefits of up to $10,000 for an employee in any calendar year up to an 
aggregate total of $60,000 for any one employee. An increase in the 
annual or aggregate limits on student loan repayment benefits would 
require a statutory amendment. We note that the Federal Employee 
Student Loan Assistance Act (Pub. L. 108-123, November 11, 2003) 
increased the maximum amounts Federal agencies are authorized to repay 
under the Federal student loan repayment program from $6,000 to $10,000 
per employee in any calendar year and from $40,000 to a total of 
$60,000 for any one employee. On April 20, 2004, OPM published a final 
rule (69 FR 21039) to revise Sec.  537.106(c) in accordance with the 
statutory amendment.
    An agency recommended expanding on Sec.  537.106(a)(4) to emphasize 
that an agency should not begin making loan payments prior to the time 
the employee starts work under any circumstances. We have not made this 
recommended change because we believe the paragraph is sufficiently 
clear that although an agency and a job candidate may sign a service 
agreement before the job candidate begins serving in the position, the 
agency may not begin making loan payments until the job candidate 
actually begins serving in the position. However, we are adding a 
reference to Sec.  537.107, which contains the regulations regarding 
service agreements.
    An agency suggested that in order to differentiate between 
paragraphs (1) and (2) of 5 CFR 537.107(d), paragraph (1) should be 
revised to read as follows: ``Earlier than the date the service 
agreement is signed, for individuals who are current employees'' 
(emphasis added). We do not believe this change is necessary. Because 
we have written the phrase in the negative and use the conjunction 
``or'' between paragraphs (1) and (2), both conditions must be met.
    An agency suggested that even though 5 U.S.C. 5379(c)(2) allows 
agencies to waive the reimbursement of student loan repayments already 
made by an agency if the employee enters into the service of another 
agency, OPM should consider making such reimbursement a requirement. We 
disagree and are not changing 5 CFR 537.107(e). We believe that 
agencies should be allowed to make their own decisions regarding the 
granting of a waiver of recovery of already paid benefits.
    Finally, an agency points out that under 5 CFR 537.110(a), records 
kept under the Program may be destroyed when 3 years have elapsed since 
the end of the service period, but that a longer record retention 
period may be necessary where potential litigation is involved (i.e., 
if there has been a default of the service agreement and the agency 
engages in debt collection). We agree and are making the necessary 
changes to that section.

E.O. 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with E.O. 12866.

Regulatory Flexibility Act

    I certify that these regulations would not have a significant 
economic impact on a substantial number of small entities because they 
would apply only to Federal agencies and employees.

[[Page 64865]]

List of Subjects in 5 CFR Part 537

    Administrative practice and procedure, Government employees, 
Students, Wages.

Office of Personnel Management.
Michael W. Hager,
Acting Director.

0
Accordingly, OPM is revising 5 CFR part 537 to read as follows:

PART 537--REPAYMENT OF STUDENT LOANS

Sec.
537.101 Purpose.
537.102 Definitions.
537.103 Agency student loan repayment plans.
537.104 Employee eligibility.
537.105 Criteria for payment.
537.106 Conditions and procedures for providing student loan 
repayment benefits.
537.107 Service agreements.
537.108 Loss of eligibility for student loan repayment benefits.
537.109 Employee reimbursements to the Government.
537.110 Records and reports.

    Authority: 5 U.S.C. 5379(g).


Sec.  537.101  Purpose.

    This part implements 5 U.S.C. 5379, which authorizes agencies to 
establish a student loan repayment program for the purpose of 
recruiting or retaining highly qualified personnel. Under such a 
program, an agency may agree to repay (by direct payment to the loan 
holder on behalf of the employee) all or part of any outstanding 
qualifying student loan or loans previously taken out by a job 
candidate to whom an offer of employment has been made, or by a current 
employee of the agency.


Sec.  537.102  Definitions.

