[Federal Register Volume 78, Number 212 (Friday, November 1, 2013)]
[Rules and Regulations]
[Pages 65768-65842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25331]



[[Page 65767]]

Vol. 78

Friday,

No. 212

November 1, 2013

Part II





Department of Education





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34 CFR Parts 668, 674, 682, and 685





Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan Program, and William D. Ford Federal 
Direct Loan Program; Final Rule

  Federal Register / Vol. 78 , No. 212 / Friday, November 1, 2013 / 
Rules and Regulations  

[[Page 65768]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 682, and 685

RIN 1840-AD12
[Docket ID ED-2013-OPE-0063]


Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Family Education Loan Program, and William D. Ford 
Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Student Assistance General 
Provisions, Federal Perkins Loan (Perkins Loan) Program, Federal Family 
Education Loan (FFEL) Program, and William D. Ford Federal Direct Loan 
(Direct Loan) Program regulations. These final regulations will: Amend 
the FFEL and Direct Loan program regulations to reflect changes made to 
the Higher Education Act of 1965, as amended (HEA), by the SAFRA Act 
included in the Health Care and Education Reconciliation Act of 2010; 
incorporate statutory changes to interest rates and other recent 
statutory changes in the Direct Loan Program regulations; update, 
strengthen, and clarify various areas of the Student Assistance General 
Provisions, Perkins Loan, FFEL, and Direct Loan program regulations; 
and provide for greater consistency in the regulations governing the 
title IV, HEA student loan programs. These final regulations will 
ensure that the title IV, HEA Federal student aid programs operate as 
efficiently as possible.

DATES: Effective date: These regulations are effective July 1, 2014.
    Implementation dates: For implementation dates, see the 
Implementation Date of These Regulations section of the SUPPLEMENTARY 
INFORMATION section.

FOR FURTHER INFORMATION CONTACT: For further information related to 
loan rehabilitation reasonable and affordable payments, contact Brian 
Smith or Pamela Moran at (202)-502-7551 or (202)-502-7732 or by email 
at: [email protected] or [email protected]. For further information 
related to administrative wage garnishment, contact Nathan Arnold or 
Pamela Moran at (202)-219-7134 or (202)-502-7732 or by email at: 
[email protected] or [email protected]. For further information 
related to Federal Perkins Loan program changes, contact Gail McLarnon 
or Brian Smith at (202)-219-7048 or (202)-502-7551 or by email at: 
[email protected] or [email protected]. For further information 
related to Direct Loan program changes, contact Gail McLarnon, Jon Utz, 
or Pamela Moran at (202)-219-7048, (202)-377-4040, or (202)-502-7732 or 
by email at: [email protected], [email protected], or 
[email protected]. For further information on FFEL program changes, 
contact Pamela Moran or Nathan Arnold at (202)-502-7732 or 202-219-7134 
or by email at: [email protected] or [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: These final regulations address 
issues arising from the changes made to the HEA by the SAFRA Act, 
included in the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152). The SAFRA Act ended the origination of new loans 
under the FFEL Program after June 30, 2010. With this change, all new 
Stafford, PLUS, and Consolidation loans with a first disbursement on or 
after July 1, 2010, are now made under the Direct Loan Program. Because 
all new loans are being made under the Direct Loan Program, these final 
regulations amend the FFEL Program regulations in 34 CFR part 682 by 
removing provisions related to the making of new loans. The final 
regulations also reflect changes made to interest rates in the Direct 
Loan program by the Bipartisan Student Loan Certainty Act of 2013 (Pub. 
L. 113-28). In addition, the regulations amend the Direct Loan Program 
regulations in 34 CFR part 685 by adding detailed regulations in areas 
where the Direct Loan Program regulations cross-reference the FFEL 
Program regulations.
    The regulations also strengthen and clarify provisions of the 
Perkins Loan, FFEL, and Direct Loan program regulations including, but 
not limited to, regulations governing: deferments, forbearances, loan 
cancellation, rehabilitation of defaulted loans, administrative wage 
garnishment, and satisfactory repayment arrangements. The regulations 
also make the rules governing the various title IV, HEA loan programs 
more consistent.
    Summary of the Major Provisions of This Regulatory Action: The 
final regulations--
     Raise the participation rate index ceiling applicable to 
institutions that have a single three-year cohort default rate of over 
40 percent for purposes of challenges to, and appeals from, sanctions 
based on that default rate. (34 CFR 668.204(c) and 668.214(a) and (d))
     Clarify the Perkins Loan, FFEL, and Direct Loan program 
regulations to provide that a borrower who makes six payments in the 
course of rehabilitating a defaulted loan, but who does not seek 
additional title IV aid, will not be considered to have used the one-
time-only opportunity to regain title IV eligibility by making 
satisfactory repayment arrangements. The regulations also define the 
term ``satisfactory repayment arrangement'' more consistently across 
the title IV, HEA loan programs. (34 CFR 674.2(b), 674.9(k), 
682.200(b), 685.102(b), and 685.200(d))
     Amend the closed school discharge provisions in the 
Perkins Loan, FFEL, and Direct Loan program regulations to specify that 
a borrower may qualify for a loan discharge if the borrower withdrew 
from school not more than 120 days before the school closed, instead of 
the current 90-day standard. The regulations also add examples of the 
types of exceptional circumstances under which the Department may 
extend the 120-day window. (34 CFR 674.33(g), 682.402(d), and 685.214)
     Update the FFEL and Direct Loan program enrollment status 
reporting requirements for institutions to reflect current processes 
and eliminate obsolete terms and procedures. The regulations also add 
comparable enrollment status reporting provisions to the Perkins Loan 
Program regulations. (34 CFR 674.19(f), 682.605, 682.610(c), and 
685.309(b))
     Revise the terms under which a guaranty agency in the FFEL 
Program may authorize a lender to grant forbearance to permit a 
borrower or endorser to resume honoring the agreement to repay a debt 
after default but prior to claim payment to require either a signed 
written agreement to repay or an oral affirmation of the borrower's or 
endorser's obligation to repay the debt. The regulations provide that 
if a forbearance is granted based on the borrower's or endorser's oral 
request and affirmation of the obligation, the forbearance is limited 
to 120 days and cannot be granted for consecutive periods. In addition, 
the lender must orally review with the borrower the terms and 
conditions of the forbearance and send a notice to the borrower or 
endorser that confirms the terms of the forbearance. The regulations 
also define the term ``affirmation.'' Finally, the regulations also add 
comparable provisions to the Direct Loan Program regulations. (34 CFR 
682.211(d) and 685.205(a)(8))
     Require that lenders grant forbearance to FFEL borrowers 
who are

[[Page 65769]]

performing service that qualifies them for loan repayment under the 
Department of Defense student loan repayment programs in addition to 
the program authorized by 10 U.S.C. 2171 (which is currently referenced 
in the regulations). A comparable forbearance provision is added to the 
Direct Loan Program regulations. (34 CFR 682.211(h) and 685.205(a)(9))
     Authorize a lender to grant an administrative forbearance 
to a FFEL borrower who is delinquent at the beginning of an authorized 
period of forbearance and add a corresponding provision to the Direct 
Loan Program regulations. (34 CFR 682.211(f) and 685.205(b)(2))
     Provide that the Secretary, in both the FFEL and Direct 
Loan programs, and the guaranty agency, in the FFEL Program, once the 
rehabilitation discussion has begun, initially considers a borrower's 
reasonable and affordable loan rehabilitation payment amount to equal 
15 percent of the amount by which the borrower's Adjusted Gross Income 
(AGI) exceeds 150 percent of the poverty guideline amount applicable to 
the borrower's family size and State, divided by 12. If the amount 
determined using this calculation is less than $5, the borrower's 
monthly rehabilitation payment is $5. (34 CFR 682.405(b) and 
685.211(f))
     Specify in the FFEL and Direct Loan program regulations 
that a reasonable and affordable loan rehabilitation payment amount 
must not be a required minimum payment (except that a payment amount 
calculated as described in the immediately preceding paragraph may not 
be less than $5), a percentage of the borrower's total loan balance, or 
an amount based on other criteria unrelated to the borrower's total 
financial circumstances. (Note that these changes to the loan 
rehabilitation reasonable and affordable payment amount calculation do 
not prohibit the Secretary, his designee, or a guaranty agency from 
discussing other payment arrangements with the borrower, including 
payment of the full defaulted loan balance or payment of the defaulted 
loan through consolidation, outside of the context of the loan 
rehabilitation program and its associated requirements.) (34 CFR 
682.405(b) and 685.211(f))
     Require that the Secretary, in the FFEL and Direct Loan 
programs, or the guaranty agency, in the FFEL Program, provide the 
borrower with a written rehabilitation agreement within 15 business 
days of the determination of the borrower's reasonable and affordable 
payment amount along with a comprehensive description of the borrower's 
rights, the terms and conditions of the payments, the effects of loan 
rehabilitation, and, for a FFEL borrower, the treatment of unpaid 
collection costs. (34 CFR 682.405(b) and 685.211(f))
     Provide that, if the borrower objects to the initial 
payment amount determined by the Secretary or the guaranty agency, the 
Secretary or the guaranty agency will recalculate the amount of the 
borrower's rehabilitation payment based on the borrower's and, if 
applicable, the borrower's spouse's current disposable income, family 
size, and reasonable and necessary expenses. The information about 
income and expenses needed to determine the alternative reasonable and 
affordable payment amount will be provided by the borrower to the 
Secretary or the guaranty agency on a form approved by the Secretary 
and, if requested, with supporting documentation from the borrower or 
other sources. (34 CFR 682.405(b) and 685.211(f))
     Provide that, while the borrower is making payments under 
a rehabilitation agreement, the Secretary and the guaranty agency will 
limit contact with the borrower to collection activities required by 
law or regulation and communications that support the rehabilitation. 
(34 CFR 682.405(b) and 685.211(f))
     Amend the Direct Loan and FFEL program regulations to 
provide that, when a loan is being collected by administrative wage 
garnishment (AWG), the Secretary or the guaranty agency, respectively, 
will suspend AWG after the borrower makes five qualifying monthly 
payments under a loan rehabilitation agreement, unless the borrower 
requests that AWG continue. (34 CFR 682.405(a) and 685.211(f))
     Incorporate into the Perkins Loan Program the same 
eligibility criteria used in the Direct Loan and FFEL programs to 
define an ``eligible graduate fellowship program'' and to establish the 
eligibility of a Perkins Loan borrower for a graduate fellowship 
deferment. (34 CFR 674.34(f))
     Eliminate the debt-to-income economic hardship deferment 
category in the Perkins Loan Program. (34 CFR 674.34(e))
     Modify the rehabilitation provisions in the Perkins Loan 
Program regulations to define the term ``on-time'' as it relates to the 
series of payments required to successfully rehabilitate a defaulted 
loan. (34 CFR 674.39(a)(2))
     Allow assignment of a Perkins Loan to the Secretary 
without the borrower's Social Security Number if the loan was made 
before September 13, 1982. (34 CFR 674.50(e)(1))
     Permit a Perkins Loan borrower who is unable to complete 
the second half of an academic year of teaching due to a condition 
covered under the Family and Medical Leave Act (FMLA) to still count 
that year as eligible teaching service for loan cancellation purposes, 
if the borrower's employer considers the borrower to have fulfilled the 
teacher contract requirements for that academic year. (34 CFR 
674.52(c)(1))
     Permit a Perkins Loan borrower who is unable to complete a 
full year of eligible public service due to a condition that is covered 
under the FMLA to count that year as a full year of public service for 
loan cancellation purposes if the borrower completes at least six 
months of consecutive eligible service. (34 CFR 674.52(c)(2))
     Specify that, if a Perkins Loan borrower who is performing 
service that qualifies the borrower for loan cancellation at a 
cancellation rate progression of 15 percent for the first and second 
years of qualifying service, 20 percent for the third and fourth years 
of qualifying service, and 30 percent for the fifth year of qualifying 
service, takes a job in a different field that qualifies the borrower 
under a different cancellation category that provides loan cancellation 
at the same cancellation rate progression as the prior category, the 
borrower's cancellation rate under the new cancellation category will 
continue from the last year the borrower received a cancellation under 
the former cancellation category, rather than starting over at the 
first-year cancellation rate. (34 CFR 674.52(g))
     Change the timeframe for FFEL lenders to send the required 
repayment disclosure for borrowers who are 60 days delinquent from five 
calendar days to five business days after the date the borrower becomes 
60 days delinquent. (34 CFR 682.205(a)(5))
     Amend the FFEL Program regulations to provide that a 
lender does not have to send a repayment disclosure to a borrower who 
is having difficulty making payments if the borrower's difficulty has 
been resolved through contact resulting from an earlier disclosure or 
from other contact between the lender and the borrower. (34 CFR 
682.205(a)(4))
     Amend the regulations governing AWG to reflect the 
borrower's right to request a hearing on the enforceability of the debt 
and to allow the borrower to object to the amount or rate of AWG 
withholding if such withholding would cause financial hardship to the 
borrower. (34 CFR 682.410(b)(9))

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     Revise the regulations governing AWG to conform the 
requirements for borrowers whose defaulted loans are held by a guaranty 
agency to the rules and procedures used by the Secretary. (34 CFR 
682.410(b)(9))
     Amend the regulations governing AWG to incorporate 
existing policy guidance related to third-party servicers or collection 
contractors retained by guaranty agencies. (34 CFR 682.410(b)(9))
     Amend the regulations governing AWG to more clearly 
describe the process, from the initial garnishment notice to 
withholding. (34 CFR 682.410(b)(9))
     Amend the regulations governing AWG to better reflect due 
process requirements and to specify the functions, delegations of 
authority, recordkeeping requirements, and permissible activities of 
guaranty agencies and third-party servicers or collection contractors. 
(34 CFR 682.410(b)(9))
     Clarify the limitations on the amount that may be subject 
to AWG if a guaranty agency is garnishing pay from a borrower who is 
not already subject to a withholding order or from a borrower who is 
already subject to one or more withholding orders. The regulations will 
also permit a greater amount or percentage to be withheld with the 
borrower's consent. (34 CFR 682.410(b)(9))
     Require that for a borrower to receive a hearing before 
AWG begins, the borrower's written request for a hearing must be 
received on or before the 30th day following the date the garnishment 
notice was sent, and remove a rule providing that a borrower is 
considered to have received a garnishment notice five days following 
the date of the notice. (34 CFR 682.410(b)(9))
     Provide that if a borrower's written request for a hearing 
is received by the guaranty agency after the 30th day following the 
date of the garnishment notice, the agency must provide the borrower a 
hearing and issue a decision within 60 days following receipt of the 
request. If a decision is not rendered within 60 days, the guaranty 
agency must suspend the order beginning on the 61st day after the 
hearing request was received until a hearing is provided and a decision 
is rendered. (34 CFR 682.410(b)(9))
     Amend the FFEL Program regulations to: specify the 
contents of an AWG notice; describe how an AWG hearing is administered, 
including provisions for the submission of additional evidence and the 
granting of continuances; provide for the withholding order to end by 
either rescission or full recovery of amounts owed by the borrower; and 
clarify that a borrower who wishes to object that he or she is not 
subject to garnishment because of involuntary separation bears the 
burden of raising and proving that claim. (34 CFR 682.410(b)(9))
     Eliminate provisions in the FFEL Program regulations 
governing loan origination and disbursement and related requirements 
and activities except for certain school-based requirements and related 
activities. (34 CFR Part 682)
     Eliminate obsolete provisions that do not reflect the 
current procedures in the FFEL Program. (34 CFR Part 682)
     Make necessary conforming changes in various FFEL Program 
provisions to update the regulations. (34 CFR Part 682)
     In the Direct Loan Program regulations, modify the 
exception to the minimum loan period requirement for clock-hour and 
certain non-standard term programs that allows a school, in certain 
transfer student situations, to originate a loan for a period shorter 
than the lesser of the academic year or program length only if the 
school accepts credit or clock hours from the school that the student 
was previously attending. The regulations remove the provision that 
limits this exception to situations in which the school into which the 
student transfers accepts credit or clock hours from the prior school. 
(34 CFR 685.301(a)(10))
     Add detailed regulations to 34 CFR part 685 in areas where 
the Direct Loan Program regulations cross-reference the FFEL Program 
regulations. (34 CFR Part 685)
     Remove obsolete provisions that do not reflect current 
procedures used in administering the Direct Loan Program. (34 CFR Part 
685)
     Revise the Direct Loan Program regulations to reflect the 
impact of the SAFRA Act, the Bipartisan Student Loan Certainty Act of 
2013, and other recent statutory changes. (34 CFR Part 685)
    Chart 1 summarizes the final regulations and related benefits, 
costs, and transfers that are discussed in more detail in the 
Regulatory Impact Analysis section of this preamble. Significant 
benefits of these final regulations include a clearer process for 
determining a reasonable and affordable payment for loan rehabilitation 
that should result in more consistent treatment of borrowers, the 
elimination of FFEL Program regulations that are no longer needed, the 
expansion of the period during which a borrower who withdraws from a 
school prior to its closure may qualify for a closed school discharge, 
and additional changes to promote transparency and efficiency in the 
administration of the Federal student loan programs. The estimated net 
budget impact of the regulations is $2.8 to $3.4 million over ten years 
from 2013-2022, driven by the expansion of the time period for 
eligibility for a closed school discharge. As shown in the Accounting 
Statement within the Regulatory Impact Analysis of these final 
regulations, the annualized estimated transfer from the Federal 
government to borrowers associated with the statutory changes to Direct 
Loan interest rates is $1.2 billion at a 7 percent discount rate and 
$467 million at a 3 percent discount rate. For some future cohorts, 
depending on the cost of funds of the Federal government, the transfer 
may be reversed and the students would have higher interest rates than 
if the PB2014 baseline assumed rates of 6.8 percent for Direct 
Subsidized Loans and Direct Unsubsidized Loans and 7.9 percent for 
Direct PLUS Loans had continued in effect.

                Chart 1--Summary of the Final Regulations
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   Issue and key features           Benefits           Cost/transfers
------------------------------------------------------------------------
Three-Year Cohort Default     More schools with     No significant costs
 Rate Participation Rate       low Title IV          projected.
 Index Challenges and          participation but
 Appeals (34 CFR 668.204 and   high default rates
 668.214).                     (above 40%) will be
Raises the Participation       able to appeal
 Rate Index ceiling for        their loss of Title
 purposes of challenges to     IV eligibility.
 and appeals from sanctions    This is important
 based on one three-year       as the change from
 cohort default rate of over   a 2-year to a 3-
 40 percent from 0.06015 to    year cohort default
 0.0832..                      rate is predicted
                               to leave many
                               schools ineligible
                               to appeal their
                               sanctions under the
                               previous
                               regulations.

[[Page 65771]]

 
Perkins Loan, FFEL, and       Creates a consistent  No significant costs
 Direct Loan Programs:         standard across the   projected.
 Satisfactory Repayment        three loan programs
 Arrangements (34 CFR          and adds clarity to
 674.2(b), 674.9(k),           the regulations
 682.200(b), 685.102(b), and   regarding defaulted
 685.200).                     loan rehabilitation.
Makes the definitions of
 ``satisfactory repayment
 arrangement'' more
 consistent across the three
 title IV student loan
 programs..
Closed School Discharge (34   Expanding the window  We estimate these
 CFR 674.33(g), 682.402(d),    an extra 30 days      changes to have a
 and 685.214).                 will provide          cost of
Extends the current 90-day     discharges to         approximately $3.1
 window for students who       students who failed   million over 10
 leave before a school         to meet the 90-day    years as the pool
 closes to 120 days and adds   criteria but          of borrowers
 examples of the types of      withdrew from a       eligible for
 exceptional circumstances     program as it was     discharge will
 under which the Department    preparing to close.   increase.
 may extend the 120-day        Citing clear
 window..                      examples of
                               exceptional
                               circumstances adds
                               clarity to the loan
                               regulations and
                               gives borrowers a
                               basis on which to
                               make educated
                               decisions.
School Enrollment Status      Improves the          No significant costs
 Reporting Requirements (34    Department's          projected.
 CFR 674.19, 682.605,          information
 682.610, and 685.309).        collection process
Revises the regulations to     and supports a more
 reflect the current           efficient loan
 processes by which schools    servicing process.
 receive and report student
 enrollment status
 information and provides
 the Secretary with greater
 flexibility to modify
 enrollment reporting
 procedures in the future..
Forbearance for Borrowers     Creates a consistent  No significant costs
 Who are 270 or More Days      standard across the   projected.
 Delinquent Prior to           loan programs and
 Guaranty Agency Default       ensures that
 Claim Payment or Transfer     borrowers are fully
 by the Department to          informed of the
 Collection Status (34 CFR     details of their
 682.211(d) and 685.205).      forbearance
Requires lenders to send a     agreement.
 notice within 30 days of a    Borrowers will have
 forbearance agreement to      to affirm their
 the borrower if the           commitment to repay
 agreement is based on an      and acknowledge
 oral request or agreement..   their debt, which
                               may improve the
                               probability of full
                               repayment.
Forbearance Provisions for    Creates consistency   No significant costs
 Borrowers Receiving           across loan           projected.
 Department of Defense         programs.
 Student Loan Repayment
 Benefits (34 CFR 682.211(h)
 and 685.205).
Requires that lenders grant
 forbearance to borrowers
 who are performing service
 that qualifies them for
 loan repayment under the
 Department of Defense
 student loan repayment
 programs authorized by 10
 U.S.C. 2171, 2173, or 2174,
 or under any other student
 loan repayment program
 administered by the
 Department of Defense..
Borrowers Who Are Delinquent  Borrowers who opt to  No significant costs
 When an Authorized            use forbearance       projected.
 Forbearance Is Granted (34    will not have to
 CFR 682.211(f) and 685.205).  worry about having
Authorizes lenders to grant    a delinquent
 an administrative             repayment status
 forbearance to a borrower     upon exiting
 who is delinquent at the      forbearance.
 beginning of an authorized
 period of forbearance..
Loan Rehabilitation           Reduces the burden    No significant costs
 Agreement: Reasonable and     on defaulted          projected.
 Affordable Payment Standard   borrowers who are
 (34 CFR 682.405(b) and        attempting to
 685.211(f)).                  rehabilitate their
Establishes standards for      loans and adds
 determining a ``reasonable    transparency to the
 and affordable'' loan         process. This will
 repayment for                 possibly increase
 rehabilitation purposes..     the percentage of
                               defaulted borrowers
                               that complete the
                               rehabilitation
                               process and fully
                               repay their loans.
Loan Rehabilitation           Provides financial    No significant costs
 Agreement: Treatment of       relief to borrowers   projected.
 Borrowers Subject to          whose loans are
 Administrative Wage           being collected
 Garnishment (34 CFR           through AWG but who
 682.405(a) and 685.211(f)).   are taking positive
Suspends AWG after a           steps to repay
 borrower has made five        their loans.
 qualifying payments under a
 loan rehabilitation
 agreement..

[[Page 65772]]

 
Federal Perkins Loan          Creates consistency   No significant costs
 Graduate Fellowship           across loan           projected.
 Deferment Eligibility (34     programs.
 CFR 674.34(b)(1) and (f)).
Requires schools that
 participate in the Perkins
 Loan Program to use the
 same eligibility criteria
 that are used in the FFEL
 Program (under Sec.
 682.210(d)) to define an
 eligible graduate
 fellowship program and to
 establish the eligibility
 of a Perkins Loan borrower
 for a graduate fellowship
 deferment..
Federal Perkins Loan          Creates consistency   No significant costs
 Economic Hardship Deferment   across loan           projected.
 Debt-to-Income Ratio          programs.
 Provision (34 CFR
 674.34(e)(4)).
Eliminates an inconsistency
 between the economic
 hardship deferment
 eligibility criteria in the
 Perkins Loan program and
 the eligibility criteria in
 the Direct Loan and FFEL
 programs..
Federal Perkins Loan          Creates consistency   No significant costs
 Standard for On-time Loan     across loan           projected.
 Rehabilitation Payment (34    programs.
 CFR 674.39(a)(2)).
Identifies what is
 considered an ``on-time''
 loan payment for
 rehabilitation purposes
 within the Perkins Loan
 program..
Social Security Number        Makes the             No significant costs
 Requirement (SSN) for         administration of     projected.
 Assignment of Defaulted       Perkins Loans less
 Federal Perkins Loans to      burdensome by
 the United States (34 CFR     bringing the
 674.50(e)(1)).                regulations more in
Allows assignment of a         line with past
 Perkins Loan without the      practices.
 borrower's SSN if the loan
 was made before September
 13, 1982..
Federal Perkins Loan Break    Adds consistency      No significant costs
 in Cancellation Service Due   across the loan       projected.
 to a Condition Covered        programs. It also
 under the Family and          provides leniency
 Medical Leave Act (34 CFR     for eligible
 674.52(c)(1)).                borrowers who are
Allows a Perkins Loan          unable to complete
 borrower who is unable to     their service
 complete a second half of     requirements
 an academic year of           because of injury
 teaching or a full year of    or illness.
 public service due to a
 condition covered under the
 Family Medical and Leave
 Act to still count that
 year as a full year of
 service if the borrower's
 employer considers the
 borrower to have fulfilled
 the requirements for that
 year..
Federal Perkins Loan          Borrowers who are     No significant costs
 Cancellation Rate             progressing toward    projected.
 Progression (34 CFR           loan cancellation
 674.52(g), 674.53(d),         based on employment
 674.56(h), 674.57(c)(2),      in a particular
 and 674.59(c)(2)).            field who switch
Allows borrowers to continue   jobs will no longer
 their progression toward      lose credit for
 full loan cancellation when   their time served
 they change jobs to a         as along as the new
 position with the same        job has the same
 cancellation eligibility      loan cancellation
 requirements..                eligibility.
FFEL Lender Repayment         Reduces the burden    No significant costs
 Disclosures for Borrowers     on FFEL lenders by    projected.
 Who Are 60 Days Delinquent    accounting for
 (34 CFR 682.205(a)(5)).       holidays and
Changes the requirement that   weekends.
 FFEL Lenders have to
 provide a repayment
 disclosure to a borrower
 from five calendar days
 after the date the borrower
 becomes 60 days delinquent
 to five business days after
 that date..
FFEL Lender Repayment         Reduces the           No significant costs
 Disclosures to Borrowers      paperwork burden on   projected.
 Who Are Having Difficulty     FFEL lenders.
 Making Payments (34 CFR
 682.205(a)(4)).
Removes requirement that a
 FFEL lender provide a
 borrower with a disclosure
 upon notification from the
 borrower that he or she is
 having trouble making
 payments, if the borrower's
 difficulty has been
 previously resolved..

[[Page 65773]]

 
Administrative Wage           Ensures that          No significant costs
 Garnishment of the            borrowers who         projected.
 Disposable Pay of Defaulted   object to the
 FFEL Program Borrowers (34    proposed AWG have
 CFR 682.410(b)).              an appropriate
Borrower Hearing               opportunity to
 Opportunities on the          challenge the
 Enforceability of the Debt    existence or amount
 and a Borrower's Claim of     of the debt or to
 Financial Hardship (34 CFR    demonstrate that
 682.410(b)(9)(i))..           the withholding
Changes the regulations        would cause
 regarding Administrative      financial hardship.
 Wage Garnishments (AWG) for
 FFEL borrowers to align
 with the rules governing
 AWG for Department-held
 loans..
Use of Third-Party            Ensures borrowers     No significant costs
 Contractors in AWG Hearings   receive impartial     projected.
 (34 CFR 682.410(b)(9)).       hearings.
Adds language to clarify
 that an AWG hearing
 official may not be under
 the supervision or control
 of the guaranty agency or
 of a third-party servicer
 or contractor employed by
 the agency.
Amount or Rate of Wage        Provides clarity to   No significant costs
 Withholding (34 CFR           loan program.         projected.
 682.410(b)(9)).
Adds language to clarify the
 maximum amount that may be
 withheld during AWG.
Borrower Hearing Requests     Provides borrowers    No significant costs
 (34 CFR 682.410(b)(9)).       with more time to     projected.
Changes the notification       request hearings.
 timelines regarding AWG
 hearing requests..
Modification of the FFEL      Provides clarity to   No significant costs
 Program Regulations (34 CFR   lenders, guaranty     projected.
 part 682).                    agencies, financial
Modifies the FFEL Program      aid administrators
 regulations to remove         and borrowers.
 provisions that are
 obsolete because of the
 implementation of the SAFRA
 Act..
Minimum Loan Period for       Borrowers will no     No significant costs
 Transfer Students in Non-     longer have to        projected.
 Term and Certain Non-         worry about the
 Standard Term Programs (34    ramifications of
 CFR 685.301).                 transferring to a
Allows students who transfer   school that does
 into non-term and certain     not accept credit
 non-standard term programs    or clock hours from
 during the middle of an       the previous school.
 academic year, to be
 eligible for a Direct Loan
 to cover the remainder of
 the academic year (within
 annual loan limits)
 regardless of whether the
 new academic program
 accepts credits from the
 prior program..
Modification of the Direct    Adding consistency    No significant costs
 Loan Program Regulations      to regulations and    projected.
 (34 CFR part 685).            removing
Modifies the Direct Loan       inapplicable
 Program regulations to        regulations dealing
 remove provisions that are    with Direct Loans
 obsolete because of the       will provide
 implementation of the SAFRA   clarity to program
 Act and to add necessary      participants.
 language to replace cross-
 references and reflect
 program requirements..
------------------------------------------------------------------------

    On July 29, 2013 the Secretary published a notice of proposed 
rulemaking (NPRM) for these regulations in the Federal Register (78 FR 
45618). The final regulations contain several changes from the NPRM. We 
fully explain the changes in the Analysis of Comments and Changes 
section of the preamble that follows.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1, prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulations may 
choose to implement earlier and the conditions for early 
implementation.
    Consistent with the Department's objective to improve servicing 
processes for title IV borrowers, the Secretary is exercising his 
authority under section 482(c) to designate the following new and 
amended regulations included in this document for early implementation 
beginning on November 1, 2013, at the discretion of each loan holder, 
guaranty agency, or institution, as applicable:
    (1) Section 674.2(b).
    (2) Section 674.9(k).
    (3) Section 674.39(a)(2).
    (4) Section 674.52(c) and (g).
    (5) Section 682.205(a)(4).
    (6) Section 682.205(a)(5).
    (7) Section 682.211(d).
    (8) Section 682.211(f).
    (9) Section 682.211(h).
    (10) Section 682.410(b)(9).
    (11) Section 685.301(a)(10).
    The Secretary also intends to implement early provisions in 34 CFR 
685.205 comparable to the provisions in 34 CFR 682.205(a)(4) and (5).

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 25 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the changes in the regulations since publication of the 
NPRM follows.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses.

[[Page 65774]]

We discuss other substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
technical or other minor changes.
    We received recommendations from some commenters to make numerous 
technical changes, including changes that would provide for greater 
consistency in the regulations of the Perkins Loan, FFEL, and Direct 
Loan programs. We will consider these changes for inclusion in future 
technical corrections.
    Finally, we note that although the amendatory language in the NPRM 
included a series of individual revisions to certain parts of 34 CFR 
685.220 and 34 CFR 685.301 as part of the overall modification of the 
Direct Loan Program regulations, these final regulations restate 
Sec. Sec.  685.220 and 685.301 in their entirety for greater clarity. 
However, we have made no changes to these sections other than those 
that were proposed in the NPRM.

Student Assistance General Provisions Issue

Three-Year Cohort Default Rate Participation Rate Index Challenges and 
Appeals (34 CFR 668.204 and 668.214)

    Comments: Several commenters agreed with the proposed change to 
raise the participation rate index (PRI) ceiling applicable to 
institutions that have a single three-year cohort default rate (CDR) of 
over 40 percent. One commenter stated that continuity and consistency 
among and between various portions of the regulations, as evidenced by 
this change, were important and also commended the Department for 
clarifying that all types of institutions were eligible to challenge 
and appeal their respective rates using the criteria.
    Another commenter requested that the Department change the PRI 
appeal requirements to allow a PRI appeal to be made annually for each 
published rate. The commenter believed this would dissuade community 
colleges from discontinuing participation in the Direct Loan program 
for the purpose of preventing the loss of eligibility for the Pell 
Grant Program based on high CDRs.
    Discussion: We appreciate the commenters' support of this change. 
However, we do not agree with the proposal that we allow institutions 
to file a PRI appeal annually, whether or not the institution would be 
subject to a sanction. This proposal would impose an unmanageable 
workload on the Department and is not necessary to protect 
institutions. Evaluating a PRI appeal is a time-consuming, labor-
intensive process. The recommended change would require the Department 
to consider a significantly higher number of PRI appeals than under the 
current process, which would delay decisions for institutions that are 
potentially subject to sanctions. Moreover, the Department believes 
institutions have ample opportunity to demonstrate in a timely manner 
that they qualify for relief from sanctions based on their PRI. Current 
regulations permit institutions to bring a PRI appeal not only when an 
official rate leading to sanctions is published, but also seven months 
earlier, at the draft rate stage, when the loss of eligibility is not 
imminent. At the draft rate stage, just as at the official rate stage, 
the institution may challenge the draft CDR and file a PRI challenge 
with respect to any or all of the official rates that would support a 
loss of eligibility.
    A successful PRI challenge to an official rate at the draft rate 
stage has the same impact as a successful challenge later in the 
process. Thus, institutions already have sufficient opportunity to file 
a meaningful appeal.
    Changes: None.

Perkins Loan, FFEL, and Direct Loan Program Issues

Satisfactory Repayment Arrangements (34 CFR 674.2(b), 674.9(k), 
682.200(b), 685.102(b) and 685.200(d))

    Comments: Two commenters expressed support for the effort to make 
the ``satisfactory repayment arrangements'' definitions more consistent 
across the Perkins Loan, FFEL, and Direct Loan programs. These 
commenters believed that a consistent definition of an ``on-time'' 
payment as a payment made within 20 days of the due date would be 
helpful to borrowers. However, these commenters also expressed a 
concern with the requirement that the payments be ``full'' payments. 
These commenters believe that the term ``full'' is too vague and open 
to interpretation. These commenters recommended replacing the term 
``full'' with the term ``approved'' in the ``satisfactory repayment 
arrangement'' definitions. These commenters also suggested aligning the 
number of payments needed to regain title IV eligibility under 
satisfactory repayment arrangements with the number of payments needed 
to rehabilitate a loan. These commenters felt that allowing a borrower 
to obtain new title IV loans after six qualifying payments made under 
satisfactory repayment arrangements is not in the borrower's best 
interests.
    Discussion: We thank the commenters for their support of the 
proposed changes to the Perkins Loan, FFEL, and Direct Loan program 
definitions of ``satisfactory repayment arrangements.'' However, we do 
not agree with their recommendation to require that payments made under 
satisfactory repayment arrangements be ``approved'' payments rather 
than ``full'' payments. We believe that the term ``full'' is self-
explanatory when referring to a payment made on a loan. In addition, 
replacing the long-standing term ``full'' with the term ``approved'' 
might be interpreted as a change in the requirement, rather than just a 
change in terminology.
    The number of payments required under satisfactory repayment 
arrangements and the number of payments required under a rehabilitation 
agreement are established by statute. Section 428F(a)(1)(A) of the HEA 
requires nine payments under a rehabilitation agreement. Section 
428F(b) requires six payments to meet the requirements for satisfactory 
repayment arrangements. The Department does not have the authority to 
change these requirements.
    Changes: None.

Closed School Discharge (34 CFR 674.33(g), 682.402(d), and 685.214)

    Comments: One commenter commended the Department for proposing 
changes to the closed school discharge provisions. The commenter noted 
that extending the 90-day window for students who cease enrollment 
before a school closes to 120 days will help students avoid hardships, 
such as repaying loans received for programs they are unable to 
complete through no fault of their own. This same commenter also 
expressed support and thanked the Department for adding examples of 
exceptional circumstances under which the Department may extend the 
120-day window for affected borrowers. However, this commenter also 
recommended that the Department provide the benefit of a closed school 
discharge to borrowers enrolled in a program that is discontinued at a 
school that continues to operate, especially in the case of a school 
that offers many of its programs online or through distance education.
    Lastly, another commenter commended the Department for proposing 
changes to the closed school discharge provisions and supported the 
Department's position to limit the discharge to closed schools only and 
not to discontinued programs.
    Discussion: The Department appreciates the commenters' support for 
its proposed changes to the closed school discharge provisions. In 
response

[[Page 65775]]

to the request that the Department provide the benefit of a closed 
school discharge to borrowers enrolled in a discontinued program at a 
school that continues to operate, we note that sections 437(c)(1) and 
464(g) of the HEA require that the school must close in order for a 
borrower to be eligible for the discharge. The statute does not provide 
for a loan discharge when only a program, either traditional or 
distance, is discontinued. We also note that the Department does not 
consider a distance education program to be a separate location of a 
school for title IV eligibility purposes. A location is a physical site 
where a student can receive instruction in 50 percent or more of an 
eligible program. If a school offers online programs, the online 
programs are considered to be associated with the main campus of the 
school. Thus, a borrower enrolled in an online course would be eligible 
for a closed school discharge if the main campus of the school closes.
    Changes: None.

FFEL and Direct Loan Program Issues

Forbearance for Borrowers Who Are 270 or More Days Delinquent Prior to 
Guaranty Agency Default Claim Payment or Transfer by the Department to 
Collections Status (34 CFR 682.211(d) and 685.205(a)(8))

    Comments: Several commenters supported the proposed requirement 
that a lender that grants a forbearance based on an oral request and 
affirmation by a borrower who is 270 or more days delinquent must 
review with the borrower the terms and conditions and consequences of 
the forbearance and must provide the borrower with written confirmation 
of the terms of the forbearance agreement within 30 days of the 
agreement. However, the commenters expressed concern about limiting the 
forbearance for such borrowers to one 120-day period. The commenters 
believed that the current economy and pending healthcare reform could 
leave many borrowers underemployed or with other temporary situations 
that cannot be resolved within 120 days. The commenters recommended 
that the forbearance period be extended from 120 to 180 days.
    One commenter urged the Department to revise these proposed 
regulations to prohibit a borrower from receiving additional 
forbearances unless the borrower can demonstrate a reasonable prospect 
of increased income in the foreseeable future. The commenter also 
recommended that the written notice sent to the borrower to confirm the 
terms of the 120-day forbearance agreement include information on other 
repayment options and on how the borrower can exit forbearance.
    Discussion: The Department disagrees with the commenters' 
recommendation that the 120-day, non-serial forbearance that may be 
granted based on a defaulted borrower's oral request and affirmation be 
expanded to 180 days. We believe that the 120-day forbearance period 
provides sufficient time for the borrower to avoid the negative 
consequences of default by submitting a written forbearance request and 
affirmation that would result in a forbearance period of up to 12 
months, documenting deferment eligibility, or changing to a different 
repayment plan, so the borrower can successfully manage and repay the 
loan.
    The Department recognizes that schools are required to conduct 
entrance and exit counseling with their borrowers, and through that 
process, to educate their borrowers on the terms and conditions of the 
loans and the program benefits available to assist them in repaying 
their loans. We are aware that many schools are working to enhance and 
expand loan-based counseling with their students over the period of 
their enrollment at the school and support those efforts. The 
Department has also seen evidence, however, both during and following 
the negotiated rulemaking sessions, that some institutions are 
aggressively pursuing their former students to compel them to request 
forbearance on their loans, primarily during the cohort period when the 
institution is accountable for student loan defaults. As stated in the 
preamble to the NPRM, the limits on the 120-day forbearance based on an 
oral request for a borrower who is 270 days or more delinquent are 
intended to address potential abuse in this area and to prevent the use 
of serial forbearances based on oral requests.
    We disagree with the commenter who suggested that a borrower 
receiving the 120-day, non-serial forbearance should be denied access 
to subsequent discretionary or mandatory forbearances unless the 
borrower can demonstrate increased income in the foreseeable future. 
Section 428(c)(3) of the HEA, which contains the eligibility criteria 
for discretionary and mandatory forbearances in the Direct Loan and 
FFEL programs, does not support the use of the borrower's demonstrated 
future earnings as a basis for granting forbearance. However, we agree 
with the commenter that the other repayment options orally reviewed 
with the borrower at the time the forbearance is granted should be 
included in the confirming notice sent to the borrower.
    Changes: Sections 682.211(d)(2)(iii) and 685.205(a)(8)(ii)(B) of 
the FFEL and Direct Loan program regulations, respectively, have been 
revised to require that information on all other repayment options be 
included in the notice sent to the borrower to confirm the terms of the 
forbearance.

Forbearance Provisions for Borrowers Receiving Department of Defense 
Student Loan Repayment Benefits (34 CFR 682.211(h) and 685.205(a)(9))

    Comments: Commenters supported the proposed change to ensure that 
lenders grant appropriate forbearances to borrowers who are performing 
eligible service to qualify for student loan repayment under authorized 
Department of Defense loan repayment programs.
    Discussion: We appreciate the commenters' support for this 
regulatory change.
    Changes: None.

Borrowers Who Are Delinquent When an Authorized Forbearance Is Granted 
(34 CFR 682.211(f) and 682.205(b)(2))

    Comments: Several commenters supported the proposed change to the 
regulations to authorize FFEL lenders to grant administrative 
forbearance to a borrower who is delinquent at the beginning of an 
authorized period of forbearance and the corresponding change to the 
Direct Loan regulations. The commenters expressed concern, however, 
that this authority would provide the Department's loan servicers an 
opportunity to use forbearances to increase the percentage of Federal 
loans that they service. The commenters urged the Department to ensure 
that all delinquent borrowers are treated similarly by requiring the 
servicer to discuss the terms and conditions and consequences of the 
forbearance with the borrower and subsequently provide written 
confirmation of the terms and other pertinent information, as was 
proposed in the NPRM for borrowers who are 270 or more days delinquent.
    Discussion: The additional authority for FFEL lenders and the 
Department in the Direct Loan Program to grant administrative 
forbearance to eliminate a period of delinquency that pre-dates the 
start of an authorized forbearance period is used only in conjunction 
with an authorized period of forbearance for which the borrower 
qualifies. The use of forbearance in this circumstance prevents a 
borrower from reentering repayment up to 12 months later in a 
delinquent status, at the end of the authorized forbearance period.

[[Page 65776]]

Borrowers granted authorized forbearances are provided with pertinent 
disclosures that also apply to the period of administrative 
forbearance. Therefore, we do not agree with the commenters' suggestion 
that we specifically require additional disclosures.
    Changes: None.

