[Federal Register Volume 82, Number 204 (Tuesday, October 24, 2017)]
[Rules and Regulations]
[Pages 49114-49121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22851]


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 682, and 685

[Docket ID ED-2017-OPE-0108]
RIN 1840-AD25


Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Family Education Loan Program, William D. Ford Federal 
Direct Loan Program, and Teacher Education Assistance for College and 
Higher Education Grant Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Interim final rule; delay of effective date; request for 
comments.

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SUMMARY: Consistent with section 553(b)(3)(B) and (d)(3) of the 
Administrative Procedure Act (APA), which allows Federal agencies to 
promulgate rules without advance notice and opportunity for comment for 
good cause, the Secretary issues this interim final rule with request 
for comment. This interim final rule delays until July 1, 2018, the 
effective date of selected provisions of the final regulations entitled 
Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan (FFEL) Program, William D. Ford Federal 
Direct Loan Program, and Teacher Education Assistance for College and 
Higher Education Grant Program (the final regulations), published in 
the Federal Register on November 1, 2016. The provisions this interim 
final rule delays are listed in the SUPPLEMENTARY INFORMATION section 
of this document. The original effective date of the final regulations 
was July 1, 2017.

DATES: Effective date: As of October 24, 2017, the effective date for 
the amendments to or additions of: Sec. Sec.  668.14(b)(30), (31), and 
(32); 668.41(h) and (i); 668.71(c); 668.90(a)(3); 668.93(h), (i), (j); 
668.171; 668.175 (c) and (d) and (f) and (h); Appendix C to Subpart L 
of Part 668; 674.33(g)(3) and (g)(8); 682.202(b)(1); 682.211(i)(7); 
682.402(d)(3), (d)(6)(ii)(B)(1) and (2), (d)(6)(ii)(F) introductory 
text, (d)(6)(ii)(F)(5), (d)(6)(ii)(G), (d)(6)(ii)(H)

[[Page 49115]]

through (K), (d)(7)(ii) and (iii), (d)(8), and (e)(6)(iii); 
682.405(b)(4); 682.410(b)(4) and (b)(6)(viii); 685.200(f)(3)(v) and 
(f)(4)(iii); 685.205(b)(6); 685.206(c); 685.212(k); 685.214(c)(2), 
(f)(4) through (7); 685.215(a)(1), (c)(1) through (c)(8), and (d); 
685.222; Appendix A to Subpart B of Part 685; and 685.308(a), published 
November 1, 2016, at 81 FR 75926, and delayed until further notice on 
June 16, 2017, in 82 FR 27621, is further delayed until July 1, 2018.
    Comment date: We must receive your comments on or before November 
24, 2017.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments submitted by fax or by email or those submitted after 
the comment period. To ensure that we do not receive duplicate copies, 
please submit your comments only once. In addition, please include the 
Docket ID at the top of your comments.
    If you are submitting comments electronically, we strongly 
encourage you to submit any comments or attachments in Microsoft Word 
format. If you must submit a comment in Portable Document Format (PDF), 
we strongly encourage you to convert the PDF to print-to-PDF format or 
to use some other commonly used searchable text format. Please do not 
submit the PDF in a scanned format. Using a print-to-PDF format allows 
the Department to electronically search and copy certain portions of 
your submissions.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``Help.''
     Postal Mail, Commercial Delivery, or Hand Delivery: The 
Department strongly encourages commenters to submit their comments 
electronically. However, if you mail or deliver your comments about the 
interim final rule, address them to Jean-Didier Gaina, U.S. Department 
of Education, 400 Maryland Ave. SW., Mail Stop 6W247, Washington, DC 
20202.
    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing on the 
Federal eRulemaking Portal at www.regulations.gov. Therefore, 
commenters should be careful to include in their comments only 
information that they wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Barbara Hoblitzell, U.S. Department of 
Education, 400 Maryland Ave. SW., Mail Stop 6W247, Washington, DC 
20202. Telephone: (202) 453-7583 or by email at: 
[email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION:
    Invitation to Comment: We invite you to submit comments regarding 
this interim final rule. We will consider comments on the delayed 
effective date only and will not consider comments on the wording or 
substance of the final regulations. See ADDRESSES for instructions on 
how to submit comments.
    During and after the comment period, you may inspect all public 
comments about this interim final rule by accessing Regulations.gov. 
You may also inspect the comments in person in Room 6W245, 400 Maryland 
Avenue SW., Washington, DC, between 8:30 a.m. and 4:00 p.m. Washington, 
DC time, Monday through Friday of each week, except Federal holidays. 
If you want to schedule time to inspect comments, please contact the 
person listed under FOR FURTHER INFORMATION CONTACT.
    Assistance to Individuals With Disabilities in Reviewing the 
Rulemaking Record: On request, we will provide an appropriate 
accommodation or auxiliary aid to an individual with a disability who 
needs assistance to review the comments or other documents in the 
public rulemaking record for this interim final rule. If you want to 
schedule an appointment for this type of accommodation or auxiliary 
aid, please contact the person listed under FOR FURTHER INFORMATION 
CONTACT.

