[Federal Register Volume 79, Number 205 (Thursday, October 23, 2014)]
[Rules and Regulations]
[Pages 63317-63332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25266]


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DEPARTMENT OF EDUCATION

34 CFR Part 685

RIN 1840-AD17
[Docket ID ED-2014-OPE-0082]


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 regulations governing the William D. 
Ford Federal Direct Loan (Direct Loan) Program. These regulations 
strengthen and improve administration of the Federal Direct PLUS Loan 
Program authorized under title IV of the Higher Education Act of 1965, 
as amended (HEA).

DATES: These regulations are effective July 1, 2015. Implementation 
date: For the implementation date, see the Implementation Date of These 
Regulations section of this document.

FOR FURTHER INFORMATION CONTACT: Brian Smith, U.S. Department of 
Education, 1990 K Street NW., Room 8082, Washington, DC 20006. 
Telephone (202) 502-7551 or by email: [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: We are 
amending Sec.  685.200 of title 34 of the Code of Federal Regulations 
(CFR) to update the standard for determining if a potential parent or 
student borrower has an adverse credit history for purposes of 
eligibility for a Direct PLUS Loan (PLUS loan). Specifically, the final 
regulations will revise the definition of ``adverse credit history'' 
and require that parents and students who have an adverse credit 
history but who are approved for a PLUS loan on the basis that 
extenuating circumstances exist or who obtain an endorser for the PLUS 
loan must receive loan counseling before receiving the loan. The 
current regulations governing adverse credit history determinations 
have not been updated since the Direct Loan Program was established in 
1994. The final regulations will reflect programmatic and economic 
changes that have occurred since 1994.
    Summary of the Major Provisions of This Regulatory Action: These 
final regulations will--
     Revise the student PLUS loan borrower eligibility criteria 
to state more clearly that the PLUS loan adverse credit history 
requirements apply to student, as well as parent, PLUS loan borrowers.
     Add definitions of the terms ``charged off'' and ``in 
collection'' for purposes of determining whether an applicant for a 
PLUS loan has an adverse credit history.
     Specify that a PLUS loan applicant has an adverse credit 
history if the applicant has one or more debts with a total combined 
outstanding balance greater than $2,085 that are 90 or more days 
delinquent as of the date of the credit report, or that have been 
placed in collection or charged off during the two years preceding the 
date of the credit report.
     Provide that the combined outstanding balance threshold of 
$2,085 will be increased over time based on the rate of inflation, as 
measured by the Consumer Price Index for All Urban Consumers (CPI-U).
     Revise the provision that specifies the types of 
documentation the Secretary may accept as a basis for determining that 
extenuating circumstances exist for a PLUS loan applicant who is 
determined to have an adverse credit history.
     Specify that an applicant for a PLUS loan who is 
determined to have an adverse credit history, but who obtains an 
endorser, must complete PLUS loan counseling offered by the Secretary 
before receiving a PLUS loan.
     Specify that an applicant for a PLUS loan who is 
determined to have an adverse credit history, but who documents to the 
Secretary's satisfaction that extenuating circumstances exist, must 
complete PLUS loan counseling offered by the Secretary before receiving 
the PLUS loan.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis section of this document, the final regulations will affect 
applicants for parent and student PLUS loans by modifying the standard 
for a determination of an adverse credit history. In particular, a 
student or parent will be considered to have an adverse credit history 
if the student or parent has one or more debts with a combined 
outstanding balance greater than $2,085 that are 90 or more days 
delinquent as of the date of the credit report, or that have been 
placed in collection or charged off during the two years preceding the 
date of the credit report.
    The final regulations will also require that an applicant for a 
PLUS loan who is determined to have an adverse credit history but who 
documents to the satisfaction of the Secretary that extenuating 
circumstances exist or who obtains an endorser must complete PLUS loan 
counseling offered by the Secretary prior to receiving the loan.
    In November 2011, the Department modified its procedures relating 
to adverse credit history determinations to be consistent with the 
regulations. This modification resulted in an increase in the number of 
PLUS loan applicants who were determined to have an adverse credit 
history. The Department expects that the final regulations will 
increase the number of PLUS loan applicants who pass the adverse credit

[[Page 63318]]

history check. We estimate an increase of approximately 370,000 PLUS 
loan applicants who will pass the adverse credit history check under 
the final regulations. As a result of the changes in these final 
regulations, these applicants will not need to apply for 
reconsideration of an initial PLUS loan denial due to an adverse credit 
history, saving them time and effort.
    Additionally, because the final regulations strike a balance 
between increased availability of PLUS loan funds to improve student 
access to postsecondary education and helping to limit overborrowing 
through improved financial literacy, we believe that there will be 
benefits for both borrowers and the Department.
    On August 8, 2014, the Secretary published a notice of proposed 
rulemaking (NPRM) for this part in the Federal Register (79 FR 
46640).\1\ The final regulations contain changes from the NPRM, which 
are fully explained in the Analysis of Comments and Changes section of 
this document.
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    \1\ The NPRM is available at www.gpo.gov/fdsys/pkg/FR-2014-08-08/pdf/2014-18673.pdf.
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    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 the loan 
application process for Direct PLUS loan borrowers, the Secretary is 
exercising his authority under section 482(c) to implement the new and 
amended regulations included in this document as soon as possible after 
the publication date of these final regulations. We will publish a 
separate Federal Register notice to announce when we are ready to 
implement these regulations.
    Public Comment: In response to our invitation in the NPRM, 310 
parties submitted comments on the proposed regulations. We group major 
issues according to subject, with appropriate sections of the 
regulations referenced in parentheses. We discuss other substantive 
issues under the sections of the proposed regulations to which they 
pertain. Generally, we do not address technical or other minor changes.
    Analysis of Comments and Changes: An analysis of the comments and 
of any changes in the regulations since publication of the NPRM 
follows.
    General Comments: The majority of commenters expressed strong 
support for the proposed regulations. One commenter described the 
proposed regulations as an important step in making PLUS loans work 
better for students.
    Several commenters urged the Department to launch an aggressive 
awareness and outreach campaign so that parents and students are made 
aware of the changes to the PLUS loan eligibility requirements.
    A small number of commenters objected to the proposed regulations. 
One commenter expressed disappointment that, in the commenter's view, 
only small changes were made to the regulatory definition of ``adverse 
credit history.'' This commenter felt that the revisions to the 
definition would make no difference for low-income families who may 
take on more debt than they can afford when borrowing PLUS loans.
    We also received comments recommending additional changes to the 
PLUS loan regulations. One commenter recommended allowing parent 
borrowers to repay PLUS loans using the Income Based Repayment (IBR) 
plan. Another commenter recommended that we include ``aggressive'' loan 
forgiveness policies for PLUS loans. A commenter recommended that 
parent PLUS loans and graduate and professional student PLUS loans be 
separated into two different lending programs. One commenter 
recommended that parent PLUS loan borrowers not be allowed to borrow 
more for all their children than they can afford to repay in ten years, 
or by time the parent retires, whichever comes first.
    Discussion: We appreciate the support from the overwhelming 
majority of commenters.
    We disagree that the changes to the adverse credit history 
requirements are minor and will have little impact. We believe these 
changes will have a significant impact in providing low-income students 
with access to higher education and will make the financial aid process 
more transparent for students and their parents. In our view, the 
enthusiastic support for these regulations evidenced in comments 
submitted by students, alumni and employees of institutions of higher 
education, and by organizations representing students and institutions 
of higher education bolster that belief.
    While we share the commenters' concerns about the ability of low-
income students and parents who borrow PLUS loans to repay their loans, 
we disagree that these regulations will put low-income borrowers at 
risk. We believe that the enhanced consumer information that the 
Department will provide, which will include voluntary PLUS loan 
counseling for all student and parent PLUS borrowers, and the mandatory 
PLUS loan counseling for certain borrowers will help students and 
parents to understand the obligations associated with borrowing a PLUS 
loan and assist them in making careful decisions about taking on 
student loan debt.
    The recommendations relating to IBR, loan forgiveness, creating two 
separate PLUS loan programs, and limiting the amount parent PLUS 
borrowers may borrow would require statutory changes.
    Changes: None.

Implementation

    Comments: Several commenters requested that we implement these 
final regulations early, by making them effective no later than January 
1, 2015. One commenter noted that the procedural modifications to the 
process for determining whether a borrower has an adverse credit 
history have been in effect for three years. This commenter stated that 
there is a critical need to restore access to PLUS loans for low-income 
borrowers who do not meet the current adverse credit history standards.
    Discussion: We agree that it would be beneficial to student and 
parent borrowers for these final regulations to be implemented as soon 
as possible. As stated in the Implementation Date of These Regulations 
section of this document, the Department has designated these final 
regulations for early implementation. The Department will implement 
these regulations as soon as possible after the publication date. The 
Department will work with schools to inform parents and students of the 
changes to the PLUS loan adverse credit history standards and will 
publish a separate Federal Register notice announcing the 
implementation date.

Student PLUS Borrower (34 CFR 685.200(b))

    Comments: One commenter agreed that the adverse credit history 
requirements should apply to both student and parent PLUS loan 
applicants. This commenter also stated that a parent's adverse credit 
history should not prevent an eligible student from obtaining a PLUS 
loan.
    Another commenter recommended that the Department develop separate 
definitions of ``adverse credit history'' for student PLUS loan 
applicants and

[[Page 63319]]

parent PLUS loan applicants. The commenter argued that the typical 
borrowing profiles of parents and of graduate and professional students 
are quite different, and believed that different definitions of 
``adverse credit history'' would allow variations in the credit 
approval process tailored to each type of borrower.
    Discussion: We appreciate the support of the commenter who agreed 
that the adverse credit history requirements should apply to both 
parent and graduate and professional student borrowers. These final 
regulations will state more clearly that the same requirement applies 
to all PLUS loan borrowers. We also note that a parent's credit history 
does not affect a student PLUS loan applicant's eligibility for a PLUS 
loan, nor does the dependent student's credit history affect the 
parent's PLUS loan eligibility.
    We disagree with the commenter who recommended separate definitions 
of ``adverse credit history'' for parent and graduate and professional 
student borrowers. As noted in the NPRM, the HEA authorizes a single 
PLUS loan program and limits borrowing to graduate and professional 
students or parents who do not have an adverse credit history, as 
determined pursuant to regulations promulgated by the Secretary. This 
requirement applies equally to student and parent borrowers. The HEA 
does not support different definitions of ``adverse credit history'' 
for student PLUS loan applicants and parent PLUS loan applicants.
    Changes: None.