Loan Rehabilitation Agreement: Reasonable and Affordable Payment 
Standard (34 CFR 682.405(b) and 685.211(f))

    Comments: Several commenters expressed support for the proposed 
regulations in Sec. Sec.  682.405(b)(1) and 685.211(f)(1) that would 
require a guaranty agency and the Department to determine a FFEL or 
Direct Loan program borrower's rehabilitation payment amount based on 
the borrower's, and if applicable the borrower's spouse's, current 
disposable income, family size, and reasonable and necessary expenses.
    As discussed below, several commenters raised a number of 
objections to the process that a guaranty agency and the Department 
would follow to determine a borrower's reasonable and affordable 
rehabilitation payment.
    Several commenters were critical of the proposed regulations. These 
commenters believed that the requirements in the proposed regulations 
would delay and hinder the rehabilitation process. These commenters 
expressed concern that requesting financial documents and information 
from borrowers would burden the process, create confusion, and invade 
the privacy of the borrower. They stated that often borrowers default 
because they do not complete paperwork and meet deadlines. In the view 
of these commenters, the proposed regulatory requirements would impede 
the ability of collection agencies to get borrowers to participate in 
the loan rehabilitation program. One of these commenters recommended 
that the proposed regulations not be implemented at all due to the 
amount of paperwork a borrower would be required to complete to enter 
into a loan rehabilitation agreement.
    Several commenters stated that the determination of a ``reasonable 
and affordable'' payment amount can often be accomplished in a 
telephone conversation in which a borrower's overall financial 
circumstances are evaluated to establish an acceptable payment amount. 
In these discussions, the commenters asserted, the borrower's own 
assessment of his or her total financial circumstances and ability to 
pay the requested amount serves as the basis for the guaranty agency or 
Department's determination that the payment amount is reasonable and 
affordable. These commenters believed that this would be a fair 
conclusion, since the borrower understands his or her financial 
resources and constraints better than others. According to the 
commenters, guaranty agencies find that nearly half of borrowers 
seeking rehabilitation are able to obtain what the guaranty agencies 
term reasonable and affordable payment amounts in this manner.
    Another commenter, however, argued that, since debt collectors are 
paid based on a share of revenue collected, Federal student loan 
servicers have little incentive to offer reasonable and affordable 
rehabilitation payments that are based on an objective analysis of the 
borrower's financial circumstances. Instead, the incentive is to push 
borrowers to make as large a payment as possible, regardless of whether 
the payment is either reasonable or affordable. Another commenter 
reiterated this point, stating that private collection agencies--
including the Department's own collection contractors--use a balance-
sensitive repayment approach for making an initial determination of a 
borrower's rehabilitation payment amount. Under a balance-sensitive 
repayment approach, the payment amount offered to the borrower is based 
on the outstanding balance of the loan, and does not take into 
consideration the borrower's financial circumstances. In such cases, 
the commenter asserted, the borrower may feel pressured to agree to a 
loan rehabilitation payment amount that is unaffordable, and the 
rehabilitation will ultimately be unsuccessful.
    Several commenters raised concerns with regard to use of the 
Department's proposed Financial Disclosure for Reasonable and 
Affordable Rehabilitation Payments form for collecting financial and 
other information from borrowers seeking to rehabilitate their loans. 
These concerns can be summarized as follows:
     The commenters asserted that use of the form in all cases 
would be inconsistent with the Department's goal of providing an 
improved and more consistent loan rehabilitation process for FFEL and 
Direct Loan borrowers. The commenters believed that the Department can 
achieve the same goal by emphasizing to its own staff and collection 
agencies, as well as to guaranty agencies and their collection 
agencies, the importance of complying with all applicable statutory and 
regulatory requirements. In the view of these commenters, requiring the 
use of the form only in the absence of an agreement between the 
borrower and the loan holder on a reasonable and affordable repayment 
amount would provide targeted help to such borrowers. The commenters 
stated that collecting personal and financial information from every 
borrower who requests loan rehabilitation would be unreasonable and 
unwarranted.
     The commenters believed that the use of the form would 
work against the Department's goal of increasing borrower participation 
in the loan rehabilitation program. The commenters stated that many 
borrowers would not complete the form, and that the proposed 
regulations would actually decrease the percentage of borrowers 
attempting to rehabilitate their loans.
     The commenters expressed concerns that use of the form 
would infringe on the privacy of the borrowers, requiring them to 
provide highly sensitive information either to a guaranty agency or to 
the Department, even if the borrower has already agreed to a repayment 
amount.
     The commenters believed that the requirements in the 
proposed regulations would impose an additional impediment to borrowers 
seeking to regain Title IV eligibility while rehabilitating defaulted 
loans.
     The commenters were also concerned that use of the form 
would impose an enormous administrative burden on all parties.
    Several commenters stated that they believed that the regulatory 
requirements that were negotiated and agreed to during the negotiated 
rulemaking session should only be triggered if the borrower objected to 
the repayment amount offered by the collection agency or the guaranty 
agency. They stated that this type of borrower feedback has always been 
a trigger event for collecting additional financial information to 
determine reasonable and affordable payments, and asserted that no 
change to this trigger event was discussed during negotiations. These 
commenters claimed that the process for determining reasonable and 
affordable rehabilitation payment amounts provided for in the consensus 
regulatory language and described in the NPRM was not consistent with 
their understanding of what was agreed to during the negotiated 
rulemaking sessions.
    Another commenter had a different understanding of the proposed 
rules that had been agreed to by the negotiated rulemaking committee. 
This commenter stated that the consensus regulatory language would 
require loan

[[Page 65777]]

servicers, loan holders, and debt collectors to use the form collecting 
financial disclosure information from the borrower for every borrower 
who seeks to rehabilitate a loan. This commenter pointed out that the 
proposed regulatory language agreed to by the negotiating committee 
states that a borrower's reasonable and affordable repayment amount 
must be based ``solely'' on information provided on the form and, if 
requested, supporting documentation. The proposed regulations describe 
a process in which a borrower who objects to the payment amount 
determined through use of the form is then offered a rehabilitation 
payment amount that is calculated using the same formula used for 
determining payments under IBR. This commenter stated that during the 
rulemaking negotiations, the commenter supported the consensus 
regulatory language because the proposed regulations would provide a 
standardized process to ensure that rehabilitation amounts are 
determined solely by looking at a borrower's financial circumstances. 
This commenter recommended that the Department issue guidance to 
clarify that an offer of a rehabilitation payment amount must be based 
solely on information provided by the borrower. This commenter also 
noted that some negotiators had proposed during the negotiations that 
the initial rehabilitation payment amount offered should be determined 
using the IBR formula. This commenter recommended that, if the borrower 
is unable to complete the form, the loan holder should continue the 
rehabilitation process by determining the payment amount using this 
approach.
    Another commenter expressed concerns about the complexity of the 
proposed form, and suggested that if the payment calculated using the 
IBR formula was the initial offer to a borrower, the form would only be 
needed for borrowers who object to that initial payment amount. The 
commenter stated that a payment amount calculated using this approach 
would be acceptable to most borrowers, and would therefore 
significantly reduce the number of borrowers who would need to use the 
financial disclosure form.
    Discussion: In response to the numerous comments we received 
expressing concerns about the amount of personal financial information 
a borrower requesting loan rehabilitation would have to provide under 
the proposed regulations, we have modified the final regulations to 
provide that as the first step in the loan rehabilitation process, the 
lender, loan servicer or the Department will calculate a loan 
rehabilitation payment amount by using the IBR payment formula that 
provides for a monthly payment equal to 15 percent of the amount by 
which the borrower's AGI exceeds 150 percent of the poverty guideline 
amount applicable to the borrower's State and family size, divided by 
12. Throughout the remainder of this preamble, we refer to this as the 
``15 percent formula.'' To ensure consistent treatment of all defaulted 
borrowers, the initial loan rehabilitation payment amount will be 
calculated in all cases using the 15 percent formula, as described 
earlier. For new borrowers on or after July 1, 2014, who are repaying 
non-defaulted Direct Loans under the IBR plan, the IBR plan payment 
amount is equal to 10 percent of the amount by which the borrower's AGI 
exceeds 150 percent of the poverty guideline amount applicable to the 
borrower's State and family size. However, this 10 percent IBR formula 
will not be used in the initial determination of a reasonable and 
affordable loan rehabilitation payment amount on a defaulted loan.
    It is important to note that loan rehabilitation payments 
calculated by using the 15 percent formula are not payments that are 
made under the IBR plan. This means, for example, that such payments do 
not count toward IBR plan loan forgiveness, nor do they count as 
qualifying payments for purposes of public service loan forgiveness in 
the Direct Loan Program.
    Under these final regulations, a loan rehabilitation payment amount 
based on the information collected on the Financial Disclosure for 
Reasonable and Affordable Payments form will only be calculated if the 
borrower objects to the payment amount based on the 15 percent formula. 
If the borrower does object to the payment amount calculated based on 
this formula and requests that a rehabilitation payment amount be 
calculated based on information on the form, the borrower can choose 
which payment amount to accept. We expect that the payment amount based 
on the 15 percent formula will in most cases be less than the payment 
amount under a standard 10-year repayment plan, and will be acceptable 
to most borrowers. Therefore, this approach should significantly reduce 
the number of borrowers who will be required to complete the financial 
disclosure form. We believe that this change will address concerns 
raised by consumer advocates, student groups, guaranty agencies, and 
collection agencies alike that the financial disclosure information 
required under the proposed regulations would be overly burdensome for 
borrowers requesting loan rehabilitation.
    Specifically, with regard to commenters' concerns that the proposed 
regulations would create confusion, add burden to the process, or 
invade the privacy of the borrower, we believe the revised process in 
the final regulations is clear and understandable. The revised process 
significantly reduces burden by limiting the use of the form, and 
appropriately balances the borrower's privacy with the need to verify 
information. The final regulations assist with privacy concerns by 
limiting the information borrowers are required to provide--only 
requiring the use of the Financial Disclosure for Reasonable and 
Affordable Payments for those borrowers who object to the monthly 
payment amount determined based on the 15 percent formula.
    Commenters were concerned that the paperwork burden associated with 
the use of the financial disclosure form would impede the ability of 
collection agencies to get borrowers to participate in the loan 
rehabilitation program. Our revisions to the proposed regulations 
significantly reduce the paperwork burden on borrowers because, again, 
they will only need to provide the Financial Disclosure for Reasonable 
and Affordable Payments form if they object to the payment amount based 
on the 15 percent formula.
    Some commenters stated that reliance on the oral statements of the 
borrower should be sufficient to determine the ``reasonable and 
affordable'' payment amount, and that there should be no need for 
further documentation or verification. Other commenters had the 
opposite opinion, sharing concern that loan servicers may push 
borrowers to agree to payments that are not reasonable and affordable. 
We believe our approach balances applicable equities, burden, 
verification that payment is reasonable and affordable, and privacy 
concerns.
    With regard to the comments about the agreements reached at the 
negotiated rulemaking sessions, we believe the NPRM was consistent with 
the consensus reached through negotiated rulemaking. Commenters did 
seem to have different understandings of what the NPRM language meant; 
we believe our revised regulations provide a clear, understandable 
process.
    With regard to comments about a ``trigger event,'' we believe that 
it would defeat the purpose of the proposed regulations if the 
regulations only applied in cases when a borrower and loan holder are 
unable to agree to a loan rehabilitation payment amount. The intent of 
the regulations is to

[[Page 65778]]

standardize the process for determining rehabilitation payment amounts. 
The commenter states that loan holders and borrowers are able to agree 
to loan rehabilitation payment amounts 50 percent of the time. If this 
figure is accurate, and the trigger for the rehabilitation payment 
amount regulations was the failure of the borrower and loan holder to 
come to an agreement, the loan rehabilitation regulations would only 
apply to half of the borrowers who apply for rehabilitation.
    We note that nothing in these regulations precludes a defaulted 
borrower from resolving the default by repaying the loan in full. A 
qualified defaulted borrower may also, under certain conditions, repay 
a defaulted loan through a new Direct Consolidation Loan. Some 
defaulted borrowers may also qualify for a loan discharge. The 
regulations do not prohibit the Secretary, his designee, or a guaranty 
agency from discussing these other payment arrangements with the 
borrower outside of the context of the loan rehabilitation program and 
its associated requirements.
    Changes: We have revised Sec. Sec.  682.405(b)(1)(iii) and 
685.211(f)(1)(i) to specify that the initial loan rehabilitation 
payment amount determined by a guaranty agency or the Secretary equals 
15 percent of the amount by which the borrower's Adjusted Gross Income 
(AGI) exceeds 150 percent of the poverty guideline amount applicable to 
the borrower's family size and State, divided by 12, except that if 
this amount is less than $5, the borrower's monthly rehabilitation 
payment is $5.
    We have revised Sec. Sec.  682.405(b)(1)(vii) and 685.211(f)(3) to 
specify that if the borrower objects to the initial payment amount, a 
second loan rehabilitation payment amount is determined by 
recalculating the payment amount based solely on the information 
provided on the Financial Disclosure for Reasonable and Affordable 
Payments form and, if requested, supporting documentation from the 
borrower and other sources.
    Comments: In the NPRM, the Department identified several categories 
of expenses in proposed Sec. Sec.  682.405(b)(1)(i)(C) and 
685.211(f)(1)(i)(C) that the guaranty agencies and the Department would 
use to evaluate a borrower's monthly ``reasonable and necessary 
expenses.'' Although the proposed regulations did not stipulate 
standardized amounts that a borrower might claim in each of these 
categories, the Secretary invited comment on whether the regulations 
should specify standardized amounts, such as those used in the IRS 
National Standards. Commenters representing both guaranty agencies and 
consumer groups opposed this idea.
    Several commenters noted that the topic of standardization was 
discussed at length during the negotiations, and noted that an overly 
rigid framework for making these determinations would likely eliminate 
the rehabilitation opportunity for those whose financial circumstances 
do not exactly fit within the framework. They pointed out that, as the 
Secretary noted in the preamble to the NPRM, preserving appropriate 
flexibility in the methodology is important to enable guaranty agencies 
and the Department to ensure that a reasonable and affordable payment 
is available to all borrowers. These commenters contended that allowing 
flexibility in this regard strengthens the effectiveness of the 
regulations in determining reasonable and affordable payment amounts. 
These commenters stated that the negotiated rulemaking committee 
decided not to propose a standardized methodology. These commenters 
reiterated that position in response to the Secretary's invitation to 
comment.
    In a separate comment, another commenter recommended that the 
Department not use standardized national standards for expense amounts. 
This commenter stated that, to the extent that the consensus regulatory 
language reflected an agreement that a combination of standardized and 
tailored payment options would best meet the needs of borrowers, 
standardizing the more tailored approach would be a step in the wrong 
direction.
    Discussion: We thank the commenters for responding to the 
invitation to comment on this proposal in the NPRM. We agree with their 
view that the final regulations should preserve the flexibility to 
determine reasonable and affordable rehabilitation payment amounts 
based on the borrower's financial information, which the proposed 
regulations provided.
    Changes: None.
    Comments: One commenter expressed concern about proposed Sec.  
682.405(b)(1)(v) and Sec.  685.211(f)(1)(iii), which would provide 
borrowers with an opportunity to object to an offer of a reasonable and 
affordable payment amount that is presented to the borrower in a 
written rehabilitation agreement. The commenter stated that many 
borrowers will be offered payment amounts orally, and believed that 
these borrowers should be able to object to the offered payment amount 
at that point. This commenter noted that requiring borrowers to wait 
until they receive a written offer will only delay or deter the 
borrowers from rehabilitating their loans.
    Discussion: We agree that a loan servicer may make a first offer of 
the rehabilitation payment amount based on the 15 percent IBR formula 
to a borrower orally. If the borrower agrees to the payment amount, the 
borrower would have to follow up on the conversation by providing the 
loan holder with the documentation required to calculate a payment 
amount under that formula. Consistent with Sec. Sec.  
682.405(b)(1)(iii) and 685.211(f)(3), the borrower may object to the 
initial offer at the time it is made.
    Changes: We have revised Sec.  682.405(b)(1)(iv) and Sec.  
685.211(f)(1)(ii) to specify that a guaranty agency or the Department 
may calculate a payment amount based on information provided orally by 
the borrower, and may provide the borrower with a rehabilitation 
agreement using that amount. We have also specified in revised 
Sec. Sec.  682.405(b)(1)(iv) and 685.211(f)(1)(ii) that if the borrower 
does not provide the guaranty agency or the Department with the 
documentation required to calculate the payment amount using the 15 
percent formula or to confirm the information provided orally on which 
the Secretary or the guaranty agency calculated the payment amount, the 
rehabilitation agreement entered into for that amount is null and void.
    Comments: We received several comments on Sec. Sec.  
682.405(b)(1)(v) and 685.211(f)(1)(iii). Section 682.405(b)(1)(v) of 
the proposed regulations stated that a guaranty agency ``may not impose 
any other conditions unrelated to the amount or timing of the 
rehabilitation payments'' in a rehabilitation agreement. Section 
685.211(f)(1)(iii) of the proposed regulations provided that the 
Secretary would not impose such conditions in rehabilitation agreements 
for Direct Loans. Several commenters stated that some guaranty agencies 
currently require a borrower's written acknowledgement of the 
borrower's understanding of the terms and conditions of rehabilitation, 
which these commenters stated is a prudent practice when establishing a 
new repayment agreement with a borrower. In such cases, the borrower 
may be required to sign and return the agreement or provide a separate, 
signed authorization statement acknowledging, at a minimum, that 
collection costs will be added to the loan balance at the time the 
rehabilitated loan is purchased by an eligible lender. These commenters

[[Page 65779]]

believed that this requirement for the borrower to review and 
acknowledge the information provided in the rehabilitation agreement 
underscores the importance of rehabilitation as a one-time opportunity 
to remove loans from default status. It also reduces the possibility of 
misunderstandings about the terms of the loan rehabilitation and 
related risks for guaranty agencies in the event of a dispute 
concerning the applicable repayment terms and conditions, costs, and 
benefits of loan rehabilitation.
    Commenters noted that guaranty agencies may also currently require 
a borrower to provide updated references and contact information to 
facilitate the loan rehabilitation process. The commenters stated that 
this provides a purchasing lender with important default prevention 
information, if needed, since the borrower's contact information may be 
incomplete or outdated and the references provided in the promissory 
note may no longer be valid. This enhances a guaranty agency's ability 
to sell the borrower's rehabilitation-eligible loans. These commenters 
requested confirmation from the Department that the proposed 
regulations would not preclude guaranty agencies from continuing these 
practices.
    Discussion: The limitation in the proposed rule that would preclude 
a guaranty agency from imposing any additional conditions on loan 
rehabilitation unrelated to the amount or timing of rehabilitation 
payments was not intended to prohibit the agency from requiring 
borrowers to acknowledge the terms and conditions of the rehabilitation 
in writing, or from requiring borrowers to provide updated contact 
information when the loan rehabilitation agreement is signed. Requiring 
the borrower to acknowledge such disclosure information, or to provide 
such contact information, would be helpful to the borrower. It would 
help to ensure that the borrower understands the rehabilitation 
agreement, and, where necessary, facilitate the sale of the loan to a 
FFEL loan holder.
    Changes: None.
    Comments: There were several comments on proposed Sec. Sec.  
682.405(b)(1)(vi) and 685.211(f)(3) in the proposed regulations. These 
commenters stated that the terms ``IBR formula'' or ``IBR calculation'' 
should not be used in connection with describing the method used to 
determine a reasonable and affordable rehabilitation payment amount. 
These commenters believed that using these terms would cause 
significant confusion for borrowers, since payments made towards loan 
rehabilitation do not count as IBR payments. These commenters 
recommended using the term ``alternative payment amount'' or ``APA'' to 
refer to this formula.
    These commenters also noted that proposed Sec. Sec.  
682.405(b)(1)(vi) and 685.211(f)(5) include a cross-reference to the 
IBR regulations at Sec.  682.215(b)(1), Sec.  685.221(b)(1), and Sec.  
685.221(b)(2). Those regulations include other requirements in addition 
to the IBR payment amount formula. These commenters believed that using 
the broad cross reference could be interpreted as incorporating these 
other provisions not specifically related to the formula as applying to 
the rehabilitation requirements as well.
    These commenters recommended that the Department include the 
``alternative payment amount'' formula directly in the loan 
rehabilitation regulations, rather than cross-referencing the IBR 
regulations.
    Discussion: As discussed earlier in this preamble, in the final 
regulations we have switched the order in which the rehabilitation 
payment amounts are determined and offered to borrowers. Under the 
final regulations, the payment amount based on the 15 percent formula 
will be the first offer to the borrower, and the payment amount based 
on information provided on the financial disclosure form will be the 
second offer. The borrower may choose which payment amount to accept. 
Since the 15 percent formula payment will be the first payment amount 
offered during rehabilitation discussions, it would not be accurate to 
refer to it as the ``alternative payment amount.''
    We agree with the commenters that we do not intend the extensive 
and detailed requirements in Sec. Sec.  682.215(b)(1), 685.221(b)(1), 
and 685.221(b)(2) of the IBR regulations to apply to determining a loan 
rehabilitation payment amount. Replacing the cross-references with the 
15 percent formula will make the loan rehabilitation regulations 
simpler and clearer. In addition, eliminating the cross-references may 
reduce the potential for borrowers to confuse rehabilitation payments 
based on the 15 percent formula with payments made by a non-defaulted 
borrower under the IBR plan. Eliminating the cross-references also 
clarifies that the initial rehabilitation payment amount for a ``new 
borrower'' as defined in Sec.  685.221(a)(4) of the IBR plan 
regulations would not be calculated using the 10 percent IBR formula as 
described in Sec.  685.221(b)(1) of the IBR plan regulations. 
Regardless of how a loan rehabilitation payment amount is determined, a 
rehabilitation payment does not qualify as an IBR plan payment and does 
not count toward IBR plan loan forgiveness or for any other purposes 
for which a qualifying payment made under the IBR plan on a non-
defaulted loan might count, such as for public service loan forgiveness 
in the Direct Loan Program.
    Changes: We have replaced the cross-references in Sec. Sec.  
682.405(b)(1)(iii) and 685.211(f)(1)(i) with the 15 percent formula.
    Comments: In the NPRM, the Secretary invited comment on proposed 
Sec. Sec.  682.405(b)(1)(vii) and 685.211(f)(5), which would provide 
that a loan rehabilitation does not go forward if the borrower fails to 
provide the documentation required for the payment amount to be 
calculated. The Secretary asked if it would be appropriate to make a 
change in the final regulations to require a borrower to submit 
information needed to recalculate the borrower's reasonable and 
affordable rehabilitation payment amount only if new information is 
required beyond what the borrower provided when he or she initially 
requested loan rehabilitation. Several commenters responded to this 
invitation for comment, and all supported making this change in the 
final regulations. One commenter requested that the Department's final 
regulations be flexible enough to cover the following scenarios:
     Some information or documentation originally submitted by 
the borrower is illegible or difficult to understand, and needs to be 
requested again or explained.
     Significant time passes between the borrower's initial 
request for rehabilitation and the borrower's subsequent request for a 
recalculated payment amount, so a verification of critical information 
may be needed to determine an appropriate payment amount.
     The borrower realizes after submitting the original 
information/documentation that the submission was incomplete or 
inaccurate, and that additional information or documentation is needed 
by the loan holder to determine an appropriate payment amount.
    Discussion: As discussed earlier in this preamble, we have switched 
the order in which rehabilitation payment amounts are offered to 
borrowers. Under the final regulations, a payment amount calculated 
using the 15 percent formula will be the basis for the first offer. If 
the borrower objects to that amount, the guaranty agency or the 
Department will

[[Page 65780]]

calculate a payment amount based on detailed financial information 
provided by the borrower, and the borrower may then choose between the 
two payment amounts. Except when the loan is being collected by AWG, it 
is extremely unlikely that the loan holder will already have the 
detailed financial information requested on the form. Therefore, there 
is no need to make the requested change.
    Changes: None.
    Comments: One commenter expressed support for the provision in 
proposed Sec.  682.405(b)(1)(x) that would limit guaranty agency 
contact with a borrower during the rehabilitation period to collection 
activities required by law and communications with the borrower that 
support the rehabilitation.
    Discussion: We appreciate the commenter's support. We also note 
that this provision, in Sec. Sec.  682.405(b)(1)(xi) and Sec.  
685.211(f)(7), does not prohibit guaranty agencies or the Secretary 
from contacting borrowers to remind them when the next payment is due 
or, in appropriate circumstances, to inquire about any missed payments. 
The intent of such calls is to ensure that the borrower maintains the 
consecutive monthly payment stream required to successfully 
rehabilitate a loan. Contacts of this type between a guaranty agency or 
the Secretary and a borrower are ``communications that support the 
rehabilitation.''
    Changes: None.

Loan Rehabilitation Agreement: Treatment of Borrowers Subject to 
Administrative Wage Garnishment (34 CFR 682.405(a) and 685.211(f))

    Comments: Three commenters expressed support for the proposed 
regulations in Sec. Sec.  682.405(a)(3) and 685.211(f)(12)(i) that 
would suspend payments made through administrative wage garnishment 
(AWG) for borrowers who make five qualifying payments under a loan 
rehabilitation agreement. These commenters felt that this step would be 
a reward and an incentive for borrowers and would encourage defaulted 
borrowers to rehabilitate their loans.
    Several commenters stated that proposed Sec.  682.405(a)(3) appears 
to assume that a guaranty agency would not be required to suspend the 
borrower's current garnishment order for another reason prior to 
receipt of the borrower's fifth loan rehabilitation payment. However, 
these commenters noted that this may not always be the case under the 
current and proposed AWG regulations in Sec.  682.410(b)(9). For 
instance, if a borrower does not request a hearing prior to the 
initiation of AWG, but does so shortly after AWG commences, the AWG 
hearing process would occur during the period of the borrower's first 
five payments under a loan rehabilitation agreement and could result in 
a required suspension of the garnishment order during that time. These 
commenters recommended that Sec.  682.405(a)(3) be modified to include 
a reference to Sec.  682.410(b)(9) to clarify that a guaranty agency 
may suspend a garnishment order for a borrower pursuing loan 
rehabilitation prior to receipt of the borrower's fifth rehabilitation 
payment, if required to do so for another reason in accordance with 
Sec.  682.410(b)(9).
    Discussion: We agree with the commenters. The proposed regulations 
governing suspension of AWG payments after a borrower makes five 
qualifying rehabilitation payments were not intended to preclude 
guaranty agencies or the Department from suspending AWG collection for 
reasons unrelated to the loan rehabilitation before the borrower makes 
a fifth qualifying loan rehabilitation payment. As the commenters 
noted, a guaranty agency may receive a notice to suspend AWG due to 
other reasons, as specified in Sec.  682.410(b)(9) of the AWG 
regulations.
    Changes: We have revised Sec.  682.405(a)(3)(i) to specify that the 
requirement that a guaranty agency continue collecting a loan by AWG 
until the borrower makes five qualifying monthly rehabilitation 
payments does not apply if the guaranty agency is precluded from 
collecting through AWG under Sec.  682.410(b)(9)(i), and have made a 
comparable change in Sec.  685.211(f)(11)(i) of the Direct Loan 
regulations.

Modification of the FFEL Program and Direct Loan Program Regulations: 
Counseling Borrowers (34 CFR 682.604(a) and 685.304(b))

    Comments: One commenter expressed support for the proposed changes 
to the exit counseling regulations that would allow a school to send 
written counseling materials to a student borrower by email when the 
student has withdrawn without notice to the school or failed to 
complete required exit counseling. However, the commenter believed that 
the wording of proposed Sec. Sec.  682.604(a)(1) and 685.304(b)(3) 
could be misinterpreted, as it could be read to mean either that a 
student must provide an email address to the school within 30 days 
after the school learns that the student has withdrawn, or that the 
school must provide the written counseling materials to the student by 
email within 30 days after learning of the student's withdrawal. The 
commenter assumed that the second interpretation is what was intended, 
and recommended that the regulatory language be revised to make this 
clear.
    The same commenter also noted that in the preamble to the NPRM, the 
Department indicated that the proposed changes in Sec. Sec.  
682.604(a)(1) and 685.304(b)(3) allowing schools to send written 
counseling materials to an email address provided by the student 
borrower in certain cases reflected existing guidance included in the 
Department's Federal Student Aid Handbook. The commenter pointed out 
that the guidance in the Federal Student Loan Handbook clarifies that 
if a school sends exit counseling materials to a student by email, the 
school must use the student's ``home (not school) email address,'' if 
the school has that address. The commenter recommended that the 
Department include in the regulations this prohibition on sending the 
counseling materials to the student borrower's school email address, 
but stated that there should be no reason to limit schools to sending 
exit counseling materials only to a student's ``home'' email address. 
The commenter stated that as long as the school does not send the 
counseling materials to an email address associated with its own 
institution, it should be able to send the materials to the student's 
home or work email address, or even to an email address for the student 
at another institution where the student is in attendance.
    Discussion: The Department appreciates the commenter's support of 
the changes to the exit counseling regulations. With regard to the 
intent of the wording of proposed Sec. Sec.  682.604(a)(1) and 
685.304(b)(3), the commenter's understanding is correct. The school 
must send the counseling materials within 30 days after learning that 
the student borrower has withdrawn or failed to complete the required 
exit counseling.
    The Department agrees with the recommendation to incorporate into 
the regulations the statement in the Federal Student Aid Handbook 
clarifying that written counseling materials may not be sent to a 
student borrower's email address at the same school that is sending the 
materials. We also agree that schools should not be limited to sending 
the counseling materials to the student's ``home'' email address. 
However, we note that the proposed regulations did not include this 
limitation. The proposed regulations stated that the written counseling 
materials could be sent to ``an email address provided by the 
borrower.''

[[Page 65781]]

    Changes: We have revised Sec. Sec.  682.604(a)(1) and 685.304(b)(3) 
to clarify that the school must send the counseling materials within 30 
days after learning that the student borrower has withdrawn or failed 
to complete the required exit counseling, and that the counseling 
materials may not be sent to a student's email address at the same 
school that is sending the materials.

FFEL Program Issues

FFEL Lender Repayment Disclosures to Borrowers Who Are 60 Days 
Delinquent or Who Are Having Difficulty Making Payments (34 CFR 
682.205(a)(4))

    Comments: One commenter agreed with the proposed change to provide 
lenders with five business days rather than the five calendar days 
specified in current regulations to send the required disclosure to a 
borrower who is 60 days delinquent. The commenter also supported the 
proposed change to provide that a lender does not have to send the 
required disclosure when a borrower is having difficulty making 
payments if the borrower's difficulty had already been resolved based 
on an earlier communication between the lender and the borrower. The 
commenter agreed that multiple disclosures would confuse the borrower.
    Discussion: The Secretary appreciates the commenter's support.
    Changes: None.

Administrative Wage Garnishment of the Disposable Pay of Defaulted FFEL 
Program Borrowers (34 CFR 682.410(b)) Borrower Hearing Opportunities on 
the Enforceability of the Debt and a Borrower's Claim of Financial 
Hardship (34 CFR 682.410(b)(9)(i))

    Comments: One commenter noted support for the changes made to the 
FFEL administrative wage garnishment regulations in the NPRM.
    Discussion: The Department appreciates the commenter's support for 
the revised regulatory language.
    Changes: None.
    Comments: Under proposed Sec.  682.410(b)(9)(i)(F)(2)(iv), if a 
hearing official upholds a borrower's objection to the amount or rate 
of withholding, a guaranty agency ``may'' order a lesser rate or amount 
that would allow the borrower to meet basic living expenses. On pages 
45641 and 45642 of the NPRM, we pointed out that this provision differs 
from the rules governing AWG for Department-held loans at 34 CFR part 
34, and that, in the latter regulations, the word ``must'' is used 
instead. We invited comments on whether it was preferable to use 
``must'' rather than ``may''. One commenter supported the consensus 
language in the NPRM without further explanation. Another commenter 
agreed with the Department's suggestion that ``must'' was a preferable 
term because a hearing official's financial hardship determination and 
decision regarding the amount or rate of withholding should be binding 
on the guaranty agency issuing a withholding order, and because the 
regulatory language for guaranty agencies and the Department should be 
consistent.
    Discussion: We agree with the commenter who expressed support for 
changing the term ``may'' to ``must.'' Not only is it important to 
ensure that substantive provisions of the FFEL Program AWG regulations 
are consistent, to the extent practicable, with the rules governing AWG 
for Department-held loans, use of the term ``must'' would provide more 
equitable treatment for borrowers who are subject to AWG. Furthermore, 
use of the term ``must'' would ensure that borrowers who receive an 
opportunity for an independent determination of a financial hardship 
objection will have that determination followed by the guaranty agency 
issuing a withholding order. The decision of the hearing official binds 
the guaranty agency or the Secretary as to the maximum amount that may 
be ordered withheld from the borrower's wages and neither has 
discretion to order that a greater amount be withheld.
    Changes: We have changed ``may'' to ``must'' in Sec.  
682.410(b)(9)(i)(F)(2)(iv).
    Comments: On page 45641 of the NPRM, when discussing the 
determination of whether a withholding amount would cause a financial 
hardship to a borrower, we invited comments on whether the term 
``National Standards'' used in the proposed rules should be changed to 
``Collection Financial Standards'' in the final rules to conform to the 
term used by the IRS to refer to such standards. One commenter 
expressed support for making this change in the final rule, stating 
that the term ``Collection Financial Standards'' more accurately 
reflects all living expense category standards used in determining 
whether a withholding amount would cause a financial hardship for the 
borrower.
    Discussion: We agree with the commenter's reasons for changing the 
term to ``Collection Financial Standards.'' The IRS, which promulgates 
the standards, uses the term to include both what the IRS calls the 
``National Standards'' (food, etc.) as well as the regionalized Housing 
and Utilities Standards and Transportation Standards. The latter 
include average amounts spent for housing, utilities, and 
transportation, which represent a significant portion of borrowers' 
living expenses. The term ``Collection Financial Standards'' is the 
correct title of the IRS Standards that hearing officials must use when 
determining the financial hardship for borrowers.
    Changes: We have changed the three uses of the term ``National 
Standards'' to ``Collection Financial Standards'' in Sec.  
682.410(b)(9)(i)(F)(2)(ii) and (iii).
    Comments: A commenter noted that proposed Sec.  682.410(b)(9)(i) 
does not address a situation in which a guaranty agency may be required 
to suspend a withholding order. Under proposed Sec.  682.405(a)(3), a 
borrower who makes five qualifying payments under a rehabilitation 
agreement can request that the agency suspend a withholding order. The 
commenter suggested including a cross-reference in the AWG regulations 
to Sec.  682.405(a)(3) and a brief description of a borrower's right to 
request suspension under that provision.
    Discussion: We agree with the commenter's suggestion and believe 
that including such a reference in Sec.  682.410(b)(9)(i) would be 
beneficial. All AWG regulatory provisions are located or referenced in 
Sec.  682.410(b)(9) to minimize confusion.
    Changes: We have added a new Sec.  682.410(b)(9)(i)(V) to include a 
cross-reference to Sec.  682.405(a)(3) and describe the possible 
suspension of the withholding order.
    Comments: A commenter noted that in proposed Sec.  
682.410(b)(9)(ii)(G), the Department defines a withholding order as the 
order a guaranty agency sends to an employer directing the employer to 
withhold the pay of the employed borrower. However, the commenter also 
noted that the Department states that such an order may also be 
referred to as a ``wage garnishment order'' or ``garnishment order.'' 
The commenter suggested that only one of these terms be used to avoid 
confusion with other communications sent by the agency.
    Discussion: In the proposed regulations, the Department 
distinguished between an ``order,'' which is the term for the mandate 
issued to the employer requiring the employer to withhold from the 
borrower's wages, and a ``notice,'' which refers to the warning sent to 
the borrower to alert the borrower that the agency is preparing to 
enforce the loan by garnishment of the borrower's wages. Because these 
two communications are readily distinguished by the use of the term 
``order'' to refer to the legally-binding mandate and ``notice'' to 
refer to correspondence sent to the borrower,

[[Page 65782]]

we do not believe that alternative use of the term ``garnishment'' or 
``withholding'' prior to ``order'' will cause any confusion.
    Changes: None.
    Comments: A commenter stated that the proposed rule would allow 
borrowers two new bases on which they may object to AWG in the FFEL 
program: Enforceability of the debt and financial hardship. The 
commenter further asserted that the HEA does not specifically name 
these as permissible objections, but acknowledges that borrowers have 
been permitted to use these objections. The commenter further expressed 
concern that AWG hearing officials are unqualified to make legal 
determinations of loan enforceability. The commenter therefore 
requested a standardized appeal process if a hearing official makes an 
enforceability determination that the guaranty agency believes is 
erroneous.
    Discussion: First, we note that the commenter is incorrect in 
asserting that section 488A of the HEA does not provide borrowers with 
the right to object to AWG on the basis of claims that the debt is not 
enforceable or on the basis of financial hardship. We address these 
issues in turn.
    Second, Section 488A(a)(5) provides borrowers the opportunity for a 
hearing concerning ``the existence or the amount of the debt.'' 20 
U.S.C. 1095a(a)(5). It is not clear which objections the commenter 
considers the HEA to permit the borrower to raise in the hearing, but 
the statute is clear that if the borrower objects to the existence or 
amount of the debt claimed by the loan holder, the hearing official 
must determine whether the debt in question is enforceable, and if so, 
what amount is enforceable. In the context of section 488A of the HEA, 
determining whether a debt ``exists'' entails more than a bookkeeping 
test of assuring that all amounts disbursed and payments received have 
been correctly totaled. To reduce the hearing process to a bookkeeping 
exercise is to suggest that section 488A of the HEA empowers a 
guarantor to issue a legally-binding order that an individual's wages 
be withheld to collect a claim that applicable law would bar the 
guarantor from enforcing in any other proceeding, such as a suit on the 
debt. Section 488A of the HEA authorizes collection by non-judicial 
wage garnishment ``notwithstanding any provision of State law.'' 20 
U.S.C. 1095a. That provision does no more than preempt those State laws 
that would require a creditor to obtain a judicial writ in order to 
garnish wages. Nothing in the language of section 488A of the HEA 
suggests that the statute preempts other applicable, non-preempted 
State law (e.g., forgery or prior compromise) or Federal law (e.g., 
discharge in bankruptcy) that would bar enforcement of the claim 
against the individual.
    For this reason, it is the responsibility of guaranty agencies to 
ensure that AWG hearing officials are qualified to make reasoned 
determinations regarding the enforceability of Federal student loan 
debts. Furthermore, prior to an AWG hearing, a guaranty agency should 
have already made a determination on the enforceability of the debt. 
Section 682.406(a) requires an agency to carefully evaluate that all 
due diligence requirements were met and that the debt is legally 
enforceable before requesting a reinsurance payment on a loan.
    In addition, promptly after paying the default claim, the guarantor 
must give the borrower notice of its intent to collect the loan and 
report the default to credit bureaus, and to provide ``an opportunity 
for an administrative review of the legal enforceability or past-due 
status of the loan.'' 34 CFR 682.410(b)(5)(ii)(D) and (b)(5)(vi)(I). 
Prior to an AWG hearing, the agency should have therefore made its own 
reasoned determination of the enforceability of the debt and have 
sufficient evidence supporting that determination. The new language 
added to the wage garnishment provisions is not a new consideration not 
already existing explicitly in these provisions and implicitly in the 
mandate to provide a hearing on the ``existence'' of the debt.
    Third, section 488A(a)(5) of the HEA provides borrowers with an 
opportunity for a hearing ``on the terms of the repayment schedule'' if 
that schedule is set by order and not by an agreement with the 
borrower, as provided in section 488A(a)(4) of the HEA. The only 
interpretation of this provision that implements the objective of the 
statute is that the basis for such objection must be a claim that 
withholding the full 15 percent would cause financial hardship. The 
Department has consistently interpreted that phrase, and the identical 
language in 5 U.S.C. 5514, which authorizes Federal Salary Offset and 
from which this provision appears to have originated, to so provide. 
See, e.g., 68 FR 8142, 8151 (Feb. 19, 2003) and 67 FR 18072, 18073 
(April 12, 2002). In establishing the terms of the repayment schedule, 
a determination must be made as to whether the proposed withholding 
order would be excessive in light of the borrower's reasonable and 
necessary living expenses.
    Finally, with regard to the comment that the Department should 
establish an administrative appeal procedure to be available for review 
of hearing official decisions that the guarantor believes to be 
erroneous, the Department notes first that in some instances, State law 
applicable to the administrative proceedings of State agencies may 
provide such an appellate review procedure, and those laws may provide 
an opportunity for borrowers or guarantors to challenge decisions of 
hearing officials. Those guarantors that are not State agencies subject 
to this kind of administrative appeal regime are in no different 
posture than the Department itself, which has no opportunity to appeal 
adverse rulings by independent hearing officials with regard to 
proposed salary offsets to collect from Federal employees under 5 
U.S.C. 5415. Federal employees who dispute the hearing official's 
ruling may sue the Department under the Federal Administrative 
Procedure Act to challenge that ruling. See, e.g., Sibley v. U.S. 
Department of Education, 913 F. Supp. 1181 (N.D. Ill. 1995), aff'd, 111 
F.3d 133 (7th Cir. 1997). Applicable law gives the Department no 
corresponding right to challenge and obtain a judicial review of an 
adverse ruling by a hearing official. The Department has not 
established any administrative appeal procedure for challenges to AWG 
hearing decisions made by Department staff, and has no resources 
sufficient to establish a Federal review process for AWG hearing 
decisions for loans held by guarantors. Moreover, regardless of the 
party that might decide such an appeal, fundamental fairness dictates 
that any administrative appeal process be available for borrowers as 
well as guarantors.
    Therefore, the proposed regulations at Sec.  682.410(b)(9) do not 
create new borrower objections; instead, the proposed changes would 
make the FFEL Program regulations consistent with existing Departmental 
regulations.
    Changes: None.
    Comments: A commenter noted that proposed Sec.  682.410(b)(9)(i)(I) 
includes rules governing ex parte communications (communications where 
one or more parties to the hearing are not present) in AWG hearings and 
that the provision precludes ex parte communications on non-procedural 
matters. The commenter expressed concern that, as drafted, the proposed 
rule would unnecessarily impede the administration of the hearing 
process. The commenter also requested clarification that substantive ex 
parte communications during a hearing are permissible if the absent 
party has been given proper notice of the hearing.

[[Page 65783]]

    Discussion: We agree with the commenter's suggestions. The 
intention of the proposed provision was to ensure that both parties to 
the hearing are present and able to participate. However, we recognize 
that borrowers would not be disadvantaged by allowing certain 
administrative matters to be handled ex parte in addition to matters 
involving the time, place, and manner of the hearing as would be 
permitted under the proposed rule.
    We also agree that the hearing process should not be unnecessarily 
delayed due to the unexcused absence of one of the parties when proper 
notice of the hearing has been given to the absent party. Under the 
proposed rules, a guaranty agency is required to suspend a withholding 
order on the 61st day after a hearing request was received. Therefore, 
without allowing an ex parte hearing to proceed in such contexts, it 
would be possible for a party to effectively enforce the suspension of 
an AWG order by failing to appear for properly scheduled and noticed 
hearings, because such hearings could not proceed in the absence of one 
of the parties.
    Changes: We have revised Sec.  682.410(b)(9)(i)(I) to more 
generally convey the intent that communications on administrative 
matters not related to the substance of the AWG hearings may be 
conducted on an ex parte basis. We have also revised this section to 
allow an ex parte hearing to proceed if the parties have agreed on the 
time, place, and manner of the hearing and the borrower has been given 
proper notice of the same but does not appear for the hearing.
    Comments: A commenter stated that proposed Sec.  
682.410(b)(9)(i)(F)(1)(ii) and (b)(9)(i)(J) permit a borrower to raise 
new objections and provide additional evidence before the hearing is 
completed. The commenter further noted that while the hearing official 
may grant an extension of the 60-day decision deadline so the borrower 
may present additional evidence, the regulations do not allow extension 
of the deadline to raise objections. The commenter requested a 
clarification on whether the 60 day decision deadline could be extended 
for the latter purpose.
    Discussion: We agree with the commenter's suggestion. If a borrower 
has not raised an objection to the AWG order but wishes to do so, the 
hearing official may grant an extension of the 60-day deadline at his 
or her discretion.
    Changes: We have revised Sec.  682.410(b)(9)(i)(J)(1) to state that 
the borrower may request an extension of the 60-day deadline for 
purposes of raising an objection not previously raised.
    Comments: A commenter noted that proposed Sec.  682.410(b)(9)(i)(J) 
permits a hearing official to grant extensions of the 60-day deadline 
for a decision to be rendered. The commenter further noted that while 
this deadline may be extended by the hearing official, there is no 
associated extension of the requirement under proposed Sec.  
682.410(b)(9)(i)(H) that suspension of the withholding order occur if a 
decision is not rendered by the 61st day. The commenter requested that 
the regulations be modified to require that the suspension of the 
withholding order be delayed past the 61st day for a period equal to 
the number of days that the hearing deadline is delayed.
    Discussion: The purpose of suspending the withholding order 
beginning on the 61st day is to create an incentive for ensuring that 
the AWG hearing is completed and a decision issued on a timely basis. 
While the commenter is correct that Sec.  682.410(b)(9)(i)(J)(1) 
permits the hearing official to grant extensions of the 60-day deadline 
at the request of the borrower, Sec.  682.410(b)(9)(i)(J)(2) requires 
the hearing official to grant an extension made at the request of a 
guaranty agency. Changing the regulations to be consistent with the 
commenter's suggestion would create a scenario where a guaranty agency 
could request extensions that a hearing official would be compelled to 
grant, resulting in failure to suspend a withholding order long past 
the 61-day deadline required under the proposed regulations. Such a 
regulatory framework would eliminate the guaranty agency's incentive to 
ensure a timely hearing.
    Changes: None.
    Comments: A commenter requested that the AWG regulations be 
modified to allow a borrower to request that AWG continue during the 
hearing process. The commenter noted that the proposed regulations 
governing loan rehabilitation provide for suspension of a garnishment 
order for a borrower pursuing loan rehabilitation, but allow the 
borrower to affirmatively request to remain in AWG while completing the 
loan rehabilitation process. The commenter stated that these two 
situations are comparable and that rather than automatically suspending 
a withholding order on the 61st day after the borrower's hearing 
request, a borrower should be able to request that the order not be 
suspended.
    Discussion: We believe there are significant distinctions between 
the two situations the commenter describes. In many cases, the borrower 
seeking loan rehabilitation intends to pay the balance of his or her 
loan, and continuation of AWG in that context is one plausible 
mechanism by which a borrower would seek a reduced principal balance 
upon successful rehabilitation of the loan. However, a borrower 
objecting to the amount or existence of the debt or the rate of 
withholding would not, by definition, be interested in the continuation 
of AWG at the existing rate. In addition, we are concerned that 
providing the borrower the option to continue AWG may make the borrower 
feel pressured to accept the offer, or cause the borrower to fail to 
understand he or she has the option to decline it.
    Changes: None.

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 will have an annual effect on the economy of 
more than $100 million. It is estimated to reduce annual paperwork 
burden on entities participating in the Federal student loan programs 
by approximately $109 million. Therefore, this final regulatory action 
is economically significant and subject to review by OMB under section 
3(f)(1) of Executive Order 12866.
    We have also reviewed these regulations pursuant to Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing

[[Page 65784]]

regulatory review established in Executive Order 12866. To the extent 
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 attaining regulatory objectives, 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 specifying the behavior or manner of compliance that regulated 
entities must adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    Executive Order 13563 requires agencies ``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 within OMB 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 final regulations only upon 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 below, the Department 
believes that these final regulations are consistent with the 
principles in Executive Order 13563.
    We also have determined that this regulatory action will 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. Elsewhere in this section under 
Paperwork Reduction Act of 1995, we identify and explain burdens 
specifically associated with information collection requirements.

The Need for Regulatory Action

    As detailed in the Notice of Proposed Rulemaking (NPRM) published 
July 29, 2013, the Department is issuing these final regulations to 
clarify a number of issues related to the administration of the Federal 
student loan programs, to make the Direct Loan regulations 
comprehensive, to eliminate regulations in the FFEL Program that are no 
longer needed because origination of new FFEL loans ceased with the 
passage of the SAFRA Act, to reflect changes made to interest rates in 
the Direct Loan Program by the Bipartisan Student Loan Certainty Act of 
2013, and to clarify the loan rehabilitation process for borrowers with 
defaulted student loans.
    The Secretary is revising the Direct Loan regulations to 
incorporate provisions from the FFEL regulations that were only cross-
referenced. By incorporating the substantive provisions in the Direct 
Loan regulations instead of simply cross-referencing to the FFEL 
regulations, the Direct Loan regulations will be comprehensive. This is 
appropriate since the Direct Loan Program is now the primary Federal 
student loan program. The elimination of new loan originations in the 
FFEL Program means that many of the current FFEL Program regulations 
are no longer necessary. In addition, the final regulations improve 
consistency across the FFEL, Direct Loan and Perkins Loan programs. 
Previously, the different title IV loan programs were regulated and 
administered differently in areas where they could be consistent. The 
final regulations eliminate these differences where appropriate.
    The final regulations provide clarity and transparency to the 
administration of the loans programs. Over the years there have been 
consistent concerns that borrowers are unable to properly manage their 
Federal student loans because of confusion over their rights and 
options. This is particularly true for borrowers who are delinquent on 
their loans and borrowers who experience personal hardship. The final 
regulations clarify the rules for borrowers and help them gain a better 
understanding of their rights and responsibilities. Also, the final 
regulations provide better guidance to lenders and guaranty agencies 
about their roles and responsibilities in servicing Federal student 
loans.
    One area in which concerns have been raised about the consistent 
and appropriate treatment of borrowers is in the rehabilitation of 
defaulted loans. The Department wants to ensure that borrowers who wish 
to rehabilitate their defaulted loans are properly informed about their 
rights to ``reasonable and affordable'' payments and how a reasonable 
and affordable payment is determined.
    Prior regulations allowed a borrower with defaulted student loans 
to rehabilitate those loans by making nine full, on-time payments 
(within 20 days of the due date) over a 10-month period in an amount 
agreed to by the borrower and the loan holder (the Department for a 
defaulted Direct Loan, a guaranty agency or the Department for a 
defaulted FFEL Program loan). These regulations provided that the 
payment amount required by the guaranty agency or the Secretary must be 
reasonable and affordable. However, as described in the NPRM published 
July 29, 2013, there have been complaints that guaranty agencies, the 
Department, and the debt collection agencies that collect Federal 
student loans require payments that exceed this standard.
    The Secretary believes that providing borrowers with an improved 
process to rehabilitate a defaulted loan is in the best interests of 
the taxpayers and the borrower. Defaulted borrowers continue to accrue 
interest on the debt and are charged collection costs. In addition, the 
default harms their credit scores, and the borrowers may have trouble 
purchasing homes or obtaining auto loans or other types of consumer 
credit. By improving the opportunities for defaulted borrowers to 
rehabilitate their student loans, the Department will not only improve 
the chances for collection of the full amount of the debt but also help 
some defaulted borrowers return to full economic participation.
    Some defaulted borrowers who may be interested in rehabilitating 
their defaulted loans are also subject to administrative wage 
garnishment (AWG). Those borrowers may be discouraged from trying to 
fully rehabilitate their loans because they fear that they will not be 
able to make loan payments in addition to the amount garnished. Through 
these final regulations, the Department aims to add clarity to the AWG 
process so that affected borrowers will understand what is required for 
AWG to be suspended.

Discussion of Costs, Benefits, and Transfers

    Adding clarity to the loan rehabilitation process offers many 
benefits. The Department believes that rehabilitation offers benefits 
for students, the Department, and the Nation. Defaulted borrowers may 
be

[[Page 65785]]

more willing to complete the rehabilitation process. Defaulted 
borrowers may see significant improvements in their credit scores and 
purchasing power. As these borrowers become bigger participants in the 
economy, an improved loan rehabilitation process should support 
positive growth.
    Improved loan rehabilitation rates will also allow the Department 
and collection agencies to concentrate their collection efforts on non-
paying borrowers. In general, the more student loan accounts that are 
active and current, the better for the programs. The Department 
believes these regulatory changes will help ensure that the Federal 
student loan programs remain strong and support maximum access to 
higher education for American students.
    As detailed in the NPRM, loan rehabilitations have steadily 
increased over the past decade, from just over $223 million in 
defaulted Federal student loan debt in FY 2001 to $5 billion in FY 
2011. Loan rehabilitations as a share of collections rose from 
approximately 4.4 percent in FY 2001 to 43.0 percent in FY 2011. Part 
of the increase in loan rehabilitation can be linked to growing 
enrollment, rising tuition, and two economic slowdowns, all of which 
led to more student loan borrowing. However, the higher percentage of 
total collections that comes from loan rehabilitation shows that the 
Department and guaranty agencies are working with borrowers to help 
them take advantage of the opportunity for loan rehabilitation.
    Even though these final regulations could possibly result in lower 
payment amounts for borrowers while they are rehabilitating their 
defaulted loans, the borrowers would still be responsible for paying 
their entire debt. Furthermore, even if loan rehabilitation payments 
are lowered on average across the board, the Department believes that 
the overall benefits of having more borrowers current in their debt 
payments will outweigh any short-term cost of reduced payments.
    Overall, the true monetary effect of these final regulations will 
depend heavily on various factors. The Department has implemented 
changes to its income-driven repayment options and expects these 
changes to help slow a rising default rate by offering improved payment 
management options to borrowers. Also, as the economy continues to 
improve, the default rate may drop as more borrowers find employment.
    Outside of loan rehabilitation, the regulations would provide many 
additional benefits to borrowers and promote a more efficient and 
transparent Federal student loan program.
    By expanding from 90 to 120 days the window during which a borrower 
may qualify for a closed school loan discharge after withdrawing from a 
school that eventually closes, the number of borrowers who qualify for 
the discharge may increase. However, school closures are a relatively 
rare occurrence. In 2007, 43 schools participating in the title IV 
programs closed. This number dropped to 30 in 2008 and to 18 in 2011. 
While the extended window may mean that more borrowers qualify for a 
closed school discharge, we do not believe the extension will result in 
a significant increased cost. In 2011, 214 borrowers received closed 
school loan discharges for loans valued at approximately $870,000. This 
was an increase from the 2010 numbers of 50 borrowers with a loan value 
of $467,000, but still represents a very small portion of outstanding 
federal student loans.
    The expansion of circumstances in which lenders may grant 
administrative forbearance gives the Department and FFEL lenders more 
flexibility in dealing with defaulted borrowers. These revisions also 
clarify the eligibility criteria for forbearances and promote a more 
transparent loan program.
    Borrowers will see other benefits under these final regulations as 
well. The changes to the AWG hearing process will help borrowers gain a 
better understanding of their rights and responsibilities in that 
process and ensure that borrowers are treated consistently by guaranty 
agencies and the Department. Additionally, the revisions to Sec.  
685.301 will allow students who transfer from one school into non-term 
or certain standard non-term programs at a different school during the 
middle of an academic year to initially be eligible for a Direct Loan 
to cover the remainder of the academic year that began at the prior 
school (up to their remaining eligibility under the annual loan 
limits), regardless of whether the new school accepts credits from the 
prior school.
    The final regulations also reflect changes made to interest rates 
in the Direct Loan Program by the Bipartisan Student Loan Certainty Act 
of 2013 (Pub. L. 113-28). As detailed in Sec.  685.202, under this Act 
interest rates will be determined each June for new loans being made 
for the upcoming award year, which runs from July 1 to the following 
June 30. Each loan will have a fixed interest rate for the life of the 
loan based on rates for specific Treasury bills or bonds, an add-on 
determined by a combination of loan type and undergraduate or graduate 
student status, and an interest rate cap. For example, the interest 
rate for Direct Subsidized and Unsubsidized Loans made to 
undergraduates with a first disbursement date on or after July 1, 2013, 
and before July 1, 2014, is 3.86 percent, based on the bond equivalent 
rate of 91-day Treasury bills auctioned at the final auction held prior 
to that June 1 plus 2.05 percentage points. The interest rate for 
Direct Subsidized Loans and Direct Unsubsidized Loans made to 
undergraduate students is capped at 8.25 percent. Under this policy, 
borrowers can benefit from lower interest rates while having the 
certainty of a fixed rate and a cap on the maximum interest rate as 
Federal borrowing costs vary in the future. If Federal borrowing costs 
rise in the future, borrowers with loans in later cohorts may have 
interest rates greater than would have been the case if the interest 
rates prior to the enactment of the Bipartisan Student Loan Certainty 
Act of 2013, had remained in effect, so the inclusion of the caps for 
various loan types limits future borrowers' exposure to interest rate 
increases.
    Overall, these final regulations strengthen the Federal student 
loan programs and help support the American postsecondary education 
system. As more and more students now depend on student loans to pay 
for their college education, it is essential that borrowers fully 
understand the rights and responsibilities that are a part of their 
student loan obligations. It is also essential that the student loan 
programs operate as efficiently as possible. These revisions are part 
of the Department's commitment to running efficient loan programs that 
support more than ten million students per year. This number will grow 
as the country pursues the President's 2020 goal of leading the world 
in college degree attainment. Keeping a strong higher education system 
will be essential to America maintaining its economic advantage in the 
world.

