Federal Family Education Loan Program Regulations

Wednesday,
August 9, 2006

Part III

Department of
Education

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34 CFR Parts 600, 668, 673, et al.
Federal Student Aid Programs; Final Rule

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

DEPARTMENT OF EDUCATION
34 CFR Parts 600, 668, 673, 674, 675,
676, 682 and 685
RIN 1840–AC87

Federal Student Aid Programs
Office of Postsecondary
Education, Department of Education.
ACTION: Interim final regulations;
request for comments.

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AGENCY:

SUMMARY: The Secretary is amending the
Federal Student Aid Program
regulations to implement the changes to
the Higher Education Act of 1965, as
amended (HEA), resulting from the
Higher Education Reconciliation Act of
2005 (HERA), Public Law No. 109–171,
and other recently enacted legislation.
These interim final regulations reflect
the provisions of the HERA that affect
students, borrowers and program
participants in the Federal student aid
programs authorized under Title IV of
the HEA.
Interim final regulations for the two
new Title IV grant programs created by
the HERA, the Academic
Competitiveness Grant Program and the
National Science and Mathematics
Access to Retain Talent (SMART) Grant
Program, are being published in a
separate notice in the Federal Register.
DATES: Effective date: These interim
final regulations are effective September
8, 2006.
Comment date: The Department must
receive any comments on or before
September 8, 2006.
Information collection compliance
date: Affected parties do not have to
comply with the information collection
requirements in Sections 600.7, 600.10,
668.3, 668.8, 668.10, 668.22, 668.173,
673.5, 674.34, 682.102, 682.200,
682.207, 682.209, 682.210, 682.211,
682.215, 682.305, 682.401, 682.402,
682.404, 682.405, 682.406, 682.410,
682.415, 682.601, 682.604, 685.102,
685.204, 685.208, 685.215, 685.217 and
685.220 until the Department publishes
in the Federal Register the control
numbers assigned by the Office of
Management and Budget (OMB) to these
information collection requirements.
Publication of the control numbers
notifies the public that OMB has
approved these information collection
requirements under the Paperwork
Reduction Act of 1995.
ADDRESSES: Address all comments about
these interim final regulations to: Gail
McLarnon, U.S. Department of
Education, P.O. Box 33185, Washington,
DC 20033–3185.
If you prefer to deliver your
comments by hand or by using a courier

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service or commercial carrier, address
your comments to: Gail McLarnon, 1990
K Street, NW., room 8026, Washington,
DC 20006–8542.
If you prefer to send your comments
through the Internet, you may address
them to us at: [email protected].
Or you may send them to us at the U.S.
Government Web site: http://
www.regulations.gov. You must include
the term ‘‘HERA Interim Final
Comments’’ in the subject line of your
electronic message.
FOR FURTHER INFORMATION CONTACT: Ms.
Gail McLarnon, U.S. Department of
Education, 1990 K Street, NW., 8th
Floor, Washington, DC 20006.
Telephone: (202) 219–7048 or via the
Internet at: [email protected].
If you use a telecommunications
device for the deaf (TDD), you may call
the Federal Relay Service (FRS) at 1–
800–877–8339.
Individuals with disabilities may
obtain this document in an alternative
format (e.g., Braille, large print,
audiotape, or computer diskette) on
request to the contact person listed
under FOR FURTHER INFORMATION
CONTACT.
These
interim final regulations reflect most of
the changes made to the HEA by the
HERA, enacted as part of the Deficit
Reduction Act of 2005 (Pub. L. 109–
171), as well as some changes made by
other recently enacted legislation. The
changes made by the HERA include:
• An increase in certain FFEL and
Direct Loan Program loan limits,
• A reduction of origination fees in
the FFEL and Direct Loan Programs,
• The creation of a deferment for
FFEL, Direct Loan and Perkins Loan
Program borrowers who serve on active
duty military service during times of
war or national emergency, and a
reduction of subsidies paid to lenders,
• Changes to the definition of an
academic year for programs measured in
clock hours,
• Changes and additions to
provisions related to distance education
and direct assessment academic
programs,
• Modifications to the regulations on
the eligibility for Title IV, HEA program
assistance for students with convictions
for drug-related offenses, specifying that
a student or parent who has not repaid
fraudulently obtained Title IV, HEA
program funds is ineligible for
additional Title IV, program assistance,
• Changes to the requirements for the
treatment of Title IV, HEA program
funds when a student withdraws, and
• The re-institution of the previously
expired FFEL and Direct Loan

SUPPLEMENTARY INFORMATION:

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disbursement flexibilities provided to
institutions with low cohort default
rates. Effective February 8, 2006,
institutions with official cohort default
rates of less than 10 percent for each of
the three most recent years do not need
to comply with the ‘‘30-day
disbursement delay’’ requirement for
first time, first year students nor with
the multiple disbursement requirements
if the loan period is one term or four
months or less.
The HERA also modified several Title
IV, HEA provisions that are not
addressed in these interim final
regulations. The HERA made changes to
the rules governing Cost of Attendance
calculations, the determination of an
applicant’s dependency status, and the
calculation of an applicant’s expected
family contribution. In accordance with
section 478(a) of the HEA, the Secretary
does not issue regulations in this area.
The HERA also modified and made
permanent the provisions of the
Taxpayer-Teacher Protection Act of
2004 (Pub. L. 108–409) which (1)
changed the calculation of special
allowance payments for certain FFEL
Program loans made with proceeds of
tax-exempt obligations and (2) increased
teacher loan forgiveness amounts for
FFEL and Direct Loan borrowers
teaching in certain areas.
In addition to the changes mandated
by the HERA, these interim final
regulations also incorporate the
provisions of Pub. L. 107–139, which
changed the formula for calculating
special allowance payments in the FFEL
Program for loans made on or after July
1, 2000 and set interest rates for FFEL
and Direct Loans first disbursed on or
after July 1, 2006 at fixed interest rates.
These interim final regulations also
incorporate the statutory changes made
to the HEA by the Pell Grant Hurricane
and Disaster Relief Act (Pub. L. 109–66)
and the Student Grant Hurricane and
Disaster Relief Act (Pub. L. 109–67).
These laws authorize the Secretary to
waive the requirement that a student
repay a Title IV, HEA grant if the
student withdrew from an institution
because of a major disaster. The
Secretary initially exercised this waiver
authority through publication of Dear
Colleague Letter GEN–05–17 on
November 9, 2005.
These interim final regulations also
incorporate the statutory changes made
to the HEA by The Emergency
Supplemental Appropriations Act for
Defense, the Global War on Terror, and
Hurricane Recovery, 2006 (Pub. L. 109–
234). The Emergency Supplemental
Appropriations Act amended section
428C(b)(1)(A) of the HEA by repealing
the single holder rule with respect to

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
any FFEL Consolidation loan for which
an application is received by an eligible
lender on or after June 15, 2006. This
law also repealed section 8009(a)(2) of
the HERA and reinstated the current
statutory provisions under which a
borrower may consolidate outstanding
FFEL Program loans into the Federal
Direct Consolidation Loan Program.
Significant Regulations
We discuss substantive issues under
the sections of the regulations to which
they pertain. Generally, we do not
address regulatory changes that are
technical or otherwise minor in effect.

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Distance Education (§§ 600.2, 600.7,
600.51, 668.8 and 668.38)
Statute: Section 8020 of the HERA
modified the institutional eligibility
requirements in section 102(a)(3) of the
HEA that generally make institutions
offering more than 50 percent of their
courses by correspondence, or a
combination of correspondence and
telecommunications, or enrolling 50
percent or more of their students in
correspondence courses, ineligible for
Title IV, HEA program assistance. The
HERA also modified the student
eligibility requirements of section
484(l)(1) of the HEA, by removing
telecommunications courses from being
considered as correspondence courses.
Under the amended HEA, courses
offered by telecommunications that
meet certain conditions are no longer
considered correspondence courses, and
students enrolled in
telecommunications courses are no
longer considered to be correspondence
students.
The HERA also modified section
481(b) of the HEA to reflect certain
restrictions on the eligibility of
programs that are offered by
telecommunications. Consistent with
prior law, the institution, including its
distance education programs, must hold
current accreditation from an
accrediting agency recognized by the
Secretary that has the evaluation of
distance education in its scope of
recognition. However, under the HERA,
programs offered by foreign institutions
that include instruction delivered by
telecommunication are not eligible.
Current Regulations: The current
regulations reflect the previous statutory
limitations on institutional and student
eligibility based on the percentage of
correspondence courses offered by the
institution and the percentage of
students enrolled in correspondence
courses, and the relation of
telecommunications courses to
correspondence courses.

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New Regulations: We have amended
the regulations in § 600.2 by removing
from the definition of correspondence
course the paragraph that describes the
conditions under which a
telecommunications course is
considered a correspondence course and
by revising the definition of
telecommunications course. The
definition of telecommunications course
now specifies that a
telecommunications course is one that
uses one or a combination of
technologies to deliver instruction to
students who are separated from the
instructor and to support regular and
substantive interaction between these
students and the instructor, either
synchronously or asynchronously. We
have amended the regulations relating
to institutional ineligibility in § 600.7 to
delete the references to
telecommunications courses from the
provisions relating to calculation of the
percentage of correspondence courses
offered by an institution. We also
amended student eligibility regulations
in § 668.38 to provide that students who
are enrolled in certificate programs
offered through telecommunications are
no longer considered to be
correspondence students. This change
applies to institutions regardless of the
percentage of degree programs offered
by the institution.
We have amended the eligible
program regulations in § 668.8 to
include programs that are offered in
whole or in part through
telecommunications by domestic
institutions and that are accredited by
an accrediting agency recognized by the
Secretary for accreditation of distance
education. As in the past, the
accrediting agency’s scope of
recognition must include the
accreditation of distance education.
Interpreting the HEA as amended by the
HERA, we have also amended § 668.8
and the regulations related to the
eligibility of foreign schools in § 600.51
to specify that programs offered by
foreign schools through
telecommunications or correspondence
are not eligible programs. Recognizing,
however, that telecommunications
technologies are frequently used in
conjunction with classroom instruction,
we have included a provision
acknowledging that participating foreign
schools are free to use
telecommunications technologies to
supplement and support instruction
offered in the foreign classroom.
Reasons: The interim final regulations
in § 600.7 will now reflect the statutory
changes modifying the current
institutional eligibility requirements
which provide that institutions offering

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more than 50 percent of their courses
via correspondence, or a combination of
correspondence and
telecommunications, or enrolling 50
percent or more of their students in
correspondence courses are ineligible to
participate in Title IV, HEA programs.
Under the HERA, courses offered by
telecommunications are no longer
considered correspondence courses, and
students enrolled in
telecommunications courses are no
longer considered to be correspondence
students. As a result, otherwise eligible
institutions that offer over 50 percent of
their courses by telecommunications, or
have 50 percent or more of their regular
students enrolled in
telecommunications courses, are now
eligible to participate in the Title IV,
HEA programs. The 50 percent
limitations continue to apply to
correspondence courses and students.
Because of the different statutory
treatment of telecommunications and
correspondence, we are changing the
definition of telecommunications
course. We believe that it is critical to
differentiate between the two delivery
modes. A definition of
telecommunications course that focused
exclusively on technologies could be
erroneously interpreted to allow an
institution to qualify for full
participation in Title IV, HEA programs
upon introduction of minor e-mail
contact between students and a grader
or instructional assistant (who may or
may not have subject matter expertise)
into what is essentially a
correspondence course. Similarly, a
course outline or course notes posted to
an Internet Web site might also meet the
current definition of a
telecommunications course. Quality
standards for electronically-delivered
education emphasize the importance of
interaction between the instructor and
student. The amended definition of a
telecommunications course
acknowledges the importance of
interactivity in electronically-delivered
instruction and clearly distinguishes
telecommunications from
correspondence.
The interim final regulations in
§ 668.8 also reflect the statutory changes
to the requirements for an eligible
program to include programs offered in
whole or in part through
telecommunications by domestic
institutions with appropriate
accreditation. Because the HEA
provides that telecommunications
programs offered by foreign schools are
not eligible programs, and the HEA
provides that foreign schools are schools
‘‘outside the United States,’’ and since
Congress has not lifted the limitations