Parent PLUS Borrower: Definitions (34 CFR 685.200(c)(1))

    Comments: Two commenters recommended alternative definitions for 
the terms ``charged off'' and ``in collection.'' One of these 
commenters believed these definitions should be consistent with 
definitions found on the Investopedia Web site. Another commenter 
recommended that the 90-day delinquent standard be incorporated into 
the definitions of ``in collection'' and ``charged off.'' This 
commenter interpreted the proposed regulations to provide that debts in 
an ``in collection'' or ``charged off'' status for less than 90 days 
would not be considered to represent an adverse credit history. This 
commenter also recommended incorporating language into the definitions 
stating that a debt would not be considered to be ``in collection'' or 
``charged off'' unless an appropriate administrative or judicial body 
had determined that the debt was 90-days delinquent.
    Discussion: While we appreciate the commenter's suggestion that the 
Department adopt the definitions of ``charged off'' and ``in 
collection'' from Investopedia, using commonly understood definitions 
that are used in the collections industry will provide greater clarity 
and transparency in the PLUS loan application process. We do not agree 
with the suggestion that we incorporate language into the definitions 
stating that an appropriate administrative or judicial body would have 
to determine that a debt was 90 days delinquent before the debt is 
considered ``charged off'' or ``in collection.'' It is unlikely that a 
creditor would incur the cost of putting a debt in collection, or would 
charge off a debt and stop collecting on it altogether, before the debt 
is at least 90 days delinquent. This is why we proposed the 90-day 
delinquency standard as separate from the ``charged off'' or ``in 
collection'' standards. Further, it is impractical, burdensome, and 
unnecessary to require an administrative or judicial body to determine 
that a debt is 90 days delinquent before it is appropriate to consider 
the delinquency as demonstrating an adverse credit history.
    Changes: None.

Parent PLUS Borrower: Adverse Credit History (34 CFR 685.200(c)(2))

    Comments: A few commenters recommended that the PLUS adverse credit 
history regulations take into consideration an applicant's ability to 
repay the PLUS loan. These commenters argued that parent eligibility 
under the adverse credit history criteria should include some measure 
of likely ability to repay the loan based on the applicant's current 
financial circumstances. These commenters recommended including factors 
such as debt-to-income ratios, minimum income requirements, credit 
scores, or debt-service-to-income ratios in the definition of ``adverse 
credit history.'' One commenter recommended revising the PLUS loan 
eligibility criteria to prevent borrowing by parents whose income is 
below the poverty line.
    These commenters stated that they did not agree with our position 
that consideration of a borrower's ability to repay would require an 
amendment to the HEA. These commenters offered several rationales to 
support their position.
    One commenter recommended expanding the definition of adverse 
credit history to include those without a credit history. This 
commenter asked if lack of a credit history could be considered an 
indicator of a borrower's willingness or ability to repay a loan.
    Another commenter recommended that any changes to the adverse 
credit history standards that would restrict PLUS loan access be 
implemented for new borrowers only, so as not to affect currently 
enrolled students who rely on PLUS loans to assist in financing their 
education.
    Discussion: As noted in the NPRM, adverse credit history is a 
measure of an individual's history of repaying existing debt. It does 
not measure whether the individual will have the financial ability in 
the future to repay a specific debt; but whether the individual has 
paid debt in the past. As such, the commenters' recommendations to 
include measures of creditworthiness in determining whether an 
applicant has an adverse credit history are not supported by section 
428B(a)(1)(A) of the HEA, which provides that an applicant is not 
eligible to borrow a PLUS loan if the applicant has an adverse credit 
history. Lack of a credit history is not an indicator that a borrower 
was unable or unwilling to repay a prior debt. Therefore, we do not 
consider lack of a credit history to be an indicator of an adverse 
credit history.
    These final regulations will increase the number of applicants who 
qualify for PLUS loans based on the initial credit check and 
consequently decrease the total number of applicants who are approved 
through the extenuating circumstances process. We do not anticipate 
that the changes to the adverse credit history standards in these 
regulations will restrict access to PLUS loans for borrowers who are 
currently eligible for PLUS loans. Therefore, we do not see the need to 
limit the applicability of these final regulations to new borrowers.
    Changes: None.

Component 1--Outstanding Balance Greater Than $2,085

    Comments: Many commenters supported the provision that would use 
the threshold amount of $2,085 in debts that are 90 or more days 
delinquent for determining whether the applicant has an adverse credit 
history. However, some commenters objected to the $2,085 amount as 
either too low or too high.
    Two commenters recommended that the threshold amount be increased 
to $5,000. However, one commenter argued that the $2,085 threshold 
amount was too high and noted that this amount could lead to a 
determination that an applicant who has debts significant enough to 
warrant ongoing collection attempts and lawsuits does not have an 
adverse credit history for purposes of the PLUS loan program. This

[[Page 63320]]

commenter recommended reducing the threshold amount to $1,000.
    Another commenter asserted that there is no evidence to suggest 
that granting unlimited credit to applicants with $2,085 of delinquent 
debt will not harm borrowers and taxpayers.
    Several commenters recommended that in determining whether an 
applicant has an adverse credit history, we should exclude debt that is 
not correlated with credit risk from consideration. Several commenters 
cited medical debt as an example of debt that does not affect the 
likelihood that a consumer will repay other debt. Commenters also 
recommended that delinquencies on debts relating to accidents, illness, 
or unemployment in the immediately preceding two years be disregarded. 
One commenter suggested that the Department disregard car loans under 
$7,000.
    Discussion: We believe that the $2,085 threshold amount is the 
appropriate amount to use in determining whether a PLUS loan applicant 
has an adverse credit history. As explained in the NPRM, we arrived at 
the amount of $2,085 by calculating the estimated median debt level for 
the purposes of documenting extenuating circumstances for all debts 
with a status of in collection, charged off, or 90 or more days 
delinquent, for all parent PLUS loan denials resulting from all credit 
checks conducted between the spring of 2012 and the spring of 2013. In 
these regulations, we use the $2,085 threshold as a standard for the 
determination of an adverse credit history, rather than as part of the 
process for documenting extenuating circumstances to reduce the burden 
on borrowers. Lastly, the Department already provides special 
consideration for medical debt or delinquencies relating to accidents, 
illness, or unemployment when determining whether an applicant has an 
adverse credit history. Under Sec.  685.200(c)(2)(viii)(D), the 
Secretary may consider the type of debt when deciding that extenuating 
circumstances exist with regard to an adverse credit history 
determination. However, we do not believe there is a justification for 
treating a delinquency on a car loan differently than other consumer 
debt which does not relate to accidents, illness or unemployment.
    Changes: None.

Component 2--Adjustment Over Time

    Comments: Several commenters strongly supported the provision in 
the proposed regulations that would provide for the Department to 
adjust the $2,085 threshold amount over time. Most commenters 
recommended using the Consumer Price Index for All Urban Consumers 
(CPI-U) as the basis for indexing the threshold amount. One commenter 
pointed out that CPI-U is the most commonly used measure of inflation. 
Another commenter noted that using CPI-U would be consistent with 
inflation measures used in other Federal programs such as the Social 
Security Administration's Old-Age, Survivors, and Disability Insurance 
(OASDI) program. The commenter stated that as the CPI rises, what is 
considered as ``negligible debt'' should also rise.
    Another commenter suggested that we utilize the same methodology we 
used to calculate the initial $2,085 threshold amount to recalculate 
the threshold amount annually. The commenter argued that the threshold 
amount is a function of total consumer debt and overall economic 
conditions and that it is not affected by inflation. The commenter 
noted that during the time period measured to arrive at the $2,085 
threshold amount, consumers had just gone through a period of easy 
credit followed by a recession, resulting in larger debt levels and 
more delinquencies. The commenter stated that, in future years, the 
$2,085 threshold amount may need to be reduced as debt levels and 
delinquencies decrease.
    One commenter recommended that the Department not adjust the $2,085 
threshold amount. This commenter noted that the threshold amount is 
relatively high, and represents potentially significant financial 
trouble for an applicant. The commenter stated that the threshold 
amount should not be adjusted, to ensure that parents with substantial 
financial troubles do not overborrow. However, this commenter 
recommended that if the Department decides to adjust the threshold 
amount any future changes should be based on CPI, as a recognized 
measure of inflation. The commenter also recommended that we inform 
institutions and borrowers of the yearly adjustment when we announce 
the new Federal student loan interest rates.
    One commenter recommended that the regulations require the 
Secretary to increase the threshold amount, rather than permit the 
Secretary to adjust the amount periodically. The commenter believed 
that a mandatory annual adjustment to the threshold amount would 
prevent the value of the threshold amount from eroding over time, and 
could have a significant impact in preventing future PLUS loan denials.
    Several commenters recommended that there be no reduction in the 
threshold amount in years when the CPI-U is a negative number.
    Discussion: We agree with the recommendation that we index the 
$2,085 threshold to the Consumer Price Index (CPI-U). As the commenters 
noted, indexing the threshold amount to inflation will help ensure that 
it remains a meaningful limit to the amount of delinquent debt a PLUS 
loan applicant may have and still qualify for a PLUS loan.
    We disagree with the recommendation that, instead of using the rate 
of inflation, we use the median debt levels for all debts with a status 
of in collection, charged off, or 90 or more days delinquent. Although 
this calculation of delinquent debt of PLUS borrowers was a factor used 
in determining the $2,085 threshold amount, we do not believe that this 
methodology is appropriate for use for determining appropriate changes 
to the future threshold amount. As the commenter pointed out, debt 
levels and delinquencies may decrease in the future, meaning that we 
would have to either decrease or not adjust the threshold amount. Using 
the CPI-U index gives borrowers and schools transparency about the 
limit of debt that is not considered to reflect an ``an adverse credit 
history''.
    Similarly, we disagree with the commenter who recommended that we 
not index the threshold amount. In our view, if the threshold amount is 
not indexed to inflation, over time it would erode the value of the 
threshold amount due to inflation.
    We agree with the commenters that the CPI-U is an appropriate 
measure of inflation for indexing the threshold amount. The CPI-U is 
used by the Social Security Administration and other Federal programs 
and by private firms in collective bargaining agreements. A more 
detailed discussion of the widespread application of the CPI-U is 
provided in the Threshold Amount Indexed to Inflation section.
    Although we agree with the commenters who suggested adjusting for 
inflation, we disagree with the recommendation that the threshold 
amount be adjusted annually. An annual adjustment for inflation may 
result in minimal changes to the threshold amount that could cause 
confusion for institutions and loan applicants. Therefore these final 
regulations provide for increasing the $2,085 threshold amount 
periodically but only when the adjustment results in a significant 
change in the threshold amount. The Department will determine when the 
change in the CPI-U since the publication of these regulations or the