Delay of Effective Date

    On May 24, 2017, the California Association of Private 
Postsecondary Schools (CAPPS) filed a Complaint and Prayer for 
Declaratory and Injunctive Relief in the United States District Court 
for the District of Columbia (Court) challenging the final regulations 
in their entirety, and in particular those provisions of the 
regulations pertaining to the standard and process for the Department 
to adjudicate borrower defense claims, requirements pertaining to 
financial responsibility standards, provisions requiring proprietary 
institutions to provide warnings about their students' loan repayment 
rates, and prohibitions against institutions including arbitration or 
class action waivers in their agreements with students. Complaint and 
Prayer for Declaratory and Injunctive Relief, California Association of 
Private Postsecondary Schools v. DeVos, No. 1:17-cv-00999 (D.D.C. May 
24, 2017). As of the date of this interim final rule, the litigation is 
ongoing.
    In light of the pending litigation, on June 16, 2017, the 
Department published in the Federal Register a notification of the 
partial delay of effective dates under section 705 of the APA (5 U.S.C. 
705) (82 FR 27621) (705 Notice), to delay the effectiveness of certain 
provisions of the final regulations until the legal challenge is 
resolved. The 705 Notice postponed the effective date of the 
regulations to preserve the regulatory status quo while the litigation 
is pending and the Court makes a decision. As explained in the 705 
Notice, the plaintiff has raised serious questions concerning the 
validity of certain provisions of the final regulations and has 
identified substantial injuries that could result if they go into 
effect before those questions are resolved. Given the legal 
uncertainty, maintaining the status quo is critical. For instance, if 
the final regulations took effect, institutions participating in 
programs under title IV of the Higher Education Act of 1965, as amended 
(HEA), would have been required, as of July 1, 2017, to modify their 
contracts in accordance with the arbitration and class action waiver 
regulations. Postponing the final regulations avoids the cost that 
institutions would incur in making these changes while the final 
regulations are subject to judicial review. Meanwhile, the Department 
is continuing to process borrower defense claims under the existing 
regulations that will remain in effect during the postponement.
    Because the final regulations have been postponed beyond July 1, 
2017, pursuant to the 705 Notice, the postponement of the final 
regulations must be for at least one year to comply with section 482 of 
the HEA (20 U.S.C. 1089). That section imposes a requirement (the 
``master calendar requirement'') on the Department for the effective 
date of regulations affecting programs under title IV of the HEA. Under 
the master calendar requirement, a regulatory change that has been 
published in final form on or before November 1 prior to the start of 
an award year--which begins on July 1 of any given year--may take 
effect only at the beginning of the next award year, or

[[Page 49116]]