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on the eligibility of foreign institutions
that offer correspondence study, we
believe that Congress did not intend for
correspondence programs offered by
foreign schools to be eligible programs.
The purpose of eligibility for foreign
schools, which is to permit students
from the United States to experience life
and education in foreign countries, is
not served through correspondence
study.
Direct Assessment Programs (§§ 600.2,
600.10, 600.21, 600.51, 668.8, and
668.10)
Statute: Section 8020 of the HERA
adds a new type of eligible program to
section 481(b) of the HEA—an
instructional program that uses direct
assessment of student learning, or
recognizes the direct assessment of
student learning by others, in lieu of
measuring student learning in credit
hours or clock hours. The assessment
must be consistent with the institution’s
or program’s accreditation. The HERA
also provides that the Secretary will
determine initially whether each
program for which an institution
proposes to use direct assessment is an
eligible program.
Current Regulations: There are no
current regulations that reflect the use of
direct assessment instead of credit hours
or clock hours as a measure of student
learning.
New Regulations: We have amended
the regulations in § 600.2 to include in
the definition of educational program
the statutory language describing direct
assessment programs.
In addition, we have amended the
definition to provide that merely giving
credit for direct assessments does not
constitute instruction. We have also
amended § 668.8 to indicate that a direct
assessment program approved by the
Secretary is considered an eligible
program as defined in § 668.8.
These interim final regulations also
include a new § 668.10, that provides a
definition of the term direct assessment
programs and discusses how key Title
IV, HEA program requirements apply to
direct assessment programs. The section
also includes the information that an
institution must submit for the Secretary
to make an eligibility determination of
a direct assessment program.
We have amended the regulations
related to the eligibility of foreign
schools in § 600.51 to specify that direct
assessment programs offered by foreign
schools are not eligible programs. In
addition, we have amended
§§ 600.10(c)(2) and 600.21(a)(4) to
require that an institution must apply to
the Secretary for approval whenever it
adds a direct assessment program.

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Reasons: In amending the HEA to
provide for the Title IV eligibility of
programs using direct assessment,
Congress specifically used the term
‘‘instructional program’’ to clarify what
types of programs would be eligible.
Thus, the statute requires that the
program include ‘‘instruction,’’ as well
as ‘‘assessment.’’ To meet this
requirement, programs that measure
student learning by direct assessment
must provide some means for students
to supplement their existing knowledge
to pass the assessments. An institution
that is merely conducting direct
assessments of a student’s knowledge
and skills, without providing any
resources to fill those gaps, is not
providing instruction.
In new § 668.10, we have adopted a
definition of direct assessment program
that reflects common usage by
assessment experts and the
accreditation community. In developing
this definition, we recognized that many
of the key requirements of the Title IV,
HEA programs rely on both credit and
clock hour measurements. By definition,
direct assessment programs do not use
credit or clock hours as a measure of
student learning, but nothing in the
HEA, as amended by the HERA,
exempts direct assessment programs
from the other credit and clock hour
requirements. To apply the Title IV
requirements to direct assessment
programs, it is necessary to determine
the equivalent number of credit or clock
hours to the amount of student learning
being directly assessed.
Because many of the statutory
requirements for Title IV, HEA program
eligibility are stated in terms of time
and/or credit or clock hours, we
determined that the time-based
requirements can and must be applied
to direct assessment programs to ensure
that students receive comparable
amounts of Title IV, HEA program
assistance for comparable work. This
approach ensures that while one student
in a direct assessment program may
acquire the knowledge and skills
necessary to pass assessments more
quickly than does another student, and,
as a result, may progress more quickly
through the program, both students
would receive the same amount of Title
IV, HEA program assistance for the same
payment period. However, the student
who remained in attendance for more
payment periods to complete the
program because he or she entered the
program with less knowledge or learned
at a slower rate, might receive more
Title IV, HEA program assistance based
on the additional payment periods he or
she attended. Likewise, students in
direct assessment programs should

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receive no more Title IV, HEA program
assistance in an academic year than
would students in credit and clock hour
programs that are comparable in terms
of student learning. We applied this
approach throughout these interim final
regulations.
The statute requires an institution to
apply to the Secretary to have a direct
assessment program determined to be an
eligible program. Section 668.10(b)
specifies the information an institution
must provide in its application. We
recognize that there is no single model
for direct assessment programs and
therefore have provided that institutions
must provide detailed information about
the approach they are using. In addition,
institutions must indicate equivalencies
to credit or clock hours in terms of
instructional time, and to provide a
factual basis for the claim of
equivalence. These equivalencies are
essential because, as mentioned
previously, many applicable Title IV,
HEA program requirements use time
and/or credit or clock hours.
We also considered that some
students would have acquired skills and
knowledge prior to their enrollment in
the direct assessment program. Title IV,
HEA program funds are provided to
help cover the student’s cost of
obtaining an education. Accordingly,
Title IV, HEA program funds should be
used only for learning that occurs after
a student has enrolled in an educational
program. Therefore, we have amended
the regulations to require institutions to
provide information in the application
for approval of a direct assessment
program about how they assess a
student’s knowledge upon entering the
program.
We recognized that institutions
offering direct assessment programs
might use courses or learning materials
developed by other entities, such as
training and professional development
organizations and other educational
institutions, to assist students in
preparing for the assessments. We
considered whether the use of outside
resources could be considered
contracting out a portion of an
educational program and determined
that it could be. Therefore, we included
in the direct assessment regulations a
provision that exempts direct
assessment programs from the
limitations of contracting for part of an
educational program.
We considered whether remedial
courses using direct assessment of
student learning in lieu of credit or
clock hours could be supported with
Title IV, HEA program funds.
We determined that remedial courses
taken in preparation for enrollment in a

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direct assessment program could be
paid for with Title IV, HEA program
funds only if they were offered in credit
or clock hours. Our conclusion is based
on the fact that the HERA modified the
definition of eligible program to include
direct assessment programs, but did not
change the fact that remedial
coursework is not itself a program or
part of a program. We applied similar
reasoning to instruction needed for a
professional credential or certification
from a State that is required for
employment as a teacher in an
elementary or secondary school.
The HERA specifies that the
assessment an institution uses in its
direct assessment program must be
consistent with the accreditation of the
institution or program. Foreign schools
are not accredited by nationally
recognized accrediting agencies
recognized by the Department and
accordingly cannot meet this program
eligibility requirement. In the future, the
Secretary may consider developing
eligibility criteria that are comparable to
the accreditation requirement to permit
direct assessment programs offered by
foreign schools to qualify for Title IV,
HEA program eligibility.
The discussion of regulatory
alternatives considered in the
Regulatory Impact Analysis provides
additional details on the factors the
Secretary considered in developing the
direct assessment regulations.

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Academic Year (§ 668.3)
Statute: Section 8020 of the HERA
amended the definition of academic
year in section 481(a) of the HEA. The
revised definition requires a minimum
of 30 weeks of instructional time for a
program that measures its program
length in credit hours or a minimum of
26 weeks of instructional time for a
program that measures its program
length in clock hours, rather than a
minimum length of 30 weeks of
instructional time for both credit hour
and clock-hour programs.
Current Regulations: The current
regulations reflect the previous statutory
definition of an academic year requiring
a minimum of 30 weeks of instructional
time for all programs regardless of the
way in which the program was
measured.
New Regulations: Section 668.3(a) of
the regulations has been amended to
reflect the change in the statutory
definition of an academic year. In
addition, we have modified the
definition so that academic year is no
longer defined as a period beginning on
the first day and ending on the last day
of classes.

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Reasons: The regulations are modified
to reflect the change made by the HERA
to the definition of an academic year.
Because all programs must define an
academic year that conforms to the
minimum requirements even if the
program itself is shorter than those
minimum requirements, we modified
the definition so that an academic year
is no longer defined as a period of time
that begins on the first day of classes
and ends on the last day of classes or
examinations.
Treatment of Title IV Funds When a
Student Withdraws (§§ 668.22, 668.35,
and 668.173)
Program Applicability
Statute: Section 8022 of the HERA
amended section 484B(a)(3)(C)(i) of the
HEA to change the applicability of
section 484B of the HEA (commonly
referred to as the Return of Title IV
Funds requirements). Under prior law,
the Return of Title IV Funds rules
applied to all Title IV, HEA grant and
loan assistance other than Federal Work
Study (FWS) funds. Under the HERA,
the rules will now apply only to funds
from the Pell Grant, Federal
Supplemental Educational Opportunity
Grant (FSEOG), FFEL, Direct Loan, and
Perkins Loan programs, and to the new
Academic Competitiveness Grant (ACG)
and National Science and Mathematics
Access to Retain Talent (SMART) Grant
programs.
Current Regulations: Section
668.22(a)(1) provides that the Return of
Title IV Funds requirements apply to all
Title IV, HEA grant and loan assistance
disbursed or that could have been
disbursed to a withdrawn student, not
including FWS or the non-Federal share
of FSEOG awards if an institution meets
its FSEOG matching share by the
individual recipient method or the
aggregate method.
New Regulations: We have revised
§ 668.22(a)(2) to reflect the more limited
applicability of the Return of Title IV
Funds rules as provided in the HERA.
Under the revised regulations, an
institution must perform a Return of
Title IV Funds calculation when a
student who withdraws was disbursed,
or could have been disbursed, funds
from the following programs: Pell Grant,
FSEOG, FFEL, Direct Loan, Perkins
Loan, ACG, or SMART Grant. The
Return of Title IV Funds requirements
do not apply to funds from the Gaining
Early Awareness and Readiness for
Undergraduate Program (GEAR UP),
Student Support Services (SSS) or
Leveraging Educational Assistance
Partnerships (LEAP) Programs. In
addition, the interim final regulations

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retain the exemption from the Return of
Title IV Funds rules for the non-Federal
share of FSEOG awards if an institution
meets its FSEOG matching share by the
individual recipient method or the
aggregate method.
Reasons: These changes are made to
implement the provisions of the HERA.
The current regulatory exemption from
the Return of Title IV Funds
requirements of the non-Federal share of
FSEOG awards is retained as these
funds are not considered Federal funds
and, therefore, are not subject to the
Federal Return of Title IV Funds
requirements.
Post-Withdrawal Disbursement
Counseling
Statute: Section 8022 of the HERA
amended section 484B(a)(4) of the HEA
to require an institution to contact a
borrower before making a late
disbursement or post-withdrawal
disbursement of Title IV loan funds.
During this contact, the institution must
confirm with the borrower that the loan
funds are still required by the student,
or parent in the case of a parent PLUS
loan, and explain to the borrower his or
her obligation to repay the funds if
disbursed. An institution must
document in the student’s file the result
of the contact and the final
determination made concerning the
disbursement.
Current Regulations: Current
§ 668.22(a)(4)(i)(B) requires an
institution to provide a student, or
parent in the case of a parent PLUS
loan, an opportunity to cancel some or
all of a loan disbursement credited to
the student’s account by providing
notice to the student or parent when the
institution credits the account with
Direct Loan, FFEL, or Federal Perkins
Loan program funds. In addition,
§ 668.22(a)(4)(ii) provides that an
institution must offer any amount of a
post-withdrawal disbursement (loan and
grant) that is not credited to the
student’s account to the student, or
parent in the case of a parent PLUS
loan, as a direct disbursement.
Current regulations do not require
institutions to explain to students, or
parents for a parent PLUS loan, the
obligation to repay disbursed loan
funds, nor do they specify the
documentation an institution must
keep.
New Regulations: The existing
regulations, as redesignated in
§ 668.22(a)(5), have been modified as a
result of the changes made by the
HERA.
While current regulations already
require an institution to obtain
confirmation from a student, or parent