    The definitions in this section apply only to part 537. In this 
part:
    Agency has the meaning given that term in subparagraphs (A) through 
(E) of 5 U.S.C. 4101(1).
    Authorized agency official means the head of an Executive agency or 
an official who is authorized to act for the head of the agency in the 
matter concerned.
    Employee means an employee of an agency who satisfies the 
definition of the term in 5 U.S.C. 2105.
    Loan payment means the net payment made by an agency to the holder 
of a student loan (after deducting any tax withholdings that may be 
made from the gross student loan repayment benefit credited to the 
employee).
    Service agreement means a written agreement between an agency and 
an employee (or job candidate) under which the employee (or job 
candidate) agrees to a specified period of service in exchange for 
student loan repayment benefits, subject to the conditions set forth 
under this part.
    Student loan means--
    (1) A loan made, insured, or guaranteed under parts B, D or E of 
title IV of the Higher Education Act of 1965; or
    (2) A health education assistance loan made or insured under part A 
of title VII of the Public Health Service Act or under part E of title 
VIII of that Act.
    Student loan repayment benefit means the benefit provided to an 
employee under this part in which an agency repays (by a direct payment 
on behalf of the employee) a qualifying student loan as described in 
Sec.  537.106(b) previously taken out by such employee. The dollar 
value of this benefit is the gross amount credited to the employee at 
the time of a loan payment to the holder of the student loan, before 
deducting any employee tax withholdings from that gross amount as 
described in Sec.  537.106(a)(6)(iii). A student loan repayment benefit 
is not considered basic pay for any purpose.
    Time-limited appointment means a non-permanent appointment 
including--
    (1) A temporary appointment under 5 CFR part 316, subpart D, or 
similar authority;
    (2) A term appointment under 5 CFR part 316, subpart C, or similar 
authority;
    (3) An overseas limited appointment with a time limitation under 5 
CFR part 301, subpart B;
    (4) A limited term or limited emergency appointment in the Senior 
Executive Service, as defined in 5 U.S.C. 3132(a), or an equivalent 
appointment made for similar purposes;
    (5) A Veterans Recruitment Appointment under 5 CFR part 307;
    (6) A Presidential Management Fellow appointment under 5 CFR 
213.3102(ii) and 5 CFR 213.3102(jj);
    (7) A Federal Career Intern appointment under 5 CFR 213.3202(o); 
and
    (8) An appointment under the fellowship and similar programs 
authority at 5 CFR 213.3102(r).


Sec.  537.103  Agency student loan repayment plans.

    Before providing student loan repayment benefits under this part, 
an agency must establish a student loan repayment plan. This plan must 
include the following elements:
    (a) The designation of officials with authority to review and 
approve offering student loan repayment benefits (which may parallel 
the approval delegations used for other recruitment, relocation, and 
retention incentives);
    (b) The situations in which the student loan repayment authority 
may be used;
    (c) The criteria to meet or consider in authorizing student loan 
repayment benefits, including criteria for determining the size and 
timing of the loan payment(s);
    (d) A system for selecting employees (or job candidates) to receive 
student loan repayment benefits that ensures fair and equitable 
treatment;
    (e) The requirements associated with service agreements (including 
a basis for determining the length of service to be required if it is 
greater than the statutory minimum);
    (f) The procedures for making loan payments;
    (g) The provisions for recovering any amount outstanding from an 
employee who fails to satisfy a service agreement and conditions for 
waiving an employee's obligation to reimburse the agency for payments 
made under this part; and
    (h) Documentation and recordkeeping requirements sufficient to 
allow reconstruction of each action to approve a student loan repayment 
benefit.


Sec.  537.104  Employee eligibility.

    (a) Subject to the conditions in 5 U.S.C. 5379 and this part, an 
authorized agency official may approve student loan repayment benefits 
to recruit a highly qualified job candidate or retain a highly 
qualified employee who, during the service period established under a 
service agreement (consistent with Sec.  537.107), will be serving 
under--
    (1) An appointment other than a time-limited appointment; or
    (2) A time-limited appointment if--
    (i) The employee (or job candidate) will have at least 3 years 
remaining under the appointment after the beginning of the service 
period established under a service agreement; or
    (ii) The time-limited appointment authority leads to conversion to 
another appointment of sufficient duration so that his or her 
employment with the agency is projected to last for at least 3 
additional years after the beginning of the service period established 
under a service agreement.
    (b) An employee occupying a position that is excepted from the 
competitive service because of its confidential, policy-determining, 
policy-making, or policy-advocating character is ineligible for student 
loan repayment benefits.
    (c) An employee becomes ineligible for student loan repayment 
benefits under the conditions described in Sec.  537.108.

