[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Rules and Regulations]
[Pages 28954-28986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11515]



[[Page 28953]]

Vol. 78

Thursday,

No. 95

May 16, 2013

Part II





Department of Education





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34 CFR Part 685





William D. Ford Federal Direct Loan Program; Interim Final Rule

  Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules 
and Regulations  

[[Page 28954]]


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DEPARTMENT OF EDUCATION

34 CFR Part 685

[Docket ID ED-2013-OPE-0066]
RIN 1840-AD13


William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Interim final rule; request for comments.

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SUMMARY: The Secretary amends the William D. Ford Federal Direct Loan 
Program (Direct Loan Program) regulations to reflect changes made to 
the program by the Moving Ahead for Progress in the 21st Century Act 
(MAP-21), Public Law 112-141. Specifically, these interim final 
regulations reflect the provisions in MAP-21 that amended the Higher 
Education Act of 1965, as amended (HEA) to extend the 3.4 percent 
interest rate on Direct Subsidized Loans from July 1, 2012, to July 1, 
2013, and to ensure that a borrower may not receive Direct Subsidized 
Loans for more than 150 percent of the published length of the 
educational program in which the borrower is enrolled. Under the 
changes made by MAP-21, if the borrower exceeds this Direct Subsidized 
Loan limit, the borrower also becomes responsible for the accruing 
interest on the Direct Subsidized Loans.

DATES: These interim final regulations are effective May 16, 2013. We 
must receive your comments on or before July 1, 2013.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via U.S. mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by email. Please submit your comments only 
once in order to ensure that we do not receive duplicate copies. In 
addition, please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``How To Use This Site.''
     Postal Mail, Commercial Delivery, or Hand Delivery: If you 
mail or deliver your comments about these interim final regulations, 
address them to Nathan Arnold, U.S. Department of Education, 1990 K 
Street NW., Room 8084, Washington, DC 20006-8542.

    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to 
include in their comments only information that they wish to make 
publicly available.


FOR FURTHER INFORMATION CONTACT: Nathan Arnold, U.S. Department of 
Education, 1990 K Street NW., Room 8084, Washington, DC 20006-8542. 
Telephone: (202) 219-7134 or via Internet at: [email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION:

Executive Summary

    Purpose of This Regulatory Action: On July 6, 2012, the President 
signed into law MAP-21, which, among other things, made two changes to 
section 455 of the HEA. First, the law extended for an additional year 
the 3.4 percent interest rate that had applied to Direct Subsidized 
Loans made to undergraduate students since July 1, 2011. Second, the 
law placed a limit on Direct Subsidized Loan eligibility for new 
borrowers on or after July 1, 2013. Specifically, the statute provides 
that a new borrower on or after July 1, 2013, becomes ineligible to 
receive additional Direct Subsidized Loans if the period during which 
the borrower has received such loans exceeds 150 percent of the 
published length of the borrower's educational program. The borrower 
also becomes responsible for accruing interest during all periods as of 
the date the borrower exceeds the 150 percent limit. The purpose of the 
statutory changes is to encourage students to complete their academic 
programs in a timely manner. Timely completion of programs will allow 
borrowers to reap the benefits of a postsecondary degree or credential 
and avoid incurring unnecessary student loan debt. This interim final 
rule implements the required statutory changes.
    Summary of the Major Provisions of This Regulation:
    Action: This interim final rule incorporates the statutory changes 
made by MAP-21 by--
     Providing that a Direct Subsidized Loan first disbursed on 
or after July 1, 2012, and before July 1, 2013, has an interest rate of 
3.4 percent.
     Establishing new Direct Loan Program regulations that 
provide that a new borrower on or after July 1, 2013, is no longer 
eligible to receive additional Direct Subsidized Loans if the period 
during which the borrower has received such loans meets or exceeds 150 
percent of the published length of the program in which the borrower is 
currently enrolled. These borrowers may still receive Direct 
Unsubsidized Loans for which they are otherwise eligible.
     Establishing new Direct Loan Program regulations that 
provide that new borrowers who are ineligible for Direct Subsidized 
Loans as a result of these provisions and enroll in a program for which 
the borrower would otherwise be eligible for a Direct Subsidized Loan 
become responsible for accruing interest on all previously received 
Direct Subsidized Loans during all future periods, beginning on the 
date of the triggering enrollment.
     Prorating periods of Direct Subsidized Loan receipt during 
part-time enrollment for purposes of the limit on Direct Subsidized 
Loan eligibility.
     Establishing special rules for applying the limit on 
Direct Subsidized Loan eligibility for borrowers enrolled in 
preparatory coursework required for enrollment in an undergraduate or a 
graduate or professional program and teacher certification coursework 
necessary for a State teaching credential for which the institution 
awards no academic credential. These special rules limit the borrower's 
responsibility for accruing interest in certain circumstances.
     Modifying existing entrance- and exit-counseling 
requirements to provide borrowers with information regarding the 150 
percent limit on Direct Subsidized Loans.

Please refer to the Significant Proposed Regulations section of this 
preamble for a detailed discussion of the major provisions contained in 
this interim final rule.
    Chart 1 summarizes the interim final regulations and related 
benefits, costs, and transfers that are discussed in more detail in the 
Regulatory Impact Analysis of this preamble. The Department estimates 
that approximately 62,000 borrowers will be affected by these interim 
final regulations in the 2013 loan cohort, with the number of borrowers 
affected increasing in each cohort to approximately 578,000 borrowers 
in the 2023 loan cohort. The benefits of these interim final 
regulations include reduced loan balances and lower payments for 
borrowers receiving Direct Subsidized Loans between July 1, 2012, and 
July 1, 2013, and the creation of incentives for first-time borrowers 
on or after July 1, 2013, to complete academic programs in

[[Page 28955]]

a timely manner. The net budget impact of the interim final regulations 
is -$3.9 billion over the 2013 to 2023 loan cohorts.

              Chart 1--Summary of the Proposed Regulations
------------------------------------------------------------------------
     Issue and key features            Benefits         Cost/transfers
------------------------------------------------------------------------
Interest rate reduction,
 limitations on eligibility for
 Direct Subsidized Loans, and
 responsibility for accruing
 interest for first-time
 borrowers on or after July 1,
 2013 (34 CFR part 685)
    Reduction of interest rate    Reduced loan
     on Direct Subsidized Loans    balance and lower
     to 3.4 percent after July     payments for
     1, 2011, and before July 1,   borrowers.
     2013.
    Limitation on Direct          Create incentives
     Subsidized Loan eligibility   for students to
     for borrowers who receive     complete academic
     such loans for 150 percent    programs in a
     of the published length of    timely manner and
     the educational program and   avoid incurring
     borrower responsibility for   unnecessary loan
     accruing interest for         debt.
     enrollment after meeting or
     exceeding this limit.
    Prorating periods of Direct   Account for         Estimated net
     Subsidized Loan receipt       differing           budget impact of
     during part-time enrollment.  enrollment levels   $3.9 billion over
                                   for borrower        the 2013-2023
                                   equity.             loan cohort.
    Specialized treatment for     Limit borrower
     borrowers enrolled in         responsibility
     preparatory coursework        for accruing
     required for enrollment in    interest to
     an eligible program and       encourage
     teacher certification         completion.
     coursework necessary for a
     State teaching credential
     for which the institution
     awards no academic
     credential.
    Modified entrance- and exit-  Provide borrowers   Estimated cost of
     counseling requirements to    with information    $4.21 million in
     provide borrowers with        on eligibility      increased burden
     information regarding the     limitations and     to institutions
     150 percent limit on Direct   potential           and borrowers.
     Subsidized Loans.             responsibility
                                   for accruing
                                   interest.
------------------------------------------------------------------------

Invitation to Comment

    We invite you to submit comments regarding these interim final 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the interim final regulations that each 
of your comments addresses and to arrange your comments in the same 
order as the interim final regulations. We will consider these comments 
in determining whether to revise these interim final regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
interim final regulations. Please let us know of any further ways we 
could reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the Direct 
Loan Program.
    During and after the comment period, you may inspect all public 
comments about these interim final regulations by accessing 
www.regulations.gov. You may also inspect the comments in person in 
room 8083, 1990 K Street, NW., Washington, DC, between 8:30 a.m. and 
4:00 p.m. Washington, DC time, Monday through Friday of each week, 
except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will provide an appropriate accommodation or 
auxiliary aid to an individual with a disability who needs assistance 
to review the comments or other documents in the public rulemaking 
record for these interim final regulations. If you want to schedule an 
appointment for this type of accommodation or auxiliary aid, please 
contact the person listed under FOR FURTHER INFORMATION CONTACT.

Background

    On July 6, 2012, the President signed MAP-21 into law. MAP-21 
included two changes to the Direct Loan Program. First, MAP-21 amended 
section 455 of the HEA to extend the 3.4 percent fixed interest rate 
that applies to Direct Subsidized Loans made to undergraduate students 
before July 1, 2013. Second, the law placed a limit on Direct 
Subsidized Loan eligibility for new borrowers on or after July 1, 2013. 
Specifically, a new borrower on or after July 1, 2013 is no longer 
eligible to receive additional Direct Subsidized Loans if the period 
during which the borrower has received such loans exceeds 150 percent 
of the published length of the borrower's educational program. 
Additionally, the borrower becomes responsible for accruing interest on 
any Direct Subsidized Loan made to the borrower on or after July 1, 
2013 if he or she is enrolled in an undergraduate program after 
reaching this 150 percent limit. These restrictions apply to a ``first-
time borrower'' on or after July 1, 2013; a first-time borrower is one 
who on that date has no outstanding balance of principal or interest on 
a Direct Loan Program or FFEL Program loan.
    The amendments to section 455 of the HEA that limit eligibility for 
Direct Subsidized Loans require implementing regulations. Under MAP-21 
these regulations are not subject to the requirements in sections 482 
and 492 of the HEA for negotiated rulemaking and publication of 
regulations in accordance with the master calendar provisions. These 
interim final regulations contain the provisions necessary to implement 
the amendments to section 455 of the HEA.
    The Department will be making significant changes to its student 
financial aid systems to implement the new statutory requirements. 
Those changes are described in more detail at the conclusion of this 
preamble. The Department will be responsible for the following: 
tracking borrowers' Direct Subsidized Loan borrowing in greater detail; 
informing institutions of the number of periods a borrower has received 
Direct Subsidized Loans; and informing borrowers when they exceed the 
eligibility limit and become responsible for accruing interest. 
Institutions will not be required to track this information or inform 
borrowers of their status on a continual basis. However, for the 
Department to ensure the integrity of the Direct Loan Program and 
compliance with the new statutory

[[Page 28956]]

and regulatory requirements, institutions will be required to report 
certain additional program and borrower enrollment information to the 
Department.

Significant Regulations

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

Part 685--William D. Ford Federal Direct Loan Program Extension of the 
3.4 Percent Fixed Interest Rate on Direct Subsidized Loans until July 
1, 2013 (Sec.  685.202(a)(1)(v)(E))

    Statute: MAP-21 amended section 455(b)(7)(D) of the HEA to extend, 
until July 1, 2013, the period during which the fixed interest rate on 
new Direct Subsidized Loans will be 3.4 percent. The interest rate on 
new loans was scheduled to increase to a fixed interest rate of 6.8 
percent beginning with loans first disbursed on or after July 1, 2012. 
The increase in the interest rate to 6.8 percent is now scheduled to 
begin with loans first disbursed on or after July 1, 2013.
    Current Regulations: Under current Sec.  685.202(a)(1)(v)(E) of the 
regulations, the interest rate on a Direct Subsidized Loan first 
disbursed on or after July 1, 2011, and before June 30, 2012, is 3.4 
percent. Under Sec.  685.202(a)(1)(iv), the interest rate on Direct 
Subsidized Loans disbursed on or after July 1, 2012, is 6.8 percent. 
Direct Subsidized Loans are only available to undergraduate borrowers.
    New Regulations: We are revising Sec.  685.202(a)(1)(v)(E) of the 
Direct Loan regulations to reflect that the unpaid balance on a Direct 
Subsidized Loan first disbursed on or after July 1, 2011, and before 
July 1, 2013, has an interest rate of 3.4 percent.
    Reasons: This change reflects the amendment to section 455(b)(7)(D) 
of the HEA.

Application of the 150 Percent Direct Subsidized Loan Limit to First-
Time Borrowers on or After July 1, 2013 (Sec.  685.200(f)(1)(i))

    Statute: MAP-21 added section 455(q)(1) to the HEA, which provides 
that any borrower who is a new borrower on or after July 1, 2013, is 
subject to the revised eligibility requirements that limit the 
borrower's receipt of Direct Subsidized Loans to 150 percent of the 
published length of the borrower's educational program.
    Current Regulations: There are no existing regulations.
    New Regulations: Section 685.200(f)(1)(i) defines the term ``first-
time borrower'' as an individual who has no outstanding balance of 
principal or interest on a loan made under the Direct Loan Program or 
the FFEL Program (regardless of loan type) on July 1, 2013, or on the 
date the borrower obtains a Direct Loan after July 1, 2013.
    The limitation on Direct Subsidized Loan eligibility only applies 
to a ``first-time borrower'' on or after July 1, 2013. A borrower who 
has an outstanding loan balance as of that date is not subject to the 
150 percent Direct Subsidized Loan eligibility limit. If the borrower 
had such a loan balance prior to July 1, 2013, and paid off that 
balance in full, and then received a new Direct Loan on or after July 
1, 2013, the borrower is considered a ``first-time borrower'' and 
subject to the Direct Subsidized Loan eligibility limit.
    A borrower who has an outstanding balance on a Direct Loan or a 
FFEL program loan prior to July 1, 2013, and who consolidates those 
loans on or after July 1, 2013, does not become a ``first-time 
borrower'' for this purpose by consolidating the loans. Finally, we do 
not consider a borrower's outstanding balance on a Federal Perkins loan 
in the determination of whether a borrower is a first-time borrower who 
will be subject to the Direct Subsidized loan eligibility limit.
    Reasons: We have defined the term ``first-time borrower'' to 
reflect the provision of MAP-21 that applies the 150 percent Direct 
Subsidized Loan eligibility limit to first-time borrowers on or after 
July 1, 2013. The definition of ``first-time borrower'' for this 
purpose is consistent with how we have treated similarly situated 
borrowers for other purposes elsewhere in the Direct Loan and FFEL 
program regulations (see, e.g., Sec. Sec.  685.209(a)(1) and 
685.217(a)(1)).

Limitations on Eligibility for Direct Subsidized Loans (Sec.  
685.200(a)(2), Sec.  685.200(f)(2))

    Statute: MAP-21 added section 455(q)(1) to the HEA. Section 
455(q)(1) of the HEA provides that any borrower who is a new Direct 
Loan borrower on or after July 1, 2013, is not eligible for a Direct 
Subsidized Loan if the period of time for which the borrower has 
received Direct Subsidized Loans, in the aggregate, exceeds 150 percent 
of the published length of the borrower's educational program. Such a 
borrower may still receive any Direct Unsubsidized Loan for which the 
borrower is otherwise eligible.
    Current Regulations: There are no existing regulations.
    New Regulations: Section 685.200(f)(2) provides that a first-time 
borrower loses eligibility for new Direct Subsidized Loans when the 
borrower has no remaining eligibility period, as defined in Sec.  
685.200(f)(1)(iv) (this and other defined terms are discussed in the 
next section of the preamble). The interim final regulations also 
provide that such a borrower may still receive a Direct Unsubsidized 
Loan for which the borrower is otherwise eligible. In addition, we have 
updated Sec.  685.200(a)(2)(i) to reflect that, in addition to 
demonstrating financial need in accordance with Title IV, part F of the 
HEA, a first-time borrower must also not have met or exceeded the 
limitations on receipt of Direct Subsidized Loans described in Sec.  
685.200(f).
    Reasons: Section 685.200(f)(2) reflects section 455(q)(1) of the 
HEA, which places a limit on eligibility for Direct Subsidized Loans if 
a first-time borrower on or after July 1, 2013, receives Direct 
Subsidized Loans in excess of 150 percent of the published length of 
the borrower's educational program. We are including a cross reference 
to Sec.  685.200(f) in Sec.  685.200(a)(2)(i) to ensure that first-time 
borrowers understand that eligibility for Direct Subsidized Loans 
depends on meeting the eligibility requirements in Sec.  685.200(f).

Calculation of a Borrower's Maximum Eligibility Period, Subsidized 
Usage Period, and Remaining Eligibility Period (Sec.  
685.200(f)(1)(ii)-(f)(1)(iv))

    Statute: Under section 455(q) of the HEA a borrower is no longer 
eligible for additional Direct Subsidized Loans if the period of time 
for which the borrower has received Direct Subsidized Loans exceeds the 
aggregate period of enrollment described in section 455(q)(3). Section 
455(q)(3) defines the term ``aggregate period of enrollment'' as the 
lesser of: (1) a period equal to 150 percent of the published length of 
the educational program in which the student is enrolled; or (2) in the 
case of a borrower who was previously enrolled in one or more other 
educational programs that began on or after July 1, 2013, a period of 
time equal to the difference between 150 percent of the published 
length of the longest educational program in which the borrower was, or 
is, enrolled and any periods of enrollment in which the borrower 
received a Direct Subsidized Loan.
    Current Regulations: There are no existing regulations.
    New Regulations: Section 685.200(f)(1)(ii) defines the term

[[Page 28957]]

``maximum eligibility period'' and describes how we will calculate it 
for a borrower. The ``maximum eligibility period'' is the regulatory 
term we have adopted to refer to the ``aggregate period of enrollment'' 
described in section 455(q)(1) and (q)(3)(A) of the HEA. Section 
685.200(f)(1)(ii) provides that a borrower's maximum eligibility period 
for Direct Subsidized Loans is equal to 150 percent of the length of 
the educational program, as published by the institution, in which the 
borrower is currently enrolled. Therefore, we will calculate a 
borrower's ``maximum eligibility period'' by multiplying the published 
length of the borrower's current educational program by 1.5.
    Section 685.200(f)(1)(iii) defines the term ``subsidized usage 
period'' and provides that we will calculate it by dividing the number 
of days in the borrower's loan period for a Direct Subsidized Loan by 
the number of days in the academic year for which the borrower receives 
the Direct Subsidized Loan. The interim final regulations provide that 
this time period will be measured in academic years, which we will 
calculate using the information provided by the institution (this 
reporting requirement is discussed in more detail in the section of 
this preamble covering operational issues). A borrower's ``subsidized 
usage period'' includes only those periods of time for which the 
borrower received a Direct Subsidized Loan, rather than all of the 
periods that a borrower is enrolled in one or more educational 
programs.
    Section 685.200(f)(1)(iii) also specifies that the number of years 
in a borrower's subsidized usage period will be rounded down to the 
nearest quarter of a year. For example, a subsidized usage period of 
0.53 years would be rounded to 0.5 years and a subsidized usage period 
of 0.88 years would be rounded to 0.75 years.
    Section 685.200(f)(1)(iv) of the interim final regulations defines 
the term ``remaining eligibility period'' and provides that it is 
calculated as the difference, measured in academic years, between the 
borrower's maximum eligibility period and the sum of the borrower's 
subsidized usage periods. When the difference between a borrower's 
maximum eligibility period and the sum of the borrower's subsidized 
usage periods is zero, the borrower has no remaining eligibility 
period. As provided in Sec.  685.200(f)(2), a first-time borrower who 
has no remaining eligibility period is no longer eligible for 
additional Direct Subsidized Loans. A borrower's ability to regain 
eligibility for Direct Subsidized Loans is discussed later in this 
preamble.
    A borrower's maximum eligibility period and remaining eligibility 
period are calculated in the same manner regardless of whether the 
borrower graduates, transfers, or withdraws from the program. However, 
the interim final regulations treat a borrower who graduates from his 
or her program in a timely manner differently for purposes of borrower 
responsibility for the accruing interest (see the preamble discussion 
of Sec.  685.200(f)(3)).
    Section 685.200(f)(1)(ii) provides that we will calculate a 
borrower's maximum eligibility period based on the published length of 
the educational program in which the borrower is currently enrolled. 
Therefore, if a borrower subsequently enrolls in a program that is 
shorter or longer than the borrower's current program, we will 
recalculate the borrower's maximum eligibility period based on the 
length of the new program. Because Sec.  685.200(f)(1)(iv) provides 
that a borrower's remaining eligibility period is based (in part) on 
the sum of the borrower's subsidized usage periods, subsidized usage 
periods accrued during previously-enrolled programs count against the 
maximum eligibility period of the program in which the borrower is 
currently enrolled.
    Examples 1 through 5 illustrate how we will calculate a borrower's 
maximum eligibility period, subsidized usage period, and remaining 
eligibility period:
    Example 1: A borrower enrolls in a two-year undergraduate program 
and receives Direct Subsidized Loans for one academic year. The 
program's academic year is comprised of 30 weeks (or 210 days) of 
instructional time.
[GRAPHIC] [TIFF OMITTED] TR16MY13.000

    The borrower's maximum eligibility period is 150 percent of the 
two-year program, or three academic years. Because the borrower has 
already received a Direct Subsidized Loan for one academic year, the 
borrower's subsidized usage period is one academic year. The difference 
between the borrower's maximum eligibility period (three academic 
years) and the sum of the borrower's subsidized usage periods (one 
academic year) is the borrower's remaining eligibility period (two 
academic years). (For purposes of simplicity and clarity, subsequent 
examples will not include the conversion from days to years for a 
borrower's subsidized usage period for each loan and will refer to an 
``academic year'' as a ``year'' unless necessary to illustrate the 
operation of a specific regulatory provision.)
    Example 2: A borrower enrolls in a four-year program and receives 
Direct Subsidized Loans for each of the four years.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Year 1                       Year 2                       Year 3                       Year 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Maximum eligibility period for        6 years....................  6 years....................  6 years....................  6 years.
 program.
Subsidized usage period.............  1 year.....................  1 year.....................  1 year.....................  1 year.
Sum of all subsidized usage periods.  1 year.....................  2 years....................  3 years....................  4 years.