Regulatory Alternatives Considered and Analysis of Significant Comments

    We discussed the regulatory alternatives we considered in the NPRM 
(78 FR 45668). Further, as discussed in the Analysis of Comments and 
Changes section of this preamble, 25 comments were received in the 
comment period following publication of the NPRM that ended August 28, 
2013. These comments covered a range of issues, including suggestions 
for technical changes to the FFEL and Direct Loan regulations. The 
process for determining

[[Page 65786]]

a reasonable and affordable payment amount in loan rehabilitation 
received the most comment.
    In particular, several commenters suggested switching the order of 
the two methods for determining the reasonable and affordable payment 
amount for loan rehabilitation so that the 15 percent formula would be 
used first, and only borrowers who object to the amount calculated 
under this formula would need to provide detailed financial 
information. Consumer advocates and commenters representing collection 
agencies agreed that the amount of information required by the proposed 
financial information form could deter borrowers from pursuing loan 
rehabilitation. The primary use of the 15 percent formula will allow 
the borrower and the collection agency to determine a reasonable and 
affordable payment over the phone based on the borrower's income and 
family size, subject to later confirmation once the borrower provides 
required documentation. We agreed with these comments and adopted this 
approach in the final rule.
    In addition to the comments proposing using the 15 percent formula 
first, we considered the suggestion that an agency should be able to 
negotiate a reasonable and affordable payment with the borrower on the 
phone so that the loan rehabilitation process could be initiated when 
they have the first discussion about rehabilitation with a borrower. 
The Department agrees that it is important to be able to offer a 
borrower a reasonable and affordable payment amount during the initial 
discussion of loan rehabilitation but believes that use of the 15 
percent formula, with documentation to follow, as the first option 
allows this possibility while ensuring consistent treatment of 
borrowers seeking loan rehabilitation.

Net Budget Impacts

    As detailed in the NPRM, the final regulations are estimated to 
have a net budget impact of $2.8 to $3.4 million over ten years from 
2013-2022 driven by the expansion of the time period for eligibility 
for a closed school discharge. Consistent with the requirements of the 
Credit Reform Act of 1990, budget cost estimates for the 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.
    In general, these estimates were developed using the Office of 
Management and Budget's (OMB's) credit subsidy calculator. The 
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 Government wide 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 regulations. That said, in developing the following Accounting 
Statement, the Department consulted with OMB on how to integrate our 
discounting methodology with the discounting methodology traditionally 
used in developing regulatory impact analyses.
    Absent evidence of the effect of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys listed under 
Assumptions, Limitations, and Data Sources. Student loan cost estimates 
are developed across five risk categories: Students at less than four-
year for-profit institutions, students at less than four-year public 
and non-profit institutions, freshmen/sophomores at four-year 
institutions, juniors/seniors at four-year institutions, and graduate 
students. Risk categories have separate assumptions based on the 
historical pattern of behavior--for example, the likelihood of default 
or the likelihood to use statutory deferment or discharge benefits--of 
borrowers in each category.

Closed School Discharge

    The primary budget impact of the final regulations relates to the 
extension of the time period for a closed school discharge. The final 
regulations extend the previous 90-day period for a closed school 
discharge to a 120-day period and provide examples of what qualifies as 
an exceptional circumstance under which the Secretary may provide a 
further extension. We estimate these changes to have a cost of 
approximately $3.1 million over 10 years as the pool of borrowers 
eligible for discharge will increase. The costs are limited by the 
small number of closed schools, the availability of teach-outs, and the 
assignment of recoveries to the Department. In the NPRM, the Department 
estimated that extending the window to 120 days would result in an 
additional 100 students receiving closed school discharges totaling 
approximately $400,000 annually. The Department requested comments 
about the assumptions and estimates for this provision. We did not 
receive any comments and did not make any changes to the closed school 
discharge regulations.

Loan Rehabilitation

    Two areas related to loan rehabilitation affected by the final 
regulations are the determination of the reasonable and affordable 
payment for loan rehabilitation and the limitations on the use of AWG 
while a borrower is attempting to rehabilitate a defaulted loan. While 
the regulatory changes in both areas would change the period of time 
and sources of payments the Department receives, the Department does 
not estimate that the regulations would have any significant budget 
impact.
    The final regulations refine the process for determining the 
reasonable and affordable payment for loan rehabilitation to improve 
consistency across the title IV loan programs. The prior regulations 
for the FFEL Program require guaranty agencies to negotiate a 
reasonable and affordable payment for loan rehabilitation with the 
borrower that takes into account all of the borrower's financial 
circumstances. The Direct Loan Program did not have similar provisions, 
but the program does have a similar process for receiving income and 
expense information and negotiating a payment with the borrower. Over 
the past months, the Department developed a tool incorporating the 15 
percent formula in determining reasonable and affordable payments that 
has helped increase loan rehabilitations. As discussed in the 
Regulatory Alternatives Considered and Analysis of Comments and Changes 
sections of this preamble, the Department has agreed to reverse the 
order of the methods for determining a reasonable and affordable 
payment so that the 15 percent formula comes first.
    With approximately $1.72 billion in defaulted loan balances 
rehabilitated by the Department in FY 2012, loan rehabilitation is a 
valuable collections tool that also allows borrowers to improve their 
credit history and regain eligibility for title IV, HEA Federal student 
aid. The Department and guaranty agencies have emphasized keeping the 
loan rehabilitation payment amount close to the payment the borrower 
will have to make following rehabilitation to avoid significant 
increases in the required payment. The availability of income-driven 
repayment plans after rehabilitation of the loan expands the range of 
payments possible

[[Page 65787]]

during rehabilitation that would be in line with post-rehabilitation 
payments (although payments made under a loan rehabilitation agreement 
that are based on the 15 percent formula do not count toward IBR plan 
loan forgiveness if a borrower who has successfully rehabilitated a 
defaulted loan chooses to repay under the IBR plan post-
rehabilitation). This new standard may also help decrease the number of 
borrowers who re-default, as the required loan rehabilitation plan 
payment amount should be very similar to the payment amount they make 
when they return to regular repayment. The final regulations use the 15 
percent formula for initial determination of a reasonable and 
affordable loan rehabilitation payment, and allow borrowers to object 
to that payment through use of a standardized form that accounts for 
the borrower's income and expenses to obtain an alternative amount. A 
borrower may choose between the two proposed payment amounts.
    For individual borrowers, the payment offered as a rehabilitation 
amount calculated using the 15 percent formula might be less than what 
the Department would determine to be appropriate based on an assessment 
of the borrower's income and expenses or through negotiation with the 
borrower without use of a formula. If this is the case, the Department 
would collect less money during the months the borrower attempts loan 
rehabilitation, but the borrower would still owe the remaining balance 
after rehabilitation. In addition, to the extent lower payments 
encourage borrowers to complete loan rehabilitation and continue 
payments they otherwise would not make, the final regulations may 
increase total payments over the life of the loan for some borrowers. 
The likelihood of borrowers paying less, the same, or more over the 
life of a loan over time as a result of the changes in defining a 
reasonable and affordable payment is uncertain, but the Department does 
not expect it to have an appreciable budget impact.

Perkins Loans Provisions

    The final regulations also address a few areas related to the 
Perkins Loan Program including: Revising cancellation progression 
rates; modifying the treatment of health-related breaks in service for 
certain loan cancellations; making the eligibility for a graduate 
fellowship deferment consistent with FFEL and Direct Loan program 
criteria; making a technical correction to eliminate the debt-to-income 
economic hardship deferment category for borrowers working less than 
full-time; defining ``on-time'' for rehabilitation payments; and 
allowing assignment to the Department of Perkins Loans made before 
September 13, 1982, without the borrower's Social Security Number 
(SSN). No changes were made to these provisions as a result of comments 
on the NPRM. The Department does not estimate a significant budget 
impact from these provisions. No appropriations have been made to 
support the Perkins Loan Program since 2008, and institutions make 
loans from payments made on their portfolios of existing loans. The 
effect on the Federal budget of increased costs in the Perkins Loan 
Program is a possible reduction of Federal Perkins Loan assets 
available to be recalled in future years.
    The slight changes in timing associated with defining the on-time 
payment standard at 20 days is not expected to change the number of 
borrowers successfully rehabilitating their Perkins loans or the 
ultimate amount collected from those borrowers, so no budget impact is 
expected. The ability to assign loans to the Department without the 
borrower's SSN may facilitate some institutions leaving the program 
and, if the Department is able to collect on those loans, result in 
some small additional revenues.
    These final regulations change the Department's longstanding policy 
that a borrower who switches jobs which qualify for loan cancellation 
under the Perkins Loan Program results in the borrower returning to the 
first-year cancellation rate. Instead, the final regulations allow 
borrowers who switch between cancellation categories with the same rate 
of progression to continue the progression from the last year under the 
prior category; however, the borrower returns to the first-year 
cancellation rate if the borrower switches to a category with a 
different progression rate. While some borrowers may be able to 
accelerate cancellation of their loans or achieve full cancellation, 
the nature of the categories affected by the policy change limits the 
likelihood of borrowers switching between them. To the extent a small 
number of borrowers do switch and maintain their progression rate 
instead of falling back to year one, the primary effect is on the 
timing of cancellation received, not the amount.
    Additionally, the final regulations change the current Perkins Loan 
treatment of a break in teaching service for pregnancy or illness. 
Previously, to receive credit for a year of teaching service the 
borrower had to complete the first half of the academic year, begin the 
second half, and have the employer agree that the teacher fulfilled 
that year of the contract. In the FFEL and Direct Loan programs, the 
regulations provide that if a borrower was unable to complete the 
second half of the year of teaching for reasons covered by the FMLA, 
the service could count towards cancellation if the employer agreed the 
contract has been fulfilled for the year.
    The final regulations apply the FMLA-related break-in-service 
exception to all Perkins Loan cancellation categories, not just 
teachers. As Perkins loan cancellation does not require consecutive 
service, the Department expects this provision may allow some borrowers 
to receive credit for a year that would not otherwise have counted as 
service and speed up the ultimate cancellation of the loan, but it will 
not significantly expand the number of borrowers who achieve loan 
cancellation as their next year of service could qualify instead. These 
cancellation provisions may affect the timing of when borrowers achieve 
cancellation, but the Department does not estimate that they will 
significantly increase the overall amount cancelled.

Additional Provisions

    Many of the final regulations have no impact on the Federal budget 
as they reflect statutory changes already incorporated into the budget 
baseline or clarify existing practices. These final regulations reflect 
changes made to interest rates in the Direct Loan Program by the 
Bipartisan Student Loan Certainty Act of 2013. These final regulations 
eliminate many regulations relating to the origination and 
administration of FFEL Program loans. Those regulations became 
irrelevant when new FFEL Program loan originations ended as of July 1, 
2010. Any costs or savings resulting from the end of FFEL Program loan 
originations were attributed to the SAFRA Act, so there is no estimated 
budget impact from these provisions. The budget impact of these changes 
was already incorporated into the budget baseline.
    Updates were also made to the Direct Loan regulations to 
incorporate specific provisions that previously were included in the 
Direct Loan regulations by cross-reference to the FFEL regulations. The 
restructuring of the Direct Loan regulations to remove references to 
the FFEL Program regulations or to reflect current practices is not 
estimated to have a budget impact.

[[Page 65788]]

Assumptions, Limitations, and Data Sources

    In developing these estimates, a wide range of data sources was 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including especially the Fiscal Operations Report and Application to 
Participate (FISAP); and data from a range of surveys conducted by the 
National Center for Education Statistics, such as the 2008 National 
Postsecondary Student Aid Survey and the 2004 Beginning Postsecondary 
Student Survey. Data from other sources, such as the U.S. Census 
Bureau, were also used.

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in Table 1, we have prepared an accounting statement showing 
the classification of the expenditures associated with the provisions 
of these regulations. This table provides our best estimate of the 
changes in Federal student aid payments as a result of these 
regulations. Expenditures are classified as transfers from the Federal 
Government to student loan borrowers. The transfers with respect to the 
change in interest rate policy use the annualized outlays as estimated 
by the Congressional Budget Office (CBO) and discounted to 2013 at 7 
percent and 3 percent. While the Department generally does not use 
estimated outlays from CBO in evaluating regulations, the interest rate 
policy changes included in these final regulations are statutory and 
the Department determined that this approach would be appropriate in 
this instance.

 Table 1--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                                                     Benefits
                Category                 -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Greater consistency between the title IV
 loan programs..........................          Not Quantified
------------------------------------------------------------------------
                Category                               Costs
                                         -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Costs of compliance with paperwork               -$109.1         -$109.8
 requirements...........................
------------------------------------------------------------------------
                Category                             Transfers
                                         -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Reduced payments to Federal Government             $0.40           $0.40
 from additional borrowers receiving
 closed school discharges...............
Statutory changes to the Direct Loan              $1,168            $467
 interest rates: Difference in transfer
 payments from borrowers to the Federal
 government against a baseline prior to
 the enactment of the Bipartisan Student
 Loan Certainty Act of 2013.............
------------------------------------------------------------------------

    See the Paperwork Reduction Act of 1995 section of this document 
for further information on the $109.1 million reduction in costs of 
compliance with paperwork requirements.

Final Regulatory Flexibility Analysis

    These regulations affect institutions that participate in the title 
IV, HEA programs, including alternative certification programs not 
housed at institutions, and individual borrowers. The U.S. Small 
Business Administration (SBA) 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 SBA Size Standards define 
nonprofit 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. The revenues involved in the 
sector affected by these regulations, and the concentration of 
ownership of institutions by private owners or public systems means 
that the number of title IV, HEA eligible institutions that are small 
entities would be limited but for the fact that the nonprofit entities 
fit within the definition of a small organization regardless of 
revenue. Given the definitions above, several of the entities subject 
to the proposed regulations are small, leading to the preparation of 
this analysis.

Description of the Reasons That Action by the Agency Is Being 
Considered

    With these regulations, the Department removes certain regulations 
governing the FFEL Program that are no longer needed and revises Direct 
Loan Program regulations to ensure that they are comprehensive and to 
add consistency and clarity to all regulations governing student loans 
by revising where applicable. Through these regulations, the Department 
also provides clarity to the loan rehabilitation process for borrowers 
with defaulted student loans.

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

    The final regulations amend the FFEL and Direct Loan program 
regulations to: reflect changes made to the HEA by the SAFRA Act; 
incorporate other statutory changes in the Direct Loan Program 
regulations; update, strengthen, and clarify various areas of the 
Student Assistance General Provisions, Perkins Loan, FFEL, and Direct 
Loan program regulations; and provide for greater consistency in the 
regulations governing title IV, HEA student loan programs.
    In addition, on January 21, 2011, President Obama issued Executive 
Order 13563, ``Improving Regulation and Regulatory Review'' (76 FR 
3821). The order requires all Federal agencies to ``consider how best 
to promote retrospective analysis of rules that may be outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Accordingly, on August 22, 2011, the Department issued its 
Plan for Retrospective Analysis of Existing

[[Page 65789]]

Regulations. (See ed.gov/policy/gen/reg/retrospective-analysis/index.html).
    Our plan identified a number of regulatory initiatives for 
retrospective review and analysis. One of those initiatives was 
transitioning from the FFEL Program, under which new loans ceased on 
July 1, 2010, to the Direct Loan Program. These final regulations 
remove obsolete FFEL Program regulations.

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

    The final regulations affect several categories of entities 
involved in the administration and servicing of Federal student loans. 
Many of the regulations relate to notifications, servicing, or 
collection activities done by loan servicers or entities acting for the 
Federal government. The Department does not expect these entities to 
meet the applicable definition of ``small entity.'' The final 
regulations related to Perkins Loans will affect the institutions that 
participate in the program, some of which would be classified as small 
entities. As discussed above, private non-profit institutions that do 
not dominate in their field are defined as small entities and a few 
other institutions that participate in the Perkins Loan Program do not 
have revenues above $7 million and are also categorized as small 
entities. Table 2 summarizes AY 2010-11 Perkins loan disbursements by 
institutions that qualify as small entities. Based on the definition of 
non-profit institutions as small entities, approximately 59 percent of 
institutions that disbursed Perkins loans in AY2010-11 were small 
entities.

                              Table 2--AY2010-11 Perkins Loan Disbursement Summary
----------------------------------------------------------------------------------------------------------------
                    AY2010-11                         Public        Non-profit      For-profit         Total
----------------------------------------------------------------------------------------------------------------
Perkins Loan Institutions with disbursements....             545             874             107            1526
Small entities with Perkins disbursements.......               2             874              25             901
% of small entities by control..................            0.4%          100.0%           23.4%           59.0%
Overall Disbursements...........................     387,694,908     448,589,990      20,332,961     856,617,859
% by control....................................          45.26%          52.37%           2.37%            100%
Amounts at Small Entities.......................          53,467     448,589,990       1,012,596       2,808,851
----------------------------------------------------------------------------------------------------------------

    In the NPRM, the Secretary invited comments from small entities as 
to whether they believe the proposed changes would have a significant 
economic impact on them. We did not receive any comments.

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 Requirement 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record

    The various provisions in the final regulations will modify or 
increase the paperwork burden on entities participating in the FFEL, 
Direct Loan, or Perkins Loan programs, as described in the Paperwork 
Reduction Act section. Much of this burden is associated with borrowers 
or the Department and its agents and therefore does not affect small 
entities. Table 3 summarizes the estimated burden on small entities, 
primarily institutions and guaranty agencies, from the paperwork 
requirements associated with the final regulations. As discussed in the 
Paperwork Reduction Act section of this preamble, several of the 
provisions reduce the estimated burden on institutions, lenders, and 
guaranty agencies from the elimination of regulatory provisions or 
changes to requirements and this is reflected by the negative numbers 
in the table.

                          Table 3--Summary of Paperwork Requirements for Small Entities
----------------------------------------------------------------------------------------------------------------
                                                    OMB Control    Small entity                   Cost per small
                   Description                          No.            hours         Cost ($)         entity
----------------------------------------------------------------------------------------------------------------
FFEL forbearance................................       1845-0020             264           6,497             650
Reasonable and Affordable loan rehab............       1845-0020          69,161       1,702,052         154,732
Suspension of AWG for rehab borrowers...........       1845-0020           1,257          30,935           2,812
School Enrollment Status Reporting..............       1845-0019          24,342         599,068          54,461
Deferment of repayment--Federal Perkins Loans--        1845-0019             175           4,316              22
 definition of eligible graduate fellowship
 programs.......................................
AWG 3rd party contractors; hearing requests, and       1845-0020          57,568       1,416,748         128,795
 hearing administration.........................
Lender disclosure...............................       1845-0020        (20,461)       (503,556)        (50,356)
Due diligence in making a loan..................       1845-0020        (40,923)     (1,007,112)       (100,711)
Equal credit--removal of provision..............       1845-0020        (40,923)     (1,007,112)       (100,711)
Eligibility for interest benefits...............       1845-0020        (40,923)     (1,007,112)       (100,711)
Basic program agreement.........................       1845-0020        (11,174)       (274,982)        (27,498)
Records, reports, inspection requirements for GA       1845-0020         (5,587)       (137,495)        (12,500)
 programs.......................................
Prohibited use of Operating Fund when it               1845-0020       (111,739)     (2,749,889)       (249,990)
 contains Federal Fund assets--removal of
 provision......................................
Funds transferred to Operating Fund by a GA--          1845-0020       (111,739)     (2,749,889)       (249,990)
 removal of provision...........................
FISL loan related--removal of provisions........       1845-0020       (163,692)     (4,028,450)        (884.40)
School as lender--removal of provision..........       1845-0020       (206,534)     (5,082,791)      (1,115.87)
Exit counseling.................................       1845-0020       (134,247)     (3,303,819)        (725.32)

[[Page 65790]]

 
Disqualification review of limitation,                 1845-0020       (111,739)     (2,749,889)       (249,990)
 suspension, and termination actions taken by GA
 against a school--removal of provision.........
----------------------------------------------------------------------------------------------------------------

Identification, to the Extent Practicable, of All Relevant Federal 
Regulations That May Duplicate, Overlap or Conflict With the Proposed 
Regulation

    The proposed regulations are unlikely to conflict with or duplicate 
existing Federal regulations.

Alternatives Considered

    As described above, the Department participated in negotiated 
rulemaking in developing the proposed regulations, reviewed comments 
received in response to the NPRM published July 29, 2013, and 
considered a number of options for some of the provisions. In 
particular, the Department reversed the order of the use of the 15 
percent formula and the standard form in determining a reasonable and 
affordable payment for loan rehabilitation, but that is not expected to 
affect small entities. No alternatives were aimed specifically at small 
entities.

Paperwork Reduction Act of 1995

    Sections 674.19, 674.33, 674.34, 682.102, 682.200, 682.205, 
682.206, 682.208, 682.209, 682.210, 682.211, 682.212, 682.214, 682.216, 
682.301, 682.305, 682.401, 682.402, 682.404, 682.405, 682.406, 682.409, 
682.410, 682.411, 682.412, 682.414, 682.417, 682.418, 682.421, 682.507, 
682.508, 682.511, 682.515, 682.602, 682.603, 682.604, 682.605, 682.610, 
682.711, 682.712, 682.713, 685.205, 685.211, 685.214, contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (PRA) (44 U.S.C. 3507(d)), the Department of Education has 
submitted a copy of these sections, related forms, and Information 
Collection Requests (ICRs) to the Office of Management and Budget (OMB) 
for its review.
    The OMB Control numbers associated with the final regulations and 
related forms are 1845-0015, 1845-0019, 1845-0020, and 1845-0119 
(identified as 1845--NEW2 in the NPRM).
    In the NPRM, the Department included a draft version of the 
Financial Disclosure for Reasonable and Affordable Payments form (1845-
0120, identified as 1845--NEW1 in the NPRM) and calculated estimated 
burden for the completion and review of that version. The Department 
received extensive and detailed comments from the public on the draft 
form, including all aspects of the form and its intended use. We will 
require significant time to properly analyze these comments and, if 
appropriate, rework the form to address them. To allow the time to 
carefully consider public comment and take necessary action, we will 
address comments and burden relating to the Financial Disclosure for 
Reasonable and Affordable Payments form in a separate Federal Register 
notice that will be published after these final regulations.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
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.

Sections 682.211 and 685.205--Forbearance

    The final regulations amend the current FFEL Program regulations to 
authorize a lender, prior to resolving a default claim payment, to 
grant forbearance to a borrower or endorser who is in default on a loan 
based on the borrower's or endorser's oral request. The current 
regulations require borrowers to submit a written request for 
forbearance. The burden calculations address only the added burden 
created by accepting oral requests for forbearance. These final 
regulations provide that a forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser (as required under the current regulations), or a written or 
oral affirmation of the borrower's or endorser's obligation to repay 
the debt. The final regulations define ``affirmation'' for this purpose 
to be an acknowledgment of the loan by the borrower or endorser in a 
legally binding manner that can take the form of: (1) A new signed 
repayment agreement or schedule, or another form of signed agreement to 
repay the debt (as under current regulations); (2) an oral 
acknowledgment and agreement to repay the debt that is documented by 
the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or (3) a payment made on the loan 
by the borrower or endorser. The final regulations also specify that if 
a forbearance in this situation is based on the borrower's or 
endorser's oral request and affirmation, the lender must orally review 
with the borrower the terms and conditions of the forbearance. The 
lender must also send the borrower or endorser a notice that confirms 
the terms of the forbearance and the borrower's or endorser's 
affirmation of the obligation to make the first payment under the 
forbearance agreement within 30 days after entering into that 
agreement. The final regulations require the lender to retain a record 
of the terms and conditions of the forbearance and affirmation in the 
borrower's or endorser's file.
    For the 2011 calendar year, the last year for which data are 
available, we estimate that 172,915 FFEL borrowers requested 
forbearance after defaulting on a loan. Of that number, 49,350 
borrowers have FFEL program loans held by lenders. Of those borrowers, 
we estimate that 25 percent (12,338 borrowers) will exercise the option 
in these final regulations to orally acknowledge the debt and agree to 
repay the debt. The remaining 123,565 loans for which we estimate 
borrowers will request forbearance after defaulting will be held by the 
Department. We estimate that 25 percent of those borrowers (30,891 
borrowers) who request forbearance from the Department will exercise 
the option to orally acknowledge the debt and agree to repay the debt, 
as would be authorized under these final regulations. Because OMB 
requires Federal agencies to account for burden imposed on non-Federal 
entities separately by type, i.e. public, not-for-profit, and for-
profit, the following analysis of the burden imposed on lenders other 
than the Department is broken down by the types of entities. Note that 
State guaranty agencies are covered under the ``public'' type of 
entities.
    Of the FFEL Program loans held by lenders, we estimate that public 
holders (State guaranty agencies) will have two FFEL borrowers who seek 
to orally acknowledge a defaulted FFEL Program

[[Page 65791]]

loan. On average, we estimate that it will take the lender 0.17 hours 
(10 minutes) per oral acknowledgment to orally review with the borrower 
the terms and conditions of the forbearance and document the 
conversation and place that documentation in the borrower's or 
endorser's file. For public holders, we estimate that burden will 
increase by 0.34 hours (two borrowers multiplied by 0.17 hours per oral 
forbearance request).
    Of the FFEL Program loans, we estimate that not-for-profit holders 
will have 1,551 FFEL borrowers who seek an oral forbearance on a 
defaulted FFEL program loan. On average, we estimate that it will take 
the lender 0.17 hours (10 minutes) per oral acknowledgment to orally 
review with the borrower the terms and conditions of the forbearance 
and document the conversation and place that documentation in the 
borrower's or endorser's file. For not-for-profit holders, we estimate 
that burden will increase by 264 hours (1,551 borrowers multiplied by 
0.17 hours per oral forbearance request).
    Of the FFEL Program loans, we estimate that for-profit holders will 
have 10,785 FFEL borrowers who seek an oral forbearance on a defaulted 
FFEL Program loan. On average, we estimate that it will take the lender 
0.17 hours (10 minutes) per oral acknowledgment to orally review with 
the borrower the terms and conditions of the forbearance and document 
the conversation and place that documentation in the borrower's or 
endorser's file. We estimate that burden will increase by 1,833 hours 
(10,785 borrowers multiplied by 0.17 hours per oral forbearance 
request) at for-profit holders.
    We estimate there will be an equal amount of burden on the borrower 
engaged in the oral acknowledgement and agreement to repay the debt 
request with the lender. The oral acknowledgment process will increase 
burden by 7,349 hours for all FFEL borrowers (12,338 held by lenders 
and 30,891 Department-held = 43,229 borrowers multiplied by 0.17 hours 
per oral forbearance request). Since there is no FFEL general 
forbearance form approved by OMB, the final regulations will impose new 
burden.
    Collectively, we estimate that these final FFEL forbearance 
regulations will increase burden by 9,446 hours under OMB Control 
Number 1845-0020.
    The final regulations will amend the current Direct Loan Program 
regulations to authorize the Secretary, prior to the loan being 
transferred to the Department's default collections office, to grant 
forbearance to a borrower or endorser who is in default on a loan based 
on the borrower's or endorser's oral request. The final regulations 
provide that a forbearance agreement in this situation must include a 
new agreement to repay the debt signed by the borrower or endorser (as 
required under the current regulations), or a written or oral 
affirmation of the borrower's or endorser's obligation to repay the 
debt. The final regulations define ``affirmation'' for this purpose to 
be an acknowledgment of the loan by the borrower or endorser in a 
legally binding manner that can take the form of: (1) A new signed 
repayment agreement or schedule, or another form of signed agreement to 
repay the debt (as under current regulations); (2) an oral 
acknowledgment and agreement to repay the debt that is documented by 
the Secretary in the borrower's or endorser's file and confirmed by the 
Secretary in a notice to the borrower; or (3) a payment made on the 
loan by the borrower or endorser. The final regulations also specify 
that if a forbearance in this situation is based on the borrower's or 
endorser's oral request and affirmation, the Secretary must orally 
review with the borrower the terms and conditions of the forbearance, 
and that the Secretary must send the borrower or endorser a notice that 
confirms the terms of the forbearance and the borrower's or endorser's 
affirmation of the obligation to make the first payment under the 
agreement within 30 days after entering into that agreement. The final 
regulations require the Secretary to retain a record of the terms and 
conditions of the forbearance and affirmation in the borrower's or 
endorser's file.
    For the 2011 calendar year, 62,905 Direct Loan borrowers requested 
forbearance after defaulting on a loan. Of that number, we estimate 
that 25 percent (15,726 borrowers) will have exercised an option to 
orally acknowledge the debt and agree to repay the debt. On average, we 
estimate that it would take a borrower 0.17 hours (10 minutes) per oral 
acknowledgment to listen to the list of terms and conditions of the 
forbearance as they are reviewed with the borrower. The burden 
associated with the completion of the General Forbearance Request form, 
OMB 1845-0031, is estimated to average 0.2 hours (12 minutes). 
Therefore, the net reduction in burden to provide an oral 
acknowledgement rather than complete the form is the difference of the 
two or 0.03 hours (0.20 hours minus 0.17 hours or 2 minutes) per oral 
forbearance.
    We estimate that burden will decrease by 472 hours (15,726 
borrowers multiplied by 0.03 hours per oral forbearance) under OMB 
Control Number 1845-0119.

Sections 682.405(b) and 685.211(f)--Reasonable and Affordable Loan 
Rehabilitation Agreement

    The final regulations will add new Sec. Sec.  682.405(b)(1)(iii) 
and 685.211(f)(1)(i), requiring a guaranty agency and the Secretary, 
respectively, to first offer a reasonable and affordable loan 
rehabilitation payment amount on a defaulted loan as determined using 
the 15 percent formula (i.e., the amount equal to 15 percent of the 
amount by which the borrower's Adjusted Gross Income (AGI) exceeds 150 
percent of the poverty guideline amount applicable to the borrower's 
family size and State, divided by 12), except that if this amount is 
less than $5, the borrower's monthly rehabilitation payment is $5. If 
the borrower does not provide the documentation required to confirm the 
calculated monthly payment under this formula to the guaranty agency or 
the Secretary, the rehabilitation agreement would be null and void.
    In calendar year 2011, there were approximately 299,159 FFEL 
borrowers (192,029 borrowers whose FFEL program loans are held by 
lenders and 107,130 FFEL program borrowers whose loans are held by the 
Department) who requested and received a loan rehabilitation agreement 
for their defaulted loans. We estimate that of the 192,029 FFEL loans 
held by lenders, 66,283 loans are held by state guaranty agencies and 
125,746 loans are held by not-for-profit guaranty agencies, with the 
remaining 107,130 loans (299,159 minus 192,029) held by the Department. 
In calendar year 2011, there were approximately 92,870 Direct Loan 
borrowers that requested and received a loan rehabilitation agreement 
for their defaulted loans.
    Under these final regulations, we estimate that the 66,283 FFEL 
borrowers whose loans are held by state guaranty agencies will request 
rehabilitation of their defaulted loans using the 15 percent formula 
and submit the required documentation. We estimate that on average each 
borrower will take 0.33 hours (20 minutes) to gather, copy and submit 
the required documentation. We estimate that burden will increase by 
21,873 hours (66,283 borrowers submitting documentation multiplied by 
0.33 hours per loan rehabilitation request) under OMB Control Number 
1845-0020.
    Under these final regulations, we estimate that the 125,746 FFEL 
borrowers whose loans are held by not-for-profit guaranty agencies will 
request

[[Page 65792]]

rehabilitation of their defaulted loans using the 15 percent formula 
and submitting the required documentation to confirm the monthly 
repayment amount. We estimate that on average each borrower will take 
0.33 hours (20 minutes) to gather, copy and submit the required 
documentation. We estimate that burden will increase by 41,496 hours 
(125,746 borrowers submitting documentation verifying IBR calculation 
multiplied by 0.33 hours per loan rehabilitation request) under OMB 
Control Number 1845-0020.
    Under these final regulations, we estimate that the 107,130 FFEL 
borrowers whose loans are held by the Department will request 
rehabilitation of their defaulted loans using the 15 percent formula 
and submitting the required documentation to confirm the monthly 
repayment amount. We estimate that on average each borrower will take 
0.33 hours (20 minutes) to gather, copy and submit the required 
documentation. We estimate that burden will increase by 35,353 hours 
(107,130 borrowers submitting documentation verifying the calculation 
multiplied by 0.33 hours per loan rehabilitation request) under OMB 
Control Number 1845-0020.
    Under these final regulations, we estimate that the 92,870 Direct 
Loan borrowers whose loans are held by the Department will request 
rehabilitation of their defaulted loans using the 15 percent formula 
and submitting the required documentation to confirm the monthly 
repayment amount. We estimate that on average each borrower will take 
0.33 hours (20 minutes) to collect, copy and submit the required 
documentation. We estimate that burden will increase by 30,647 hours 
(92,870 borrowers submitting documentation verifying the 15 percent 
formula calculation multiplied by 0.33 hours per loan rehabilitation 
request) under OMB Control Number 1845-0119.
    We estimate that to review the supporting documentation submitted, 
it would take the guaranty agency on average 0.17 hours (10 minutes) to 
review the supporting documentation from the borrower. Under these 
final regulations, we estimate that burden will increase by 23,645 
hours (192,029 borrowers requesting loan rehabilitation multiplied by 
0.17 hours per document review) under OMB Control Number 1845-0020.
    Sections 682.405(b)(1)(vii) and 685.211(f)(3) will require a 
guaranty agency and the Secretary to recalculate the borrower's 
rehabilitation payment amount if the borrower objects to the payment 
amount contained in the written repayment agreement that the guaranty 
agency or the Secretary sent to the borrower based on the 15 percent 
formula calculation.
    Of the 299,159 FFEL borrowers in calendar year 2011 who requested 
rehabilitation of their defaulted loans, we estimate that 12 percent or 
35,899 borrowers will raise an objection to the initial determination 
of the reasonable and affordable monthly payment amount by the guaranty 
agency or the Secretary. We estimate that each objection will entail a 
phone conversation or email that would span on average 0.17 hours (10 
minutes). This will increase burden to the borrowers for a total of 
6,103 hours (35,899 borrowers objecting to the initial determination of 
the reasonable and affordable payment amount multiplied by 0.17 hours 
per loan rehabilitation request) under OMB Control Number 1845-0020.
    Of the 92,870 Direct Loan borrowers in calendar year 2011 who 
requested loan rehabilitation of their defaulted loans, we estimate 
that 11,144 Direct Loan borrowers will raise an objection to the 
initial determination of the reasonable and affordable monthly payment 
amount. We estimate that each objection will entail a phone 
conversation or email that would span on average 0.17 hours (10 
minutes). This would increase burden to the borrowers for a total of 
1,894 hours (11,144 borrowers objecting to the initial determination of 
the reasonable and affordable payment amount multiplied by 0.17 hours 
per loan rehabilitation request) under OMB Control Number 1845-0119.
    Sections 682.405(b)(1)(vii) and 685.211(f)(5) will require a 
borrower who objects to the monthly repayment amount contained in the 
written repayment agreement based on the 15 percent formula to provide 
the guaranty agency or the Secretary the information needed to 
calculate a monthly payment amount by completing the reasonable and 
affordable rehabilitation payment form. If the borrower does not 
provide this information to the guaranty agency or the Secretary, no 
rehabilitation agreement would exist with the borrower, and the 
guaranty agency or the Secretary will not proceed with the 
rehabilitation.
    Sections 682.405(b)(1)(x) and 685.211(f)(6) will require the 
Secretary or the guaranty agency, upon the borrower's request, to 
adjust the borrower's monthly rehabilitation payment due to a change in 
the borrower's financial circumstances. The borrower will be required 
to provide documentation supporting the request.
    We estimate that 10 percent of the 299,159 FFEL borrowers who 
requested rehabilitation of their defaulted loans (29,916 FFEL 
borrowers, 19,203 of whom have FFEL program loans that are held by 
lenders and 10,713 of whom have FFEL program loans that are held by the 
Department) will have a change in their financial circumstances in the 
initial year the proposed regulation is implemented. We estimate that 
on average each borrower will take 0.33 hours (20 minutes) to collect, 
copy, and submit the required documentation. We estimate that burden 
will increase by 9,872 hours (29,916 borrowers with changes in 
financial circumstances multiplied by 0.33 hours per loan 
rehabilitation request) under OMB Control Number 1845-0020.
    Of the 19,203 borrowers with FFEL loans held by lenders, 6,628 are 
held by public guaranty agencies and 12,575 are held by not-for-profit 
guaranty agencies. Under these final regulations, we estimate 6,628 
FFEL borrowers whose loans are held by public guaranty agencies will 
have a change in their financial circumstances in the initial year the 
proposed regulation is implemented. We estimate that for each request 
submitted it will take on average 0.5 hours (30 minutes) for the 
guaranty agency to review and process the request. Under these final 
regulations, we estimate that burden will increase by 3,314 hours 
(6,628 borrowers requesting loan rehabilitation multiplied 0.5 hours 
per loan rehabilitation request equals 3,314 hours) under OMB Control 
Number 1845-0020.
    Under these final regulations, we estimate that 12,575 FFEL 
borrowers whose loans are held by not-for-profit guaranty agencies will 
request a change in their reasonable and affordable payment amount due 
to changed financial circumstances in the initial year the final 
regulation is implemented. We estimate that for each request submitted 
it will take on average 0.5 hours (30 minutes) for the guaranty agency 
to review and process the request for a change in the payment amount. 
Under these final regulations, we estimate that burden will increase by 
6,288 hours (12,575 borrowers requesting a change in the loan 
rehabilitation payment amount multiplied by 0.5 hours per request) 
under OMB Control Number 1845-0020.
    We estimate that 10 percent of Direct Loan borrowers who are 
rehabilitating their defaulted loans (9,287 Direct Loan borrowers) will 
request a change in the reasonable and affordable payment amount due to 
a change in their financial circumstances in the initial year the final 
regulation is

[[Page 65793]]

implemented. We estimate that on average each borrower will take 0.33 
hours (20 minutes) to collect, copy, and submit the required 
documentation. We estimate that burden will increase by 3,065 hours 
(9,287 borrowers requesting a change in the reasonable and affordable 
payment amount multiplied by 0.33 hours per payment change request 
equals 3,065 hours) under OMB Control Number 1845-0119.

Sections 682.405(a) and 685.211(f)--Suspension of Administrative Wage 
Garnishment for Borrowers Rehabilitating Defaulted Loans

    The final regulations will add new Sec. Sec.  682.405(a)(3)(i) and 
685.211(f)(12)(i) to the FFEL and Direct Loan program regulations 
requiring a guaranty agency or the Secretary, respectively, to suspend 
collecting on a defaulted loan through Administrative Wage Garnishment 
(AWG) after the borrower makes five qualifying payments under a loan 
rehabilitation agreement. The guaranty agency or the Secretary will not 
be permitted to suspend AWG prior to the fifth payment (unless 
otherwise required to do so), and, after the fifth payment, the 
borrower will have the option to request that the guaranty agency or 
the Secretary continue collecting on the loan through AWG while the 
borrower makes voluntary payments under the rehabilitation agreement.
    Under Sec.  682.405(a)(3)(ii), we estimate that state guaranty 
agencies will have 663 FFEL borrowers from whom they will be collecting 
payments through AWG while the borrower is also making voluntary 
repayments to rehabilitate the loan. After the borrower has made five 
qualifying voluntary loan payments (in addition to the AWG payments) 
the holder would suspend AWG. We estimate that on average each 
suspension of AWG would take one hour (60 minutes). We estimate that 
burden would increase by 663 hours (663 borrower requests multiplied by 
one hour per AWG suspension equals 663 hours) under OMB Control Number 
1845-0020.
    Under Sec.  682.405(a)(3)(ii), we estimate that not-for-profit 
guaranty agencies will have 1,257 FFEL borrowers from whom they will be 
collecting payments using AWG while the borrower is also making 
voluntary repayments to rehabilitate the loan. After the borrower has 
made five qualifying voluntary loan payments (in addition to the AWG 
payments) the holder would suspend AWG. We estimate that on average 
each suspension of AWG would take one hour (60 minutes). We estimate 
that burden would increase by 1,257 hours (1,257 borrower requests 
multiplied by one hour per AWG suspension equals 1,257 hours) under OMB 
Control Number 1845-0020.
    Any burden under Sec.  685.211(f)(12)(i) is attributable to the 
Department and therefore not a part of this burden assessment of 
affected entities.
    Collectively, the changes in Sec.  682.405(a) and (b) will increase 
burden by 149,864 hours in OMB Control Number 1845-0020.
    Collectively, the changes in Sec.  685.211(f) will increase burden 
by 35,606 hours in OMB Control Number 1845-0119.

Sections 674.33(g), 682.402(d), and 685.214--Closed School Discharge

    The final regulations at Sec. Sec.  674.33(a)(4)(i)(B), 
682.402(d)(1), and 685.214(c)(1)(iii) will extend, for purposes of the 
closed school discharge, the current 90-day period to 120-days for 
students who leave before a school closes and add examples of the types 
of exceptional circumstances under which the Department may extend the 
120-day window.
    During the 2011 calendar year, no Perkins Loan borrowers received 
closed school loan discharges. We estimate that 15 Perkins Loan 
borrowers submitted applications for closed school discharges. We 
estimate that the average burden per response is 0.5 hours (30 minutes) 
for each loan discharge application and that by expanding the period 
from 90 days to 120 days prior to school closure for students who had 
withdrawn to apply for a closed school loan discharge will increase the 
number of applicants by 20 percent. As a result there will be an 
estimated 18 applications under the final regulation for a total 
increase in burden of 2 hours (18 borrowers applying for loan discharge 
multiplied by 0.5 hours per application minus 15 borrowers applying for 
loan discharge under current regulations multiplied by 0.5 hours per 
application) under OMB Control Number 1845-0015.
    During the 2011 calendar year, 163 FFEL borrowers received closed 
school loan discharges. We estimate that 230 FFEL borrowers submitted 
applications for discharge. We estimate that the average burden per 
response is 0.5 hours (30 minutes) for each loan discharge application 
and that by expanding the period from 90 days to 120 days prior to 
school closure for students who had withdrawn to apply for a closed 
school loan discharge will increase the number of applicants by 20 
percent. As a result there will be 276 applications under the final 
regulation for a total increase in burden of 23 hours (276 borrowers 
applying for loan discharge multiplied by 0.5 hours per application 
minus 230 borrowers applying for loan discharge under current 
regulations multiplied by 0.5 hours per application) under OMB Control 
Number 1845-0015.
    During the 2011 calendar year, 128 Direct Loan borrowers received 
closed school loan discharges. We estimate that 295 Direct Loan 
borrowers submitted applications for discharge. We estimate that the 
average burden per response is 0.5 hours (30 minutes) for each loan 
discharge application and that by expanding the period from 90 days to 
120 days prior to school closure for students who had withdrawn to 
apply for a closed school loan discharge will increase the number of 
applicants by 20 percent, thus totaling 354 applications under the 
final regulation for a total increase in burden of 29 hours (354 
borrowers applying for loan discharge multiplied by 0.5 hours per 
application minus 295 borrowers applying for loan discharge under 
current regulations multiplied by 0.5 hours per application) under OMB 
Control Number 1845-0015.
    Collectively, the total increase in burden is 54 hours under OMB 
Control Number 1845-0015. The changes associated with the elongation of 
the period prior to school closure from 90 days to 120 days for 
students who had withdrawn to apply for a closed school loan discharge 
is non-substantive and as such, we will submit a Form 83-C to OMB to 
make this change.

Sections 674.19, 682.610, and 685.309--School Enrollment Status 
Reporting Requirements

    For the Federal Perkins Loan program, the final regulations would 
add a new Sec.  674.19(f) with the heading ``enrollment reporting 
process.'' Section 674.19(f)(1) will provide that, upon receipt of an 
enrollment report from the Secretary, an institution must update all 
information included in the report and return the report to the 
Secretary in the manner and format prescribed by the Secretary and 
within the timeframe prescribed by the Secretary. Section 674.19(f)(2) 
will provide that, unless it expects to submit its subsequent updated 
enrollment report to the Secretary within the next 60 days, an 
institution must notify the Secretary within 30 days after: (1) The 
date the school discovers that a loan under title IV of the HEA was 
made to a student who was enrolled or accepted for enrollment at the 
institution, and the student has ceased to be enrolled on at least a 
half-time basis, or has failed to enroll on at least a half-time basis 
for the period for which the loan was

[[Page 65794]]

intended; or (2) the date the school discovers that a student who is 
enrolled at the institution and who received a loan under title IV of 
the HEA has changed his or her permanent address. Because the Secretary 
already receives enrollment information on Federal Perkins Loan 
borrowers who also have a FFEL loan or a Direct Loan, the additional 
burden associated with sending enrollment reports to institutions for 
the Federal Perkins Loan Program is only associated with those Federal 
Perkins Loan borrowers whose only loan received under title IV of the 
HEA is a Federal Perkins Loan and who are enrolled on at least a half-
time basis or who had recently changed enrollment status.
    In the 2011 calendar year, there were 2,070,514 Federal Perkins 
Loan borrowers. Of the 2,070,514 Federal Perkins Loan borrowers, 
240,959 borrowers have a Federal Perkins Loan as the only loan received 
under title IV of the HEA. Of the 240,959 borrowers, 53 percent 
(127,708 borrowers) were enrolled at least half-time or had recently 
changed enrollment status. The Secretary will be sending enrollment 
reports to each of the institutions approximately every 60 days or 6 
reports per year. We estimate that on average the completion and 
submission of an enrollment report will take 0.05 hours (3 minutes) per 
borrower. Burden will increase by 38,312 hours (127,708 borrowers 
multiplied by 0.05 hours per borrower multiplied by 6 reports per year) 
under OMB Control Number 1845-0019.
    For the 2011 calendar year 51 percent of the Federal Perkins loan 
borrowers or 65,131 affected borrowers were at public institutions, 
therefore we estimate that burden will increase for public institutions 
by 19,539 hours (38,312 hours multiplied by 0.51) under OMB 1845-0019.
    For the 2011 calendar year 45 percent of the Federal Perkins loan 
borrowers or 57,469 affected borrowers were at private not-for-profit 
institutions, therefore we estimate that burden will increase for 
private not-for-profit institutions by 17,240 hours (38,312 hours 
multiplied by 0.45) under OMB 1845-0019.
    For the 2011 calendar year 4 percent of the Federal Perkins loan 
borrowers or 5,108 affected borrowers were at proprietary institutions, 
therefore we estimate that burden will increase for proprietary 
institutions by 1,533 hours (38,312 hours multiplied by 0.04) under OMB 
1845-0019.
    Collectively, the final regulatory changes to Sec.  674.19 will 
increase burden by 38,312 hours for 127,708 affected borrowers under 
OMB 1845-0019.
    For the FFEL Program, the final regulations will replace the term 
``student status confirmation reports'' in Sec.  682.610(c) with the 
term ``enrollment reporting process,'' and will revise Sec.  
682.610(c)(1) to provide that upon receipt of an enrollment report from 
the Secretary, a school must update all information included in the 
report and return the report to the Secretary in the manner and format 
prescribed by the Secretary and within the timeframe specified by the 
Secretary. Institutions currently participating in the FFEL or Direct 
Loan programs will continue to report enrollment to the Secretary and 
the lender. Because the only change regarding the FFEL Program 
reporting is in the definition of the reporting requirement, there is 
no change in burden for institutions participating in the FFEL and 
Direct Loan programs.