[[Page 64866]]

Sec.  537.105  Criteria for payment.

    (a) General criteria. Before authorizing student loan repayment 
benefits for an employee (or job candidate), an agency must make a 
written determination that--
    (1) The employee (or job candidate) is highly qualified and 
otherwise eligible (as described in Sec.  537.104); and
    (2)(i) In a case where the authorization is granted to recruit a 
job candidate to fill an agency position, the agency otherwise would 
encounter difficulty in filling a position with a highly qualified 
individual; or
    (ii) In a case where the authorization is granted to retain a 
current employee of the agency, the employee otherwise is likely to 
leave the agency for employment outside the Federal service and it is 
essential to retain the employee based on the employee's high or unique 
qualifications or a special need of the agency.
    (b) Retention considerations. In making a determination under 
paragraph (a)(2)(ii) of this section, an agency must consider the 
extent to which the employee's departure would affect the agency's 
ability to carry out an activity or perform a function that is deemed 
essential to its mission.
    (c) Current Federal employees. An agency may not authorize student 
loan repayment benefits to recruit an individual from outside the 
agency who is currently employed in the Federal service.
    (d) Selecting employees. When selecting employees (or job 
candidates) to receive student loan repayment benefits, agencies must 
ensure that benefits are awarded without regard to political 
affiliation, race, color, religion, national origin, sex, marital 
status, age, or handicapping condition.


Sec.  537.106  Conditions and procedures for providing student loan 
repayment benefits.

    (a) General conditions. (1) Student loan repayment benefits may be 
provided at the discretion of the agency and are subject to such terms, 
limitations, or conditions as may be mutually agreed to in writing by 
the agency and the employee (or job candidate) as part of a service 
agreement under Sec.  537.107.
    (2) The student loan to be repaid must be a qualifying student loan 
as set forth in paragraph (b) of this section.
    (3) The agency must document in writing each approval of student 
loan repayment benefits. An authorized agency official must review and 
approve each written determination. The written determination must show 
the employee (or job candidate) meets the criteria specified in Sec.  
537.105.
    (4) An authorized agency official must approve student loan 
repayment benefits in connection with a recruitment action before the 
job candidate actually enters on duty in the position for which he or 
she was recruited. The agency and the job candidate may sign the 
service agreement consistent with Sec.  537.107 before the job 
candidate begins serving in the position, but the agency may not begin 
making loan payments until the job candidate begins serving in the 
position.
    (5) Student loan repayment benefits are in addition to basic pay 
and any other form of compensation otherwise payable to the employee 
involved.
    (6) Appropriate tax withholdings must be deducted or applied at the 
time any payment is made. Since these tax implications could create a 
financial hardship for the recipient of the student loan repayment 
benefit, agencies may lessen the impact of tax withholdings on an 
employee's paycheck in one of the following ways:
    (i) Make smaller payments at periodic intervals throughout the 
year, rather than issue payments under this part in one lump sum;
    (ii) Allow the employee to write a check to the agency to cover his 
or her tax liability, rather than have the tax liability withheld from 
the employee's paycheck;
    (iii) Deduct the amount of taxes to be withheld from the student 
loan repayment benefit before the balance is issued as a loan payment 
to the holder of the loan.

    Note to Sec.  537.106(a)(6): Contact the Internal Revenue 
Service for further details concerning these options, as well as the 
tax withholding implications of payments under this part.