[[Page 28958]]

 
Remaining eligibility period at end   5 years....................  4 years....................  3 years....................  2 years.
 of year.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The borrower's program has a published length of four years and a 
maximum eligibility period of six years (150 percent of the four-year 
program) and the borrower received Direct Subsidized Loans for four 
years. The subsidized usage period for each year is one year and the 
sum of the subsidized usage periods is four years. At the end of the 
fourth year, the borrower's remaining eligibility period is two years, 
which is the difference between the borrower's maximum eligibility 
period (six years) and the sum of the borrower's subsidized usage 
periods (four years).
    Example 3: A borrower enrolls in a two-year program and receives 
Direct Subsidized Loans for two years. The borrower then transfers to a 
four-year program, but has not yet received any Direct Subsidized Loans 
for attendance in the four-year program.

------------------------------------------------------------------------
                              After year 2 of  two-   Upon transfer to
                                  year program        four-year program
------------------------------------------------------------------------
Maximum eligibility period    3 years.............  6 years.
 for program.
Sum of all subsidized usage   2 years.............  2 years.
 periods.
Remaining eligibility period  1 years.............  4 years.
------------------------------------------------------------------------

    The borrower's original two-year program had a maximum eligibility 
period of three years. Because the borrower received Direct Subsidized 
Loans for each of the two years of enrollment, the sum of the 
borrower's subsidized usage periods is two years. When the borrower 
enrolls in the four-year program, the borrower's maximum eligibility 
period is recalculated to six years (150 percent of the four-year 
program). The borrower's prior subsidized usage periods in the two-year 
program count against the borrower's new maximum eligibility period. 
Therefore, the borrower's remaining eligibility period is four years, 
which is the difference between the borrower's new maximum eligibility 
period (six years) and the sum of the borrower's subsidized usage 
periods (two years). (Subsequent examples will only detail the sum of 
all of a borrower's subsidized usage periods unless necessary to 
clarify the application of the interim final regulations.)
    Example 4: A borrower enrolls in a four-year program and receives 
Direct Subsidized Loans for two years. The borrower then withdraws 
before completing the four-year program, and subsequently enrolls in a 
two-year program. The borrower has not yet received any Direct 
Subsidized Loans for attendance in the two-year program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period for two-year       3 years.
 program.
Sum of all subsidized usage periods.........  2 years.
Remaining eligibility period................  1 year.
------------------------------------------------------------------------

    The borrower's four-year program has a maximum eligibility period 
of six years. When the borrower enrolls in the two-year program, the 
borrower's maximum eligibility period is recalculated as three years 
(150 percent of the two-year program). The borrower's prior subsidized 
usage periods (two years) in the four-year program count against the 
borrower's new maximum eligibility period in the two-year program. 
Therefore, the borrower's remaining eligibility period is one year, 
which is the difference between the borrower's maximum eligibility 
period (three years) and the sum of the borrower's subsidized usage 
periods (two years).
    Example 5: A borrower enrolls in a four-year program and receives 
Direct Subsidized Loans for three years. The borrower completes the 
degree program at the end of the fourth year, but does not receive any 
Direct Subsidized Loans for that year. The borrower then enrolls in a 
different four-year undergraduate program, but has not yet received any 
Direct Subsidized Loans in the new program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period..................  6 years.
Sum of the subsidized usage periods.........  3 years.
Remaining eligibility period................  3 years.
------------------------------------------------------------------------

    The borrower's original four-year program has a maximum eligibility 
period of six years. The borrower received Direct Subsidized Loans for 
three years. The borrower's maximum eligibility period in the second 
four-year program is also six years, and the borrower's prior 
subsidized usage periods count against the borrower's maximum 
eligibility period in the second program. Therefore, the borrower's 
remaining eligibility period is three years, which is the difference 
between the borrower's maximum eligibility period (six years) and the 
sum of the borrower's subsidized usage periods (three years). The 
borrower's fourth year of enrollment in the original program has no 
effect on the borrower's remaining eligibility period because the 
borrower did not receive any Direct Subsidized Loans for that year.
    In addition to the standard calculations described above, we note 
that Sec.  685.301(a)(10) and (c) continue to apply and effectively 
limit the length of time a borrower may receive loans under the interim 
final regulations.
    Specifically, Sec.  685.301(a)(10) describes the minimum 
permissible length of a loan period. If the borrower's remaining 
eligibility period (as calculated under Sec.  685.200(f)(1)(iv)) is 
less than the minimum permissible loan period associated with the 
borrower's program of study, then the institution may not disburse a 
Direct Subsidized Loan to that borrower.
    Under Sec.  685.301(c), borrowers enrolled in clock-hour, non-term, 
or certain non-standard term programs are not eligible for a new annual 
loan limit until they complete either the weeks of instructional time 
or clock hours required. Thus, students enrolled in these types of 
programs are effectively limited to receiving Direct Subsidized Loans 
for 100 percent of the length of the program, notwithstanding the 150 
percent maximum eligibility period of the program as calculated under 
section 455(q) of the HEA. As a result, the 150 percent limit does not 
affect a borrower enrolled in such a program unless the borrower 
subsequently enrolls in another educational program (whether a 
standard-term, non-standard-term, or non-term program).
    The requirements of Sec.  685.301(a)(10) are summarized in Table 1, 
below. Examples 6 and 7 illustrate the effect on

[[Page 28959]]

the 150 percent limitations of Sec.  685.301(a)(10) and (c), 
respectively.

        Table 1--Minimum Loan Periods for Differing Program Types
------------------------------------------------------------------------
            Type of program                    Minimum loan period
------------------------------------------------------------------------
Credit hour, standard term program.....  One term.
Credit hour, non-standard term program   One term.
 with terms substantially equal and at
 least nine weeks of instructional time.
Credit hour, non-standard term program   Lesser of the length of the
 without terms substantially equal or     program or the program's
 at least nine weeks of instructional     academic year.
 time.
Credit hour, non-term program..........  Lesser of the length of the
                                          program or the program's
                                          academic year.
Clock hour program.....................  Lesser of the length of the
                                          program or the program's
                                          academic year.
------------------------------------------------------------------------

    Example 6: The borrower is enrolled in a 22-week (or 154-day), 800-
clock-hour certificate program that defines its academic year as 26 
weeks (or 182 days) of instructional time. The borrower receives a 
Direct Subsidized Loan that covers the length of the program. Upon 
completing the certificate program, the borrower enrolls in a two-year 
associate's degree program that defines its academic year as 30 weeks 
(or 210 days) of instructional time, and that uses credit hours and 
semesters. In each of the borrower's first two years in the associate's 
degree program, the borrower receives a Direct Subsidized Loan for the 
academic year. The borrower has not yet completed the associate's 
degree program, and is requesting loans for the third year.

----------------------------------------------------------------------------------------------------------------
                                        After Certificate      After year 1 in the     After year 2 in the two-
                                             program            two-year program             year program
----------------------------------------------------------------------------------------------------------------
Maximum eligibility period of        1.27 years............  3 years...............  3 years.
 program.
Subsidized usage period............  0.85 years, rounded     1 year................  1 year.
                                      down to 0.75 years.
Sum of all subsidized usage periods  0.75 years............  1.75 years............  2.75 years.
Remaining eligibility period at end  0.52 years............  1.25 years............  0.25 years.
 of the year.
----------------------------------------------------------------------------------------------------------------

    The borrower's 22-week certificate program, which is the equivalent 
of 0.85 academic years
[GRAPHIC] [TIFF OMITTED] TR16MY13.001

has a maximum eligibility period of 1.27 academic years (0.85 academic 
years multiplied by 150 percent). The borrower's subsidized usage 
period for the certificate program is the same as the length of the 
program, 0.85 academic years
[GRAPHIC] [TIFF OMITTED] TR16MY13.002

which is rounded down to the nearest quarter-year, or 0.75 years. Upon 
transferring to the two-year program, the borrower's maximum 
eligibility period is three years. After two years in the two-year 
program, during which the borrower receives Direct Subsidized Loans 
equaling two years, the sum of the borrower's subsidized usage periods 
is 2.75 years (two years from the two-year program plus 0.75 years from 
the certificate program). After two years in the two-year program, the 
borrower's remaining eligibility period is 0.25 years (the difference 
between the two-year program's maximum eligibility period (three years) 
and the sum of the borrower's subsidized usage periods (2.75 years)). 
The borrower has a remaining eligibility period of 52.5 days (0.25 
years x 210 days in an academic year). Because the borrower is enrolled 
in a program that uses credit hours and semesters, under Sec.  
685.301(a)(10), the minimum loan period for this borrower is one term. 
Because the borrower's remaining eligibility period of 52.5 days is 
less than the length of a semester (generally 98-112 days, or 14-16 
weeks), the institution cannot disburse a Direct Subsidized Loan to 
this borrower, even though the borrower's remaining eligibility period 
is greater than zero.
    Example 7: The borrower is enrolled in a one-year, 900 clock hour 
certificate program that defines its academic year as 26 weeks (or 182 
days) of instructional time. The institution disburses a Direct 
Subsidized Loan to the borrower for the academic year. The borrower 
completes only 700 clock hours of instructional time during the 
academic year.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  1.5 years.
Subsidized usage period................  1 year.
Remaining eligibility period...........  0.5 years, subject to the
                                          limitation below.
------------------------------------------------------------------------

    The borrower's one-year program has a maximum eligibility period of 
1.5 years and the borrower's subsidized usage period is one year. The 
borrower's remaining eligibility period is 0.5 years (the difference 
between the borrower's maximum eligibility period (1.5 years) and the 
sum of the borrower's subsidized usage periods (one year)). Because the 
program is a clock hour program, and because the borrower has only 
completed 700 clock hours of instructional time, the borrower may not 
progress to the next academic year. Because Sec.  685.301(c) applies, 
this borrower is not eligible to receive an additional Direct 
Subsidized Loan in this program, notwithstanding the borrower's 
remaining eligibility period of 0.5 years.
    Example 7 illustrates that borrowers in clock-hour, non-term, and 
certain non-standard term programs are effectively limited to receiving 
Direct Subsidized Loans for 100 percent of the

[[Page 28960]]

length of the program. Borrowers in such programs are not able to 
receive Direct Subsidized Loans for their remaining eligibility period 
unless they subsequently enroll in another program, as illustrated in 
example 6.
    Reasons: MAP-21 added section 455(q)(3)(A) to the HEA, which 
provides the method by which a borrower's eligibility for Direct 
Subsidized Loans is determined. To implement this provision, it is 
necessary to issue regulations that describe the statutory calculations 
with greater specificity.
    Section 685.200(f)(1)(ii) implements section 455(q)(3) of the HEA 
and establishes the rule for determining a borrower's maximum 
eligibility period for Direct Subsidized Loans. To avoid potentially 
misleading borrowers, we elected to use the term ``maximum eligibility 
period'' rather than the statutory term ``aggregate period of 
enrollment.'' Because the 150 percent limit on eligibility is measured 
by the period for which a borrower receives Direct Subsidized Loans, 
rather than the period of time that a borrower is enrolled, using the 
statutory term could cause borrower confusion.
    Section 685.200(f)(1)(ii) bases the calculation of a borrower's 
maximum eligibility period on the published length of the program in 
which the borrower is currently enrolled because failing to do so would 
result in inequitable treatment of similarly situated borrowers. For 
example, if enrolling in a new, shorter educational program did not 
result in recalculating a borrower's maximum eligibility period, 
transfer and non-transfer students would have significantly divergent 
remaining eligibility periods simply by virtue of enrollment in a 
different program. Suppose a borrower is enrolled in a four-year 
program, receives a Direct Subsidized Loan for one year, and then 
transfers to a two-year program. If we did not recalculate the 
borrower's maximum eligibility period, that borrower would be eligible 
for five additional years of Direct Subsidized Loans. In contrast, a 
borrower who had been enrolled in the two-year program from the 
beginning and also received a Direct Subsidized Loan for one year would 
only have two years of eligibility remaining. Without recalculating a 
borrower's maximum eligibility period when the borrower enrolls in a 
different program, otherwise-equivalent borrowers would have 
inconsistent and inequitable eligibility periods. To treat all 
borrowers who receive Direct Subsidized Loans equitably, regardless of 
whether they have previously enrolled in programs of differing 
durations for which they received Direct Subsidized Loans, we are 
determining eligibility for Direct Subsidized Loans in this manner.
    Section 685.200(f)(1)(iii) of the interim final regulations, which 
defines the term ``subsidized usage period,'' is necessary to implement 
the requirement in section 455(q)(1) of the HEA that the borrower not 
receive Direct Subsidized Loans for a period in excess of the 
borrower's maximum eligibility period. This provision provides a method 
to calculate the period for which a borrower has received Direct 
Subsidized Loans to ensure the statutory maximum is not exceeded. We 
chose to round borrowers' subsidized usage periods down to the nearest 
quarter year to make it easier for borrowers and institutions to 
understand and communicate a borrower's eligibility for Direct 
Subsidized Loans. In addition, we chose to round down to ensure that 
borrowers were not denied eligibility for Direct Subsidized Loans 
solely on the basis of rounding.
    Because section 455(q)(3)(A) of the HEA does not explicitly provide 
a method for calculating a borrower's remaining eligibility period, we 
needed to issue regulations to establish rules for calculation of that 
period. Section 685.200(f)(1)(iv) provides that a borrower's 
``remaining eligibility period'' is defined as the difference, measured 
in academic years, between the borrower's maximum eligibility period 
and the sum of the borrower's subsidized usage periods with certain 
exceptions as discussed in the next paragraph. The remaining 
eligibility period will inform borrowers of the period they have 
remaining before becoming ineligible for Direct Subsidized Loans.
    Finally, as explained above, Sec.  685.200(f)(1)(iv) is subject to 
the existing provisions of Sec.  685.301(a)(10) and (c), which govern 
the minimum length of loan periods for students enrolled in clock hour, 
non-term, or certain non-standard term programs. Because MAP-21 did not 
include any changes to the statutory provisions reflected in Sec.  
685.301(a)(10) and (c), the calculations specified under Sec.  
685.200(f)(1) must be consistent with those existing regulatory 
requirements.

Exceptions to the Calculation of the 150 Percent Limit for Students 
Enrolled on Less Than a Full-Time Basis or Who Receive the Full Annual 
Loan Limit for a Loan Period of Less Than an Academic Year (Sec.  
685.200(f)(4))

    Statute: MAP-21 added section 455(q)(3)(B) to the HEA, which 
directs the Department to specify in regulations how the aggregate 
period of enrollment will be calculated with respect to borrowers who 
are enrolled on less than a full-time basis. While section 428(b)(1)(A) 
of the HEA permits borrowers to receive an amount equal to the full 
annual loan limit for periods of less than an academic year, revised 
section 455(q) of the HEA does not provide a specific rule for applying 
the 150 percent limit to these borrowers.
    Current Regulations: There are no existing regulations.
    New Regulations: The interim final regulations provide two 
exceptions to the rules for the calculation of a borrower's subsidized 
usage period in Sec.  685.200(f)(1)(iii).
    The first exception applies to borrowers who receive the full 
Direct Subsidized Loan annual loan limit for a period of enrollment 
that is less than an academic year. Section 685.200(f)(4)(i) provides 
that, in this circumstance, a borrower's subsidized usage period is one 
year notwithstanding the subsidized usage period calculated under Sec.  
685.200(f)(1)(iii).
    The second exception applies to borrowers who are enrolled in an 
educational program on less than a full-time basis. Section 
685.200(f)(4)(ii) of the interim final regulations provides that, 
except as provided in Sec.  685.200(f)(4)(i) (the exception described 
in the preceding paragraph), the Secretary will prorate the subsidized 
usage period for borrowers enrolled on a half-time or three-quarter-
time basis. This proration is done by multiplying the borrower's 
subsidized usage period by 0.5 (for half-time) or 0.75 (for three-
quarter-time), respectively.
    Examples 8 through 11 illustrate the calculation of a borrower's 
maximum eligibility period, subsidized usage period, and remaining 
eligibility period if the borrower receives a Direct Subsidized Loan in 
the amount of the full annual loan limit for a period less than an 
academic year, for less than full-time enrollment, or both.
    Example 8: A first-year borrower is enrolled in a four-year, 
semester-based program and has received a Direct Subsidized Loan in the 
amount of $3,500 (the full annual loan limit) that covers the fall 
semester. The borrower does not enroll in the spring semester.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period..................  6 years.
Subsidized usage period.....................  1 year.
Remaining eligibility period................  5 years.
------------------------------------------------------------------------

    The borrower's four-year program has a maximum eligibility period 
of six years. The borrower received a Direct Subsidized Loan in the 
amount of the full annual loan limit for one term. Under Sec.  
685.200(f)(1)(iii), the borrower's

[[Page 28961]]

subsidized usage period would be 0.5 years
[GRAPHIC] [TIFF OMITTED] TR16MY13.003

However, because the borrower received a Direct Subsidized Loan in the 
amount of a full annual loan limit for a period of less than a full 
academic year, Sec.  685.200(f)(4)(i) applies, and the borrower's 
subsidized usage period is one year, notwithstanding the subsidized 
usage period calculated under Sec.  685.200(f)(1)(iii). Therefore, the 
borrower's remaining eligibility period is five years, which is the 
difference between the borrower's maximum eligibility period (six 
years) and the sum of the borrower's subsidized usage periods (one 
year).
    Example 9: A borrower enrolls on a half-time basis for two years of 
a four-year program and receives Direct Subsidized Loans for each of 
the two academic years.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period..................  6 years.
Sum of the subsidized usage periods.........  2 years.
Applicable Proration........................  0.5.
Prorated subsidized usage period............  1 year.
Remaining eligibility period................  5 years.
------------------------------------------------------------------------

    The borrower's four-year program has a maximum eligibility period 
of six years. Because the borrower was enrolled on a half-time basis, 
each of the borrower's subsidized usage periods is prorated by 
multiplying the subsidized usage period by 0.5, resulting in two 
separate 0.5-year subsidized usage periods, for a total subsidized 
usage period of one year. Therefore, the borrower's remaining 
eligibility period is five years, the difference between the borrower's 
maximum eligibility period (six years) and the sum of the borrower's 
prorated subsidized usage periods (one year).
    Example 10: A borrower enrolls in a four-year program and receives 
Direct Subsidized Loans for all four academic years. The borrower is 
enrolled full time during the first academic year, half time during the 
second and third academic years, and three-quarter time during the 
fourth year.

----------------------------------------------------------------------------------------------------------------
                                       Year 1             Year 2             Year 3               Year 4
----------------------------------------------------------------------------------------------------------------
Maximum eligibility period for   6 years..........  6 years..........  6 years..........  6 years
 program.
Subsidized usage period........  1 year...........  1 year...........  1 year...........  1 year
Applicable Proration...........  N/A..............  0.5..............  0.5..............  0.75
Prorated subsidized usage        1 year (not        0.5 years........  0.5 years........  0.75 years
 period (if applicable).          prorated).
Remaining eligibility period at  5 years..........  4.5 years........  4 years..........  3.25 years
 end of year.
----------------------------------------------------------------------------------------------------------------

    The borrower's maximum eligibility period for the four-year program 
is six years. Because the borrower had varying enrollment levels during 
the four years, prorated subsidized usage periods must be determined 
and then added together to determine the borrower's remaining 
eligibility period. As the table above shows, in the first year, the 
borrower's subsidized usage period is not prorated because the borrower 
is enrolled full time. In the second and third years, however, the 
borrower's subsidized usage period is prorated by 0.5 because the 
borrower is enrolled half time. In the fourth year, the borrower's 
subsidized usage period is prorated by 0.75 because the borrower is 
enrolled three-quarter time. If the borrower had been enrolled full 
time during all four academic years, and received Direct Subsidized 
Loans for each of those years, the sum of the borrower's subsidized 
usage periods would be four years at the end of the four academic 
years. However, because the borrower was not enrolled on a full-time 
basis during all four academic years, and has subsidized usage periods 
that are prorated, the sum of the borrower's subsidized usage periods 
is 2.75 years. As a result, the borrower's remaining eligibility period 
is 3.25 years, which is the difference between the borrower's maximum 
eligibility period (six years) and the sum of the borrower's subsidized 
usage periods (2.75 years).
    Example 11: Two first-year borrowers are enrolled in a two-year, 
semester-based program. Both borrowers are enrolled on a half-time 
basis. Borrower 1 receives a Direct Subsidized Loan for the fall term 
in the amount of $3,500, which is the full annual loan limit. Borrower 
2 receives a Direct Subsidized Loan for the fall term in the amount of 
$3,000. Neither borrower enrolls in the spring semester.