in other words, on July 1 of the next year. Any regulatory change that 
has not been published in final form by November 1 prior to the start 
of an award year may not become effective until the beginning of the 
second award year after the November 1 date.
    The master calendar requirement provides that regulatory changes 
affecting the title IV programs must become effective at the beginning 
of an award year and does not authorize the Department to make a 
regulatory change affecting the title IV programs effective in the 
middle of an award year.\1\ Accordingly, regulations promulgated under 
title IV of the HEA have an effective date of July 1. Congress enacted 
the master calendar requirement to ensure that institutions have 
sufficient notice of the timing of any regulatory change in order to 
implement regulatory changes at the start of each award year. In this 
way, institutions avoid incurring the costs of compliance on a rolling 
basis throughout the year and avoid any disruption to the timely 
delivery of title IV funds. See S. Rep. No. 99-296, at 11 (1986); see 
also Reauthorization of the Higher Education Act, 1985: Hearings Before 
the S. Subcomm. On Educ., Arts and Humanities, 99th Cong. 10 (1985) 
(statement of the Conference on Higher Education) (``Although progress 
will always require updating, there is an equally important need for 
stability so that proper planning by all those involved--including 
families, aid administrators, and agency officials--can be 
achieved.'').
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    \1\ We note that in the limited circumstance where the Secretary 
designates a regulation for early implementation pursuant to 20 
U.S.C. 1089(c)(2), regulated parties may choose to implement the 
regulation before the July 1 effective date. Early implementation, 
however, does not change the effective date of the regulation.
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    Congress has been clear that ``the effective dates of all 
regulations on Title IV are driven by the Master Calendar requirements 
in Section 482,'' H.R. Rep. No. 102-447, at 77 (1992), and it has 
reaffirmed the breadth of the master calendar requirement by providing 
express waivers of the requirement only in specific limited 
circumstances. See, e.g., Higher Education Opportunity Act, Public Law 
110-315, sec. 402(b), 122 Stat. 3078, 3191 (2008); Higher Education 
Act--Technical Corrections, Public Law 111-39, sec. 409, 123 Stat. 
1950, 1953 (2009). Accordingly, the Department has consistently 
interpreted and applied the master calendar requirement to provide that 
any regulatory change relating to student financial aid programs may 
take effect only at the beginning of an award year.
    With respect to the final regulations, implementing this 
substantial regulatory change in the middle of an award year would 
frustrate the notice objectives of the HEA and deny schools the 
assurance of the master calendar. For the July 1, 2017, postponement to 
be consistent with the HEA, therefore, the effective date must be July 
1, 2018 (or July 1 of a later year). Because the 705 Notice does not 
establish a specific effective date but is tied to the pending 
litigation, this interim final rule provides the public and regulated 
parties notice that even if the litigation concludes before July 1, 
2018, the final regulations will not take effect until that date 
consistent with the master calendar requirement.
    Separately, we note that the delayed effective date is consistent 
with the Memorandum for the Heads of Executive Departments and Agencies 
entitled ``Regulatory Freeze Pending Review,'' published in the Federal 
Register on January 24, 2017 (Memorandum), which was intended to ensure 
that the President's appointees or designees have the opportunity to 
review any new or pending regulations and where appropriate to suggest 