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for a parent PLUS loan, before making
a direct disbursement of loan or grant
funds from a post-withdrawal
disbursement, the regulations have been
revised to make clear that an institution
must now obtain this confirmation
before crediting a student’s account
with loan funds. As in the past, an
institution may credit a student’s
account with any post-withdrawal
disbursement of grant funds without
confirmation from the student.
Thus, the interim final regulations
require an institution to include in the
written notification it must provide to a
student, or parent for a parent PLUS
loan, notice of any post-withdrawal
disbursement of loan funds that it
wishes to credit to the student’s
account. As currently required for direct
disbursements of a post-withdrawal
disbursement, the notice must identify
the type and amount of the loan funds
the institution wishes to credit to the
student’s account, and explain that a
student, or parent for a parent PLUS
loan, may accept or decline all or a
portion of the funds. The notice must
also make clear that a student, or parent
for a parent PLUS loan, may not receive
as a direct disbursement loan funds that
the institution wishes to credit to the
student’s account unless the institution
agrees to do so. If the student, or parent
for a parent PLUS loan, does not wish
to accept some or all of the loan funds
that the institution wishes to credit to
the student’s account, the institution
must not disburse those funds. As
required by the HERA, institutions are
now required to explain to the student,
or parent for a parent PLUS loan, the
obligation to repay any loan funds
accepted as a post-withdrawal
disbursement.
The 14-day deadline (from the date
the institution sent the notification) for
a student, or parent for a parent PLUS
loan, to accept some or all of a direct
disbursement of a post-withdrawal
disbursement, now applies to
confirmation of loan disbursements that
an institution wishes to credit to a
student’s account. The interim final
regulations permit an institution to
establish a later deadline, provided the
later deadline applies to both
confirmation of loan disbursements to
the student’s account and to direct
disbursements of a post-withdrawal
disbursement. In accordance with
current regulations, the institution’s
notice to the student, or parent for a
parent PLUS loan, must advise the
student or parent of this deadline,
making clear that a late response to the
notice is honored only at the
institution’s discretion. Under the
interim final regulations, an institution

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that chooses to honor a late response
must disburse all the funds accepted by
the student, or parent for a parent PLUS
loan; for example, it cannot credit loan
funds to the student’s account in
accordance with the student’s request,
but decline to disburse directly postwithdrawal funds accepted by the
student. As currently required when an
institution declines to honor a late
response for direct disbursements of a
post-withdrawal disbursement, the
interim final regulations require an
institution that declines to honor a late
response accepting loan funds to be
credited to the student’s account to
inform the student, or parent for a
parent PLUS loan, in writing that it will
not be honoring the late response.
As with current regulatory
requirements for making a direct
disbursement of a post-withdrawal
disbursement, an institution must make
a disbursement by crediting a student’s
account with a post-withdrawal
disbursement of loan funds within 120
days of the date of the institution’s
determination that the student
withdrew, as that term is defined in
§ 668.22(l)(3).
Finally, new paragraph
§ 668.22(a)(5)(iv) has been added to
codify the HERA requirement that an
institution document in the student’s
file the result of the contact and the
final determination made concerning a
post-withdrawal disbursement of loan
funds.
Reasons: These changes are made to
implement the provisions of the HERA.
We have modified the current
regulations that require confirmation of
any post-withdrawal disbursements
made as a direct disbursement to reflect
the new statutory requirements.
A new regulatory provision requires
the institution to make clear in the
written notice that a student, or parent
for a parent PLUS loan, may not receive
as a direct disbursement loan funds that
the institution wishes to credit to the
student’s account, unless the institution
concurs. This reflects current
requirements that permit an institution
to credit Title IV funds to a student’s
account before disbursing any
remaining amount to the student, or
parent for a parent PLUS loan.
The Secretary has made other changes
to the regulations with the goal of easing
implementation of the new
requirements. The Secretary believes it
should not be the institution’s decision
to determine that it is acceptable for a
student to incur debt and/or use up
Title IV, HEA program eligibility to
cover a debt to the institution, but not
to cover non-institutional educational
expenses. That decision must be left to

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the student, or parent for a parent PLUS
loan. Thus, institutions are required to
use the same deadline for responses for
both types of confirmations and, if the
institution acts on a late response, it
must honor all the confirmations in the
response.
In addition, the Secretary now
permits an institution to establish a
deadline for confirmation responses
beyond the 14-day minimum in current
regulations to ease institutional
administrative burden. Some
institutions may desire to give all
students and parents more time to
respond now that confirmation of
disbursement is needed for crediting the
student’s account with loan funds. Also,
a later deadline may be beneficial as a
late confirmation response can now
result in a student owing a debt to the
institution for unpaid charges on his or
her account.
Withdrawals From Clock Hour Programs
Statute: The HERA changed section
484B(d)(2) of the HEA, to provide that
only scheduled hours, not completed
hours, will be used to determine the
percentage of the payment period or
period of enrollment completed by a
student withdrawing from a clock hour
program. Prior to this change, the law
provided that scheduled hours, rather
than completed hours, were used only
if the hours completed by the student
were equal to a percentage, determined
by the Secretary in regulations, of the
hours scheduled to be completed when
the student withdrew.
The HERA made a conforming change
to section 484B(a)(3)(B)(ii) to make clear
that a student withdrawing from a clock
hour program earns 100 percent of his
or her aid if the student’s withdrawal
date occurs after the point when he or
she was scheduled to complete 60
percent of the scheduled hours in the
payment period or period of enrollment.
Current Regulations: The current
regulations in § 668.22(f)(1)(ii) use
actual hours to determine the
percentage of the period completed by
a student withdrawing from a clock
hour program, unless the student’s
actual hours of attendance were at least
70 percent of the hours the student was
scheduled to have completed at the time
they withdrew. If so, scheduled hours
are used.
Section 668.22(e)(2)(ii)(B) of the
current regulations provides that a
student earns 100 percent of his or her
aid only if he or she actually completed
60 percent or more of the hours in the
payment period or period of enrollment
scheduled to be completed when he or
she withdrew.

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New Regulations: Section
668.22(f)(1)(ii) has been amended to
reflect the statutory change to section
484B(d)(2) requiring the use of
scheduled clock hours in all
calculations of earned Title IV, HEA
program funds for students who
withdraw from clock-hour programs.
That is, for a student withdrawing from
a clock-hour program, the ‘‘percentage
of the payment period or period of
enrollment completed’’ is determined
by dividing the total number of clock
hours comprising the period into the
number of clock hours scheduled to be
completed as of the student’s
withdrawal date. In addition, the
regulations have been amended to
require that the scheduled clock hours
used for a student must be those
established by the institution prior to
the student’s beginning class date for
the payment period or period of
enrollment, and must have been
established in accordance with any
requirements of the State or the
institution’s accrediting agency. These
hours must be consistent with the
published materials describing the
institution’s programs. However, if an
institution modified the scheduled
hours in a student’s program prior to his
or her withdrawal, and in accordance
with any State or accrediting agency
requirements, the new scheduled hours
must be used.
New § 668.22(e)(2)(ii)(B) implements
the statutory change in section
484B(a)(3)(B)(ii) by clarifying that a
student withdrawing from a clock-hour
program earns 100 percent of his or her
aid if the student’s withdrawal date is
after the point when he or she was
scheduled to complete 60 percent of the
scheduled hours in the payment period
or period of enrollment.
Reasons: These changes are made to
implement the provisions of the HERA.
To limit the possibility of abuse of this
rule, the regulations provide that the
scheduled hours used must be those
that are part of a schedule that was
established prior to a student’s
withdrawal, and must meet any
applicable State or accrediting agency
standards.
Grant Overpayment Requirements
Statute: Section 8022 of the HERA
amended section 484B(b)(2)(C) of the
HEA to change the amount of a grant
overpayment that must be repaid by a
student who withdraws from school.
The amount of a grant overpayment due
from a student is limited to the amount
by which the original overpayment
amount exceeds 50 percent of the total
grant funds received by the student for
the payment period or period of

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enrollment. In addition, the HERA
amended the HEA to specify that a
student does not have to repay a grant
overpayment of $50 or less for grant
overpayments resulting from the
student’s withdrawal.
Current Regulations: The current
regulations in § 668.22(h)(3)(ii) provide
that a student is not required to repay
50 percent of the withdrawn student’s
original grant overpayment amount.
Under § 668.35(e)(3), an otherwise
eligible student maintains eligibility and
does not have to repay a Perkins Loan,
FSEOG, or Pell Grant overpayment of
less than $25—resulting from
withdrawal or otherwise provided that
the overpayment amount is not a
remaining balance nor a result of
applying the overaward threshold for
the campus-based programs.
New Regulations: Revised
§ 668.22(h)(3) reflects the new statutory
limitation on the amount of a grant
overpayment that a student is required
to return. To illustrate the effect of the
new law, we provide the following
example: A student who received
$2,000 in Title IV, HEA grant funds for
a payment period withdraws from
school. The institution uses the Return
of Title IV Funds calculation and
determines that the student has an
original grant overpayment of $1,200.
Under current regulations, the student
would owe $600 (50 percent of the
original overpayment amount of
$1,200). Under the interim final
regulations, the student owes $200 (the
amount by which the original
overpayment amount ($1,200) exceeds
half of the total grant funds received,
($1,000) or $1,200–$1,000. In this same
scenario, if the student’s grant
overpayment was originally $800, under
current regulations the student owes
$400 (50 percent of $800). Under the
interim final regulations, the student
owes nothing because the overpayment
amount ($800) is less than half of the
total grant funds received ($1,000).
Section 668.22(h)(3) also reflects the
statutory provision that a student is not
obligated to return a grant overpayment
of $50 or less. As a result, a grant
overpayment of $50 or less will not
make the student ineligible to receive
Title IV, HEA program assistance should
the student return to school. An
institution is not required to attempt
recovery of that overpayment, report it
to the Department’s National Student
Loan Data System (NSLDS), or refer it to
the Secretary. Consistent with
§ 668.35(e)(3), this new standard does
not apply to remaining grant
overpayment balances; that is, a student
must repay a grant overpayment that has

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been reduced to $50 or less because of
payments made.
A conforming change is also being
made to § 668.35(e) to make it clear that
the overpayment threshold and
eligibility requirements of § 668.35(e) do
not apply to an overpayment resulting
from the application of the Return of
Title IV Funds requirements. The lessthan-$25 threshold and eligibility
requirements specified in § 668.35(e)(3)
continue to apply to all other
overpayments.
Reasons: These changes are made to
implement the provisions of the HERA.
Waiver of Grant Overpayment for
Students Affected by a Disaster
Statute: The Pell Grant Hurricane and
Disaster Relief Act (Pub. L. 109–66) and
the Student Grant Hurricane and
Disaster Relief Act (Pub. L. 109–67)
amended section 484B(b)(2) of the HEA
to permit the Secretary to waive a
student’s Title IV grant repayment if the
student withdrew from an institution
because of a major disaster.
Current Regulations: Current
regulations do not address this issue.
New Regulations: New § 668.22(h)(5)
incorporates the statutory changes. The
interim final regulations provide that
the Secretary may waive grant
overpayment amounts for individuals
whose withdrawal ended within the
award year during which the
designation of a major disaster area
occurred, or the subsequent award year.
On November 9, 2005, the Secretary
exercised this waiver authority through
publication of Dear Colleague Letter
GEN–05–17. It is important to note that
this waiver authority applies to a grant
overpayment due from a student and
not to the required return of unearned
funds to a grant program by an
institution.
Reasons: These changes are made to
implement the provisions of the Pell
Grant Hurricane and Disaster Relief Act
and the Student Grant Hurricane and
Disaster Relief Act. The interim final
regulations apply the waivers on an
award year basis to reflect the fact that
Pell and FSEOG Grants are awarded on
an award year basis.
Order of Return of Grant Funds
Statute: Section 484B(b)(3)(B) of the
HEA requires that unearned Title IV,
HEA grant funds be returned to awards
under subpart 1 of part A of the HEA
(for the Pell Grant Program) before they
are returned to awards under subpart 3
of part A of the HEA (for the FSEOG
Program). Under prior law, the Pell
Grant program was the only program in
subpart 1 of part A of the HEA. The
HERA has added the ACG and the