------------------------------------------------------------------------
                                      Borrower 1          Borrower 2
------------------------------------------------------------------------
Maximum eligibility period......  3 years...........  3 years.
Subsidized usage period.........  1 year............  0.5 years.
Applicable proration............  N/A...............  0.5.
Prorated usage period...........  N/A...............  0.25 years.
Remaining eligibility period....  2 years...........  2.75 years.
------------------------------------------------------------------------

    The two-year program in which the borrowers are enrolled has a 
maximum eligibility period of three years. Borrower 1 received a Direct 
Subsidized Loan in the amount of the full annual loan limit for one 
term. Borrower 2 received a Direct Subsidized Loan for one term, but 
for less than the amount of the full annual loan limit. Both borrowers 
were enrolled on a half-time basis.
    For Borrower 1, the calculated subsidized usage period under Sec.  
685.200(f)(1)(iii) would be 0.5 years
[GRAPHIC] [TIFF OMITTED] TR16MY13.004

However, because Borrower 1 received a subsidized loan in the amount of 
the full annual loan limit for a period of less than a full academic 
year, Sec.  685.200(f)(4)(i) applies. Therefore, the borrower's 
subsidized usage period is one year and is not prorated.
    For Borrower 2, the calculated subsidized usage period is 0.5 years
    [GRAPHIC] [TIFF OMITTED] TR16MY13.005
    
Because the borrower's loan amount is for less than the full annual 
loan limit, Sec.  685.200(f)(4)(i) does not apply. Therefore, in 
accordance with

[[Page 28962]]

Sec.  685.200(f)(4)(ii), Borrower 2's subsidized usage period is 
prorated based on the borrower's half-time enrollment status. Because 
Borrower 2 is enrolled on a half-time basis, the borrower's subsidized 
usage period of 0.5 years is multiplied by 0.5, resulting in a prorated 
subsidized usage period of 0.25 years.
    For Borrower 1, the remaining eligibility period is two years, 
which is the difference between the borrower's maximum eligibility 
period (three years) and the sum of the borrower's subsidized usage 
periods (one year). For Borrower 2, the remaining eligibility period is 
2.75 years, which is the difference between the borrower's maximum 
eligibility period (three years) and the sum of the borrower's 
subsidized usage periods (0.25 years).
    Reasons: Section 685.200(f)(4)(i) provides the first exception to 
the definition of the term ``subsidized usage period'': If a first-time 
borrower receives a Direct Subsidized Loan in an amount that is equal 
to the annual loan limit for a loan period that is less than a full 
academic year in length, the subsidized usage period is one year.
    Under current law and regulations, a borrower can receive a Direct 
Subsidized Loan in an amount equal to the full annual loan limit for a 
period that is as short as a term (e.g., a semester). Absent Sec.  
685.200(f)(4)(i), a borrower would be able to partially circumvent the 
limitations on Direct Subsidized Loan eligibility enacted by MAP-21: An 
institution could double a borrower's Direct Subsidized Loan 
eligibility by disbursing the full annual Direct Subsidized Loan limit 
for a single term of the academic year (e.g., one semester). If this 
pattern were extended for the duration of the program, the borrower's 
subsidized usage period would be only 0.5 years for each academic year 
and the borrower would have effectively doubled his or her eligibility 
for Direct Subsidized Loans. Section 685.200(f)(4)(i) prevents this 
type of circumvention of MAP-21's limitations on Direct Subsidized Loan 
eligibility.
    Section 685.200(f)(4)(ii) provides the second exception to the 
definition of the term ``subsidized usage period'': If a first-time 
borrower is enrolled on a half-time or three-quarter-time basis, the 
borrower's subsidized usage period is prorated by multiplying the 
borrower's subsidized usage period, as determined in accordance with 
Sec.  685.200(f)(1)(iii), by 0.5 or 0.75, respectively. Section 
685.200(f)(4)(ii) implements revised section 455(q)(3)(B)(i) of the 
HEA, which directs the Secretary to specify in regulation how a 
borrower's subsidized usage period will be calculated when the borrower 
is enrolled on less than a full-time basis. Unlike other Federal 
student aid programs, such as the Federal Pell Grant Program, Direct 
Loans are not prorated based on the borrower's enrollment status. Thus, 
if a borrower who is enrolled on a part-time basis has the same costs 
and financial need as a borrower who is enrolled on a full-time basis, 
then both borrowers will be eligible for a Direct Subsidized Loan in 
the same amount (assuming the borrowers' years in school are 
equivalent). Because borrowers may decide to enroll on less than a 
full-time basis for many different reasons, we believe it is unlikely 
that failing to prorate such borrowers' subsidized usage periods would 
provide a sufficient incentive for such borrowers to enroll on a full-
time basis. Furthermore, we believe that not prorating a borrower's 
subsidized usage period based on the borrower's enrollment status would 
unfairly punish borrowers who choose to enroll on a part-time basis, by 
further limiting such borrower's eligibility for Direct Subsidized 
Loans. Finally, prorating a borrower's subsidized usage period will not 
result in these borrowers receiving significantly higher levels of 
Direct Subsidized Loan funds than borrowers who are enrolled full time, 
because many borrowers who take out Direct Subsidized Loans in 
significant amounts will reach the aggregate Direct Subsidized Loan 
limit of $23,000 prior to reaching their maximum eligibility period 
under these provisions.

Borrower Responsibility for Accruing Interest on Existing Direct 
Subsidized Loans for Borrowers Who Continue Enrollment After Reaching 
the 150 Percent Subsidized Loan Limit (Sec.  685.200(f)(3))

    Statute: Section 455(q)(2) of the HEA, added by MAP-21, provides 
that interest accrues on all Direct Subsidized Loans disbursed to 
certain borrowers on or after July 1, 2013. A borrower is responsible 
for the accruing interest on these loans if the borrower is ineligible 
for additional Direct Subsidized Loans because of the 150 percent 
limitation and is enrolled in a program that would otherwise qualify 
the borrower for a Direct Subsidized Loan. Section 455(q)(2) further 
provides that interest on a Direct Subsidized Loan is paid and 
capitalized in the same manner as interest on a Direct Unsubsidized 
Loan.
    Current Regulations: There are no existing regulations.
    New Regulations: Section 685.200(f)(3)(i) describes the 
circumstances under which a first-time borrower becomes responsible for 
accruing interest on his or her existing Direct Subsidized Loans. 
Notwithstanding any other provision in the regulations that limits the 
borrower's responsibility for accruing interest, the borrower exceeds 
the eligibility limit and becomes responsible for accruing interest on 
all Direct Subsidized Loans if the borrower: (1) has no remaining 
eligibility period; and (2) attends any undergraduate program or 
preparatory coursework on at least a half-time basis at an eligible 
institution that participates in the Title IV, HEA programs. (Note: 
throughout this preamble the terms enrollment and attendance are used 
interchangeably to describe a borrower taking courses at a program.)
    Attendance in an eligible undergraduate program causes a borrower 
to become responsible for accruing interest even if the borrower does 
not request or receive a new loan. A borrower's enrollment in graduate 
or professional programs, enrollment on less than a half-time basis, or 
enrollment in programs at an institution that does not participate in 
the Title IV loan programs will not result in borrower responsibility 
for accruing interest because borrowers in those programs are not 
eligible for Direct Subsidized Loans. In addition, if a borrower has a 
Direct Consolidation Loan that repaid a Direct Subsidized Loan, and 
then the borrower subsequently becomes responsible for accruing 
interest, interest that accrues on that portion of the Direct 
Consolidation Loan is the responsibility of the borrower.
    There are three circumstances in which a borrower becomes 
responsible for accruing interest on all Direct Subsidized Loans. The 
first is when a borrower who has no remaining eligibility period for 
Direct Subsidized Loans continues enrollment in the program for which 
the borrower received the loans. The second is when a borrower has no 
remaining eligibility period for a program and, after withdrawing or 
transferring, enrolls in a different program that is equal to or 
shorter in duration than the prior program. The third is when a 
borrower who previously received Direct Subsidized Loans and who still 
has some remaining eligibility period for that program withdraws or 
transfers from that program to a program of a shorter duration than the 
prior program. In some cases, enrolling in another program results in 
the sum of the borrower's subsidized usage periods equaling or 
exceeding the new program's maximum eligibility period. In such cases, 
the borrower's enrollment

[[Page 28963]]

in the shorter program causes the borrower to have no remaining 
eligibility period (which causes a loss of eligibility for additional 
Direct Subsidized Loans) and to become responsible for accruing 
interest on the outstanding loans.
    Under Sec.  685.200(f)(3)(i), a borrower becomes responsible for 
accruing interest on his or her outstanding loans from the date that 
the conditions of Sec.  685.200(f)(3)(i)(A) and (B) are both met. The 
borrower is responsible for accruing interest when the borrower is 
enrolled at least half time at an eligible institution, during the 
grace period, during deferment periods, or during certain periods when 
the borrower is repaying Direct Loans under the Pay As You Earn or 
Income-Based Repayment plans (existing regulations governing those 
repayment plans provide that under certain circumstances borrowers are 
not responsible for accruing interest).
    Section 685.200(f)(3)(ii) provides that, if a borrower previously 
became responsible for accruing interest on a Direct Subsidized Loan 
and then receives a Direct Consolidation Loan that repays that loan, 
the borrower continues to be responsible for the accruing interest on 
the portion of that Direct Consolidation Loan that repaid the Direct 
Subsidized Loan.
    Section 685.200(f)(3)(iii) provides that, for any outstanding 
Direct Subsidized Loans for which the borrower becomes responsible for 
accruing interest, interest that accrued prior to the date on which the 
borrower became responsible for accruing interest does not become the 
borrower's responsibility; rather, the borrower is responsible only for 
the interest that accrues after the borrower meets both conditions 
specified in Sec.  685.200(f)(3)(i)(A) and (B) (we use the term 
``accruing interest'' in this preamble to indicate this distinction). 
Borrowers have the option of paying the interest portion or allowing 
interest to be capitalized. Unpaid interest is capitalized in the same 
manner as it is on a Direct Unsubsidized Loan.
    Section 685.200(f)(3)(iv) specifies the effect on a borrower's 
responsibility for accruing interest caused by attendance in a 
subsequent program if the borrower completes his or her current program 
in a timely manner. If a borrower completes an undergraduate program 
without becoming responsible for accruing interest, attendance in a 
subsequent program will not cause borrower responsibility for accruing 
interest on previously received loans, even if the borrower has no 
remaining eligibility period.
    Examples 12 through 16 illustrate how a borrower becomes 
responsible for accruing interest under Sec.  685.200(f)(3):
    Example 12: A borrower enrolls in a four-year program, but takes 
six years to complete the program and receives Direct Subsidized Loans 
for each of those six years. The borrower then continues to be enrolled 
in the same program for a seventh year.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  6 years.
Subsidized usage period................  6 years.
Remaining eligibility period...........  0 years.
Borrower responsibility for accruing     The borrower becomes
 interest.                                responsible for accruing
                                          interest upon enrollment in
                                          the seventh year.
------------------------------------------------------------------------

    The maximum eligibility period for the four-year program is six 
years. The borrower received Direct Subsidized Loans for all six years, 
meaning that the borrower is no longer eligible for additional Direct 
Subsidized Loans. Because the borrower continues enrollment in the same 
program after losing eligibility for additional Direct Subsidized 
Loans, the borrower becomes responsible for accruing interest on all of 
his or her outstanding Direct Subsidized Loans, regardless of whether 
he or she requests or receives additional Federal student aid. If the 
borrower had graduated or discontinued enrollment before the seventh 
year, the borrower would not have become responsible for accruing 
interest on his or her Direct Subsidized Loans.
    Example 13: A borrower enrolls in a four-year program, receives 
Direct Subsidized Loans for four years, but discontinues enrollment 
before completing the program. The borrower then enrolls in a two-year 
program, but does not request Federal student aid of any kind.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period for 2-year    3 years.
 program.
Subsidized usage period................  4 years.
Remaining eligibility period...........  -1 years.
Borrower responsibility for accruing     The borrower becomes
 interest.                                responsible for accruing
                                          interest upon enrollment in
                                          the two-year program.
------------------------------------------------------------------------

    The borrower's four-year program has a maximum eligibility period 
of six years. The borrower receives Direct Subsidized Loans for the 
four years the borrower is enrolled in that program. Upon withdrawing 
from that program, the borrower would have been eligible for Direct 
Subsidized Loans for an additional two years if he or she had remained 
in that program. However, when the borrower enrolls in the two-year 
program, the borrower's maximum eligibility period is recalculated as 
three years. Furthermore, the period during which the borrower 
previously received Direct Subsidized Loans counts against the 
borrower's new maximum eligibility period. The borrower is ineligible 
for additional Direct Subsidized Loans because the borrower has no 
remaining eligibility period (the borrower's maximum eligibility period 
upon enrollment in the two-year program (three years) is less than the 
sum of the borrower's subsidized usage periods (four years)). The 
borrower's enrollment in the shorter program causes the borrower to 
become ineligible for additional Direct Subsidized Loans and to become 
responsible for accruing interest on all previously received Direct 
Subsidized Loans.
    We note that, although the calculations in example 13 
arithmetically result in a remaining eligibility period that is a 
negative number, the effect is the same as if the borrower had a 
remaining eligibility period of zero years and then enrolled in a 
program of equal or shorter duration. A negative remaining eligibility 
period does not require that the borrower or institution return any 
portion of previously disbursed Direct Subsidized Loan.

[[Page 28964]]

    Example 14: A borrower enrolls in a four-year undergraduate program 
and receives Direct Subsidized Loans for six years. The borrower then 
enrolls in a two-year master's degree program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  Not applicable.
Subsidized usage period................  6 years.
Remaining eligibility period...........  Not applicable.
Borrower responsibility for accruing     The borrower is not responsible
 interest.                                for accruing interest.
------------------------------------------------------------------------

    The borrower's four-year program has a maximum eligibility period 
of six years. The borrower received Direct Subsidized Loans for six 
years. When the borrower enrolls in the graduate program, the borrower 
is not eligible for additional Direct Subsidized Loans because graduate 
students are not eligible for Direct Subsidized Loans. Under Sec.  
685.200(f)(3)(i)(B), enrollment in such programs does not result in a 
borrower becoming responsible for accruing interest. Therefore, 
enrollment in the master's degree program does not cause the borrower 
to become responsible for accruing interest on Direct Subsidized Loans.
    Example 15: A borrower enrolls in a four-year undergraduate 
program, receives Direct Subsidized Loans for four years, and graduates 
on time. The borrower then enrolls in a two-year undergraduate program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  3 years.
Subsidized usage period................  4 years.
Remaining eligibility period...........  -1 years.
Borrower responsibility for accruing     The borrower is not responsible
 interest.                                for accruing interest.
------------------------------------------------------------------------

    The borrower's four year program had a maximum eligibility period 
of six years and the borrower received Direct Subsidized Loans for four 
years in that program. When the borrower enrolls in the two-year 
program, the borrower's maximum eligibility period is recalculated as 
three years. The sum of the borrower's subsidized usage periods (four 
years) exceeds the borrower's maximum eligibility period (three years); 
the borrower has no remaining eligibility period and is therefore no 
longer eligible for Direct Subsidized Loans. Under Sec.  
685.200(f)(3)(i), because the borrower had no remaining eligibility 
period upon enrollment in an undergraduate program, the borrower would 
normally become responsible for accruing interest. However, under Sec.  
685.200(f)(3)(iv), because the borrower graduated from the four-year 
program before becoming responsible for accruing interest, enrollment 
in the two-year program does not result in the borrower becoming 
responsible for accruing interest on any loans.
    Example 16: A borrower enrolls in a two-year program and receives 
Direct Subsidized Loans for two years. The borrower does not complete 
that program, but transfers to a four-year program and receives four 
years of Direct Subsidized Loans, graduating on time. The borrower then 
enrolls in a one-year certificate program.

----------------------------------------------------------------------------------------------------------------
                                         After year 2 of two-   Upon completion of four-  Upon attendance in the
                                             year program            year  program           one-year program
----------------------------------------------------------------------------------------------------------------
Maximum eligibility period for         3 years................  6 years................  1.5 years.
 program.
Sum of all subsidized usage periods..  2 years................  6 years................  6 years.
Remaining eligibility period.........  1 year.................  0 years................  -4.5 years.
Borrower responsibility for accruing   Borrower not             Borrower not             Borrower not
 interest.                              responsible for          responsible for          responsible for
                                        accruing interest.       accruing interest.       accruing interest.
----------------------------------------------------------------------------------------------------------------

    The borrower transferred to the four-year program before becoming 
responsible for accruing interest in the two-year program. When the 
borrower transferred, the borrower's maximum eligibility period was 
recalculated as six years, resulting in a remaining eligibility period 
of four years. The borrower completed the four-year program before 
becoming responsible for accruing interest. Therefore, under Sec.  
685.200(f)(3)(iv), upon enrollment in the one-year certificate program, 
the borrower does not become responsible for accruing interest on any 
of the borrower's previously received Direct Subsidized Loans. However, 
the borrower is not eligible to receive Direct Subsidized Loans while 
attending the one-year certificate program.
    Reasons: MAP-21 added section 455(q)(2) to the HEA, which provides 
that if a borrower is no longer eligible for Direct Subsidized Loans 
and is enrolled in a program of education or training for which the 
borrower is otherwise eligible to receive Direct Subsidized Loans, 
interest will accrue on all of the borrower's Direct Subsidized Loans 
that were disbursed to the borrower on or after July 1, 2013. We 
believe that the limit on subsidy duration in MAP-21 was meant to 
encourage timely completion.\1\ We have therefore drafted implementing 
regulations consistent with that goal.
---------------------------------------------------------------------------

    \1\ The Senate Appropriations Committee's report on the 2013 
Appropriations bill funding the Department states that limiting 
``subsidy duration will encourage borrowers to complete their 
educational program in a timelier manner.'' S.Rpt. 112-176, 112th 
Cong. 2d Sess. at 190 (2012).
---------------------------------------------------------------------------

    Section 685.200(f)(3) provides that a borrower becomes responsible 
for accruing interest on all Direct Subsidized Loans only if the 
borrower has no remaining eligibility period and then enrolls at least 
half time in an eligible undergraduate program or preparatory 
coursework at an institution that participates in the Title IV, HEA 
programs. This is consistent with the requirements of section 455(q) of 
the HEA. Specifically, the statute provides a progression of actions 
and consequences

[[Page 28965]]

for Direct Subsidized Loan borrowers which ultimately results in a 
borrower becoming responsible for accruing interest. First, section 
455(q)(3)(A) of the HEA provides that a borrower may not receive Direct 
Subsidized Loans in excess of the borrower's maximum eligibility 
period. Second, section 455(q)(1) of the HEA provides that such 
borrowers lose eligibility for Direct Subsidized Loans if the borrower 
meets or exceeds his or her maximum eligibility period. Finally, 
section 455(q)(2) of the HEA provides that, if the borrower is enrolled 
in a program of education or training after having lost eligibility for 
Direct Subsidized Loans, interest on the borrower's Direct Subsidized 
Loans disbursed on or after July 1, 2013 accrues, notwithstanding any 
other provision of law that would relieve the borrower of the 
obligation to pay interest.
    A consequence of Sec.  685.200(f)(3)(i) is that a borrower will 
become responsible for accruing interest on outstanding Direct 
Subsidized Loans by enrolling in an undergraduate program that is 
shorter than the program for which the borrower previously received 
Direct Subsidized Loans, even if the borrower does not receive new 
Direct Subsidized Loans. For the reasons articulated in the preamble 
discussion of Sec.  685.200(f)(1)(ii)-(iv), the interim final 
regulations require that a borrower's maximum eligibility period 
changes to reflect the length of the program in which the borrower is 
currently enrolled. If a borrower had previously borrowed for a longer 
program (even if the borrower had a remaining eligibility period 
greater than zero for that program), then, by virtue of the previous 
borrowing, it is possible for the borrower to have no remaining 
eligibility period for the shorter program even if the borrower does 
not receive any Direct Subsidized Loans for the shorter program. By 
enrolling in the shorter program, the borrower immediately satisfies 
the condition of section 455(q)(3)(A) of the HEA (that the borrower is 
no longer eligible for Direct Subsidized Loans) as well as the 
condition of section 455(q)(2) of the HEA (that the borrower is 
enrolled after losing eligibility for additional Direct Subsidized 
Loans). Therefore, to implement section 455(q) of the HEA, the interim 
final regulations require that enrollment in a shorter program after 
meeting or exceeding the borrower's maximum eligibility period will 
result in the borrower becoming responsible for accruing interest on 
all outstanding Direct Subsidized Loans.
    We recognize that under this framework, a borrower could become 
responsible for accruing interest on his or her Direct Subsidized Loans 
by enrolling in a program of equal or shorter duration even if the 
borrower completed a prior program in a timely manner. Because we 
believe that MAP-21 was intended to encourage borrowers to complete 
their programs in a timely manner, Sec.  685.200(f)(3)(iv) specifies 
that such a circumstance will not result in borrower responsibility for 
accruing interest (see examples 15 and 16). Absent such treatment, 
borrowers who complete their programs in a timely manner, consistent 
with the statutory intent, could still become responsible for accruing 
interest. In addition, without this treatment, the regulations would 
create a disincentive for borrowers who completed their programs on 
time but are nevertheless unemployed or underemployed and need to 
return to a short-term educational program for job retraining. For 
these reasons, we have specified in regulation that borrowers who 
complete their programs in a timely manner do not become responsible 
for accruing interest, consistent with the intent of MAP-21.
    Section 685.200(f)(3)(i) also specifies that borrowers who become 
responsible for accruing interest on outstanding Direct Subsidized 
Loans will be responsible for such interest for the life of the loans, 
including periods of in-school status, grace periods, deferment 
periods, and certain periods of repayment under the Income-Based 
Repayment and Pay As You Earn Repayment plans. Section 455(q)(2) of the 
HEA provides that the borrower is responsible for accruing interest on 
outstanding Direct Subsidized Loans ``notwithstanding subsection 
(f)(1)(A) or any other provision of this title.'' Section 455(f)(1)(A) 
of the HEA provides that during periods of eligible deferments, 
interest does not accrue and is not paid by the borrower. Therefore, 
under section 455(q)(2) a borrower who becomes responsible for accruing 
interest does so even during periods of deferment. The interim final 
regulations implement this statutory requirement by providing that, 
when a borrower becomes responsible for accruing interest on Direct 
Subsidized Loans, interest accrues and is the responsibility of the 
borrower even during periods of deferment. Similarly, section 455(a)(2) 
of the HEA requires that the borrower becomes responsible for accruing 
interest during similar periods when interest would not otherwise be 
the responsibility of the borrower. The interim final regulations 
therefore require that, when repaying Direct Subsidized Loans under the 
Pay As You Earn or Income-Based Repayment plans, a borrower who would 
otherwise not be responsible for accruing interest during certain 
periods of repayment will become responsible for such interest if the 
borrower meets the conditions of Sec.  685.200(f)(3).
    Finally, Sec.  685.200(f)(3)(i)(B) reflects section 455(q)(2) of 
the HEA, which provides that a borrower becomes responsible for 
accruing interest if the borrower is enrolled in a program for which 
the borrower is otherwise eligible to receive a Direct Subsidized Loan.