Section 674.34--Deferment of Repayment--Federal Perkins Loans

    The final regulations in Sec.  674.34(f)(1) will require schools 
that participate in the Perkins Loan Program to use the same 
eligibility criteria to define an eligible graduate fellowship program 
and to establish the eligibility of a borrower for a graduate 
fellowship deferment that lenders and the Department use in the FFEL 
and Direct Loan programs, respectively. The final regulations will 
require that a borrower provide the institution with a statement from 
an authorized official of the borrower's graduate fellowship program 
certifying: (1) That the borrower holds at least a bachelor's degree; 
and (2) the borrower's anticipated completion date of the program. In 
calendar year 2011 there were 1,104 Perkins borrowers who applied for a 
graduate fellowship deferment. We estimate that on average it will take 
the borrower 0.25 hours (15 minutes) to obtain the certification from 
an authorized official of the graduate fellowship program and to 
complete and submit the Perkins Loan deferment form multiplied by an 
estimated 1,104 deferment applications equals 276 hours of increased 
burden to borrowers under OMB Control Number 1845-0019.
    For the 2011 calendar year 51 percent of the Federal Perkins Loan 
borrowers or 563 affected borrowers were at public institutions, 
therefore we estimate that burden will increase for authorizing 
officials at public institutions by 141 hours (1,104 applications 
multiplied by 0.51 multiplied by 0.25 hours per certification) under 
OMB 1845-0019.
    For the 2011 calendar year 45 percent of the Federal Perkins Loan 
borrowers or 497 affected borrowers were at private not-for-profit 
institutions, therefore we estimate that burden will increase 
authorizing officials at for private not-for-profit institutions by 124 
hours (1,104 applications multiplied by 0.45 multiplied by 0.25 hours 
per certification) under OMB 1845-0019.
    For the 2011 calendar year 4 percent of the Federal Perkins Loan 
borrowers or 44 affected borrowers were at proprietary institutions, 
therefore we estimate that burden will increase for private not-for-
profit institutions by 11 hours (1,104 applications multiplied by 0.04 
multiplied by 0.25 hours per certification) under OMB 1845-0019.
    Collectively, the final regulatory changes to Sec.  674.34 will 
increase burden by 552 hours under OMB 1845-0019.

Section 682.410(b)(9)(i)(T)(2)--Administrative Wage Garnishment (AWG)--
Use of Third-Party Contractors

    The final regulations will also add a new Sec.  682.410(b)(9)(i)(T) 
to the regulations, which specifies the functions that may be performed 
by a third-party servicer or collection contractor employed by the 
guaranty agency for services needed in the AWG process. The final 
regulations make clear that the guaranty agency may not delegate to any 
third party the decision to order withholding of an individual 
borrower's wages, and must create and retain records to demonstrate 
that each order issued has been individually authorized by an 
appropriate official of the guaranty agency. The final regulations also 
specify the manner by which a withholding order may be sent to 
employers and the permissible activities that may be performed by a 
third-party servicer or collection contractor employed by the guaranty 
agency with respect to withholding orders. Only an authorized official 
of the guaranty agency may determine that an individual withholding 
order is to be issued. The guarantor must record the official's 
determination for each order it issues by either including the 
official's signature on the order, or by retaining in the agency's 
records the identity of the approving official, the date of the 
approval, the amount or rate of the order, the name and address of the 
employer to whom the order was issued, and the debt for which the order 
was issued.
    In calendar year 2011, we estimate there were 84,293 FFEL Program 
borrowers whose loans were held by state guaranty agencies and for 
which the guaranty agency had initiated AWG. We estimate that on 
average the guaranty agency will take 0.25 hours (15 minutes) to meet 
the recordkeeping requirements specified above. Total

[[Page 65795]]

burden hours will increase by 21,073 hours (84,293 multiplied by 0.25 
hours) under OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans were held by not-for-profit guaranty agencies and 
for which the guaranty agency had initiated AWG. We estimate that on 
average the guaranty agency will take 0.25 hours (15 minutes) to meet 
the recordkeeping requirements specified above. Total burden hours will 
increase by 39,978 hours (159,912 multiplied by 0.25 hours) under OMB 
1845-0020.
    The final changes in Sec.  682.410(b)(9)(i)(T)(2) will increase 
burden by 61,051 hours under OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(H)--Administrative Wage Garnishment (AWG)--
Borrower Hearing Requests

    The final regulations will also replace Sec.  682.410(b)(9)(i)(L) 
of the FFEL Program regulations with Sec.  682.410(b)(9)(i)(H) to 
provide that if a borrower's written request for a hearing is received 
by the guaranty agency after the 30th day following the date of the 
garnishment notice and a decision is not rendered within 60 days 
following receipt of the borrower's written request for a hearing, the 
guaranty agency must suspend the order beginning on the 61st day after 
the hearing request was received until a hearing is provided and a 
decision is rendered.
    If a borrower does not request a hearing within the 30-day time 
limit, the guaranty agency must go forward with the AWG. However, if a 
borrower does eventually request a hearing, a guaranty agency would 
still be required to provide one in sufficient time to have a decision 
issued within 60 days of the request. The Department added a provision 
specifying that if this hearing is not provided and a decision issued 
within 60 days, then the agency must suspend the AWG order beginning on 
the 61st day until a decision is issued.
    In calendar year 2011, we estimate there were 84,293 FFEL borrowers 
whose loans were held by state guaranty agencies and for which the 
agencies had initiated AWG. We estimate that 10 percent of these 
borrowers (8,429) will request a hearing and that in 10 percent of 
those cases (843) a decision will not be rendered until after 60 days 
following the receipt of the borrower's request. On average, we 
estimate that it will take one hour (60 minutes) to suspend an 
administrative wage garnishment order. The total increase in burden 
will be 843 hours (843 FFEL borrowers undergoing AWG who requested a 
hearing where a decision was not rendered until after 60 days following 
the receipt of the borrower's request multiplied by one hour per 
suspension) under OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. We estimate that 10 
percent of these borrowers (15,991) will request a hearing and that in 
10 percent of those cases (1,599) a decision will not be rendered until 
after 60 days following the receipt of the borrower's request. On 
average, we estimate that it will take one hour (60 minutes) to suspend 
an administrative wage garnishment order. The total increase in burden 
will be 1,599 hours (1,599 FFEL borrowers undergoing AWG who requested 
a hearing where a decision was not rendered until after 60 days 
following the receipt of the borrower's request multiplied by one hour 
per suspension) under OMB 1845-0020.
    Collectively, the final changes in Sec.  682.410(b)(9)(i)(H) will 
increase burden by 2,442 hours in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(J)--Administrative Wage Garnishment (AWG)--
Hearing Administration

    The final regulations will add new paragraph (b)(9)(i)(J) and will 
provide for the manner by which the hearing is administered and certain 
provisions relating to bringing forth additional evidence and 
continuances. Specifically, the final regulations will require that the 
hearing be conducted as an informal proceeding, require witnesses in an 
oral hearing to testify under oath or affirmation, and require 
maintenance of a summary record of the hearing. The final regulations 
will also allow the borrower to request a continuance to submit 
additional evidence.
    In calendar year 2011, we estimate there were 84,293 FFEL borrowers 
whose loans where held by state guaranty agencies and for which the 
agencies had initiated AWG. We estimate that 10 percent of these 
borrowers (8,429) will request a hearing. We estimate that on average 
each summary record will take one hour (60 minutes). The total burden 
increase for this recordkeeping will be 8,429 hours (8,429 hearings 
multiplied by one hour per hearing) under OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. We estimate that 10 
percent of these borrowers (15,991) will request a hearing. We estimate 
that on average each summary record will take one hour (60 minutes). 
The total burden increase for this recordkeeping will be 15,991 hours 
(15,991 hearings multiplied by one hour per hearing) under OMB 1845-
0020.
    Collectively, the changes in Sec.  682.410(b)(9)(i)(J) will 
increase burden by 24,420 hours in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(Q)--Administrative Wage Garnishment (AWG)--
Recent Reemployment After Involuntary Unemployment

    Section 682.410(b)(9)(i)(Q) will clarify that a borrower who wishes 
to object to AWG on the basis that he or she is not subject to 
garnishment because of recent reemployment after involuntary 
separation, bears the burden of raising and proving that claim.
    In calendar year 2011, we estimate that there were 84,293 FFEL 
borrowers whose loans where held by state guaranty agencies and for 
which the agencies had initiated AWG. Of that number, we estimate that 
8 percent (6,743) became unemployed involuntarily. Furthermore, we 
estimate that a sub-group of those who became unemployed involuntarily, 
5 percent (337), gained subsequent reemployment. We estimate that the 
average amount of time for each borrower subject to AWG in this sub-
group to provide documentation that supports their claim to not be 
subject to AWG due to their recent reemployment to be 0.5 hours. The 
increased burden to provide documentation that will support the 
borrower's claim that he not be subject to AWG due to recent 
reemployment is 169 hours (337 borrowers whose student loans were being 
collected by AWG, who became unemployed involuntarily, but subsequently 
gained reemployment multiplied by 0.5 hours per claim) under OMB 1845-
0020.
    In calendar year 2011, we estimate that there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. Of that number, we 
estimate that 8 percent (12,793) became unemployed involuntarily. 
Furthermore, we estimate that a sub-group of those who became 
unemployed involuntarily, 5 percent (640), gained subsequent 
reemployment. We estimate that the average amount of time for each 
borrower subject to AWG in this sub-group to provide documentation that 
supports their claim to not be subject to AWG due to their recent 
reemployment to be 0.5 hours. The total amount of increased burden to

[[Page 65796]]

provide documentation that will support the borrower's claim that he 
not be subject to AWG due to recent reemployment is 320 hours (640 
borrowers whose loans were being collected by AWG, who became employed 
involuntarily, but subsequently gained reemployment multiplied by 0.5 
hours per claim) under OMB 1845-0020.
    The final changes in Sec.  682.410(b)(9)(i)(Q) will collectively 
increase burden by 489 hours in OMB Control Number 1845-0020.
    Collectively, the final changes in all subparagraphs of Sec.  
682.410(b)(9) will increase burden by 88,402 hours in OMB Control 
Number 1845-0020.

Repeal of Unnecessary FFEL Program Regulations

    The language in these final regulations removes provisions from 34 
CFR part 682 that are no longer required as a result of the SAFRA Act 
included in the Health Care and Reconciliation Act of 2010. One of the 
provisions of the SAFRA Act was the termination, as of July 1, 2010, of 
the authority for lenders to make new loans under the FFEL Program. 
These final regulations will remove the FFEL provisions that are now 
unnecessary in light of this change and would also make technical and 
conforming changes. A number of the final technical and conforming 
changes in 34 CFR Part 682 are for clarity, others are due to the 
elimination of cross-references.
    Typically, the results of negotiated rulemaking produce some 
regulatory changes that correspond to reporting or recordkeeping burden 
on affected entities such as borrowers, lenders, or guaranty agencies. 
The primary information collection associated with 34 CFR Part 682 is 
the currently approved OMB 1845-0020. Unlike other newly proposed 
regulations where the resultant final regulation would either increase 
or decrease burden as a result of the change in a regulation, this 
expansive effort to eliminate unneeded regulations includes more 
wholesale changes being made to 34 CFR Part 682. As a result, the 
entire history of burden associated with OMB 1845-0020 was examined. 
While the burden assessments for OMB 1845-0020 stretch back over 13 
years, the necessary level of detail does not exist to disaggregate the 
amount of the currently approved amount of burden in this collection 
into its corresponding subsections of 34 CFR Part 682.
    Therefore, a new methodology to calculate burden is required. We 
are able to establish that there are 38 subsections of 34 CFR Part 682 
that have burden under OMB 1845-0020. We divided the total of the 
currently approved burden hours of 12,352,197 hours by the 38 affected 
subsections which on average yields 325,058 hours per affected 
subsection.
    Each of the subsections listed below will use this number of burden 
hours as a starting point. The final changes as provided below explain 
the burden impact.
    The specific number of respondents from the affected entities is 
similarly unavailable, so we have established a percentage based on the 
number of borrowers per loan type to distribute the number of 
respondents across the affected entities.

Section 682.102--Repaying a Loan

    The final regulations will amend the section heading, remove Sec.  
682.102(a) through (d), which describe the application process for 
Stafford, PLUS, and Consolidation loans, and redesignate the paragraphs 
in current Sec.  682.102(e), which describes the loan repayment 
process, as Sec.  682.102(a)-(g).
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.200--Definitions--Lender

    The final regulations will remove the provisions of current Sec.  
682.601(a)(3), (a)(5), and (a)(7), and place these provisions into 
paragraph (8) of the definition of ``Lender'' in Sec.  682.200(b).
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.205--Disclosure Requirements for Lenders

    The final regulations will remove Sec.  682.205(a) (the initial 
disclosure statement), (b) (statement of borrower rights and 
responsibilities), (g) (plain language disclosure), and (i) (separate 
disclosure for Consolidation loans) from the FFEL Program regulations 
and renumber the remaining provisions. The remaining provisions include 
providing repayment information, providing required disclosures during 
the repayment period, and providing required disclosures for borrowers 
having difficulty making payments.
    The final changes will decrease the required burden by 162,529 
hours, and therefore the current burden hours will decrease from 
325,058 hours to 162,529 hours under OMB Control Number 1845-0020.

Section 682.206--Due Diligence in Making a Loan

    The final regulations will remove Sec.  682.206 from the FFEL 
regulations. The SAFRA Act eliminated the authority to make new FFEL 
Program loans, including FFEL Consolidation loans. As a result, the 
requirements governing the making of new FFEL Program loans are no 
longer needed and the previous burden associated with the making of a 
loan by a lender will be removed.
    The final change will remove all of the prior assessment of 325,058 
hours of burden associated under OMB Control Number 1845-0020, and 
therefore burden will decrease by 325,058 hours for a total of 0 hours.

Section 682.208--Due Diligence in Servicing a Loan

    The final regulations will replace the term ``national credit 
bureau(s)'' with ``nationwide consumer reporting agency(ies)'' to more 
accurately reflect the reporting requirements.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.209--Repayment of a Loan

    The final regulations will amend Sec.  682.209(a)(3)(i) by adding a 
new paragraph that specifies that borrowers with fixed interest rates 
on their Stafford loans enter repayment on those loans the day after 
six months following the date the borrower was no longer enrolled on at 
least a half-time basis. The final regulations will remove current 
Sec.  682.209(e) through (g) and (j) from the regulations and re-
designate the remaining paragraphs as paragraphs (e)-(g). Redesignated 
Sec.  682.209(e) (current paragraph (h)) will be amended to specify 
that a FFEL Consolidation loan borrower repaying under the IBR plan may 
make a scheduled monthly payment of less than the interest that accrues 
on the loan.
    The final changes will decrease the burden by 65,012 hours, and 
therefore the current burden assessment will decrease from 325,058 to 
260,046 hours under OMB Control Number 1845-0020.

Section 682.210--Deferment

    The final regulations will amend Sec.  682.210(a)(4) of the 
regulations to provide that a borrower's representative may request a 
military service deferment on behalf of the borrower. In Sec.  
682.210(b), the introductory language in paragraphs (b)(1) through (6) 
of Sec.  682.210 was revised to identify the cohort of borrowers to 
which each paragraph applies. Throughout

[[Page 65797]]

Sec.  682.210(b) cross-references were added to the eligibility 
criteria that are applicable to deferments available to these 
borrowers. The final regulations also amend Sec.  682.210(s)(2) by 
removing the exception clause at the end of the provision, and amend 
Sec.  682.210(u)(5) by replacing the words ``military active'' with 
``post-active''.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.211--Forbearance

    Substantive changes in this section have been identified earlier 
which added 9,446 hours of burden to OMB Control Number 1845-0020. 
There were no further changes to this section that will alter the prior 
burden assessment of 325,058 hours under OMB Control Number 1845-0020.
    Collectively, the final changes will increase the burden assessment 
from 325,058 by 9,446 hours (as identified earlier) for a total of 
334,504 hours under OMB Control Number 1845-0020.

Section 682.212--Prohibited Transactions

    There is no change to the current language in this section of the 
regulations, however the current burden referenced in OMB Control 
Number 1845-0020 is incorrectly calculated.
    This section primarily defines ``prohibited transactions,'' but 
does not impose recordkeeping or reporting requirements upon entities 
and thus does not impose burden. Therefore, these final regulations 
remove the 325,058 hours of burden that was previously incorrectly 
attributed to this section of the regulations. While subsection 34 CFR 
682.212(h) provides that an institution, at its option, may make 
available a list of recommended or suggested lenders, the burden 
associated with that reporting is accounted for in Sec. Sec.  601.10 
and 668.14.
    We removed the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020, and therefore burden will decrease by 325,058 
hours for a total of 0 hours.

Section 682.214--Compliance With Equal Credit Opportunity Requirements

    The final regulations will remove Sec.  682.214 from the FFEL 
regulations. The SAFRA Act ended the making of new FFEL loans and 
therefore these requirements can be eliminated from the FFEL 
regulations.
    The change in the final regulation will remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, and 
therefore burden will decrease by 325,058 hours for a total of 0 hours.

Section 682.216--Teacher Loan Forgiveness Program

    The final regulations provide for minor language changes.
    These changes in the final regulations will not alter the prior 
burden assessment of 325,058 hours under OMB Control Number 1845-0020.

Section 682.301--Eligibility of Borrowers for Interest Benefits on 
Stafford and Consolidation Loans

    The final regulations will remove Sec.  682.301(c) from the 
regulations. The SAFRA Act ended the making of new FFEL Program loans 
and this provision related to determining borrower eligibility for the 
interest subsidy on new loans would be eliminated.
    The change in the final regulations will remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, and 
therefore burden would decrease by 325,058 hours for a total of 0 hours 
under this section.

Section 682.305--Procedures for Payment of Interest Benefits and 
Special Allowance and Collection of Origination and Loan Fees

    Section 682.305(c)(1)(ii) specifies that, regardless of the dollar 
volume of loans originated or held, a school lender or an eligible 
lender serving as trustee for a school or school-affiliated 
organization originating FFEL Program loans as a lender must submit an 
independent compliance audit to the Department each year. The final 
regulations will remove the reference to FFEL lenders originating 
loans. The final regulations will also remove the language specifying 
that a school and lender serving as a trustee for a school must submit 
an independent compliance audit to the Department each year.
    The number of school lenders or lenders serving as a trustee on 
behalf of a school or a school affiliated organization whose purpose is 
to originate loans for which the final regulations will provide relief 
is so small as to not be substantive. As a result, these final changes 
will not alter the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020.

Section 682.401--Basic Program Agreement

    The final regulations will remove from Sec.  682.401 language that 
addresses new loan originations, the process supporting loan 
origination, and a guaranty agency's efforts to secure new loan volume. 
These provisions can be eliminated from the FFEL Program regulations 
because no new FFEL loans are being made. The remaining provisions 
proposed for elimination relate to school eligibility to participate in 
a guaranty agency's program and the authority of an agency to limit, 
suspend, or terminate a school from its program. For purposes of new 
loans, schools now participate only in the Direct Loan Program. Any 
future actions to limit, suspend, or terminate a school's participation 
in the student loan programs would be undertaken by the Department 
under 34 CFR part 668, subpart G. Therefore, Sec.  682.401(b)(6) can 
also be eliminated from the FFEL Program regulations.
    The final changes will decrease the burden related to FFEL 
processes by 32,506 hours, and therefore the current burden hours will 
decrease from 325,058 hours by 32,506 hours to 292,552 hours under OMB 
Control Number 1845-0020.

Section 682.402--Death, Disability, Closed School, False Certification, 
Unpaid Refunds, and Bankruptcy Payments

    Substantive changes in this section have been identified earlier 
under OMB 1845-0015. There were no further changes to this section that 
impacted the burden under OMB 1845-0020.
    As a result, the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020 will not be altered.

Section 682.404--Federal rEinsurance Agreement

    The final regulations will make conforming language changes 
required due to the elimination of previous cross-references or 
obsolete requirements.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.405--Loan Rehabilitation Agreement

    Substantive changes in this section have been identified earlier. 
There were no further changes to this section.
    The substantive changes would be in addition to the previous burden 
assessment of 325,058 hours under OMB Control Number 1845-0020 and the 
earlier assessment increases burden by 135,359 hours in OMB 1845-0020 
for a total burden of 460,417 hours.

[[Page 65798]]

Section 682.406--Conditions for Claim Payments From the Federal Fund 
and for Reinsurance Coverage

    The final regulations will make a minor wording change due to the 
elimination of previous cross-references and add an ending date 
coinciding with the implementation of the SAFRA Act, which ended the 
making of new FFEL Program loans.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.409--Mandatory Assignment by Guaranty Agencies of Defaulted 
Loans to the Secretary

    The final regulations will make no changes to this section of the 
regulations.
    These final regulations will not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

    Apart from the earlier discussion of the changes made to the 
administrative wage garnishment provisions in this section of the 
regulations, the final regulations will only make minor wording changes 
to correct cross-references and delete obsolete references.
    Substantive changes in this section have been identified earlier. 
There are no further changes to this section. These final changes will 
not alter the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020 and the earlier assessment that increased 
burden by 88,402 hours in OMB 1845-0020 for a total of 413,460 hours.

Section 682.411--Lender Due Diligence in Collecting Guaranty Agency 
Loans

    The final regulations will make a minor wording change.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.412--Consequences of the Failure of a Borrower or Student 
To Establish Eligibility

    The final regulations will make a minor wording change.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.414--Records, Reports, and Inspection Requirements for 
Guaranty Agency Programs

    The final regulations will make minor wording changes. One of the 
minor wording changes will eliminate a reporting category from annual 
guaranty agency reporting requirement. Under Sec.  682.414, annually, 
for each State in which it operates, a guaranty agency report of the 
total guaranteed loan volume, default volume, and default rate does not 
have to be categorized by schools for all loans guaranteed after 
December 31, 1980. We estimate that this reduction in reporting 
categories will decrease the previous burden assessment by 16,253 
hours, and therefore the current burden of 325,058 would decrease to 
308,805 hours under OMB Control Number 1845-0020.

Section 682.417--Determination of Federal Funds or Assets To Be 
Returned

    The final regulations make no changes to this section of the 
regulations. These changes in the final regulations will not alter the 
prior burden assessment of 325,058 hours under OMB Control Number 1845-
0020.

Section 682.418--Prohibited Uses of the Assets of the Operating Fund 
During Periods in Which the Operating Fund Contains Transferred Funds 
Owed to the Federal Fund

    The final regulations will remove Sec.  682.418 from the FFEL 
regulations. The final change will remove the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020, and therefore 
burden will be decreased by 325,058 hours for a total of 0 hours based 
on the elimination of the prior FFEL requirements.

Section 682.421--Funds Transferred From the Federal Fund to the 
Operating Fund by a Guaranty Agency

    The final regulations will remove Sec.  682.421 from the FFEL 
regulations. The final change will remove the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020, and therefore 
burden will decrease by 325,058 hours for a total of 0 hours based on 
the elimination of the prior FFEL requirements.

Section 682.507--Due Diligence in Collecting a Loan

Section 682.508--Assignment of a Loan

Section 682.511--Procedures for Filing a Claim

Section 682.515--Records, Reports, and Inspection Requirements for 
Federal GSL Program Lenders

    The final regulations will remove all of the regulations under Part 
682, subpart E (Sec. Sec.  682.500 through 682.515) and reserve the 
subpart. The final regulations will also remove FISL-related Appendix C 
to part 682 from the regulations.
    The change in the final regulations will remove the prior burden 
assessment of 1,300,232 hours under OMB Control Number 1845-0020, and 
therefore burden will decrease by 325,058 hours for each of these four 
sections and decrease burden by 1,300,232 hours for a total of 0 hours 
based on the elimination of the prior FFEL requirements.

Section 682.602--Rules for a School or School-Affiliated Organization 
That Makes or Originates Loans Through an Eligible Lender Trustee

    The final regulations will remove Sec.  682.602 from the FFEL 
regulations. The final change will remove the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020, and therefore 
burden will decrease by 325,058 hours for a total of 0 hours based on 
the elimination of the prior FFEL requirements.

Section 682.603--Certification by a School That Participated in 
Connection With a Loan Application

    The final regulations will make conforming language changes 
required due to the elimination of a cross-reference and reorganization 
due to a deletion of previous requirements.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.604--Processing the Borrower's Loan Proceeds and Counseling 
Borrowers (Required Exit Counseling for Borrowers)

    The final regulations will change the heading of Sec.  682.604, 
remove current paragraph (a), remove and reserve paragraph (b), and 
remove paragraphs (c) through (f) and (h). The final regulations will 
also redesignate current paragraph (g) as paragraph (a). Newly 
redesignated Sec.  682.604(a)(1) will be amended to include another 
option for providing exit counseling to a student

[[Page 65799]]

borrower who withdraws without the school's knowledge or fails to 
complete required exit counseling. In addition to the existing options 
described under ``Current Regulations,'' a school could also send 
written counseling materials to an email address provided by the 
student borrower. Newly redesignated Sec.  682.604(a)(2) will be 
amended by replacing cross-references to current paragraph (a), which 
we are removing, with the substantive information contained in the 
cross-referenced provision that must be included in the counseling. A 
new paragraph (a)(5) will also be added to newly redesignated Sec.  
682.604(a) to clarify that: (1) A school's compliance with the Direct 
Loan Program exit counseling requirements in 34 CFR 685.304(b) 
satisfies the FFEL exit counseling requirements for student borrowers 
who received both FFEL and Direct Loan program loans for attendance at 
the school if the school provides the information required by Sec.  
682.604(a)(2)(i) and (a)(2)(ii); and (2) a student's completion of 
interactive exit counseling offered by the Secretary meets both the 
FFEL exit counseling requirements and the Direct Loan exit counseling 
requirements in 34 CFR 685.304(b).
    The changes in the final regulations will decrease the previous 
burden assessment of 325,058 hours by 211,288 hours, and therefore the 
current burden of 325,058 hours will decrease to 113,770 hours under 
OMB Control Number 1845-0020 because the burden associated with new 
FFEL Program loans will be eliminated.

Section 682.605--Determining the Date of a Student's Withdrawal

    The final regulations will not make any changes to this section. 
These final regulations will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.610--Administrative and Fiscal Requirements for Schools 
That Participated

    Apart from the earlier discussion of the changes made to this 
section, the final regulations will only make minor wording changes.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.711--Reinstatement After Termination

    The final regulations will remove the language regarding the loss 
of a school lender's participation upon the loss of the school's 
eligibility to participate in the Title IV, Federal student financial 
aid programs.
    These final changes will not alter the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020.

Section 682.712--Disqualification Review of Limitation, Suspension, and 
Termination Actions Taken by Guarantee Agencies Against Lenders

    The final regulations will remove a cross-reference to a section 
proposed for deletion. These final changes will not alter the prior 
burden assessment of 325,058 hours under OMB Control Number 1845-0020.

Section 682.713--Disqualification Review of Limitation, Suspension, and 
Termination Actions Taken by Guaranty Agencies Against a School

    The final regulations will remove Sec.  682.713 from the FFEL 
Program regulations. The change in the final regulations will remove 
the prior burden assessment of 325,058 hours under OMB Control Number 
1845-0020, therefore burden will decrease by 325,058 hours for a total 
of 0 hours based upon the elimination of the prior FFEL requirements.
    Consistent with the discussion above, the following chart describes 
the sections of the final regulations involving information 
collections, the information being collected, and the collections that 
the Department will submit to the Office of Management and Budget for 
approval and public comment under the Paperwork Reduction Act, and the 
estimated costs associated with the information collections. The 
monetized net savings from of the reduced burden on lender/guaranty 
agencies, institutions, and borrowers using wage data developed using 
BLS data, available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is -
$108,767,761 as shown in the chart below. This cost was based on an 
hourly rate of $24.61.

                                            Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                 OMB Control No. and
         Regulatory section            Information collection    estimated change in         Estimated costs
                                                                        burden
----------------------------------------------------------------------------------------------------------------
Sec.   682.211 Forbearance..........  These final regulations  OMB 1845-0020..........  $232,466.
                                       amend the current FFEL  The Department
                                       regulations to           estimates that the
                                       authorize a lender to    burden will increase
                                       grant forbearance to a   by 9,446 hours..
                                       borrower who is in
                                       default on a loan, but
                                       prior to a default
                                       claim payment based on
                                       the borrower's oral
                                       request. The lender
                                       must orally review
                                       with the borrower the
                                       terms and conditions
                                       of the forbearance and
                                       send a notice
                                       confirming the terms
                                       within 30 days of the
                                       oral agreement.
Sec.   685.205 Forbearance..........  These final regulations  OMB 1845-0119..........  -$11,616.
                                       amend the current       The Department
                                       Direct Loan              estimates that the
                                       regulations to           burden will decrease
                                       authorize the            by 472 hours..
                                       Secretary to grant
                                       forbearance to a
                                       borrower who is in
                                       default on a loan, but
                                       prior to a default
                                       claim payment based on
                                       the borrower's oral
                                       request. The Secretary
                                       must orally review
                                       with the borrower the
                                       terms and conditions
                                       of the forbearance and
                                       send a notice
                                       confirming the terms
                                       within 30 days of the
                                       oral agreement.

[[Page 65800]]

 
Sec.   682.405(b) Loan                The final regulations    OMB 1845-0020..........  $3,688,153.
 rehabilitation agreement.             require the guaranty    The Department
                                       agency to base           estimates that the
                                       determinations of        burden will increase
                                       reasonable and           by 149,864 hours..
                                       affordable
                                       rehabilitation payment
                                       amounts of defaulted
                                       loans on information
                                       provided on an OMB-
                                       approved form, and if
                                       requested, supporting
                                       documentation.
Sec.   685.211(f) Loan                The final regulations    OMB 1845-0119..........  $876,264.
 rehabilitation agreement.             require the Secretary   The Department
                                       to base determinations   estimates that the
                                       of reasonable and        burden will increase
                                       affordable               by 35,606 hours..
                                       rehabilitation payment
                                       amounts of defaulted
                                       loans on information
                                       provided on an OMB-
                                       approved form, and if
                                       requested, supporting
                                       documentation.
Sec.   674.33, Sec.   682.402, Sec.   The final regulations    OMB 1845-0015..........  $1,329.
  685.214 Closed school discharge      extend the current 90-  The Department
 form.                                 day window to 120-days   estimates that the
                                       for students who leave   burden will increase
                                       before a school closes   by 54 hours..
                                       may apply for a
                                       discharge of a title
                                       IV, HEA loan.
Sec.   674.19 School enrollment       The final regulations    OMB 1845-0019..........  $942,858.
 status reporting.                     add a new section       The Department
                                       requiring institutions   estimates that the
                                       that participate in      burden will increase
                                       the Federal Perkins      by 38,312 hours..
                                       Loan program to, upon
                                       receipt of an
                                       enrollment report from
                                       the Secretary, update
                                       all information
                                       included in the
                                       report, and return it
                                       to the Secretary in
                                       the manner and format
                                       and within the
                                       timeframe prescribed
                                       by the Secretary.
Sec.   674.34 Deferment of            The final regulations    OMB 1845-0019..........  $13,585.
 repayment--Federal Perkins Loans.     require schools that    The Department
                                       participate in the       estimates that the
                                       Perkins Loan Program     burden will increase
                                       to use the same          by 276 hours..
                                       eligibility criteria
                                       that FFEL lenders and
                                       the Department use to
                                       define an eligible
                                       graduate fellowship
                                       program and to
                                       establish the
                                       eligibility of a
                                       Perkins Loan borrower
                                       for a graduate
                                       fellowship deferment.
Sec.   682.410 Fiscal,                The final regulations:   OMB 1845-0020..........  $2,175,573.
 administrative and enforcement        Add a new       The Department
 requirements.                         section to specify the   estimates that the
                                       functions that may be    burden will increase
                                       performed by a third-    by 88,402 hours..
                                       party servicer or
                                       collection contractor
                                       employed by a guaranty
                                       agency (GA) for
                                       administrative wage
                                       garnishment (AWG)
                                       purposes;.
                                       Replace a
                                       section of the
                                       regulations with a new
                                       section to provide
                                       that if a borrower's
                                       written request for a
                                       hearing is received by
                                       the GA after the 30th
                                       day following the date
                                       of the garnishment
                                       notice and a decision
                                       is not rendered within
                                       60 days following
                                       receipt of a
                                       borrower's written
                                       request the GA must
                                       suspend the AWG order
                                       beginning on the 61st
                                       day after the request
                                       was received until the
                                       hearing is provided
                                       and a decision
                                       rendered;
                                       Provide for
                                       the manner by which
                                       the hearing is
                                       administered and
                                       certain provisions
                                       relating to bringing
                                       forth additional
                                       evidence and
                                       continuances; and
                                       Clarify that a
                                       borrower who wishes to
                                       object that they are
                                       not subject to
                                       garnishment because of
                                       recent reemployment
                                       after involuntary
                                       separation bears the
                                       burden of raising and
                                       proving the claim.

[[Page 65801]]

 
Sec.   682.102 Obtaining and          The final regulations:   OMB 1845-0020..........  No Change.
 repaying a loan.                      Amend the       The Department
                                       section heading;.        estimates that the
                                       Remove the       burden will remain
                                       section of the           325,058 hours..
                                       regulations that
                                       describes the
                                       application process
                                       for FFEL loans; and.
                                       Re-designates
                                       the paragraphs
                                       describing the loan
                                       repayment process.
Sec.   682.200 Definitions--Lender..  The final regulations    OMB 1845-0020..........  No change.
                                       make a conforming       The Department
                                       change to the            estimates that the
                                       definition of            burden will remain
                                       ``Lender'' due to the    325,058 hours..
                                       elimination of Sec.
                                       682.601.
Sec.   682.205 Disclosure             The final regulations    OMB 1845-0020..........  -$3,999,839.
 Requirements for Lenders.             remove regulations      The Department
                                       governing required       estimates that the
                                       lender disclosures to    burden will decrease
                                       borrowers that are       by 162,529 hours to
                                       provided when new        162,529 hours..
                                       loans are made.
                                      The remaining
                                       provisions include
                                       providing repayment
                                       information, providing
                                       required disclosures
                                       during the repayment
                                       period, and providing
                                       required disclosures
                                       for borrowers having
                                       difficulty making
                                       payments..
Sec.   682.206 Due Diligence in       The final regulations    OMB 1845-0020..........  -$7,999,677.
 making a loan.                        remove Sec.   682.206   The Department
                                       from the FFEL            estimates that the
                                       regulations. The SAFRA   burden will decrease
                                       Act eliminated the       by 325,058 hours to 0
                                       authority to make new    hours of burden..
                                       FFEL Program loans,
                                       including FFEL
                                       consolidation loans.
Sec.   682.208 Due diligence in       The final regulations    OMB 1845-0020..........  No change.
 servicing a loan.                     replace the term        The Department
                                       ``national credit        estimates that the
                                       bureau(s)'' with         burden will remain
                                       ``nationwide consumer    325,058 hours..
                                       reporting
                                       agency(ies)'' to more
                                       accurately reflect the
                                       appropriate legal
                                       terms.
Sec.   682.209 Repayment of a loan..  The final regulations    OMB 1845-0020..........  -$1,599,945.
                                       amend Sec.              The Department
                                       682.209(a)(3)(i) by      estimates that the
                                       adding a new paragraph   burden will decrease
                                       which specifies that     from 325,058 by 65,012
                                       borrowers with fixed     hours to 260,046
                                       interest rates on        hours..
                                       their Stafford loans
                                       enter repayment on
                                       those loans the day
                                       after six months
                                       following the date the
                                       borrower was no longer
                                       enrolled on at least a
                                       half-time basis.
                                      The final regulations
                                       remove current Sec.
                                       Sec.   682.209(e)-(g)
                                       and (j) from the
                                       regulations and re-
                                       designate the
                                       remaining paragraphs
                                       as paragraphs (e)-(g).
                                      Re-designated Sec.
                                       682.209(e) (current
                                       paragraph (h)) is
                                       amended to specify
                                       that a FFEL
                                       Consolidation loan
                                       borrower repaying
                                       under the income-based
                                       repayment plan may
                                       make a scheduled
                                       monthly payment of
                                       less than the interest
                                       that accrues on the
                                       loan.
Sec.   682.210 Deferment............  The final regulations    OMB 1845-0020..........  No change.
                                       amend the deferment     The Department
                                       regulations to provide   estimates that the
                                       that a borrower's        burden will remain
                                       representative may       325,058 hours..
                                       request a military
                                       service deferment on
                                       behalf of the borrower.
                                      In Sec.   682.210(b),
                                       the introductory
                                       language is revised to
                                       identify the cohort of
                                       borrowers to which
                                       each paragraph
                                       applies.
                                      Throughout Sec.
                                       682.210(b) cross-
                                       references are added
                                       to the eligibility
                                       criteria that are
                                       applicable to
                                       deferments available
                                       to these borrowers.
                                       The final regulations
                                       remove the exception
                                       clause at the end of
                                       the provision, and
                                       replace the words
                                       ``military active''
                                       with the word ``post-
                                       active''.

[[Page 65802]]

 
Sec.   682.211 Forbearance..........  Substantive changes in   OMB 1845-0020..........  No change.
                                       this section have been  The Department
                                       identified earlier.      estimates that the
                                      The additional            burden will remain
                                       amendments to the        325,058 hours..
                                       regulations allow a     (NOTE: Other earlier
                                       lender to grant          changes increased
                                       forbearance to a         burden by 9,446 hours
                                       borrower who is          for a total of 334,504
                                       delinquent at the        hours.).
                                       beginning of a period
                                       of non-mandatory
                                       authorized
                                       forbearance..
Sec.   682.212 Prohibited             There is no change to    OMB 1845-0020..........  -7,999,677.
 transactions.                         the current language    The Department
                                       in this section of the   estimates that the
                                       regulations. However     burden will decrease
                                       the current burden       by 325,058 hours to 0
                                       referenced in OMB        hours of burden..
                                       Control Number 1845-
                                       0020 is incorrect.
Sec.   682.214 Compliance with equal  The final regulations    OMB 1845-0020..........  -7,999,677.
 credit opportunity requirements.      remove Sec.   682.214   The Department
                                       from the FFEL            estimates that the
                                       regulations. The SAFRA   burden will decrease
                                       Act ended the making     by 325,058 hours to 0
                                       of new FFEL loans and    hours of burden..
                                       therefore these
                                       requirements can be
                                       eliminated from the
                                       FFEL regulations.
Sec.   682.216 Teacher loan           The final regulations    OMB 1845-0020..........  No change.
 forgiveness program.                  provide for minor       The Department
                                       language changes.        estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.301 Eligibility of         The final regulations    OMB 1845-0020..........  -7,999,677.
 borrowers for interest benefits on    remove Sec.             The Department
 Stafford and Consolidation Loans.     682.301(c) from the      estimates that the
                                       regulations. The SAFRA   burden will decrease
                                       Act ended the making     by 325,058 hours to 0
                                       of new FFEL loans and    hours of burden..
                                       this provision related
                                       to determining
                                       borrower eligibility
                                       for the interest
                                       subsidy on new loans
                                       will be eliminated.
Sec.   682.305 Procedures for         Section                  OMB 1845-0020..........  No change.
 payment of interest benefits and      682.305(c)(1)(ii)       The Department
 special allowance and collection of   specifies that,          estimates that the
 origination and loan fees.            regardless of the        burden will remain
                                       dollar volume of loans   325,058 hours..
                                       originated or held, a
                                       school lender or an
                                       eligible lender
                                       serving as trustee for
                                       a school or school-
                                       affiliated
                                       organization
                                       originating FFEL loans
                                       as a lender must
                                       submit an independent
                                       compliance audit to
                                       the Department each
                                       year. The final
                                       regulations will
                                       remove the reference
                                       to FFEL lenders
                                       originating loans.
Sec.   682.401 Basic Program          The final regulations    OMB 1845-0020..........  -799,973.
 Agreement.                            remove from Sec.        The Department
                                       682.401 language         estimates that the
                                       addressing new loan      burden of 325,058
                                       originations, the        hours will decrease by
                                       process for loan         32,506 to 292,552
                                       origination, and a       hours..
                                       guaranty agency's
                                       efforts to secure new
                                       loan volume. These
                                       provisions can be
                                       eliminated from the
                                       FFEL regulations
                                       because no new FFEL
                                       loans are being made.
                                      The remaining
                                       provisions that are
                                       eliminated relate to
                                       school eligibility to
                                       participate in a
                                       guaranty agency's
                                       program and the
                                       authority of an agency
                                       to limit, suspend, or
                                       terminate a school
                                       from its program. For
                                       purposes of new loans,
                                       schools now
                                       participate only in
                                       the Direct Loan
                                       Program. Any future
                                       actions to limit,
                                       suspend, or terminate
                                       a school's
                                       participation in the
                                       student loan programs
                                       will be undertaken by
                                       the Department under
                                       34 CFR part 668,
                                       subpart G.
Sec.   682.402 Death, disability,     Substantive changes in   OMB 1845-0020..........  No change.
 closed school, false certification,   this section have been  The Department
 unpaid refunds, and bankruptcy        identified earlier.      estimates that the
 payments.                             There are no further     burden will remain
                                       changes to this          325,058 hours..
                                       section.
Sec.   682.404 Federal reinsurance    The final regulations    OMB 1845-0020..........  No change.
 agreement.                            make conforming         The Department
                                       language changes         estimates that the
                                       required due to the      burden will remain
                                       elimination of           325,058 hours..
                                       previous cross
                                       references or obsolete
                                       requirements.
Sec.   682.405 Loan rehabilitation    Substantive changes in   OMB 1845-0020..........  No change.
 agreement.                            this section have been  The Department
                                       identified earlier.      estimates that the
                                       There were no further    burden will remain
                                       changes to this          325,058 hours..
                                       section.

[[Page 65803]]

 
Sec.   682.406 Conditions for claim   The final regulations    OMB 1845-0020..........  No change.
 payments from the Federal Fund and    make a minor wording    The Department
 for reinsurance coverage.             change due to the        estimates that the
                                       elimination of           burden will remain
                                       previous cross-          325,058 hours..
                                       references and add an
                                       ending date coinciding
                                       with the
                                       implementation of the
                                       SAFRA Act, which ended
                                       the making of new FFEL
                                       loans.
Sec.   682.409 Mandatory assignment   The final regulations    OMB 1845-0020..........  No change.
 by guaranty agencies of defaulted     make no changes to      The Department
 loans to the Secretary.               this section of the      estimates that the
                                       regulations.             burden will remain
                                                                325,058 hours..
Sec.   682.410 Fiscal,                Apart from the earlier   OMB 1845-0020..........  No change.
 administrative, and enforcement       discussion of the       The Department
 requirements.                         changes made to the      estimates that the
                                       administrative wage      burden will remain
                                       garnishment provisions   325,058 hours..
                                       of this section of the  (NOTE: Other earlier
                                       regulations, the final   changes to the
                                       regulations would only   Administrative Wage
                                       make minor wording       Garnishment
                                       changes to conform to    regulations increase
                                       cross reference          burden by 88,402 hours
                                       changes and delete       for a total of 413,460
                                       obsolete references.     hours.).
Sec.   682.411 Lender due diligence   The final regulations    OMB 1845-0020..........  No change.
 in collecting guaranty agency loans.  make a minor wording    The Department
                                       change.                  estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.412 Consequences of the    The final regulations    OMB 1845-0020..........  No change.
 failure of a borrower or student to   make a minor wording    The Department
 establish eligibility.                change.                  estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.414 Records, reports, and  The final regulations    OMB 1845-0020..........  -$399,986.
 inspection requirements for           make a minor wording    The Department
 guaranty agency programs.             change.                  estimates that the
                                                                burden will decrease
                                                                from 325,058 hours by
                                                                16,253 hours for a
                                                                total of 308,805
                                                                hours..
Sec.   682.417 Determination of       The final regulations    OMB 1845-0020..........  No change.
 Federal funds or assets to be         make a minor wording    The Department
 returned.                             change.                  estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.418 Prohibited uses of     The final regulations    The Department           -$7,999,677.
 the assets of the Operating Fund      remove Sec.   682.418    estimates that the
 during periods in which the           from the FFEL            burden will decrease
 Operating Fund contains transferred   regulations.             by 325,058 hours to 0
 funds owed to the Federal Fund.                                hours of burden..
Sec.   682.421 Funds transferred      The final regulations    OMB 1845-0020..........  -7,999,677.
 from the Federal Fund to the          remove Sec.   682.421   The Department
 Operating Fund by a guaranty agency.  from the FFEL            estimates that the
                                       regulations.             burden will decrease
                                                                by 325,058 hours to 0
                                                                hours of burden..
Sec.   682.507 Due diligence in       The final regulations    OMB 1845-0020..........  -7,999,677.
 collecting a loan.                    remove all of the       The Department
                                       regulations under        estimates that the
                                       subpart E (Sec.  Sec.    burden will decrease
                                        682.500 through         by 325,058 hours to 0
                                       682.515) and reserve     hours of burden..
                                       the subpart.
Sec.   682.508 Assignment of a loan.  The final regulations    OMB 1845-0020..........  -7,999,677.
                                       remove all of the       The Department
                                       regulations under        estimates that the
                                       subpart E (Sec.  Sec.    burden will decrease
                                        682.500 through         by 325,058 hours to 0
                                       682.515) and reserve     hours of burden..
                                       the subpart.
Sec.   682.511 Procedures for filing  The final regulations    OMB 1845-0020..........  -7,999,677.
 a claim.                              remove all of the       The Department
                                       regulations under        estimates that the
                                       subpart E (Sec.  Sec.    burden will decrease
                                        682.500 through         by 325,058 hours to 0
                                       682.515) and reserve     hours of burden..
                                       the subpart.
Sec.   682.515 Records, reports, and  The final regulations    OMB 1845-0020..........  -7,999,677.
 inspection requirements for Federal   remove all of the       The Department
 GSL program lenders.                  regulations under        estimates that the
                                       subpart E (Sec.  Sec.    burden will decrease
                                        682.500 through         by 325,058 hours to 0
                                       682.515) and reserve     hours of burden..
                                       the subpart.
Sec.   682.602 Rules for a school or  The final regulations    OMB 1845-0020..........  -7,999,677.
 school-affiliated organization that   remove Sec.   682.602   The Department
 makes or originates loans through     from the FFEL            estimates that the
 an eligible lender trustee.           regulations.             burden will decrease
                                                                by 325,058 hours to 0
                                                                hours of burden..
Sec.   682.603 Certification by a     The final regulations    OMB 1845-0020..........  No change.
 school that participated in           make conforming         The Department
 connection with a loan application.   language changes         estimates that the
                                       required due to the      burden will remain
                                       elimination of a cross   325,058 hours..
                                       reference and
                                       reorganization due to
                                       a deletion of previous
                                       requirements.

[[Page 65804]]

 
Sec.   682.604 Processing the         The final regulations    OMB 1845-0020..........  -$5,199,798.
 borrower's loan proceeds and          remove, reserve, and    OMB 1845-0020..........
 counseling borrowers (Required exit   redesignate paragraphs  The Department
 counseling for borrowers).            to illustrate the        estimates that the
                                       counseling               burden will decrease
                                       requirements,            from 325,058 by
                                       specifically the exit    211,288 hours for a
                                       counseling               total of 113,770
                                       requirements.            hours..
Sec.   682.605 Determining the date   The Secretary is not     OMB 1845-0020..........  No change.
 of a student's withdrawal.            changing the language   The Department
                                       in this section.         estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.610 Administrative and     The final regulations    OMB 1845-0020..........  No change.
 fiscal requirements for schools       only make minor         The Department
 that participated.                    wording changes.         estimates that the
                                                                burden will remain
                                                                325,058 hours..
Sec.   682.711 Reinstatement after    The final regulations    OMB 1845-0020..........  No change.
 termination.                          remove the language     The Department
                                       regarding the loss of    estimates that the
                                       a school lender's        burden will remain
                                       participation upon the   325,058 hours..
                                       loss of the school's
                                       eligibility to
                                       participate in the
                                       Title IV, Federal
                                       student financial
                                       assistance programs.
Sec.   682.712 Disqualification       The final regulations    OMB 1845-0020..........  No change.
 review of limitation, suspension,     remove a cross-         The Department
 and termination actions taken by      reference to a section   estimates that the
 guaranty agencies against lenders.    proposed for deletion.   burden will remain
                                                                325,058 hours..
Sec.   682.713 Disqualification       The final regulations    OMB 1845-0020..........  -7,999,677.
 review of limitation, suspension,     remove Sec.   682.713   The Department
 and termination actions taken by      from the FFEL            estimates that the
 guaranty agencies against a school.   regulations.             burden will decrease
                                                                by 325,058 hours to 0
                                                                hours of burden..
----------------------------------------------------------------------------------------------------------------

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by these final regulations follows:

------------------------------------------------------------------------
                                                   Total      Change in
                  Control No.                      burden       burden
                                                   hours        hours
------------------------------------------------------------------------
1845-0015.....................................       14,828          +54
1845-0019.....................................    6,247,152      +38,864
1845-0020.....................................    8,211,632   -4,169,582
1845-0119.....................................       35,606      +36,078
                                               -------------------------
    Total.....................................   14,509,690   -4,094,586
------------------------------------------------------------------------

Assessment of Educational Impact

    In the NPRM we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    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 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at this 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department. (Catalog of Federal Domestic Assistance Numbers: 
84.032 Federal Family Education Loan Program; 84.038 Federal Perkins 
Loan Program; 84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 668, 674, 682, and 685

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

    Dated: October 23, 2013.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary amends 
parts 668, 674, 682, and 685 of title 34 of the Code of Federal 
Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority: 20 U.S.C. 1001, 1002, 1003, 1070, 1085, 1088, 1091, 
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.