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National SMART Grant programs to
subpart 1 of part A of the HEA. As a
result, unearned funds must be returned
to the Pell Grant, ACG and National
SMART Grant programs before they are
returned to the FSEOG program. The
statute does not require that unearned
funds be returned to one subpart 1
program before another.
Also, as noted previously, the HERA
limited the application of the Return of
Title IV funds requirements to funds
from the Pell Grant, FSEOG, FFEL,
Direct Loan, and Perkins Loan
programs, as well as the new ACG and
National SMART Grant programs.
Current Regulations: Section
668.22(i)(2) currently requires an
institution or student to return unearned
funds to the grant programs in the
following order: (1) The Federal Pell
Grant Program; (2) the FSEOG Program;
(3) other Title IV, HEA grant or loan
assistance programs.
New Regulations: New § 668.22(i)(2)
reflects the addition of the new ACG
and National SMART Grant programs
and requires that unearned funds be
returned to those programs before
unearned funds are returned to the
FSEOG program. The interim final
regulations also specify an order of
return for the three grant programs in
subpart 1 of part A of the HEA,
requiring an institution or student to
return unearned funds to the subpart 1
grant programs in the following order:
(1) The Pell Grant Program; (2) the ACG
Program, and (3) the National SMART
Grant Program. The interim final
regulations no longer require an
institution to return funds to ‘‘other
Title IV, HEA grant or loan assistance
programs.’’
Reasons: These changes are made to
implement the provisions of the HERA.
The interim final regulations specify
that an institution or student return
unearned funds to the Pell Grant
Program before they are returned to the
ACG or National SMART Grant
programs because this approach is the
most beneficial for students. Returning
funds to the Pell Grant Program ensures
that the student’s eligibility for a Pell
Grant is maintained, which is beneficial
should the student return to school
within the same award year and again
seek an ACG or National SMART Grant.

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Return of Funds Within 45 Days
Statute: Section 8022 of the HERA
amended section 484B(b)(1) of the HEA
to add the requirement that an
institution return unearned funds for
which it is responsible no later than 45
days from the determination of a
student’s withdrawal.

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Current Regulations: Section 668.22(j)
of the current regulations requires an
institution to return the unearned funds
for which it is responsible as soon as
possible, but no later than 30 days after
the date of the institution’s
determination that the student
withdrew.
Section 668.173(b) establishes the
specific criteria an institution must meet
to be in compliance with the 30-day
deadline in § 668.22(j).
New Regulations: The interim final
regulations in § 668.22(j) incorporate the
HERA provision by changing the
maximum amount of time an institution
has to return the unearned funds for
which it is responsible from 30 days to
45 days. The interim final regulations
continue to specify that an institution
must return those funds as soon as
possible.
We are also making conforming
changes to § 668.173(b) to extend the
deadlines specified in that regulation by
15 days. An institution will be
considered to have returned funds
timely if the institution does one of the
following no later than 45 days (rather
than the current 30 days) after the date
it determines that the student withdrew:
(1) Deposits or transfers the funds into
the bank account it is required to
maintain; (2) initiates an electronic
funds transfer (EFT); (3) initiates an
electronic transaction that informs the
FFEL lender to adjust the borrower’s
loan account for the amount returned; or
(4) issues a check. The institution is
considered to have issued a check
timely if the institution’s records show
that the check was issued no more than
45 days after the date the institution
determined that the student withdrew,
or the date on the cancelled check
shows that the bank endorsed that check
no more than 60 days (instead of the
current 45 days) after the date the
institution determined that the student
withdrew.
Reasons: These changes are made to
implement the provisions of the HERA.
The interim final regulations retain the
requirement that an institution return
funds for which it is responsible as soon
as possible. The return of funds by an
institution may result in a decrease in
the amount of a Title IV loan that the
student must repay and reduces that
interest that accrues on the loan. In
addition, the sooner funds are returned,
the sooner an otherwise eligible student
may regain eligibility for those funds
should the student return to school
within the same academic period.

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Student Eligibility—General and
Student Debts Under the HEA and to the
U.S. (§§ 668.32, 668.35, 674.39, 682.405,
and 685.211)
Statute: Section 8021(a) of the HERA
amended section 484(a) of the HEA by
adding a new student eligibility
requirement. The new requirement
provides that students who have been
convicted of, or have pled nolo
contendere or guilty to a crime
involving fraud in obtaining Title IV,
HEA program assistance are not eligible
for additional Title IV assistance unless
they have repaid the fraudulently
obtained Title IV, HEA program
assistance funds to the Secretary or to
the holder of a loan made under the
Title IV, HEA programs.
Current Regulations: Current
regulations do not address the Title IV
eligibility of students who have
obtained Title IV, HEA Program
assistance through fraud.
New Regulations: Sections 668.32 and
668.35 have been amended by adding
new paragraphs (m) and (i),
respectively, to provide that a student
who has been convicted of or has pled
nolo contendere or guilty to a crime
involving fraud in obtaining Title IV,
HEA program assistance is ineligible for
additional assistance unless he or she
has repaid the fraudulently obtained
Title IV, HEA program assistance funds
to the Secretary or to the holder of a
loan made under the Title IV, HEA
programs. In addition, § 682.401(b)(4)
has been amended to cross-reference the
new § 668.35(i).
Sections 674.39(a), 682.405(a)(1), and
685.211(f) have been amended to
specify that a Perkins, FFEL, or Direct
Loan Program loan that was
fraudulently obtained, and for which
the borrower has been convicted of, or
has pled nolo contendere or guilty to, a
crime involving fraudulently obtained
Title IV, HEA program assistance, is not
eligible for rehabilitation.
Reasons: These regulations have been
amended to reflect the changes made by
the HERA.
Conviction for Possession or Sale of
Illegal Drugs (§ 668.40)
Statute: Section 8021(c) of the HERA
amended section 484(r) of the HEA to
modify the requirements regarding the
suspension of eligibility for students
convicted of drug-related offenses. As
amended, the HEA now provides that a
student becomes ineligible for Title IV,
HEA program assistance only if the
conviction for a Federal or State offense
involving the possession or sale of a
controlled substance is for conduct that
occurred during a period of enrollment

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for which the student was receiving
Title IV, HEA program assistance. The
period of ineligibility and provisions for
regaining eligibility were not changed
by the HERA.
Current Regulations: The current
regulations reflect the previous statutory
requirements that provided that a
student became ineligible to receive
Title IV, HEA program assistance if the
student was convicted of an offense
involving the possession or sale of
illegal drugs without regard to when the
offense occurred.
New Regulations: Section 668.40(a)(1)
has been revised to reflect the statutory
change to section 484(r) of the HEA that
limits the loss of student eligibility to
students convicted of drug-related
offenses to offenses that occurred during
a period of enrollment for which the
student was receiving Title IV, HEA
program assistance.
The revised student eligibility
criterion applies to the 2006–2007
award year for the Pell Grant, ACG,
National SMART Grant, and campusbased programs and for periods of
enrollment beginning on or after July 1,
2006 for the FFEL and Direct Loan
Programs.
The period of ineligibility remains
unchanged and is triggered by the date
of the conviction. The provisions for
regaining eligibility also remain
unchanged.
Reasons: These regulations have been
changed to reflect the changes to the
HEA made by the HERA.
Estimated Financial Assistance
(§§ 673.5, 673.6, 674.16, 675.26, 682.200
and 685.102)
Statute: Section 8019 of the HERA
added two new grant programs by
creating a new HEA section 401A and
modified the definition of Other
Financial Assistance in HEA section
480(j). The two new grant programs are
considered other financial assistance
under section 480(j) of the HEA. In
changing the definition of Other
Financial Assistance, the HERA added a
new section to the definition that states,
‘‘Notwithstanding paragraph (1) and
section 472, assistance not received
under this title may be excluded from
both estimated financial assistance and
cost of attendance, if that assistance is
provided by a State and is designated by
such State to offset a specific
component of the cost of attendance. If
that assistance is excluded from either
estimated financial assistance or cost of
attendance, it shall be excluded from
both.’’
The Ronald W. Reagan National
Defense Authorization Act for Fiscal
Year 2005 (Pub. L. 108–375) amended

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Title 10 of the United States Code to add
a new veterans’ education benefit in
chapter 1607. Veterans’ education
benefits are considered other financial
assistance under section 480(j) of the
HEA. These chapter 1607 benefits,
which are known as the Reserve
Educational Assistance Program, benefit
military reservists called to active duty
after September 11, 2001 and are
designated to pay for postsecondary
education expenses.
Current Regulations: The current
regulations do not include the two new
grant programs, the change in the
definition of Other Financial
Assistance, or the added veterans’
educational benefit in the regulatory
definitions of resources and estimated
financial assistance.
New Regulations: We have amended
§§ 673.5, 682.200 and 685.102 to reflect
the creation of the two new grant
programs and the new veterans’
education benefit, as well as the
modification of the statutory definition
of Other Financial Assistance. In
addition, we have made technical
changes to clarify the existing regulatory
language, to standardize the definitions
of resources and estimated financial
assistance used in §§ 673.5(c), 673.6(a),
674.16(c), 675.26(a), 682.200(b) and
685.102(b), to adopt a single regulatory
term to describe other financial
assistance, and to make conforming
changes.
Historically, the campus-based
General Provisions have used the term
resources rather than estimated
financial assistance in reference to the
same components. However, the statute
repeatedly uses the term estimated
financial assistance, and we believe it is
necessary to use this term in the interim
final regulations. Accordingly, the
interim final regulations in
§§ 673.6(a)(1), 674.16(c), 675.26(a)(4)
and 676.16(b) have been amended to
change the defined term resources to the
defined term estimated financial
assistance.
We have also made some technical
changes to the regulations. We have
modified the regulations to provide for
the consistent use of names for the
different loan types for each of the loan
programs. We also clarified that the
loans that can be used to replace the
expected family contribution (EFC)
include non-federal, non-need-based
loans that come from private, state, or
institutional sources. We have revised
the definition of estimated financial
assistance in §§ 682.200 and 685.102 of
the FFEL and Direct Loan programs,
respectively, to reflect our longstanding
policy that estimated financial
assistance includes ‘‘Any educational

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benefits paid because of enrollment in a
postsecondary education institution, or
to cover postsecondary education
expenses’’ and by adding the same
language to § 673.5(c) for the campusbased programs.
We added non-need-based
employment as an exclusion to the
definition of estimated financial
assistance in §§ 682.200 and 685.102 of
the FFEL and Direct Loan program
regulations, respectively.
In § 673.5 of the campus-based
General Provisions, we made a technical
correction to clarify that fellowships
and assistantships must be counted as
estimated financial assistance, except
those portions that are non-need-based
employment. The current regulation
states that non-need-based employment
is not considered estimated financial
assistance, but fellowships and
assistantships may include portions that
are non-need-based employment, but
are not labeled separately as such. We
made a technical change to § 673.5 to
clarify the rules for the consideration of
these fellowships and assistantships.
We added to the definition of
estimated financial assistance in
§§ 682.200(b) and 685.102(b) two items
that are in the same definition under
§ 673.5(c). Those two items are
insurance programs for the student’s
education and fellowships and
assistantships, except non-need-based
employment portions of such awards.
This inclusion ensures the three
sections have similar language.
Another technical change made for
consistency was made in §§ 682.200(b)
and 685.102(b) in which the word
‘‘AmeriCorps’’ was added
parenthetically following each instance
of national service education awards or
post-service benefits paid under title I of
the National and Community Service
Act of 1990 because that is the term
used in § 673.5(c).
Reasons: The regulations need to be
changed to reflect the new grant
programs and the new veterans’
educational benefits under 10 U.S.C.
Chapter 1607. As a technical change, we
have parenthetically inserted the names
of each of the chapters of eligible
veterans’ education benefits listed to
make it easier for the public to identify
these benefits. We also deleted the
entries for programs that are obsolete
and updated the names of programs that
have been changed. We have also made
technical changes to clarify the existing
language and standardize the definitions
among the regulatory sections
referencing the definition of estimated
financial assistance.