Regaining Eligibility for Direct Subsidized Loans (Sec.  685.200(f)(5))

    Statute: MAP-21 added section 455(q)(1) to the HEA to provide that 
a borrower loses eligibility for Direct Subsidized Loans if the period 
of time for which the borrower has received Direct Subsidized Loans 
exceeds the aggregate period of enrollment as described in section 
455(q)(3) of the HEA.
    Current Regulations: There are no existing regulations.
    New Regulations: Section 685.200(f)(5) provides that a first-time 
borrower who had previously lost eligibility to receive additional 
Direct Subsidized Loans may regain eligibility for Direct Subsidized 
Loans if the borrower attends an educational program that is longer 
than the prior educational program in which the borrower was enrolled. 
This provision applies even if the borrower has become responsible for 
accruing interest on previously received Direct Subsidized Loans under 
Sec.  685.200(f)(3). Example 17 illustrates this regulatory provision:
    Example 17: A borrower enrolls in a two-year program and receives 
Direct Subsidized Loans for the maximum eligibility period of three 
years. The borrower is no longer eligible for further Direct Subsidized 
Loans in this program. Then, the borrower enrolls in a four-year 
undergraduate program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period for 4-year         6 years.
 program.
Subsidized usage period.....................  3 years.
Remaining eligibility period................  3 years.
------------------------------------------------------------------------

    The borrower's two-year program had a maximum eligibility period of 
three years and the borrower received Direct Subsidized Loans for three 
years for that program. Because the borrower had no remaining 
eligibility period in that program, the borrower becomes ineligible for 
additional Direct Subsidized Loans. However, when the borrower enrolls 
in the four-year program the borrower's maximum

[[Page 28966]]

eligibility period is 6 years. Since the borrower has used three years 
of eligibility, the borrower now becomes eligible for an additional 
three years of Direct Subsidized Loans. Therefore, the borrower has 
regained eligibility by enrolling in a program of greater duration than 
the borrower's previous program.
    Reasons: Section 685.200(f)(5) incorporates the calculations of 
section 455(q)(3) of the HEA into the interim final regulations. 
Specifically, this regulatory provision provides that a borrower may 
regain eligibility for Direct Subsidized Loans if the borrower attends 
an educational program longer than the program in which the borrower 
was previously enrolled. A borrower enrolling in such a program would 
have a new, longer eligibility period and would regain eligibility for 
additional Direct Subsidized Loans.
    Failing to allow a borrower to regain eligibility in this manner 
would result in inequitable treatment of similarly situated borrowers. 
For example, if enrolling in a new, longer educational program did not 
expand a borrower's maximum eligibility period, students enrolling in 
two different programs would have significantly reduced Direct 
Subsidized Loan eligibility compared to borrowers who only enrolled in 
the longer program. Suppose a borrower is enrolled in a two-year 
program and receives Direct Subsidized Loans for three years. If the 
borrower then transfers to a four-year program and if the borrower's 
maximum eligibility period were not adjusted to six years, then the 
borrower would not be eligible for any additional Direct Subsidized 
Loans. In contrast, a borrower who had been enrolled in the four-year 
program from the beginning and who had also received Direct Subsidized 
Loans for three years would have three years of eligibility remaining. 
Therefore, to provide equal treatment to these and similar borrowers, 
under these interim final regulations, borrowers who attend programs of 
greater duration can regain eligibility for Direct Subsidized Loans.

Treatment of Preparatory Coursework Required for Enrollment in a Degree 
or Certificate Program (Sec.  685.200(f)(6))

    Statute: MAP-21 added section 455(q)(3)(B) to the HEA. This section 
directs the Secretary to specify in regulation how the 150 percent 
limit on Direct Subsidized Loans applies to students who are enrolled 
in coursework necessary for admission into a degree or certificate 
program. Section 484(b)(3)(B) of the HEA authorizes an otherwise-
eligible student to receive a Direct Loan for one 12-month period in a 
course of study necessary for enrollment in a degree or certificate 
program.
    Current Regulations: Current 34 CFR 668.32(a)(1)(ii) reflects the 
requirements of section 484(b)(3)(B) of the HEA. Section 685.203(a)(6) 
provides that, for one 12-month period, a student may receive a Direct 
Loan up to an annual loan limit of $2,625 for coursework necessary for 
enrollment in an undergraduate degree or certificate program, and up to 
an annual loan limit of $5,500 for coursework necessary for a graduate 
or professional degree or certificate program. There are no current 
regulations that address the application of the 150 percent Direct 
Subsidized Loan limit on borrowers enrolled in coursework necessary for 
a graduate or professional program.
    New Regulations: The interim final regulations provide that the 
provisions of Sec.  685.200(f), which govern the 150 percent limit on 
Direct Subsidized Loan eligibility, do not supersede the existing 12-
month maximum period of loan eligibility limitation imposed by Sec.  
668.32(a)(1)(ii). Section 685.200(f)(6) of the interim final 
regulations establishes rules for determining the eligibility for 
Direct Subsidized Loans received for preparatory coursework necessary 
for enrollment in undergraduate or graduate or professional programs. 
Section 685.200(f)(6) treats coursework required for an undergraduate 
degree or certificate program differently than coursework required for 
a graduate or professional program. However, Sec.  685.200(f)(6)(i) 
specifies that Direct Subsidized Loans received for either type of 
preparatory coursework are included in the calculation of a borrower's 
subsidized usage period.
    Section 685.200(f)(6)(ii) provides that the maximum eligibility 
period for Direct Subsidized Loans for students completing preparatory 
coursework required for enrollment in an undergraduate program is the 
maximum eligibility period applicable to the undergraduate program for 
which the preparatory coursework is required. Enrollment in preparatory 
coursework does not increase the borrower's maximum eligibility period. 
Furthermore, Sec.  685.200(f)(6)(iv) provides that for undergraduate 
preparatory coursework, the borrower becomes responsible for accruing 
interest if the borrower has no remaining eligibility period in the 
program for which the coursework is required. This occurs if the 
maximum eligibility period of the undergraduate program for which the 
preparatory coursework is required is less than the sum of the 
borrower's subsidized usage periods based on the borrower's prior 
enrollment in one or more educational programs.
    Section 685.200(f)(6)(iii) provides that the maximum eligibility 
period for preparatory coursework required for enrollment in a graduate 
or professional program is the maximum eligibility period for the 
undergraduate program for which the borrower most recently received a 
Direct Subsidized Loan. A borrower with no remaining eligibility period 
based on the maximum eligibility period for that undergraduate program 
may not receive Direct Subsidized Loans to complete the required 
coursework; however, the borrower may receive Direct Unsubsidized 
Loans.
    Section 685.200(f)(6)(v) provides that enrollment in preparatory 
coursework required for enrollment in a graduate or professional 
program does not result in the borrower becoming responsible for 
accruing interest on previously received Direct Subsidized Loans. 
Examples 18 through 22 illustrate the regulatory treatment of 
preparatory coursework:
    Example 18: A borrower enrolls in preparatory coursework required 
for enrollment in an undergraduate program and receives Direct 
Subsidized Loans for one year. The borrower then enrolls in a four-year 
degree program for which the preparatory coursework was required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period..................  6 years.
Subsidized usage period.....................  1 year.
Remaining eligibility period................  5 years.
------------------------------------------------------------------------

    Under Sec.  685.200(f)(6)(ii), the borrower's maximum eligibility 
period is calculated as 150 percent of the four-year program, which 
results in a maximum eligibility period of six years. The borrower 
received Direct Subsidized Loans for one year of preparatory 
coursework; under Sec.  685.200(f)(6)(i), this period counts toward the 
borrower's maximum eligibility period for the four-year program for 
which the preparatory coursework was required. The difference between 
the maximum eligibility period (six years) and the sum of the 
borrower's subsidized usage periods from the preparatory coursework 
(one year) results in a remaining eligibility period of five years for 
the four-year program.
    Example 19: A borrower enrolls in preparatory coursework for 
enrollment in a two-year undergraduate program and receives Direct 
Subsidized Loans for one year. The borrower then enrolls in the two-
year undergraduate program for which the preparatory coursework

[[Page 28967]]

was required and receives Direct Subsidized Loans for two years. The 
borrower then enrolls in a four-year program.

----------------------------------------------------------------------------------------------------------------
                                        After preparatory                             Upon enrollment in 4-year
                                           coursework         After 2-year program             program
----------------------------------------------------------------------------------------------------------------
Maximum eligibility period of the    3 years...............  3 years...............  6 years.
 program.
Sum of subsidized usage periods....  1 year................  3 years...............  3 years.
Remaining eligibility period.......  2 years...............  0 years...............  3 years.
----------------------------------------------------------------------------------------------------------------

    When the borrower enrolled in the preparatory coursework, the 
borrower's maximum eligibility period under Sec.  685.200(f)(6)(ii) was 
the maximum eligibility period for the two-year program for which the 
coursework is required, or three years. The borrower received Direct 
Subsidized Loans for one year of preparatory coursework and had two 
years of eligibility remaining. The borrower then enrolled in the two-
year program. The borrower received Direct Subsidized Loans for two 
years and, after two years, had no remaining eligibility for Direct 
Subsidized Loans. When the borrower enrolls in the four-year program, 
the borrower's maximum eligibility period under Sec.  685.200(f)(1)(ii) 
is calculated as 150 percent of the four-year program, or six years. 
Under Sec. Sec.  685.200(f)(1)(iii) and 685.200(f)(6)(i), the period in 
which the borrower previously received Direct Subsidized Loans, 
including the loan received for the preparatory coursework, count 
against the borrower's new six-year maximum eligibility period. The sum 
of the borrower's subsidized usage periods upon enrollment in the four-
year program is three years. The borrower has three years of Direct 
Subsidized Loan eligibility remaining--the difference between six years 
and three years.
    Example 20: A borrower enrolls in a two-year program and receives 
Direct Subsidized Loans for the maximum eligibility period of three 
years. The borrower withdraws and wants to enroll in another two-year 
program, but is required to complete preparatory coursework for 
enrollment in that program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  3 years.
Subsidized usage period................  3 years.
Remaining eligibility period...........  0 years.
Borrower responsibility for accruing     The borrower is responsible for
 interest.                                accruing interest.
------------------------------------------------------------------------

    When the borrower enrolled in the initial two-year program, the 
borrower's maximum eligibility period was three years. The borrower 
received Direct Subsidized Loans for the three-year maximum eligibility 
period. The borrower wants to enroll in another two-year program but is 
required to complete preparatory coursework for admission to that 
program. Under Sec.  685.200(f)(6)(ii), the borrower's maximum 
eligibility period for the preparatory coursework is three years--the 
maximum eligibility period for the new two-year program. Upon 
enrollment in the preparatory coursework for the new two-year program, 
the borrower does not have any remaining eligibility period because the 
borrower has already received Direct Subsidized Loans for three years. 
In addition, under Sec.  685.200(f)(6)(iv), enrollment in the 
undergraduate preparatory coursework causes the borrower to become 
responsible for accruing interest on all of the borrower's previously 
received Direct Subsidized Loans, because the borrower has no remaining 
eligibility period. Finally, Sec.  685.200(f)(3)(iv) does not apply 
because the borrower did not complete the initial two-year program.
    Example 21: A borrower enrolls in a four-year undergraduate program 
and receives Direct Subsidized Loans for five years. The borrower wants 
to enroll in a graduate degree program, but is required to complete 
preparatory coursework for enrollment in that program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  6 academic years.
Subsidized usage period................  5 academic years.
Remaining eligibility period...........  1 academic year, subject to the
                                          limitation below.
------------------------------------------------------------------------

    Under Sec.  685.200(f)(1)(ii), the borrower's maximum eligibility 
period for the four-year program is six academic years (150 percent of 
the four-year undergraduate program). The borrower received Direct 
Subsidized Loans for five years. Under Sec.  685.200(f)(6)(iii), the 
borrower's eligibility for Direct Subsidized Loans for preparatory 
coursework necessary for enrollment in a graduate program is based on 
the borrower's most recent undergraduate program of study in which the 
borrower received a Direct Subsidized Loan. The borrower has a 
remaining eligibility period of one academic year based on the six 
academic year maximum eligibility period for the prior undergraduate 
program, but Sec.  668.32(a)(1)(ii) limits loan eligibility for 
preparatory coursework to one consecutive 12-calendar month period. The 
borrower therefore has a remaining eligibility period of one academic 
year, but must use that eligibility during one consecutive 12 calendar 
month period.
    Example 22: A borrower enrolls in a four-year undergraduate program 
and receives Direct Subsidized Loans for the maximum eligibility period 
of six years. The borrower wants to enroll in a graduate program, but 
is required to complete preparatory coursework for enrollment in that 
program.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period.............  6 years.
Subsidized usage period................  6 years.

[[Page 28968]]

 
Remaining eligibility period...........  0 years.
Borrower responsibility for accruing     The borrower is not responsible
 interest.                                for accruing interest.
------------------------------------------------------------------------

    Under Sec.  685.200(f)(1)(ii), the borrower's maximum eligibility 
period for the four-year program is six years. The borrower received 
Direct Subsidized Loans for the maximum eligibility period of six 
years. Under Sec.  685.200(f)(6)(iii), the borrower's eligibility for 
Direct Subsidized Loans for preparatory coursework for enrollment in a 
graduate program is based on the borrower's most recent undergraduate 
program of study in which the borrower received a Direct Subsidized 
Loan. In this case, the borrower used the six years of maximum 
eligibility for the four-year undergraduate program and has no 
remaining eligibility period in the preparatory coursework necessary 
for enrollment in the graduate program. Although the borrower has lost 
eligibility for Direct Subsidized Loans, Sec.  685.200(f)(6)(v) 
provides that the borrower's enrollment in the preparatory coursework 
does not result in the borrower becoming responsible for accruing 
interest on the borrower's previously received Direct Subsidized Loans.
    Reasons: Section 685.200(f)(6) of the interim final regulations 
implements section 455(q)(3)(B)(ii) of the HEA, which requires the 
Secretary to promulgate regulations that address how the 150 percent 
limitations apply to borrowers enrolled in coursework necessary for 
enrollment in an eligible undergraduate program or a graduate or 
professional program.
    We chose to treat Direct Subsidized Loans received for preparatory 
coursework as part of the borrower's related undergraduate program for 
purposes of the 150 percent limit. This approach is consistent with the 
statutory goal of creating an incentive for borrowers to complete their 
programs in a timely manner. We also believe the maximum eligibility 
period calculated under the 150 percent limit will generally allow 
borrowers to receive Direct Subsidized Loans while completing 12 
calendar months of preparatory coursework and the undergraduate program 
for which the preparatory coursework is intended. Furthermore, 
borrowers in such preparatory coursework that are ineligible for 
further Direct Subsidized Loans would still be eligible for Direct 
Unsubsidized Loans to complete their preparatory coursework.
    The interim final regulations treat preparatory coursework for 
enrollment in a graduate or professional program differently than 
coursework required for an undergraduate program. Section 
685.200(f)(6)(iii) limits a borrower's Direct Subsidized Loan 
eligibility for graduate or professional preparatory coursework to the 
maximum eligibility period applicable to the undergraduate program for 
which the borrower most recently received a Direct Subsidized Loan.
    We chose this approach because preparatory coursework for graduate 
or professional programs is considered baccalaureate in nature for 
Direct Loan purposes and is therefore subject to undergraduate loan 
limits under current Sec.  685.203. Such coursework is also limited to 
one 12-calendar month period and is a series of specified courses 
required for admission to a program rather than a stand-alone program 
of study. An alternative we considered was to treat this coursework as 
a one-year stand-alone program; however, we rejected this approach 
because it would cause all borrowers with subsidized usage periods of 
1.5 years or more from their prior undergraduate enrollment to become 
ineligible for Direct Subsidized Loans to complete this preparatory 
coursework (see example 13 and discussion in the related reasons 
section).
    In addition to addressing borrower eligibility for Direct 
Subsidized Loans during preparatory coursework, the interim final 
regulations also address the possibility that a borrower will become 
responsible for accruing interest that could result from enrollment in 
such coursework after a borrower reaches the 150 percent limit and is 
no longer eligible for additional Direct Subsidized Loans. For 
enrollment in preparatory coursework necessary for enrollment in an 
undergraduate program, Sec.  685.200(f)(6)(iv) provides that a borrower 
would become responsible for accruing interest only if the borrower had 
no remaining eligibility period in the program for which the coursework 
is required. We believe that this provision will be inapplicable to 
most borrowers because borrowers rarely enroll in preparatory 
coursework for an undergraduate program after having already received a 
significant number of Direct Subsidized Loans. In addition, such 
borrowers will ultimately become responsible for accruing interest by 
enrolling in the undergraduate program for which the preparatory 
coursework is required. Therefore, preventing borrower responsibility 
for accruing interest during the related preparatory coursework would 
only delay borrower responsibility for accruing interest for a short 
period.
    In contrast, under Sec.  685.200(f)(6)(v), a borrower's enrollment 
in preparatory coursework required for a graduate or professional 
program does not result in the borrower becoming responsible for 
accruing interest on previously received loans. Borrowers enrolling in 
graduate or professional preparatory coursework often have borrowed 
Direct Subsidized Loans during undergraduate programs. Borrower 
responsibility for accruing interest caused by enrollment in such 
preparatory coursework could have a significant impact on borrowers who 
then enroll in a graduate or professional program--such borrowers would 
be responsible for interest that accrues during all the years of the 
graduate or professional program. If this were to occur, the costs of 
borrowing for graduate or professional programs would increase 
significantly. For example, suppose a borrower with no remaining 
eligibility period and $23,000 in Direct Subsidized Loan principal (the 
aggregate loan limit) enrolled in one year of preparatory coursework 
for a two-year master's degree program. Assuming an interest rate of 
6.8% on the borrower's loans, the borrower would be responsible for 
more than $5,000 in capitalized interest that accrued during those 
three years of enrollment. Without Sec.  685.200(f)(6)(v), we believe 
such increased costs of borrowing could deter borrowers who require 
preparatory coursework from pursuing graduate- or professional-level 
study.
    Furthermore, without Sec.  685.200(f)(6)(v), borrowers who require 
preparatory coursework for graduate or professional programs would 
otherwise be treated inequitably compared to those who do not need such 
preparatory coursework. Because enrollment in graduate and professional 
programs does not result in borrower responsibility for accruing 
interest, without Sec.  685.200(f)(6)(v), borrowers who need such 
preparatory coursework would become responsible for accruing interest 
while those who do not need preparatory coursework would not. This 
would result in significantly divergent and inequitable principal 
balances at the conclusion of the graduate or professional coursework. 
For these

[[Page 28969]]

reasons, the interim final regulations prevent enrollment in such 
preparatory coursework from resulting in borrower responsibility for 
accruing interest.

Treatment of Teacher Certification Coursework for Which the Institution 
Awards No Academic Credential (Sec.  685.200(f)(7))

    Statute: MAP-21 added section 455(q)(3)(B) to the HEA. This section 
directs the Secretary to specify in regulations how the 150 percent 
Direct Subsidized Loan eligibility limit will apply to borrowers at an 
eligible institution who are enrolled in coursework required for a 
professional State credential or certification necessary for employment 
as an elementary or secondary school teacher, but for which the 
institution awards no academic credential. Section 484(b)(4) of the HEA 
authorizes a student to receive Title IV student loans for such 
coursework.
    Current Regulations: Current 34 CFR 668.32(a)(1)(iii) reflects 
section 484(b)(4) of the HEA, which provides that students are eligible 
for Direct Loans if they are enrolled in teacher certification 
coursework that does not lead to an academic credential awarded by an 
institution, but which is required for certification by the State to 
teach in an elementary or secondary school. Current Sec.  685.203(a)(7) 
provides that a student may receive up to an annual Direct Subsidized 
Loan limit of $5,500 for such coursework. There are no current 
regulations that specify the treatment of students enrolled in teacher 
certification coursework for purposes of the 150 percent Direct 
Subsidized Loan limit. (Throughout the preamble to this interim final 
regulation, any reference to ``teacher certification coursework'' only 
includes teacher certification coursework for which the institution 
awards no academic credential, unless otherwise specified.)
    New Regulations: Section 685.200(f)(7)(i) of the regulations 
provides that the maximum eligibility period for a first-time borrower 
enrolled in teacher certification coursework is calculated as 150 
percent of the published length of the teacher certification coursework 
in which the borrower is currently enrolled.
    Section 685.200(f)(7)(ii) provides that, when determining a 
borrower's remaining eligibility period for teacher certification 
coursework, only periods in which a borrower received Direct Subsidized 
Loans for such teacher certification coursework are included in the 
borrower's subsidized usage period.
    Section 685.200(f)(7)(iii) provides that, when determining a 
borrower's remaining eligibility period for any program or coursework 
other than teacher certification coursework, periods in which a 
borrower received Direct Subsidized Loans for such teacher 
certification coursework are excluded.
    Together, these latter two paragraphs provide that we treat the sum 
of the borrower's subsidized usage periods accrued during teacher 
certification coursework separately from the borrower's subsidized 
usage periods accrued during all other undergraduate programs or 
coursework in which the borrower may have enrolled. Direct Subsidized 
Loans received for teacher certification coursework count only against 
the maximum eligibility period for the borrower's teacher certification 
coursework.
    Finally, Sec.  685.200(f)(7)(iv) provides that enrollment in 
teacher certification coursework for which an academic credential is 
not awarded by the institution does not cause a borrower to become 
responsible for accruing interest on the borrower's outstanding Direct 
Subsidized Loans, including any Direct Subsidized Loans received for 
periods of undergraduate study.
    The provisions of Sec.  685.200(f)(7) cover teacher certification 
coursework for which an institution does not award an academic 
credential. Teacher preparation programs for which an institution 
awards an academic credential are governed by Sec.  685.200(f)(1)-
(f)(6), similar to other undergraduate or graduate programs.
    Examples 23 through 25 illustrate the treatment of borrowers 
enrolled in teacher certification coursework.
    Example 23: A borrower completes a four-year baccalaureate degree 
program and receives four years of Direct Subsidized Loans for that 
program. The borrower then enrolls in teacher certification coursework 
that is one year in duration.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period for the teacher   1.5 years.
 certification coursework.
Subsidized usage period....................  0 years.
Remaining eligibility period...............  1.5 years.
------------------------------------------------------------------------

    The borrower received Direct Subsidized Loans for four years before 
enrolling in the teacher certification coursework. When the borrower 
enrolls in the one year of teacher certification coursework, the 
calculation of the borrower's maximum eligibility period, subsidized 
usage period, and remaining eligibility period are unaffected by the 
borrower's prior enrollment or borrowing. The borrower therefore has 
1.5 years of eligibility for Direct Subsidized Loans remaining.
    Example 24: A borrower enrolls in one year of teacher certification 
coursework and receives Direct Subsidized Loans for one year. The 
borrower then enrolls in separate teacher certification coursework for 
two years.