changes. Among other things, the Memorandum directed the heads of 
executive departments and agencies to consider temporarily postponing 
the effective dates of all regulations that had been published in the 
Federal Register but had not yet taken effect. In addition, on February 
24, 2017, the President issued Executive Order 13777, which requires 
each agency head to consider recommendations to repeal, replace, or 
modify existing regulations, consistent with applicable law. In 
accordance with these evaluative efforts, we announced on June 16, 
2017, our intent to engage in negotiated and notice-and-comment 
rulemaking on the topics addressed by the final regulations on (82 FR 
27640). The Department is reevaluating its regulations in this area and 
the burdens on regulated parties may change.
    To provide adequate notice to these parties in accordance with the 
HEA's master calendar requirement, the Department has determined that 
it is necessary to delay until July 1, 2018, the effective date of the 
revisions to or additions of the following provisions of the final 
regulations in title 34 of the Code of Federal Regulations (CFR):
     Sec.  668.14(b)(30), (31), and (32) Program participation 
agreement.
     Sec.  668.41(h) and (i) Reporting and disclosure of 
information.
     Sec.  668.71(c) Scope and special definitions.
     Sec.  668.90(a)(3) Initial and final decisions.
     Sec.  668.93(h), (i) and (j) Limitation.
     Sec.  668.171 General.
     Sec.  668.175(c), (d), (f), and (h) Alternative standards 
and requirements.
     Part 668 subpart L, Appendix C.
     Sec.  674.33(g)(3) and (g)(8) Repayment.
     Sec.  682.202(b)(1) Permissible charges by lenders to 
borrowers.
     Sec.  682.211(i)(7) Forbearance.
     Sec.  682.402(d)(3), (d)(6)(ii)(B)(1) and (2), 
(d)(6)(ii)(F) introductory text, (d)(6)(ii)(F)(5), (d)(6)(ii)(G), 
(d)(6)(ii)(H) through (K), (d)(7)(ii) and (iii), (d)(8), and 
(e)(6)(iii) Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.
     Sec.  682.405(b)(4)(ii) Loan rehabilitation agreement.
     Sec.  682.410(b)(4) and (b)(6)(viii) Fiscal, 
administrative, and enforcement requirements.
     Sec.  685.200(f)(3)(v) and (f)(4)(iii) Borrower 
eligibility.
     Sec.  685.205(b)(6) Forbearance.
     Sec.  685.206(c) Borrower responsibilities and defenses.
     Sec.  685.212(k) Discharge of a loan obligation.
     Sec.  685.214(c)(2), (f)(4) through (7) Closed school 
discharge.
     Sec.  685.215(a)(1), (c)(1) through (c)(8), and (d) 
Discharge for false certification of student eligibility or 
unauthorized payment.
     Sec.  685.222 Borrower defenses.
     Part 685 subpart B, Appendix A Examples of borrower 
relief.
     Sec.  685.300(b)(11), (b)(12), and (d) through (i) 
Agreements between an eligible school and the Secretary for 
participation in the Direct Loan Program.
     Sec.  685.308(a) Remedial actions.
    In addition, in connection with this delay, the Department 
interprets all references to ``July 1, 2017'' in the text of the above-
referenced regulations to mean the effective date of those regulations. 
The regulatory text included references to the specific July 1, 2017, 
date in part to provide clarity to readers in the future as to when the 
regulations had taken effect. Because the regulations have not taken 
effect on July 1, 2017, we will read those regulations as referring to 
the new effective date established by this delay, i.e., July 1, 2018.
    We do not intend to delay the effective dates of the regulatory 
provisions published in 81 FR 75926 which: (1) Expand the types of 
documentation that may be used for the granting of a discharge based on 
the death of the borrower; (2) amend the regulations governing the 
consolidation of Nursing Student Loans and Nurse Faculty Loans so that 
they align with the statutory requirements of section 428C(a)(4)(E) of 
the HEA; (3) amend the