Sec.  668.204  [Amended]

0
2. Section 668.204(c)(1)(i) is amended by removing the figure 
``0.06015'' and adding, in its place, the figure ``0.0832''.


Sec.  668.214  [Amended]

0
3. Section 668.214 is amended by:
0
A. In paragraph (a)(1), removing the figure ``0.06015'' and adding, in 
its place, the figure ``0.0832''.
0
B. In paragraph (d)(2), removing the words ``0.06015 or 0.0625'' and 
adding, in their place, the words ``0.0832 or 0.0625, as applicable''.

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
4. The authority citation for part 674 continues to read as follows:


[[Page 65805]]


    Authority: 20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise 
noted.


0
5. Section 674.2(b) is amended by revising the definition of 
``Satisfactory repayment arrangement'' to read as follows:


Sec.  674.2  Definitions.

* * * * *
    (b) * * *
    Satisfactory repayment arrangement: (1) For purposes of regaining 
eligibility for grant, loan, or work assistance under title IV of the 
HEA, to the extent that the borrower is otherwise eligible, the making 
of six on-time, consecutive, voluntary, full monthly payments on a 
defaulted loan. ``On-time'' means a payment made within 20 days of the 
scheduled due date. A borrower may obtain the benefit of this paragraph 
with respect to renewed eligibility once.
    (2) Voluntary payments are payments made directly by the borrower, 
and do not include payments obtained by income tax offset, garnishment, 
or income or asset execution.
    (3) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary, full monthly payments under an 
agreement to rehabilitate a defaulted loan, but does not receive 
additional title IV assistance prior to defaulting on that loan again.
* * * * *

0
6. Section 674.9 is amended by:
0
A. In paragraph (j)(1), removing the word ``those''.
0
B. Redesignating paragraph (k) as paragraph (l).
0
C. Adding a new paragraph (k).
    The addition reads as follows:


Sec.  674.9  Student eligibility.

* * * * *
    (k) In the case of a borrower who is in default on an FFEL Program 
or a Direct Loan Program loan, makes satisfactory repayment 
arrangements as defined in 34 CFR 682.200(b) or 685.102(b) on the 
defaulted loan, as determined by the loan holder; and
* * * * *

0
7. Section 674.19 is amended by adding a new paragraph (f) to read as 
follows:


Sec.  674.19  Fiscal procedures and records.

* * * * *
    (f) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, an institution must update all information 
included in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, an institution must notify 
the Secretary within 30 days after the date the school discovers that--
    (i) A loan under title IV of the HEA was made to a student who was 
enrolled or accepted for enrollment at the institution, and the student 
has ceased to be enrolled on at least a half-time basis or failed to 
enroll on at least a half-time basis for the period for which the loan 
was intended; or
    (ii) A student who is enrolled at the institution and who received 
a loan under title IV of the HEA has changed his or her permanent 
address.
* * * * *

0
8. Section 674.33 is amended by:
0
A. Revising paragraph (g)(4)(i)(B).
0
B. In paragraph (g)(8)(i), removing the figure ``90'' and adding, in 
its place, the figure ``120''.
    The revision reads as follows:


Sec.  674.33  Repayment.

* * * * *
    (g) * * *
    (4) * * *
    (i) * * *
    (B) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 120 days before the school 
closed. The Secretary may extend the 120-day period if the Secretary 
determines that exceptional circumstances related to the school's 
closing justify an extension. Exceptional circumstances for this 
purpose may include, but are not limited to: the school's loss of 
accreditation; The school's discontinuation of the majority of its 
academic programs; action by the State to revoke the school's license 
to operate or award academic credentials in the State; or a finding by 
a State or Federal government agency that the school violated State or 
Federal law; and
* * * * *

0
9. Section 674.34 is amended by:
0
A. In the introductory text of paragraph (e), removing the reference 
``(e)(5)'' and adding, in its place, the reference ``(e)(4)'', each 
time it appears.
0
B. Removing paragraph (e)(4).
0
C. Redesignating paragraph (e)(5) as paragraph (e)(4).
0
D. Removing paragraph (e)(6).
0
E. Redesignating paragraphs (e)(7) and (e)(8) as paragraphs (e)(5) and 
(e)(6), respectively.
0
F. In newly redesignated paragraph (e)(5), removing the words 
``paragraphs (e)(3) and (e)(4)'' and adding, in their place, the words 
``paragraph (e)(3)''.
0
G. Removing paragraph (e)(9).
0
H. Revising paragraph (f) to read as follows:


Sec.  674.34  Deferment of repayment--Federal Perkins loans, NDSLs and 
Defense loans.

* * * * *
    (f)(1) To qualify for a deferment for study as part of a graduate 
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a 
borrower must provide the institution with a statement from an 
authorized official of the borrower's graduate fellowship program 
certifying--
    (i) That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
    (ii) That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis 
into an eligible graduate fellowship program; and
    (iii) The borrower's anticipated completion date in the program.
    (2) For purposes of paragraph (b)(1)(ii) of this section, an 
eligible graduate fellowship program is a fellowship program that--
    (i) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (ii) Requires a written statement from each applicant explaining 
the applicant's objectives before the award of that financial support;
    (iii) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (iv) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
* * * * *

0
10. Section 674.39 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  674.39  Loan rehabilitation.

    (a) * * *
    (2) A loan is rehabilitated if the borrower--
    (i) Requests rehabilitation; and
    (ii) Makes a full monthly payment--as determined by the 
institution--within 20 days of the due date, each month for 9 
consecutive months.
* * * * *


Sec.  674.50  [Amended]

0
11. Section 674.50(e)(1) is amended by removing the words ``is 
submitted for assignment under 674.8(d)(3)'' and adding, in their 
place, the words ``was made before September 13, 1982''.

0
12. Section 674.52 is amended by:

[[Page 65806]]

0
A. Removing paragraph (b)(2).
0
B. Redesignating paragraph (b)(1)(i) as paragraph (b)(1).
0
C. Redesignating paragraph (b)(1)(ii) as paragraph (b)(2).
0
D. Redesignating paragraphs (c), (d), and (e) as paragraphs (d), (e), 
and (f), respectively.
0
E. Adding a new paragraph (c).
0
F. Adding a new paragraph (g).
    The additions read as follows:


Sec.  674.52  Cancellation procedures.

* * * * *
    (c) Break in service. (1) If the borrower is unable to complete an 
academic year of eligible teaching service due to a condition that is 
covered under the Family and Medical Leave Act of 1993 (FMLA) (29 
U.S.C. 2601, et seq.), the borrower still qualifies for the 
cancellation if--
    (i) The borrower completes one half of the academic year; and
    (ii) The borrower's employer considers the borrower to have 
fulfilled his or her contract requirements for the academic year for 
purposes of salary increases, tenure, and retirement.
    (2) If the borrower is unable to complete a year of eligible 
service under Sec. Sec.  674.56, 674.57, 674.59, or 674.60 due to a 
condition that is covered under the FMLA, the borrower still qualifies 
for the cancellation if the borrower completes at least six consecutive 
months of eligible service.
* * * * *
    (g) Switching cancellation categories. A borrower who qualifies for 
a cancellation under one of the cancellation categories in Sec. Sec.  
674.53, 674.56, 674.57, or 674.59 receives cancellation of 15 percent 
of the original principal for the first and second years of qualifying 
service, 20 percent of the original principal for the third and fourth 
years of qualifying service, and 30 percent of the original principal 
for the fifth year of qualifying service. If, after the first, second, 
third, or fourth complete year of qualifying service--
    (1) The borrower switches to a position that qualifies the borrower 
for cancellation under a different cancellation category under 
Sec. Sec.  674.53, 674.56, 674.57, or 674.59, the borrower's 
cancellation rate progression continues from the last year the borrower 
received a cancellation under the former cancellation category; or
    (2) The borrower switches to a position that qualifies the borrower 
for cancellation under a different cancellation category under 
Sec. Sec.  674.58 or 674.60, the borrower's cancellation rate 
progression under the new cancellation category begins at the year one 
cancellation rates specified in Sec. Sec.  674.58(b) or 674.60(b), 
respectively.
* * * * *

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

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

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


0
14. Section 682.100 is amended by:
0
A. Revising the introductory text of paragraph (a).
0
B. In paragraph (a)(1), removing the word ``encourages'' and adding, in 
its place, the word ``encouraged''.
0
C. In the first sentence of paragraph (a)(3), removing the word 
``encourages'' and adding, in its place, the word ``encouraged''.
0
D. Revising the last sentence of paragraph (a)(3).
0
E. In paragraph (a)(4), removing the word ``encourages'' and adding, in 
its place, the word ``encouraged''.
0
F. In paragraph (a)(4), adding the words ``and prior to July 1, 2010'' 
in the last sentence between the date ``November 13, 1997'' and the 
punctuation ``.''.
0
G. Revising paragraph (b)(2)(iii).
    The revisions read as follows:


Sec.  682.100  The Federal Family Education Loan programs.

    (a) This part governs the following four programs collectively 
referred to in these regulations as ``the Federal Family Education Loan 
(FFEL) programs,'' in which lenders used their own funds prior to July 
1, 2010, to make loans to enable a student or his or her parents to pay 
the costs of the student's attendance at postsecondary schools.
* * * * *
    (3) * * * The PLUS Program also provided for making loans to 
graduate and professional students on or after July 1, 2006 and prior 
to July 1, 2010.
* * * * *
    (b) * * *
    (2) * * *
    (iii) The Federal GSL programs were authorized to operate in States 
not served by a guaranty agency program. In addition, the FISL and 
Federal SLS (as in effect for periods of enrollment that began prior to 
July 1, 1994) programs were authorized, under limited circumstances, to 
operate in States in which a guaranty agency program did not serve all 
eligible students.
* * * * *

0
15. Section 682.101 is amended by:
0
A. Adding introductory text to this section.
0
B. In paragraph (a), removing the words ``may make loans.'' and adding, 
in their place, the words ``made loans prior to July 1, 2010.''
0
C. In paragraph (b), removing the words ``may participate'' and adding, 
in their place, the word ``participated''.
0
D. Revising paragraph (c).
    The addition and revision read as follows:


Sec.  682.101  Participation in the FFEL programs.

    The following entities and persons participate in the FFEL 
programs:
* * * * *
    (c) Students who met certain requirements, including enrollment at 
a participating school, borrowed under the Stafford Loan Program prior 
to July 1, 2010 and, for periods of enrollment that began prior to July 
1, 1994, the SLS program. Parents of eligible dependent undergraduate 
students borrowed under the PLUS Program prior to July 1, 2010. 
Borrowers with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, 
ALAS, PLUS, or Nursing Student Loan Program loans borrowed under the 
Consolidation Loan Program prior to July 1, 2010. The PLUS Program also 
provided for making loans to graduate and professional students on or 
after July 1, 2006 and prior to July 1, 2010.
* * * * *

0
16. Section 682.102 is amended by:
0
A. Revising the section heading.
0
B. Removing paragraphs (a), (c), and (d).
0
C. In the introductory text of paragraph (e), removing the paragraph 
heading.
0
D. Redesignating paragraphs (e)(1) through (e)(7) as paragraphs (a) 
through (g), respectively.
0
E. In newly redesignated paragraph (a), revising the last sentence.
0
F. In newly redesignated paragraph (b), removing the words ``on a 
Stafford Loan''.
    The revisions read as follows:


Sec.  682.102  Repaying a loan.

    (a) * * * The obligation to repay all or a portion of a loan may be 
forgiven for Stafford Loan borrowers who enter certain areas of the 
teaching profession.
* * * * *


Sec.  682.103  [Amended]

0
17. Section 682.103(c) is amended by removing the letter and the 
punctuation ``E,''.

0
18. Section 682.200 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``subpart 
A of''.
0
B. In paragraph (a)(1), removing from the list, the terms Academic 
Competitiveness Grant (ACG) Program,

[[Page 65807]]

Graduate and professional student, Leveraging Educational Assistance 
Partnership (LEAP) Program, National Science and Mathematics Access to 
Retain Talent Grant (National SMART Grant) Program, Supplemental 
Educational Opportunity Grant (SEOG) Program, and Supplemental Loans 
for Students (SLS) Program.
0
C. In paragraph (a)(1), adding to the list, in alphabetical order, the 
terms Federal Supplemental Educational Opportunity Grant (SEOG) 
Program, Federal Supplemental Loans for Students (SLS) Program, and 
Graduate or professional student.
0
D. In paragraph (b), in the definition of Authority, removing the words 
``making or purchasing'' and adding, in their place, the word 
``purchase''.
0
E. In paragraph (b), in the definition of Borrower, removing the word 
``is'' and adding, in its place, the word ``was''.
0
F. In paragraph (b), in the definition of Estimated financial 
assistance, in paragraph (1)(vi), removing the words ``Academic 
Competitiveness Grant, National SMART Grant,''.
0
G. In paragraph (b), in the definition of Lender, revising paragraph 
(5)(i)(A)(10).
0
H. In paragraph (b), in the definition of Lender, revising paragraph 
(8).
0
I. In paragraph (b), revising the definition of Nationwide consumer 
reporting agency.
0
J. In paragraph (b), revising the definition of Satisfactory repayment 
arrangement.
    The revisions read as follows:


Sec.  682.200  Definitions.

* * * * *
    (b) * * *
    Lender
* * * * *
    (5) * * *
    (i) * * *
    (A) * * *
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform entrance counseling and, as provided in Sec.  682.604(a), exit 
counseling, and may provide services to participating foreign schools 
at the direction of the Secretary, as a third-party servicer; and
* * * * *
    (8) As of January 1, 2007, and for loans first disbursed on or 
after that date under a trustee arrangement, an eligible lender 
operating as a trustee under a contract entered into on or before 
September 30, 2006, and which continues in effect with a school or a 
school-affiliated organization--
    (i) Must not--
    (A) Make a loan to any undergraduate student;
    (B) Make a loan other than a Federal Stafford loan to a graduate or 
professional student; or
    (C) Make a loan to a borrower who is not enrolled at that school;
    (ii) Must offer loans that carry an origination fee or an interest 
rate, or both, that are less than the fee or rate authorized under the 
provisions of the Act; and
    (iii) Must, for any fiscal year beginning on or after July 1, 2006 
in which the school engages in activities as an eligible lender, submit 
an annual compliance audit that satisfies the following requirements:
    (A) With regard to a school that is a governmental entity or a 
nonprofit organization, the audit must be conducted in accordance with 
Sec.  682.305(c)(2)(v) and chapter 75 of title 31, United States Code, 
and in addition, during years when the student financial aid cluster 
(as defined in Office of Management and Budget Circular A-133, Appendix 
B, Compliance Supplement) is not audited as a ``major program'' (as 
defined under 31 U.S.C. 7501) must, without regard to the amount of 
loans made, include in such audit the school's lending activities as a 
major program.
    (B) With regard to a school that is not a governmental entity or a 
nonprofit organization, the audit must be conducted annually in 
accordance with Sec.  682.305(c)(2)(i) through (iii).
    (C) With regard to any school, the audit must include a 
determination that--
    (1) The school used all payments and proceeds (i.e., special 
allowance and interest payments from borrowers, interest subsidy 
payments, proceeds from the sale or other disposition of loans) from 
the loans for need-based grant programs;
    (2) Those need-based grants supplemented, rather than supplanted, 
the institution's use of non-Federal funds for such grants; and
    (3) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
* * * * *
    Nationwide consumer reporting agency. A consumer reporting agency 
that compiles and maintains files on consumers on a nationwide basis 
and as defined in 15 U.S.C. 1681a(p).
* * * * *
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under the title IV student financial assistance programs, 
the making of six consecutive, on-time, voluntary full monthly payments 
on a defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) The required full monthly payment amount may not be more than 
is reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are payments made directly by the 
borrower, and do not include payments obtained by income tax off-set, 
garnishment, or income or asset execution. ``On-time'' means a payment 
received by the Secretary or a guaranty agency or its agent within 20 
days of the scheduled due date.
    (3) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary, full monthly payments under an 
agreement to rehabilitate a defaulted loan but does not receive 
additional title IV assistance prior to defaulting on that loan again.
* * * * *


Sec.  682.201  [Amended]

0
19. Section 682.201 is amended by:
0
A. In paragraph (a) introductory text, removing the words ``made under 
Sec.  682.209(e) or (f)''.
0
B. In paragraph (a)(4)(ii) introductory text, adding the words 
``paragraph (a)(4) of'' between the words ``of'' and ``this''.
0
C. In paragraph (a)(6) introductory text, removing the word ``student'' 
and adding, in its place, the word ``borrower''.
0
D. In paragraph (c)(2)(i), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.

0
20. Section 682.202 is amended by:
0
A. Revising paragraphs (a)(1)(i), (a)(1)(ii) introductory text, 
(a)(1)(iii), (a)(1)(iv), (a)(1)(v), and (a)(1)(vi) introductory text.
0
B. In paragraph (a)(1)(vii) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
C. In paragraph (a)(1)(viii) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
D. In paragraph (a)(1)(ix), removing the first occurrence of the word 
``is'' and adding, in its place, the word ``was''.
0
E. In paragraph (a)(1)(x) introductory text, removing the word ``is'' 
and adding, in its place, the word ``was''.
0
F. Removing paragraphs (a)(1)(x)(D) and (a)(1)(x)(E).
0
G. In paragraph (a)(2)(ii) introductory text, removing the words ``loan 
made

[[Page 65808]]

under Sec.  682.209(e) or (f)'' and adding, in their place, the words 
``refinanced PLUS loan''.
0
H. In paragraph (a)(2)(iv) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
I. In paragraph (a)(2)(v) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
J. In paragraph (a)(3)(ii) introductory text, removing the words ``loan 
made under Sec.  682.209(e) or (f)'' and adding, in their place, the 
words ``refinanced SLS loan''.
0
K. In paragraph (a)(4)(iv) introductory text, adding the words ``and 
prior to July 1, 2010'' after the date ``1998'' and before the 
punctuation ``,''.
0
L. In paragraph (a)(4)(v), adding the words ``and prior to July 1, 
2010'' after the date ``1997'' and before the punctuation ``,''.
0
M. In paragraph (a)(7)(iii)(A), removing the citation ``(a)(6)(ii)'' 
and adding, in its place, the citation ``(a)(7)(i)''.
0
N. In paragraph (b)(1), adding the words ``or Federal default fees'' 
between the words ``premiums'' and ``to''.
0
O. Removing paragraph (c)(1)(vi).
0
P. Redesignating paragraph (c)(1)(vii) as paragraph (c)(1)(vi).
0
Q. In paragraphs (c)(5), (c)(6), and the introductory text of paragraph 
(c)(7), removing the word ``Shall'' and adding, in its place, the words 
``A lender must''.
0
R. In paragraph (c)(7)(iv), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
S. In paragraph (d)(2), removing the words ``, other than an SLS or 
PLUS loan refinanced under Sec.  682.209(e) or (f)'' and adding, in 
their place, the words ``and prior to July 1, 2010''.
0
T. Removing paragraph (e).
0
U. Redesignating paragraphs (f) through (h) as paragraphs (e) through 
(g), respectively.
0
V. In newly redesignated paragraph (e)(1), removing the citation 
``(f)(2)'' and adding, in its place, the citation ``(e)(2)''.
0
W. In newly redesignated paragraph (f)(1)(i), removing ``Attorney's'' 
and adding, in its place, ``Attorney''.
0
X. In newly redesignated paragraph (f)(2), removing the citation 
``(g)(1)'' and adding, in its place, the citation ``(f)(1)''.
    The revisions read as follows:


Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (1) * * *
    (i) For loans made prior to July 1, 1994, if the borrower, on the 
date the promissory note evidencing the loan was signed, had an 
outstanding balance of principal or interest on a previous Stafford 
loan, the interest rate is the applicable interest rate on that 
previous Stafford loan.
    (ii) If the borrower, on the date the promissory note evidencing 
the loan was signed, had no outstanding balance on any FFEL Program 
loan, and the first disbursement was made--
* * * * *
    (iii) For a Stafford loan for which the first disbursement was made 
before October 1, 1992--
    (A) If the borrower, on the date the promissory note was signed, 
had no outstanding balance on a Stafford loan but had an outstanding 
balance of principal or interest on a PLUS or SLS loan made for a 
period of enrollment beginning before July 1, 1988, or on a 
Consolidation loan that repaid a loan made for a period of enrollment 
beginning before July 1, 1988, the interest rate is 8 percent; or
    (B) If the borrower, on the date the promissory note evidencing the 
loan was signed, had an outstanding balance of principal or interest on 
a PLUS or SLS loan made for a period of enrollment beginning on or 
after July 1, 1988, or on a Consolidation loan that repaid a loan made 
for a period of enrollment beginning on or after July 1, 1988, the 
interest rate is 8 percent until 48 months elapse after the repayment 
period begins, and 10 percent thereafter.
    (iv) For a Stafford loan for which the first disbursement was made 
on or after October 1, 1992, but before December 20, 1993, if the 
borrower, on the date the promissory note evidencing the loan was 
signed, had no outstanding balance on a Stafford loan but had an 
outstanding balance of principal or interest on a PLUS, SLS, or 
Consolidation loan, the interest rate is 8 percent.
    (v) For a Stafford loan for which the first disbursement was made 
on or after December 20, 1993 and prior to July 1, 1994, if the 
borrower, on the date the promissory note was signed, had no 
outstanding balance on a Stafford loan but had an outstanding balance 
of principal or interest on a PLUS, SLS, or Consolidation loan, the 
interest rate is the rate provided in paragraph (a)(1)(ii)(B) of this 
section.
    (vi) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1994 and prior to July 1, 1995, for a period of 
enrollment that included or began on or after July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
* * * * *

0
21. Section 682.204 is amended by:
0
A. In paragraph (a) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
B. In paragraphs (a)(1)(i) and (a)(1)(ii), removing the words ``$2,625, 
or, for a loan disbursed on or after July 1, 2007, $3,500,'' and 
adding, in their place, the figure ``$3,500''.
0
C. Revising paragraph (a)(1)(iii).
0
D. In paragraph (a)(2) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
E. In paragraphs (a)(2)(i) and (a)(2)(ii), removing the words ``$3,500, 
or, for a loan disbursed on or after July 1, 2007, $4,500,'' and 
adding, in their place, the figure ``$4,500''.
0
F. In paragraph (a)(3) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
G. Revising paragraph (a)(5).
0
H. In paragraph (a)(6) introductory text and paragraph (a)(7), removing 
the words ``Federal Direct Stafford/Ford'' and adding, in their place, 
the words ``Direct Subsidized''.
0
I. In paragraph (b) introductory text, removing the words ``Federal 
Direct Stafford/Ford'', and adding, in their place, the words ``Direct 
Subsidized''.
0
J. Revising paragraph (c)(1).
0
K. Revising paragraph (c)(2).
0
L. In paragraph (d) introductory text, removing the word ``additional'' 
that appears after the word ``borrow''.
0
M. In paragraph (d) introductory text, removing the words ``Federal 
Direct Unsubsidized Stafford/Ford'' and adding, in their place, the 
words ``Direct Unsubsidized''.
0
N. In paragraphs (d)(1)(i), (d)(1)(ii), (d)(2)(i), and (d)(2)(ii), 
removing the words ``$4,000, or, for a loan first disbursed on or after 
July 1, 2008, $6,000,'' and adding, in their place, the figure 
``$6,000''.
0
O. Revising paragraph (d)(1)(iii).
0
P. In paragraphs (d)(3)(i) and (d)(3)(ii), removing the words ``$5,000, 
or, for a loan first disbursed on or after July 1, 2008, $7,000,'' and 
adding, in their place, the figure ``$7,000''.
0
Q. In paragraph (d)(5), removing the words ``$10,000, or, for a loan 
disbursed on or after July 1, 2007,''.
0
R. In paragraph (d)(6)(i), removing the words ``$4,000, or, for a loan 
first disbursed on or after July 1, 2008, $6,000,'' and adding, in 
their place, the figure ``$6,000''.
0
S. In paragraph (d)(6)(ii), removing the words ``$5,000, or, for a loan 
disbursed on or after July 1, 2007, $7,000,'' and

[[Page 65809]]

adding, in their place, the figure ``$7,000''.
0
T. In paragraph (d)(6)(iii), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007,''.
0
U. Revising paragraph (e).
0
V. Removing paragraph (f).
0
W. Redesignating paragraphs (g) through (m) as paragraphs (f) through 
(l), respectively.
0
X. In newly redesignated paragraph (l), removing the citation ``(d), 
(e), and (f)'' and adding, in its place, the citation ``(d), and (e)''.
    The revisions read as follows:


Sec.  682.204  Maximum loan amounts.

    (a) * * *
    (1) * * *
    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.000

* * * * *
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for loans made prior to July 1, 2010 for 
any academic year of study under the Stafford Loan Program, in 
combination with any amount borrowed under the Direct Subsidized Loan 
Program, may not exceed $8,500.
* * * * *
    (c) * * *
    (1) Except for a dependent undergraduate student who qualifies for 
additional Unsubsidized Stafford Loan funds because the student's 
parents are unable to borrow under the PLUS Loan Program, as described 
in paragraph (d) of this section, the total amount the dependent 
undergraduate student may borrow for any academic year under the 
Unsubsidized Stafford Loan Program in combination with the Direct 
Unsubsidized Loan Program is the same amount determined under paragraph 
(a) of this section, less any amount received under the Stafford Loan 
Program or the Direct Subsidized Loan program, plus--
    (i) $2,000, for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is at least one academic year or 
more in length with less than a full academic year remaining, the 
amount that is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.001

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--

[[Page 65810]]

[GRAPHIC] [TIFF OMITTED] TR01NO13.002

    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in Sec.  682.201(a)(3), the total amount 
the student may borrow for any period of enrollment under the 
Unsubsidized Stafford Loan and Direct Unsubsidized Loan programs may 
not exceed the amounts determined under paragraph (a) of this section 
less any amount received under the Federal Stafford Loan Program or the 
Direct Subsidized Loan Program, in combination with the amounts 
determined under paragraph (d) of this section.
    (d) * * *
    (1) * * *
    (iii) For a program of study that is less than a full academic year 
in length, an amount that is the same ratio to $6,000 as the lesser 
of--
[GRAPHIC] [TIFF OMITTED] TR01NO13.003

* * * * *
    (e) Combined Federal Stafford, SLS and Federal Unsubsidized 
Stafford Loan Program aggregate limits. The aggregate unpaid principal 
amount of Stafford Loans, Direct Subsidized Loans, Unsubsidized 
Stafford Loans, Direct Unsubsidized Loans and SLS Loans, but excluding 
the amount of capitalized interest, may not exceed the following:
    (1) $31,000 for a dependent undergraduate student.
    (2) $57,500 for an independent undergraduate student or a dependent 
undergraduate student under the conditions specified in Sec.  
682.201(a)(3).
    (3) $138,500 for a graduate or professional student.
* * * * *

0
22. Section 682.205 is amended by:
0
A. Removing paragraphs (a), (b), (g), and (i).
0
B. Redesignating paragraphs (c), (d), (e), (f), (h), and (j) as 
paragraphs (a), (b), (c), (d), (e), and (f), respectively.
0
C. In newly redesignated paragraph (a)(1), removing the citation 
``(c)(2)'' and adding, in its place, the citation ``(a)(2)''.
0
D. In newly redesignated paragraph (a)(3) introductory text, removing 
the citation ``(c)(1)'' and adding, in its place, the citation 
``(a)(1)''.
0
E. Revising newly redesignated paragraph (a)(4).
0
F. In newly redesignated paragraph (a)(5)(ii), adding the word 
``business'' after the word ``five''.
0
G. In newly redesignated paragraph (b), removing the citation 
``(c)(2)(viii)'' and adding, in its place, the citation 
``(a)(2)(viii)''.
0
H. In newly redesignated paragraph (e)(2), removing the citation 
``(h)(1)'' and adding, in its place, the citation ``(e)(1)''.
    The revision reads as follows:


Sec.  682.205  Disclosure requirements for lenders.

    (a) * * *
    (4) Required disclosures for borrowers having difficulty making 
payments. (i) Except as provided in paragraph (a)(4)(ii) of this 
section, the lender must

[[Page 65811]]

provide a borrower who has notified the lender that he or she is having 
difficulty making payments with--
    (A) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;
    (B) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (C) A description of the options available to the borrower to avoid 
default and any fees or costs associated with those options.
    (ii) A disclosure under paragraph (a)(4)(i) of this section is not 
required if the borrower's difficulty has been resolved through contact 
with the borrower resulting from an earlier disclosure or other 
communication between the lender and the borrower.
* * * * *


Sec.  682.206  [Removed and Reserved]

0
23. Section 682.206 is removed and reserved.


Sec.  682.207  [Removed and Reserved]

0
24. Section 682.207 is removed and reserved.


Sec.  682.208  [Amended]

0
25. Section 682.208 is amended by:
0
A. In paragraph (a), removing the words ``national credit bureaus'' and 
adding, in their place, the words ``nationwide consumer reporting 
agencies''.
0
B. In paragraph (b)(1) introductory text, removing the words ``at least 
one national credit bureau'' and adding, in their place, the words 
``each nationwide consumer reporting agency''.
0
C. In paragraph (b)(2), removing the words ``at least one national 
credit bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
D. In paragraph (b)(3) introductory text, removing both occurrences of 
the words ``credit bureau'' and adding, in their place, the words 
``consumer reporting agency''.
0
E. In paragraph (b)(3)(i)(A), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
F. In paragraph (e)(3), removing the citation ``Sec.  
682.401(b)(17)(ii)'' and adding, in its place, the citation ``Sec.  
682.401(b)(8)(ii)''.
0
G. In paragraph (g), removing the citation ``Sec.  682.411(g)'' and 
adding, in its place, the citation ``Sec.  682.411(h)''.

0
26. Section 682.209 is amended by:
0
A. In paragraph (a)(3)(i)(B), removing the word ``and''.
0
B. In paragraph (a)(3)(i)(C), removing the punctuation ``.'' and 
adding, in its place, the punctuation and the word ``; and''.
0
C. Adding a new paragraph (a)(3)(i)(D).
0
D. In paragraph (a)(3)(ii)(E), removing the citation ``Sec.  
682.205(c)(1)'' and adding, in its place, the citation ``Sec.  
682.205(a)(1)''.
0
E. In paragraph (b)(2)(ii), revising the last sentence.
0
F. Removing paragraphs (e), (f), (g), and (j).
0
G. Redesignating paragraphs (h), (i), and (k) as paragraphs (e), (f), 
and (g), respectively.
0
H. In newly redesignated paragraph (e)(3) introductory text, removing 
the citation ``(h)(2)'' and adding, in its place, the citation 
``(e)(2)''.
0
I. In newly redesignated paragraph (e)(4)(ii), removing the word 
``Must'' and adding, in its place, the words ``Except in the case of an 
income-based repayment schedule, must''.
0
J. In newly redesignated paragraph (e)(5), removing the citation 
``(h)(2)'' and adding, in its place, the citation ``(e)(2)''.
0
K. In newly redesignated paragraph (f)(2)(i), removing the words 
``under Sec.  682.209(f)''.
0
L. In newly redesignated paragraph (f)(2)(ii), removing the citation 
``(i)(2)(i)'' and adding, in its place, the citation ``(f)(2)(i)''.
    The addition and revision read as follows:


Sec.  682.209  Repayment of a loan.

    (a) * * *
    (3) * * *
    (i) * * *
    (D) For a borrower with a loan for which the applicable interest 
rate is fixed at 6.0 percent per year, 5.6 percent per year, or 6.8 
percent per year, the day after 6 months following the date on which 
the borrower is no longer enrolled on at least a half-time basis at an 
institution of higher education.
* * * * *
    (b) * * *
    (2) * * *
    (ii) * * * Information related to next scheduled payment due date 
need not be provided to borrowers making such prepayments while in an 
in-school, grace, deferment, or forbearance period when payments are 
not due.
* * * * *

0
27. Section 682.210 is amended by:
0
A. In paragraph (a)(4), adding the words and punctuation ``, or the 
borrower's representative for purposes of paragraphs (i) and (t) of 
this section,'' between the words ``borrower'' and ``must''.
0
B. Revising paragraph (b).
0
C. In paragraph (n)(1) introductory text, removing the words and 
citations ``paragraphs (b)(2)(v) or (b)(5)(iii)'' and adding, in their 
place, the word and citation ``paragraph (b)(3)(iv)''.
0
D. In paragraph (n)(2), removing the citation ``(b)(2)(v)'' and adding, 
in its place, the citation ``(b)(3)(iv)''.
0
E. In paragraph (o)(1) introductory text, removing the citation 
``(b)(3)'' and adding, in its place, the citation ``(b)(3)(i)''.
0
F. In paragraph (q)(1) introductory text, removing the citation 
``(b)(5)(ii)'' and adding, in its place, the citation ``(b)(3)(iii)''.
0
G. In paragraph (r)(1) introductory text, removing the citation 
``(b)(5)(iv)'' and adding, in its place, the citation ``(b)(3)(v)''.
0
H. In paragraph (s)(2), removing the punctuation and the words ``, 
except that the borrower is not required to obtain a Stafford or SLS 
loan for the period of enrollment covered by the deferment''.
0
I. In paragraph (s)(6) introductory text, removing both occurrences of 
the citation ``(s)(6)(vi)'' and adding, in their place, the citation 
``(s)(6)(iv)''.
0
J. In paragraph (u)(5), removing both occurrences of the words 
``military active'' and adding, in their place, the words ``post-
active''.
    The revision reads as follows:


Sec.  682.210  Deferment.

* * * * *
    (b) Authorized deferments for borrowers prior to July 1, 1993--(1) 
For all borrowers who are not new borrowers on or after July 1, 1993. 
Deferment is authorized for a FFEL borrower during any period when the 
borrower is--
    (i) Except as provided in paragraph (b)(4) of this section, engaged 
in full-time study at a school in accordance with paragraph (c) of this 
section;
    (ii) Engaged in a course of study under an eligible graduate 
fellowship program in accordance with paragraph (d) of this section;
    (iii) Engaged in a rehabilitation training program for disabled 
individuals in accordance with paragraph (e) of this section;
    (iv) Temporarily totally disabled in accordance with paragraph (f) 
of this section, or unable to secure employment because the borrower is 
caring for a spouse or other dependent who is disabled and requires 
continuous nursing or similar services for up to three years in 
accordance with paragraph (g) of this section; or
    (v) Conscientiously seeking, but unable to find, full-time 
employment in the United States, for up to two years,

[[Page 65812]]

in accordance with paragraph (h) of this section.
    (2) For all Stafford and SLS borrowers who are not new borrowers on 
or after July 1, 1993, and for parent PLUS loans made before August 15, 
1983. Deferment is authorized during any period when the borrower is--
    (i) On active duty status in the United States Armed Forces in 
accordance with paragraph (i) of this section, or an officer in the 
Commissioned Corps of the United States Public Health Service in 
accordance with paragraph (j) of this section, for up to three years 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(3)(ii) of this section);
    (ii) A full-time volunteer under the Peace Corps Act, for up to 
three years, in accordance with paragraph (k) of this section;
    (iii) A full-time volunteer under title I of the Domestic Volunteer 
Service Act of 1973 (ACTION programs), for up to three years, in 
accordance with paragraph (l) of this section;
    (iv) A full-time volunteer for a tax-exempt organization, for up to 
three years, in accordance with paragraph (m) of this section; or
    (v) Engaged in an internship or residency program, in accordance 
with paragraph (n) of this section, for up to two years (including any 
period during which the borrower received a deferment authorized under 
paragraph (b)(3)(iv) of this section).
    (3) For new Stafford or SLS borrowers on or after July 1, 1987 but 
before July 1, 1993. Deferment is authorized--
    (i) In accordance with paragraph (o) of this section, if the 
borrower has been enrolled on at least a half-time basis at an 
institution of higher education during the six months preceding the 
beginning of the deferment, for a period of up to six months during 
which the borrower is--
    (A)(1) Pregnant;
    (2) Caring for his or her newborn child; or
    (3) Caring for a child immediately following the placement of the 
child with the borrower before or immediately following adoption; and
    (B) Not attending a school or gainfully employed;
    (ii) During a period when the borrower is on active duty status in 
the National Oceanic and Atmospheric Administration Corps, for up to 
three years, in accordance with paragraph (p) of this section, 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(2)(i) of this section);
    (iii) During a period of up to three years when the borrower is 
serving as a full-time teacher in a public or non-profit private 
elementary or secondary school in a teacher shortage area designated by 
the Secretary under paragraph (q) of this section;
    (iv) During a period when the borrower is engaged in an internship 
or residency program, for up to two years, in accordance with paragraph 
(n) of this section, (including any period during which the borrower 
received a deferment authorized under paragraph (b)(2)(v) of this 
section); or
    (v) When a mother who has preschool-age children (i.e., children 
who have not enrolled in first grade) and who is earning not more than 
$1 per hour above the Federal minimum wage, for up to 12 months of 
employment, and who began that full-time employment within one year of 
entering or re-entering the work force, in accordance with paragraph 
(r) of this section. Full-time employment involves at least 30 hours of 
work a week and it is expected to last at least 3 months.
    (4) For new Stafford or SLS borrowers on or after July 1, 1987. 
Deferment is authorized during periods when the borrower is engaged in 
at least half-time study at a school in accordance with paragraph (b) 
of this section.
    (5) For new parent PLUS borrowers on or after July 1, 1987 and 
before July 1, 1993. Deferment is authorized during any period when a 
student on whose behalf the parent borrower received the loan--
    (i) Is not independent as defined in section 480(d) of the Act; and
    (ii) Meets the conditions and provides the required documentation, 
for any of the deferments described in paragraphs (b)(1)(i) through 
(iii) and (b)(4) of this section.
    (6) Definition of a new borrower. For purposes of paragraphs 
(b)(3), (b)(4), and (b)(5) of this section, a ``new borrower'' with 
respect to a loan is a borrower who, on the date he or she signs the 
promissory note, has no outstanding balance on--
    (i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a 
period of enrollment beginning prior to July 1, 1987; or
    (ii) A Consolidation loan that repaid a loan made prior to July 1, 
1987 and for a period of enrollment beginning prior to July 1, 1987.
* * * * *

0
28. Section 682.211 is amended by:
0
A. In paragraph (a)(4), removing the citation ``(f)(10)'' and adding, 
in its place, the citation ``(f)(11)''.
0
B. Revising paragraphs (c) and (d).
0
C. In paragraph (f)(2), removing the words ``or an administrative 
forbearance period as specified under paragraph (f)(11) or (i)(2) of 
this section;'' and adding, in their place, the words ``or an 
authorized period of forbearance;''.
0
D. In paragraph (f)(6), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
E. In paragraph (h)(2)(ii)(B), removing the words ``10 U.S.C. 2171; 
or'' and adding, in their place, the words ``10 U.S.C. 2171, 2173, 2174 
or any other student loan repayment programs administered by the 
Department of Defense; or''.
0
F. In paragraph (h)(2)(ii)(C), removing the citation ``Sec.  682.215'' 
and adding, in its place, the citation ``Sec.  682.216''.
0
G. In paragraph (h)(4)(iii)(A), removing the citation ``Sec.  
682.215(c)'' and adding, in its place the citation ``Sec.  
682.216(c)''.
0
H. In paragraph (h)(4)(iii)(B), removing the citation ``Sec.  
682.215(c)'' and adding, in its place the citation ``Sec.  
682.216(c)''.
    The revisions read as follows:


Sec.  682.211  Forbearance.

* * * * *
    (c) Except as provided in paragraph (d)(2) of this section, a 
lender may grant forbearance for a period of up to one year at a time 
if both the borrower or endorser and an authorized official of the 
lender agree to the terms of the forbearance. If the borrower or 
endorser requests the forbearance orally and the lender and the 
borrower or endorser agree to the terms of the forbearance orally, the 
lender must notify the borrower or endorser of the terms within 30 days 
of that agreement.
    (d)(1) A guaranty agency may authorize a lender to grant 
forbearance to permit a borrower or endorser to resume honoring the 
agreement to repay the debt after default but prior to claim payment. 
The forbearance agreement in this situation must include a new 
agreement to repay the debt signed by the borrower or endorser or a 
written or oral affirmation of the borrower's or endorser's obligation 
to repay the debt.
    (2) If the forbearance is based on the borrower's or endorser's 
oral request and affirmation of the obligation to repay the debt--
    (i) The forbearance period is limited to a period of 120 days;
    (ii) Such a forbearance cannot be granted consecutively;
    (iii) The lender must orally review with the borrower the terms and 
conditions of the forbearance, including the consequences of interest 
capitalization, and all other repayment options available to the 
borrower; and
    (iv) The lender must--

[[Page 65813]]

    (A) Send a notice to the borrower or endorser, as provided in 
paragraph (c) of this section, that confirms the terms of the 
forbearance and the borrower's or endorser's affirmation of the 
obligation to repay the debt, and includes information on all other 
repayment options available to the borrower, and
    (B) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (3) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (i) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (ii) Oral acknowledgment and agreement to repay the debt documented 
by the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or
    (iii) A payment made on the loan by the borrower or endorser.
* * * * *


Sec.  682.214  [Removed and Reserved]

0
29. Section 682.214 is removed and reserved.
0
30. Section 682.216 is amended by:
0
A. In paragraph (a)(2)(iii), removing the first occurrence of the word 
``at'' and adding, in its place, the word ``for''.
0
B. In paragraph (a)(4)(i), removing the second occurrence of the word 
``at'' and adding, in its place, the word ``for''.
0
C. In paragraph (c)(1) introductory text, removing the words ``at an 
educational'' and adding, in their place, the words ``for an 
educational''.
0
D. In paragraph (c)(1)(iii), removing the final sentence.
0
E. Redesignating paragraphs (c)(2) through (c)(11) as paragraphs (c)(3) 
through (c)(12), respectively.
0
F. Adding a new paragraph (c)(2).
0
G. In newly redesignated paragraph (c)(4)(ii)(A), removing the words 
``at an eligible educational'' and adding, in their place, the words 
``for an eligible educational''.
0
H. In newly redesignated paragraph (c)(4)(ii)(B), adding the words 
``for an'' immediately before the words ``educational service agency''.
0
I. In newly redesignated paragraph (c)(4)(iii), removing the first 
occurrence of the word ``at'' and adding, in its place, the word 
``for''.
0
J. In newly redesignated paragraph (c)(5)(i), adding the words ``for 
an'' immediately before the words ``educational service''.
0
K. In newly redesignated paragraph (c)(5)(ii)(A), removing the words 
``students at an eligible'' and adding, in their place, the words 
``students for an eligible''.
0
L. In newly redesignated paragraph (c)(5)(ii)(B), adding the words 
``for an'' immediately before the words ``educational service''.
0
M. In newly redesignated paragraph (c)(5)(iii), removing the first 
occurrence of the word ``at'' and adding, in its place the word 
``for''.
0
N. In newly redesignated paragraph (c)(10), removing the second 
occurrence of the word ``at'' and adding, in its place, the word 
``for''.
0
O. In paragraphs (d)(1) and (d)(2), removing the words and citations 
``paragraphs (c)(3)(ii) or (c)(4)(ii)'' and adding, in their place, the 
words and citations ``paragraph (c)(4)(ii) or (c)(5)(ii)''.
0
P. In the heading of paragraph (e), removing the word ``discharge'' and 
adding in its place, the word ``forgiveness''.
0
Q. In paragraph (e)(1)(i), removing the citation ``(h)(3)(iii)'' and 
adding, in its place, the citation ``(h)(4)(iii)''.
0
R. In paragraph (e)(1)(iii), removing the word ``discharge'' and 
adding, in its place, the word ``forgiveness''.
0
S. Revising paragraphs (f)(2)(i) and (f)(2)(ii).
0
T. In paragraph (f)(2)(iii), removing both occurrences of the word 
``discharged'' and adding, in their place, the words ``loan 
forgiveness''.
0
U. In paragraph (f)(3)(ii), removing both occurrences of the word 
``discharge'' and adding, in their place, the words ``loan 
forgiveness''.
0
V. In paragraph (f)(4), removing both occurrences of the word 
``discharge'' and adding, in their place, the words ``loan 
forgiveness''.
0
W. In paragraph (f)(5), removing the word ``discharge''.
0
X. Revising paragraph (g).
    The additions and revisions read as follows:


Sec.  682.216  Teacher loan forgiveness program.

* * * * *
    (c) * * *
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
* * * * *
    (f) * * *
    (2) * * *
    (i) The holder must file a request for payment with the guaranty 
agency on a teacher loan forgiveness amount no later than 60 days after 
the receipt, from the borrower, of a completed teacher loan forgiveness 
application.
    (ii) When filing a request for payment on a teacher loan 
forgiveness, the holder must provide the guaranty agency with the 
completed loan forgiveness application submitted by the borrower and 
any required supporting documentation.
* * * * *
    (g) Claims for reimbursement from the Secretary on loans held by 
guaranty agencies. In the case of a teacher loan forgiveness applied to 
a defaulted loan held by the guaranty agency, the Secretary pays the 
guaranty agency a percentage of the amount forgiven that is equal to 
the complement of the reinsurance percentage paid on the loan. The 
payment of up to $5,000, or up to $17,500, may also include interest 
that accrues on the forgiveness amount during the period from the date 
on which the guaranty agency received payment from the Secretary on a 
default claim to the date on which the guaranty agency determines that 
the borrower is eligible for the teacher loan forgiveness.
* * * * *


Sec.  682.300  [Amended]

0
31. Section 682.300 is amended by:
0
A. In paragraph (b)(2)(ii) introductory text, removing the words ``, 
except as provided in paragraph (c)(4) of this section''.
0
B. In paragraph (b)(2)(ii)(B), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
C. In paragraph (c)(1), adding the word ``or'' after the punctuation 
``;''.
0
D. In paragraph (c)(2), removing the punctuation ``;'' and adding, in 
its place, the punctuation ``.''.
0
E. Removing paragraphs (c)(3) and (c)(4).


Sec.  682.301  [Amended]

0
32. Section 682.301 is amended by removing paragraph (c).
0
33. Section 682.302 is amended by:
0
A. In paragraph (b)(3) introductory text, adding the words ``and prior 
to July 1, 2010'' after the date ``1992'' and before the punctuation 
``,''.
0
B. In paragraph (d)(1)(vi)(B), removing the words ``the loan proceeds 
disbursed by electronic funds transfer or master check in accordance 
with Sec.  682.207(b)(1)(ii)(B) and (C)'' and adding, in their place, 
the words ``The loan proceeds disbursed by electronic funds transfer or 
master check''.
0
C. In paragraph (d)(2) introductory text, adding the words ``and prior 
to July 1, 2010'' after the date ``1992'' and before the punctuation 
``,''.

[[Page 65814]]

0
D. In paragraph (e)(1)(i), removing the citation ``Sec.  682.800'' and 
adding, in its place, the words ``section 438(e) of the Act''.
0
E. Revising paragraph (f)(3)(viii)(B).
0
F. In paragraph (f)(3)(x)(B)(3), removing the citation ``503(c)(3)'' 
and adding, in its place, the citation ``501(c)(3)''.
    The revision reads as follows:


Sec.  682.302  Payment of special allowance on FFEL loans.

* * * * *
    (f) * * *
    (3) * * *
    (viii) * * *
    (B) Fees are reasonable and customary for purposes of paragraph 
(f)(3)(viii) of this section, if they do not exceed the amounts 
received by the trustee for similar services with regard to similar 
portfolios of loans of that State or non-profit entity or its related 
special purpose entity that are not eligible to receive special 
allowance at the rate established under paragraph (f)(2) of this 
section, or if they do not exceed an amount as determined by such other 
method requested by the State or non-profit entity that the Secretary 
considers reliable.
* * * * *


Sec.  682.305  [Amended]

0
34. Section 682.305 is amended by:
0
A. In paragraph (a)(3)(ii)(B), by adding the words ``and prior to July 
1, 2010'' after the date ``2007'' and before the punctuation ``,''.
0
B. In paragraph (c)(1)(i), removing the words ``originating or''.
0
C. Removing paragraph (c)(1)(ii).
0
D. Redesignating paragraph (c)(1)(iii) as paragraph (c)(1)(ii).
0
E. In paragraph (c)(2)(iv), adding the word ``and'' as the last word in 
the paragraph, immediately following the punctuation ``;''.
0
F. In paragraph (c)(2)(v), removing the final punctuation ``;'' and 
adding, in its place, the punctuation ``.''.
0
G. Removing paragraphs (c)(2)(vi) and (c)(2)(vii).
0
35. Section 682.400 is amended by revising paragraph (b)(1)(i) to read 
as follows:


Sec.  682.400  Agreements between a guaranty agency and the Secretary.