------------------------------------------------------------------------
Maximum eligibility period for the teacher    3 years.
 certification coursework.
Subsidized usage period.....................  1 year.
Remaining eligibility period................  2 years.
------------------------------------------------------------------------

    The borrower received Direct Subsidized Loans for one year of 
teacher certification coursework, and has a remaining eligibility 
period of 0.5 years after the first year. When the borrower enrolls in 
the separate two years of teacher certification coursework, the 
borrower's maximum eligibility period is three years (150 percent of 
the two years of coursework), but the borrower's previous subsidized 
usage period of one year counts against the borrower's new maximum 
eligibility period. Therefore, the borrower has a remaining eligibility 
period of two years.
    Example 25: A borrower enrolls in a two-year undergraduate degree 
program and receives Direct Subsidized Loans for three years. The 
borrower then enrolls in two years of teacher certification coursework, 
receives Direct Subsidized Loans for three years, and is therefore not 
eligible for more Direct Subsidized Loans. The borrower continues 
enrollment in the teacher certification coursework.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maximum eligibility period for the       3 years.
 teacher certification coursework.
Subsidized usage period................  3 years.
Remaining eligibility period...........  0 years.
Borrower responsibility for accruing     The borrower does not become
 interest.                                responsible for accruing
                                          interest on loans for the
                                          undergraduate program or
                                          teacher certification
                                          coursework.
------------------------------------------------------------------------


[[Page 28970]]

    After completing the two-year undergraduate program, the borrower 
enrolled in two years of teacher certification coursework and received 
Direct Subsidized Loans for three years. When the borrower enrolled in 
the teacher certification coursework, the borrower's maximum 
eligibility period and remaining eligibility period were both three 
years because the borrower's previous undergraduate borrowing does not 
count against the teacher certification maximum eligibility period. The 
borrower subsequently used all three years of Direct Subsidized Loan 
eligibility for the teacher certification coursework and therefore has 
no remaining eligibility period for Direct Subsidized Loans in the 
teacher certification coursework. When the borrower continues 
enrollment in the teacher certification coursework, this does not 
result in the borrower becoming responsible for accruing interest on 
his or her existing Direct Subsidized Loans, either those received for 
the undergraduate degree program or those received for the teacher 
certification coursework.
    Reasons: Section 685.200(f)(7) implements section 455(q)(3)(B)(ii) 
of the HEA, which requires the Secretary to promulgate regulations that 
address how the 150 percent Direct Subsidized Loan eligibility 
limitations apply to borrowers enrolled in teacher certification 
coursework for which the institution awards no academic credential. The 
interim final regulations reflect the unique characteristics of this 
coursework within the general requirements of section 455(q)(3)(A) of 
the HEA.
    We chose to calculate the 150 percent subsidized limit for teacher 
certification coursework in a manner similar to the approach used to 
calculate the limit for undergraduate degree programs. However, in 
calculating the remaining eligibility period, we chose to exclude 
Direct Subsidized Loans borrowed for earlier undergraduate programs. 
Borrowers enrolled in teacher certification coursework required for 
licensure or certification have already completed baccalaureate degree 
programs for which they may have received numerous Direct Subsidized 
Loans. Because this teacher certification coursework is typically one 
or two years in duration, counting earlier undergraduate loans would 
likely cause numerous borrowers to lose eligibility for further Direct 
Subsidized Loans and to become responsible for accruing interest upon 
enrollment (see example 13). This may discourage students from pursuing 
education to become teachers. Therefore, we chose to treat borrowing 
and enrollment in this coursework separately from the borrowing and 
enrollment in undergraduate programs.
    The Secretary believes that individuals should be encouraged to 
become teachers and to continue teaching. The Secretary also believes 
that teacher certification coursework is an important national resource 
for teacher preparation and continued professional development. 
Treating borrowing during teacher certification coursework separately 
for purposes of the 150 percent limit preserves sufficient Direct 
Subsidized Loan eligibility for most borrowers who have financial need 
while preventing such borrowers from having unlimited Direct Subsidized 
Loan eligibility for teacher certification coursework. Allowing 
unlimited eligibility for such coursework would be contrary to the 
intent of MAP-21, which established a time limit on eligibility for 
Direct Subsidized Loans and we believe was intended to provide 
incentives for timely completion.
    In addition to treating Direct Subsidized Loans borrowed for 
teacher certification coursework as separate from prior undergraduate 
Direct Subsidized Loan borrowing, Sec.  685.200(f)(7)(iv) also provides 
that a borrower will not be responsible for accruing interest on prior 
loans based on subsequent enrollment in teacher certification 
coursework. Many States have certification standards that require 
teachers to take teacher certification coursework to continue teaching 
in the State. For these teachers, enrollment in this coursework is 
legally required for continued employment, not an option that a 
borrower can exercise. Therefore, we have determined that enrollment in 
this coursework should not result in the borrower becoming responsible 
for accruing interest on all of the borrower's outstanding loans.

New Entrance and Exit Counseling Requirements (Sec.  
685.304(a)(6)(xiii), Sec.  685.304(b)(4)(xii))

    Statute: Section 485(l) of the HEA requires an eligible institution 
to provide entrance counseling to first-time borrowers at or prior to 
disbursement of a Direct Subsidized Loan or a Direct Unsubsidized Loan. 
The counseling may be provided in person, on a separate written form 
provided to and signed and returned by the borrower, or online with the 
borrower acknowledging receipt. The entrance counseling must include:
     Information on the terms and conditions of the loan;
     The borrower's responsibilities under the loan;
     The effects of the loan on other student aid eligibility;
     An explanation of the use of the master promissory note;
     An explanation of interest accrual and capitalization;
     The borrower's option to pay the accruing interest while 
in school;
     The consequences of not maintaining half-time enrollment;
     The borrower's responsibility to contact the institution 
if the borrower withdraws;
     Sample monthly repayment amounts;
     Information on the National Student Loan Data System 
(NSLDS);
     The borrower's obligation to repay the loan regardless of 
program completion or completion within the regular timeframe for 
completion;
     The consequences of default; and
     The name and contact information for a person the borrower 
may contact if the borrower has any questions.
    Section 485(b) of the HEA requires eligible institutions to provide 
exit counseling to Direct Subsidized Loan or Direct Unsubsidized Loan 
borrowers prior to the borrower completing the course of study or at 
the time the borrower departs from, or drops below half-time enrollment 
at, the institution. The exit counseling must provide:
     Information on the available repayment plans and their 
features;
     Debt management strategies to facilitate loan repayment;
     Loan forgiveness and cancellation provisions with a 
description of their terms and conditions;
     Forbearance provisions and their terms and conditions;
     The consequences of default;
     The effects of loan consolidation;
     The types of tax benefits that may be available; and
     The availability of NSLDS and how it can be used by 
borrowers to access their records and obtain information on the 
repayment status of their loans.
    Current Regulations: Current Sec.  685.304(a)(6) and (b)(4) of the 
Department's regulations reflect the borrower entrance and exit 
counseling requirements contained in the HEA. The information that 
institutions are required to provide to borrowers during entrance and 
exit counseling does not currently include information on the Direct 
Subsidized Loan eligibility limits and the potential borrower 
responsibility for accruing interest.
    New Regulations: The regulations governing entrance and exit 
counseling requirements are being amended to require that institutions 
inform borrowers of the 150 percent Direct Subsidized Loan eligibility 
limitations

[[Page 28971]]

and possible borrower responsibility for accruing interest.
    We have added Sec.  685.304(a)(6)(xiii) of the Direct Loan 
regulations to require that the information provided as part of 
entrance counseling include:
     The possible loss of eligibility for additional Direct 
Subsidized Loans;
     How a borrower's maximum eligibility period, remaining 
eligibility period, and subsidized usage period are determined;
     The potential for a borrower becoming responsible for all 
accruing interest on Direct Subsidized Loans during in-school periods, 
grace periods, and periods of authorized deferment; and
     The impact of borrower responsibility for accruing 
interest on the borrower's total debt.
    We have also amended Sec.  685.304(b)(4)(xii) of the Direct Loan 
regulations governing required exit counseling to require, in addition 
to the information required as part of entrance counseling, that 
information be provided to the borrower on:
     The sum of the borrower's subsidized usage periods at the 
time of the exit counseling;
     How to get information from NSLDS on whether he or she has 
become responsible for accruing interest on any of his or her Direct 
Subsidized Loans and whether the borrower is eligible to receive 
additional Direct Subsidized Loans;
     The possible consequences of receiving additional Direct 
Subsidized Loans for additional undergraduate programs; and
     The potential for a borrower becoming responsible for all 
accruing interest on Direct Subsidized Loans during in-school periods, 
grace periods, and periods of authorized deferment, even if the 
borrower does not receive an additional Direct Subsidized Loan.
    We will modify our entrance counseling material prior to July 1 to 
reflect the additional information that must be provided to borrowers 
under new Sec.  685.304(a)(6)(xiii). We will also modify our exit 
counseling material to reflect the additional information that must be 
provided to borrowers under new Sec.  685.304(b)(4)(xii). Institutions 
may continue to rely on the Department's revised counseling materials 
to comply with these revised regulatory requirements. The Department 
will post an electronic announcement on the Information for Financial 
Aid Professionals Web site when revised counseling materials are 
available.
    Reasons: The amendments made to the HEA by MAP-21 significantly 
alter borrower eligibility requirements for Direct Subsidized Loans for 
first-time borrowers on or after July 1, 2013. The amendments also make 
changes to the terms and conditions of those loans. It is critical that 
institutions communicate information on these important changes to 
borrowers as part of their entrance and exit counseling. Without this 
information, borrowers could be affected by the 150 percent limit 
without knowing about the limit, without understanding how it is 
calculated, and without understanding the significant financial 
implications for them if they reach or exceed the limit. Therefore, we 
have added this information to the information that institutions must 
provide during entrance and exit counseling. Enhanced counseling about 
these requirements will mitigate borrower confusion, encourage accurate 
budgeting and debt management by borrowers, and help borrowers make 
informed educational plans mindful of all potential costs.

Additional Reporting Requirements and Modifications to Departmental 
Systems

    To effectively implement the regulatory provisions contained in 
these interim final regulations, the Department will make a number of 
changes to NSLDS and to the Common Origination and Disbursement (COD) 
System. The COD System will collect information needed to determine 
whether a borrower continues to be eligible for Direct Subsidized 
Loans; NSLDS will collect information needed to determine whether a 
borrower becomes responsible for the accruing interest on the Direct 
Subsidized Loans the borrower previously received. Institutions will 
not be responsible for officially determining whether a borrower has a 
remaining eligibility period under these interim final regulations. The 
Department will have the primary responsibility for making eligibility 
determinations, determining whether a borrower becomes responsible for 
accruing interest, and making this information available to borrowers. 
In the event that there are questions regarding the validity of any 
determination made by the Department with respect to these provisions, 
we will develop a process to research data integrity issues, and, if 
necessary, adjust previously made determinations. However, institutions 
will be required to report additional information to both the COD 
System and NSLDS, as discussed below. We are committed to making the 
necessary systems changes as quickly as possible and will issue further 
guidance at a later date.
    The 150 percent limit only applies to borrowers who are ``first-
time borrowers'' on or after July 1, 2013. The Secretary will have the 
information necessary to determine whether a borrower is a first-time 
borrower as defined in Sec.  685.200(f)(1)(i). Institutions will not be 
required to determine or report this information. However, institutions 
will be required to supply the information below for all borrowers who 
receive Direct Loans on or after the date that we implement the system 
changes necessary to support these interim final regulations.
    To allow the Department to calculate a borrower's maximum 
eligibility period, institutions will be required to report additional 
information to the COD System when originating and disbursing Direct 
Loans. The additional information will include, but not be limited to:
     The Classification of Instructional Programs (CIP) Code 
for the program in which the borrower is enrolled;
     The credential level for the borrower's program;
     The length of the borrower's program (in academic years, 
months, or weeks);
     The enrollment status of the borrower at the time the loan 
is disbursed (full time, half time, or three-quarter time);
     If appropriate, an indication that the Direct Loan is 
intended for preparatory coursework for an undergraduate program;
     If appropriate, an indication that the Direct Loan is 
intended for preparatory coursework for a graduate or professional 
program; and
     If appropriate, an indication that the Direct Loan is 
intended for teacher certification coursework for which the institution 
does not award an academic credential.

    Note: An enrollment status of less than half time will not be 
included in the COD System because a borrower is not eligible to 
receive a Direct Loan for enrollment on a less than half-time basis 
(this information will continue to be included in NSLDS, however).

    We will use the CIP Code, credential level, and program length to 
define the program in which the borrower is enrolled. We need this 
information because section 455(q) of the HEA and these implementing 
regulations require that the borrower's maximum eligibility period be 
determined program by program.
    We are requiring that institutions report the borrower's enrollment 
status as of the date that the loan is disbursed, as full time, three-
quarter time, or half time because the Secretary generally

[[Page 28972]]

prorates the subsidized usage period in cases where the borrower is 
enrolled less than full time.
    Finally, institutions must identify Direct Loans that are intended 
to support preparatory coursework for undergraduate programs, 
preparatory coursework for graduate or professional programs, and 
teacher certification coursework because the interim final regulations 
treat loans for such coursework differently than loans for other 
programs.
    To calculate the borrower's subsidized usage period, the COD System 
will divide the number of days in each loan period by the number of 
days in the academic year associated with the loan, as reported by the 
institution in the award record for the loan. An institution's failure 
to report this information accurately will not only cause borrowers to 
appear to have less eligibility for Direct Subsidized Loans than they 
should but may also cause disbursement records to be rejected by the 
COD System or result in adverse findings in compliance reviews of the 
institution, fines, or other sanctions.
    By comparing the sum of the borrower's subsidized usage periods to 
the borrower's maximum eligibility period, the COD System will reject 
any disbursement record of a Direct Subsidized Loan if the borrower has 
lost eligibility for Direct Subsidized Loans as a result of new Sec.  
685.200(f)(2).
    The COD System will track and calculate a borrower's maximum 
eligibility period, subsidized usage period, and remaining eligibility 
period, and the Secretary will provide borrowers and institutions with 
information about the borrower's subsidized usage periods using Student 
Aid Reports (SARs) and Institutional Student Information Records 
(ISIRs) through the Central Processing System (CPS). This will allow 
institutions to counsel Direct Loan borrowers about their maximum 
eligibility periods and remaining eligibility periods based on the 
length of the program in which the borrower is enrolled. This 
information will also allow institutions to determine whether the 
borrower has any Direct Subsidized Loan eligibility remaining before 
submitting an origination or disbursement record to the COD System.
    In addition to the additional reporting to the COD System, 
institutions will be required to report additional information to NSLDS 
as part of their reporting of enrollment information on student loan 
borrowers. The Department requires this additional information to 
implement the requirements concerning borrowers' responsibility for 
accruing interest. The additional information will include, but not be 
limited to:
     The CIP Code and credential level for the program in which 
the borrower is enrolled;
     The length of the program in which the borrower is 
enrolled in academic years, months, or weeks (consistent with 
institutional reporting in the COD System);
     The enrollment status of the borrower at the time the 
institution completes the enrollment reporting;
     If appropriate, an indication that the borrower is 
enrolled in preparatory coursework for an undergraduate program;
     If appropriate, an indication that the borrower is 
enrolled in preparatory coursework for a graduate or professional 
program; and
     If appropriate, an indication that the borrower is 
enrolled in teacher certification coursework for which the institution 
does not award an academic credential.
    The Secretary will use the information regarding CIP Code, 
credential level, and program length to define the program in which the 
borrower is enrolled (e.g., as a graduate program or an undergraduate 
program) and to calculate the appropriate 150 percent limit.
    The Secretary will also use the information about the length of the 
borrower's current program to ensure that borrowers do not improperly 
become responsible for accruing interest.
    Finally, the Secretary will use information that institutions are 
already required to report concerning a student's graduation to 
determine whether a borrower will not become responsible for accruing 
interest under Sec.  685.200(f)(3)(iv) because the borrower completed 
his or her program in a timely manner.
    The Secretary is requiring that institutions flag borrower 
enrollment in preparatory coursework and teacher certification 
coursework because of the special rules that apply to borrowers 
enrolled in those programs.
    We will use this information in NSLDS to determine whether a 
borrower becomes responsible for accruing interest on his or her Direct 
Subsidized Loans (and the effective date on which the borrower becomes 
responsible for that interest). This information will be conveyed to 
the borrower's Federal loan servicer, which will notify the borrower 
that he or she is responsible for accruing interest. The servicer will 
also make the necessary adjustments to reflect the borrower's 
responsibility for accruing interest on the borrower's Direct 
Subsidized Loans.
    The Department will modify its entrance and exit counseling 
material on StudentLoans.gov to provide the information described in 
new Sec. Sec.  685.304(a)(6)(xiii) and 685.304(b)(4)(xii) for 
institutions that use the Department's online counseling material to 
comply with the regulatory entrance and exit counseling requirements.

Executive Orders 12866 and 13563

Regulatory Impact Analysis
    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive Order.
    This regulatory action would have an annual effect on the economy 
of more than $100 million because the transfers between borrowers who 
exceed the 150 percent limit and the government total approximately 
$3.9 billion over loan cohorts 2013 to 2023. Therefore, this action is 
``economically significant'' and subject to review by OMB under section 
3(f)(1) of Executive Order 12866. Notwithstanding this determination, 
we have assessed the potential costs and benefits, both quantitative 
and qualitative, of this regulatory action and have determined that the 
benefits justify the costs.
    We have also reviewed these interim final regulations under 
Executive Order 13563, which supplements and explicitly reaffirms the 
principles, structures, and definitions governing regulatory review 
established in Executive Order 12866. To the extent

[[Page 28973]]

permitted by law, Executive Order 13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages, distributive impacts, and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these interim final regulations only on a reasoned 
determination that their benefits justify their costs. In choosing 
among alternative regulatory approaches, we selected those approaches 
that maximize net benefits. Based on the analysis that follows, the 
Department believes that these regulations are consistent with the 
principles in Executive Order 13563.
    We also have determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    In this regulatory impact analysis we discuss the need for 
regulatory action, the potential costs and benefits, net budget 
impacts, assumptions, limitations, and data sources, as well as 
regulatory alternatives we considered.
    1. Potential costs and benefits
    These interim final regulations implement the statutory 
requirements in MAP-21 that limit the availability of Direct Subsidized 
Loans to 150 percent of the program length and that cause borrowers to 
become responsible for accruing interest if they are no longer eligible 
for Direct Subsidized Loans as a result. The net budget savings that 
will be generated by these interim final regulations will contribute to 
paying for the extension of the 3.4 percent interest rate on Direct 
Subsidized Loans made between July 1, 2012, and June 30, 2013. In the 
following sections, we summarize the effects these interim final 
regulations are likely to have on the Federal Government, institutions 
of higher education (IHEs), and students.
    Federal Government: The eligibility limitations and potential 
borrower responsibility for accruing interest implemented in these 
interim final regulations are expected to result in net budget savings 
as some Direct Subsidized Loans shift to Direct Unsubsidized Loans and 
as some borrowers become responsible for accruing interest on their 
Direct Subsidized Loans earlier than they otherwise would. The 
estimated savings associated with the interim final regulations were 
initially analyzed as PB 2013 budget policy, and that estimate of 
$3.597 billion in savings was included in the Department's mid-session 
review (MSR) budget baseline in the summer of 2012, shortly before the 
passage of MAP-21. When the specifics of the legislation and interim 
final regulations became available, the estimate was updated, using 
revised economic assumptions and loan volume, resulting in additional 
estimated savings of approximately $325 million.
    Consistent with the requirements of the Credit Reform Act of 1990 
(CRA), budget cost estimates for the Federal student loan programs 
reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. A 
cohort reflects all loans originated in a given fiscal year. These 
estimates were developed using OMB's Credit Subsidy Calculator. The OMB 
calculator takes projected future cash flows from the Department's 
student loan cost estimation model and produces discounted subsidy 
rates reflecting the net present value of all future Federal costs 
associated with awards made in a given fiscal year. Values are 
calculated using a ``basket of zeros'' methodology under which each 
cash flow is discounted using the interest rate of a zero-coupon 
Treasury bond with the same maturity as that cash flow. To ensure 
comparability across programs, this methodology is incorporated into 
the calculator and used Governmentwide to develop estimates of the 
Federal cost of credit programs. Accordingly, the Department believes 
it is the appropriate methodology to use in developing estimates for 
these interim final regulations.
    In order to evaluate the effect of these interim final regulations, 
the Department used data from NSLDS to simulate a representative pool 
of Direct Subsidized Loan borrowers for the upcoming cohorts affected 
by the interim final regulations. Based on borrowing patterns in the 
NSLDS data for existing cohorts, the Department estimated which 
borrowers will lose eligibility for Direct Subsidized Loans and which 
borrowers will become responsible for accruing interest. The model 
accounted for program length, type, and whether the borrower 
transferred from one institution to another to determine the loss of 
Direct Subsidized Loan eligibility and borrower responsibility for 
accruing interest. The estimated savings were then generated using the 
Department's Student Loan Model based on the anticipated shift in loan 
volume from Direct Subsidized Loans to Direct Unsubsidized Loans, a 
reduction in anticipated deferments, and a reduced number of days for 
which the borrower is not responsible for interest that accrues. 
Additional information on the effect of these factors is available in 
the Students section of this regulatory impact analysis.
    Institutions of Higher Education: The interim final regulations 
most directly affect the Federal Government and student borrowers, with 
a more limited effect on IHEs. While a small percentage of student 
borrowers is expected to lose eligibility for additional Direct 
Subsidized Loans or to become responsible for accruing interest on 
existing Direct Subsidized Loans, those students would still be 
eligible for Direct Unsubsidized Loans and would not necessarily 
withdraw from their program of study, potentially limiting the effect 
of the interim final regulations on an IHE's revenues. While some 
Direct Subsidized Loan borrowers may shift their educational plans or 
the sources of funding used to pay for their programs, the availability 
of substitute sources of funding or other students who would fill the 
IHE's capacity could also limit the effect of the interim final 
regulations on institutions.
    The Paperwork Reduction Act section of this preamble describes the 
additional reporting requirements for IHEs related to these interim 
final regulations, such as requirements to identify the length of the 
programs in which a student borrower is enrolled,

[[Page 28974]]

the borrower's enrollment status, and the type of program. In addition, 
IHEs will need to update the financial aid counseling they provide to 
student borrowers to reflect the new limitations on Direct Subsidized 
Loans and the Department will provide guidance to assist with this 
process. The Department estimates that this reporting and financial aid 
counseling activity will cost IHEs approximately $1.6 million.
    Students: The effect of these interim final regulations on students 
is the potential loss of Direct Subsidized Loan eligibility and 
responsibility for accruing interest on existing Direct Subsidized 
Loans for new borrowers starting on July 1, 2013. The examples 
presented in this preamble demonstrate the effect of the changes in a 
variety of scenarios under the interim final regulations. While the 
specific effects on individual students will depend on many factors 
(including the use of Direct Subsidized Loans, transfers between 
programs of different published lengths, program completion, or 
enrollment in multiple programs), we have analyzed the effects of the 
interim final regulations across a simulated pool of borrowers subject 
to the regulations.
    As discussed, first-time borrowers as of July 1, 2013, will be 
subject to the new eligibility limitations. Borrowers who are otherwise 
eligible for Direct Subsidized Loans will not be eligible for 
additional Direct Subsidized Loans after taking out Direct Subsidized 
Loans for a period that equals or exceeds 150 percent of the published 
length of their program. The limitation has two parts: (1) The 
determination that a borrower has received Direct Subsidized Loans for 
a period equal to or greater than 150 percent of the length of the 
borrower's program, and (2) once that limit has been reached or 
exceeded, the borrower's responsibility for accruing interest on prior 
undergraduate loans is triggered by the borrower's further enrollment 
in an undergraduate program of equal or shorter duration, except for 
borrowers who complete their programs before becoming responsible for 
accruing interest. The borrower is responsible for interest that 
accrues from the date that he or she becomes responsible for accruing 
interest, not from the original disbursement date of the loan. As 
described in more detail in the Federal Government section of this 
regulatory impact analysis, the Department generated estimates of the 
effect of the interim final regulations on the Federal budget and on 
student borrowers using a pool of hypothetical borrowers and patterns 
of borrowing behavior from NSLDS. Based on NSLDS data, the Department 
was able to estimate the percentage of student borrowers in different 
categories who would potentially trigger the eligibility limitations 
and responsibility for accruing interest under the interim final 
regulations. Transfer students and those at two-year programs were most 
affected by the interim final regulations. The estimates presented in 
Table 2 demonstrate the effect of the interim final regulations by 
sector.