[[Page 49117]]

regulations governing Direct Consolidation Loans to allow a borrower to 
obtain a Direct Consolidation Loan regardless of whether the borrower 
is also seeking to consolidate a Direct Program or FFEL loan, if the 
borrower has a loan type identified in 34 CFR 685.220(b); (4) address 
severability; and (5) make technical corrections. As established in 81 
FR 75926, 34 CFR 682.211(i)(7) and 682.410(b)(6)(viii) remain 
designated for early implementation, at the discretion of each lender 
or guaranty agency.
    Waiver of Notice-and-Comment Rulemaking, Negotiated Rulemaking, and 
Delayed Effective Date under the APA: Under the APA (5 U.S.C. 553), the 
Department generally offers interested parties the opportunity to 
comment on proposed regulations and publishes rules not less than 30 
days before their effective dates. In addition, under section 492 of 
the HEA (20 U.S.C. 1098a), all regulations proposed by the Department 
for programs authorized under title IV of the HEA are subject to 
negotiated rulemaking requirements. However, the APA provides that an 
agency is not required to conduct notice-and-comment rulemaking or 
delay effective dates when the agency, for good cause, finds that the 
requirement is impracticable, unnecessary, or contrary to the public 
interest (5 U.S.C. 553(b)(3)(B) and (d)(3)). In addition, section 
492(b)(2) of the HEA provides that negotiated rulemaking may be waived 
for good cause when doing so would be ``impracticable, unnecessary, or 
contrary to the public interest.'' Section 492(b)(2) of the HEA also 
requires the Secretary to publish the basis for waiving negotiations in 
the Federal Register at the same time as the proposed regulations in 
question are first published.
    The Department determined under the APA and the HEA that notice-
and-comment and negotiated rulemaking are unnecessary and impracticable 
and therefore is waiving both requirements in this interim final rule. 
As noted previously, the 705 Notice delayed the effective date of the 
final regulations to maintain the status quo pending the outcome of the 
litigation, which could not be resolved before July 1, 2017. Given that 
delay, the next possible date for the regulations to become effective 
would be July 1, 2018, in accordance with the HEA's master calendar 
requirement. Thus, even if the litigation were resolved before July 1, 
2018, under the HEA, July 1, 2018, would be the earliest the 
regulations could take effect. Given the Department's limited 
discretion to set an effective date under the master calendar 
requirement, the Department determined that both notice-and-comment and 
negotiated rulemaking are unnecessary. The Department also determined 
that it was impracticable to conduct notice-and-comment and negotiated 
rulemaking before the original July 1, 2017, effective date. The 
litigation was initiated on May 24, 2017; the Department would not have 
been able to conduct negotiated rulemaking or notice-and-comment 
rulemaking to obtain comment on a possible new effective date in the 
short amount of time between May 24, and July 1, 2017. And, once the 
July 1, 2017, date passed, under the master calendar requirement, the 
Department did not have any discretion to set an effective date earlier 
than July 1, 2018. For the same reasons, we are also waiving the 30-day 
delay of the effective date of this interim final rule under the APA. 
However, the Department is providing a 30-day comment period and 
invites interested persons to comment on the delay of the effective 
date of the final regulations from July 1, 2017, to July 1, 2018. In 
addition, the Department plans to issue a notice of proposed rulemaking 
to seek public comment on further delaying the effective date of the 
final regulations until July 1, 2019, to allow for completion of the 
negotiated rulemaking process before regulatory changes become 
effective in this area (see 82 FR 27640). The Department will seek 
public comments on whether such a further delay is desirable to avoid 
the costs to regulated parties of implementing regulations that may be 
subject to change in the near future.