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Military Deferment (§§ 674.34, 682.210,
and 685.204)
Statute: Section 8007 of the HERA
amended sections 428, 455, 464 and 481
of the HEA to create a new deferment
for borrowers who are serving on active
duty in the U.S. Armed Forces, or who
are performing qualifying National
Guard duty, during a war or other
military operation or national
emergency. The deferment is effective
July 1, 2006, for loans for which the first
disbursement is made on or after July 1,
2001.
Current Regulations: The current
deferment regulations do not reflect this
new deferment for military service. This
new deferment is different from the
military service deferment available to
Perkins Loan, FFEL and Direct Loan
Program borrowers who took out loans
prior to July 1, 1993.
New Regulations: Section 674.34 of
the Perkins regulations, § 682.210 of the
FFEL regulations, and § 685.204 of the
Direct Loan regulations have been
amended to reflect the new military
service deferment created by the HERA.
The interim final regulations specify the
types of active duty service and
National Guard service that qualifies a
borrower for the deferment, and define
active duty, military operation, and
national emergency for purposes of a
military deferment. The types of
qualifying service and the definitions
are provided in the HERA.
A borrower may qualify for the
military deferment if the first
disbursement of the borrower’s Perkins,
FFEL, or Direct Loan was made on or
after July 1, 2001. If the borrower has
some loans disbursed before July 1,
2001 and some loans disbursed on or
after July 1, 2001, the borrower may
receive a military deferment for the
loans disbursed on or after July 1, 2001,
but may not receive a military
deferment on the loans disbursed before
July 1, 2001. The period of eligible
military service must have occurred
after the borrower received the loan. A
borrower consolidating loans first
disbursed on or after July 1, 2001, is
eligible for the new deferment on the
entire Consolidation Loan only if all of
the borrower’s Title IV loans included
in the Consolidation Loan were first
disbursed on or after July 1, 2001. The
HERA does not authorize a loan holder
to refund payments made during a
period covered by a retroactive
deferment.
Reasons: The regulations are amended
to reflect changes made by the HERA.

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FFEL and Direct Loan Program Changes
Graduate and Professional Student
Eligibility for PLUS Loans (§§ 668.2,
682.102, 682.201, 685.102, 685.200, and
685.201)
Statute: Section 8005 of the HERA
amended section 428B of the HEA, to
provide that graduate and professional
students are eligible for PLUS Loans. In
addition, section 8014 of the HERA
added a new eligibility requirement for
PLUS Loan borrowers. Under this
requirement, a PLUS Loan borrower
who has been convicted of, or pled nolo
contendere or guilty to, a crime
involving fraud in obtaining Title IV,
HEA program funds must complete
repayment of the fraudulently obtained
funds to be eligible to receive a PLUS
loan.
Current Regulations: Under the
current regulations, only parents of
eligible students are eligible for PLUS
Loans.
New Regulations: The terms Federal
Direct PLUS Program and Federal PLUS
Program are defined in §§ 668.2 and
685.102 to include graduate and
professional students as eligible
borrowers. Section 682.102 of the FFEL
Program regulations and § 685.201 of
the Direct Loan Program regulations
have been amended to describe the
application process for graduate or
professional students to obtain a PLUS
loan. Sections 682.201 of the FFEL
Program regulations and 685.200 of the
Direct Loan Program regulations have
been amended to specify that a graduate
or professional student PLUS borrower
must meet the same eligibility criteria as
a student Stafford borrower. This
includes the new requirement in
§ 668.32 that a student convicted of
fraud in obtaining Title IV, HEA
program funds, or who has pled nolo
contendere or guilty to such a crime,
must complete repayment of the
fraudulently obtained funds. In
addition, the student PLUS borrower
must have received a determination of
his or her annual loan maximum
eligibility under the Subsidized and
Unsubsidized Stafford Loan program. A
student PLUS borrower, like a parent
PLUS borrower, must not have an
adverse credit history to be eligible for
a PLUS Loan.
We have also amended § 682.201(c) to
reflect that a parent borrower convicted
of fraud in obtaining Title IV, HEA
program funds, or who has pled nolo
contendere or guilty to such a crime,
must complete repayment of the
fraudulently obtained funds in order to
be eligible for a PLUS loan.
Reasons: The regulations are amended
to reflect changes made by the HERA.

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Joint Consolidation Loans (§§ 682.102,
682.201, and 685.220)
Statute: Section 8009 of the HERA
amended section 428C(a)(3)(C) of the
HEA by eliminating the ability of a
married couple to jointly consolidate
their eligible student loans.
Current Regulations: Current
regulations permit a married couple to
consolidate their eligible student loans
into a joint FFEL or Direct
Consolidation Loan.
New Regulations: Sections 682.102(d),
682.201(c)(2), 682.201(e), and
685.220(d)(2) have been modified to
eliminate the possibility of joint
consolidation of loans by a married
couple for applications received on or
after July 1, 2006.
Reasons: These regulations are
amended to reflect changes made by the
HERA.
Interest Rates (§§ 682.202 and 685.202)
Statute: Public Law 107–139 amended
section 427A of the HEA to establish
fixed interest rates for FFEL and Direct
Stafford and PLUS loans first disbursed
on or after July 1, 2006, at 6.8 percent
for Stafford loans and 7.9 percent for
PLUS loans. The HERA did not change
these interest rates for Stafford loans or
Direct PLUS loans but did increase the
interest rate for PLUS loans made under
the FFEL Program to 8.5 percent. For
FFEL and Direct Consolidation loans,
the interest rate remains a fixed rate,
calculated at the time the consolidation
loan is made, as the weighted average of
interest rates on the loans consolidated,
rounded up to the nearest higher 1⁄8th of
1 percent, not to exceed 8.5 percent.
Current regulations: Current
regulations do not reflect the changed
interest rates on Stafford and PLUS
loans made under the FFEL and Direct
Loan programs. Interest rates on FFEL
and Direct Consolidation loans are
correctly reflected in the current
regulations.
New regulations: Sections 682.202
and 685.202 of the FFEL and Direct
Loan program regulations, respectively,
have been amended to reflect a fixed
interest rate of 6.8 percent for Stafford
Loans first disbursed on or after July 1,
2006. The regulations have also been
amended to reflect a fixed interest rate
of 8.5 and 7.9 percent, respectively, for
FFEL and Direct PLUS loans first
disbursed on or after July 1, 2006.
Reasons: The regulations are amended
to reflect changes made by Public Law
107–139 and the HERA.
Origination Fees (§§ 682.202 and
685.202)
Statute: Section 8008(c) of the HERA
amended section 438(c)(2) of the HEA to

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reduce and eventually eliminate the 3
percent origination fee that is paid by
FFEL Program lenders and that the
lenders may charge to FFEL Stafford
Loan borrowers. Section 8008(c) of the
HERA also amended section
455(b)(8)(A) of the HEA to reduce the 4
percent origination fee that may be
charged to Stafford Loan borrowers in
the Direct Loan Program. The 4 percent
Direct Stafford Loan origination fee is
equivalent to the combined 3 percent
FFEL Stafford Loan origination fee plus
the 1 percent insurance premium (now
the Federal default fee) that is
authorized in the FFEL Program.
Origination fees currently charged to
FFEL and Direct PLUS loan borrowers
are not changed by the HERA. FFEL and
Direct Consolidation Loan borrowers are
also not charged origination fees.
Current Regulations: The current
regulations authorize lenders in the
FFEL Program to charge borrowers an
origination fee of up to 3 percent of the
amount of a Stafford Loan and the
Secretary to charge a fee of up to 4
percent of the amount of a Direct
Stafford Loan. Lenders in the FFEL
Program are required to pay the full
amount of the origination fee to the
Secretary whether or not they charge the
fee to the borrower.
New regulations: The FFEL Program
regulations have been amended in
§ 682.202(c) to reduce origination fees as
follows: Beginning with loans for which
the first disbursement of principal is
made on or after July 1, 2006, and before
July 1, 2007, the maximum origination
fee that a lender may charge a borrower
will be 2 percent. The maximum
origination fee that may be charged to
an FFEL Stafford loan borrower drops to
1.5 percent on July 1, 2007, 1.0 percent
on July 1, 2008, and 0.5 percent on July
1, 2009. The lender must pay the
specified maximum fee for each period
to the Secretary whether or not it is
charged to the borrower. The fee will be
eliminated as of July 1, 2010.
Section 685.202(c) of the Direct Loan
Program regulations has been amended
to reduce origination fees as follows:
Beginning with loans for which the first
disbursement of principal is made on or
after February 8, 2006, and before July
1, 2007, the maximum origination fee
that may be charged to Direct Stafford
Loan borrowers is 3 percent. The
maximum origination fee that may be
charged drops to 2.5 percent on July 1,
2007, 2.0 percent on July 1, 2008, 1.5
percent on July 1, 2009, and 1.0 percent
on July 1, 2010.
Reasons: The regulations are amended
to reflect the changes made by the
HERA.

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Loan Limits (§§ 682.204 and 685.203)
Statute: Section 8005 of the HERA
amended sections 425(a)(1)(A),
428(b)(1)(A), and 428H(d) of the HEA to
increase loan limits for certain Stafford
Loan borrowers. The higher loan limits
are effective in the FFEL Program for
loans certified on or after July 1, 2007,
and, in the Direct Loan Program, for
loans originated on or after July 1, 2007.
The HERA did not increase aggregate
loan limits in either program.
Current Regulations: Under the
current regulations, the base subsidized/
unsubsidized combined annual loan
limit for first-year undergraduates is
$2,625 and $3,500 for second year
undergraduates. For graduate or
professional students, the additional
unsubsidized annual loan limit is
$10,000. For students who have
obtained a baccalaureate degree and are
enrolled in coursework necessary for
enrollment in a graduate or professional
program, the additional unsubsidized
annual loan limit is $5,000. For students
who have obtained a baccalaureate
degree, and are enrolled in coursework
necessary for a professional credential
or certification from a State required for
employment as a teacher in an
elementary school, the additional
unsubsidized loan limit is $5,000.
New Regulations: Under the interim
final regulations, for FFEL loans
certified on or after July 1, 2007 and for
Direct Loans originated on or after July
1, 2007:
• For first-year undergraduates, the
base subsidized/unsubsidized combined
annual loan limit is $3,500;
• For second year undergraduates, the
base subsidized/unsubsidized combined
annual loan limit is $4,500;
• For graduate or professional
students, the additional unsubsidized
annual loan limit is $12,000;
• For students who have obtained a
baccalaureate degree and are enrolled in
coursework necessary for enrollment in
a graduate or professional program, the
additional unsubsidized annual loan
limit is $7,000; and
• For students who have obtained a
baccalaureate degree, and are enrolled
in coursework necessary for a
professional credential or certification
from a State required for employment as
a teacher in an elementary school, the
additional unsubsidized loan limit is
$7,000.
The HERA did not increase the base
subsidized/unsubsidized combined loan
limits for third year and above
undergraduate students and for graduate
students. The HERA also did not change
the limits on the additional amount of
unsubsidized loans that are available to
all undergraduate students.