    (b) Qualifying student loans. (1) The agency may make loan payments 
only for student loan debts that are outstanding at the time the agency 
and the employee (or job candidate) enter into a service agreement. 
Before authorizing loan payments, an agency must verify with the holder 
of the loan that the employee (or job candidate) has an outstanding 
student loan that qualifies for repayment under this part. The agency 
must verify remaining balances to ensure that loans are not overpaid.
    (2) The agency may repay more than one loan if the employee's 
student loan repayment benefit does not exceed the limits set forth in 
paragraph (c) of this section.
    (3) These regulations do not impose a limit on the age of a student 
loan for qualification purposes. The agency may, however, specify in 
its agency plan that only student loans made within a certain timeframe 
are eligible for repayment.
    (c) Benefit amount. (1) In determining the amount of student loan 
repayment benefits to approve, an agency must consider the employee's 
(or job candidate's) value to the agency and how far in advance the 
agency is permitted to commit funds. If an agency decides to make 
additional student loan repayment benefits contingent on budget levels 
or other factors, it must address these contingent benefits in the 
written service agreement as described in Sec.  537.107(a).
    (2) The amount of student loan repayment benefits provided by an 
agency is subject to both of the following limits:
    (i) $10,000 per employee per calendar year; and
    (ii) A total of $60,000 per employee.
    (3) In applying the limits in paragraph (c)(2) of this section, the 
agency must count the full student loan repayment benefit (i.e., before 
deducting any tax withholdings as described in paragraph (a)(6)(iii) of 
this section).
    (d) Employee responsibility. Loan payments made by an agency under 
this part do not exempt an employee from his or her responsibility and/
or liability for any loan(s) the individual has taken out. The employee 
also is responsible for any income tax obligations resulting from the 
student loan repayment benefit.


Sec.  537.107  Service agreements.

    (a) Before an employing agency makes any loan payments for an 
employee, the employee (or job candidate) must sign a written service 
agreement to complete a specified period of service with the agency and 
to reimburse the agency for the student loan repayment benefit when 
required by Sec.  537.109. The service agreement also may specify any 
other employment conditions the agency considers to be appropriate, 
including the employee's (or job candidate's) position and the duties 
he or she is expected to perform, his or her work schedule, his or her 
level of performance, and the geographic location of his or her 
position. (See Sec. Sec.  537.108 and 537.109.) The service agreement 
may address the possibility that, during the period the agreement is in 
effect, the agency may modify the agreement to provide student loan 
repayment benefits in addition to those fixed in the agreement based on 
contingencies or conditions specified in the agreement.
    (b) The minimum period of service to be established under a service

[[Page 64867]]

agreement is 3 years, regardless of the amount of student loan 
repayment benefits authorized. The agency and the employee may mutually 
agree to modify an existing service agreement, subject to the 
limitations at Sec.  537.106(c)(2), to provide additional student loan 
repayment benefits for additional service without the need for an 
entirely new service agreement (which would require a new 3-year 
minimum service period). Periods of leave without pay, or other periods 
during which the employee is not in a pay status, do not count toward 
completion of the required service period. Thus, the service completion 
date must be extended by the total amount of time spent in non-pay 
status. However, as provided by 5 CFR 353.107, absence because of 
uniformed service or compensable injury is considered creditable toward 
the required service period upon reemployment.
    (c) A service agreement made under this part in no way constitutes 
a promise of, or right or entitlement to, appointment, continued 
employment, or noncompetitive conversion to the competitive service. 
This condition should be stated in the service agreement.
    (d) The service period begins on the date specified in the service 
agreement. That beginning date may not be--
    (1) Earlier than the date the service agreement is signed; or
    (2) Earlier than the date the individual begins serving in the 
position for which he or she was recruited (when student loan repayment 
benefits are approved to recruit a job candidate to fill an agency 
position).
    (e) The service agreement must contain a provision addressing 
whether the individual would be required to reimburse the paying agency 
for student loan repayment benefits if he or she voluntarily separates 
from the paying agency to work for another agency before the end of the 
service period. (See Sec.  537.109(b)(2).)
    (f) The agency may include in a service agreement specific 
conditions (in addition to those required by law) that trigger the loss 
of eligibility for student loan repayment benefits and/or a requirement 
that the employee reimburse the agency for student loan repayment 
benefits already received. (See Sec. Sec.  537.108(a)(3) and 
537.109(a)(2).) However, a service agreement may not require 
reimbursement based on--
    (1) An employee's failure to maintain performance at a particular 
level (unless the employee is separated based on unacceptable 
performance); or
    (2) An involuntary separation for reasons other than misconduct, 
unacceptable performance, or a negative suitability determination under 
5 CFR part 731 (e.g., an involuntary separation resulting from a 
reduction in force or medical reasons).


Sec.  537.108  Loss of eligibility for student loan repayment benefits.