* * * * *
    (b) * * *
    (1) * * *
    (i) Borrowers whose Stafford or Consolidation loans are guaranteed 
by the agency may qualify for interest benefits that are paid to the 
lender on the borrower's behalf under Sec.  682.301; and
* * * * *

0
36. Section 682.401 is amended by:
0
A. Removing paragraphs (b)(1), (b)(2), and (b)(3).
0
B. Redesignating paragraph (b)(4) as paragraph (b)(1).
0
C. In newly redesignated paragraph (b)(1) introductory text, removing 
the citation ``(b)(4)'' and adding, in its place, the citation 
``(b)(1)''.
0
D. Removing paragraphs (b)(5) and (b)(6).
0
E. Redesignating paragraph (b)(7) as paragraph (b)(2).
0
F. Removing paragraphs (b)(8) and (b)(9).
0
G. Redesignating paragraphs (b)(10) and (b)(11) as paragraphs (b)(3) 
and (b)(4), respectively.
0
H. In newly redesignated paragraph (b)(3)(i) introductory text, 
removing the words ``SLS or PLUS loans refinanced under Sec.  
682.209(e) or (f)'' and adding, in their place, the words ``refinanced 
SLS or PLUS loans''.
0
I. In newly redesignated paragraph (b)(3)(iv)(C), adding the words 
``and prior to July 1, 2010'' between the date ``2006'' and the 
punctuation ``.''.
0
J. In newly redesignated paragraph (b)(3)(vi)(B)(4), removing the words 
``in accordance with Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
K. Removing paragraphs (b)(12) and (b)(13).
0
L. Redesignating paragraphs (b)(14) through (b)(29) as paragraphs 
(b)(5) through (b)(20), respectively.
0
M. In newly redesignated paragraph (b)(6), adding the words ``and N'' 
between the letter ``M'' and the word ``of''.
0
N. In newly redesignated paragraph (b)(8)(i) introductory text, 
removing the citation ``(b)(17)(iii)'' and adding, in its place, the 
citation ``(b)(8)(iii)''.
0
O. In newly redesignated paragraph (b)(8)(iii), removing the citation 
``(b)(17)(i)'' and adding, in its place, the citation ``(b)(8)(i)''.
0
P. In newly redesignated paragraph (b)(10)(i)(B), removing the words 
``School and lender'' and adding, in their place, the word ``Lender''.
0
Q. In newly redesignated paragraph (b)(10)(i)(C), removing the words 
``school and''.
0
R. In newly redesignated paragraph (b)(10)(i)(D), removing the words 
``school or''.
0
S. In newly redesignated paragraph (b)(11) introductory text, adding 
the word ``of'' between the words ``days'' and ``any''.
0
T. In newly redesignated paragraph (b)(14)(ii), removing the citation 
``(b)(23)(i)'' and adding, in its place, the citation ``(b)(14)(i)''.
0
U. In newly redesignated paragraph (b)(18)(i), removing the word 
``Federal'' and adding, in its place, the word ``Direct''.
0
V. Removing newly redesignated paragraph (b)(18)(ii).
0
W. Further redesignating newly redesignated paragraphs (b)(18)(iii) 
through (v) as paragraphs (b)(18)(ii) through (iv), respectively.
0
X. Revising newly redesignated paragraph (b)(18)(iii).
0
Y. Removing paragraph (c).
0
Z. Redesignating paragraph (d) as paragraph (c).
0
AA. In newly redesignated paragraph (c)(2), removing the citation 
``(d)(1)'' and adding, in its place, the citation ``(c)(1)''.
0
BB. In newly redesignated paragraph (c)(3), adding a final sentence to 
the end of the paragraph.
0
CC. Removing newly redesignated paragraph (c)(4).
0
DD. Further redesignating newly redesignated paragraphs (c)(5) and 
(c)(6) as paragraphs (c)(4) and (c)(5), respectively.
0
EE. Removing paragraph (e).
0
FF. Redesignating paragraphs (f) and (g) as paragraphs (d) and (e), 
respectively.
0
GG. In newly redesignated paragraph (d)(2), removing the word ``HEA'' 
and adding, in its place, the word ``Act''.
0
HH. In newly redesignated paragraph (e)(1), removing the word 
``participate'' and adding, in its place, the word ``participated''.
0
II. In newly redesignated paragraph (e)(2), removing the citation 
``(g)(1)'' and adding, in its place, the citation ``(e)(1)''.
0
JJ. In newly redesignated paragraph (e)(4), removing the citation 
``(g)(1)'' and adding, in its place, the citation ``(e)(1)''.
    The revision and addition read as follows:


Sec.  682.401  Basic program agreement.

* * * * *
    (b) * * *
    (18) * * *
    (iii) On or after October 1, 2009, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan that is paid off 
with excess consolidation proceeds as defined in paragraph (b)(18)(iv) 
of this section, a guaranty agency must remit the entire amount of 
collection costs repaid through the consolidation loan.
* * * * *
    (c) * * *
    (3) * * * Each loan made under an MPN is enforceable in accordance 
with the terms of the MPN and is eligible for claim payment based on a 
true and exact copy of such MPN.
* * * * *

0
37. Section 682.402 is amended by:
0
A. In paragraph (a)(5)(ii), removing the words ``credit bureau'' and 
adding,

[[Page 65815]]

in their place, the words ``consumer reporting agency''.
0
B. Revising paragraph (d)(1)(i).
0
C. In paragraph (d)(3)(ii)(B), by removing the figure ``90'' and 
adding, in its place, the figure ``120''.
0
D. In paragraphs (d)(6)(i)(C), (d)(6)(i)(D) introductory text, 
(d)(6)(i)(D)(2), (d)(6)(i)(H)(3), (d)(6)(ii)(B) introductory text, 
(d)(6)(ii)(B)(2), and (d)(6)(ii)(F)(3), by removing the figure ``90'' 
each time it appears and adding, in its place, the figure ``120''.
0
E. In paragraph (d)(7)(iv), removing the words ``credit bureaus'' and 
adding, in their place, the words ``consumer reporting agencies''.
0
F. In paragraph (d)(8)(i), removing the citation ``34 CFR 685.213'' and 
adding, in its place, the citation ``34 CFR 685.214''.
0
G. In paragraph (e)(3) introductory text, removing the citation 
``(e)(14)'' and adding, in its place, the citation ``(e)(15)''.
0
H. In paragraph (e)(3)(v)(C), removing the word ``identify'' and 
adding, in its place, the word ``identity''.
0
I. In paragraph (e)(12)(v) introductory text, removing the words 
``credit bureaus'' and adding, in their place, the words ``consumer 
reporting agencies''.
0
J. In paragraphs (l)(1), (l)(2)(ii), and (l)(3)(i), adding the words 
``or Federal default fees'' between the word ``premiums'' and the 
punctuation '')''.
0
K. In paragraph (n)(2), adding the words ``or Federal default fees'' 
between the word ``premiums'' and the punctuation '')''.
    The revision reads as follows:


Sec.  682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

* * * * *
    (d) * * *
    (1) * * *
    (i) The Secretary reimburses the holder of a loan received by a 
borrower on or after January 1, 1986, and discharges the borrower's 
obligation with respect to the loan in accordance with the provisions 
of paragraph (d) of this section, if the borrower (or the student for 
whom a parent received a PLUS loan) could not complete the program of 
study for which the loan was intended because the school at which the 
borrower (or student) was enrolled closed, or the borrower (or student) 
withdrew from the school not more than 120 days prior to the date the 
school closed. The Secretary may extend the 120-day period if the 
Secretary determines that exceptional circumstances related to a 
school's closing justify an extension. Exceptional circumstances for 
this purpose may include, but are not limited to: the school's loss of 
accreditation; the school's discontinuation of the majority of its 
academic programs; action by the State to revoke the school's license 
to operate or award academic credentials in the State; or a finding by 
a State or Federal government agency that the school violated State or 
Federal law.
* * * * *


Sec.  682.403  [Removed and Reserved]

0
38. Section 682.403 is removed and reserved.
0
39. Section 682.404 is amended by:
0
A. Revising paragraph (b)(3)(ii).
0
B. In paragraph (b)(3)(iii), adding the word ``or'' after the 
punctuation ``;''.
0
C. In paragraph (b)(4)(ii)(G)(2), removing the words ``is consistent 
with Sec.  682.509(a)(1)'' and adding, in their place, the words 
``addresses the condition identified in paragraph (b)(3)(ii) of this 
section''.
0
D. In paragraph (d)(1) introductory text, removing the words ``made 
under Sec.  682.209(e), (f) and (h),'' and adding, in their place the 
words ``that were refinanced pursuant to section 428B(e)(2) and (3) of 
the Act,''.
0
E. Removing paragraph (h).
0
F. Redesignating paragraphs (i) through (l) as paragraphs (h) through 
(k), respectively.
0
G. In newly redesignated paragraph (j)(3)(i), removing the 
parenthetical ``(k)(2)(i)'' and adding, in its place, the parenthetical 
``(j)(2)(i)''.
0
H. In newly redesignated paragraph (j)(3)(ii), removing the citation 
``(k)(2)(ii)'' and adding, in its place, the citation ``(j)(2)(ii)''.
    The revision reads as follows:


Sec.  682.404  Federal reinsurance agreement.

* * * * *
    (b) * * *
    (3) * * *
    (ii) Under a policy established by the agency that addresses 
instances in which, for a non-school originated loan, a lender learns 
that the school terminated its teaching activities while a student was 
enrolled during the academic period covered by the loan;
* * * * *

0
40. Section 682.405 is amended by:
0
A. In the introductory text of paragraph (a)(2)(i), adding the word 
``qualifying'' between the words ``ten'' and ``payments''.
0
B. Revising the introductory text of paragraph (a)(2)(i)(A).
0
C. Redesignating paragraph (a)(3) as paragraph (a)(4).
0
D. Adding a new paragraph (a)(3).
0
E. Revising paragraph (b)(1).
    The revisions and addition read as follows:


Sec.  682.405  Loan rehabilitation agreement.

    (a) * * *
    (2) * * *
    (i) * * *
    (A) A qualifying payment is--
* * * * *
    (3)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the guaranty 
agency must continue collecting the loan by administrative wage 
garnishment until the borrower makes five qualifying monthly payments 
under the rehabilitation agreement, unless the guaranty agency is 
otherwise precluded from doing so under Sec.  682.410(b)(9).
    (ii) After the borrower makes the fifth qualifying monthly payment, 
the guaranty agency must, unless otherwise directed by the borrower, 
suspend the garnishment order issued to the borrower's employer.
    (iii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
* * * * *
    (b) * * *
    (1) A borrower may request rehabilitation of the borrower's 
defaulted loan held by the guaranty agency. In order to be eligible for 
rehabilitation of the loan, the borrower must voluntarily make at least 
9 of the 10 payments required under a monthly repayment agreement.
    (i) Each payment must be--
    (A) Made voluntarily;
    (B) For the full amount required;
    (C) Received within 20 days of the due date for the payment; and
    (D) Reasonable and affordable.
    (ii) All 9 payments must be received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month.
    (iii) The guaranty agency initially considers the borrower's 
reasonable and affordable payment amount to be an amount equal to 15 
percent of the amount by which the borrower's Adjusted Gross Income 
(AGI) exceeds 150 percent of the poverty guideline amount applicable to 
the borrower's family size and State, divided by 12, except that if 
this amount is less than $5, the borrower's monthly rehabilitation 
payment is $5.
    (iv) The guaranty agency or its agents may calculate the payment 
amount based on information provided orally by the borrower or the 
borrower's representative and provide the borrower

[[Page 65816]]

with a rehabilitation agreement using that amount. The guaranty agency 
must request documentation from the borrower to confirm the borrower's 
AGI and family size. If the borrower does not provide the guaranty 
agency or its agents with any documentation requested by the guaranty 
agency to calculate or confirm the reasonable and affordable payment 
amount, within a reasonable time deadline set by the guaranty agency or 
its agent, the rehabilitation agreement provided is null and void.
    (v) The reasonable and affordable payment amount calculated under 
this section must not be--
    (A) A required minimum loan payment amount (e.g., $50) if the 
agency determines that a smaller amount is reasonable and affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (vi) Within 15 business days of its determination of the borrower's 
loan rehabilitation payment amount, the guaranty agency must provide 
the borrower with a written rehabilitation agreement which includes the 
borrower's payment amount calculated under paragraph (b)(1)(iii), a 
prominent statement that the borrower may object orally or in writing 
to the payment amount, with the method and timeframe for raising such 
an objection, and an explanation of any other terms and conditions 
applicable to the required series of payments that must be made before 
the borrower's account can be considered for repurchase by an eligible 
lender (i.e., rehabilitated). To accept the agreement, the borrower 
must sign and return the agreement or accept the agreement 
electronically under a process provided by the agency. The agency may 
not impose any other conditions unrelated to the amount or timing of 
the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement must inform the borrower--
    (A) Of the effects of having the loans rehabilitated (e.g., removal 
of the record of default from the borrower's credit history and return 
to normal repayment);
    (B) Of the amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is sold to an eligible lender, 
which may not exceed 18.5 percent of the unpaid principal and accrued 
interest on the loan at the time of the sale; and
    (C) That the rehabilitation agreement is null and void if the 
borrower fails to provide the documentation required to confirm the 
monthly payment calculated under paragraph (b)(1)(iii) of this section.
    (vii) If the borrower objects to the monthly payment amount 
determined under paragraph (b)(1)(iii) of this section, the guaranty 
agency or its agents must recalculate the payment amount based solely 
on information provided on a form approved by the Secretary and, if 
requested, supporting documentation from the borrower and other 
sources, and must consider--
    (A) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (B) Family size as defined in Sec.  682.215(a)(3); and
    (C) Reasonable and necessary expenses, which include--
    (1) Food;
    (2) Housing;
    (3) Utilities;
    (4) Basic communication expenses;
    (5) Necessary medical and dental costs;
    (6) Necessary insurance costs;
    (7) Transportation costs;
    (8) Dependent care and other work-related expenses;
    (9) Legally required child and spousal support;
    (10) Other title IV and non-title IV student loan payments; and
    (11) Other expenses approved by the Secretary.
    (viii) The guaranty agency must provide the borrower with a new 
written rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount within the timeframe specified 
in paragraph (b)(1)(vii) of this section. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the agency.
    (ix) The agency must include any payment made under Sec.  
682.401(b)(1) in determining whether the 9 out of 10 payments required 
under paragraph (b)(1) of this section have been made.
    (x) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances only upon providing the documentation specified in 
paragraph (b)(1)(vii) of this section.
    (xi) During the rehabilitation period, the guaranty agency must 
limit contact with the borrower on the loan being rehabilitated to 
collection activities that are required by law or regulation and to 
communications that support the rehabilitation.
* * * * *


Sec.  682.406  [Amended]

0
41. Section 682.406 is amended by:
0
A. In paragraph (a)(2)(ii), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
B. In paragraph (a)(12)(iv), adding the words ``and prior to July 1, 
2010'' after the date ``1999'' and before the punctuation ``,''.


Sec.  682.407  [Amended]

0
42. Section 682.407(e)(1)(ii) is amended by removing the figure ``24'' 
the first time it appears and adding, in its place, the figure ``72''.


Sec.  682.408  [Removed and Reserved]

0
43. Section 682.408 is removed and reserved.


Sec.  682.409  [Amended]

0
44. Section 682.409 is amended by:
0
A. In paragraph (a)(2)(i), removing the citation ``Sec.  
682.401(b)(4)'' and adding, in its place, the citation ``Sec.  
682.401(b)(1)''.
0
B. In paragraph (a)(3)(i)(B), removing the citation ``Sec.  
682.401(b)(4)'' and adding, in its place, the citation ``Sec.  
682.401(b)(1)''.
0
45. Section 682.410 is amended by:
0
A. Revising the introductory text of paragraph (a)(2).
0
B. In paragraph (a)(2)(ii) introductory text, removing the word 
``preclaims'' and adding, in its place, the words ``default aversion''.
0
C. In paragraph (b)(2) introductory text, removing the citation 
``Sec. Sec.  682.401(b)(27) and 682.405(b)(1)(iv)'' and adding, in its 
place, the citation ``Sec. Sec.  682.401(b)(18)(i) and 
682.405(b)(1)(iv)(B)''.
0
D. In paragraph (b)(5)(i) introductory text, removing the citation 
``(b)(6)(v)'' and adding, in its place, the citation ``(b)(6)(ii)''.
0
E. In paragraph (b)(7)(i), removing the words ``conditions described in 
Sec.  682.509(a)(1)'' and adding, in their place, the words ``condition 
described in Sec.  682.404(b)(3)(ii)''.
0
F. In paragraph (b)(7)(ii)(A), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
G. Revising paragraph (b)(9).
0
H. In paragraph (c)(1)(i)(A) introductory text, removing the words 
``made or''.
0
I. In paragraph (c)(1)(i)(A)(1), removing the words ``in that year''.
0
J. In paragraph (c)(1)(i)(A)(2), removing the words ``in that year''.

[[Page 65817]]

0
K. Revising paragraph (c)(1)(i)(C).
0
L. In paragraph (c)(1)(ii), removing the citation ``(c)(1)(A)-(C)'' and 
adding, in its place, the citation ``(c)(1)(i)(A)-(C)''.
0
M. Removing paragraph (c)(4).
0
N. Redesignating paragraphs (c)(5) through (c)(11) as paragraphs (c)(4) 
through (c)(10), respectively.
0
O. In newly redesignated paragraphs (c)(8)(i) and (c)(8)(ii), adding 
the words ``title IV eligibility of a'' between the words ``or'' and 
``school''.
0
P. Revising newly redesignated paragraph (c)(10) introductory text.
    The revisions read as follows:


Sec.  682.410  Fiscal, administrative, and enforcement requirements.

    (a) * * *
    (2) Uses of reserve fund assets. A guaranty agency may use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay only--
* * * * *
    (b) * * *
    (9) Administrative garnishment. (i) If a guaranty agency decides to 
garnish the disposable pay of a borrower who is not making payments on 
a loan held by the agency, on which the Secretary has paid a 
reinsurance claim, it must do so in accordance with the following 
procedures:
    (A) At least 30 days before the initiation of garnishment 
proceedings, the guaranty agency must mail to the borrower's last known 
address, a written notice described in paragraph (b)(9)(i)(B) of this 
section.
    (B) The notice must describe--
    (1) The nature and amount of the debt;
    (2) The intention of the agency to collect the debt through 
deductions from disposable pay;
    (3) An explanation of the borrower's rights;
    (4) The deadlines by which a borrower must exercise those rights; 
and
    (5) The consequences of failure to exercise those rights in a 
timely manner.
    (C) The guaranty agency must offer the borrower an opportunity to 
inspect and copy agency records related to the debt.
    (D) The guaranty agency must offer the borrower an opportunity to 
enter into a written repayment agreement with the agency under terms 
agreeable to the agency.
    (E)(1) The guaranty agency must offer the borrower an opportunity 
for a hearing in accordance with paragraphs (b)(9)(i)(F) through (J) of 
this section and other guidance provided by the Secretary, for any 
objection regarding the existence, amount, or enforceability of the 
debt, and any objection that withholding from the borrower's disposable 
pay in the amount or at the rate proposed in the notice would cause 
financial hardship to the borrower.
    (2) The borrower must request a hearing in writing. At the 
borrower's option, the hearing may be oral or written. The time and 
location of the hearing is established by the guaranty agency. An oral 
hearing may, at the borrower's option, be conducted either in-person or 
by telephone conference. The agency notifies the borrower of the 
process for arranging the time and location of an oral hearing. All 
telephonic charges are the responsibility of the agency. All travel 
expenses incurred by the borrower in connection with an in-person oral 
hearing are the responsibility of the borrower.
    (F)(1) If the borrower submits a written request for a hearing on 
the existence, amount, or enforceability of the debt--
    (i) The guaranty agency must provide evidence of the existence of 
the debt. If the agency provides evidence of the existence of the debt, 
the borrower must prove by the preponderance of the evidence that no 
debt exists, the debt is not enforceable under applicable law, the 
amount the guaranty agency claims the borrower owes is incorrect, 
including that any amount of collection costs assessed to the borrower 
exceeds the limits established under Sec.  682.410(b)(2), or the debt 
is not delinquent; and
    (ii) The borrower may raise any of the objections described in 
paragraph (b)(9)(i)(F)(1)(i) of this section not raised in the written 
request, but must do so before a hearing is completed. For purposes of 
this paragraph, a hearing is completed when the record is closed and 
the hearing official notifies the parties that no additional evidence 
or objections will be accepted.
    (2) If the borrower submits a written request for a hearing on an 
objection that withholding in the amount or at the rate that the agency 
proposed in its notice would cause financial hardship to the borrower 
and the borrower's spouse and dependents--
    (i) The borrower bears the burden of proving the claim of financial 
hardship by a preponderance of the credible evidence by providing 
credible documentation that the amount of wages proposed in the notice 
would leave the borrower unable to meet basic living expenses of the 
borrower, the borrower's spouse, and the borrower's dependents. The 
documentation must show the amount of the costs incurred for basic 
living expenses and the income available from any source to meet those 
expenses;
    (ii) The borrower's claim of financial hardship must be evaluated 
by comparing the amounts that the borrower proves are being incurred 
for basic living expenses against the amounts spent for basic living 
expenses by families of the same size as the borrower's. For the 
purposes of this section, the standards published by the Internal 
Revenue Service under 26 U.S.C. 7122(d)(2) (the ''Collection Financial 
Standards'') establish the average amounts spent for basic living 
expenses for families of the same size as the borrower's family;
    (iii) The amount that the borrower proves is incurred for a type of 
basic living expense is considered to be reasonable to the extent that 
the amount does not exceed the amount spent for that expense by 
families of the same size according to the Collection Financial 
Standards. If the borrower claims an amount for any basic living 
expense that exceeds the amount in the Collection Financial Standards, 
the borrower must prove that the amount claimed is reasonable and 
necessary;
    (iv) If the borrower's objection to the rate or amount proposed in 
the notice is upheld in part, the garnishment must be ordered at a 
lesser rate or amount, that is determined will allow the borrower to 
meet basic living expenses proven to be reasonable and necessary. If 
this financial hardship determination is made after a garnishment order 
is already in effect, the guaranty agency must notify the borrower's 
employer of any change required by the determination in the amount to 
be withheld or the rate of withholding under that order; and
    (v) A determination by a hearing official that financial hardship 
would result from garnishment is effective for a period not longer than 
six months after the date of the finding. After this period, the 
guaranty agency may require the borrower to submit current information 
regarding the borrower's family income and living expenses. If the 
borrower fails to submit current information within 30 days of this 
request, or the guaranty agency concludes from a review of the 
available evidence that garnishment should now begin or the rate or the 
amount of an outstanding withholding should be increased, the guaranty 
agency must notify the borrower and provide the borrower with an 
opportunity to contest the determination and obtain a hearing on the 
objection under the procedures in paragraph (b)(9)(i) of this section.
    (G) If the borrower's written request for a hearing is received by 
the guaranty agency on or before the 30th day following the date of the 
notice

[[Page 65818]]

described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency may not issue a withholding order until the borrower has been 
provided the requested hearing and a decision has been rendered. The 
guaranty agency must provide a hearing to the borrower in sufficient 
time to permit a decision, in accordance with the procedures that the 
agency may prescribe, to be rendered within 60 days.
    (H) If the borrower's written request for a hearing is received by 
the guaranty agency after the 30th day following the date of the notice 
described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency must provide a hearing to the borrower in sufficient time that a 
decision, in accordance with the procedures that the agency may 
prescribe, may be rendered within 60 days, but may not delay issuance 
of a withholding order unless the agency determines that the delay in 
filing the request was caused by factors over which the borrower had no 
control, or the agency receives information that the agency believes 
justifies a delay or cancellation of the withholding order. If a 
decision is not rendered within 60 days following receipt of a 
borrower's written request for a hearing, the guaranty agency must 
suspend the order beginning on the 61st day after the hearing request 
was received until a hearing is provided and a decision is rendered.
    (I) The hearing official appointed by the agency to conduct the 
hearing may be any qualified individual, including an administrative 
law judge. Under no circumstance may the hearing official be under the 
supervision or control of the head of the guaranty agency or of a 
third-party servicer or collection contractor employed by the agency. 
Payment of compensation by the guaranty agency, third-party servicer, 
or collection contractor employed by the agency to the hearing official 
for service as a hearing official does not constitute impermissible 
supervision or control under this paragraph. The guaranty agency must 
ensure that, except as needed to arrange for administrative matters 
pertaining to the hearing, including the type of hearing requested by 
the borrower, the time, place, and manner of conducting an oral 
hearing, and post-hearing matters such as issuance of a hearing 
decision, all oral communications between the hearing official and any 
representative of the guaranty agency or with the borrower are made 
within the hearing of the other party, and that copies of any written 
communication with either party are promptly provided to the other 
party. This paragraph does not preclude a hearing in the absence of one 
of the parties if the borrower is given proper notice of the hearing, 
both parties have agreed on the time, place, and manner of the hearing, 
and one of the parties fails to attend.
    (J) The hearing official must conduct any hearing as an informal 
proceeding, require witnesses in an oral hearing to testify under oath 
or affirmation, and maintain a summary record of any hearing. The 
hearing official must issue a final written decision at the earliest 
practicable date, but not later than 60 days after the guaranty 
agency's receipt of the borrower's hearing request. However--
    (1) The borrower may request an extension of that deadline for a 
reasonable period, as determined by the hearing official, for the 
purpose of submitting additional evidence or raising a new objection 
described in paragraph (b)(9)(i)(F)(1)(ii) of this section; and
    (2) The agency may request, and the hearing official must grant, a 
reasonable extension of time sufficient to enable the guaranty agency 
to evaluate and respond to any such additional evidence or any 
objections raised pursuant to paragraph (b)(9)(i)(F)(1)(ii) of this 
section.
    (K) An employer served with a garnishment order from the guaranty 
agency with respect to a borrower whose wages are not then subject to a 
withholding order of any kind must deduct and pay to the agency from a 
borrower's disposable pay an amount that does not exceed the smallest 
of--
    (1) The amount specified in the guaranty agency order;
    (2) The amount permitted by section 488A(a)(1) of the Act, which is 
15 percent of the borrower's disposable pay; or
    (3) The amount permitted by 15 U.S.C. 1673(a)(2), which is the 
amount by which the borrower's disposable pay exceeds 30 times the 
minimum wage.
    (L) If a borrower's pay is subject to more than one garnishment 
order--
    (1) Unless other Federal law requires a different priority, the 
employer must pay the agency the amount calculated under paragraph 
(b)(9)(i)(K) of this section before the employer complies with any 
later garnishment orders, except a family support withholding order;
    (2) If an employer is withholding from a borrower's pay based on a 
garnishment order served on the employer before the guaranty agency's 
order, or if a withholding order for family support is served on an 
employer at any time, the employer must comply with the agency's 
garnishment order by withholding an amount that is the lesser of--
    (i) The amount specified in the guaranty agency order; or
    (ii) The amount calculated under paragraph (b)(9)(i)(L)(3) of this 
section less the amount or amounts withheld under the garnishment order 
or orders that have priority over the agency's order; and
    (3) The cumulative withholding for all garnishment orders issued by 
guaranty agencies may not exceed, for an individual borrower, the 
amount permitted by 15 U.S.C. 1673, which is the lesser of 25 percent 
of the borrower's disposable pay or the amount by which the borrower's 
disposable pay exceeds 30 times the minimum wage. If a borrower owes 
debts to one or more guaranty agencies, each agency may issue a 
garnishment order to enforce each of those debts, but no single agency 
may order a total amount exceeding 15 percent of the disposable pay of 
a borrower to be withheld. The employer must honor these orders as 
provided in paragraphs (b)(9)(i)(L)(1) and (2) of this section.
    (M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) of this 
section, an employer may withhold and pay a greater amount than 
required under the order if the borrower gives the employer written 
consent.
    (N) A borrower may, at any time, raise an objection to the amount 
or the rate of withholding specified in the guaranty agency's order to 
the borrower's employer on the ground of financial hardship. However, 
the guaranty agency is not required to consider such an objection and 
provide the borrower with a hearing until at least six months after the 
agency issued the most recent garnishment order, either one for which 
the borrower did not request a hearing or one that was issued after a 
hardship-related hearing determination. The agency may provide a 
hearing in extraordinary circumstances earlier than six months if the 
borrower's request for review shows that the borrower's financial 
circumstances have substantially changed after the garnishment notice 
because of an event such as injury, divorce, or catastrophic illness.
    (O) A garnishment order is effective until the guaranty agency 
rescinds the order or the agency has fully recovered the amounts owed 
by the borrower, including interest, late fees, and collections costs. 
If an employer is unable to honor a garnishment order because the 
amount available for garnishment is insufficient to pay any portion of 
the amount stated in the order, the employer must notify the

[[Page 65819]]

agency and comply with the order when sufficient disposable pay is 
available. Upon full recovery of the debt, the agency must send the 
borrower's employer notification to stop wage withholding.
    (P) The guaranty agency must sue any employer for any amount that 
the employer, after receipt of the withholding order provided by the 
agency under paragraph (b)(9)(i)(R) of this section, fails to withhold 
from wages owed and payable to an employee under the employer's normal 
pay and disbursement cycle.
    (Q) The guaranty agency may not garnish the wages of a borrower 
whom it knows has been involuntarily separated from employment until 
the borrower has been reemployed continuously for at least 12 months. 
The borrower has the burden of informing the guaranty agency of the 
circumstances surrounding the borrower's involuntary separation from 
employment.
    (R) Unless the guaranty agency receives information that the agency 
believes justifies a delay or cancellation of the withholding order, it 
must send a withholding order to the employer within 20 days after the 
borrower fails to make a timely request for a hearing, or, if a timely 
request for a hearing is made by the borrower, within 20 days after a 
final decision is made by the agency to proceed with garnishment.
    (S) The notice given to the employer under paragraph (b)(9)(i)(R) 
of this section must contain only the information as may be necessary 
for the employer to comply with the withholding order and to ensure 
proper credit for payments received. At a minimum, the notice given to 
the employer includes the borrower's name, address, and Social Security 
Number, as well as instructions for withholding and information as to 
where the employer must send payments.
    (T)(1) A guaranty agency may use a third-party servicer or 
collection contractor to perform administrative activities associated 
with administrative wage garnishment, but may not allow such a party to 
conduct required hearings or to determine that a withholding order is 
to be issued. Subject to the limitations of paragraphs (b)(9)(i)(T)(2) 
and (3) of this section, administrative activities associated with 
administrative wage garnishment may include but are not limited to--
    (i) Identifying to the agency suitable candidates for wage 
garnishment pursuant to agency standards;
    (ii) Obtaining employment information for the purposes of 
garnishment;
    (iii) Sending candidates selected for garnishment by the agency 
notices prescribed by the agency;
    (iv) Negotiating alternative repayment arrangements with borrowers;
    (v) Responding to inquiries from notified borrowers;
    (vi) Receiving garnishment payments on behalf of the agency;
    (vii) Arranging for the retention of hearing officials and for the 
conduct of hearings on behalf of the agency;
    (viii) Providing information to borrowers or hearing officials on 
the process or conduct of hearings; and
    (ix) Sending garnishment orders and other communications to 
employers on behalf of the agency.
    (2) Only an authorized official of the agency may determine that an 
individual withholding order is to be issued. The guarantor must record 
the official's determination for each order it issues, including any 
order which it causes to be prepared or mailed by a third-party 
servicer or collection contractor. The guarantor must evidence the 
official's approval, either by including the official's signature on 
the order or, if the agency uses a form of withholding order that does 
not provide for execution by signature, by retaining in the agency's 
records the identity of the approving official, the date of the 
approval, the amount or rate of the order, the name and address of the 
employer to whom the order was issued, and the debt for which the order 
was issued.
    (3) The withholding order must identify the guaranty agency as the 
holder of the debt, as the issuer of the order, and as the sole party 
legally authorized to issue the withholding order. If a guaranty agency 
uses a third-party servicer or collection contractor to prepare and 
mail a withholding order that includes the name of the servicer or 
contractor that prepared or mailed the order, the guaranty agency must 
also ensure that the order contains no captions or representations that 
the servicer or contractor is the party that issued, or was empowered 
by Federal law or by the agency to issue, the withholding order.
    (U) As specified in section 488A(a)(8) of the Act, the borrower may 
seek judicial relief, including punitive damages, if the employer 
discharges, refuses to employ, or takes disciplinary action against the 
borrower due to the issuance of a withholding order.
    (V) A guaranty agency is required to suspend a garnishment order 
when the agency receives a borrower's fifth qualifying payment under a 
loan rehabilitation agreement with the agency, unless otherwise 
directed by the borrower, in accordance with Sec.  682.405(a)(3).
    (ii) For purposes of paragraph (b)(9) of this section--
    (A) ``Borrower'' includes all endorsers on a loan;
    (B) ``Day'' means calendar day;
    (C) ``Disposable pay'' means that part of a borrower's compensation 
for personal services, whether or not denominated as wages from an 
employer, that remains after the deduction of health insurance premiums 
and any amounts required by law to be withheld, and includes, but is 
not limited to, salary, bonuses, commissions, or vacation pay. 
``Amounts required by law to be withheld'' include amounts for 
deductions such as Social Security taxes and withholding taxes, but do 
not include any amount withheld under a court order or other 
withholding order. All references to an amount of disposable pay refer 
to disposable pay calculated for a single week;
    (D) ``Employer'' means a person or entity that employs the services 
of another and that pays the latter's wages or salary and includes, but 
is not limited to, State and local governments, but does not include an 
agency of the Federal Government;
    (E) ``Financial hardship'' means an inability to meet basic living 
expenses for goods and services necessary for the survival of the 
borrower and the borrower's spouse and dependents;
    (F) ``Garnishment'' means the process of withholding amounts from 
an employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order; and
    (G) ``Withholding order'' means any order for withholding or 
garnishment of pay issued by the guaranty agency and may also be 
referred to as ``wage garnishment order'' or ``garnishment order.''
* * * * *
    (c) * * *
    (1) * * *
    (i) * * *
    (C) Each school that participated in the guaranty agency's program, 
located in a State for which the guaranty agency is the principal 
guaranty agency, that has a cohort default rate, as described in 
subpart M of 34 CFR part 668, that includes FFEL Program loans, for 
either of the 2 immediately preceding fiscal years, as defined in 34 
CFR 668.182, that exceeds 20 percent, unless the school is under a 
mandate from the Secretary under subpart M of 34 CFR part 668 to take 
specific default reduction measures or if the total dollar amount of 
loans entering repayment in

[[Page 65820]]

each fiscal year on which the cohort default rate of over 20 percent is 
based does not exceed $100,000; or
* * * * *
    (10) Taking prompt action to protect the rights of borrowers and 
the Federal fiscal interest respecting loans that the agency has 
guaranteed when the agency learns that a school that participated in 
the FFEL Program or a holder of loans participating in the program is 
experiencing problems that threaten the solvency of the school or 
holder, including--
* * * * *


Sec.  682.411  [Amended]

0
46. Section 682.411 is amended by:
0
A. In paragraph (d)(2), removing the words ``all national credit 
bureaus'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
B. In paragraph (f), removing the words ``a national credit bureau'' 
and adding, in their place, the words ``each nationwide consumer 
reporting agency''.
0
C. In paragraph (n)(2), removing the words ``a national credit bureau'' 
and adding, in their place, the words ``each nationwide consumer 
reporting agency''.
0
D. In paragraph (o)(2), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.


Sec.  682.412  [Amended]

0
47. Section 682.412(a)(2) is amended by removing the words ``as 
provided under Sec.  682.301''.

0
48. Section 682.413 is amended by:
0
A. In paragraph (c)(1)(vi), removing the words ``certification required 
under Sec.  682.206(f)(1)'' and adding, in their place the words 
``required lender verification certification''.
0
B. Revising the first sentence of paragraph (h).
    The revision reads as follows:


Sec.  682.413  Remedial actions.

* * * * *
    (h) In any action to require repayment of funds or to withhold 
funds from a guaranty agency, or to limit, suspend, or terminate a 
guaranty agency based on a violation of section 428(b)(3) of the Act, 
if the Secretary finds that the guaranty agency provided or offered the 
prohibited payments or activities, the Secretary applies a rebuttable 
presumption that the payments or activities were offered or provided to 
secure applications for FFEL loans or to secure FFEL loan volume. * * *
* * * * *


Sec.  682.414  [Amended]

0
49. Section 682.414 is amended by:
0
A. In paragraph (a)(1)(ii)(D), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
B. In paragraph (a)(4)(ii)(J), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
C. In paragraph (a)(6)(ii)(D), removing the word ``is'' and adding, in 
its place, the word ``it''.
0
D. Removing paragraph (b)(2)(i).
0
E. Redesignating paragraphs (b)(2)(ii) through (b)(2)(iv), as (b)(2)(i) 
through (b)(2)(iii), respectively.
0
F. In paragraph (b)(3)(i), removing the words ``schools and''.
0
G. In paragraph (b)(3)(ii), removing the words ``schools and''.
0
H. In paragraph (b)(3)(iii), removing the words ``school or''.
0
I. In paragraph (c)(2), removing the citation ``Sec.  682.401(b)(21) 
and (22)'' and adding, in its place, the citation ``Sec.  
682.401(b)(12) and (13)''.


Sec.  682.416  [Amended]

0
50. Section 682.416(d)(2) is amended by removing the word ``Title'' and 
adding, in its place, the word ``title''.


Sec.  682.418  [Removed and Reserved]

0
51. Section 682.418 is removed and reserved.


Sec.  682.419  [Amended]

0
52. Section 682.419 is amended by:
0
A. In paragraph (b)(8), removing the words ``, in accordance with Sec.  
682.420''.
0
B. In paragraph (c)(6), removing the citation ``Sec.  682.421'' and 
adding, in its place, the citation ``section 422A(f) of the Act''.


Sec.  682.420  [Removed and Reserved]

0
53. Section 682.420 is removed and reserved.


Sec.  682.421  [Removed and Reserved]

0
54. Section 682.421 is removed and reserved.


Sec.  682.422  [Removed and Reserved]

0
55. Section 682.422 is removed and reserved.


Sec.  682.423  [Amended]

0
56. Section 682.423 is amended by:
0
A. In the second sentence of paragraph (a), adding the word ``may'' 
between the words ``that'' and ``have''.
0
B. In paragraph (a), removing the last sentence.

Subpart E--[Removed and Reserved]

0
57. Remove and reserve subpart E of part 682.

Subpart F--Requirements, Standards, and Payments for Schools That 
Participated in the FFEL Program

0
58. Revise the heading to subpart F of part 682 to read as set forth 
above.


Sec.  682.601  [Removed and Reserved]

0
59. Section 682.601 is removed and reserved.


Sec.  682.602  [Removed and Reserved]

0
60. Section 682.602 is removed and reserved.

0
61. Section 682.603 is amended by:
0
A. Revising the section heading.
0
B. In paragraph (b)(3), removing the citation ``Sec.  682.604(c)'' and 
adding, in its place, the citation ``section 428G of the Act''.
0
C. Revising paragraphs (g), (h), and (i).
0
D. Revising the first of the two paragraphs that are both designated as 
paragraph (j).
0
E. Removing the second of the two paragraphs that are both designated 
as paragraph (j).
0
F. Adding paragraphs (k) and (l).
    The revisions and additions read as follows:


Sec.  682.603  Certification by a school that participated in the FFEL 
Program in connection with a loan application.

* * * * *
    (g) The maximum period for which a school may certify a loan 
application is--
    (1) Generally an academic year, as defined by 34 CFR 668.3, except 
that a guaranty agency may allow a school to use a longer period of 
time, corresponding to the period to which the agency applies the 
annual loan limits; or
    (2) For a defaulted borrower who has regained eligibility under 
Sec.  682.401(b)(1), the academic year in which the borrower regained 
eligibility.
    (h) In certifying a Stafford or Unsubsidized Stafford loan amount 
in accordance with Sec.  682.204--
    (1) A program of study must be considered at least one full 
academic year if--
    (i) The number of weeks of instructional time is at least 30 weeks; 
and
    (ii) The number of clock hours is a least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36;
    (2) A program of study must be considered two-thirds (2/3) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 20 weeks; 
and
    (ii) The number of clock hours is at least 600, the number of 
semester or

[[Page 65821]]

trimester hours is at least 16, or the number of quarter hours is at 
least 24;
    (3) A program of study must be considered one-third (\1/3\) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 10 weeks; 
and
    (ii) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12; and
    (4) In prorating a loan amount for a student enrolled in a program 
of study with less than a full academic year remaining, the school need 
not recalculate the amount of the loan if the number of hours for which 
an eligible student is enrolled changes after the school certifies the 
loan.
    (i)(1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic 
year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress in 
credit hours and does not have academic terms, a student is considered 
to have completed an academic year and progresses to the next annual 
loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of this section, terms in a loan period are 
substantially equal in length if no term in the loan period is more 
than two weeks of instructional time longer than any other term in that 
loan period.
    (j)(1) A school must cease certifying loans based on the exceptions 
in section 428G(a)(3) of the Act no later than--
    (i) 30 days after the date the school receives notification from 
the Secretary of an FFEL cohort default rate, calculated under subpart 
M of 34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
section 428G(a)(3) of the Act no later than 30 days after the date the 
school receives notification from the Secretary of an FFEL cohort 
default rate, calculated under subpart M of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
those paragraphs.
    (k) A school may not assess the borrower, or the student in the 
case of a parent PLUS loan, a fee for the completion or certification 
of any FFEL Program form or information or for providing any 
information necessary for a student or parent to receive a loan under 
part B of the Act or any benefits associated with such a loan.
    (l) Pursuant to paragraph (b)(3) of this section, a school may not 
request the disbursement by the lender for loan proceeds earlier than 
the period specified in 34 CFR 668.167.
* * * * *

0
62. Section 682.604 is amended by:
0
A. Revising the section heading.
0
B. Removing paragraphs (a), (c), (d), (e), (f), (h), and (i).
0
C. Redesignating paragraph (g) as paragraph (a).
0
D. Removing and reserving paragraph (b).
0
E. Revising newly redesignated paragraph (a)(1).
0
F. Removing newly redesignated paragraph (a)(2)(vi).
0
G. Further redesignating newly redesignated paragraphs (a)(2)(vii) 
through (a)(2)(xii) as paragraphs (a)(2)(ix) through (a)(2)(xiv), 
respectively.
0
H. Adding new paragraphs (a)(2)(vi) through (a)(2)(viii).
0
I. Adding new paragraph (a)(5).
    The revisions and additions read as follows:


Sec.  682.604  Required exit counseling for borrowers.

    (a) * * *
    (1) A school must ensure that exit counseling is conducted with 
each Stafford Loan borrower and graduate or professional student PLUS 
Loan borrower either in person, by audiovisual presentation, or by 
interactive electronic means. In each case, the school must ensure that 
this counseling is conducted shortly before the student borrower ceases 
at least half-time study at the school, and that an individual with 
expertise in the title IV programs is reasonably available shortly 
after the counseling to answer the student borrower's questions. As an 
alternative, in the case of a student borrower enrolled in a 
correspondence program or a study-abroad program that the home 
institution approves for credit, written counseling materials may be 
provided by mail within 30 days after the student borrower completes 
the program. If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete an exit counseling 
session as required, the school must, within 30 days after learning 
that the student borrower has withdrawn from school or failed to 
complete the exit counseling as required, ensure that exit counseling 
is provided through interactive electronic means, by mailing written 
counseling materials to the student borrower at the student borrower's 
last known address, or by sending written counseling materials to an 
email address provided by the student borrower that is not an email 
address associated with the school sending the counseling materials.
    (2) * * *
    (vi) Explain to the borrower the use of a Master Promissory Note;
    (vii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the borrower has assumed;
    (viii) Emphasize to the student borrower that the full amount of 
the loan (other than a loan made or originated by the school) must be 
repaid in full even if the student borrower does not complete the 
program, does not complete the program within the regular time for 
program completion, is unable to obtain employment upon completion, or 
is otherwise dissatisfied with or does not receive the educational or 
other services that the student borrower purchased from the school;
* * * * *
    (5)(i) For students who have received both FFEL Program and Direct 
Loan Program loans for attendance at a school, the school's compliance 
with the exit counseling requirements in 34 CFR 685.304(b) satisfies 
the requirements of this section if the school ensures that the exit 
counseling also provides the borrower with the information described in 
paragraphs (a)(2)(i) and (a)(2)(ii) of this section.

[[Page 65822]]

    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of this 
section, and for students who have also received Direct Loan Program 
loans for attendance at the school, the requirements of 34 CFR 
685.304(b).
* * * * *


Sec.  682.605  [Amended]

0
63. Section 682.605 is amended by:
0
A. In paragraph (b), adding the words ``and the Secretary'' between the 
words ``lender'' and ``the date''.
0
B. In paragraph (c), adding the words ``and the Secretary'' between the 
word ``lender'' and the punctuation ``,''.


Sec.  682.608  [Removed and Reserved]

0
64. Section 682.608 is removed and reserved.
0
65. Section 682.610 is amended by:

0
A. Revising the section heading.
0
B. Revising paragraph (b)(5).
0
C. Revising paragraph (c).
    The revisions read as follows:


Sec.  682.610  Administrative and fiscal requirements for schools that 
participated in the FFEL Program.

* * * * *
    (b) * * *
    (5) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's required written authorization, if it 
was not provided in the loan application or MPN, to deliver the initial 
and subsequent disbursements of each FFEL Program loan; and
* * * * *
    (c) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information 
included in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date that the school discovers 
that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a 
loan under title IV of the Act has changed his or her permanent 
address.
* * * * *

Subpart G--Limitation, Suspension, or Termination of Lender or 
Third-Party Servicer Eligibility and Disqualification of Lenders

0
66. The heading of subpart G of part 682 is revised to read as set 
forth above.


Sec.  682.700  [Amended]

0
67. Section 682.700 is amended by:
0
A. In paragraph (a), removing the words ``or school'' and the word and 
citation ``and (h)(3)'' in the final sentence.
0
B. In paragraph (b)(1)(ii), adding the word ``or'' after the 
punctuation ``;''.
0
C. Removing paragraph (b)(2).
0
D. Redesignating paragraph (b)(3) as paragraph (b)(2).
0
E. In paragraph (c), removing the words ``or schools''.

0
68. Section 682.701 is amended by revising the definition of 
``Disqualification'' to read as follows:


Sec.  682.701  Definitions of terms used in this subpart.

* * * * *
    Disqualification. The removal of a lender's eligibility for an 
indefinite period of time by the Secretary on review of limitation, 
suspension, or termination action taken against the lender by a 
guaranty agency.
* * * * *

0
69. Section 682.702 is amended by:
0
A. In paragraph (a), removing the words ``in paragraph (d) of this 
section and''.
0
B. Revising paragraph (b)(1).
0
C. Removing paragraph (b)(2).
0
D. Redesignating paragraph (b)(3) as paragraph (b)(2).
0
E. Removing paragraph (d).
    The revision reads as follows:


Sec.  682.702  Effect on participation.

* * * * *
    (b) * * *
    (1) A limit on the number or total amount of loans that a lender 
may purchase or hold under the FFEL Program; or
* * * * *


Sec.  682.704  [Amended]

0
70. Section 682.704(a) introductory text is amended, by removing the 
words ``stop the issuance of guarantee commitments by the Secretary and 
guarantee agencies and to''.


Sec.  682.705  [Amended]

0
71. Section 682.705 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``new loan 
made by the lender or''.
0
B. In paragraph (b)(2)(v), removing the words ``, except as provided in 
paragraph (c)(9) of this section,''.
0
C. Removing paragraph (c).


Sec.  682.706  [Amended]

0
72. Section 682.706 is amended by removing paragraph (d).
0
73. Section 682.709 is amended by adding paragraph (d) to read as 
follows:


Sec.  682.709  Reimbursements, refunds, and offsets.

* * * * *
    (d) In any action under this part based on a violation of the 
prohibitions in section 435(d)(5) of the Act, if the Secretary, the 
designated Department official, or the hearing official finds that the 
lender provided or offered the payments or activities described in 
paragraph (5)(i) of the definition of ``lender'' in Sec.  682.200(b), 
the Secretary or the official applies a rebuttable presumption that the 
payments or activities were offered or provided to secure applications 
for FFEL loans. To reverse the presumption, the lender must present 
evidence that the activities or payments were provided for a reason 
unrelated to securing applications for FFEL loans or securing FFEL loan 
volume.
* * * * *


Sec.  682.711  [Amended]

0
74. Section 682.711 is amended by:
0
A. Removing paragraph (c).
0
B. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d), 
respectively.
0
C. In newly redesignated paragraph (d)(2), removing the citation 
``(d)(3)'' and adding, in its place, the citation ``(c)(3)''.
0
D. In newly redesignated paragraph (d)(2), removing the citation 
``(e)(1)'' and adding, in its place, the citation ``(d)(1)''.


Sec.  682.712  [Amended]

0
75. Section 682.712 is amended by:
0
A. In paragraph (g)(2), removing the parenthetical ``(j)'' and adding, 
in its place, the parenthetical ``(i)''.
0
B. In paragraph (h)(2) and in paragraph (h)(3) introductory text, 
removing the parenthetical ``(j)'' and adding, in its place, the 
parenthetical ``(i)''.
0
C. Removing paragraph (i).
0
D. Redesignating paragraph (j) as paragraph (i).