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45675

Reasons: These regulations are
amended to reflect changes made by the
HERA.
Elimination of Option of Early Entrance
Into Repayment (§§ 682.209 and
685.220)
Statute: Section 8009 of the HERA
amended sections 428(b)(7)(A),
428C(a)(3), and 428C(b)(5) to eliminate
the ability of FFEL Stafford Loan
borrowers to request to enter repayment
on their loans early. Early conversion to
repayment allows a borrower to
consolidate FFEL loans while still
enrolled at least half-time.
Section 8009 of the HERA also
amended sections 455(a), 455(d), and
455(g) of the HEA to require that Direct
Consolidation Loans have the same
terms and conditions as FFEL
Consolidation Loans. For both FFEL
Stafford Loan and Direct Stafford Loan
borrowers, the repayment period is now
defined as the period beginning 6
months and one day after the date the
student ceases to carry at least one-half
the normal full-time academic
workload, as determined by the
institution.
Current Regulations: Section
682.209(a)(5) of the FFEL program
regulations permits FFEL Stafford Loan
borrowers to request and be granted a
repayment schedule prior to the end of
their grace period and therefore enter
repayment on their loans. Current Direct
Loan regulations in
§ 685.220(d)(1)(ii)(A) permit borrowers
in an in-school period with loans made
under both the FFEL program and the
Direct Loan program to obtain a Direct
Consolidation loan. Also, under
§ 685.220(d)(1)(ii)(B), a borrower with
FFEL loans only, in an in-school period
at a school participating in the Direct
Loan program is eligible to consolidate
these loans into the Direct Loan
program.
New Regulations: To implement the
HERA, section 682.209(a)(5) of the FFEL
regulations has been removed. FFEL
Stafford Loan borrowers may no longer
request to enter repayment early on
their loans. Section 685.220(d)(1)(ii)(A)
of the Direct Loan regulations has been
removed so that Direct Stafford Loan
borrowers are no longer able to
consolidate while in an in-school status.
Reasons: The regulations were
modified to reflect the changes made by
the HERA to the HEA.
Teacher Loan Forgiveness (§§ 682.215
and 685.217)
Statute: Section 8013(c) of the HERA
eliminated the previous termination
date of October 1, 2005, for the
increased teacher loan forgiveness

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amounts of up to $17,500 for highlyqualified teachers in certain specialties
as originally provided under the
Taxpayer-Teacher Protection Act of
2004 (TTPA). In addition, the HERA
established an alternative method for
teachers in private non-profit schools to
qualify for the same forgiveness benefits
as ‘‘highly qualified’’ teachers in public
schools.
Current Regulations: Sections 682.215
and 685.217 of the FFEL and Direct
Loan Program regulations, respectively,
do not reflect the eligibility
requirements for teacher loan
forgiveness established in the TTPA, the
increased loan forgiveness amount that
are available for certain teachers, or the
alternative method for teachers in
private, non-profit schools to qualify for
teacher loan forgiveness.
New Regulations: Sections 682.215
and 685.217 continue to reflect the
original eligibility requirements for
teacher loan forgiveness, and have been
amended to reflect the eligibility
requirements, and increased forgiveness
amounts, established by the TTPA and
the HERA.
A borrower whose five, consecutive,
complete years of qualifying teaching
service began before October 30, 2004
may qualify for up to $5,000 of teacher
loan forgiveness under the original
eligibility criteria for teacher loan
forgiveness.
‘‘Highly qualified’’ teachers whose
teaching service begins on or after
October 30, 2004 may qualify for
forgiveness of up to:
• $5,000 if the borrower taught fulltime in an eligible elementary or
secondary school;
• $17,500 if the borrower taught
mathematics or science on a full-time
basis in an eligible secondary school;
• $17,500 if the borrower taught as a
special education teacher on a full-time
basis, the borrower’s primary
responsibility was to provide special
education to children with disabilities
in either an eligible elementary or
secondary school, if the borrower’s
special education training corresponded
to the children’s disabilities and the
borrower demonstrated knowledge and
teaching skills in the content areas of
the elementary or secondary school
curriculum that the borrower is
teaching.
Highly qualified teachers whose
teaching service began before October
30, 2004, may also qualify for $17,500
of loan forgiveness if they meet the
applicable eligibility requirements. To
qualify for loan forgiveness based on
being a ‘‘highly qualified’’ teacher, the
borrower must have been a ‘‘highly

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qualified’’ teacher for each of the five
consecutive years of teaching service.
Teachers in private, non-profit
schools who are exempt from State
certification requirements may qualify
for the same forgiveness benefits as
‘‘highly qualified’’ public school
teachers, if the private school teacher is
otherwise eligible for teacher loan
forgiveness and:
• The private school teacher is
permitted to and does satisfy rigorous
subject knowledge and skills tests by
taking competency tests in applicable
grade levels and subject areas;
• The competency tests taken by the
private school teacher are recognized by
five or more States for the purposes of
fulfilling the highly qualified teacher
requirements of the Elementary and
Secondary Education Act of 1965, as
amended; and
• The private school teacher achieves
a score on each test that equals or
exceeds the average passing score for
those five States.
Reasons: These regulations are
amended to reflect changes made by the
TTPA and the HERA.
Loan Discharge for False Certification as
a Result of Identity Theft (§§ 682.402
and 685.215)
Statute: Section 8012 of the HERA
amended section 437(c) of the HEA to
authorize a discharge of a FFEL or
Direct Loan Program loan if the
borrower’s eligibility to borrow was
falsely certified because the borrower
was a victim of the crime of identity
theft. This change is effective July 1,
2006.
Current Regulations: FFEL and Direct
Loan Program regulations in §§ 682.402
and 685.215 do not explicitly authorize
the discharge of a FFEL or Direct Loan
Program loan if the borrower’s eligibility
was falsely certified because the
borrower was the victim of the crime of
identity theft.
New Regulations: Sections 682.402
and 685.215 of the FFEL and Direct
Loan Program regulations, respectively,
have been amended to authorize a
discharge of an FFEL or Direct Loan
Program loan if the borrower’s eligibility
to receive the loan was falsely certified
because the borrower was a victim of
the crime of identity theft. The interim
final regulations provide that the
borrower’s obligation is discharged if
the borrower provides the holder of a
loan, or the Secretary in the case of a
Direct Loan, a copy of a local, State, or
Federal court verdict or judgment that
conclusively determines that the
individual who is the named borrower
of the loan was the victim of the crime
of identity theft, and the borrower

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demonstrates that the loan in question
was made as a result of that identity
theft. Discharge relief is available to the
victim of the proven crime of identity
theft, whether or not the prosecution
was based on, or expressly referred to,
the loan in question. If the conviction or
judgment did not expressly reference
that loan, the individual must provide
authentic examples of his or her other
identification credentials, and an
explanation of facts that demonstrate
that this criminal conduct resulted in
the school certifying that individual’s
eligibility to borrow, and, as a result, in
the loan being made.
In addition, because the statute
authorizes discharge for individuals
who are victims of the crime of identity
theft, the interim final regulations
provides relief only to individuals who
did not knowingly accept the benefit of
the falsely-certified loan, and require
individuals who claim relief to certify
that they did not, with knowledge that
the loan had been made, receive or
accept the benefits of the loan.
Where discharge relief is provided to
an injured borrower, or where a
borrower receives FFEL benefits based
on providing false or erroneous
information, the HEA and the current
regulations generally require the
Secretary and the guarantor, as
applicable, to pursue claims against the
responsible party. Approval of an
identity theft discharge claim will rest
on a judicial determination that a
named individual committed the crime
of identity theft and at very least a
presentation by the victim of a
persuasive statement showing that the
identified perpetrator was responsible
for the loan obligation. The Secretary
interprets the enforcement language in
section 437 of the HEA to include
enforcement action against the
identified perpetrator of the identity
theft.
By adding this discharge authority,
the Secretary in no way suggests that
unless a crime of identity theft has been
successfully prosecuted, individuals are
liable for a loan for which they did not
execute or authorize another to execute
a promissory note, from which they
received no benefits, and which they
have not ratified by later conduct. To
the contrary, a person is ordinarily not
liable on an instrument, such as a
promissory note or check, unless that
person signed that instrument or
authorized another to sign on his or her
behalf. Section 682.402(e)(1)(i)(B) of the
FFEL Program regulations provide that
FFEL program benefits are payable to
the holder of the loan only where the
lender obtained a legally-enforceable
promissory note to evidence the loan,

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and § 682.406(a)(1) provides that
reinsurance may be received only with
respect to a claim on a legallyenforceable loan. Because a forged
promissory note is not an enforceable
obligation of the named borrower, FFEL
Program benefits can not lawfully be
claimed on a loan evidenced by such a
note, absent conduct by the individual
named as borrower that applicable law
would regard as a ratification of
knowing acceptance of the loan by the
individual.1 In § 682.402(e)(1)(i)(B) of
the FFEL Program regulations that
implement the discharge authority in
section 437(c) of the HEA for false
certification of eligibility to borrow, the
Secretary carved out a narrow exception
to this rule to authorize both discharge
relief to individuals named as borrowers
and reimbursement to the loan holders
if the loan application or promissory
note had been forged by the school. No
regulation grants relief to those
individuals who demonstrate that their
signatures were forged on the note, but
who cannot credibly assert that the
forger was a person affiliated with the
school, because that relief is already
available for those individuals under the
common law (and in many instances,
State law) defense of forgery. That
defense has applied to FFEL Program
loans as to any other contracts, and
therefore no regulations were needed, or
are now needed, to create relief from
liability on a forged FFEL Program note.
Moreover, the rights of the lender, and
any subsequent holder, have always
been subject to the obligation of the
lender to exercise due diligence in
making the loan in accordance with
§ 682.206(a)(2). A lender whose
employee or agent either committed the
crime of identity theft of that individual,
or knew at the time the loan was made
of the identity theft of that individual,
has not relied in good faith on
representations made by the borrower or
the school in the loan application
process, and is not held harmless under
FFEL Program regulations from the
consequences of the making of a loan
that is not legally enforceable against
the individual named as borrower. In
this instance, as with forged or
unauthorized endorsements on
disbursement instruments or
authorizations, the holders of the loan
must refund to the Secretary any FFEL
Program benefits received on that loan.
Reasons: The regulations are amended
to reflect changes made by the HERA.
1 The Department applied this same principle in
DCL 93–L–156, July 1993, with respect to FFEL
Program loans disbursed by checks on which the
borrower’s endorsement had been forged.

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Loan Rehabilitation Agreement
(§§ 682.405 and 685.211)
Statute: Section 8014(h) of the HERA
amended section 428F(a) of the HEA to
modify the requirements for a borrower
to rehabilitate a defaulted loan under
the FFEL and Direct Loan Programs.
Under the HERA, a borrower will only
need to make nine payments within 20
days of the due date during a period of
10 consecutive months to rehabilitate a
defaulted loan(s). This change does not
apply to the Federal Perkins Loan
Program.
Current Regulations: Current
regulations require a defaulted FFEL or
Direct Loan borrower to make 12
consecutive monthly payments on the
defaulted loan to rehabilitate the loan.
New Regulations: Sections 682.405
and 685.211 of the FFEL and Direct
Loan Program regulations, respectively,
have been amended to provide that a
borrower meets the requirements for
rehabilitation if that borrower makes at
least nine of the ten payments required
under a monthly repayment, if each
payment is received within 20 days of
the scheduled due date for that
payment, and notwithstanding the 20day grace period otherwise applicable, if
all nine of those payments are received
within a period of no more than 10
consecutive calendar months that begins
no earlier than the first scheduled due
date of the nine payments and ends no
later than the scheduled due date in the
tenth month following that first due
date. This change is effective on July 1,
2006. For a loan rehabilitation
agreement that began prior to July 1,
2006, a guaranty agency may consider
the borrower to have met the new
rehabilitation standard if at least one of
the borrower’s payments is due to be
made on or after July 1, 2006, even if
that payment is received prior to July 1,
2006, but within 20 days of the required
due date in July. The guaranty agency
must treat all borrowers in this situation
equally. On defaulted loans held by the
Department, we will consider the
borrower to have met the new
rehabilitation standards if the borrower
makes payments as required under the
existing agreement, and at least one of
the nine payments made by the
borrower was due on or after July 1,
2006, even if that specific payment was
received prior to July 1, 2006, but
within 20 days of the July due date.
Reasons: These regulations are
amended to reflect changes made by the
HERA.