                        Table 2--Estimated Effect of Interim Final Regulations by Sector
----------------------------------------------------------------------------------------------------------------
                                                                              Percent of loans
                                                                                 in category       Percent of
                  First-time borrowers at                   Percent of loans  affected by  the   affected loans
                                                                                   policy       in each category
----------------------------------------------------------------------------------------------------------------
<4-Year Public............................................              16.8              20.0              55.2
<4-Year Private...........................................              10.5               4.8               8.3
4-Year Public.............................................              38.9               3.3              21.5
4-Year For-Profit.........................................              13.6               2.3               5.2
4-Year Not-for-Profit.....................................              20.2               3.0               9.8
----------------------------------------------------------------------------------------------------------------

    Affected borrowers may be subject to different combinations of 
limitations depending on their situations. For example, some borrowers 
who do not intend to take out additional Direct Subsidized Loans will 
still become responsible for accruing interest on existing loans if 
they enroll in an undergraduate program after reaching or exceeding the 
150 percent limit, except for those borrowers who complete their first 
program before becoming responsible for accruing interest. In contrast, 
other borrowers may not trigger the eligibility limitations on prior 
loans from a two-year program if they later transfer to a four-year 
program and become eligible for additional subsidized loans for which 
they are otherwise eligible.
    To quantify the effect of the interim final regulations on student 
borrowers, the Department estimated the number of borrowers in each 
cohort who would exceed the 150 percent Direct Subsidized Loan limit. 
Because borrowers can have loans in multiple cohorts, Table 3 presents 
the estimated percentage and number of borrowers in a particular cohort 
year affected by the interim final regulations, not an unduplicated 
number of borrowers across all cohort years. The percentage of 
borrowers affected increases in later cohorts as the percentage of the 
cohort representing first-time borrowers after July 2013 increases. The 
percentage of borrowers affected reaches approximately 6.54 percent by 
the 2023 cohort when almost all borrowers should be first-time 
borrowers who are subject to the interim final regulations. Those 
included as affected borrowers, approximately 578,000 by the 2023 
cohort, would lose eligibility for future Direct Subsidized Loans and 
become responsible for accruing interest.

                            Table 3--Estimated Number of Affected Borrowers by Cohort
----------------------------------------------------------------------------------------------------------------
                                                     2013         2014         2015         2016         2017
----------------------------------------------------------------------------------------------------------------
Estimated Borrowers in Cohort..................    7,149,480    7,319,118    7,493,094    7,671,527    7,854,541
% affected.....................................        0.87%        1.87%        3.02%        4.03%        4.78%
Estimated Borrowers Affected...................       62,429      136,827      226,332      309,205      375,793
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                        2018         2019         2020         2021         2022         2023
----------------------------------------------------------------------------------------------------------------
Estimated Borrowers in Cohort.....    8,042,264    8,234,825    8,432,361    8,635,008    8,842,911    8,842,911

[[Page 28975]]

 
% affected........................        5.28%        5.59%        5.88%        6.11%        6.32%        6.54%
Estimated Borrowers Affected......      424,358      460,359      495,568      527,703      558,766      577,928
----------------------------------------------------------------------------------------------------------------

    Another factor in the savings to the Federal Government and the 
costs to affected borrowers is borrower responsibility for accruing 
interest on existing Direct Subsidized Loans once the borrower enrolls 
after meeting or exceeding the 150 percent Direct Subsidized Loan 
limit. Table 4 presents the estimated average number of days that 
borrowers would be responsible for accruing interest across the whole 
cohort and for affected borrowers in the cohort only.

           Table 4--Estimated Average Number of Days of Borrower Responsibility for Interest by Cohort
----------------------------------------------------------------------------------------------------------------
             Average days interest                   2013         2014         2015         2016         2017
----------------------------------------------------------------------------------------------------------------
All Borrowers..................................       3.7579       8.6056      14.2657      18.9932      21.2188
Affected Borrowers Only........................      430.360      460.328      472.287      482.849      475.775
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
       Average days interest            2018         2019         2020         2021         2022         2023
----------------------------------------------------------------------------------------------------------------
All Borrowers.....................      22.4407      22.9607      23.4826      24.0255      24.4895      24.9137
Affected Borrowers Only...........      471.536      463.780      457.369      453.188      449.612      444.795
----------------------------------------------------------------------------------------------------------------

    The Department used this information to estimate the cost of the 
loss of Direct Subsidized Loan eligibility and the days for which the 
borrower is responsible for accruing interest on existing Direct 
Subsidized Loans for individual affected borrowers. While the specific 
impact on a given borrower depends on multiple factors, the average 
cost to affected borrowers is approximately $843, based on an assumed 
interest rate of 6.8 percent.
    In addition to the NSLDS-based analysis, the Department also 
examined data from the 2004/2009 Beginning Postsecondary Students 
Longitudinal Study \2\ (BPS) and analyzed what the impacts would have 
been if the interim final regulations had been in place for the 2003 
cohort. BPS data show that the average borrower who started in a four-
year program and who was still enrolled in his or her original 
undergraduate program with no stops, transfers, or degree after six 
years had a little under $14,000 in outstanding subsidized loans. 
Overall, the average borrower who was still enrolled after six 
consecutive years of undergraduate studies at the same institution with 
no degree had just under $24,000 in Direct Subsidized and Unsubsidized 
Loans.
---------------------------------------------------------------------------

    \2\ Tracy Hunt-White, ``2004/2009 Beginning Postsecondary 
Students Longitudinal Study,'' March 2011, http://nces.ed.gov/datalab/index.aspx?ps_x=ceabdef.
    \3\ ``Stopout'' is defined as an interruption of continuous 
enrollment during the measured time period. Students who did not 
have a stopout were continuously enrolled during the measured time 
period.

  Table 5a--Loan Debt for Students Who Began at a Four-Year Institution in the 2003-2004 Academic Year and Had No Stopouts \3\ Through 2009 (Education
                                                          Continued at First Institution Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Percent of
                                                                                    students with    Avg total sub.                        Percent of
                                                                    Avg total        unsub. loan    and unsub.  loan   Avg total  sub,    students with
                                                                 unsub.  through      debt > 0        debt  through      loan  debt      sub. loan  debt
                                                                      2009          through 2009          2009          through  2009     > 0  through
                                                                                      (percent)                                               2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
No degree, still enrolled.....................................           $14,028                57           $23,947           $13,792                74
No degree, transferred........................................             9,046                46            14,687             9,913                58
No degree, left without return................................             6,753                35             9,998             6,364                52
Attained degree...............................................             9,014                39            15,574            11,418                49
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When borrowers who transferred to another institution but did not 
have any stopouts in the six-year period are included, the average 
subsidized and total Stafford loan debts are slightly lower, as 
displayed below in Table 5b.

    Table 5b--Loan Debt for Students Who Began at a Four-Year Institution in the 2003-2004 Academic Year and Had No Stopouts Through 2009 (Education
                                                                   Continued Anywhere)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Percent of
                                                                                    students with    Avg total sub.                        Percent of
                                                                    Avg total        unsub. loan    and unsub.  loan   Avg total  sub.    students with
                                                                 unsub. through       debt > 0        debt  through      loan  debt      sub. loan debt
                                                                      2009          through 2009          2009          through  2009      > 0 through
                                                                                      (percent)                                               2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
No degree, still enrolled.....................................           $12,741                58           $21,765           $13,128                73

[[Page 28976]]

 
No degree, left without return................................             6,667                36             9,949             6,416                52
Attained degree...............................................             9,067                40            15,558            11,308                50
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Under these interim final regulations, a borrower who enrolls in a 
seventh year of undergraduate studies in a four-year program would 
become responsible for accruing interest on Direct Subsidized Loans. 
Using the data from Table 5b, if the interim final regulations were in 
place, the average borrower would have entered that seventh year with 
$13,128 in Direct Subsidized Loans. In that seventh year, in addition 
to losing eligibility for additional Direct Subsidized Loans, the 
borrower would become responsible for $892.67 of interest (this and 
other calculations assume that current law applies--therefore interest 
would accrue at a rate of 6.8 percent). This is in addition to interest 
accruing on existing Direct Unsubsidized Loans as well as any Direct 
Unsubsidized Loans taken out during that seventh year.
    Based on data from the 2004/2009 BPS and assuming these interim 
final regulations were in place, the average borrower who became 
responsible for accruing interest on existing Direct Subsidized Loans 
by enrolling in a seventh year of undergraduate studies but did not 
take out any additional student loans would have accrued almost $1,800 
more in interest during that seventh year of school and the following 
grace period (assuming graduation in the seventh year). If the borrower 
had taken out an additional loan in the seventh year, he or she would 
have been limited to Direct Unsubsidized Loans then and in the future, 
and interest would have accrued on all of the borrower's loans. Under a 
10-year Standard Repayment Plan, the additional costs for a borrower 
who becomes responsible for interest on previously subsidized loans 
would be about $20 per month and $2,400 over the life of the borrower's 
loans. This estimate does not account for the possibility that the 
borrower could request deferments, during which time the borrower would 
also be responsible for accruing interest.

  Table 6--Estimated Impacts of Interim Final Regulations on Sixth-Year and Seventh-Year Undergraduate Students Who Began at a Four-Year Institution in
  the 2003-2004 Academic Year and Had No Stopouts Through 2009 (Education Continued Anywhere). Note: Chart Calculates Interest Using Relevant Interest
   Rates From 2003-2009 and Assumes an Equal Distribution of Loans Through Graduation. These Figures Are Only Intended To Serve as Examples of How the
                     Interim Final Regulations Could Affect Borrowers, Not To Forecast Actual Future Effects on Individual Borrowers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  10-Year       Total
                                                                                                                   Amount  due    standard      amount
                                                                  Total      Sub loans   Unsub loans    Interest        at        monthly    repaid  (10-
                                                                 stafford                                           repayment     payments       year
                                                                                                                                   (6.8%)     standard)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrower 1, graduated at end of year six.....................      $21,765      $13,128       $8,638       $1,828      $23,593         $271      $32,507
Borrower 2, enrolls in seventh year but takes out no                21,765       13,128        8,638        3,531       25,297          291       34,933
 additional loans............................................
Borrower 3, enrolls in seventh year and takes out an                25,393       13,128       12,265        3,778       29,171          336       40,284
 additional unsub loan.......................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Borrowers who start in two-year programs will have three years of 
Direct Subsidized Loan eligibility. However, some borrowers may choose 
to transfer to a longer program (e.g., a four-year program) after that 
third year and subsequently increase their maximum eligibility for 
Direct Subsidized Loans. Data from the 2004/2009 BPS show that the 
average borrower who began at a two-year institution in fall 2003 and 
was still enrolled without a degree at the end of the 2005-2006 
academic year had approximately $4,652 of Direct Subsidized Loan debt. 
However, approximately 20 percent of students who began at a two-year 
institution in fall 2003 and were still enrolled without a degree at 
the end of the 2005-2006 academic year had any subsidized loan debt.
    Unlike a borrower in a four-year program who reaches the 
eligibility limits, a borrower in a two-year program who has taken out 
three years of Direct Subsidized Loans will not become responsible for 
interest on existing Direct Subsidized Loans if he or she enrolls in a 
longer program instead of enrolling in the fourth year of the two-year 
program.

[[Page 28977]]



Table 7--Loan Debt for Students Who Began at a Two-Year Institution in the 2003-2004 Academic Year and Had No Stopouts Through 2006 (Education Continued
                                                               at First Institution Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Percent of                          Percent of
                                                                    Avg total       students with       Avg total       students with       Avg total
                                                                 stafford unsub   unsub loan  debt    stafford sub    sub loan  debt >   stafford  loan
                                                                    loan debt       > 0  through        loan debt      0  through 2006    debt  through
                                                                  through 2006     2006 (percent)     through 2006        (percent)           2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Attained associate's degree...................................            $1,843              29.5            $6,011              39.9            $9,517
Attained certificate..........................................               860              17.7             4,157              33.1             6,499
No degree, still enrolled.....................................               855              17.6             4,652              20.6             7,209
No degree, not enrolled.......................................               445              12.2             2,954              22.9             4,558
No degree, transferred........................................               997              23.0             4,100              33.9             6,213
No degree, left without return................................               954              19.5             4,051              26.3             6,927
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The data in Table 8 show that borrowers in two-year programs who 
become responsible for interest on Direct Subsidized Loans by enrolling 
in a fourth year of that program (but who do not take out an additional 
loan) would not experience a significant financial impact during that 
fourth year under these interim final regulations. Those who receive an 
additional Direct Unsubsidized Loan during the fourth year would 
experience a larger impact because the loan received in the fourth year 
would be a Direct Unsubsidized Loan and such borrowers would be 
responsible for accruing interest on all loans, including Direct 
Subsidized Loans.

 Table 8--Estimated Impact of Interim Final Regulations on Third- and Fourth-Year Undergraduate Students Who Started in a Two-Year Program in Fall 2003
                                                and Have Not Transferred or Had Any Lapses in Enrollment
   [Note: Chart calculates interest using relevant interest rates from 2003-2007 and assumes an equal distribution of loans through graduation. These
  figures are only intended to serve as examples of how the interim final regulations could affect borrowers, not to forecast actual future effects on
                                                                 individual borrowers.]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  10-year       Total
                                                                                                                   Amount  due    standard      amount
                                                                Total sub.   Sub. loans     Unsub.      Interest        at        monthly    repaid  (10-
                                                                and unsub.                  loans                   repayment     payments       year
                                                                                                                                   (6.8%)     standard)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrower 1, graduates at end of year 3.......................       $7,209       $4,652       $2,557         $213       $7,422          $85      $10,250
Borrower 2, enrolls in fourth year of two-year program and           7,209        4,652        2,557          782        7,992           92       11,037
 graduates with no additional loans..........................
Borrower 2, enrolls in fourth year of two-year program and           9,612        4,652        4,960          946       10,558          122       14,580
 graduates with additional loans.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As mentioned earlier, some borrowers who begin in two-year programs 
will transfer to longer programs. A borrower may enroll in a two-year 
program for three years and decide to transfer to a four-year program 
for the fourth year, which would prevent the borrower from becoming 
responsible for accruing interest and allow the borrower to receive 
three additional years of Direct Subsidized Loans. However, there is a 
risk that borrowers who transfer from two-year programs after three 
years without completing an associate's degree and who lose some of 
their earned credit hours may become responsible for interest on 
existing Direct Subsidized Loans if they are unable to complete the 
four-year degree in the three years of remaining eligibility.
    The financial impact of these interim final regulations on 
borrowers who are responsible for accruing interest during the 
repayment period will depend upon a number of factors. As stated 
earlier, borrowers with equal loan debt entering repayment may end up 
paying substantially different amounts overall depending on whether 
borrowers request deferments because a borrower who becomes responsible 
for interest on existing Direct Subsidized Loans will also be 
responsible for such interest during any periods of deferment. 
Borrowers who do not continue enrollment after meeting or exceeding the 
150 percent limit are not responsible for accruing interest during such 
periods.
    These interim final regulations also limit Direct Subsidized Loan 
eligibility for borrowers in teacher certification coursework. Previous 
borrowing for other programs does not affect a borrower's eligibility 
for Direct Subsidized Loans for teacher certification coursework; 
instead, borrowers will begin new eligibility periods upon enrollment 
in such a program and receipt of a Direct Subsidized Loan. As with any 
other program, a borrower can only extend his or her eligibility period 
by enrolling in longer teacher certification coursework. As discussed 
previously in this preamble, subsidized usage periods accrued in 
teacher certification coursework will count against the maximum 
eligibility period of other teacher certification coursework. Once the 
borrower has met or exceeded the 150 percent limitation, he or she will 
still be able to use Direct Unsubsidized Loans to pay for eligible 
programs and subsequent enrollment in such programs will not cause a 
borrower to become responsible for accruing interest on any existing 
Direct Subsidized Loans.
    The limits on the use of Direct Subsidized Loans to pay for teacher

[[Page 28978]]

certification coursework may come at a cost to affected borrowers. Some 
States require teachers to complete these programs on a periodic basis 
to maintain their ability to teach, and these teachers may have to use 
Direct Unsubsidized Loans to pay for additional certificates. As with 
other programs, the overall impact of these regulations on borrowers 
will depend upon borrower behavior throughout repayment.
    These interim final regulations will also have potential financial 
effects on borrowers who enroll in preparatory coursework for 
undergraduate or graduate programs. Direct Subsidized Loans used to pay 
for preparatory coursework for undergraduate programs will count 
against borrowers' maximum eligibility periods. Therefore, borrowers 
enrolled in preparatory courses for undergraduate studies will have 
shorter periods to complete their undergraduate coursework without 
losing eligibility for Direct Subsidized Loans. Enrolling in 
preparatory coursework for a graduate program will not cause a borrower 
to become responsible for interest on existing Direct Subsidized Loans, 
but will still count against the maximum eligibility period of the 
undergraduate program for which the borrower most recently received a 
Direct Subsidized Loan. Borrowers who exhaust their Direct Subsidized 
Loan eligibility during their undergraduate studies will be limited to 
Direct Unsubsidized Loans during these courses.
    In addition to the estimated costs described above, these interim 
final regulations may offer non-quantifiable benefits to students and 
the general population. Data from the 2004/2009 BPS show that about 58 
percent of first-time, full-time students in bachelor degree programs 
completed their programs within six years. These interim final 
regulations could motivate students to finish on time and increase the 
nation's on-time college graduation rate. An improved on-time 
graduation rate could help reduce student debt and provide more 
qualified and highly trained individuals for the country's workforce. 
Reduced debt levels may allow graduates greater economic participation, 
such as by purchasing homes or cars or starting small businesses.
    We welcome comments about the costs and benefits of the changes 
implemented in these interim final regulations.
    Elsewhere in this section under the heading Paperwork Reduction Act 
of 1995, we identify and explain burdens specifically associated with 
information collection requirements.
    2. Alternatives considered.
    No alternatives were considered for the amendments to Sec. Sec.  
685.202 and 685.304 because these amendments implement changes to the 
HEA enacted by Congress, and we did not have discretion in developing 
these amendments. With respect to Sec.  685.200, we did discuss and 
consider alternative approaches to the regulations on preparatory 
coursework for undergraduate studies and treatment of teacher 
preparatory programs.
    In the case of preparatory coursework, the Department wanted to 
ensure that the regulations did not have a significant negative impact 
on borrowers who need this coursework to prepare for undergraduate 
studies. Research shows that preparatory coursework only has a modest 
effect on the length of time that students take to graduate.\4\ For 
this reason, we declined to treat these courses as stand-alone programs 
for the purposes of subsidized loan eligibility.
---------------------------------------------------------------------------

    \4\ Paul Attewell et al., ``New Evidence on College 
Remediation,'' Journal of Higher Education 77, no. 5 (October 2006): 
886-924.
---------------------------------------------------------------------------

    We also considered multiple approaches to the treatment of teacher 
certification coursework. MAP-21 requires the Secretary to promulgate 
regulations that address how the eligibility limit on Direct Subsidized 
Loans and borrower responsibility for accruing interest will operate 
for borrowers enrolled at an eligible institution in a program 
necessary for a professional credential or a certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State. Because many States require teachers to 
obtain such certificates as a prerequisite for teaching or as a 
requirement to continue teaching, we believed that these programs 
should be treated as stand-alone entities not affected by Direct 
Subsidized Loan receipt in prior undergraduate programs. However, to be 
consistent with the overall intent of the 150 percent limitation, we 
provided in these interim final regulations that teacher certification 
coursework is a continuation of the previous teacher certification 
coursework for the purpose of subsidized loan eligibility.
    In the spirit of good governance, the Department has done its due 
diligence to ensure that these interim final regulations represent the 
Department's best efforts to regulate and are consistent with 
Congress's intent in passing MAP-21.

Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in the 
following table we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
these interim final regulations. This table provides our best estimate 
of the changes in annual monetized transfers as a result of these 
interim final regulations. Expenditures are classified as transfers 
from affected student loan borrowers to the Federal Government and the 
IHEs' cost of compliance with the paperwork requirements.


      Accounting Statement Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                Category                      Amount or description
------------------------------------------------------------------------
Annual Benefits........................  Not quantified. The 150% limit
                                          may encourage borrowers' on-
                                          time completion of programs.
Annual Costs...........................  $5.21 (7%).
                                         $5.31 (3%).
                                         Cost of Paperwork Compliance.
Annualized Monetized Transfers.........  $212.8 (7%).
                                         $237.6 (3%).
From Whom To Whom?.....................  From affected student loan
                                          borrowers to the Federal
                                          Government.
------------------------------------------------------------------------


[[Page 28979]]

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these regulations 
easier to understand, including answers to questions such as the 
following:
     Are the requirements in the regulations clearly stated?
     Do the regulations contain technical terms or other 
wording that interferes with their clarity?
     Does the format of the regulations (grouping and order of 
sections, use of headings, paragraphing, etc.) aid or reduce their 
clarity?
     Would the regulations be easier to understand if we 
divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  685.200.)
     Could the description of the regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the regulations easier to understand? If so, how?
     What else could we do to make the regulations easier to 
understand?
    To send any comments that concern how the Department could make 
these interim final regulations easier to understand, see the 
instructions in the ADDRESSES section.

Initial Regulatory Flexibility Act Analysis

    These interim final regulations primarily affect the terms of loans 
made by the Department to some student loan borrowers. However, some of 
the provisions also modify the financial aid counseling and reporting 
requirements of IHEs. The U.S. Small Business Administration Size 
Standards define ``for-profit institutions'' as ``small businesses'' if 
they are independently owned and operated and not dominant in their 
field of operation with total annual revenue below $7,000,000. The 
standards define ``non-profit institutions'' as ``small organizations'' 
if they are independently owned and operated and not dominant in their 
field of operation, or as ``small entities'' if they are institutions 
controlled by governmental entities with populations below 50,000. 
Under these definitions, an estimated 4,365 IHEs subject to the 
proposed paperwork compliance provisions of the interim final 
regulations are small entities. Accordingly, we have prepared this 
initial regulatory flexibility analysis to present an estimate of the 
effect on small entities of the statutory changes as implemented 
through these interim final regulations. The Department welcomes 
comments and information on this analysis.

Succinct Statement of the Objectives of, and Legal Basis for, the 
Regulations

    The interim final regulations reflect changes made to the Direct 
Loan Program by MAP-21. Specifically, these regulations reflect the 
provisions in MAP-21 that amended the HEA to extend the 3.4 percent 
interest rate on Direct Subsidized Loans from July 1, 2012 to July 1, 
2013, and to limit a borrower from receiving Direct Subsidized Loans 
for a period in excess of 150 percent of the published length of the 
educational program in which the borrower is enrolled.

Description of and, Where Feasible, an Estimate of the Number of Small 
Entities to Which the Regulations Will Apply

    These interim final regulations affect IHEs that participate in the 
Federal Direct Loan Program and borrowers. Approximately 60 percent of 
IHEs qualify as small entities, even if the range of revenues at the 
not-for-profit institutions varies greatly. Using data from the 
Integrated Postsecondary Education Data System, the Department 
estimates that approximately 4,365 IHEs qualify as small entities--
1,891 are not-for-profit institutions, 2,196 are for-profit 
institutions with programs of two years or less, and 278 are for-profit 
institutions with four-year programs.

Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Regulations, Including an Estimate of 
the Classes of Small Entities That Will Be Subject to the Requirements

    The interim final regulations modify or increase the paperwork 
burden on entities participating in the Direct Loan Program, as 
described in the Paperwork Reduction Act section of this preamble. In 
particular, institutions will be required to report information that 
will allow the Department to calculate the maximum eligibility period, 
subsidized usage period, and remaining eligibility period for each 
borrower. The information will include: The program's CIP Code; the 
credential level of each program; the length of the program for which 
the loan is intended; the enrollment status of the borrower at the time 
the loan is disbursed; whether a loan is for teacher certification 
coursework for which the institution awards no academic credential; 
whether a loan is for preparatory coursework necessary for enrollment 
in an undergraduate program; and whether the loan is for preparatory 
coursework necessary for enrollment in a graduate or professional 
program. Institutions will also provide program information to the 
Department's NSLDS system and include information about the 150 percent 
limit in financial aid entrance and exit counseling. The estimated 
burden on small entities from these requirements is summarized in Table 
9.

                                                  Table 9--Estimated Paperwork Burden on Small Entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Cost per
                                                              Reg section                       OMB Control No.                Cost         institution
--------------------------------------------------------------------------------------------------------------------------------------------------------
COD reporting of enrollment status, program       685.301(e)........................  OMB 1845--NEW1....................        $852,234            $195
 length, teacher preparation programs,
 preparatory coursework, and CIP code.
NSLDS reporting.................................  685.309(b)........................  OMB 1845--NEW1....................          65,953              15
Additional entrance and exit counseling           685.304...........................  OMB 1845--NEW1....................         268,566              62
 requirements.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 28980]]

Identification, to the Extent Practicable, of All Relevant Federal 
Regulations That May Duplicate, Overlap, or Conflict With These Interim 
Final Regulations

    These interim final regulations are unlikely to conflict with or 
duplicate existing Federal regulations.

Alternatives Considered

    No alternatives were considered for small entities because these 
interim final regulations implement changes to the HEA enacted by 
Congress, and are necessary to implement the statutory changes. The 
information required to be reported should be readily available to 
IHEs. Further, the counseling information is critically important for 
borrowers to receive when they first take out loans subject to the 150 
percent limitation and as they make their educational plans, so delays 
for small entities are not possible. The Department is committed to 
helping all institutions meet the financial counseling requirements of 
the interim final regulations and will provide materials or guidance to 
assist with this requirement.

Waiver of Rulemaking and Delayed Effective Dates

    Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the 
Department is generally required to publish a notice of proposed 
rulemaking and provide the public with an opportunity to comment on 
proposed regulations prior to establishing a final rule. In addition, 
all Department regulations for programs authorized by Title IV of the 
HEA (Title IV, HEA programs) are subject to the negotiated rulemaking 
requirements of section 492 of the HEA. Section 492 provides 
specifically that any regulations issued for the Title IV, HEA programs 
are subject to negotiated rulemaking to obtain the advice of and 
recommendations from individuals and groups involved in the student 
financial assistance programs.
    MAP-21 waives the negotiated rulemaking requirements in section 492 
of the HEA (as well as the master calendar requirements in section 482 
of the HEA) for regulations to implement the 150 percent limit on 
Direct Subsidized Loan eligibility in the Direct Loan Program. 
Consequently, the negotiated rulemaking requirements in section 492 of 
the HEA do not apply to these interim final regulations and we will not 
subject them to negotiated rulemaking.
    Under section 553(a)(3)(B) of the APA, an agency is not required to 
conduct notice-and-comment rulemaking when the agency ``for good cause 
finds . . . that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' Although these 
interim final regulations are subject to the APA's notice-and-comment 
requirements, the Secretary has determined that it would be 
impracticable to conduct notice-and-comment rulemaking in time to 
implement these changes by July 1, 2013.
    In section 455(q) of the HEA, as added by MAP-21, Congress made a 
number of changes to the Direct Loan Program to be effective on July 1, 
2013. Even on an extremely expedited timeline, the Department could not 
feasibly conduct notice-and-comment rulemaking, promulgate final 
regulations, make necessary financial aid systems changes, and provide 
counseling to borrowers in time to implement the statutory changes by 
July 1, 2013.
    Though MAP-21 was signed into law on July 6, 2012, nearly one year 
prior to the date that the first cohort of borrowers could be affected, 
the Department was unable to begin the regulatory drafting process 
immediately. In order to ensure the continued integrity of the Title IV 
loan programs, the Department first had to assess its operational 
capabilities and what limitations these placed on possible regulatory 
approaches. This internal analysis took several months and therefore 
limited the period during which the Department could draft implementing 
regulations.
    The time period in which the Department could conduct notice-and-
comment rulemaking was further limited by the statute's specification 
of a July 1, 2013, effective date, and requirement that institutions 
and the Department take specific steps in order to implement the 
statutory requirements by that date. First, although MAP-21 specifies 
that borrowers are not affected until July 1, 2013, institutions begin 
preparing financial aid packages in the spring that precedes an award 
year (an award year begins on July 1). Shortly after a student's 
financial aid package is prepared, the student must sign a master 
promissory note and complete entrance counseling. Only then is the 
financial aid award, effective as of July 1, disbursed to the student. 
Thus, the regulations need to be in place long enough before July 1 to 
allow schools to prepare, counsel students about, and make financial 
aid awards.
    Second, the Department must make certain necessary systems and 
operational changes before July 1 in order to comply generally with the 
HEA and protect borrowers, institutions, and taxpayers. Without changes 
to current financial aid systems, schools would be unable to accurately 
monitor a borrower's eligibility for Direct Subsidized Loans under the 
150 percent limit because the determination of a borrower's maximum 
eligibility period and remaining eligibility period requires 
information about a borrower's attendance at all institutions, which 
may not be available to the institution the borrower is presently 
attending. Therefore, the Department must have regulations with legal 
force to make the necessary system changes to NSLDS and the COD System 
to monitor borrower eligibility, alert borrowers and institutions that 
a borrower is about to reach or has reached the 150 percent limit on 
eligibility for Direct Subsidized Loans, and ensure that no additional 
Direct Subsidized Loans are originated or disbursed to an ineligible 
borrower. Making such changes in a timely manner requires that 
regulatory drafting and operational adjustments occur 
contemporaneously.
    If the Department were required to conduct notice-and-comment 
rulemaking first, the Department could not begin implementing these 
changes until after final regulations were published. Because interim 
final regulations have legal force on the date of publication, the 
Department can begin making these necessary changes. If the Department 
were required to submit draft regulations for notice-and-comment 
rulemaking, the Department could not begin implementing such changes 
until final regulations were published. We would be forced to delay the 
initiation of operational changes until late 2013 or early 2014, well 
after the July 1, 2013, date set forth in the statute.
    In addition, we need to ensure that borrowers are advised of the 
terms and conditions of their eligibility for Direct Loans before July 
1, 2013. The statute itself does not provide sufficient detail on the 
150 percent limit. Therefore, we are not be able to provide borrowers 
with the terms of the 150 percent limit on eligibility or with 
information on how they will be affected until the interim final 
regulations are published.
    Notice-and-comment rulemaking is impracticable because the 
Department could not conduct notice-and-comment rulemaking, issue final 
regulations, make necessary systems changes, and provide counseling for 
borrowers by July 1, 2013. In sum, if notice-and-comment rulemaking 
were not waived, the Department would be unable to administer the 
Direct Loan Program in compliance with the HEA.

[[Page 28981]]

    Finally, we note that, contrary to public interest, there would be 
a substantial loss of revenue for the Federal Government if these 
interim final regulations were not implemented until after July 1, 
2013. As previously noted, section 455(q) of the HEA is not self-
implementing. If the regulations are not published until after July 1, 
2013, the Department will not be able to apply the restrictions to 
borrowers until the date the regulations are published. Therefore, 
borrowers who take out loans between July 1, 2013, and the date of 
publication would not be subject to the 150 percent limit. As a result, 
the Government would have increased costs for interest subsidies on 
Direct Subsidized Loans and would not receive the expected savings from 
interest payments made by the borrowers in this cohort who exceed the 
150 percent limitation.
    The Department estimates that approximately 62,000 borrowers in the 
2013 cohort of borrowers (0.87 percent) would exceed the 150 percent 
limit at some point during their postsecondary education and be 
affected by the proposed regulations. Many of them would not be subject 
to the regulatory provisions if the effective date were delayed. The 
estimated savings associated with these affected borrowers in the 2013 
cohort is $197 million. For example, the Department estimates that if 
implementation were delayed until January 1, 2014, the $197 million in 
outlay savings associated with the 2013 cohort in the 2013 MSR Baseline 
would be eliminated in addition to $251 million in outlay savings 
across the 2013 to 2023 cohorts from the PB2014 baseline. This is a 
total of $448 million in savings reductions over the 2013 to 2023 
cohorts.
    For these reasons, the Secretary has determined that notice-and-
comment rulemaking is impracticable and contrary to the public 
interest. Although the Department is adopting these regulations on an 
interim final basis, we request public comment on these regulations. 
After consideration of public comments, the Secretary will publish 
final regulations.
    We also note that the APA generally requires that regulations be 
published at least 30 days before their effective date, unless the 
agency has good cause to implement the regulations sooner (5 U.S.C. 
553(d)(3)). In addition, these final regulations are a major rule for 
purposes of the Congressional Review Act (CRA) (5 U.S.C. 801, et seq.). 
Generally, under the CRA, a major rule takes effect 60 days after the 
date on which the rule is published in the Federal Register. Section 
808(2) of the CRA, however, provides that, if an agency finds for good 
cause (and incorporates the finding and a brief statement of reasons 
therefor in the rule issued) that notice of, and public procedure on, a 
rule are impracticable, unnecessary, or contrary to the public 
interest, the rule shall take effect at such time as the Federal agency 
promulgating the rule determines. We are waiving the delayed effective 
dates under both the APA and CRA and thus these interim final 
regulations will take effect on their date of publication. We are 
taking this action because if we do not waive the delayed effective 
dates we are at risk of not meeting the statutory deadline of July 1, 
2013, and facing significant repercussions, as explained in this 
section of the preamble. Thus, we find there is good cause to waive the 
delayed effective dates under the APA and the CRA.

Paperwork Reduction Act of 1995

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on proposed and continuing collections of information in 
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3506(c)(2)(A)). This helps ensure that: The public understands the 
Department's collection instructions; respondents can provide the 
requested data in the desired format; reporting burden (time and 
financial resources) is minimized; collection instruments are clearly 
understood; and the Department can properly assess the impact of 
collection requirements on respondents.
    A Federal agency may not conduct or sponsor a collection of 
information unless the OMB approves the collection under the PRA and 
the corresponding information collection instrument displays a 
currently valid OMB control number. No person is required to comply 
with, or is subject to penalty for failure to comply with, a collection 
of information if the collection instrument does not display a 
currently valid OMB control number.
    Under 5 CFR 1320.13 we have requested OMB to conduct its review of 
this collection of information on an emergency basis. We have asked OMB 
to approve the collection of information on May 16, 2013, the same date 
these interim final regulations are published in the Federal Register. 
This does not affect your ability to comment on the interim final 
regulations, or the collection associated with it. In addition, the 
Department is concurrently asking for comments under the 60-day comment 
period for the regular collection. In order for those comments to be 
considered for the regular collection, the Department requests comments 
by July 15, 2013. If you want to comment on the proposed information 
collection requirements, please send your comments through the Federal 
eRulemaking Portal at http://www.regulations.gov through by selecting 
Docket ID number [ED-2013-OPE-0066].
    The manner in which the Department will be implementing Sec.  
685.200 will require institutions to submit additional information to 
the COD System and to NSLDS under the authority in Sec. Sec.  
685.301(e) and 685.309(b), respectively. Therefore, the collection 
requirements associated with Sec. Sec.  685.301(e) and 685.309(b) will 
change as a result of this rulemaking. Although Sec. Sec.  685.301(e) 
and 685.309(b) are not modified by this rulemaking, the burden 
associated with each provision will ultimately change as a result of 
this rulemaking and the analysis of the burden associated with those 
provisions will accompany this rulemaking. Section 685.304 also 
contains information collection requirements. The Department has 
submitted a copy of the information collection requests associated with 
these sections to OMB for its review.

Section 685.301(e)--COD Reporting Requirements by Institutions

    Section 685.301(e) provides that institutions originating and 
disbursing loans under the Direct Loan Program must report a student's 
``payment data'' to the Secretary. The term ``payment data'' is defined 
in Sec.  685.102(b) to mean ``an electronic record that is provided to 
the Secretary by an institution showing student disbursement 
information''. The Department has implemented this provision by 
requiring that institutions electronically report student and Direct 
Loan information to the COD System. The provisions of Sec.  685.200(f) 
provide that a borrower is not eligible to receive an additional Direct 
Subsidized Loan if the borrower has no remaining eligibility period. 
These interim final regulations also provide different rules for 
borrowers who are enrolled in teacher certification coursework for 
which the institution awards no academic credential, preparatory 
coursework necessary for enrollment in an undergraduate program, and 
preparatory coursework necessary for enrollment in a graduate or 
professional program.
    The Department will determine whether the borrower has continued 
eligibility for Direct Subsidized Loans.

[[Page 28982]]

To ensure that the Department has the information necessary to make 
that determination, institutions will be required to report additional 
information to the Department's COD System. For example, institutions 
will be required to report: The program's CIP Code; the credential 
level of each program; the length of the program for which the loan is 
intended; the enrollment status of the borrower at the time the loan is 
disbursed; whether a loan is for teacher certification coursework for 
which the institution awards no academic credential; whether a loan is 
for preparatory coursework necessary for enrollment in an undergraduate 
program; and whether the loan is for preparatory coursework necessary 
for enrollment in a graduate or professional program.
    These data will allow the Department to calculate the borrower's 
maximum eligibility period, subsidized usage period, and remaining 
eligibility period as described in Sec.  685.200(f)(1)(ii)-(f)(1)(iv), 
determine whether the borrower is eligible to receive an additional 
Direct Subsidized Loan, and ensure that borrowers do not receive Direct 
Subsidized Loans if they are no longer eligible under Sec.  
685.200(f)(2).
    To estimate the total increase in burden imposed on institutions, 
the Department estimated the average number of reports that each 
institution submitted to COD each business day (by institutional type, 
i.e., public, private, proprietary). We based our calculations of 
estimated burdens on a 248 business-day year (365 days, less 104 
weekend days and 13 Federal holidays) and assumed that institutions 
submit data in large batches, not separately, for each individual 
borrower. We estimate that the additional reporting will add 1 minute 
(0.02 hours) of additional burden per report.
    Of the 5,847 institutions that disbursed Direct Loans during the 
most recently completed award year, 1,933 of them are public 
institutions. The average number of reports per day that public 
institutions submit is 2.73. We further estimate that additional 
reporting will add 26,174 hours (1,933 institutions multiplied by 248 
business days, multiplied by 2.73 reports per day, multiplied by 0.02 
hours per report).
    Of the 5,847 institutions that disbursed Direct Loans during the 
most recently completed award year, 1,750 of them are private, not-for-
profit institutions. The average number of reports per day that 
private, not-for-profit institutions submit is 1.29. We estimate that 
additional reporting will add 11,197 hours (1,750 institutions 
multiplied by 248 business days, multiplied by 1.29 reports per day, 
multiplied by 0.02 hours per report).
    Of the 5,847 institutions that disbursed Direct Loans during the 
most recently completed award year, 2,164 of them are proprietary 
institutions. The average number of reports per day that proprietary 
institutions submit is 0.84. We further estimate that additional 
reporting will add 9,016 hours (2,164 institutions multiplied by 248 
business days, multiplied by 0.84 reports per day, multiplied by 0.02 
hours per report).
    Collectively, as a result of the new reporting requirements created 
for public, private and proprietary institutions, the total burden 
associated with Sec.  685.301(e), under 1845-NEW1, will increase by 
46,387 hours (26,174 hours for public institutions + 11,197 hours for 
private, not-for-profit institutions + 9,016 hours for proprietary 
institutions).