Sec.  682.713  [Removed and Reserved]

0
76. Section 682.713 is removed and reserved.

[[Page 65823]]

Subpart H of Part 682 [Removed and Reserved]

0
77. Remove and reserve subpart H of part 682.

Appendix C to Part 682 [Removed and Reserved]

0
78. Appendix C to part 682 is removed and reserved.

Appendix D to Part 682 [Amended]

0
79. In appendix D to part 682, paragraph (3) of the introduction is 
amended by removing the final citation ``34 CFR 682.401(d)'' and 
adding, in its place, the citation ``34 CFR 682.401(c)''.

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

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

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


0
81. Section 685.100 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), removing the words ``has been selected by the 
Secretary to participate'' and adding, in their place, the word 
``participates''.
0
C. Revising paragraph (c).
    The revisions read as follows:


Sec.  685.100  The William D. Ford Federal Direct Loan Program.

    (a) Under the William D. Ford Federal Direct Loan (Direct Loan) 
Program (formerly known as the Federal Direct Student Loan Program), 
the Secretary makes loans to enable a student or parent to pay the 
costs of the student's attendance at a postsecondary school. This part 
governs the Federal Direct Stafford/Ford Loan Program, the Federal 
Direct Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS 
Program, and the Federal Direct Consolidation Loan Program. The 
Secretary makes loans under the following program components:
    (1)(i) Federal Direct Stafford/Ford Loan Program (Direct Subsidized 
Loan Program), which provides loans to undergraduate, graduate, and 
professional students. Loans made under this program are referred to as 
Direct Subsidized Loans. Except as provided in paragraph (a)(1)(ii) of 
this section, the Secretary subsidizes the interest while the borrower 
is in an in-school, grace, or deferment period. Graduate and 
professional students are not eligible to receive Direct Subsidized 
Loans for any period of enrollment beginning on or after July 1, 2012.
    (ii) The Secretary does not subsidize the interest that accrues 
during the grace period on any Direct Subsidized Loan for which the 
first disbursement is made on or after July 1, 2012 and before July 1, 
2014.
    (2) Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program), which provides loans to undergraduate, 
graduate and professional students. Loans made under this program are 
referred to as Direct Unsubsidized Loans. The borrower is responsible 
for the interest that accrues during any period.
    (3) Federal Direct PLUS Program (Direct PLUS Loan Program), which 
provides loans to parents of dependent students and to graduate or 
professional students. Loans made under this program are referred to as 
Direct PLUS Loans. The borrower is responsible for the interest that 
accrues during any period.
    (4) Federal Direct Consolidation Loan Program (Direct Consolidation 
Loan Program), which provides loans to borrowers to consolidate certain 
Federal educational loans. Loans made under this program are referred 
to as Direct Consolidation Loans.
* * * * *
    (c) The Secretary makes a Direct Consolidation Loan only to a 
borrower who is consolidating at least one loan made under the Direct 
Loan Program or the Federal Family Education Loan (FFEL) Program.
* * * * *

0
82. Section 685.101 is revised to read as follows:


Sec.  685.101  Participation in the Direct Loan Program.

    (a) Colleges, universities, graduate and professional schools, 
vocational schools, and proprietary schools may participate in the 
Direct Loan Program. Participation in the Direct Loan Program enables 
an eligible student or parent to obtain a loan to pay for the student's 
cost of attendance at the school.
    (b)(1) An eligible undergraduate student who is enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan and Direct Unsubsidized Loan programs.
    (2) An eligible graduate or professional student enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan 
programs, except that a graduate or professional student may not borrow 
under the Direct Subsidized Loan Program for any period of enrollment 
beginning on or after July 1, 2012.
    (3) An eligible parent of an eligible dependent student enrolled at 
a school participating in the Direct Loan Program may borrow under the 
Direct PLUS Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)


0
83. Section 685.102 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``subpart 
A of''.
0
B. In paragraph (a)(1), removing the terms ``Academic Competitiveness 
Grant (ACG) Program'', ``Disburse'', ``Federal Direct Student Loan 
Program (Direct Loan Program)'', ``Leveraging Educational Assistance 
Partnership Program'', ``National Science and Mathematics Access to 
Retain Talent Grant (National SMART Grant) Program'', and ``State''.
0
C. In paragraph (a)(1), adding the terms ``Disbursement'' and ``William 
D. Ford Federal Direct Loan (Direct Loan) Program'' in alphabetical 
order.
0
D. In paragraph (a)(2), adding the terms ``Correspondence course'' and 
``State'' in alphabetical order.
0
E. In paragraph (a)(2), removing the term ``Program of study by 
correspondence''.
0
F. Removing paragraph (a)(3).
0
G. In paragraph (b), adding the definitions of ``Act'', ``Endorser'', 
``Federal Insured Student Loan Program'', ``Federal Stafford Loan 
Program'', ``Guaranty agency'', ``Holder'', ``Lender'', ``Nationwide 
consumer reporting agency'', ``Substantial gainful activity'', and 
``Totally and permanently disabled'', in alphabetical order.
0
H. In paragraph (b), removing the definitions of ``Alternative 
originator'', ``Consortium'', ``School origination option 1'', ``School 
origination option 2'', ``Servicer'', and ``Standard origination''.
0
I. In paragraph (b), in the definition of ``Estimated financial 
assistance'', revising paragraphs (1)(vi) and (2)(i).
0
J. In paragraph (b), in the heading of the definition of ``Federal 
Direct Consolidation Loan Program:'', adding the words ``(Direct 
Consolidation Loan Program)'' immediately before the punctuation ``:''.
0
K. In paragraph (b), in paragraph (4) of the definition of ``Federal 
Direct Consolidation Loan Program'', removing the words ``The term'' in 
the first sentence and adding, in their place, the words ``In the case 
of a Direct Consolidation Loan that entered repayment prior to July 1, 
2006, the term''.
0
L. In paragraph (b), in the heading of the definition of ``Federal 
Direct PLUS Program:'', adding the words ``(Direct PLUS Loan Program)'' 
immediately before the punctuation ``:''.

[[Page 65824]]

0
M. In paragraph (b), revising the definition of ``Federal Direct 
Stafford/Ford Loan Program''.
0
N. In paragraph (b), in the heading of the definition of ``Federal 
Direct Unsubsidized Stafford/Ford Loan Program:'', adding the words 
``(Direct Unsubsidized Loan Program)'' immediately before the 
punctuation ``:''.
0
O. In paragraph (b), revising the definition of ``Grace period''.
0
P. In paragraph (b), in the definition of ``Master Promissory Note 
(MPN)'', adding a new paragraph (4).
0
Q. In paragraph (b), revising the definition of ``Satisfactory 
repayment arrangement''.
    The revisions and additions read as follows:


Sec.  685.102  Definitions.

* * * * *
    (b) * * *
    Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 
1071 et seq.
* * * * *
    Endorser: An individual who signs a promissory note and agrees 
to repay the loan in the event that the borrower does not.
    Estimated financial assistance:
    (1) * * *
    (vi) The estimated amount of other Federal student financial 
aid, including but not limited to a Federal Pell Grant, campus-based 
aid, and the gross amount (including fees) of subsidized and 
unsubsidized Federal Stafford Loans, Direct Subsidized and 
Unsubsidized Loans, and Federal PLUS or Direct PLUS Loans.
    (2) * * *
    (i) Those amounts used to replace the expected family 
contribution (EFC), including the amounts of any TEACH Grants, 
unsubsidized Federal Stafford Loans or Direct Unsubsidized Loans, 
Federal PLUS or Direct PLUS Loans, and non-federal non-need-based 
loans, including private, state-sponsored, and institutional loans. 
However, if the sum of the amounts received that are being used to 
replace the student's EFC exceed the EFC, the excess amount must be 
treated as estimated financial assistance;
* * * * *
    Federal Direct Stafford/Ford Loan Program (Direct Subsidized 
Loan Program): A loan program authorized by title IV, part D of the 
Act that provides loans to undergraduate, graduate, and professional 
students attending Direct Loan Program schools, and one of the 
components of the Direct Loan Program. The Secretary subsidizes the 
interest while the borrower is in an in-school, grace, or deferment 
period, except that the Secretary does not subsidize the interest 
that accrues during the grace period on a loan for which the first 
disbursement is made on or after July 1, 2012 and before July 1, 
2014. Loans made under this program are referred to as Direct 
Subsidized Loans. Graduate and professional students are not 
eligible to receive Direct Subsidized Loans for any period of 
enrollment beginning on or after July 1, 2012.
* * * * *
    Federal Insured Student Loan Program: The loan program 
authorized by title IV, part B of the Act under which the Secretary 
directly insures lenders against losses.
    Federal Stafford Loan Program: The loan program authorized by 
title IV, part B of the Act which encouraged the making of 
subsidized and unsubsidized loans to undergraduate, graduate, and 
professional students and is one of the Federal Family Education 
Loan programs.
    Grace period: A six-month period that begins on the day after a 
Direct Subsidized Loan borrower, a Direct Unsubsidized Loan 
borrower, or, in some cases, a Direct Consolidation Loan borrower 
whose consolidation application was received before July 1, 2006, 
ceases to be enrolled as at least a half-time student at an eligible 
institution and ends on the day before the repayment period begins.
    Guaranty agency: A State or private nonprofit organization that 
has an agreement with the Secretary under which it will administer a 
loan guarantee program under the Act.
    Holder: The entity that owns a loan. For a FFEL Program loan, 
the term ``holder'' refers to an eligible lender owning a FFEL 
Program loan, including a Federal or State agency or an organization 
or corporation acting on behalf of such an agency and acting as a 
conservator, liquidator, or receiver of an eligible lender.
* * * * *
    Lender: As used in this part, the term ``lender'' has the 
meaning specified in section 435(d) of the Act for purposes of the 
FFEL Program.
* * * * *
    Master Promissory Note (MPN):
* * * * *
    (4) Unless the Secretary determines otherwise, a school may use 
a single MPN as the basis for all loans borrowed by a student or 
parent borrower for attendance at that school. If a school is not 
authorized by the Secretary for multi-year use of the MPN, a student 
or parent borrower must sign a new MPN for each academic year.
    Nationwide consumer reporting agency: A consumer reporting 
agency as defined in 15 U.S.C. 1681a(p).
* * * * *
    Satisfactory repayment arrangement: (1) For the purpose of 
regaining eligibility under section 428F(b) of the HEA, the making 
of six consecutive, voluntary, on-time, full monthly payments on a 
defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) For the purpose of consolidating a defaulted loan under 
Sec.  685.220(d)(1)(ii)(A)(3)--
    (i) The making of three consecutive, voluntary, on-time, full 
monthly payments on a defaulted loan prior to consolidation; or
    (ii) Agreeing to repay the Direct Consolidation Loan under one 
of the income-contingent repayment plans described in Sec.  685.209 
or the income-based repayment plan described in Sec.  685.221.
    (3) For the purpose of paragraph (2)(i) of this definition, the 
required monthly payment amount may not be more than is reasonable 
and affordable based on the borrower's total financial 
circumstances. ``On-time'' means a payment made within 20 days of 
the scheduled due date, and voluntary payments are payments made 
directly by the borrower and do not include payments obtained by 
Federal offset, garnishment, or income or asset execution.
    (4) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary, full monthly payments under an 
agreement to rehabilitate a defaulted loan, but does not receive 
additional title IV assistance prior to defaulting on that loan 
again.
    Substantial gainful activity: A level of work performed for pay 
or profit that involves doing significant physical or mental 
activities, or a combination of both.
    Totally and permanently disabled: The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 
months; or
    (iii) Can be expected to last for a continuous period of not 
less than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to 
be unemployable due to a service-connected disability.
* * * * *

0
84. Section 685.200 is amended by:
0
A. Revising paragraph (a)(1)(iv).
0
B. Revising paragraph (a)(1)(v).
0
C. Revising paragraph (b)(4).
0
D. In paragraph (c)(1)(vii)(C), adding the word ``paragraph'' 
immediately before the citation ``(c)(1)(vii)(A)''.
0
E. Adding a new paragraph (c)(1)(vii)(D).
0
F. Revising paragraph (d).
    The revisions and addition read as follows:


Sec.  685.200  Borrower eligibility.

    (a) * * *
    (1) * * *
    (iv) In the case of a borrower whose previous loan or TEACH Grant 
service obligation was discharged due to total and permanent 
disability, the student--
    (A) In the case of a borrower whose prior loan under title IV of 
the Act or TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that neither the new Direct 
Loan the borrower receives nor any previously discharged loan on which 
the borrower is required to resume payment in accordance with paragraph 
(a)(1)(iv)(B)

[[Page 65825]]

of this section can be discharged in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates;
    (B) In the case of a borrower who receives a new Direct Loan, other 
than a Direct Consolidation Loan, within three years of the date that 
any previous title IV loan or TEACH Grant service obligation was 
discharged due to a total and permanent disability in accordance with 
Sec.  685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 
682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, the borrower resumes repayment on 
the previously discharged loan in accordance with Sec.  685.213(b)(7), 
34 CFR 674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he 
or she is once again subject to the terms of the TEACH Grant agreement 
to serve before receiving the new loan; and
    (C) In the case of a borrower whose prior loan under title IV of 
the Act was conditionally discharged after an initial determination 
that the borrower was totally and permanently disabled based on a 
discharge request received prior to July 1, 2010--
    (1) The suspension of collection activity on the prior loan has 
been lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section;
    (3) The borrower signs a statement acknowledging that neither the 
new Direct Loan the borrower receives nor the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability can be discharged in the future on the basis of 
any impairment present when the borrower applied for a total and 
permanent disability discharge or when the new loan is made, unless 
that impairment substantially deteriorates; and
    (4) The borrower signs a statement acknowledging that the 
suspension of collection activity on the prior loan will be lifted.
    (v) In the case of a student who was enrolled in a program of study 
prior to July 1, 2012 and who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education 
or the recognized equivalent of such a certificate, the student meets 
the requirements under 34 CFR 668.32(e)(2), (3), (4), or (5).
* * * * *
    (b) * * *
    (4) The student has received a determination of his or her annual 
loan maximum eligibility under the Direct Unsubsidized Loan Program 
and, for periods of enrollment beginning before July 1, 2012, the 
Direct Subsidized Loan Program; and
* * * * *
    (c) * * *
    (1) * * *
    (vii) * * *
    (D) For the purposes of paragraph (c)(1)(vii)(A)(3) of this 
section, the Secretary may determine that extenuating circumstances 
exist based on documentation that includes, but is not limited to, an 
updated credit report, a statement from the creditor that the borrower 
has made satisfactory arrangements to repay the debt, or a satisfactory 
statement from the borrower explaining any delinquencies with 
outstanding balances of less than $500.
* * * * *
    (d) Defaulted Perkins, FFEL, and Direct Loan program borrowers. 
Except as noted in Sec.  685.220(d)(1)(ii)(A)(3), in the case of a 
student or parent borrower who is currently in default on a Perkins, 
FFEL, or Direct Loan program loan, the borrower must make satisfactory 
repayment arrangements, as described in paragraph (1) of the definition 
of that term under Sec.  685.102(b), on the defaulted loan.
* * * * *

0
85. Section 685.201 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Revising paragraph (b).
0
C. Revising paragraph (c)(1).
0
D. In paragraph (c)(2), removing the word ``Servicer'' and adding, in 
its place, the word ``Secretary''.
    The revisions read as follows:


Sec.  685.201  Obtaining a loan.

    (a) * * *
    (2) If the student is eligible for a Direct Subsidized Loan or a 
Direct Unsubsidized Loan, the school in which the student is enrolled 
must perform the following functions:
    (i) Create a loan origination record and transmit the record to the 
Secretary.
    (ii) Ensure that the loan is supported by a completed Master 
Promissory Note (MPN) and, if applicable, transmit the MPN to the 
Secretary.
    (iii) In accordance with 34 CFR 668.162, draw down funds or receive 
funds from the Secretary, and disburse the funds to the student.
    (b) Application for a Direct PLUS Loan. (1) For a parent to obtain 
a Direct PLUS Loan, the parent must complete the Direct PLUS Loan MPN 
and the dependent student on whose behalf the parent is borrowing must 
complete a Free Application for Federal Student Aid and submit it in 
accordance with instructions in the application.
    (2) For a graduate or professional student to apply for a Direct 
PLUS Loan, the student must complete a Free Application for Federal 
Student Aid and submit it in accordance with instructions in the 
application. The graduate or professional student must also complete 
the Direct PLUS Loan MPN.
    (3) For either a parent or student PLUS borrower, as applicable, 
the school must complete its portion of the Direct PLUS Loan MPN and, 
if applicable, submit it to the Secretary. The Secretary makes a 
determination as to whether the parent or graduate or professional 
student has an adverse credit history. The school performs the 
functions described in paragraph (a)(2) of this section.
    (c) * * *
    (1) To obtain a Direct Consolidation Loan, the applicant must 
complete the application and promissory note and submit it to the 
Secretary. The application and promissory note sets forth the terms and 
conditions of the Direct Consolidation Loan and informs the applicant 
how to contact the Secretary. The Secretary answers questions regarding 
the process of applying for a Direct Consolidation Loan and provides 
information about the terms and conditions of both Direct Consolidation 
Loans and the types of loans that may be consolidated.
* * * * *

0
86. Section 685.202 is amended by:
0
A. Revising paragraph (a).
0
B. Revising paragraph (b)(2).
    The revisions read as follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) Interest--(1) Interest rate for Direct Subsidized Loans and 
Direct Unsubsidized Loans first disbursed before July 1, 1995. During 
all periods, the interest rate during any twelve-month period beginning 
on July 1 and ending on June 30 is determined on the June 1 immediately 
preceding that period. The interest rate is equal to the bond 
equivalent rate of 91-day Treasury bills auctioned at the final auction 
held prior to that June 1 plus 3.1 percentage points, but does not 
exceed 8.25 percent.
    (2) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans first disbursed on or after July 1, 1995, and before 
July 1, 1998. (i) During the in-school, grace, and deferment periods. 
The interest rate during any twelve-month period beginning on July 1 
and ending on June 30 is determined on the June 1 immediately preceding 
that period. The interest rate is equal to the bond equivalent rate of 
91-day Treasury

[[Page 65826]]

bills auctioned at the final auction held prior to that June 1 plus 2.5 
percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 8.25 percent.
    (3) Interest Rate for Direct Subsidized Loans and Direct Subsidized 
Loans first disbursed on or after July 1, 1998, and before July 1, 
2006. (i) During the in-school, grace, and deferment periods. The 
interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 immediately preceding 
that period. The interest rate is equal to the bond equivalent rate of 
91-day Treasury bills auctioned at the final auction held prior to that 
June 1 plus 1.7 percentage points, but does not exceed 8.25 percent.
    (ii) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 2.3 percentage points, 
but does not exceed 8.25 percent.
    (4) Interest rate for Direct Subsidized Loans made to undergraduate 
students for which the first disbursement is made on or after July 1, 
2006, and before July 1, 2013. For a loan for which the first 
disbursement is made:
    (i) On or after July 1, 2006, and before July 1, 2008, the interest 
rate is 6.8 percent on the unpaid principal balance of the loan.
    (ii) On or after July 1, 2008, and before July 1, 2009, the 
interest rate is 6 percent on the unpaid principal balance of the loan.
    (iii) On or after July 1, 2009, and before July 1, 2010, the 
interest rate is 5.6 percent on the unpaid principal balance of the 
loan.
    (iv) On or after July 1, 2010, and before July 1, 2011, the 
interest rate is 4.5 percent on the unpaid principal balance of the 
loan.
    (v) On or after July 1, 2011, and before July 1, 2013, the interest 
rate is 3.4 percent on the unpaid balance of the loan.
    (5) Interest rate for Direct Subsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2006, and before July 1, 2012. The interest rate is 6.8 
percent.
    (6) Interest rate for Direct Unsubsidized Loans first disbursed on 
or after July 1, 2006, and before July 1, 2013. The interest rate is 
6.8 percent.
    (7) Interest rate for Direct Subsidized Loans and Direct 
Unsubsidized Loans made to undergraduate students for which the first 
disbursement is made on or after July 1, 2013. The interest rate for 
loans first disbursed during any 12-month period beginning on July 1 
and ending on June 30 is determined on the June 1 preceding that period 
and is a fixed rate for the life of the loan. The interest rate is the 
lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 2.05 percentage points, or
    (ii) 8.25 percent.
    (8) Interest rate for Direct Unsubsidized Loans made to graduate or 
professional students for which the first disbursement is made on or 
after July 1, 2013. The interest rate for loans first disbursed during 
any 12-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period and is a fixed rate for 
the life of the loan. The interest rate is the lesser of--
    (i) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 3.6 percentage points, or
    (ii) 9.5 percent.
    (9) Interest rate for Direct PLUS Loans. (i) Direct PLUS Loans 
first disbursed before July 1, 1998. (A) Interest rates for periods 
ending before July 1, 2001. During all periods, the interest rate 
during any twelve-month period beginning on July 1 and ending on June 
30 is determined on the June 1 preceding that period. The interest rate 
is equal to the bond equivalent rate of 52-week Treasury bills 
auctioned at the final auction held prior to that June 1 plus 3.1 
percentage points, but does not exceed 9 percent.
    (B) Interest rates for periods beginning on or after July 1, 2001. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 26 
preceding that period. The interest rate is equal to the weekly average 
1-year constant maturity Treasury yield, as published by the Board of 
Governors of the Federal Reserve System, for the last calendar week 
ending on or before that June 26 plus 3.1 percentage points, but does 
not exceed 9 percent.
    (ii) Direct PLUS Loans first disbursed on or after July 1, 1998, 
and before July 1, 2006. During all periods, the interest rate during 
any twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 preceding that period. The interest rate is 
equal to the bond equivalent rate of 91-day Treasury bills auctioned at 
the final auction held prior to that June 1 plus 3.1 percentage points, 
but does not exceed 9 percent.
    (iii) Direct PLUS Loans first disbursed on or after July 1, 2006, 
and before July 1, 2013. The interest rate is 7.9 percent.
    (iv) Direct PLUS Loans first disbursed on or after July 1, 2013. 
The interest rate for loans first disbursed during any 12-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
preceding that period and is a fixed rate for the life of the loan. The 
interest rate is the lesser of--
    (A) A rate equal to the high yield of the 10-year Treasury note 
auctioned at the final auction held prior to the June 1 preceding the 
12-month period, plus 4.6 percentage points, or
    (B) 10.5 percent.
    (10) Interest rate for Direct Consolidation Loans--(i) Interest 
rate for Direct Subsidized Consolidation Loans and Direct Unsubsidized 
Consolidation Loans. (A) Loans first disbursed before July 1, 1995. The 
interest rate is the rate established for Direct Subsidized Loans and 
Direct Unsubsidized Loans in paragraph (a)(1) of this section.
    (B) Loans first disbursed on or after July 1, 1995, and before July 
1, 1998. The interest rate is the rate established for Direct 
Subsidized Loans and Direct Unsubsidized Loans in paragraph (a)(2) of 
this section.
    (C) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct 
Subsidized Loans and Direct Unsubsidized Loans in paragraph (a)(3) of 
this section.
    (D) Loans for which the consolidation application is received by 
the Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior

[[Page 65827]]

to that June 1 plus 2.3 percentage points, but does not exceed 8.25 
percent.
    (E) Loans for which the consolidation application is received by 
the Secretary on or after February 1, 1999, and before July 1, 2013. 
During all periods, the interest rate is based on the weighted average 
of the interest rates on the loans being consolidated, rounded to the 
nearest higher one-eighth of one percent, but does not exceed 8.25 
percent.
    (F) Loans for which the consolidation application is received by 
the Secretary on or after July 1, 2013. During all periods, the 
interest rate is based on the weighted average of the interest rates on 
the loans being consolidated, rounded to the nearest higher one-eighth 
of one percent.
    (ii) Interest rate for Direct PLUS Consolidation Loans. (A) Loans 
first disbursed before July 1, 1998. The interest rate is the rate 
established for Direct PLUS Loans in paragraph (a)(9)(i) of this 
section.
    (B) Loans for which the first disbursement is made on or after July 
1, 1998, and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998, for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct PLUS 
Loans in paragraph (a)(9)(ii) of this section.
    (C) Loans for which the consolidation application is received by 
the Secretary on or after October 1, 1998, and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (D) Loans for which the consolidation application is received by 
the Secretary on or after February 1, 1999, and before July 1, 2006. 
During all periods, the interest rate is based on the weighted average 
of the interest rates on the loans being consolidated, rounded to the 
nearest higher one-eighth of one percent, but does not exceed 8.25 
percent.
    (11) Applicability of the Servicemembers Civil Relief Act (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(10) of this section, effective August 14, 2008, upon the Secretary's 
receipt of a borrower's written request and a copy of the borrower's 
military orders, the maximum interest rate, as defined in 50 U.S.C. 
527, App. section 207(d), on Direct Loan Program loans made prior to 
the borrower entering active duty status is 6 percent while the 
borrower is on active duty military service.
    (b) * * *
    (2) For a Direct Unsubsidized Loan, a Direct Unsubsidized 
Consolidation Loan that qualifies for a grace period under the 
regulations that were in effect for consolidation applications received 
before July 1, 2006, a Direct PLUS Loan, or for a Direct Subsidized 
Loan for which the first disbursement is made on or after July 1, 2012, 
and before July 1, 2014, the Secretary may capitalize the unpaid 
interest that accrues on the loan when the borrower enters repayment.
* * * * *

0
87. Section 685.203 is amended by:
0
A. Revising the introductory text of paragraph (a)(1).
0
B. In paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii), removing the 
words ``$2,625, or, for a loan disbursed on or after July 1, 2007, 
$3,500,'' and adding, in their place, the figure ``$3,500''.
0
C. Revising the introductory text of paragraph (a)(2).
0
D. In paragraphs (a)(2)(i) and (a)(2)(ii), removing the words ``$3,500, 
or, for a loan disbursed on or after July 1, 2007, $4,500,'' and 
adding, in their place, the figure ``$4,500''.
0
E. Revising the introductory text of paragraph (a)(3).
0
F. Revising paragraph (a)(5).
0
G. Revising the introductory text of paragraph (a)(6).
0
H. Revising paragraph (a)(7).
0
I. Revising paragraph (b).
0
J. In paragraph (c)(1)(i), removing the words ``Federal Direct 
Unsubsidized Loan Program'' and adding, in their place, the words 
``Direct Unsubsidized Loan Program''.
0
K. Revising paragraph (c)(1)(ii).
0
L. In paragraph (c)(1)(iii), in the last sentence, removing the words 
``Federal PLUS Loan or''.
0
M. Revising the introductory text of paragraph (c)(2).
0
N. In paragraphs (c)(2)(i)(A), (c)(2)(i)(B), (c)(2)(i)(C), 
(c)(2)(ii)(A), and (c)(2)(ii)(B), removing the words ``$4,000, or, for 
a loan first disbursed on or after July 1, 2008, $6,000,'' and adding, 
in their place, the figure ``$6,000''.
0
O. In paragraphs (c)(2)(iii)(A) and (c)(2)(iii)(B), removing the words 
``$5,000, or, for a loan first disbursed on or after July 1, 2008, 
$7,000,'' and adding, in their place, the figure ``$7,000''.
0
P. In paragraph (c)(2)(v), removing the words ``$10,000, or, for a loan 
disbursed on or after July 1, 2007,''.
0
Q. In paragraph (c)(2)(vi)(A), removing the words ``$4,000, or, for a 
loan first disbursed on or after July 1, 2008, $6,000,'' and adding, in 
their place, the figure ``$6,000''.
0
R. In paragraph (c)(2)(vi)(B), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007, $7,000,'' and adding, in their 
place, the figure ``$7,000''.
0
S. In paragraph (c)(2)(vii), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007,''.
0
T. Revising the introductory text of paragraph (d).
0
U. Revising paragraph (e).
0
V. In paragraph (i)(1), adding the word ``Subsidized'' immediately 
before the words ``Federal Stafford Loans''.
0
W. In paragraph (i)(2), removing the words ``Federal Unsubsidized 
Stafford Loans'' and adding, in their place, the words ``Unsubsidized 
Federal Stafford Loans''.
    The revisions read as follows:


Sec.  685.203  Loan limits.

    (a) * * *
    (1) In the case of an undergraduate student who has not 
successfully completed the first year of a program of undergraduate 
education, the total amount the student may borrow for any academic 
year of study under the Direct Subsidized Loan Program may not exceed 
the following:
* * * * *
    (2) In the case of an undergraduate student who has successfully 
completed the first year of an undergraduate program but has not 
successfully completed the second year of an undergraduate program, the 
total amount the student may borrow for any academic year of study 
under the Direct Subsidized Loan Program may not exceed the following:
* * * * *
    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the 
remainder of the program, the total amount the student may borrow for 
any academic year of study under the Direct Subsidized Loan Program may 
not exceed the following:
* * * * *
    (5) In the case of a graduate or professional student for periods 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Subsidized Loan Program may not exceed $8,500.

[[Page 65828]]

    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate, the total 
amount the student may borrow for any academic year of study under the 
Direct Subsidized Loan Program may not exceed the following:
* * * * *
    (7) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in coursework 
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 that State, the total amount the student may borrow 
for any academic year of study under the Direct Subsidized Loan Program 
may not exceed $5,500.
* * * * *
    (b) Direct Unsubsidized Loans. (1) In the case of a dependent 
undergraduate student, except as provided in paragraph (c)(3) of this 
section, the total amount a student may borrow for any academic year of 
study under the Direct Unsubsidized Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Direct Subsidized Loan Program, plus--
    (i) $2,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is one academic year or more in 
length with less than a full academic year remaining, the amount that 
is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.004

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO13.005

    (2)(i) In the case of an independent undergraduate student or 
certain dependent undergraduate students under the conditions specified 
in paragraph (c)(1)(ii) of this section, except as provided in 
paragraph (c)(3) of this section, the total amount the student may 
borrow for any period of enrollment under the Direct Unsubsidized Loan 
Program may not exceed the amounts determined under paragraph (a) of 
this section less any amount received under the Direct Subsidized Loan 
Program in combination with the amounts determined under paragraph (c) 
of this section.
    (ii) In the case of a graduate or professional student for a period 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed the amount determined under 
paragraph (a)(5) of this section, less any amount received under the 
Direct Subsidized Loan Program.
    (iii) In the case of a graduate or professional student for a 
period of enrollment beginning on or after July 1, 2012, the total 
amount the student may borrow for any academic year of study under the 
Direct Unsubsidized Loan Program may not exceed $8,500.
    (c) * * *
    (1) * * *
    (ii) In order for a dependent undergraduate student to receive this 
additional loan amount, the financial aid administrator must determine 
that the student's parent likely will be precluded by exceptional 
circumstances from borrowing under the Direct PLUS Loan Program and the 
student's family is otherwise unable to provide the student's expected 
family contribution. The financial aid administrator must base the 
determination on a review of the family financial information provided 
by the student and consideration of the student's debt

[[Page 65829]]

burden and must document the determination in the school's file.
* * * * *
    (2) The additional amount that a student described in paragraph 
(c)(1)(i) of this section may borrow under the Direct Unsubsidized Loan 
Program for any academic year of study may not exceed the following:
* * * * *
    (d) Aggregate limits for subsidized loans. The aggregate unpaid 
principal amount of all Direct Subsidized Loans and Subsidized Federal 
Stafford Loans made to a student but excluding the amount of 
capitalized interest may not exceed the following:
* * * * *
    (e) Aggregate limits for unsubsidized loans. The total amount of 
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, and 
Federal SLS Loans, excluding the amount of capitalized interest, may 
not exceed the following:
    (1) For a dependent undergraduate student, $31,000 minus any Direct 
Subsidized Loan and Subsidized Federal Stafford Loan amounts, unless 
the student qualifies under paragraph (c) of this section for 
additional eligibility or qualified for that additional eligibility 
under the Federal SLS Program.
    (2) For an independent undergraduate or a dependent undergraduate 
who qualifies for additional eligibility under paragraph (c) of this 
section or qualified for this additional eligibility under the Federal 
SLS Program, $57,500 minus any Direct Subsidized Loan and Subsidized 
Federal Stafford Loan amounts.
    (3) For a graduate or professional student, $138,500, including any 
loans for undergraduate study, minus any Direct Subsidized Loan, 
Subsidized Federal Stafford Loan, and Federal SLS Program loan amounts.
* * * * *

0
88. Section 685.204 is revised to read as follows:


Sec.  685.204  Deferment.

    (a) General. (1) A Direct Subsidized Loan or Direct Subsidized 
Consolidation Loan borrower who meets the requirements described in 
paragraphs (b), (d), (e), (f), (g), (h), (i), or (j) of this section is 
eligible for a deferment during which periodic installments of 
principal and interest need not be paid.
    (2) A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation 
Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who 
meets the requirements described in paragraphs (b) through (j) of this 
section is eligible for a deferment during which periodic installments 
of principal need not be paid but interest does accrue and is 
capitalized or paid by the borrower. At or before the time a deferment 
is granted, the Secretary provides information, including an example, 
to assist the borrower in understanding the impact of capitalization of 
accrued, unpaid interest on the borrower's loan principal and on the 
total amount of interest to be paid over the life of the loan.
    (3) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.
    (4)(i) To receive a deferment, except as provided for in-school 
deferments under paragraphs (b)(2)(ii) through (iv) of this section, 
the borrower must request the deferment and, except as provided in 
paragraph (a)(5)(i) of this section, provide the Secretary with all 
information and documents required to establish eligibility for the 
deferment.
    (ii) In the case of a military service deferment under paragraph 
(h) of this section, a borrower's representative may request the 
deferment and provide the required information and documents on behalf 
of the borrower. If the Secretary grants a military service deferment 
based on a request from a borrower's representative, the Secretary 
notifies the borrower that the deferment has been granted and that the 
borrower has the option to cancel the deferment and continue to make 
payments on the loan. The Secretary may also notify the borrower's 
representative of the outcome of the deferment request.
    (5)(i) After receiving a borrower's written or verbal request for a 
deferment, the Secretary may grant a graduate fellowship deferment 
under paragraph (d), a rehabilitation training deferment under 
paragraph (e), an unemployment deferment under paragraph (f), an 
economic hardship deferment under paragraph (g), a military service 
deferment under paragraph (h), or a post-active duty student deferment 
under paragraph (i) of this section if the Secretary confirms that the 
borrower has received a deferment on a FFEL Program loan for the same 
reason and during the same time period.
    (ii) The Secretary will grant a deferment based on the information 
obtained under paragraph (a)(5)(i) of this section when determining a 
borrower's eligibility for a deferment, unless the Secretary, as of the 
date of the determination, has information indicating that the borrower 
does not qualify for the deferment. The Secretary will resolve any 
discrepant information before granting a deferment under paragraph 
(a)(5)(i) of this section.
    (iii) If the Secretary grants a deferment under paragraph (a)(5)(i) 
of this section, the Secretary notifies the borrower that the deferment 
has been granted and that the borrower has the option to cancel the 
deferment and continue to make payments on the loan.
    (b) In-school deferment. (1) A Direct Loan borrower is eligible for 
a deferment during any period during which--
    (i) The borrower is carrying at least one-half the normal full-time 
work load for the course of study that the borrower is pursuing, as 
determined by the eligible school the borrower is attending; and
    (ii) The borrower is not serving in a medical internship or 
residency program, except for a residency program in dentistry.
    (2) For the purpose of paragraph (b)(1) of this section, the 
Secretary processes a deferment when--
    (i) The borrower submits a request to the Secretary along with 
documentation verifying the borrower's eligibility;
    (ii) The Secretary receives information from the borrower's school 
indicating that the borrower is eligible to receive a new loan;
    (iii) The Secretary receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower is enrolled on at least a half-time basis; or
    (iv) The Secretary confirms a borrower's half-time enrollment 
status through the use of the National Student Loan Data System if 
requested to do so by the school the borrower is attending.
    (3)(i) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(2)(ii), (iii), or (iv) of this section, 
the borrower has the option to cancel the deferment and continue to 
make payments on the loan.
    (ii) If the borrower elects to cancel the deferment and continue to 
make payments on the loan, the borrower has the option to make the 
principal and interest payments that were deferred. If the borrower 
does not make the payments, the Secretary applies a deferment for the 
period in which payments were not made and capitalizes the interest.
    (c) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is eligible for a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008 during the six-month period that 
begins on the day after the

[[Page 65830]]

student ceases to be enrolled on at least a half-time basis at an 
eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower in accordance with Sec.  685.204(b)(2)(ii), 
(iii), or (iv), the deferment period for a Direct PLUS Loan first 
disbursed on or after July 1, 2008 includes the six-month post-
enrollment period described in paragraph (c)(1)(i) of this section.
    (2) A parent Direct PLUS Loan borrower is eligible for a deferment 
on a Direct PLUS Loan first disbursed on or after July 1, 2008--
    (i) Upon the request of the borrower, during the period when the 
student on whose behalf the loan was obtained is enrolled at an 
eligible institution on at least a half-time basis; and
    (ii) Upon the request of the borrower, during the six-month period 
that begins on the later of the day after the student on whose behalf 
the loan was obtained ceases to be enrolled on at least a half-time 
basis or, if the parent borrower is also a student, the day after the 
parent borrower ceases to be enrolled on at least a half-time basis.
    (d) Graduate fellowship deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which an authorized 
official of the borrower's graduate fellowship program certifies that 
the borrower is pursuing a course of study pursuant to an eligible 
graduate fellowship program in accordance with paragraph (d)(2) of this 
section.
    (2)(i) To qualify for a deferment under paragraph (d)(1) of this 
section, a borrower must--
    (A) Hold at least a baccalaureate degree conferred by an 
institution of higher education;
    (B) Have been accepted or recommended by an institution of higher 
education for acceptance on a full-time basis into an eligible graduate 
fellowship program, as defined in paragraph (d)(2)(ii) of this section; 
and
    (C) Not be serving in a medical internship or residency program, 
except for a residency program in dentistry.
    (ii) An eligible graduate fellowship program is a fellowship 
program that--
    (A) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (B) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (C) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (D) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) A Direct Loan 
borrower is eligible for a deferment during any period in which an 
authorized official of the borrower's rehabilitation training program 
certifies that the borrower is pursuing an eligible rehabilitation 
training program for individuals with disabilities in accordance with 
paragraph (e)(2) of this section.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational 
rehabilitation programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment 
by the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Unemployment deferment. (1) A Direct Loan borrower is eligible 
for a deferment during periods that, collectively, do not exceed three 
years in which the borrower is seeking and unable to find full-time 
employment.
    (2) A borrower qualifies for an unemployment deferment by--
    (i) Providing evidence of eligibility for unemployment benefits to 
the Secretary; or
    (ii) Providing to the Secretary a written certification, or an 
equivalent as approved by the Secretary, that--
    (A) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (B) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding six-month 
period to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (f)(2)(ii) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a 
week and is expected to last at least three months.
    (iv) The initial period of unemployment deferment may be granted 
for a period of unemployment beginning up to six months before the date 
the Secretary receives the borrower's request, and may be granted for 
up to six months after that date.
    (4) The Secretary does not grant an unemployment deferment beyond 
the date that is six months after the date the borrower provides 
evidence of the borrower's eligibility for unemployment insurance 
benefits under paragraph (f)(2)(i) of this section or the date the 
borrower provides the written certification, or an approved equivalent, 
under paragraph (f)(2)(ii) of this section.
    (g) Economic hardship deferment. (1)(i) A Direct Loan borrower is 
eligible for a deferment during periods that, collectively, do not 
exceed three years in which the borrower has experienced or will 
experience an economic hardship in accordance with paragraph (g)(2) of 
this section.
    (ii) An economic hardship deferment is granted for periods of up to 
one year at a time, except that a borrower who receives a deferment 
under paragraph (g)(2)(iv) of this section may receive an economic 
hardship deferment for the lesser of the borrower's full term of 
service in the Peace Corps or the borrower's remaining period of 
economic hardship deferment eligibility under the 3-year maximum.
    (2) A borrower qualifies for an economic hardship deferment if the 
borrower--
    (i) Has been granted an economic hardship deferment under either 
the FFEL or the Federal Perkins Loan programs for the period of time 
for

[[Page 65831]]

which the borrower has requested an economic hardship deferment for his 
or her Direct Loan;
    (ii) Is receiving payment under a Federal or State public 
assistance program, such as Aid to Families with Dependent Children, 
Supplemental Security Income, Food Stamps, or State general public 
assistance;
    (iii) Is working full-time (as defined in paragraph (g)(3)(iii) of 
this section) and has a monthly income (as defined in paragraph 
(g)(3)(iv) of this section) that does not exceed the greater of (as 
calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size (as defined in paragraph 
(g)(3)(v) of this section) as published annually by the Department of 
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower 
is not a resident of a State identified in the poverty guidelines, the 
poverty guideline to be used for the borrower is the poverty guideline 
(for the relevant family size) used for the 48 contiguous States; or
    (iv) Is serving as a volunteer in the Peace Corps.
    (3) The following rules apply to a deferment granted under 
paragraph (g)(2)(iii) of this section:
    (i) For an initial period of deferment, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's 
monthly income.
    (ii) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraph (g)(2)(iii) of this section, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's 
monthly income or a copy of the borrower's most recently filed Federal 
income tax return.
    (iii) A borrower is considered to be working full-time if the 
borrower is expected to be employed for at least three consecutive 
months at 30 hours per week.
    (iv) A borrower's monthly income is the gross amount of income 
received by the borrower from employment and from other sources, or 
one-twelfth of the borrower's adjusted gross income, as recorded on the 
borrower's most recently filed Federal income tax return.
    (v) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, 
at the time the borrower requests the economic hardship deferment, the 
other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (h) Military service deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency, as defined in paragraph (h)(5) of this section; 
or
    (ii) Performing qualifying National Guard duty during a war or 
other military operation or national emergency, as defined in paragraph 
(h)(5) of this section.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of the service 
described in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
    (3) Without supporting documentation, the military service 
deferment will be granted to an otherwise eligible borrower for a 
period not to exceed the initial 12 months from the date the qualifying 
eligible service began based on a request from the borrower or the 
borrower's representative.
    (4) The provisions of paragraph (h) of this section do not 
authorize the refunding of any payments made by or on behalf of a 
borrower during a period for which the borrower qualified for a 
military service deferment.
    (5) As used in paragraph (h) of this section--
    (i) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (A) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
    (B) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (C) Any other member of an Armed Force on active duty in connection 
with such emergency or subsequent actions or conditions who has been 
assigned to a duty station at a location other than the location at 
which the member is normally assigned;
    (ii) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard 
on full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) 
under a call to active service authorized by the President or the 
Secretary of Defense for a period of more than 30 consecutive days 
under 32 U.S.C. 502(f) in connection with a war, other military 
operation, or national emergency declared by the President and 
supported by Federal funds;
    (iii) Active duty means active duty as defined in 10 U.S.C. 
101(d)(1) except that it does not include active duty for training or 
attendance at a service school;
    (iv) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (v) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (i) Post-active duty student deferment. (1) A Direct Loan borrower 
is eligible for a deferment for 13 months following the conclusion of 
the borrower's active duty military service and any applicable grace 
period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and
    (ii) The borrower was enrolled on at least a half-time basis in a 
program of instruction at an eligible institution at the time, or 
within six months prior to the time, the borrower was called to active 
duty.
    (2) As used in paragraph (i)(1) of this section, ``active duty'' 
means active duty as defined in 10 U.S.C. 101(d)(1) for at least a 30-
day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard 
personnel based on State statute or policy and the activities of the 
National Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the 
U.S. Secretary of Defense, to order a member to State active duty and 
the activities of the National Guard are paid for with Federal funds;

[[Page 65832]]

    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed 
in such a position is reassigned to active duty under paragraph 
(i)(2)(i) of this section or full-time National Guard duty under 
paragraph (i)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status on at least 
a half-time basis during the grace period or the 13-month deferment 
period, the deferment expires at the time the borrower returns to 
enrolled student status on at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (j) Additional deferments for Direct Loan borrowers with FFEL 
Program loans made before July 1, 1993. If, at the time of application 
for a borrower's first Direct Loan, a borrower has an outstanding 
balance of principal or interest owing on any FFEL Program loan that 
was made, insured, or guaranteed prior to July 1, 1993, the borrower is 
eligible for a deferment during--
    (1) The periods described in paragraphs (b) through (i) of this 
section; and
    (2) The periods described in 34 CFR 682.210(b), including those 
periods that apply to a ``new borrower'' as that term is defined in 34 
CFR 682.210(b)(7).
    (Approved by the Office of Management and Budget under control 
number 1845-0021)
    (Authority: 20 U.S.C. 1087a et seq.)

0
89. Section 685.205 is amended by:
0
A. In paragraph (a)(4), removing the word ``or'' that appears after the 
punctuation ``;''.
0
B. Revising paragraph (a)(5).
0
C. Adding new paragraphs (a)(8) and (a)(9).
0
D. In paragraph (b)(2), removing the words ``authorized deferment 
period'' and adding, in their place, the words ``authorized deferment 
or forbearance period''.
    The additions read as follows:


Sec.  685.205  Forbearance.

    (a) * * *
    (5)(i) The borrower is performing the type of service that would 
qualify the borrower for loan forgiveness under the requirements of the 
teacher loan forgiveness program in Sec.  685.217.
    (ii) Before a forbearance is granted under Sec.  685.205(a)(5)(i), 
the borrower must--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and ending dates that the borrower is 
expected to perform, for that year, the type of service described in 
Sec.  685.217(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec.  685.217(c).
    (iii) The Secretary grants forbearance under paragraph (a)(5) of 
this section only if the Secretary believes, at the time of the 
borrower's annual request, that the expected forgiveness amount under 
Sec.  685.217(d) will satisfy the anticipated remaining outstanding 
balance on the borrower's loan at the time of the expected forgiveness;
* * * * *
    (8)(i) The Secretary may grant a forbearance to permit a borrower 
or endorser to resume honoring the agreement to repay the debt after 
default. The terms of the forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser or a written or oral affirmation of the borrower's or 
endorser's obligation to repay the debt.
    (ii) If the forbearance is based on the borrower's or endorser's 
oral affirmation of the obligation to repay the debt, the forbearance 
period is limited to 120 days, such a forbearance is not granted 
consecutively, and the Secretary will--
    (A) Orally review with the borrower the terms and conditions of the 
forbearance, including the consequences of interest capitalization, and 
all other repayment options available to the borrower;
    (B) Send a notice to the borrower or endorser that confirms the 
terms of the forbearance and the borrower's or endorser's affirmation 
of the obligation to repay the debt and that includes information on 
all other repayment options available to the borrower; and
    (C) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (iii) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (A) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (B) Oral acknowledgement and agreement to repay the debt documented 
by the Secretary in the borrower's or endorser's file and confirmed by 
the Secretary in a notice to the borrower; or
    (C) A payment made on the loan by the borrower or endorser.
    (9)(i) The borrower is performing the type of service that would 
qualify the borrower for a partial repayment of his or her loan under 
the Student Loan Repayment Programs administered by the Department of 
Defense under 10 U.S.C. 2171, 2173, 2174, or any other student loan 
repayment programs administered by the Department of Defense.
    (ii) To receive a forbearance under this paragraph, the borrower 
must submit documentation showing the time period during which the 
Department of Defense considers the borrower to be eligible for a 
partial repayment of his or her loan under a student loan repayment 
program.
* * * * *


Sec.  685.206  [Amended]

0
90. Section 685.206 is amended by:
0
A. In the introductory text of paragraph (a), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
B. In paragraph (b)(1), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
C. In paragraph (b)(2), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
D. In paragraph (c)(1)(iv), removing the words ``Credit bureau'' and 
adding, in their place, the words ``Consumer reporting agency''.
0
E. In paragraph (c)(2)(iii), removing the words ``credit bureaus'' and 
adding, in their place, the words ``consumer reporting agencies''.

0
91. Section 685.207 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Adding a new paragraph (a)(3).
0
C. In paragraph (b)(1)(ii), removing the citation ``Sec.  685.204'' and 
adding, in its place, the citation ''Sec.  685.204(b)''.
0
D. Revising paragraph (b)(3).
    The revisions and addition read as follows:


Sec.  685.207  Obligation to repay.

    (a) * * *
    (2) The borrower's repayment of a Direct Loan may also be subject 
to the deferment provisions in Sec.  685.204, the forbearance 
provisions in Sec.  685.205, the discharge provisions in Sec.  685.212, 
and the loan forgiveness provisions in Sec. Sec.  685.217 and 685.219.
    (3) A borrower's first payment on a Direct Loan is due within 60 
days of the beginning date of the repayment period as determined in 
accordance with

[[Page 65833]]

paragraph (b), (c), (d), or (e) of this section.
    (b) * * *
    (3)(i) A borrower is not obligated to pay interest on a Direct 
Subsidized Loan during periods when the borrower is enrolled at an 
eligible school on at least a half-time basis unless the borrower is 
required to make payments on the loan during those periods under 
paragraph (b)(1) of this section.
    (ii) Except as provided in paragraph (b)(3)(iii) of this section, a 
borrower is not obligated to pay interest on a Direct Subsidized Loan 
during grace periods.
    (iii) In the case of a Direct Subsidized Loan for which the first 
disbursement is made on or after July 1, 2012 and before July 1, 2014, 
a borrower is responsible for the interest that accrues during the 
grace period.
* * * * *


Sec.  685.208  [Amended]

0
92. Section 685.208 is amended by:
0
A. In paragraph (a)(5), removing the words ``income contingent'' and 
adding, in their place, the words ``income-contingent''.
0
B. In paragraph (j)(1), removing the word ``then'' and adding, in its 
place, the word ``than''.
0
C. In paragraph (m)(1), adding the words ``or, for a new borrower as of 
July 1, 2014, as defined in Sec.  685.221(a)(4), 10 percent'' 
immediately after the words ``15 percent''.