[[Page 63321]]

most recent adjustment would result in an increase of at least $100. In 
addition, any inflation-adjusted increase to the threshold amount will 
be rounded upward to the nearest $5.
    Changes: We have added Sec.  685.200(c)(2)(viii)(C) and Sec.  
685.200(c)(2)(viii)(D) to provide that the Secretary adjusts the $2,085 
threshold amount, or the most recent inflation-adjusted threshold 
amount, when the application of the percentage change in the CPI-U to 
the then current threshold amount results in an increase of $100 or 
more. The provision also specifies that the Secretary will round up 
adjustments, when made, to the nearest $5.

Component 3--Debts 90 or More Days Delinquent

    Comments: One commenter recommended that an applicant with 
delinquent debts not be considered as having an adverse credit history 
unless 40 percent or more of the applicant's total accounts are an 
average of 120 days or more past due.
    Discussion: Under the commenter's proposal, an unlimited amount of 
delinquent debt would not be considered to be an indicator of an 
adverse credit history, as long as the debt represented less than 40 
percent of the applicant's total accounts. Such an open-ended standard 
would not be in the best interests of the PLUS loan program, or of 
potential PLUS loan borrowers.
    Changes: None.

Component 4--In Collection or Charged Off

    Comments: One commenter objected to us considering debts that have 
been charged off as an indicator of an adverse credit history. This 
commenter asserted a creditor may charge off a debt for many reasons 
that are not indicative of a borrower's ability to repay. The commenter 
asserted that it is common practice in some fields, such as the 
agriculture industry, to charge off debts when there are significant 
changes beyond the control of the lender or borrower, such as natural 
disasters or unforeseen and unanticipated changes in economic 
circumstances.
    This commenter also asserted that, in other industries, creditors 
will refer debts that are not delinquent to a collection agency as a 
way of escalating collection efforts. As a result, the fact that a debt 
is in collection does not necessarily mean that the borrower is 
delinquent in payment or even that the borrower owes the amount in 
question. Rather, it is an expression of the lender's intent to move 
the collection efforts to the next level.
    One commenter stated that the Department had not provided evidence 
to demonstrate that the consideration of debts in collection or charged 
off as reflecting an adverse credit history will reduce PLUS loan 
default rates. The commenter argued that whether an applicant has 
accounts that are in collection or have been charged off does not 
provide insight into the applicant's likely repayment behavior. The 
commenter noted that the proposed regulatory changes may deny PLUS 
loans to borrowers who are capable of repaying the loans.
    Several commenters expressed support for the proposal to change the 
period in which we consider debts in collection or charged off as 
reflecting an adverse credit history from the current five years to two 
years. One commenter suggested that two years is a reasonable time 
frame to demonstrate that borrowers are likely to be able to repay 
their loans. These commenters asserted that a longer look-back period 
might hamper parental access to PLUS loans due to the lingering effects 
of the recession. One commenter expressed the view that a one-year 
look-back period is not sufficient and that a five-year look-back 
period is not appropriate for PLUS loan applicants. This commenter 
stated that using a two-year look-back period, instead of a five-year 
look-back period, will limit the impact of unusual economic conditions.
    One commenter recommended that the Department change the look-back 
period from two years to three years, because many States have a three-
year statute of limitations on debts for written contracts. The 
commenter recommended extending the look-back period to reflect these 
statutes of limitations and to ensure that PLUS borrowers with debt 
that is delinquent, charged off, or in collection, are able to either 
rehabilitate that debt or avoid costly lawsuits that may hinder their 
ability to repay a PLUS loan.
    Another commenter noted that the statute of limitations on a 
written contract varies from State to State. According to this 
commenter, the average statute of limitations period in all States and 
the District of Columbia is just over six years. The shortest statute 
of limitations in any State is three years, and the most common statute 
of limitations is six years.
    Another commenter who recommended setting the look-back period at 
three years noted that applicants with debts in collection or that have 
been charged off for two years could still be subject to aggressive 
collection practices, which may cause further financial distress to the 
borrower in the near future. This commenter stated that such applicants 
are not good candidates for automatic approval for a PLUS loan.
    Discussion: While it may be true that a debt can be charged off for 
reasons other than the debtor's ability or willingness to repay, 
generally, if a creditor has written off a debt as a loss it is an 
indicator that the applicant has had some difficulty repaying the 
amounts owed. If the reason for the charge off was something outside of 
the applicant's control, as suggested by the commenter, the applicant 
could document that reason during the extenuating circumstances 
process.
    We are skeptical of the commenter's assertion that a creditor would 
refer a debt to a collection agency if a borrower is current on his or 
her payments. Referring a debt to a collection agency costs the 
creditor. Further, the commenter does not explain why a creditor would 
escalate collection efforts on a borrower who consistently makes on-
time payments.
    We also disagree that whether an applicant has accounts in 
collection or a charged off status does not provide insight into likely 
repayment behavior. The HEA requires us to determine whether an 
applicant has an adverse credit history and we believe that past 
repayment behavior is a necessary part of this required adverse credit 
history determination.
    We thank the commenters for their support for a two-year look-back 
period. The Department reviewed other lenders' look-back periods (as 
discussed in the NPRM) and determined that the two year look-back 
period presents a more accurate sample of an applicant's recent credit 
history than the longer periods recommended by a small number of 
commenters.
    Changes: None.

Extenuating Circumstances (34 CFR 685.200(c)(2)(viii)(A)(3))

    Comments: Commenters generally expressed support for adding a 
provision to require loan counseling for PLUS loan applicants who are 
determined to have an adverse credit history, but who qualify for a 
PLUS loan by demonstrating that extenuating circumstances exist. 
However, one commenter questioned the premise that loan counseling is 
helpful and reduces overborrowing. This commenter was not aware of any 
studies demonstrating that requiring additional counseling for parent 
borrowers has a positive effect on loan repayment. Another commenter 
echoed this statement, citing a report

[[Page 63322]]

that questions the benefit of financial education programs.
    One commenter recommended that, before requiring PLUS loan 
counseling, the Department conduct a comprehensive review of how such 
counseling would add value to the PLUS loan borrowing experience and 
how it would affect PLUS loan outcomes. This commenter recommended that 
the Department conduct focus groups to evaluate future PLUS loan 
counseling.
    The proposed regulations would not have required PLUS loan 
counseling for a borrower with an adverse credit history who qualifies 
for a PLUS loan by obtaining an endorser. In the NPRM, the Department 
requested comment on whether an applicant who qualifies for a PLUS loan 
by obtaining an endorser who does not have an adverse credit history 
should be required to complete PLUS loan counseling. Several commenters 
expressed support for a counseling requirement for these applicants. 
One commenter noted that, although the applicant has an endorser, the 
applicant is still primarily responsible for repaying the loan. Another 
commenter stated that the change requiring counseling for these two 
groups would target some of the most vulnerable borrowers, and would 
help to ensure that they understand the terms and conditions of the 
PLUS loan.
    Another commenter asserted that the Department should establish 
standards for documentation of extenuating circumstances. Examples of 
documentation that this commenter stated should be acceptable include 
income tax returns, bank statements or a documented lack of alternative 
financial support.
    One commenter recommended that the extenuating circumstances that 
the Department would consider should be all-inclusive. The commenter 
stated that an applicant's good faith effort to submit documentation of 
extenuating circumstances should be sufficient for the applicant to 
obtain the loan.
    Another commenter contended that the new standards for PLUS loan 
eligibility should apply to endorsers as well as parent and student 
PLUS loan borrowers. This commenter pointed out that, while an 
applicant with an adverse credit history may still qualify for a PLUS 
loan if extenuating circumstances exist, an endorser does not have the 
opportunity to demonstrate extenuating circumstances.
    Discussion: We believe that loan counseling is a helpful tool for 
all borrowers but especially borrowers who may have experienced 
difficulties in repaying debts in the past. The Department will make 
voluntary counseling materials available to all PLUS loan borrowers and 
endorsers but require counseling for borrowers who receive PLUS loans 
due to extenuating circumstances or by obtaining an endorser. The 
counseling will provide borrowers with information specific to PLUS 
loans and with information that can help them successfully manage debt. 
The mandatory counseling will include information on the borrowers' 
current loan indebtedness, provide estimated loan repayment amounts, 
describe ways to avoid delinquency and default and provide additional 
financial aid literacy information. The voluntary counseling is 
discussed in the ``Enhanced PLUS Borrower Consumer Information'' 
section of this document. We will consider the suggestion to conduct 
consumer testing to evaluate PLUS loan counseling tools and materials.
    We thank the commenters who responded to our request for comment on 
whether an applicant who qualifies for a PLUS loan by obtaining an 
endorser should be required to complete PLUS loan counseling. We agree 
with the commenters that these applicants, as well as applicants who 
qualify for PLUS loans based on extenuating circumstances, should be 
required to complete PLUS loan counseling.
    We thank the commenter for recommendations on the types of 
documentation that the Secretary should accept to document extenuating 
circumstances. We agree that the types of documentation that the 
commenter described would be helpful in making extenuating 
circumstances determinations, but we do not believe it is necessary to 
include the examples in the regulations.
    We disagree with the recommendation that extenuating circumstances 
be all inclusive. Under this proposal, a borrower with an adverse 
credit history could obtain a PLUS loan under the extenuating 
circumstances provisions for any reason at all, regardless of whether 
the extenuating circumstance was truly justified.
    We disagree with the recommendation that an individual with an 
adverse credit history be permitted to act as an endorser for a PLUS 
loan applicant if the endorser can demonstrate that extenuating 
circumstances exist. While the ``adverse credit history'' definition is 
the same for endorsers as it is for borrowers, we do not believe that 
it would provide sufficient protection for taxpayers to allow an 
applicant who has been determined to have an adverse credit history to 
qualify for the loan by obtaining an endorser who also has an adverse 
credit history.
    Changes: We have revised Sec.  685.200(c)(2)(viii)(A)(2) to specify 
that an applicant with an adverse credit history and who has obtained 
an endorser must complete PLUS loan counseling offered by the Secretary 
to receive a PLUS loan.