Section 685.309(b)--NSLDS Enrollment Reporting by Institutions

    Section 685.309(b) provides that eligible institutions that enroll 
a Direct Loan borrower must report information about the borrower's 
enrollment to the Secretary. The Department has implemented these 
provisions by requiring institutions to electronically report, at least 
twice per year, student and loan information to NSLDS. The new Direct 
Subsidized Loan regulations in Sec.  685.200(f)(3) provide that a 
borrower becomes responsible for accruing interest on any Direct 
Subsidized Loans he or she previously received if the borrower has no 
remaining eligibility period and enrolls in certain eligible programs. 
The new regulations also provide specific rules for borrowers who are 
enrolled in teacher certification coursework for which the institution 
awards no academic credential, preparatory coursework necessary for 
enrollment in a graduate or professional program, and programs for 
which borrowers are not otherwise eligible for Direct Subsidized Loans.
    The Department will determine whether the borrower is responsible 
for accruing interest on his or her previously received Direct 
Subsidized Loans. To ensure that the Department has the information to 
necessary to make that determination, institutions will be required to 
report additional information to NSLDS. For example, institutions will 
be required to report: The CIP code and the credential level for the 
program in which a borrower is enrolled; the length of the program in 
academic years, weeks, or months (consistent with current institutional 
reporting in the COD System); and the enrollment status of the 
borrower.
    These data will allow the Department to determine whether a 
borrower who is not eligible for additional Direct Subsidized Loans is 
responsible for accruing interest on his or her previously received 
Direct Subsidized Loans.
    To estimate the total increase in burden imposed on institutions 
due to the new reporting requirements under Sec.  685.309(b), we 
divided institutions into two groups--institutions that use enrollment 
servicers, which are more automated and take less time to report 
enrollment to the Department, and institutions that do not use 
enrollment servicers and therefore take longer to report enrollment to 
the Department. We assumed that each institution that reports 
enrollment does so twice per year (as minimally required). We estimate 
that the additional reporting will, for institutions using an 
enrollment servicer, add 0.25 hours of burden per report. For 
institutions that do not use an enrollment servicer, we estimate that 
the additional reporting will add 0.5 hours of additional burden per 
report.
    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 2,710 of them are public 
institutions. Of the 2,710 public institutions, 2,092 use enrollment 
servicers. For the 2,092 public institutions that use enrollment 
servicers, we estimate that additional reporting will add 1,046 hours 
(2,092 institutions multiplied by 0.25 additional hours per report, 
multiplied by 2 reports per year).
    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 2,453 of them are 
private, not-for-profit institutions. Of the 2,453 private, not-for-
profit institutions, 1,894 use enrollment servicers. For the 1,894 
private, not-for-profit institutions that use enrollment servicers, we 
estimate that additional reporting will add 947 hours (1,894 
institutions multiplied by 0.25 additional hours per report, multiplied 
by 2 reports per year).
    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 3,033 of them are 
proprietary institutions. Of the 3,033 proprietary institutions, 2,342 
use enrollment servicers. For the 2,342 proprietary institutions that 
use enrollment servicers, we estimate that additional reporting will 
add 1,171 hours (2,342 institutions multiplied by 0.25 additional hours 
per report, multiplied by 2 reports per year).

[[Page 28983]]

    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 2,710 of them are public 
institutions. Of the 2,710 institutions, 618 of them do not use 
enrollment servicers. For the 618 public institutions that do not use 
enrollment servicers, we estimate that additional reporting will add 
618 hours (618 institutions multiplied by 0.5 additional hours per 
report, multiplied by 2 reports per year).
    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 2,453 of them are 
private, not-for-profit institutions. Of the 2,453 private, not-for-
profit institutions, 559 of them do not use enrollment servicers. For 
the 559 private, not-for-profit institutions that do not use enrollment 
servicers, we estimate that additional reporting will add 559 hours 
(559 institutions multiplied by 0.5 additional hours per report, 
multiplied by 2 reports per year).
    Of the 8,196 institutions that reported enrollment information 
during the most recently completed award year, 3,033 of them are 
proprietary institutions. Of the 3,033 proprietary institutions, 691 of 
them do not use enrollment servicers. For the 691 proprietary 
institutions that do not use enrollment servicers, we estimate that 
additional reporting will add 691 hours (691 institutions multiplied by 
0.5 additional hours per report, multiplied by 2 reports per year).
    Collectively, as a result of the new reporting requirements, the 
total burden associated with Sec.  685.309(b), under 1845-NEW1, will be 
increased by 5,032 hours (1,046 hours for public institutions using 
enrollment servicers + 947 hours for private, not-for-profit 
institutions using enrollment servicers + 1,171 hours for proprietary 
institutions using enrollment servicers + 618 hours for public 
institutions not using enrollment servicers + 559 hours for private, 
not-for-profit institutions not using enrollment servicers + 691 hours 
for proprietary institutions that do not use enrollment servicers).

Section 685.304--Entrance and Exit Counseling for Borrowers by 
Institutions

    The interim final regulations implement a new statutory requirement 
that significantly limits a borrower's eligibility for Direct 
Subsidized Loans and potentially results in the borrower becoming 
responsible for accruing interest on existing Direct Subsidized Loans. 
Under section 485 of the HEA, which requires that borrowers be provided 
with entrance and exit counseling on the provisions governing Federal 
student aid, institutions will be required to revise the entrance and 
exit counseling provided to borrowers.
    For entrance counseling, the added counseling requirements under 
Sec.  685.304(a)(6)(xiii) will require institutions to explain: (1) The 
possible loss of eligibility for additional Direct Subsidized Loans; 
(2) how a borrower's maximum eligibility period, remaining eligibility 
period, and subsidized usage period are calculated; (3) the possibility 
that the borrower could become responsible for accruing interest on 
previously received Direct Subsidized Loans during all periods; and (4) 
the impact of borrower responsibility for accruing interest on the 
borrower's total debt.
    For exit counseling, the requirements added under new Sec.  
685.304(b)(4)(xii) will require institutions to explain: (1) How the 
borrower's maximum eligibility period, remaining eligibility period, 
and subsidized usage period are calculated; (2) the sum of the 
borrower's subsidized usage periods, as determined under Sec.  
685.200(f)(1)(iii), at the time of the exit counseling; (3) the 
consequences of continued borrowing or enrollment; (4) the impact of 
the borrower becoming responsible for accruing interest on total 
student debt; (5) that the Secretary will inform the student borrower 
of whether he or she is responsible for accruing interest on his or her 
Direct Subsidized Loans; and (6) that the borrower can access NSLDS to 
determine whether he or she is responsible for accruing interest on any 
Direct Subsidized Loans as provided in Sec.  685.200(f)(3).
    The burden associated with entrance and exit counseling is two-
fold, there is burden on borrowers, who are required to complete 
entrance counseling by virtue of their participation in the Title IV 
loan programs and there is burden on institutions, which are required 
to provide counseling to such borrowers.
    We estimate that each entrance counseling interview will take 2 
additional minutes (0.03 hours) per borrower to complete and estimate 
the number of borrowers who took entrance counseling in the last award 
year as 2,723,751. Therefore, we estimate that burden will increase by 
81,713 hours (2,723,751 borrowers multiplied by 1 interview per 
borrower multiplied by 0.03 additional hours per interview).
    We estimate that, for all institutions, the additional entrance 
counseling requirements will add 1 hour of burden per institution to 
incorporate new material into their counseling and implement new 
counseling procedures. Of the 5,847 institutions that are required to 
perform entrance counseling, 1,933 are public institutions, 1,750 are 
private, not-for-profit institutions, and 2,164 are proprietary 
institutions. For the 1,933 public institutions, we estimate that 
burden will increase by 1,933 hours (1,933 institutions multiplied by 1 
hour). For the 1,750 private, not-for-profit institutions, we estimate 
that burden will increase by 1,750 hours (1,750 institutions multiplied 
by 1 hour). Of the 2,164 proprietary institutions, we estimate that 
burden will increase by 2,164 hours (2,164 institutions multiplied by 1 
hour). Collectively, we estimate that the total burden created for 
institutions of higher education to provide the added entrance 
counseling is 5,847 hours (1,933 hours + 1,750 hours + 2,164 hours).
    We estimate that each exit counseling interview will take an 
additional 3 minutes (0.05 hours) per borrower to complete and 
estimated that 2,699,275 borrowers took exit counseling in the most 
recently completed award year. Therefore, we estimate that burden will 
increase by 134,964 hours (2,699,275 borrowers multiplied by 1 
interview per borrower multiplied by 0.05 additional hours per 
interview).
    Of the 5,847 institutions, 1,933 are public institutions, 1,750 are 
private, not-for-profit institutions, and 2,164 are proprietary 
institutions. We estimate that, for all institutions, the additional 
exit counseling requirements will add 1.5 hours of burden per 
institution to incorporate new material into their counseling and 
implement new counseling procedures. For the 1,933 public institutions, 
we estimate that burden will increase by 2,900 hours (1,933 
institutions multiplied by 1.5 hours). For the 1,750 private, not-for-
profit institutions, we estimate that burden will increase by 2,625 
hours (1,750 institutions multiplied by 1.5 hours). Of the 2,164 
proprietary institutions, we estimate that burden will increase by 
3,246 hours (2,164 institutions multiplied by 1.5 hours). The total 
burden created for institutions of higher education to provide the 
added exit counseling is 8,771 hours (2,900 hours + 2,625 hours + 3,246 
hours).
    Collectively, under 1845-NEW1 the new entrance and exit counseling 
regulatory requirements in section 685.304, will add 231,295 hours 
([81,713 + 134,964 for borrowers] + [5,847 + 8,771 hours for 
institutions]) of additional burden on institutions and borrowers.
    Consistent with the discussion in this section, the following chart 
describes the sections of the interim final regulations involving 
information collections, the information being

[[Page 28984]]

collected, and the collections that the Department is submitting to OMB 
for approval and public comment under the PRA, and the estimated costs 
associated with the information collections. The monetized net costs of 
the additional burden on institutions and borrowers using wage data 
developed using BLS data, available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $5,472,356 as shown in the chart below. This cost was 
based on an hourly rate of $24.61 for institutions and $17.88 for 
borrowers.

                                                                Collection of Information
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     OMB control number and
             Regulatory section                            Information collection                   estimated change in the          Estimated cost
                                                                                                             burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   685.301(e)..........................  The new regulations require institutions to         OMB 1845-NEW1................  $1,141,584
                                              provide program information to the Department's
                                              COD System so that the Department can determine
                                              whether and to what extent borrowers continue to
                                              have Direct Subsidized Loan eligibility under
                                              Sec.   685.200(f).
                                                                                                 The burden will increase by
                                                                                                  46,387 hours on institutions.
Sec.   685.309(b)..........................  The new regulations require institutions to         OMB 1845-NEW1................  123,838
                                              provide program information to NSLDS so that the
                                              Department can determine whether borrowers
                                              subject to Sec.   685.200(f) with Direct
                                              Subsidized Loans have become responsible for
                                              accruing interest based on their enrollment.
                                                                                                 The burden will increase by
                                                                                                  5,032 hours on institutions.
Sec.   685.304.............................  The new regulations require institutions to         OMB 1845-NEW1.
                                              provide additional entrance and exit counseling
                                              to borrowers so that they are adequately informed
                                              of the terms and conditions of their loans and
                                              understand the consequences of Sec.   685.200(f).
                                                                                                 The burden will increase by    3,847,185 for borrowers.
                                                                                                  216,677 hours on borrowers.
                                                                                                 The burden will increase by    359,749 for
                                                                                                  14,618 hours on institutions.  institutions.
                                                                                                 The burden will increase be a  4,206,934 total.
                                                                                                  total of 231,294 hours.
Total Change in Burden.....................  ..................................................  Total increase in burden on    3,847,185 for borrowers.
                                                                                                  borrowers under part 685 is
                                                                                                  216,677 hours.
                                                                                                 Total increase in burden on    1,625,171 for
                                                                                                  institutions under part 685    institutions.
                                                                                                  is 66,037.
                                                                                                 Total increase in burden       5,472,356 total.
                                                                                                  under part 685 is 282,714
                                                                                                  hours.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental Review

    This program is not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these regulations require transmission of information that any 
other agency or authority of the United States gathers or makes 
available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
    Electronic Access to This Document: 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 via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
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    You may also view this document in text or PDF at the following 
site: www.ifap.ed.gov.

(Catalog of Federal Domestic Assistance Number: 84.268 William D. 
Ford Direct Loan Program)

List of Subjects in 34 CFR Part 685

    Colleges and universities, Education, Loan programs--education, 
Student aid.

    Dated: May 10, 2013.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary amends 
part 685 of title 34 of the Code of Federal Regulations as follows:

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

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

    Authority:  20 U.S.C 1070g, 1087a, et seq., unless otherwise 
noted.


0
2. Section 685.200 is amended by:
0
A. Revising paragraph (a)(2)(i) and the introductory text in paragraph 
(a)(2)(ii).
0
B. Adding a new paragraph (f).
    The revisions and addition read as follows:


Sec.  685.200  Borrower eligibility.

    (a) * * *
    (2)(i) A Direct Subsidized Loan borrower must--

[[Page 28985]]

    (A) Demonstrate financial need in accordance with title IV, part F 
of the Act; and
    (B) In the case of a first-time borrower as defined in paragraph 
(f)(1)(i) of this section, not have met or exceeded the limitations on 
the receipt of Direct Subsidized Loans described in paragraph (f) of 
this section.
    (ii) The Secretary considers a member of a religious order, group, 
community, society, agency, or other organization who is pursuing a 
course of study at an institution of higher education to have no 
financial need as that term is used in paragraph (a)(2)(i)(A) of this 
section if that organization--
* * * * *
    (f) Limitations on eligibility for Direct Subsidized Loans and 
borrower responsibility for accruing interest for first-time borrowers 
on or after July 1, 2013. (1) Definitions. The following definitions 
apply to this paragraph:
    (i) First-time borrower means an individual who has no outstanding 
balance of principal or interest on a Direct Loan Program or FFEL 
Program loan on July 1, 2013, or on the date the borrower obtains a 
Direct Loan Program loan after July 1, 2013.
    (ii) Maximum eligibility period is a period of time, measured in 
academic years, equal to 150 percent of the length of the educational 
program, as published by the institution, in which the borrower is 
currently enrolled.
    (iii) Subsidized usage period is, except as provided in paragraph 
(f)(4) of this section, a period of time measured in academic years and 
rounded down to the nearest quarter of a year calculated as the--

                  Number of days in the borrower's loan
                   period for a Direct Subsidized Loan
------------------------------------------------------------------------
                   Number of days in the academic year
                     for which the borrower receives
                       the Direct Subsidized Loan
 

    (iv) Remaining eligibility period is the difference, measured in 
academic years, between the borrower's maximum eligibility period and 
the sum of the borrower's subsidized usage periods, except as provided 
in paragraphs (f)(7)(ii) and (f)(7)(iii) of this section.
    (2) Loss of eligibility for Direct Subsidized Loans. A first-time 
borrower is not eligible for additional Direct Subsidized Loans when 
the borrower has no remaining eligibility period. Such a borrower may 
still receive Direct Unsubsidized Loans for which the borrower is 
otherwise eligible.
    (3) Borrower responsibility for accruing interest. (i) 
Notwithstanding any provision of this part that provides for the 
borrower to not be responsible for accruing interest on a Direct 
Subsidized Loan or on the portion of a Direct Consolidation Loan that 
repaid a Direct Subsidized Loan, and except as provided in paragraphs 
(f)(6)(v) and (f)(7)(iv) of this section, a first-time borrower becomes 
responsible for the interest that accrues on a previously received 
Direct Subsidized Loan or on the portion of a Direct Consolidation Loan 
that repaid a Direct Subsidized Loan beginning on the date--
    (A) The borrower has no remaining eligibility period; and
    (B) The borrower attends any undergraduate program or preparatory 
coursework on at least a half-time basis at an eligible institution 
that participates in the title IV, HEA programs.
    (ii) The borrower continues to be responsible for the interest that 
accrues on the portion of a Direct Consolidation Loan that repaid a 
Direct Subsidized Loan for which the borrower previously became 
responsible for accruing interest in accordance with paragraph 
(f)(3)(i) of this section.
    (iii) For any loan for which the borrower becomes responsible for 
accruing interest in accordance with paragraph (f)(3)(i) of this 
section, the borrower is responsible for only the interest that accrues 
after the borrower meets the criteria in paragraph (f)(3)(i) of this 
section and unpaid interest is capitalized in the same manner as for a 
Direct Unsubsidized Loan.
    (iv) A borrower who completes an undergraduate program and who has 
not become responsible for accruing interest on Direct Subsidized Loans 
as a result of attendance in that program does not become responsible 
for accruing interest under paragraph (f)(3)(i) of this section on any 
Direct Subsidized Loans received for attendance in any program prior to 
completing that undergraduate program and for which the borrower has 
not previously become responsible for accruing interest, regardless of 
subsequent attendance in any other program.
    (4) Exceptions to the calculation of subsidized usage periods. (i) 
For a first-time borrower who receives a Direct Subsidized Loan in an 
amount that is equal to the annual loan limit for a loan period that is 
less than a full academic year in length, the subsidized usage period 
is one year.
    (ii) Except as provided in paragraph (f)(4)(i) of this section, for 
a first-time borrower who is enrolled on a half-time or three-quarter-
time basis, the borrower's prorated subsidized usage period is 
calculated by multiplying the borrower's subsidized usage period by 0.5 
or 0.75, respectively.
    (5) Subsequent attendance in programs of greater duration. A first-
time borrower who subsequently attends a program that is longer than 
the program the borrower previously attended--
    (i) Is eligible for a Direct Subsidized Loan if the borrower's 
remaining eligibility period is greater than zero; and
    (ii) Regains eligibility for Direct Subsidized Loans if the 
borrower previously lost eligibility for Direct Subsidized Loans in 
accordance with paragraph (f)(2) of this section.
    (6) Treatment of preparatory coursework. For first-time borrowers 
who receive a Direct Subsidized Loan under 34 CFR 668.32(a)(1)(ii) who 
are enrolled for no longer than one 12-month period in a course of 
study necessary for enrollment in an eligible program--
    (i) Direct Subsidized Loans received for such preparatory 
coursework are included in the calculation of the borrower's subsidized 
usage period;
    (ii) The maximum eligibility period for preparatory coursework 
necessary for enrollment in an undergraduate program is the maximum 
eligibility period for the undergraduate program for which the 
preparatory coursework is required;
    (iii) The maximum eligibility period for preparatory coursework 
necessary for enrollment in a graduate or professional program is the 
maximum eligibility period for the undergraduate program for which the 
borrower most recently received a Direct Subsidized Loan;
    (iv) For enrollment in preparatory coursework necessary for 
enrollment in an undergraduate program, the borrower becomes 
responsible for accruing interest as described in paragraph (f)(3) of 
this section only if the borrower has no remaining eligibility period 
in the program for which the coursework is required; and
    (v) Enrollment in preparatory coursework necessary for enrollment 
in a graduate or professional program does not result in a borrower 
becoming responsible for accruing interest as described in paragraph 
(f)(3) of this section.
    (7) Treatment of teacher certification programs for which an 
institution does not award an academic credential. For first-time 
borrowers who receive a Direct Subsidized Loan under 34 CFR 
668.32(a)(1)(iii) who are enrolled at an eligible institution in a 
program necessary for a professional credential or certification from a 
State that is required for employment as a teacher in an elementary or 
secondary school in

[[Page 28986]]

that State but for which the institution awards no academic 
credential--
    (i) The borrower's maximum eligibility period for Direct Subsidized 
Loans is a period of time equal to 150 percent of the length of the 
teacher certification program, as published by the institution, in 
which the borrower is currently enrolled;
    (ii) For purposes of determining a borrower's remaining eligibility 
period for such teacher certification programs, only Direct Subsidized 
Loans the borrower received for enrollment in such programs are 
included in the borrower's subsidized usage period;
    (iii) For purposes of determining a borrower's remaining 
eligibility period for programs other than a teacher certification 
program for which an institution does not award an academic credential, 
any Direct Subsidized Loans that the borrower received for enrollment 
in such a teacher certification program are not included in a 
borrower's subsidized usage period; and
    (iv) Enrollment in such a teacher certification program does not 
result in a borrower becoming responsible for accruing interest on any 
Direct Subsidized Loan under paragraph (f)(3) of this section.


Sec.  685.202  [Amended]

0
3. Section 685.202 is amended, in paragraph (a)(1)(v)(E), by removing 
the date ``2012'' and adding, in its place, the date ``1, 2013''.

0
4. Section 685.304 is amended by:
0
A. In paragraph (a)(6)(xi), removing the word ``and'' that appears 
after the punctuation ``;''.
0
B. In paragraph (a)(6)(xii), removing the punctuation ``.'' and adding, 
in its place, the punctuation and word ``; and''.
0
C. Adding paragraph (a)(6)(xiii).
0
D. Redesignating paragraphs (b)(4)(xii) and (b)(4)(xiii) as paragraphs 
(b)(4)(xiii) and (b)(4)(xiv), respectively.
0
E. Adding a new paragraph (b)(4)(xii).
    The additions read as follows:


Sec.  685.304  Counseling borrowers.

    (a) * * *
    (6) * * *
    (xiii) For first-time borrowers as defined in Sec.  
685.200(f)(1)(i), explain the limitation on eligibility for Direct 
Subsidized Loans and possible borrower responsibility for accruing 
interest described in Sec.  685.200(f), including--
    (A) The possible loss of eligibility for additional Direct 
Subsidized Loans;
    (B) How a borrower's maximum eligibility period, remaining 
eligibility period, and subsidized usage period are calculated;
    (C) The possibility that the borrower could become responsible for 
accruing interest on previously received Direct Subsidized Loans and 
the portion of a Direct Consolidation Loan that repaid a Direct 
Subsidized Loan during in-school status, the grace period, authorized 
periods of deferment, and certain periods under the Income-Based 
Repayment and Pay As You Earn Repayment plans; and
    (D) The impact of borrower responsibility for accruing interest on 
the borrower's total debt.
* * * * *
    (b) * * *
    (4) * * *
    (xii) Explain to first-time borrowers, as defined in Sec.  
685.200(f)(1)(i)--
    (A) How the borrower's maximum eligibility period, remaining 
eligibility period, and subsidized usage period are determined under 
Sec.  685.200(f);
    (B) The sum of the borrower's subsidized usage periods, as 
determined under Sec.  685.200(f)(1)(iii), at the time of the exit 
counseling;
    (C) The consequences of continued borrowing or enrollment, 
including--
    (1) The possible loss of eligibility for additional Direct 
Subsidized Loans; and
    (2) The possibility that the borrower could become responsible for 
accruing interest on previously received Direct Subsidized Loans and 
the portion of a Direct Consolidation Loan that repaid a Direct 
Subsidized Loan during in-school status, the grace period, authorized 
periods of deferment, and certain periods under the Income-Based 
Repayment and Pay As You Earn Repayment plans;
    (D) The impact of the borrower becoming responsible for accruing 
interest on total student debt;
    (E) That the Secretary will inform the student borrower of whether 
he or she is responsible for accruing interest on his or her Direct 
Subsidized Loans; and
    (F) That the borrower can access NSLDS to determine whether he or 
she is responsible for accruing interest on any Direct Subsidized Loans 
as provided in Sec.  685.200(f)(3);
* * * * *
[FR Doc. 2013-11515 Filed 5-15-13; 8:45 am]
BILLING CODE 4000-01-P