Executive Orders 12866, 13563 and 13771

Regulatory Impact Analysis

    Under Executive Order 12866, it must be determined 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.
    The Department estimates the quantified annualized economic and net 
budget impacts of the delay of the effective date to be -$18.6 million 
in reduced costs to institutions and the Federal government. These 
reduced costs result from the delay of the borrower defense rules on 
the 2017 and 2018 loan cohorts, as well as from the delayed paperwork 
burden on institutions, and the delayed execution of the closed school 
automatic discharge. This final regulatory action is not 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 on 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

[[Page 49118]]

techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing this interim final rule only on a reasoned 
determination that its benefits justify its costs. Based on the 
analysis that follows, the Department believes that this interim final 
rule is consistent with the principles in Executive Order 13563.
    We also have 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 quantified economic effects and net budget impact associated 
with the delayed effective date are not expected to be economically 
significant.
Effects of One-Year Delay
    As indicated in the Regulatory Impact Analysis (RIA) published with 
the final regulations on November 1, 2016, the final regulations were 
economically significant with a total estimated net budget impact of 
$16.6 billion over the 2017-2026 loan cohorts in the primary estimate 
scenario, including a cost of $381 million for cohorts 2014-2016 
attributable to the provisions for a three-year automatic closed school 
discharge. As the net budget impact is based on the net present value 
of the cash flows of the relevant cohorts over a forty-year timeframe, 
simply delaying the final regulations for a year will have a much more 
limited effect, as discussed below. This analysis is limited to the 
effect of delaying the effective date of the final regulations, and 
does not account for any potential future substantive changes in the 
final regulations.
    Even with the delayed effective date, borrowers will still be able 
to submit claims. The provisions of the final regulations pertaining to 
the process for review and determination of claims were not limited to 
specific cohorts designated by the effective date so the delay will not 
result in specific cohorts of borrowers being excluded from the process 
reflected in the final regulations, when implemented. Once in effect, 
the protection generated by the financial protection provisions will be 
available to be applied to claims from loans originated earlier, 
including the period from July 1, 2017 to June 30, 2018. Loans made 
before July 1, 2017, were always subject to the State-based standard 
and their ability to bring claims under that standard is unchanged by 
the delay. For claims filed after the effective date of the 
regulations, the Federal standard established in the final regulations 
would apply. As discussed previously, the Department interprets all 
references to ``July 1, 2017'' in the text of the regulations to mean 
the effective date of the regulations. As a result, the delayed 
effective date means that loans made between July 1, 2017 and June 30, 
2018, will be subject to the current State-based standard. As we noted 
in the final regulations, the Federal standard was designed to address 
much of the conduct already covered by the State-based standard, so the 
vast majority of claims associated with loans made between July 1, 
2017, and the delayed effective date could be made under the current, 
State law-based standard as well.
    In addition to borrowers, institutions are also affected by the 
delayed effective date. As indicated in the RIA for the final 
regulations, institutions bear the major costs of compliance, paperwork 
burden, and providing financial protection. The financial protection 
provisions of the final regulations depend on the effective date, so 
institutions will not incur these costs until the final regulations are 
in effect. In terms of cost savings for institutions, the estimated 
annual paperwork burden was approximately $9.4 million in the initial 
year of the final regulations. In the revised scenario developed to 
estimate the effect of the one-year delay in the effective date, 
transfers from institutions to students, via the Federal government, 
would be reduced by approximately $1.3 million for the 2017 and 2018 
loan cohorts. The costs of providing financial protection were not 
quantified in the final regulations, and the Department has no 
additional data to estimate costs institutions may avoid from the 
delayed effective date of the financial protection provisions.
    There is some uncertainty as to the regulatory baseline against 
which this interim final rule's impacts should be assessed. As noted 
previously, the 705 Notice delayed the effectiveness of certain 
provisions of the 2016 final regulations until a legal challenge is 
resolved. If the legal resolution were to be reached on or after July 
1, 2018, then the 705 Notice would provide for the delay of 
effectiveness between now and then, and the interim final rule would 
not have any impact. By contrast, if the legal resolution were to be 
reached earlier, this interim final rule could have substantial impacts 
associated with the avoidance of confusion and legal ambiguity 
regarding the interaction among the 705 Notice, the master calendar, 
and the 2016 final regulations. Although an analysis of a simple one-
year delay does not exactly capture this collection of impacts (due to, 
among other reasons, the fact that July 1, 2018, is already less than a 
year away and thus this interim final rule cannot have a full year's 
impact), it can provide a general sense of the magnitude of upper bound 
effects.
Net Budget Impact
    In order to estimate the net budget impact of the one-year delay in 
the effective date, the Department developed a scenario that revised 
the primary estimate assumptions from the final regulations from the 
affected 2017 and 2018 loan cohorts. The assumptions for the primary 
scenario from the 2016 final regulation were the basis for the 
President's Budget 2018 (PB2018) baseline that assumed the regulation 
would go into effect on July 1, 2017. The scenario developed for this 
interim final rule is designed to capture the incremental change from 
the PB2018 baseline associated with the one-year delay in the effective 
date. Table 1 presents assumptions for the primary estimate from the 
final regulations and the revised estimate for the one-year delay in 
the effective date. In this scenario, the conduct percent is 90 percent 
of the primary scenario from the final regulation and the borrower 
percent is the same. The financial protection provided was always 
expected to increase over time so the delayed effective date in the 
near term is not expected to significantly affect the amount of 
recoveries over the life of any particular loan cohort, limiting any 
net budget impact from the delay. To estimate the potential reduction 
in recoveries related to the delayed effective date, we reduced 
recoveries for the affected portion of the 2017 and 2018 cohorts by 
five percent for the private not-for-profit and proprietary sectors. As 
in the final regulations, recoveries from public institutions were held 
constant at 75 percent across scenarios.

[[Page 49119]]



                                 Table 1--Revised Assumptions for One-Year Delay
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                                                               2017                            2018
                                                 ---------------------------------------------------------------
                     Cohort                       Public/private                  Public/private
                                                  not for profit    Proprietary   not for profit    Proprietary
----------------------------------------------------------------------------------------------------------------
Conduct Percent:
    Final Primary...............................             3.0              20             2.4              16
    Delay Revised...............................             2.7              18            2.16            14.4
Borrower Percent:
    Final Primary...............................              35              45            36.8            47.3
    Delay Revised...............................              35              45            36.8            47.3
                                                 ---------------------------------------------------------------
                                                      Public         Priv/Prop        Public         Priv/Prop
                                                 ---------------------------------------------------------------
Recovery Percent:
    Final Primary...............................              75            23.8              75            23.8
    Delay Revised...............................              75           22.61              75           22.61
----------------------------------------------------------------------------------------------------------------