Operational Issues

Extending the Validity of Credit Checks From 90 Days to 180 Days

    In the NPRM, the Department announced its intention to modify its 
procedures so that a credit check indicating that a PLUS loan applicant 
does not have an adverse credit history will remain valid for 180 days, 
instead of the current 90 days.
    With this change to the Department's procedures, any action that 
would normally trigger a credit check (for example, the submission of a 
Direct PLUS Loan Request or a PLUS loan origination record) will not do 
so if a prior credit check on the applicant that revealed no adverse 
credit issues was conducted within the past 180 days. We plan to 
implement this procedural change as soon as possible, and will inform 
schools in advance of the effective date of the change through an 
announcement on the Department's Information for Financial Aid 
Professionals Web site.
    Comments: Several commenters expressed support for this increase in 
the length of the period during which a credit check is valid. One 
commenter encouraged the Department to continue to review this issue, 
with the goal of eventually extending the validity of an approved 
credit check for at least one award year, so that PLUS borrowers would 
have additional certainty about their continued eligibility to receive 
PLUS loan funds. Another commenter agreed that the current 90-day 
period was too short, but felt that a period longer than 180 days may 
be too long.
    Discussion: We appreciate the support for this change. We believe 
that extending the window for more than 180 days would result in 
individuals receiving PLUS loans based on credit checks that do not 
reasonably reflect their current financial circumstances.

Collecting and Publishing Information on the Performance of PLUS Loans

    In the NPRM, the Department stated that it intends to collect and, 
where appropriate, publish information about the performance of parent 
and graduate and professional student PLUS loans, including default 
rate information based

[[Page 63323]]

on credit history characteristics of PLUS loan applicants and 
individual institutional default rates.
    Comments: Several commenters responded to the Department's plan to 
collect and publish this information. One organization stated that it 
is not opposed to the Department improving transparency by providing 
more information about participation in the PLUS Loan program, such as 
the number of applications; approval, denial and reconsideration rates; 
and amounts borrowed. However, the commenter expressed concerns about 
the Department's intent to publish PLUS loan default rate information. 
The commenter argued that, in its view, the overall PLUS loan default 
rate is relatively low. The commenter also argued that since the 
Department, not institutions, establishes PLUS loan eligibility 
criteria and makes the loans, it would not be fair to publish 
institutional PLUS loan default rates.
    Another commenter asserted that it would make sense to provide 
institutional default rates for PLUS loans made to graduate and 
professional students, but expressed concerns about publishing parent 
PLUS loan default rates. The commenter asserted that there is no 
correlation between a parent PLUS borrower's repayment behavior and the 
earnings capacity of an institution's graduates.
    One commenter supported the Department's plan to release more 
information about the PLUS loan program, including default rate 
information, but felt that default rates alone do not provide a 
complete picture of how widespread financial distress might be. The 
commenter urged us to collect, analyze, and publish robust data on the 
repayment patterns of PLUS loan borrowers, and to disaggregate the data 
for student and parent borrowers.
    One commenter noted that the Department provided the members of the 
negotiated rulemaking committee that considered the draft proposed 
regulations with data on this topic, including PLUS loan application 
rejection rates, reasons for rejection, sector-level default rates, and 
other information (see the discussion in the NPRM at 79 FR 46640, 
46641-46643 (August 8, 2014)). The commenter urged the Department to 
continue providing this information annually, keeping student and 
parent PLUS borrower data separate, so that researchers and 
policymakers can better understand the performance of the PLUS loan 
program. The commenter also strongly recommended that the Department 
create a process for institutions to review PLUS loan default rate data 
and then publish institutional PLUS loan cohort default rates annually.
    Discussion: We appreciate the feedback and will take the 
commenters' concerns and recommendations into consideration as we 
formalize our plans to collect and publish information on the 
performance of PLUS loans. The Department will collect and, where 
appropriate, publish information about the performance of parent and 
graduate and professional student PLUS loans, including default rate 
information based on credit history characteristics of PLUS loan 
applicants and individual institutional default rates.

Enhanced PLUS Borrower Consumer Information

    In the NPRM, we invited suggestions for specific types of enhanced 
consumer information that the Department should develop for PLUS 
applicants, particularly parent PLUS applicants who may be planning to 
borrow for more than one dependent over multiple academic years.
    Comments: Several commenters supported the Department's plans to 
develop enhanced consumer information for PLUS loan borrowers and 
provided suggestions for topics to be covered. These suggestions 
included the following:
     An explanation of the definition of ``adverse credit 
history'' and a description of consumer credit reports;
     For parent PLUS loan borrowers, a reminder that the 
parent, not the student on whose behalf the loan is obtained, is 
responsible for repaying the loan, and that a parent PLUS loan cannot 
be transferred to the student;
     An explanation of the repayment options available to 
parent PLUS loan borrowers;
     A reminder to borrowers who take out more than one PLUS 
loan on how future PLUS loans will affect loan payments; and
     A calculator to permit PLUS loan applicants to enter non-
mortgage debt and net income to determine whether they can manage 
additional debt.
    One commenter strongly encouraged us to explore ways for PLUS loan 
borrowers and their families to receive personalized, customized, and 
sustained counseling from subject-matter experts on navigating the 
financial aid process, avoiding over-borrowing, the importance of 
managing student loan debt, and budgeting and personal financial 
management skills. The commenter noted that such specialized counseling 
services should be available to those with adverse credit histories to 
help prevent delinquency and default and promote long-term financial 
well-being.
    Discussion: We agree that it would be helpful to include some of 
the recommended items in our enhanced consumer information for all PLUS 
applicants. The enhanced consumer information will include voluntary 
PLUS loan counseling for all student and parent PLUS borrowers. The 
voluntary PLUS loan counseling will be easily accessible to borrowers 
who are seeking PLUS loans and will also be made available through 
links on other Department Web sites. The following are some of the 
items that will be included in the voluntary counseling for all PLUS 
borrowers:
     A calculator that will allow borrowers to estimate their 
future required monthly payment amount under available repayment plans.
     Tools to assist borrowers in determining how factors such 
as taking out additional PLUS loans or deferring repayment until the 
student leaves school will affect the required monthly payment amount 
and total loan amount to be repaid.
     Available repayment plans for student and parent PLUS 
borrowers.
     Information about loan consolidation.
     Budgeting information, with an emphasis on borrowing only 
the minimum amount needed.
     Strategies for avoiding delinquency and default.

This enhanced consumer information will be made available prior to the 
start of the 2015-2016 academic year.

PLUS Loan Information for Institutions and Consumers and the Most 
Effective Way To Communicate With Parent PLUS Borrowers

    In the NPRM, we invited comments on what other types of information 
about parent PLUS loans would be helpful for institutions and 
consumers, and suggestions on the most effective way for the Department 
to communicate with parent PLUS loan borrowers.
    Comments: We received suggestions that included some of the 
recommendations for enhanced PLUS loan borrower consumer information 
described earlier in this section, as well as the following:
     Resources for borrowers to learn how to improve their 
credit history to qualify for future borrowing;
     The definition of ``endorser'' and an explanation of the 
responsibilities assumed by a PLUS loan endorser;
     The importance of understanding debt-to-earnings 
considerations before an individual takes on new loan debt; and

[[Page 63324]]

     The penalties for fraudulent PLUS loan applications.
    One commenter suggested that effective ways to communicate with 
parent PLUS loan borrowers include the following:
     In-person counseling with qualified professionals;
     Online counseling that is engaging, interactive, and 
includes knowledge checks;
     Online tutorials on specific topics; and
     Customer service using certified financial counselors who 
understand the concepts and tools needed to assist parents throughout 
the PLUS loan process.
    Another commenter suggested that it may be helpful for the 
Department to provide paper informational materials to parent PLUS 
borrowers in addition to providing online resources, since some parent 
borrowers may have computer literacy challenges or may not have access 
to a computer.
    Discussion: We appreciate these comments. The commenters provided 
many useful recommendations that will assist the Department as we 
consider options for better communicating with parent PLUS borrowers 
and providing enhanced information about parent PLUS loans to borrowers 
and institutions. Consistent with these goals, the voluntary PLUS loan 
counseling that the Department is developing will make use of graphs 
and charts to more clearly and effectively explain important concepts. 
The counseling will include knowledge checks to assess the borrower's 
understanding of the material. Borrowers will be able to download the 
content of the voluntary counseling for future reference.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