0
93. Section 685.210 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Revising the introductory text of paragraph (b)(1).
0
C. Revising paragraph (b)(1)(i).
0
D. In paragraph (b)(2)(i), removing the words ``income contingent'' and 
adding, in their place, the words ``income-contingent''.
    The revisions read as follows:


Sec.  685.210  Choice of repayment plan.

    (a) * * *
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec.  685.208(b) or 
(c) for the borrower, as applicable.
    (b) * * *
    (1) A borrower may change repayment plans at any time after the 
loan has entered repayment by notifying the Secretary. However, a 
borrower who is repaying a defaulted loan under an income-contingent 
repayment plan or the income-based repayment plan in accordance with 
Sec.  685.211(d)(3)(ii), or who is repaying a Direct Consolidation Loan 
under the income-contingent repayment plan or the income-based 
repayment plan in accordance with Sec.  685.220(d)(1)(ii)(A)(3) may not 
change to another repayment plan unless--
    (i) The borrower was required to and did make a payment under the 
income-contingent repayment plan or income-based repayment plan in each 
of the prior three months; or
* * * * *

0
94. Section 685.211 is amended by:
0
A. In paragraph (d)(3)(i), removing the words ``national credit 
bureaus'' and adding, in their place, the words ``nationwide consumer 
reporting agencies''.
0
B. In paragraph (d)(3)(ii), removing the words ``income contingent'' 
and adding, in their place, the words ``income-contingent''.
0
C. Revising paragraph (f).
    The revision reads as follows:


Sec.  685.211  Miscellaneous repayment provisions.

* * * * *
    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 
except for a loan on which a judgment has been obtained, is 
rehabilitated if the borrower makes 9 voluntary, reasonable and 
affordable monthly payments within 20 days of the due date during 10 
consecutive months. The Secretary determines the amount of a borrower's 
reasonable and affordable payment on the basis of a borrower's total 
financial circumstances.
    (i) The Secretary initially considers the borrower's reasonable and 
affordable payment amount to be an amount equal to 15 percent of the 
amount by which the borrower's AGI exceeds 150 percent of the poverty 
guideline amount applicable to the borrower's family size and State, 
divided by 12, except that if this amount is less than $5, the 
borrower's monthly rehabilitation payment is $5.
    (ii) The Secretary may calculate the payment amount based on 
information provided orally by the borrower or the borrower's 
representative and provide the borrower with a rehabilitation agreement 
using that amount. The Secretary requires the borrower to provide 
documentation to confirm the borrower's AGI and family size. If the 
borrower does not provide the Secretary with any documentation 
requested by the Secretary to calculate or confirm the reasonable and 
affordable payment amount within a reasonable time deadline set by the 
Secretary, the rehabilitation agreement provided is null and void.
    (iii) A reasonable and affordable payment amount is not--
    (A) A required minimum loan payment amount (e.g., $50) if the 
Secretary determines that a smaller amount is reasonable and 
affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (iv) Within 15 business days of the Secretary's determination of 
the borrower's loan rehabilitation payment amount, the Secretary 
provides the borrower with a written rehabilitation agreement which 
includes the borrower's reasonable and affordable payment amount, a 
prominent statement that the borrower may object orally or in writing 
to the reasonable and affordable payment amount with the method and 
timeframe for raising such an objection, a statement that the 
rehabilitation is null and void if the borrower does not provide the 
documentation required to calculate the reasonable and affordable 
payment amount, and an explanation of any other terms and conditions 
applicable to the required series of payments that must be made. To 
accept the agreement, the borrower must sign and return the agreement 
or accept the agreement electronically under a process provided by the 
Secretary. The Secretary does not impose any other conditions unrelated 
to the amount or timing of the rehabilitation payments in the 
rehabilitation agreement. The written rehabilitation agreement informs 
the borrower of the effects of having the loans rehabilitated (e.g., 
removal of the record of default from the borrower's credit history and 
return to normal repayment).
    (2) The Secretary provides the borrower with a written statement 
confirming the borrower's reasonable and affordable payment amount, as 
determined by the Secretary, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before the borrower's account can be rehabilitated. The statement 
informs the borrower that the borrower may object to the terms and 
conditions of the rehabilitation agreement, and explains the method and 
timeframe for objecting to the terms and conditions of the 
rehabilitation agreement.
    (3) If the borrower objects to the monthly payment amount 
determined under paragraph (f)(1) of this section, the Secretary 
recalculates the payment based solely on information provided on a form 
approved by the Secretary and, if requested, supporting documentation 
from the borrower and other sources, and considers--
    (i) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments,

[[Page 65834]]

and other income received by the borrower and the spouse, such as 
welfare benefits, Social Security benefits, Supplemental Security 
Income, and workers' compensation. Spousal income is not considered if 
the spouse does not contribute to the borrower's household income;
    (ii) Family size as defined in Sec.  685.221(a)(3); and
    (iii) Reasonable and necessary expenses, which include--
    (A) Food;
    (B) Housing;
    (C) Utilities;
    (D) Basic communication expenses;
    (E) Necessary medical and dental costs;
    (F) Necessary insurance costs;
    (G) Transportation costs;
    (H) Dependent care and other work-related expenses;
    (I) Legally required child and spousal support;
    (J) Other title IV and non-title IV student loan payments; and
    (K) Other expenses approved by the Secretary.
    (4) The Secretary provides the borrower with a new written 
rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount. To accept the agreement, the 
borrower must sign and return the agreement or accept the agreement 
electronically under a process provided by the Secretary.
    (5) The Secretary includes any payment made under paragraph (1) of 
the definition of ``satisfactory repayment arrangement'' in Sec.  
685.102(b) in determining whether the 9 out of 10 payments required 
under paragraph (f)(1) of this section have been made.
    (6) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances only upon providing the documentation specified in 
paragraph (f)(3) of this section.
    (7) During the rehabilitation period, the Secretary limits contact 
with the borrower on the loan being rehabilitated to collection 
activities that are required by law or regulation and to communications 
that support the rehabilitation.
    (8) If a defaulted loan is rehabilitated, the Secretary instructs 
any consumer reporting agency to which the default was reported to 
remove the default from the borrower's credit history.
    (9) A defaulted Direct Loan on which a judgment has been obtained 
may not be rehabilitated.
    (10) A Direct Loan obtained by fraud for which the borrower has 
been convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining title IV, HEA program assistance may not 
be rehabilitated.
    (11)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the Secretary 
continues collecting the loan by administrative wage garnishment until 
the borrower makes five qualifying monthly payments under the 
rehabilitation agreement, unless the Secretary is otherwise precluded 
from doing so.
    (ii) After the borrower makes the fifth qualifying monthly payment, 
the Secretary, unless otherwise directed by the borrower, suspends the 
garnishment order issued to the borrower's employer.
    (iii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
    (12) Effective for any defaulted Direct Loan that is rehabilitated 
on or after August 14, 2008, the borrower cannot rehabilitate the loan 
again if the loan returns to default status following the 
rehabilitation.
* * * * *


Sec.  685.212  [Amended]

0
95. Section 685.212 is amended by:
0
A. In paragraph (a)(3), removing the words ``Direct PLUS Consolidation 
Loan'' and adding, in their place, the words ``Direct Consolidation 
Loan''.
0
B. In paragraph (b), removing the citation ``Sec.  685.213(c)'' and 
adding, in its place, the citation ``Sec.  685.213''.

0
96. Section 685.214 is amended by:
0
A. Revising paragraph (a)(2)(ii).
0
B. Revising paragraph (b)(4).
0
C. Revising paragraph (c).
0
D. In paragraph (d)(1), removing the word ``shall'' each time it 
appears and adding, in its place, the word ``must''.
0
E. In paragraph (f)(1), removing the number and words ``90 days'' and 
adding, in their place, the number and words ``120 days''.
    The revisions read as follows:


Sec.  685.214  Closed school discharge.

    (a) * * *
    (2) * * *
    (ii) ``School'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered eligible.
    (b) * * *
    (4) The Secretary reports the discharge of a loan under this 
section to all consumer reporting agencies to which the Secretary 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan.
    (c) Borrower qualification for discharge. (1) In order to qualify 
for discharge of a loan under this section, a borrower must submit to 
the Secretary a written request and sworn statement, and the factual 
assertions in the statement must be true. The statement need not be 
notarized but must be made by the borrower under penalty of perjury. In 
the statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a 
parent borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 120 days before the school 
closed. The Secretary may extend the 120-day period if the Secretary 
determines that exceptional circumstances related to a school's closing 
justify an extension. Exceptional circumstances for this purpose may 
include, but are not limited to: the school's loss of accreditation; 
the school's discontinuation of the majority of its academic programs; 
action by the State to revoke the school's license to operate or award 
academic credentials in the State; or a finding by a State or Federal 
government agency that the school violated State or Federal law; and
    (C) Did not complete the program of study through a teach-out at 
another school or by transferring academic credits or hours earned at 
the closed school to another school;
    (ii) State whether the borrower (or student) has made a claim with 
respect to the school's closing with any third party, such as the 
holder of a performance bond or a tuition recovery program, and, if so, 
the amount of any payment received by the borrower (or student) or 
credited to the borrower's loan obligation; and
    (iii) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions 
in accordance with paragraph (d) of this section and to transfer any 
right to recovery against a third party to the Secretary in accordance 
with paragraph (e) of this section.

[[Page 65835]]

    (2) The Secretary may discharge a loan under this section without 
an application from the borrower if the Secretary determines, based on 
information in the Secretary's possession, that the borrower qualifies 
for the discharge.
* * * * *

0
97. Section 685.215 is amended by:
0
A. In paragraph (a)(1)(iv), removing the citation ``Sec.  
682.402(e)(14)'' and adding, in its place, the words ``paragraph 
(c)(4)(ii) of this section''.
0
B. Revising paragraph (b)(5).
0
C. In the introductory text of paragraph (c), removing the word 
``shall'' each time it appears and adding, in its place, the word 
``must''.
0
D. In the introductory text of paragraph (c)(1), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
E. In the introductory text of paragraph (c)(2), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
F. In the introductory text of paragraph (c)(3), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
G. Revising paragraph (c)(4).
0
H. In paragraph (c)(5), removing the word ``shall'' and adding, it its 
place, the word ``must''.
0
I. In the introductory text of paragraph (c)(6), removing the word 
``shall'' and adding, in its place, the word ``must''.
    The revisions read as follows:


Sec.  685.215  Discharge for false certification of student eligibility 
or unauthorized payment.

* * * * *
    (b) * * *
    (5) The Secretary reports the discharge under this section to all 
consumer reporting agencies to which the Secretary previously reported 
the status of the loan, so as to delete all adverse credit history 
assigned to the loan.
    (c) * * *
    (4) Identity theft. (i) In the case of an individual whose 
eligibility to borrow was falsely certified because he or she was a 
victim of the crime of identity theft and is requesting a discharge, 
the individual must--
    (A) Certify that the individual did not sign the promissory note, 
or that any other means of identification used to obtain the loan was 
used without the authorization of the individual claiming relief;
    (B) Certify that the individual did not receive or benefit from the 
proceeds of the loan with knowledge that the loan had been made without 
the authorization of the individual;
    (C) Provide a copy of a local, State, or Federal court verdict or 
judgment that conclusively determines that the individual who is named 
as the borrower of the loan was the victim of a crime of identity 
theft; and
    (D) If the judicial determination of the crime does not expressly 
state that the loan was obtained as a result of the crime of identity 
theft, provide--
    (1) Authentic specimens of the signature of the individual, as 
provided in paragraph (c)(2)(ii) of this section, or of other means of 
identification of the individual, as applicable, corresponding to the 
means of identification falsely used to obtain the loan; and
    (2) A statement of facts that demonstrate, to the satisfaction of 
the Secretary, that eligibility for the loan in question was falsely 
certified as a result of the crime of identity theft committed against 
that individual.
    (ii)(A) For purposes of this section, identity theft is defined as 
the unauthorized use of the identifying information of another 
individual that is punishable under 18 U.S.C. 1028, 1028A, 1029, or 
1030, or substantially comparable State or local law.
    (B) Identifying information includes, but is not limited to--
    (1) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, and employer or 
taxpayer identification number;
    (2) Unique biometric data, such as fingerprints, voiceprint, retina 
or iris image, or unique physical representation;
    (3) Unique electronic identification number, address, or routing 
code; or
    (4) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
* * * * *


Sec.  685.216  [Amended]

0
98. Section 685.216(b)(2) is amended by removing the word ``credit'' 
and adding, in its place, the word ``consumer''.
0
99. Section 685.217 is amended by:
0
A. Revising paragraph (a)(1).
0
B. In the last sentence of paragraph (a)(2)(i), adding the word ``for'' 
immediately before the words ``an eligible educational service 
agency''.
0
C. In paragraph (a)(2)(iii), removing the word ``at'' each time it 
appears and adding, in its place, the word ``for''.
0
D. In paragraph (a)(3), removing the words ``FFEL and Direct Loan'' and 
adding, in their place, the words ``Direct Loan and FFEL''.
0
E. In the introductory text of paragraph (a)(4), removing the words 
``FFEL and Direct Loan'' and adding, in their place, the words ``Direct 
Loan and FFEL''.
0
F. In paragraph (a)(4)(i), removing the word ``at'' the second time it 
appears and adding, in its place, the word ``by''.
0
G. In paragraph (a)(4)(ii), adding the words ``by an eligible'' 
immediately before the words ``educational service agency''.
0
H. In the introductory text of paragraph (c)(1), adding the word ``by'' 
immediately before the words ``an educational service agency''.
0
I. In paragraph (c)(1)(iii), removing the last sentence.
0
J. Redesignating paragraphs (c)(2) through (c)(11) as paragraphs (c)(3) 
through (c)(12), respectively.
0
K. Adding a new paragraph (c)(2).
0
L. In redesignated paragraph (c)(4)(ii)(A), removing the word ``at'' 
the second time it appears and adding, in its place, the word ``for''.
0
M. In redesignated paragraph (c)(4)(ii)(B), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
N. In redesignated paragraph (c)(4)(iii), removing the word ``at'' each 
time it appears and adding, in its place, the word ``for''.
0
O. In redesignated paragraph (c)(5)(i), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
P. In redesignated paragraph (c)(5)(ii)(A), removing the word ``at'' 
the second time it appears and adding, in its place, the word ``for''.
0
Q. In redesignated paragraph (c)(5)(ii)(B), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
R. In redesignated paragraph (c)(5)(iii), removing the word ``at'' each 
time it appears and adding, in its place, the word ``for''.
0
S. Revising the introductory text of redesignated paragraph (c)(7).
0
T. Revising redesignated paragraph (c)(9).
0
U. Revising redesignated paragraph (c)(10).
0
V. Adding a new paragraph (c)(13).
0
W. Revising paragraph (d)(1).
0
X. In paragraph (d)(2), removing the words ``paragraphs (c)(3)(ii) or 
(c)(4)(ii)'' and adding, in their place, the words ``paragraph 
(c)(4)(ii) or (c)(5)(ii)''.
    The revisions and addition read as follows:


Sec.  685.217  Teacher loan forgiveness program.

    (a) * * *
    (1) The teacher loan forgiveness program is intended to encourage

[[Page 65836]]

individuals to enter and continue in the teaching profession. For new 
borrowers, the Secretary repays the amount specified in this paragraph 
(a) on the borrower's Direct Subsidized Loans, Direct Unsubsidized 
Loans, Subsidized and Unsubsidized Federal Stafford Loans, and in 
certain cases, Direct Consolidation Loans or Federal Consolidation 
Loans. The forgiveness program is only available to a borrower who has 
no outstanding loan balance under the Direct Loan Program or the FFEL 
Program on October 1, 1998, or who has no outstanding loan balance on 
the date he or she obtains a loan after October 1, 1998.
* * * * *
    (c) * * *
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
* * * * *
    (7) For teacher loan forgiveness applications received by the 
Secretary on or after July 1, 2006, a teacher in a private, non-profit 
elementary or secondary school who is exempt from State certification 
requirements (unless otherwise applicable under State law) may qualify 
for loan forgiveness under paragraphs (c)(4)(ii) or (c)(5) of this 
section if--
* * * * *
    (9) A borrower's period of postsecondary education, qualifying FMLA 
condition, or military active duty as described in paragraph (c)(8) of 
this section, including the time necessary for the borrower to resume 
qualifying teaching no later than the beginning of the next regularly 
scheduled academic year, does not constitute a break in the required 
five consecutive years of qualifying teaching service.
    (10) A borrower who was employed as a teacher at more than one 
qualifying school, for more than one qualifying educational service 
agency, or a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (13) A borrower may request forbearance during each of the five 
years of qualifying teaching service in accordance with Sec.  
685.205(a)(5).
    (d) * * *
    (1) A qualified borrower is eligible for forgiveness of up to 
$5,000, or up to $17,500 if the borrower meets the requirements of 
paragraph (c)(4)(ii) or (c)(5)(ii) of this section. The forgiveness 
amount is deducted from the aggregate amount of the borrower's Direct 
Subsidized Loan or Direct Unsubsidized Loan or Direct Consolidation 
Loan obligation that is outstanding after the borrower completes his or 
her fifth consecutive complete academic year of teaching as described 
in paragraph (c) of this section. Only the outstanding portion of the 
Direct Consolidation Loan that was used to repay an eligible Direct 
Subsidized Loan, an eligible Direct Unsubsidized Loan, or an eligible 
Subsidized or Unsubsidized Federal Stafford Loan qualifies for loan 
forgiveness under this section.
* * * * *

0
100. Section 685.218 is amended by:
0
A. In paragraph (b)(4), removing the words ``FFEL or Direct'' and 
adding, in their place, the words ``Direct or FFEL''.
0
B. Revising paragraph (d)(3).
0
C. In paragraph (d)(6), removing the words ``a Perkins Loan, a FFEL 
Program loan, or another Direct Loan'' and adding, in their place, the 
words ``another Direct Loan, a FFEL Program Loan, or a Perkins Loan''.
0
D. In paragraph (d)(7), removing the words ``a FFEL Program Loan or 
another Direct Loan'' and adding, in their place, ``another Direct Loan 
or a FFEL Program Loan''.
0
E. In paragraph (e)(1)(ii), removing the number and word ``24 hours'' 
each time they appear and adding, in their place, the number and word 
``72 hours''.
0
F. Revising paragraph (f)(4)(iii).
0
G. In paragraph (g)(2)(i), removing the words ``Direct Loans'' and 
adding, in their place, the words ``Direct Loan''.
    The revisions read as follows:


Sec.  685.218  Discharge of student loan indebtedness for survivors of 
victims of the September 11, 2001, attacks.

* * * * *
    (d) * * *
    (3) If the individual owed a Direct Loan, a FFEL Program Loan, or a 
Perkins Loan at the time of the terrorist attacks on September 11, 
2001, documentation that the individual's loans were discharged by the 
Secretary, the lender, or the institution due to death may be 
substituted for the original or certified copy of a death certificate.
* * * * *
    (f) * * *
    (4) * * *
    (iii) Copies of approved joint Direct Loan or FFEL Consolidation 
Loan applications or an approved Direct or FFEL PLUS Loan application.
* * * * *

0
101. Section 685.220 is revised to read as follows:


Sec.  685.220  Consolidation.

    (a) Direct Consolidation Loans. A borrower may consolidate 
education loans made under certain Federal programs into a Direct 
Consolidation Loan. Loans consolidated into a Direct Consolidation Loan 
are discharged when the Direct Consolidation Loan is originated.
    (b) Loans eligible for consolidation. The following loans may be 
consolidated into a Direct Consolidation Loan:
    (1) Subsidized Federal Stafford Loans.
    (2) Guaranteed Student Loans.
    (3) Federal Insured Student Loans (FISL).
    (4) Direct Subsidized Loans.
    (5) Direct Subsidized Consolidation Loans.
    (6) Federal Perkins Loans.
    (7) National Direct Student Loans (NDSL).
    (8) National Defense Student Loans (NDSL).
    (9) Federal PLUS Loans.
    (10) Parent Loans for Undergraduate Students (PLUS).
    (11) Direct PLUS Loans.
    (12) Direct PLUS Consolidation Loans.
    (13) Federal Consolidation Loans.
    (14) Unsubsidized Federal Stafford Loans.
    (15) Federal Supplemental Loans for Students (SLS).
    (16) Direct Unsubsidized Loans.
    (17) Direct Unsubsidized Consolidation Loans.
    (18) Auxiliary Loans to Assist Students (ALAS).
    (19) Health Professions Student Loans (HPSL) and Loans for 
Disadvantaged Students (LDS) made under subpart II of part A of title 
VII of the Public Health Service Act.
    (20) Health Education Assistance Loans (HEAL).
    (21) Nursing loans made under subpart II of part B of title VIII of 
the Public Health Service Act.
    (c) Components of Direct Consolidation Loans. (1) Subsidized 
component of Direct Consolidation Loans. The term ``Direct Subsidized 
Consolidation Loan'' refers to the portion of a Direct Consolidation 
Loan attributable to--
    (i) The loans identified in paragraphs (b)(1) through (b)(5) of 
this section; and
    (ii) The portion of a Federal Consolidation Loan under paragraph

[[Page 65837]]

(b)(13) of this section that is eligible for interest benefits during a 
deferment period under section 428C(b)(4)(C) of the Act.
    (2) Unsubsidized component of Direct Consolidation Loans. Except as 
provided in paragraph (c)(3) of this section, the term ``Direct 
Unsubsidized Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to--
    (i) The loans identified in paragraphs (b)(6) through (b)(12) of 
this section;
    (ii) The portion of a Federal Consolidation Loan under paragraph 
(b)(13) of this section that is not eligible for interest benefits 
during a deferment period under section 428C(b)(4)(C) of the Act; and
    (iii) The loans identified in paragraphs (b)(14) through (b)(21) of 
this section.
    (3) PLUS component of Direct Consolidation Loans. In the case of a 
Direct Consolidation Loan made before July 1, 2006, the term ``Direct 
PLUS Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to the loans identified in paragraphs 
(b)(9) through (b)(12) of this section.
    (d) Eligibility for a Direct Consolidation Loan. (1) A borrower may 
obtain a Direct Consolidation Loan if the borrower meets the following 
requirements:
    (i) The borrower consolidates at least one Direct Loan Program or 
FFEL Program loan.
    (ii) On the loans being consolidated, the borrower is--
    (A) At the time the borrower applies for the Direct Consolidation 
Loan--
    (1) In the grace period;
    (2) In a repayment period but not in default; or
    (3) In default but has made satisfactory repayment arrangements in 
accordance with paragraph (2) of the definition of that term in Sec.  
685.102(b);
    (B) Not subject to a judgment secured through litigation, unless 
the judgment has been vacated; or
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted.
    (iii) The borrower agrees to notify the Secretary of any change in 
address.
    (2) A borrower may not consolidate a Direct Consolidation Loan or a 
Federal Consolidation Loan into a new consolidation loan under this 
section unless at least one additional eligible loan is included in the 
consolidation, except that a borrower may consolidate a Federal 
Consolidation Loan into a new consolidation loan under this section 
without including any additional loans if--
    (i) The borrower has a Federal Consolidation Loan that is in 
default or has been submitted to the guaranty agency by the lender for 
default aversion, and the borrower wants to consolidate the Federal 
Consolidation Loan into the Direct Loan Program for the purpose of 
obtaining an income-contingent repayment plan or an income-based 
repayment plan; or
    (ii) The borrower has a Federal Consolidation Loan and the borrower 
wants to consolidate that loan into the Direct Loan Program for the 
purpose of using the Public Service Loan Forgiveness Program or the no 
accrual of interest benefit for active duty service.
    (3) Eligible loans received before or after the date a Direct 
Consolidation Loan is made may be added to a subsequent Direct 
Consolidation Loan.
    (e) Application for a Direct Consolidation Loan. To obtain a Direct 
Consolidation Loan, a borrower must submit a completed application to 
the Secretary. A borrower may add eligible loans to a Direct 
Consolidation Loan by submitting a request to the Secretary within 180 
days after the date on which the Direct Consolidation Loan is 
originated.
    (f) Origination of a consolidation loan. (1)(i) The holder of a 
loan that a borrower wishes to consolidate into a Direct Loan must 
complete and return the Secretary's request for certification of the 
amount owed within 10 business days of receipt or, if it is unable to 
provide the certification, provide to the Secretary a written 
explanation of the reasons for its inability to provide the 
certification.
    (ii) If the Secretary approves an application for a consolidation 
loan, the Secretary pays to each holder of a loan selected for 
consolidation the amount necessary to discharge the loan.
    (iii) For a Direct Loan Program or FFEL Program loan that is in 
default, the Secretary limits collection costs that may be charged to 
the borrower to a maximum of 18.5 percent of the outstanding principal 
and interest amount of the defaulted loan. For any other defaulted 
Federal education loan, all collection costs that are owed may be 
charged to the borrower.
    (2) Upon receipt of the proceeds of a Direct Consolidation Loan, 
the holder of a consolidated loan must promptly apply the proceeds to 
fully discharge the borrower's obligation on the consolidated loan. The 
holder of a consolidated loan must notify the borrower that the loan 
has been paid in full.
    (3) The principal balance of a Direct Consolidation Loan is equal 
to the sum of the amounts paid to the holders of the consolidated 
loans.
    (4) If the amount paid by the Secretary to the holder of a 
consolidated loan exceeds the amount needed to discharge that loan, the 
holder of the consolidated loan must promptly refund the excess amount 
to the Secretary to be credited against the outstanding balance of the 
Direct Consolidation Loan.
    (5) If the amount paid by the Secretary to the holder of the 
consolidated loan is insufficient to discharge that loan, the holder 
must notify the Secretary in writing of the remaining amount due on the 
loan. The Secretary promptly pays the remaining amount due.
    (g) Interest rate. The interest rate on a Direct Subsidized 
Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the 
rate established in Sec.  685.202(a)(10)(i). The interest rate on a 
Direct PLUS Consolidation Loan is the rate established in Sec.  
685.202(a)(10)(ii).
    (h) Repayment plans. A borrower may choose a repayment plan for a 
Direct Consolidation Loan in accordance with Sec.  685.208, and may 
change repayment plans in accordance with Sec.  685.210(b).
    (i) Repayment period. (1) Except as noted in paragraph (i)(4) of 
this section, the repayment period for a Direct Consolidation Loan 
begins on the day the loan is disbursed.
    (2)(i) Borrowers who entered repayment before July 1, 2006. The 
Secretary determines the repayment period under Sec.  685.208(i) on the 
basis of the outstanding balances on all of the borrower's loans that 
are eligible for consolidation and the balances on other education 
loans except as provided in paragraphs (i)(3)(i), (ii), and (iii) of 
this section.
    (ii) Borrowers entering repayment on or after July 1, 2006. The 
Secretary determines the repayment period under Sec.  685.208(j) on the 
basis of the outstanding balances on all of the borrower's loans that 
are eligible for consolidation and the balances on other education 
loans except as provided in paragraphs (i)(3)(i) through (iii) of this 
section.
    (3)(i) The total amount of outstanding balances on the other 
education loans used to determine the repayment period under Sec. Sec.  
685.208(i) and (j) may not exceed the amount of the Direct 
Consolidation Loan.
    (ii) The borrower may not be in default on the other education loan 
unless the borrower has made satisfactory repayment arrangements with 
the holder of the loan.
    (iii) The lender of the other educational loan may not be an 
individual.

[[Page 65838]]

    (4) A Direct Consolidation Loan that was made based on an 
application received before July 1, 2006 receives a grace period if it 
includes a Direct Loan Program or FFEL Program loan for which the 
borrower was in an in-school period at the time of consolidation. The 
repayment period begins the day after the grace period ends.
    (j) Repayment schedule. (1) The Secretary provides a borrower of a 
Direct Consolidation Loan a repayment schedule before the borrower's 
first payment is due. The repayment schedule identifies the borrower's 
monthly repayment amount under the repayment plan selected.
    (2) If a borrower adds an eligible loan to the consolidation loan 
under paragraph (e) of this section, the Secretary makes appropriate 
adjustments to the borrower's monthly repayment amount and repayment 
period.
    (k) Refunds and returns of title IV, HEA program funds received 
from schools. If a lender receives a refund or return of title IV, HEA 
program funds from a school on a loan that has been consolidated into a 
Direct Consolidation Loan, the lender must transmit the refund or 
return and an explanation of the source of the refund or return to the 
Secretary within 30 days of receipt.
    (l) Special provisions for joint consolidation loans. The 
provisions of paragraphs (l)(1) through (3) of this section apply to a 
Direct Consolidation Loan obtained by two married borrowers in 
accordance with the regulations that were in effect for consolidation 
applications received prior to July 1, 2006.
    (1) Deferment. To obtain a deferment on a joint Direct 
Consolidation Loan under Sec.  685.204, both borrowers must meet the 
requirements of that section.
    (2) Forbearance. To obtain forbearance on a joint Direct 
Consolidation Loan under Sec.  685.205, both borrowers must meet the 
requirements of that section.
    (3) Discharge. (i) If a borrower dies and the Secretary receives 
the documentation described in Sec.  685.212(a), the Secretary 
discharges an amount equal to the portion of the outstanding balance of 
the consolidation loan, as of the date of the borrower's death, 
attributable to any of that borrower's loans that were repaid by the 
consolidation loan.
    (ii) If a borrower meets the requirements for total and permanent 
disability discharge under Sec.  685.212(b), the Secretary discharges 
an amount equal to the portion of the outstanding balance of the 
consolidation loan, as of the date the borrower became totally and 
permanently disabled, attributable to any of that borrower's loans that 
were repaid by the consolidation loan.
    (iii) If a borrower meets the requirements for discharge under 
Sec.  685.212(d), (e), or (f) on a loan that was consolidated into a 
joint Direct Consolidation Loan, the Secretary discharges the portion 
of the consolidation loan equal to the amount of the loan that would be 
eligible for discharge under the provisions of Sec.  685.212(d), (e), 
or (f) as applicable, and that was repaid by the consolidation loan.
    (iv) If a borrower meets the requirements for loan forgiveness 
under Sec.  685.212(h) on a loan that was consolidated into a joint 
Direct Consolidation Loan, the Secretary repays the portion of the 
outstanding balance of the consolidation loan attributable to the loan 
that would be eligible for forgiveness under the provisions of Sec.  
685.212(h), and that was repaid by the consolidation loan.
    (Approved by the Office of Management and Budget under control 
number 1845-0021)

(Authority: 20 U.S.C. 1078-8, 1087a et seq.)



0
102. Section 685.300 is amended by:
0
A. Revising paragraph (a).
0
B. In the introductory text of paragraph (b), removing the word 
``shall'' each time it appears and adding, in its place, the word 
``must''.
0
C. Removing paragraph (b)(8).
0
D. Redesignating paragraphs (b)(5), (6), and (7) as paragraphs (b)(6), 
(7), and (8), respectively.
0
E. Adding a new paragraph (b)(5).
0
F. Revising paragraph (c).
    The revisions and addition read as follows:


Sec.  685.300  Agreements between an eligible school and the Secretary 
for participation in the Direct Loan Program

    (a) General. Participation of a school in the Direct Loan Program 
means that eligible students at the school may receive Direct Loans. To 
participate in the Direct Loan Program, a school must--
    (1) Demonstrate to the satisfaction of the Secretary that the 
school meets the requirements for eligibility under the Act and 
applicable regulations; and
    (2) Enter into a written program participation agreement with the 
Secretary.
    (b) * * *
    (5) On a monthly basis, reconcile institutional records with Direct 
Loan funds received from the Secretary and Direct Loan disbursement 
records submitted to and accepted by the Secretary;
* * * * *
    (c) Origination. A school that originates loans in the Direct Loan 
Program must originate loans to eligible students and parents in 
accordance with part D of the Act. The note or evidence of the 
borrower's obligation on the loan originated by the school is the 
property of the Secretary.
* * * * *

0
103. Section 685.301 is revised to read as follows:


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

    (a) Determining eligibility and loan amount. (1) A school 
participating in the Direct Loan Program must ensure that any 
information it provides to the Secretary in connection with loan 
origination is complete and accurate. A school must originate a Direct 
Loan while the student meets the borrower eligibility requirements of 
Sec.  685.200. Except as provided in 34 CFR part 668, subpart E, a 
school may rely in good faith upon statements made by the borrower and, 
in the case of a parent Direct PLUS Loan borrower, the student and the 
parent borrower.
    (2) A school must provide to the Secretary borrower information 
that includes but is not limited to--
    (i) The borrower's eligibility for a loan, as determined in 
accordance with Sec.  685.200 and Sec.  685.203;
    (ii) The student's loan amount; and
    (iii) The anticipated and actual disbursement date or dates and 
disbursement amounts of the loan proceeds, as determined in accordance 
with Sec.  685.303(d).
    (3) Before originating a Direct PLUS Loan for a graduate or 
professional student borrower, the school must determine the borrower's 
eligibility for a Direct Subsidized and a Direct Unsubsidized Loan. If 
the borrower is eligible for a Direct Subsidized or Direct Unsubsidized 
Loan, but has not requested the maximum Direct Subsidized or Direct 
Unsubsidized Loan amount for which the borrower is eligible, the school 
must--
    (i) Notify the graduate or professional student borrower of the 
maximum Direct Subsidized or Direct Unsubsidized Loan amount that he or 
she is eligible to receive and provide the borrower with a comparison 
of--
    (A) The maximum interest rate for a Direct Subsidized Loan and a 
Direct Unsubsidized Loan and the maximum interest rate for a Direct 
PLUS Loan;
    (B) Periods when interest accrues on a Direct Subsidized Loan and a 
Direct Unsubsidized Loan, and periods when interest accrues on a Direct 
PLUS Loan; and

[[Page 65839]]

    (C) The point at which a Direct Subsidized Loan and a Direct 
Unsubsidized Loan enters repayment, and the point at which a Direct 
PLUS Loan enters repayment; and
    (ii) Give the graduate or professional student borrower the 
opportunity to request the maximum Direct Subsidized or Direct 
Unsubsidized Loan amount for which the borrower is eligible.
    (4) A school may not originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan, or a combination of loans, for an 
amount that--
    (i) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec.  685.203; or
    (ii) Exceeds the student's estimated cost of attendance less--
    (A) The student's estimated financial assistance for that period; 
and
    (B) In the case of a Direct Subsidized Loan, the borrower's 
expected family contribution for that period.
    (5)(i) A school determines a Direct Subsidized or Direct 
Unsubsidized Loan amount in accordance with Sec.  685.203.
    (ii) When prorating a loan amount for a student enrolled in a 
program of study with less than a full academic year remaining, the 
school need not recalculate the amount of the loan if the number of 
hours for which an eligible student is enrolled changes after the 
school originates the loan.
    (6) The date of loan origination is the date a school creates the 
electronic loan origination record.
    (7) If a student has received a determination of need for a Direct 
Subsidized Loan that is $200 or less, a school may choose not to 
originate a Direct Subsidized Loan for that student and to include the 
amount as part of a Direct Unsubsidized Loan.
    (8) A school may refuse to originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan or may reduce the borrower's 
determination of need for the loan if the reason for that action is 
documented and provided to the borrower in writing, and if--
    (i) The determination is made on a case-by-case basis;
    (ii) The documentation supporting the determination is retained in 
the student's file; and
    (iii) The school does not engage in any pattern or practice that 
results in a denial of a borrower's access to Direct Loans because of 
the borrower's race, gender, color, religion, national origin, age, 
disability status, or income.
    (9) A school may not assess a fee for the completion or 
certification of any Direct Loan Program forms or information or for 
the origination of a Direct Loan.
    (10)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or that has terms that 
are substantially equal in length with no term less than nine weeks in 
length, a single academic term (e.g., a semester or quarter); or
    (B) Except as provided in paragraph (a)(10)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion 
of that program if the student has less than the full program 
remaining) at the school; or
    (2) The academic year as defined by the school in accordance with 
34 CFR 668.3.
    (ii) For a student who transfers into a school from another school 
and the prior school originated a loan for a period of enrollment that 
overlaps the period of enrollment at the new school, the new school may 
originate a loan for the remaining portion of the program or academic 
year. In this case the school may originate a loan for an amount that 
does not exceed the remaining balance of the student's annual loan 
limit.
    (iii) For a student who completes a program at a school, where the 
student's last loan to complete that program had been for less than an 
academic year, and the student then begins a new program at the same 
school, the school may originate a loan for the remainder of the 
academic year. In this case the school may originate a loan for an 
amount that does not exceed the remaining balance of the student's 
annual loan limit at the loan level associated with the new program.
    (iv) The maximum period for which a school may originate a Direct 
Loan is--
    (A) Generally an academic year, as defined by the school in 
accordance with 34 CFR 668.3, except that the school may use a longer 
period of time corresponding to the period to which the school applies 
the annual loan limits under Sec.  685.203; or
    (B) For a defaulted borrower who has regained eligibility, the 
academic year in which the borrower regained eligibility.
    (b) Promissory note handling. (1) The Secretary provides promissory 
notes for use in the Direct Loan Program. A school may not modify, or 
make any additions to, the promissory note without the Secretary's 
prior written approval.
    (2) A school that originates a loan must ensure that the loan is 
supported by a completed promissory note as proof of the borrower's 
indebtedness.
    (c) Reporting to the Secretary. The Secretary accepts a student's 
Payment Data that is submitted in accordance with procedures 
established through publication in the Federal Register, and that 
contains information the Secretary considers to be accurate in light of 
other available information including that previously provided by the 
student and the institution. (Approved by the Office of Management and 
Budget under control number 1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)


0
104. Section 685.303 is amended by:
0
A. In paragraph (a), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
B. Revising paragraph (b)(1).
0
C. Redesignating paragraphs (b)(2) through (b)(4) as paragraphs (b)(3) 
through (b)(5), respectively.
0
D. Adding a new paragraph (b)(2).
0
E. Revising redesignated paragraph (b)(3)(i).
0
F. Revising redesignated paragraph (b)(3)(ii).
0
G. Revising redesignated paragraph (b)(5)(i) introductory text.
0
H. In redesignated paragraph (b)(5)(i)(A)(1), removing the citation 
``(b)(4)(i)(A)(2)'' and adding, in its place, the citation 
``(b)(5)(i)(A)(2)''.
0
I. Revising redesignated paragraph (b)(5)(ii).
0
J. In redesignated paragraph (b)(5)(iii), removing the citation 
``(b)(4)(i)(B)'' and adding, in its place, the citation 
``(b)(5)(i)(B)''.
0
K. In paragraph (c), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
L. Redesignating paragraphs (d) and (e) as paragraphs (f) and (g), 
respectively.
0
M. Adding a new paragraph (d).
0
N. Adding a new paragraph (e).
0
O. Revising redesignated paragraph (g).
0
P. Adding an authority citation after the OMB control number 
parenthetical at the end of the section.
    The revisions and additions read as follows:


Sec.  685.303  Processing loan proceeds.

* * * * *
    (b) * * *
    (1) A school may not disburse loan proceeds to a borrower unless 
the borrower has executed a legally enforceable promissory note.

[[Page 65840]]

    (2) The Secretary provides Direct Loan funds to a school in 
accordance with 34 CFR 668.162.
    (3)(i) Except in the case of a late disbursement under paragraph 
(f) of this section, or as provided in paragraph (b)(3)(iii) of this 
section, a school may disburse loan proceeds only to a student, or a 
parent in the case of a Direct PLUS Loan obtained by a parent borrower, 
if the school determines the student has continuously maintained 
eligibility in accordance with the provisions of Sec.  685.200 from the 
beginning of the loan period for which the loan was intended.
    (ii) If a student delays attending school for a period of time, the 
school may consider that student to have maintained eligibility for the 
loan from the first day of the period of enrollment. However, the 
school must comply with the requirements under paragraph (b)(4) of this 
section.
* * * * *
    (5)(i) If a student is enrolled in the first year of an 
undergraduate program of study and has not previously received a Direct 
Subsidized Loan, a Direct Unsubsidized Loan, a Subsidized or 
Unsubsidized Federal Stafford Loan, or a Federal Supplemental Loan for 
Students, a school may not disburse the proceeds of a Direct Subsidized 
or Direct Unsubsidized Loan until 30 days after the first day of the 
student's program of study unless--
* * * * *
    (ii) Paragraphs (b)(5)(i)(A) and (B) of this section do not apply 
to any loans originated by the school beginning 30 days after the date 
the school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
paragraph (b)(5)(i)(A) or (B) of this section, as applicable.
* * * * *
    (d) Determining disbursement dates and amounts. (1) Before 
disbursing a loan, a school must determine that all information 
required by the promissory note has been provided by the borrower and, 
if applicable, the student.
    (2) An institution must disburse the loan proceeds on a payment 
period basis in accordance with 34 CFR 668.164(b).
    (3) Unless paragraph (d)(4) or (d)(6) of this section applies--
    (i) If a loan period is more than one payment period, the school 
must disburse loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two disbursements during that payment period.
    (A) For a loan originated under Sec.  685.301(a)(10)(i)(A), the 
school may not make the second disbursement until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (B) For a loan originated under Sec.  685.301(a)(10)(i)(B), the 
school may not make the second disbursement until the student 
successfully completes half of the number of credit hours or clock 
hours and half of the number of weeks of instructional time in the 
payment period.
    (4)(i) If one or more payment periods have elapsed before a school 
makes a disbursement, the school may include in the disbursement loan 
proceeds for completed payment periods.
    (ii) If the loan period is equal to one payment period and more 
than one-half of it has elapsed, the school may include in the 
disbursement loan proceeds for the entire payment period.
    (5) The school must disburse loan proceeds in substantially equal 
installments, and no installment may exceed one-half of the loan.
    (6)(i) A school is not required to make more than one disbursement 
if--
    (A)(1) The loan period is not more than one semester, one 
trimester, one quarter, or, for non term-based schools or schools with 
non-standard terms, 4 months; and
    (2)(i) Except as provided in paragraph (d)(6)(i)(A)(2)(ii) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668 of less than 10 percent for each of the three most 
recent fiscal years for which data are available; or
    (ii) For loan disbursements made on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668, of 
less than 15 percent for each of the three most recent fiscal years for 
which data are available; or
    (B) The school is an eligible home institution originating a loan 
to cover the cost of attendance in a study abroad program and has a 
cohort default rate, calculated under subpart M or subpart N of 34 CFR 
part 668, of less than five percent for the single most recent fiscal 
year for which data are available.
    (ii) Paragraphs (d)(6)(i)(A) and (B) of this section do not apply 
to any loans originated by the school beginning 30 days after the date 
the school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
paragraph (d)(6)(i)(A) or (B) of this section, as applicable.
    (iii) Paragraph (d)(6)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in that 
paragraph.
    (e) Annual loan limit progression based on completion of an 
academic year. (1) If a school measures academic progress in an 
educational program in credit hours and uses either standard terms 
(semesters, trimesters, or quarters) or nonstandard terms that are 
substantially equal in length, and each term is at least nine weeks of 
instructional time in length, a student is considered to have completed 
an academic year and progresses to the next annual loan limit when the 
academic year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress in 
credit hours and does not have academic terms, a student is considered 
to have completed an academic year and progresses to the next annual 
loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes of this section, terms in a loan period are 
substantially equal in length if no term in the loan period is more 
than two weeks of instructional time longer than any other term in that 
loan period.
* * * * *
    (g) Treatment of excess loan proceeds. Before the disbursement of 
any Direct

[[Page 65841]]

Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan 
proceeds, if a school learns that the borrower will receive or has 
received financial aid for the period of enrollment for which the loan 
was intended that exceeds the amount of assistance for which the 
student is eligible (except for Federal Work-Study Program funds up to 
$300), the school must reduce or eliminate the overaward by either--
    (1) Using the student's Direct Unsubsidized Loan, Direct PLUS Loan, 
or State-sponsored or another non-Federal loan to cover the expected 
family contribution, if not already done; or
    (2) Reducing one or more subsequent disbursements to eliminate the 
overaward.
* * * * *

(Authority: 20 U.S.C. 1087a et seq.)


0
105. Section 685.304 is amended by:
0
A. Revising paragraph (a)(1).
0
B. In paragraph (a)(2), removing the words ``prior Direct PLUS Loan or 
Federal PLUS Loan'' and adding, in their place, the words ``prior 
student Direct PLUS Loan or student Federal PLUS Loan''.
0
C. In paragraph (a)(7)(i)(A), removing the word ``or'' the first time 
it appears and adding, in its place, the word ``of''.
0
D. Revising paragraph (a)(7)(iii).
0
E. Revising paragraph (a)(7)(iv).
0
F. Revising paragraph (b)(3).
0
G. In paragraph (b)(4)(ii), removing the words ``income contingent 
repayment plans'' and adding, in their place, the words ``income-
contingent repayment''.
0
H. Adding a new paragraph (b)(8).
    The revisions and addition read as follows:


Sec.  685.304  Counseling borrowers.

    (a) * * *
    (1) Except as provided in paragraph (a)(8) of this section, a 
school must ensure that entrance counseling is conducted with each 
Direct Subsidized Loan or Direct Unsubsidized Loan student borrower 
prior to making the first disbursement of the proceeds of a loan to a 
student borrower unless the student borrower has received a prior 
Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized or 
Unsubsidized Federal Stafford Loan, or Federal SLS Loan.
* * * * *
    (7) * * *
    (iii) For a graduate or professional student Direct PLUS Loan 
borrower who has received a prior Direct Subsidized Loan, Direct 
Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized 
Federal Stafford Loan, provide the information specified in Sec.  
685.301(a)(3)(i)(A) through (a)(3)(i)(C); and
    (iv) For a graduate or professional student Direct PLUS Loan 
borrower who has not received a prior Direct Subsidized Loan, Direct 
Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized 
Federal Stafford Loan, provide the information specified in paragraph 
(a)(6)(i) through paragraph (a)(6)(xii) of this section.
* * * * *
    (b) * * *
    (3) If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete the exit counseling as 
required, exit counseling must, within 30 days after the school learns 
that the student borrower has withdrawn from school or failed to 
complete the exit counseling as required, be provided either through 
interactive electronic means, by mailing written counseling materials 
to the student borrower at the student borrower's last known address, 
or by sending written counseling materials to an email address provided 
by the student borrower that is not an email address associated with 
the school sending the counseling materials.
* * * * *
    (8)(i) For students who have received loans under both the FFEL 
Program and the Direct Loan Program for attendance at a school, the 
school's compliance with the exit counseling requirements in paragraph 
(b) of this section satisfies the exit counseling requirements in 34 
CFR 682.604(a) if the school ensures that the exit counseling also 
provides the borrower with the information described in 34 CFR 
682.604(a)(2)(i) and (ii).
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of 
paragraph (b) of this section and, for students who have also received 
FFEL Program loans for attendance at the school, 34 CFR 682.604(a).
* * * * *


Sec.  685.305  [Amended]

0
106. Section 685.305 is amended by:
0
A. In paragraph (a), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
B. In paragraph (b), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
C. In paragraph (c), removing the word ``shall'' and adding, it its 
place, the word ``must''.


Sec.  685.306  [Amended]

0
107. Section 685.306 is amended by:
0
A. In paragraph (a)(1), removing the word ``Shall'' and adding, in its 
place, the word ``Must''.
0
B. In paragraph (a)(2), removing the word ``Shall'' and adding, in its 
place, the word ``Must''.
0
C. In paragraph (b), removing the word ``shall'' and adding, in its 
place, the word ``must''.


Sec.  685.307  [Amended]

0
108. Section 685.307(b) is amended by removing the word ``shall'' and 
adding, in its place, the word ``must''.
0
109. Section 685.309 is amended by:
0
A. In the introductory text of paragraph (a), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
B. Revising paragraph (b).
0
C. In paragraph (c), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
D. In paragraph (d), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
E. In paragraph (e), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
F. In paragraph (f), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
G. In paragraph (g), removing the words ``Except for funds paid to a 
school under section 452(b)(1) of the Act, funds'' and adding, in their 
place, the word ``Funds''.
    The revision reads as follows:


Sec.  685.309  Administrative and fiscal control and fund accounting 
requirements for schools participating in the Direct Loan Program.

* * * * *
    (b) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information 
included in the report and return the report to the Secretary--

[[Page 65842]]

    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe prescribed by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date the school discovers that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a 
loan under title IV of the Act has changed his or her permanent 
address.
* * * * *

Subpart D [Removed and Reserved]

0
110. Subpart D of part 685 is removed and reserved.

[FR Doc. 2013-25331 Filed 10-31-13; 8:45 am]
BILLING CODE 4000-01-P