    The net budget impact associated with these effects of the one-year 
delay in the effective date on the borrower defense provisions only is 
approximately -$37.7 million from the 2017 and 2018 loan cohorts.
    As the amount and composition of borrower defense claims and 
estimated recoveries over the lifetime of the relevant loan cohorts are 
not expected to change greatly due to the delayed effective date, the 
Department does not estimate an economically significant net budget 
impact from the delay itself, with a potential net budget impact 
related to borrower defense claims of -$37.7 million in reduced costs.
    The closed school automatic discharge provisions were the other 
significant source of estimated net budget impact in the final 
regulations. Under credit reform scoring, the modification to older 
cohorts for the automatic discharge provision estimated to cost $364 
million was expected to occur in FY 2017 in the President's Budget for 
FY 2018 (PB2018). As a result of the delay in the effective date, the 
Department will not execute the modification in FY 2017.
    The Department does expect to incur the costs associated with the 
three-year automatic discharge after the delayed effective date, but 
moving the execution of the modification beyond FY 2017 will require a 
new cost analysis with economic assumptions from the fiscal year of the 
execution. This will result in a change of cost, but at this point it 
is not possible to know the discount rates in future fiscal years, so 
the cost of the modification will be determined in the year that it is 
executed. While the actual cost of the future modification cannot be 
determined at this time, the Department did approximate the effect of 
the delay by shifting the timing of the relevant discharges back by a 
year and recalculating a modification using the discount rates and 
economic assumptions used for the calculation of the PB2018 
modification. When calculated in this manner, the delay in the 
modification is expected to result in estimated savings of less than 
$10 million.
    As the delay does not change the substance of the automatic 
discharge, we would expect the amount and composition of loans affected 
by the automatic discharge not to change significantly. The closed 
school three-year automatic discharge provisions were applicable to 
loans made on or after November 1, 2013, and were not linked to the 
effective date of the final regulations. Therefore, delaying the 
effective date of those provisions will not change the set of loans 
eligible for this automatic discharge. Additionally, borrowers would 
have the ability to apply for a closed school discharge before July 1, 
2018, if they did not want to wait for the automatic discharge to be 
implemented. For future cohorts, the delay is not significant as the 
three-year period will fall beyond the delayed effective date. Any 
significant change to the estimated net budget impact associated with 
the closed school automatic discharge depends on any substantive 
changes made to the provisions as a result of the upcoming rulemaking 
and changes to economic assumptions when the modification is executed.
    Consistent with Executive Order 13771 (82 FR 9339, February 3, 
2017), we have estimated that this interim final rule will result in 
cost savings. Therefore, this interim final rule is considered an 
Executive Order 13771 deregulatory action.
Accounting Statement
    In evaluating whether a regulation is economically significant, a 
key consideration is whether the annual effect in any given year is 
over $100 million. To evaluate this, the Department looked at the 
difference in the undiscounted cashflows related to the death, 
disability, and bankruptcy (DDB) claims in which borrower defense 
claims are included for the PB2018 baseline and the one-year delay 
scenario described in the Net Budget Impacts section of this interim 
final rule. The difference from subtracting the one-year delay scenario 
from the baseline for the 2017 and 2018 cohorts for FY2017 to FY 2026 
is summarized in Table 2.

Table 2--Difference in Undiscounted Net Cashflows for the 2017 and 2018 Loan Cohorts From One-Year Delay in 2016
                                   Borrower Defense Rule for FY2017 to FY2026
----------------------------------------------------------------------------------------------------------------
                                       2017            2018            2019            2020            2021
----------------------------------------------------------------------------------------------------------------
Change in DDB Cashflow..........         406,737         846,076         514,402       4,457,479      11,564,985
----------------------------------------------------------------------------------------------------------------
                                            2022            2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
Change in DDB Cashflow..........       9,114,464         635,180     (2,086,812)       (981,585)         166,597
----------------------------------------------------------------------------------------------------------------


[[Page 49120]]

    Table 3 shows the effects when those differences in the DDB 
cashflows are discounted at 7 and 3 percent and annualized.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Category                                             Benefits
------------------------------------------------------------------------
Institutions may not incur compliance
 costs or costs of obtaining financial
 protection until the rule is in effect.          Not Quantified
------------------------------------------------------------------------
Category                                               Costs
------------------------------------------------------------------------
                                                      7%              3%
------------------------------------------------------------------------
Continued use of state law based
 standard...............................          Not Quantified
Delay in providing consumer information
 about institution's performance and
 practices.
Potential decreased awareness and usage
 of closed school and false
 certification discharges.
------------------------------------------------------------------------
Savings associated with delay in                    -9.5           -9.51
 compliance with paperwork requirements.
------------------------------------------------------------------------