Introduction
    The Department makes Direct PLUS Loans to graduate and professional 
students and to parents of dependent undergraduate students to help 
them pay for education expenses not covered by other financial aid. 
According to data from the Department's Federal Student Aid (FSA) 
office, approximately 3.9 million borrowers owe a combined balance of 
$100 billion in total Direct PLUS loans. The Department is amending 
these regulations to update the standard for determining if a potential 
borrower has an adverse credit history for purposes of eligibility for 
a Direct PLUS loan.
    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 final regulatory action is a significant regulatory action 
subject to review by OMB under section 3(f) of Executive Order 12866.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these final regulations only on a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that maximize net benefits to borrowers and institutions. 
Based on the analysis that follows, the Department believes that these 
final regulations are consistent with the principles in Executive Order 
13563.
    We have also determined that this regulatory action does not unduly 
interfere with State, local, or tribal governments in the exercise of 
their governmental functions.
    In accordance with both Executive orders, the Department has 
assessed the potential costs and benefits, both quantitative and 
qualitative, of this regulatory action. The potential costs associated 
with this regulatory action are those we have determined as necessary 
for administering the Department's programs and activities.
    This Regulatory Impact Analysis is divided into six sections. The 
``Need for Regulatory Action'' section discusses why updating the 
regulatory requirements governing PLUS loan adverse credit history 
determinations is necessary.
    The ``Summary of Changes from the NPRM'' section summarizes the 
most important revisions the Department made in these final regulations 
since publication of the NPRM. These changes were informed by the 
Department's consideration of the comments of 310 parties who submitted 
comments on the proposed regulations. The changes are intended to 
clarify the Department's regulations on adverse credit history 
determinations and eligibility for PLUS loans. In these final 
regulations, the Department is making two major changes in the proposed 
rules since the NPRM: (1) Permitting the Secretary to increase the debt 
threshold amount of $2,085 based on a measure of inflation; and (2) 
requiring borrowers who qualify for a PLUS loan by obtaining an 
endorser to complete PLUS loan counseling provided by the Department.
    The ``Discussion of Costs, Benefits, and Transfers'' section 
considers the cost and benefit implications of these

[[Page 63325]]

regulations for institutions of higher education, students, and 
parents. We anticipate that the final regulations will result in a 
lower denial rate for PLUS loan applicants and a decline in the number 
of applicants who are subject to the extenuating circumstances process. 
For some parents and graduate and professional students who would be 
denied PLUS loans under the current standards, the final regulations 
will allow them to borrow a PLUS loan.
    Under ``Net Budget Impacts,'' the Department presents its estimate 
that the final regulations will not have a significant net budgetary 
impact on the Federal government.
    In ``Alternatives Considered,'' we describe other approaches we 
considered for key provisions of these regulations, including an 
automatic annual adjustment of the $2,085 threshold based on the CPI-U.
    Finally, the ``Final Regulatory Flexibility Analysis'' considers 
issues relevant to small businesses and nonprofit institutions.
    Elsewhere in this section under Paperwork Reduction Act of 1995, we 
identify and explain burdens specifically associated with information 
collection requirements.

Need for Regulatory Action

    Executive Order 12866 emphasizes that ``Federal agencies should 
promulgate only such regulations as are required by law, are necessary 
to interpret the law, or are made necessary by compelling public need, 
such as material failures of private markets to protect or improve the 
health and safety of the public, the environment, or the well-being of 
the American people.'' In this case, there is indeed a compelling 
public need for regulation. Congress amended the HEA in 2010 to end the 
origination of new loans under the Federal Family Education Loan (FFEL) 
Program. All new subsidized and unsubsidized Stafford loans, PLUS 
loans, and Consolidation loans are made under the Direct Loan Program. 
To be eligible for a Federal Direct PLUS loan, under the statute, an 
applicant must not have an adverse credit history. To determine if an 
applicant has an adverse credit history, the Department conducts a 
credit check on the applicant. Under current regulations, a PLUS loan 
applicant is considered to have an adverse credit history if the credit 
report shows that the applicant is 90 days delinquent on any debt, or 
has been the subject of a default determination, bankruptcy discharge, 
foreclosure, repossession, tax lien, wage garnishment, or write-off of 
a title IV, HEA program debt in the five years preceding the date of 
the credit report.
    Since 2011, we have made operational changes to the Direct Loan 
Program to improve compliance with the applicable regulations. In 
accordance with those regulations, the Department has applied standards 
for adverse credit history determinations for PLUS loan applicants 
under which an applicant with debts in collection or charged off is 
considered to have an adverse credit history because the applicant is 
90 or more days delinquent on a debt. Based on these standards, more 
PLUS loan applicants were determined to have an adverse credit history 
and had to request reconsideration of the PLUS loan denial through the 
Department's process for determining whether there are extenuating 
circumstances for an adverse credit history. After these changes 
resulted in an increase in PLUS loan denials, the Department made 
operational changes to the extenuating circumstances process to ensure 
that the statutory adverse credit history requirement was applied 
fairly without burdening borrowers or restricting access to higher 
education. In the interest of providing transparency to institutions 
and families, we concluded that the Department's operational changes 
should be reflected in the regulatory requirements governing PLUS loan 
adverse credit history determinations, which were originally 
established in 1994.
    The final regulations will amend the definition of ``adverse credit 
history'' and will update the standard for determining if a potential 
PLUS loan borrower has an adverse credit history. In addition, the 
final regulations require that a parent or student with an adverse 
credit history who is approved for a PLUS loan as a result of the 
Secretary's determination that extenuating circumstances exist or who 
qualifies for a PLUS loan by obtaining an endorser must complete PLUS 
loan counseling before receiving the loan.

Summary of Changes From the NPRM

1. Threshold Amount Indexed to Inflation
    In the NPRM, the Department solicited comments on the appropriate 
inflation measure to use to index the $2,085 threshold debt amount. 
Most of the commenters that responded to this solicitation agreed that 
the Department should index the $2,085 to an inflation measure, and 
that the CPI-U produced by the Bureau of Labor Statistics would be the 
most appropriate measure. The Department believes that indexing the 
threshold amount to inflation will ensure that it remains a meaningful 
limit on the amount of delinquent debt a PLUS applicant may have. The 
CPI-U is the most commonly used measure of inflation and it is also 
commonly used as a means of adjusting dollar values. The CPI-U is used 
to adjust consumers' income payments (for example, Social Security), to 
adjust income eligibility levels for government assistance and to 
provide cost-of-living wage adjustments to workers. Over 50 million 
Social Security beneficiaries and military and Federal Civil Service 
retirees, have cost-of-living adjustments tied to the CPI-U. In 
addition, eligibility criteria for millions of food stamp recipients 
are tied to the CPI-U.\2\ Along with other agencies, the Department 
also uses the CPI-U for many purposes such as determining various 
amounts under the Individuals with Disabilities Education Act (IDEA) 
and the Rehabilitation Act of 1973. To be consistent with the practice 
of other Federal agencies and the Department itself, we have determined 
that the CPI-U is the most appropriate inflation measure to use to 
adjust the threshold debt amount.
---------------------------------------------------------------------------

    \2\ ``Consumer Price Index: Addendum to Frequently Asked 
Questions.'' Bureau of Labor Statistics. (http://stats.bls.gov/cpi/cpiadd.htm#2_3)
---------------------------------------------------------------------------

    The initial threshold amount will be $2,085. The Department will 
adjust this amount for inflation, using the CPI-U, only when doing so 
will result in a cumulative increase in the threshold amount of $100 or 
more. The adjustments will be determined by multiplying $2,085, or the 
most recent inflation adjusted amount, by the sum of all subsequent 
annual average percentage changes of All Items CPI-U, before seasonal 
adjustment, for the 12-month periods ending in December. When the 
product of this calculation equals or exceeds $100, the product will be 
rounded up to the nearest $5. This adjustment amount will then be added 
to the threshold amount to derive a revised higher threshold amount 
that reflects inflation. When the recalculated adjustment amount 
increases by $100 or more, the Department will notify the public of the 
new threshold amount and apply it to PLUS loan eligibility 
determinations after it is announced.
    Some commenters recommended an annual adjustment of the threshold 
amount based on inflation. The Department believes that adjusting the 
threshold amount for inflation annually would result in minimal annual 
increases and is unnecessary. Therefore these final regulations provide 
for increasing the $2,085 threshold only when applying the CPI-U for 
prior years

[[Page 63326]]

would result in an increase of $100 or more.
2. Counseling for PLUS Loan Borrowers Who Qualify for a PLUS Loan by 
Obtaining an Endorser
    The proposed regulations in the NPRM did not include a requirement 
that an applicant with an adverse credit history who qualifies for a 
PLUS loan by obtaining an endorser must receive PLUS loan counseling 
before receiving the loan. The Department solicited comments on whether 
these applicants should be required to complete PLUS loan counseling. 
Most commenters expressed support for a counseling requirement for 
these applicants. One commenter noted that, although the applicant has 
an endorser, the applicant is still primarily responsible for repaying 
the loan. Another commenter stated that the change requiring counseling 
for these two groups would target some of the most vulnerable 
borrowers, and would help to ensure that they understand the terms and 
conditions of the PLUS loan.
    The Department agrees with the comments suggesting that loan 
counseling is a helpful tool for all borrowers, especially borrowers 
who may have experienced difficulties in repaying debts in the past. 
Counseling designed to provide borrowers with information specific to 
PLUS loans and to help borrowers successfully manage debt is important. 
The Department has revised these regulations to require that an 
applicant who has an adverse credit history and who has obtained an 
endorser complete PLUS loan counseling offered by the Secretary in 
order to receive a PLUS loan.