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FFEL Program Changes
Single Holder Rule (§§ 682.102 and
682.201)
Statute: Section 7015 of The
Emergency Supplemental
Appropriations Act for Defense, the
Global War on Terror, and Hurricane
Recovery, 2006 (Pub. L. 109–234)
amended section 428C(b)(1)(A) of the
HEA by repealing the single holder rule
with respect to any FFEL Consolidation
Loan for which an application is
received by an eligible lender on or after
June 15, 2006. The single holder rule
required that a borrower with FFEL
loans held by a single lender could only
consolidate his or her loans with that
lender.
Current Regulations: Sections
682.102(d) and 682.201(d) provide that
a borrower who is applying for a
Consolidation Loan must certify that the
lender making the Consolidation Loan
holds at least one outstanding loan that
is being consolidated unless the
borrower has multiple holders of FFEL
Program loans, or the borrower’s single
loan holder declines to make a
Consolidation Loan, or declines to make
one with income-sensitive repayment
terms.
New Regulations: Sections 682.102(d)
and 682.201(d) have been amended to
remove these requirements.
Reasons: The interim final regulations
are necessary to reflect the changes
made to the HEA by The Emergency
Supplemental Appropriations Act for
Defense, the Global War on Terror, and
Hurricane Recovery, 2006.
Federal Default Fee (§§ 682.202, 682.401
and 682.419)
Statute: Effective for loans guaranteed
on or after July 1, 2006, section 8014 of
the HERA amended section 428(b)(1)(H)
of the HEA to eliminate the optional 1
percent insurance premium fee that
guaranty agencies could charge to
lenders and that lenders could charge to
borrowers and establishes a Federal
default fee equal to 1 percent of the
principal amount of the loan. The
default fee must be collected by the
guaranty agency and deposited into the
Federal Fund held by a guaranty agency
under section 422A of the HEA. The
default fee may be deducted and
collected by the lender from the
proceeds of the loan and paid to the
guaranty agency or paid from other nonFederal sources. If the fee is charged to
the borrower, it must be deducted
proportionally from each disbursement
of the loan proceeds.
A guaranty agency must ensure that
the proceeds of the Federal default fee
will not be used for incentive payments

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to lenders. The Secretary is prohibited
from waiving these provisions for
guaranty agencies that have Voluntary
Flexible Agreements under section
428A of the HEA.
Current Regulations: Section
§ 682.401(b)(10) of the current
regulations provides that a guaranty
agency may charge the lender an
insurance premium equal to 1 percent of
the principal balance of each Stafford,
SLS, or PLUS loan it guarantees. Under
§ 682.202(d) of the current regulations, a
lender may pass the cost of the
insurance premium along to the
borrower by deducting the amount of
the premium from the borrower’s loan
proceeds. Section 682.419(b) requires
the guaranty agency to deposit into its
Federal Fund the total amount of
insurance premiums collected from
lenders.
New Regulations: Section
682.401(b)(10) has been amended to
reflect that insurance premiums will no
longer be charged on Stafford or PLUS
loans guaranteed on or after July 1,
2006. The regulations have been
amended to reflect the new requirement
for a Federal default fee. In accordance
with the HERA, the interim final
regulations require, for loans guaranteed
on or after July 1, 2006, that the
guaranty agency must collect, from the
borrower or from any non-Federal
source, a Federal default fee equal to
one percent of the principal amount of
the loan. The guaranty agency must
deposit the proceeds of the default fee
into its Federal Fund and ensure that
the proceeds of such fees are not used
for incentive payments to lenders.
Section 682.202 has also been amended
to provide that a lender may pass the
cost of the Federal default fee along to
the borrower. If the borrower is charged
the Federal default fee, the amount of
the default fee must be deducted
proportionately from each disbursement
of the loan. The lender or guaranty
agency may also use other non-Federal
sources to pay the default fee that must
be deposited into the agency’s Federal
Fund.
Section 682.419, which regulates the
guaranty agency Federal Fund, has also
been amended to require the guaranty
agencies to deposit Federal default fees
into the Federal Fund and to use assets
of the Federal Fund as those assets
relate to the Federal default fee only as
directed.
Reasons: The regulations are modified
to reflect the change made by the HERA.
Loan Disbursement Through an Escrow
Agent (§§ 682.207 and 682.408)
Statute: Section 8014(j) of the HERA
amended section 428(i)(1) of the HEA to

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reduce the amount of time before
disbursement to the borrower that a
lender may transfer loan funds to an
escrow agent. Under the HERA, a lender
may now transfer funds to the escrow
agent no more than 10 days prior to the
date the funds are disbursed to the
borrower.
Current Regulations: The current
regulations permit lenders to transfer
funds to an escrow agent no more than
21 days prior to the date the funds are
disbursed to the borrower.
New Regulations: The regulations in
§§ 682.207(b)(1)(iv) and 682.408(c) have
been amended to permit lenders to
transfer funds to an escrow agent no
more than 10 days prior to the date the
funds are disbursed to the borrower.
Reasons: The regulations were
modified to reflect the changes made by
the HERA to the HEA in reducing this
time period.
Due Diligence in Disbursing a Loan
(§§ 682.207 and 682.604)
Statute: Section 8008 of the HERA
amended section 428(b)(1)(N) of the
HEA to provide that, for U.S. students
attending an eligible foreign school,
FFEL Stafford Program loans will be
disbursed directly to the borrower only
if the foreign school requests this
method. Prior to the change, a
disbursement could be made directly to
a student enrolled in a foreign school at
the request of the student. No change
was made to the requirement that a
disbursement be made directly to a
student enrolled in a study-abroad
program that is approved for credit by
the student’s home institution upon the
request of the student. However, for
both borrowers enrolled at a foreign
school and borrowers enrolled in a
study-abroad program, section 8008 of
the HERA specifies that a lender or
guaranty agency must verify the
borrower’s enrollment at the foreign
school before making a disbursement of
FFEL Stafford funds directly to a
borrower. Under section 428B of the
HEA, a lender may not make a
disbursement of PLUS loan funds
(including loan funds for graduate and
professional student PLUS borrowers)
directly to the borrower. These changes
are effective for loans first disbursed on
or after July 1, 2006.
Current Regulations: The current
regulations in § 682.207(b)(1)(v)(C) and
(D) provide that, for both students
enrolled in an eligible foreign school
and students enrolled in a study-abroad
program, FFEL Program loans are
disbursed directly to the borrower by
the lender only upon the request of the
student. Section 682.207(b)(1)(v)(E)
requires a lender to notify the foreign

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school when the lender makes a
disbursement directly to a student
enrolled at the foreign school.
New Regulations: Section 682.207 has
been amended to reflect the statutory
change that provides that a lender may
disburse FFEL Stafford Loan funds
directly to a U.S. student attending an
eligible foreign school only if the school
requests this method. Without a request
from the school, lenders must disburse
loan funds directly to an office of the
foreign school designated by the school
to receive them. A foreign school may
make a single request to a lender to
disburse all FFEL Stafford Loans
directly to eligible students who attend
the foreign school.
In addition, the interim final
regulations incorporate the HERA
change that provides that a lender may
not make a direct disbursement to a
borrower enrolled at a foreign school or
in a study-abroad program until the
lender or guaranty agency verifies the
borrower’s enrollment at the foreign
school. A guaranty agency or lender
must verify enrollment before each
disbursement, including second and
subsequent disbursements, of a Stafford
loan. If the lender or guaranty agency
has verified a borrower’s enrollment, the
lender must honor the student’s or
school’s request, as appropriate, that a
direct disbursement be made. As foreign
schools may not participate in the Direct
Loan Program and Direct Loan funds are
disbursed to the borrower in a studyabroad program directly by the school,
these provisions are not applicable to
the Direct Loan Program.
In new paragraph 682.207(b)(2) we
have listed the requirements a lender or
guaranty agency must follow to verify a
student’s enrollment at a foreign school
or enrollment in a study-abroad
program. These requirements are based
on the guaranty agency program
requirements in Dear Colleague Letter
(DCL) G–03–348 (August 2003). To
verify enrollment in a foreign school, a
guaranty agency must confirm that the
foreign school the student is to attend is
currently certified to participate in the
FFEL Program. To do this, the guaranty
agency must access the Department’s
Postsecondary Education Participants
System (PEPS) Database. As noted in
DCL G–03–348, schools that have an
eligibility status of ‘‘Eligible/Loan
Deferment’’ and a certification status of
‘‘Not Certified’’ in the PEPS Database
are eligible for FFEL loan deferment
purposes only. They are not certified to
participate in the FFEL programs and
students attending those schools are not
eligible to receive FFEL program funds.
After confirming that a school is
certified to participate in the FFEL

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
Program, the lender or guaranty agency
must contact the foreign school by
telephone or e-mail to verify the
borrower’s enrollment at the school.
The interim final regulations have
different standards for verifying
enrollment at a foreign school for a new
student and for verifying enrollment for
a continuing student. For a new student,
the lender or guaranty agency must
verify that the student has been
admitted to the foreign school. For a
continuing student, the lender or
guaranty agency must verify that the
student is still enrolled as ‘‘enrolled’’ is
defined in 34 CFR 668.2. Specifically,
the lender or guaranty agency must
confirm that the student is admitted/
enrolled for the period for which the
loan is intended at the enrollment status
for which the loan was certified.
Finally, the lender or guaranty agency
must document the student’s file with
information on the contact.
Similarly, for a student enrolled in a
study-abroad program, the lender or
guaranty agency must contact the home
institution by telephone or e-mail to
confirm the student’s admission to the
program, for a new student, or
continuing enrollment in the program,
for a continuing student, for the period
for which the loan is intended at the
enrollment status for which the loan
was certified.
Guaranty agencies and lenders must
coordinate their activities to ensure that
the requirements for verifying the
borrower’s enrollment are met before
any disbursement may be made.
New paragraph § 682.604(b) also
incorporates the requirements formerly
found in § 682.207(b)(1)(v)(E) for lender
notification to the foreign school when
the lender makes a direct disbursement
to a student enrolled at a foreign school.
The interim final regulations now
require lenders to notify the school
when the lender makes a disbursement
directly to a student enrolled in a studyabroad program. In the case of a student
enrolled in a study-abroad program, the
lender must notify the home institution
when the lender makes the
disbursement directly to the student.
Section 682.604(b)(1) is amended to
require that, upon receipt of such a
notice, a foreign school, or the home
institution for a student enrolled in a
study-abroad program, must
immediately notify the lender if the
student is no longer eligible to receive
the disbursement.
Reasons: These changes are made to
implement the provisions of the HERA.
To ensure proper implementation of the
statutory changes, the interim final
regulations include procedures issued
in DCL G–03–348.