    (a) An employee receiving student loan repayment benefits from an 
agency is ineligible for continued benefits from that agency if the 
employee--
    (1) Separates from the agency;
    (2) Does not maintain an acceptable level of performance, as 
determined under standards and procedures prescribed by the agency; or
    (3) Violates a condition in the service agreement, if the agreement 
specifically provides that eligibility is lost when the condition is 
violated.
    (b) For the purpose of applying paragraph (a)(2) of this section, 
an acceptable level of performance is one that is equivalent to level 3 
(``Fully Successful'' or equivalent) or higher, as described in 5 CFR 
430.208(d). An employee loses eligibility for student loan repayment 
benefits if his or her most recent official performance evaluation does 
not meet this requirement.


Sec.  537.109  Employee reimbursements to the Government.

    (a) An employee is indebted to the Federal Government and must 
reimburse the paying agency for the amount of any student loan 
repayment benefits received under a service agreement if he or she--
    (1) Fails to complete the period of service required in the 
applicable service agreement (except as provided by paragraph (b) of 
this section); or
    (2) Violates any other condition that specifically triggers a 
reimbursement requirement under the agreement.
    (b) An agency may not apply paragraph (a) of this section based on 
an employee's failure to complete the required period of service 
established under a service agreement if--
    (1) The employee is involuntarily separated for reasons other than 
misconduct, unacceptable performance, or a negative suitability 
determination under 5 CFR part 731; or
    (2) The employee leaves the paying agency voluntarily to enter into 
the service of any other agency, unless reimbursement to the agency is 
otherwise required in the service agreement, as provided by Sec.  
537.107(e).
    (c) If an agency and an employee mutually agree to modify an 
existing service agreement to provide additional student loan repayment 
benefits for additional service (as provided by Sec.  537.107(b)), the 
modified service agreement may stipulate that, if the employee 
completes the initial service period but fails to complete the 
additional service period, he or she is required to reimburse the 
paying agency only for the amount of any student loan repayment 
benefits received during the additional service period.
    (d) If an employee fails to reimburse the paying agency for the 
amount owed under paragraph (a) of this section, a sum equal to the 
amount outstanding is recoverable from the employee under the agency's 
regulations for collection by offset from an indebted Government 
employee under 5 U.S.C. 5514 and 5 CFR part 550, subpart K, or through 
the appropriate provisions governing Federal debt collection if the 
individual is no longer a Federal employee.
    (e) An authorized agency official may waive, in whole or in part, a 
right of recovery of an employee's debt if he or she determines that 
recovery would be against equity and good conscience or against the 
public interest. (See 5 U.S.C. 5379(c)(3).)
    (f) Any amount reimbursed by, or recovered from, an employee under 
this section must be credited to the appropriation account from which 
the amount involved was originally paid. Any amount so credited must be 
merged with other sums in such account and must be available for the 
same purposes and time period, and subject to the same limitations (if 
any), as the sums with which merged. (See 5 U.S.C. 5379(c)(4).)


Sec.  537.110  Records and reports.

    (a) Each agency must keep a record of each determination to provide 
student loan repayment benefits under this part and make such records 
available for review upon request by OPM. Such a record may be 
destroyed when 3 years have elapsed since the end of the service period 
specified in the employee's service agreement unless any dispute has 
arisen regarding the agreement. If the service agreement has not been 
fulfilled, there are other disputes regarding the agreement or the loan 
payouts, or the agreement has become the subject of litigation, the 
records should be kept until the agency is notified by agency counsel 
that all pending claims have been resolved, all litigation concluded, 
and any applicable periods for seeking further review has elapsed and, 
in any event, for a minimum of 6 years from the date the facts giving 
rise to the dispute occurred. If debt collection is pursued against the 
employee for repayments made by the agency, the agency must keep the 
records until the agency is notified by agency counsel that the debt is 
fully

[[Page 64868]]

collected, compromised, or settled finally and that any applicable 
period for seeking further review has elapsed.
    (b) By March 31st of each year, each agency must submit a written 
report to OPM containing information about student loan repayment 
benefits it provided to employees during the previous calendar year. 
Each report must include the following information:
    (1) The number of employees who received student loan repayment 
benefits;
    (2) The job classifications of the employees who received student 
loan repayment benefits; and
    (3) The cost to the Federal Government of providing student loan 
repayment benefits.

[FR Doc. E8-26013 Filed 10-30-08; 8:45 am]
BILLING CODE 6325-39-P