Discussion of Costs, Benefits, and Transfers

    The Department expects that, as a result of these regulations, the 
number of approved applications for parent and graduate and 
professional student PLUS loans will increase from current levels and 
that this will result in a series of costs, benefits, and transfers. 
The most significant factor leading to this increase is expected to be 
the establishment of a new standard for the determination that an 
applicant has an adverse credit history. In particular, under these 
final regulations, an adverse credit history means that the applicant 
has one or more debts with a total combined outstanding balance greater 
than $2,085 that are 90 or more days delinquent as of the date of the 
credit report, or that have been placed in collection or charged off 
during the two years preceding the date of the credit report.
    These final regulations also clarify the process by which PLUS loan 
applicants who were denied a loan may request reconsideration, and may 
increase the percentage of denied loan applicants who eventually 
qualify for PLUS loans after requesting reconsideration or obtaining an 
endorser who does not have an adverse credit history.
    As discussed in the NPRM, parent PLUS loan applicants and their 
dependent students would be affected by these final regulations. Under 
these regulations, a larger number of parent PLUS loan applicants would 
be approved for PLUS loans on behalf of their dependent students 
without the extenuating circumstances process. As a result, some 
families could accrue higher loan debt amounts.
    Parents who take out PLUS loans on behalf of their dependent 
children are acquiring some of the debt burden associated with their 
child's education and in some cases, most of the burden since there are 
no loan limits on how much parents may borrow, unlike the subsidized 
and unsubsidized loan limits for undergraduate students. Parent PLUS 
loans have higher interest rates and origination fees than Direct 
Subsidized and Direct Unsubsidized loans.
    Increased access to PLUS loans may allow some students to continue 
their attendance in programs that they otherwise would not be able to 
afford. While some applicants may use additional Direct Unsubsidized 
loans to cover their educational expenses after their applicant parents 
have been denied PLUS loans, others may be unable to make up the 
difference because of annual or lifetime aggregate limits on Stafford 
loans and the larger cost of their selected institution. This could 
result in a student having to withdraw from a particular education 
program, transfer to another less-expensive program or institution, or 
find additional means of financing education, such as private student 
loans. Since PLUS loans can be borrowed up to the cost of attendance, 
they may be used to more fully cover funding gaps for dependent 
students who have exhausted their annual or lifetime aggregate limits 
for Direct Subsidized and Unsubsidized loans or allow students to 
attend more expensive institutions. PLUS loans often help lower-income 
students whose parents may lack the personal or family resources to pay 
for college. PLUS loans can also help graduate and professional 
students without their own personal resources achieve graduate degrees.
    Applicants with an adverse credit history who qualify for a PLUS 
Loan by demonstrating that extenuating circumstances exist, or who 
qualify for a PLUS loan by obtaining an endorser, will be required to 
participate in loan counseling provided by the Department. This 
requirement could help PLUS loan applicants make better-informed 
decisions and avoid overborrowing for their own or their child's 
education.

Net Budget Impacts

    As detailed in the NPRM, many of the changes are already reflected 
in the baseline budget estimates related to the PLUS loan program. 
However, due to data limitations, the net budget impact of this 
proposal could not be determined at this time. 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.)
    As described in the NPRM, the Department's changes to the process 
for making adverse credit history determinations in 2011 have already 
been incorporated into the Department's budget baseline. A commenter 
argued that the Department should have compared the effects of the 
proposed regulations to a baseline that did not include the 2011 
changes so that the effect of the regulations would be a net increase 
in the level of PLUS loan application denials. The Department 
appreciates the comment. However, the Department believes that using 
the President's Budget 2015 baseline that reflects current operations 
and any changes in PLUS loan volume from the 2011 changes in the 
process for adverse credit determinations is appropriate
    As discussed in the NPRM, the changes in the regulations, including 
(1) using $2,085 as an upfront threshold amount in the determination of 
an adverse credit history, and (2) the reduced look-back period of two 
years for accounts in collection and accounts that have been charged 
off to trigger a determination of adverse credit, will likely decrease 
the number of PLUS loan applicants who are denied loans based on an 
adverse credit history determination.
    However, loans made to borrowers who would have been considered to 
have an adverse credit history before the changes in the regulations 
could have a higher incidence of default or could be difficult for 
borrowers to repay. If that were the case, potential savings from any 
increased PLUS volume resulting from the regulations would be reduced 
or even reversed. The Department does

[[Page 63327]]

not have data to determine if borrowers who would have been considered 
to have an adverse credit history in the absence of the regulations 
have a greater incidence of default or repayment difficulty but, if a 
subsidy rate were available for this subgroup of PLUS borrowers, it 
would likely differ from the overall PLUS subsidy rate. The budget 
baseline already reflects the $2,085 threshold amount as currently used 
in the Department's process for considering requests for 
reconsideration and most of the charged-off accounts or accounts in 
collection that would result in an adverse credit history determination 
fall within the two-year period that is in the final regulations. 
Therefore, the Department has not estimated a significant net budget 
impact from the regulations.

Assumptions, Limitations, and Data Sources

    In developing these estimates, a wide range of data sources were 
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) from institutions; and data from a range of surveys 
conducted by the National Center for Education Statistics, such as the 
2011-2012 National Postsecondary Student Aid Survey and the 2004/09 
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 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. 
Expenditures are classified as transfers from the Federal Government to 
student loan borrowers.

 Table 1--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
           Category                             Benefits
------------------------------------------------------------------------
Improved clarity in process
 for adverse credit
 determinations for PLUS loans               Not quantified
------------------------------------------------------------------------
           Category                               Costs
------------------------------------------------------------------------
                                         7%                   3%
                               -----------------------------------------
Costs of compliance with                     $6.21                $6.25
 paperwork requirements.......
------------------------------------------------------------------------

Alternatives Considered

    The regulatory alternatives that were considered were discussed in 
the NPRM (79 FR 46653). Further, as discussed in the Analysis of 
Comments and Changes section of this document, we received comments 
from 310 parties during the comment period following publication of the 
NPRM. These comments covered a range of issues, including indexing the 
$2,085 minimum threshold amount to an inflation measure. The Department 
considered the suggestion made by commenters that the $2,085 debt 
threshold amount be automatically adjusted each year based on CPI-U but 
decided that adjusting for inflation annually for what may be a minimal 
increase is unnecessary.

Final Regulatory Flexibility Analysis

    The regulations will 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 number of 
title IV, HEA-eligible institutions that are small entities would be 
limited because of the revenues involved in the sector that would be 
affected by the regulations and the concentration of ownership of 
institutions by private owners or public systems. However, the 
definition of ``small organization'' does not factor in revenue. 
Accordingly, several of the entities subject to the regulations are 
``small entities,'' and we have prepared this Final Regulatory 
Flexibility Analysis.

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

    These regulations will update the standards for determining whether 
a parent or student has an adverse credit history for purposes of 
eligibility for a Direct PLUS Loan. The regulations will require PLUS 
loan counseling for a parent or student with an adverse credit history 
who obtains a PLUS loan as a result of the Secretary's determination 
that extenuating circumstances exist or who receives a loan after 
obtaining an endorser.

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

    Current Direct Loan regulations (34 CFR 685.200(b) and (c)) specify 
that graduate and professional students, and parents borrowing on 
behalf of their dependent children, may borrow PLUS loans. PLUS loan 
borrowers must meet applicable eligibility requirements.

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

    The regulations will affect the approximately 7,500 institutions 
that participate in the title IV, HEA loan programs, as the amount and 
composition of title IV, HEA program aid that is available to students 
affects students' enrollment decisions and institutional choice. 
Approximately 60 percent of institutions of higher education qualify as 
small entities. Using data from the Integrated Postsecondary Education 
Data System, we estimate that 4,365 institutions qualify as small 
entities--1,891 are nonprofit institutions, 2,196 are for-profit 
institutions with programs of two years or less, and 278 are for-profit 
institutions with four-year programs.

[[Page 63328]]

Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Regulations, Including an Estimate of 
the Classes of Small Entities That Will Be Subject to the Requirements 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record

    The new regulations will not change the reporting requirements 
related to PLUS loans for institutions. Accordingly, the Department 
does not expect a change in institutional burden from the current 
regulations. However, PLUS loan borrowers with an adverse credit 
history who request reconsideration based on extenuating circumstances 
must provide satisfactory documentation that extenuating circumstances 
exist, and will be required to complete loan counseling offered by the 
Secretary. In addition, PLUS loan borrowers who qualify for a PLUS loan 
after obtaining an endorser will also be required to complete loan 
counseling.

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

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

Alternatives Considered

    The Department conducted a negotiated rulemaking process to develop 
the proposed regulations and considered a number of options for some of 
the provisions. No alternatives were aimed specifically at small 
entities.

Paperwork Reduction Act of 1995

    Section 685.200 contains information collection requirements. Under 
the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3507(d)), the 
Department has submitted a copy of the section, and will submit the 
Information Collections Request (ICR) to the Office of Management and 
Budget (OMB) for its review.
    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.
Section 685.200 Borrower Eligibility
    Requirements: Under the final regulations in Sec.  685.200(b)(5)and 
(c)(2)(viii)(A)(3), we require that a PLUS loan applicant who is 
determined to have an adverse credit history, in addition to providing 
documentation to the Secretary demonstrating that extenuating 
circumstances exist, must complete enhanced PLUS loan counseling to 
receive the PLUS loan. We believe that enhanced loan counseling will 
help these PLUS loan applicants to understand the ramifications of 
incurring this additional debt.
    Based on comments received on the NPRM, we are expanding the 
requirement that PLUS loan applicants receive new enhanced PLUS loan 
counseling to also apply to PLUS loan applicants who have an adverse 
credit history, but who qualify for a PLUS loan by obtaining an 
endorser who does not have an adverse credit history. The PLUS loan 
applicant (but not the endorser) will be required to complete enhanced 
PLUS loan counseling under Sec.  685.200(c)(2)(viii)(A)(2).
    General: Since the publication of the NPRM, we have continued to 
examine available data and have based our revised burden calculation on 
the actual number of borrowers with adverse credit histories who 
documented extenuating circumstances, and the actual number of 
borrowers with adverse credit histories who obtained an endorser who 
does not have an adverse credit history during the period of March 23, 
2013, through February 26, 2014, instead of basing our burden estimate 
on derived numbers.
    Burden Calculation: During the period of March 23, 2013 through 
February 26, 2014, there were 785,734 PLUS loan denials. Our records 
indicate that, of those denials, 147,400 PLUS loans were approved after 
the extenuating circumstances process was completed and 63,126 PLUS 
loans were approved after the borrower obtained an endorser who does 
not have an adverse credit history.
Graduate and Professional PLUS Borrowers
    All graduate and professional students who are first-time PLUS 
borrowers are currently required to undergo PLUS loan entrance 
counseling. We estimate that the enhanced PLUS loan borrower counseling 
requirements for each graduate and professional student who qualifies 
for a PLUS loan based on extenuating circumstances will, on average, 
increase loan counseling by 0.50 hours (30 minutes).
    We estimate that, on average, each borrower's submission of 
documentation for the Secretary's consideration of the borrower's 
extenuating circumstances will take 1 hour.
    We estimate that, on average, a borrower with an adverse credit 
history who elects to obtain an endorser who does not have an adverse 
credit history will require 1 hour to obtain such an endorser.
    For applicants that qualify for a PLUS loan after obtaining an 
endorser, we estimate that, on average, each borrower will require an 
additional 0.50 hours to complete the enhanced PLUS loan counseling.
    Of the 29,179 applicants for PLUS loans to pay for attendance at 
private for-profit institutions whose applications were denied, our 
data show that there were 10,984 graduate and professional students who 
received a loan after the initial denial of a PLUS loan request using 
the extenuating circumstances process review or after obtaining an 
endorser who does not have an adverse credit history. Of the 10,984 
PLUS loan applicants, 7,607 were approved by documenting that 
extenuating circumstances existed and 3,377 PLUS loan applicants were 
approved after the applicant obtained an endorser who does not have an 
adverse credit history.
    Our data show that there were 7,607 borrowers who were approved for 
a loan based on documentation of existing extenuating circumstances and 
we estimate that the burden will increase by 3,804 hours (7,607 
approved requests multiplied by 0.50 hours per enhanced counseling 
session). Our data show that there were 3,377 borrowers who received a 
loan after obtaining an endorser who does not have an adverse credit 
history and we estimate that the burden will increase by 1,689 hours 
(3,377 approved requests multiplied by 0.50 hours per enhanced 
counseling session).
    We estimate a total increase of 16,477 hours of burden for graduate 
and professional student PLUS borrowers at private for-profit 
institutions (10,984 hours for the collection and submission of 
documentation of existing extenuating circumstances or to obtain an 
endorser who does not have an adverse credit history, plus an 
additional 3,804 hours of enhanced counseling for borrowers who qualify 
for a loan after demonstrating that extenuating circumstances exist, 
and an additional 1,689 hours of enhanced counseling for the borrowers 
who receive a loan after obtaining an endorser who does not have an 
adverse