 
                                                     Transfers
                Category                 -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Reduction in transfers from the Federal             -3.8            -3.8
 Government to affected borrowers in the
 2017 and 2018 cohorts that would have
 been partially borne by affected
 institutions via reimbursements........
------------------------------------------------------------------------
Reduced reimbursements from affected                -1.3            -1.2
 institutions to affected students, via
 the Federal government as loan cohorts
 2017 and 2018 are subject to the
 existing borrower defense regulation...
------------------------------------------------------------------------
Delay in closed school automatic                    -6.6            -6.6
 discharge..............................
------------------------------------------------------------------------

Paperwork Reduction Act of 1995

    As indicated in the Paperwork Reduction Act section published in 
the final regulations, the assessed estimated burden was 253,136 hours, 
affecting both institutions and individuals, with an estimated annual 
cost of $9,458,484. The table below identifies the regulatory sections, 
OMB Control Numbers, estimated burden hours, and estimated costs of the 
final regulations.

----------------------------------------------------------------------------------------------------------------
                                                                                                 Estimated cost
                                                                                                  $36.55/hour
         Regulatory section           OMB control No.                Burden hours                 institution
                                                                                                  $16.30/hour
                                                                                                   individual
----------------------------------------------------------------------------------------------------------------
668.14.............................          1845-0022  1,953................................             71,382
668.41.............................          1845-0004  5,346................................            195,396
668.171............................          1845-0022  3,028................................            110,673
668.175............................          1845-0022  60,560...............................          2,213,468
682.211............................          1845-0020  5,784................................            211,405
682.402............................          1845-0020  1,838................................             67,179
685.222............................          1845-0142  249 (Individuals)....................              4,059
685.222............................          1845-0142  800 (Institutions)...................             29,240
685.300............................          1845-0143  179,362..............................          6,555,681
                                    ----------------------------------------------------------------------------
    Total..........................  .................  258,920..............................          9,458,484
----------------------------------------------------------------------------------------------------------------
Cost savings due to delayed          .................  253,136..............................          9,247,079
 effective date excluding 682.211,
 for which early implementation is
 allowed.
Burden remaining...................  .................  5,784................................            211,405
----------------------------------------------------------------------------------------------------------------

    This interim final rule delays the effective date of all of the 
cited regulations and would result in a cost savings of the total 
amount of $9,247,079. This cost savings equals the cost savings from 
delaying the effective date of all of the identified provisions of the 
final regulations other than Sec.  682.211(i)(7), regarding mandatory 
forbearance based on a borrower defense claim, with an estimated 5,784 
hours and $211,405 cost, as such section has been designated for early 
implementation. Lenders may have elected to invoke early 
implementation, and, therefore, those specific costs and hours remain 
applicable and have been subtracted from the overall estimated cost 
savings. Based on the delayed effective date of July 1, 2018, the 
revised estimated annual cost savings to institutions and individuals 
is $9,247,079 ($9,458,484 - $211,405) with an estimated burden hours 
savings of 253,136 (258,920 - 5,784).

Regulatory Flexibility Act

    The Secretary certifies that this interim final regulation will not 
have a significant economic impact on a substantial number of small 
entities. The small entities that are affected by these regulations are 
small postsecondary institutions. As stated above, this delayed 
effective date is not expected to have a significant economic impact 
generally. This same analysis applies with regard to affected small 
entities.

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

[[Page 49121]]

Assessment of Educational Impact

    Based on our own 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 may obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the 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 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.Federal 
Register.gov. Specifically, through the advanced search feature at this 
site, you can limit your search to documents published by the 
Department.

List of Subjects

34 CFR Part 668

    Administrative practice and procedure, Colleges and universities, 
Consumer protection, Grant programs--education, Loan programs--
education, Reporting and recordkeeping requirements, Selective Service 
System, Student aid, Vocational education.

34 CFR Part 674

    Loan programs--education, Reporting and recordkeeping requirements, 
Student aid.

34 CFR Parts 682 and 685

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

    Dated: October 16, 2017.
Betsy DeVos,
Secretary of Education.
[FR Doc. 2017-22851 Filed 10-20-17; 4:15 pm]
BILLING CODE 4000-01-P