[[Page 63329]]

credit history) under OMB Control Number 1845-0129.
    Of the 56,484 applicants for PLUS loans to pay for attendance at 
private non-profit institutions whose applications were denied, our 
data show that there were 33,594 graduate and professional students who 
received a loan after the initial denial of a PLUS loan request using 
the extenuating circumstances process review or after obtaining an 
endorser who did not have an adverse credit history. Of the 33,594 PLUS 
applicants, 21,424 were approved by documenting that extenuating 
circumstances existed and 12,170 PLUS applicants were approved after 
the applicant obtained an endorser who does not have an adverse credit 
history.
    Our 2013-14 data show that there were 21,424 borrowers who were 
approved for a loan based on documentation of existing extenuating 
circumstances and we estimate that the burden will increase by 10,712 
hours (21,424 approved requests multiplied by 0.50 hours per enhanced 
counseling session). Our data show that there were 12,170 borrowers who 
received a loan after obtaining an endorser who does not have an 
adverse credit history and we estimate that the burden will increase by 
6,085 hours (12,170 approved requests multiplied by 0.50 hours per 
enhanced counseling session).
    We estimate a total increase of 50,391 hours of burden for graduate 
and professional PLUS borrowers at private non-profit institutions 
(33,594 hours for the collection and submission of documentation of 
existing extenuating circumstances or to obtain an endorser who does 
not have an adverse credit history plus an additional 10,712 hours of 
enhanced counseling for borrowers who received a loan after 
demonstrating that extenuating circumstances exist and an additional 
6,085 hours of enhanced counseling for the borrowers who received a 
loan after obtaining an endorser who does not have an adverse credit 
history) under OMB Control Number 1845-0129.
    Of the 40,385 applicants for PLUS loans to pay for attendance at 
public institutions whose applications were denied, our data show that 
there were 18,503 graduate and professional students who received a 
loan after the initial denial of a PLUS loan request using the 
extenuating circumstances process review or after obtaining an endorser 
who does not have an adverse credit history. Of the 18,503 PLUS 
applicants, 12,650 were approved by documenting existing extenuating 
circumstances and 5,853 were approved after the applicant obtained an 
endorser who does not have an adverse credit history.
    Our data show that there were 12,650 borrowers who were approved 
for a loan based on documentation of existing extenuating circumstances 
and we estimate that the burden will increase by 6,325 hours (12,650 
approved requests multiplied by 0.50 hours per enhanced counseling 
session). Our data show that there were 5,853 borrowers who received a 
loan after obtaining an endorser who does not have an adverse credit 
history and we estimate that the burden will increase by 2,927 hours 
(5,853 approved requests multiplied by 0.50 hours per enhanced 
counseling session).
    We estimate a total increase of 27,755 hours of burden for graduate 
and professional student PLUS borrowers at public institutions (18,503 
hours for the collection and submission of documentation of extenuating 
circumstances or to obtain an endorser who does not have an adverse 
credit history plus an additional 6,325 hours of enhanced counseling 
for borrowers with extenuating circumstances and an additional 2,927 
hours of enhanced counseling for the borrowers who receive a loan after 
obtaining an endorser who does not have an adverse credit history) 
under OMB Control Number 1845-0129.
    Of the 3,052 denials of applicants for PLUS loans to pay for 
attendance at foreign institutions whose applications were denied, our 
data show that there were 2,426 graduate and professional students who 
received a loan after the initial denial of a PLUS loan request using 
the extenuating circumstances process review or after obtaining an 
endorser who does not have an adverse credit history. Of the 2,426 PLUS 
loan applicants, 1,505 were approved by documenting existing 
extenuating circumstances and 921 PLUS applicants approved after the 
applicant obtained an endorser who does not have an adverse credit 
history.
    Our data show that there were 1,505 borrowers who were approved for 
a loan based on documentation of existing extenuating circumstances and 
we estimate that the burden will increase by 753 hours (1,505 approved 
requests multiplied by 0.50 hours per enhanced counseling session). Our 
data show that there were 921 borrowers who received a loan after 
obtaining an endorser who does not have an adverse credit history and 
we estimate that the burden will increase by 461 hours (921 approved 
requests multiplied by 0.50 hours per enhanced counseling session).
    We estimate a total increase of 3,640 hours of burden for graduate 
and professional student borrowers at foreign institutions (2,426 hours 
for the collection and submission of documentation of extenuating 
circumstances, or to obtain an endorser who does not have an adverse 
credit history, plus an additional 753 hours of enhanced counseling for 
borrowers who qualify for a loan after demonstrating that extenuating 
circumstances exist, and an additional 461 hours of enhanced counseling 
for the borrowers who receive a loan after obtaining an endorser who 
does not have an adverse credit history) under OMB Control Number 1845-
0129.
    The total increase in burden for Sec.  685.200(b)(5) will be 98,263 
hours under OMB Control Number 1845-0129.
Parent PLUS Loan Borrowers
    Based on comments received on the NPRM, these final regulations 
provide that any parent PLUS loan applicant who has an adverse credit 
history, but who qualifies for a loan after demonstrating extenuating 
circumstance or after obtaining an endorser who does not have an 
adverse credit history, must complete enhanced PLUS loan counseling 
before receiving a PLUS loan. Under the proposed regulations only a 
parent with an adverse credit history who was approved for a loan after 
demonstrating extenuating circumstances would have been required to 
complete the enhanced PLUS loan counseling before receiving a PLUS 
loan.
    As a result of the Department's development of enhanced PLUS loan 
counseling, the amount of time that it will take a parent to complete 
the PLUS loan counseling has been increased from the NPRM estimate. We 
now estimate that, on average, each parent PLUS loan borrower who is 
required to complete the enhanced PLUS loan counseling will take 0.75 
hours (45 minutes) to complete the loan counseling session. This is an 
additional 15 minutes from the NPRM estimate.
    We estimate that, on average, each borrower submission of 
documentation for the Secretary's consideration of the borrower's 
extenuating circumstances will take 1 hour.
    We estimate that, on average, a borrower who elects to obtain an 
endorser who does not have an adverse credit history will require 1 
hour to obtain an endorser.
    For applicants who receive a PLUS loan after obtaining an endorser, 
we estimate that, on average, each borrower (but not the endorser) will 
require an additional 0.75 hours to complete the enhanced PLUS loan 
counseling.

[[Page 63330]]

    Of the 83,432 applicants for parent PLUS loans to pay for 
attendance at private for-profit institutions whose applications were 
denied, our data show that there were 10,480 parent borrowers who 
received a loan after the initial denial of a PLUS loan using the 
extenuating circumstances review process or after obtaining an endorser 
who did not have an adverse credit history. Of the 10,480 PLUS 
applicants, 7,612 were approved by documenting that extenuating 
circumstances existed and 2,868 PLUS applicants were approved after the 
applicant obtained an endorser who does not have an adverse credit 
history.
    Our data show that there were 7,612 parent borrowers who were 
approved for a loan based on documentation of existing extenuating 
circumstances and we estimate that the burden will increase by 5,709 
hours (7,612 approved requests multiplied by 0.75 hours per enhanced 
PLUS loan counseling session). Our data show that there were 2,868 
parent borrowers who received a loan after obtaining an endorser who 
does not have an adverse credit history and we estimate that burden 
will increase by 2,151 hours (2,868 approved requests multiplied by 
0.75 hours per enhanced loan counseling session).
    We estimate a total increase of 18,340 hours of burden for parent 
PLUS borrowers at private for-profit institutions (10,480 hours for the 
collection and submission of documentation of extenuating circumstances 
or to obtain an endorser who does not have an adverse credit history, 
plus an additional 5,709 hours of enhanced counseling for parent 
borrowers who qualify for a loan after demonstrating extenuating 
circumstances, and an additional 2,151 hours of enhanced counseling for 
the parent borrowers who received a loan after obtaining an endorser 
who does not have an adverse credit history) under OMB Control Number 
1845-0129.
    Of the 210,621 applicants for parent PLUS loans to pay for 
attendance at private nonprofit institutions whose applications were 
denied, our data show that there were 56,192 parent borrowers who 
received a loan after the initial denial of a PLUS loan using the 
extenuating circumstances process review or after obtaining an endorser 
who did not have an adverse credit history. Of the 56,192 parent PLUS 
applicants, 38,707 parent applicants were approved by documenting that 
extenuating circumstances exist and 17,485 parent applicants were 
approved after the applicant obtained an endorser who does not have an 
adverse credit history.
    Our data show that there were 38,707 parent PLUS borrowers who were 
approved for a loan based on documentation of existing extenuating 
circumstances and we estimate that the burden will increase by 29,030 
hours (38,707 approved requests times 0.75 hours per enhanced loan 
counseling session). Our data show that there were 17,485 parent PLUS 
borrowers who received a loan after obtaining an endorser who does not 
have an adverse credit history and we estimate that burden will 
increase by 13,114 hours (17,485 approved requests multiplied by 0.75 
hours per enhanced PLUS loan counseling session).
    We estimate a total increase of 98,336 hours of burden for parent 
PLUS applicants at private non-profit institutions (56,192 hours for 
the collection and submission of documentation of existing extenuating 
circumstances or to obtain an endorser who does not have an adverse 
credit history, plus an additional 29,030 hours of enhanced counseling 
for parent applicants who qualify for a loan after demonstrating that 
extenuating circumstances exist, and an additional 13,114 hours of 
enhanced counseling for parent applicants who receive a loan after 
obtaining an endorser who does not have an adverse credit history) 
under OMB Control Number 1845-0129.
    Of the 361,894 applicants for PLUS loans to pay for attendance at 
public institutions whose applications were denied, our data show that 
there were 78,039 parents borrowers who received a loan after an 
initial denial of a PLUS loan using the extenuating circumstances 
process review or after obtaining an endorser who does not have an 
adverse credit history. Of the 78,039 PLUS applicants, 57,706 were 
approved by documenting that extenuating circumstances exist and 20,333 
parent applicants were approved after the applicant obtained an 
endorser who does not have an adverse credit history.
    Our data show that there were 57,706 parent borrowers who were 
approved for a loan based on documentation of existing extenuating 
circumstances and we estimate that the burden will increase by 43,280 
hours (57,706 approved requests multiplied by 0.75 hours per enhanced 
loan counseling session). Our data show that there were 20,333 parent 
applicants who received a loan after obtaining an endorser who does not 
have an adverse credit history, and we estimate that burden will 
increase by 15,250 hours (20,333 approved requests multiplied by 0.75 
hours per enhanced loan counseling session).
    We estimate a total increase of 136,569 hours of burden for parent 
PLUS applicants at public institutions (78,039 hours for the collection 
and submission of documentation of existing extenuating circumstances 
or to obtain an endorser who does not have an adverse credit history, 
plus an additional 43,280 hours of enhanced counseling for parent 
applicants who qualify for a loan after demonstrating that extenuating 
circumstances exist, and an additional 15,250 hours of enhanced 
counseling for parent applicants who received a loan after obtaining an 
endorser who does not have an adverse credit history) under OMB Control 
Number 1845-0129.
    Of the 687 applicants for parent PLUS loans to pay for attendance 
at foreign institutions whose applications were denied, our data show 
that there were 308 parent borrowers who received a loan after the 
initial denial of a PLUS loan using the extenuating circumstances 
process review or after obtaining an endorser who does not have an 
adverse credit history. Of the 308 PLUS applicants, 189 were approved 
by documenting that extenuating circumstances exist and 119 parent 
applicants were approved after the applicant obtained an endorser who 
did not have an adverse credit history.
    Our data show that there were 189 parent borrowers who were 
approved for a loan based on documentation of existing extenuating 
circumstances and we estimate that the burden will increase by 142 
hours (189 approved requests review multiplied by 0.75 hours per 
enhanced loan counseling session). Our data show that there were 119 
parent applicants who received a loan after obtaining an endorser who 
does not have an adverse credit history and we estimate that burden 
will increase by 89 hours (119 approved requests multiplied by 0.75 
hours per enhanced loan counseling session).
    We estimate a total increase of 539 hours of burden for parent PLUS 
loan applicants at foreign institutions (308 hours for the collection 
and submission of documentation of extenuating circumstances or to 
obtain an endorser who does not have an adverse credit history, plus an 
additional 142 hours for enhanced counseling for parent PLUS loan 
applicants who qualify for a loan after demonstrating extenuating 
circumstances and an additional 89 hours of enhanced counseling for 
applicants who receive a loan after obtaining an endorser who does not 
have an adverse credit history) under OMB Control Number 1845-0129.
    The total increase in burden for Sec.  685.200(c)(2)(viii)(A)(2) 
and (3) will be

[[Page 63331]]

253,784 hours under OMB Control Number 1845-0129.
    Overall, burden would increase by 352,047 hours under OMB Control 
Number 1845-0129.
    Consistent with the discussion above, the following chart describes 
the sections of these final regulations involving information 
collections, the information being collected, the collections that the 
Department will submit to OMB for approval, and the estimated costs 
associated with the information collections. The monetized net costs of 
the increased burden on applicants and borrowers, using wage data 
developed using BLS data, available at www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $5,738,366, as shown in the chart below. This cost was 
based on an hourly rate of $16.30 for applicants and borrowers.

Collection of Information

----------------------------------------------------------------------------------------------------------------
                                                                        OMB Control No. and
         Regulatory section              Information collection     estimated burden (change in  Estimated costs
                                                                              burden)
----------------------------------------------------------------------------------------------------------------
Sections 685.200(b)(5) and            Revises language requiring    OMB 1845-0129..............      $5,738,366
 685.200(c)(1)(viii)(A)(2) and (3)     documentation for            We estimate that the burden
 Borrower Eligibility.                 extenuating circumstances     will increase by 352,047
                                       and requires enhanced PLUS    hours.
                                       loan counseling for
                                       graduate and professional
                                       students. These final
                                       regulations also require
                                       loan counseling for parent
                                       PLUS borrowers with a
                                       determination of adverse
                                       credit.
----------------------------------------------------------------------------------------------------------------

Assessment of Educational Impact

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

List of Subjects in 34 CFR Part 685

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

    Dated: October 20, 2014.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary of 
Education amends part 685 of title 34 of the Code of Federal 
Regulations as follows:

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

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

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


0
2. Section 685.200 is amended by:
0
A. In paragraph (b)(5), removing the words ``of paragraph (c)(1)(vii)'' 
and adding, in their place, the words ``that apply to a parent under 
paragraphs (c)(2)(viii)(A) through (G) of this section''; and
0
B. Revising paragraph (c) to read as follows:


Sec.  685.200  Borrower eligibility.

* * * * *
    (c) Parent PLUS borrower--(1) Definitions. The following 
definitions apply to this paragraph (c):
    (i) Charged off means a debt that a creditor has written off as a 
loss, but that is still subject to collection action.
    (ii) In collection means a debt that has been placed with a 
collection agency by a creditor or that is subject to more intensive 
efforts by a creditor to recover amounts owed from a borrower who has 
not responded satisfactorily to the demands routinely made as part of 
the creditor's billing procedures.
    (2) Eligibility. A parent is eligible to receive a Direct PLUS Loan 
if the parent meets the following requirements:
    (i) The parent is borrowing to pay for the educational costs of a 
dependent undergraduate student who meets the requirements for an 
eligible student under 34 CFR part 668.
    (ii) The parent provides his or her and the student's social 
security number.
    (iii) The parent meets the requirements pertaining to citizenship 
and residency that apply to the student under 34 CFR 668.33.
    (iv) The parent meets the requirements concerning defaults and 
overpayments that apply to the student in 34 CFR 668.32(g).
    (v) The parent complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student under 34 CFR 
part 668, except for the completion of a Statement of Selective Service 
Registration Status.
    (vi) The parent meets the requirements that apply to a student 
under paragraph (a)(1)(iv) of this section.
    (vii) The parent has completed repayment of any title IV, HEA 
program assistance obtained by fraud, if the parent has been convicted 
of, or has pled nolo contendere or guilty to, a crime involving fraud 
in obtaining title IV, HEA program assistance.
    (viii)(A) The parent--
    (1) Does not have an adverse credit history;
    (2) Has an adverse credit history, but has obtained an endorser who 
does not have an adverse credit history, and completes PLUS loan 
counseling offered by the Secretary; or
    (3) Has an adverse credit history but documents to the satisfaction 
of the Secretary that extenuating circumstances exist and completes

[[Page 63332]]

PLUS loan counseling offered by the Secretary.
    (B) For purposes of this paragraph (c), an adverse credit history 
means that the parent--
    (1) Has one or more debts with a total combined outstanding balance 
greater than $2,085, as may be adjusted by the Secretary in accordance 
with paragraphs (c)(2)(viii)(C) and (D) of this section, that are 90 or 
more days delinquent as of the date of the credit report, or that have 
been placed in collection or charged off, as defined in paragraph 
(c)(1) of this section, during the two years preceding the date of the 
credit report; or
    (2) Has been the subject of a default determination, bankruptcy 
discharge, foreclosure, repossession, tax lien, wage garnishment, or 
write-off of a debt under title IV of the Act during the five years 
preceding the date of the credit report.
    (C) The Secretary increases the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section, or its inflation-adjusted 
equivalent, when the Secretary determines that an inflation adjustment 
to that amount would result in an increase of $100 or more.
    (D) In making the inflation adjustment described in paragraph 
(c)(2)(viii)(C) of this section, the Secretary:
    (1) Uses the annual average percent change of the All Items 
Consumer Price Index for All Urban Consumers (CPI-U), before seasonal 
adjustment, as the measurement of inflation; and
    (2) If the adjustment calculated under paragraph (c)(2)(viii)(D)(1) 
of this section is equal to or greater than $100, adding the adjustment 
to $2,085 threshold amount, or its inflation-adjusted equivalent, and 
rounding up to the nearest $5.
    (E) The Secretary will publish a notice in the Federal Register 
announcing any increase to the amount specified in paragraph 
(c)(2)(viii)(B)(1) of this section.
    (F) For purposes of this paragraph (c), the Secretary does not 
consider the absence of a credit history as an adverse credit history 
and does not deny a Direct PLUS loan on that basis.
    (G) For purposes of this paragraph (c), the Secretary may determine 
that extenuating circumstances exist based on documentation that may 
include, but is not limited to--
    (1) An updated credit report for the parent; or
    (2) A statement from the creditor that the parent has repaid or 
made satisfactory arrangements to repay a debt that was considered in 
determining that the parent has an adverse credit history.
    (3) For purposes of paragraph (c)(2) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 
34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
* * * * *
[FR Doc. 2014-25266 Filed 10-22-14; 8:45 am]
BILLING CODE 4000-01-P