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In the past, the Department’s Office of
the Inspector General and the
Government Accountability Office have
found that FFEL funds have been
disbursed directly to students for
attendance at foreign schools that either
did not exist, or that were not
participating in the FFEL Programs. To
avoid this problem in the future,
verification of a student’s enrollment at
a foreign school must include
confirmation of the foreign school’s
certification to participate in the FFEL
Programs, as currently required by DCL
G–03–348.
As a lender may still make an FFEL
disbursement directly to a student in a
study-abroad program at the student’s
request, these regulations require that
the lender or guaranty agency confirm
the student’s enrollment in a studyabroad program with the student’s home
institution prior to any disbursement of
funds.
Finally, for consistency in the
verification of enrollment procedures,
we have extended the requirement that
a lender notify a foreign school when
the lender makes a direct disbursement
to a student enrolled at the foreign
school, to require the lender to notify
the home institution when it makes a
direct disbursement to a student
enrolled in a study-abroad program. The
change to § 682.604(b)(1) is made to
make clear that an institution that is
notified by the lender of a disbursement
directly to a borrower must inform the
lender if the student is no longer
eligible. Under § 682.610(c)(2), an
institution is already required to notify
a guaranty agency or lender if it
discovers that a loan has been made to
or on behalf of a student who enrolled
at that school, but who has ceased to be
enrolled on at least a half-time basis.
However, § 682.610(c) refers to the
submission of such information in terms
of the submission of student status
confirmation reports (SSCRs). The new
requirement makes clear that all
institutions, including those that now
report data through the Department’s
National Student Loan Data System
instead of SSCRs, must respond to a
lender’s notification of a direct
disbursement if the student is no longer
eligible.
Forbearance (§ 682.211)
Statute: Section 8014(e) of the HERA
amended section 428(c)(3) of the HEA to
require that lenders confirm any nonwritten forbearance agreement by
recording the terms of the agreement in
the borrower’s file.
Current Regulations: The current
regulations state that a lender may grant
forbearance if the lender and the

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borrower or endorser agree to the terms
of the forbearance and, unless the
agreement was in writing, the lender
sends, within 30 days, a notice to the
borrower or endorser confirming the
terms of the forbearance.
New Regulations: Section
682.211(b)(1) of the FFEL Program
regulations has been amended to require
a lender to record the terms of the
forbearance in the borrower’s file. This
change is effective for agreements
entered into or renegotiated with a
borrower on or after July 1, 2006.
Reasons: The regulations are modified
to reflect the change made by the HERA.
Loans Disbursed Through an Escrow
Agent (§ 682.300)
Statute: Section 8014(j) of the HERA
amended section 428(a)(3)(A) of the
HEA to provide that a lender may first
receive interest subsidy payments on
loans disbursed by an escrow agent on
behalf of the lender three days prior to
the first day of the period of enrollment,
or if the loan is disbursed after the first
day of the period of enrollment, three
days after disbursement.
Current Regulations: Current
regulations do not include specific rules
for interest subsidy payments on loans
disbursed by an escrow agent.
New Regulations: Section
682.300(c)(3) has been amended to
provide for the payment of interest
subsidies on loans disbursed through an
escrow agent no sooner than three days
prior to the first day of the period of
enrollment or, if the loan is disbursed
after the first day of the period of
enrollment, three days after
disbursement.
Reasons: The regulations are modified
to reflect the change made by the HERA.
Special Allowance Rates for Loans First
Disbursed on or After January 1, 2000
(§ 682.302)
Statute: Prior to enactment of the
HERA, section 438(b)(2)(I)(v) of the HEA
provided that special allowance
payments (SAPs) were not paid to
lenders for any PLUS loans that were
first disbursed on or after January 1,
2000, unless a calculation using the
bond equivalent rates of certain 3-month
commercial paper (financial) plus a
spread of 3.1 percent, exceeded 9.0
percent. This provision of the HEA has
been struck by the HERA effective April
1, 2006, for claims that accrued on or
after that date.
Current Regulations: Current
regulations do not reflect the changes
made by the HERA.
New Regulations: Section 682.302(c)
of the regulations has been amended to
reflect the changes made by the HERA

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regarding special allowance to provide
for a special allowance payment on
PLUS loans that were first disbursed on
or after January 1, 2000 beginning with
payments made after July 1, 2006. This
change acknowledges that lenders began
earning special allowance payments
April 1, 2006.
Reasons: The regulations are modified
to reflect the changes made by the
HERA.
Special Allowance Payments on Loans
Funded by Tax-Exempt Obligations
(§ 682.302)
Statute: Effective on February 8, 2006,
the HERA made the special allowance
payment provisions of the TaxpayerTeacher Protection Act of 2004 (TTPA)
permanent by eliminating its January 1,
2006 sunset provisions. The TTPA
provided that upon the occurrence of
specified events after September 30,
2004 and before January 1, 2006, the
special allowance paid on loans made or
purchased with funds from particular
sources derived by the holder from taxexempt obligations originally issued
prior to October 1, 1993, would revert
to the usual rates paid on other loans,
instead of the otherwise applicable rate
of not less than 9.5 percent minus the
applicable interest rate. This change
affected loans that had qualified for the
minimum 9.5 percent special allowance
rate, but were:
1. Financed by a tax-exempt
obligation that, after September 30,
2004, and before January 1, 2006, has
matured or been refunded, retired or
defeased;
2. Refinanced after September 30,
2004, and before January 1, 2006, with
funds obtained from a source other than
those described in section
438(b)(2)(B)(v)(I) of the HEA; or
3. Sold or transferred to any other
holder after September 30, 2004, and
before January 1, 2006.
The HERA eliminated the ending
dates on these limitations. In addition,
the HERA added two provisions that
prohibit a loan from acquiring eligibility
for the 9.5 percent minimum special
allowance rates under 438(b)(2)(B) of
the HEA. These new provisions state
that special allowance is computed at
the normal, rather than the 9.5 percent
minimum return rate for any loan:
• Made or purchased on or after
February 8, 2006 (the date of enactment
of the HERA); or
• Not earning on February 8, 2006 a
quarterly rate of special allowance
determined under section 438(b)(2)(B)(i)
or (ii) of the HEA.
The HERA delays these new
requirements for certain holders by
providing that they take effect later—

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substituting ‘‘December 31, 2010,’’ for
February 8, 2006—for a holder that:
• Was, as of February 8, 2006, and
during the quarter for which the special
allowance is paid, a unit of State or
local government or a nonprofit private
entity;
• Was, as of February 8, 2006, and
during such quarter, not owned or
controlled by, or under common
ownership or control with, a for-profit
entity; and
• Held, directly or through any
subsidiary, affiliate, or trustee, a total
unpaid balance of principal equal to or
less than $100 million on loans for
which special allowances were paid
under section 438(b)(2)(B) of the HEA in
the most recent quarterly payment prior
to September 30, 2005.
Current Regulations: Current
regulations in § 682.302(c)(3) provide
that special allowance rates for loans
that were made or purchased with funds
obtained by the holder from the
issuance of tax-exempt obligations
originally issued prior to October 1,
1993, or from other sources listed there
that were derived from those bond
proceeds, receive a special allowance at
a rate that is generally one-half of the
rate established for other loans, but not
less than 9.5 percent minus the
applicable interest rate on such loans
and, in § 682.302(e), that the issuer of
such obligations receives special
allowance payments on these loans at
the usual rate if the issuer retires the
tax-exempt obligation or defeases it by
means of yield-restricted obligations.
Current regulations refer to obligations
‘‘originally issued’’ before or after
specified dates, but do not define that
term, which derives directly from
section 438(b)(2)(B) of the HEA. Current
regulations do not incorporate the
Department’s interpretation of the term
‘‘originally issued’’ nor do they
incorporate the Department’s
longstanding interpretation of the
statute and regulations as applicable to
the treatment of loans acquired from the
tax-exempt funding sources listed in the
statute and in § 682.302(c)(3)(i), if the
‘‘originally issued’’ obligation is later
refunded by a tax-exempt refunding
obligation.
New Regulations: Section 682.302(e)
has been amended and new paragraph
§ 682.302(f) has been added to reflect
the provisions of the HERA and, as
pertinent, of the TTPA as described
above and the Department’s
interpretation of terms found in current
regulations as necessary for the proper
implementation of provisions added by
the HERA and TTPA. In addition,
§ 682.302(c) has been amended to
incorporate the various statutory

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changes in special allowance rate
calculations.
Reasons: The regulations are modified
to reflect the changes made by the
HERA, and as necessary to reflect those
changes, the changes made by the TTPA
and the interpretations by the
Department of terms found in current
regulations affected by those
enactments.
Interest Repayment From Lenders
(§ 682.305)
Statute: Section 8006(b) of the HERA
amended section 438(b)(2)(C)(v) of the
HEA to require payment by the lender
of excess interest received by the lender
when the applicable interest rate on a
loan for any quarter exceeds the special
allowance support level for the loan.
Under the HERA, excess interest is
calculated each quarter by subtracting
the ‘‘special allowance support level’’
from the applicable interest, multiplying
the result by the average daily principal
balance of the loan (not including
unearned interest added to principal)
during the quarter, and dividing by four.
Current Regulations: Current
regulations do not provide for the
recapture of excess interest by the
Secretary.
New Regulations: Section 682.305 of
the regulations has been amended by
adding a new paragraph (d) that
provides for the recovery of excess
interest from a lender in accordance
with the provisions added by the HERA.
Section 682.305(d) requires the
payment by a lender of excess interest
when the applicable interest rate on a
loan for any quarter exceeds the special
allowance support level for the loan.
This requirement applies to loans for
which the first disbursement of
principal is made on or after April 1,
2006, but does not apply with respect to
any special allowance payment made
under section 438 of the HEA before
April 1, 2006. The Secretary will collect
the excess interest from lenders
quarterly.
The interim final regulations require
that excess interest is calculated each
quarter by subtracting the special
allowance support level from the
applicable interest rate, multiplying the
result by the average daily principal
balance of the loan (not including
unearned interest added to principal)
during the quarter and dividing by four.
For example, if the average daily
principal balance of a loan was $1,000,
and the applicable interest rate and
special allowance support level were 6.8
percent and 5.8 percent, respectively,
the excess interest to be rebated would
be: $1,000 × 1.0 percent/4 = $2.50.

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Reasons: The regulations are modified
to reflect the changes made by the
HERA.

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Lender Insurance (§ 682.401)
Statute: Section 8014(a) of the HERA
amended section 428(b)(1)(G) of the
HEA to require a guaranty agency to
reduce the amount of insurance to a
lender to 97 percent of a loan’s unpaid
principal.
Current Regulations: Section
682.401(b)(14)(ii) of the FFEL Program
regulations provides that a guaranty
agency insures 98 percent of a loan’s
unpaid principal.
New Regulations: The regulations are
amended by adding new paragraph
§ 682.401(b)(14)(iii) to require a
guaranty agency to insure 97 percent of
the unpaid principal balance on loans
first disbursed on or after July 1, 2006.
Reasons: The regulations are modified
to reflect the change made by the HERA.
Default Collection (§ 682.401)
Statute: Section 8014(d) of the HERA
amended section 428(c) of the HEA to
require each guaranty agency to ensure
that consolidation loans are not an
excessive proportion of the agency’s
recoveries on defaulted loans. In
addition, under the HERA, if a borrower
repays a defaulted loan through a
Federal Consolidation Loan on or after
October 1, 2006, a guaranty agency may
not charge the borrower collection costs
in an amount in excess of 18.5 percent
of the outstanding principal and interest
of the defaulted loan. Also on or after
October 1, 2006, when returning
proceeds to the Secretary from the
consolidation of a defaulted loan, a
guaranty agency that charged the
borrower collection costs must remit an
amount that equals the lesser of the
actual collection costs charged or 8.5
percent of the outstanding principal and
interest of the loan. On or after October
1, 2009, when returning proceeds to the
Secretary from the consolidation of a
defaulted loan that is paid off with
excess consolidation proceeds, a
guaranty agency must remit the entire
collection cost charged. The HERA
defines the term excess consolidation
proceeds to mean, for any Federal fiscal
year beginning on or after October 1,
2009, the amount of proceeds from the
consolidation of defaulted loans under
the FFEL Program that exceed 45
percent of the agency’s total collections
on defaulted loans in that Federal fiscal
year.
Current Regulations: Current
regulations in § 682.401(b)(27) allow a
guaranty agency to charge collection
costs in an amount not to exceed 18.5
percent of the outstanding principal and

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interest of a defaulted FFEL Program
loan that is repaid by a Federal
Consolidation loan. When returning the
proceeds from the consolidation of a
defaulted loan to the Secretary, a
guaranty agency may retain only the
actual amount of collection costs
charged to the borrower on the loan
repaid by the consolidation loan (which
may not exceed 18.5 percent).
New Regulations: Section
682.401(b)(27) has been amended to
reflect the new statutory requirements
regarding the consolidation of defaulted
FFEL loans and excess consolidation
proceeds described above.
Reasons: The regulations are modified
to reflect the changes made by the
HERA.
College Access Initiative (§ 682.401)
Statute: Section 8023 of the HERA
amended section 485D of the HEA to
establish a new College Access
Initiative. As part of the Initiative, each
guaranty agency must establish a plan to
promote access to postsecondary
education. The HERA requires each
guaranty agency to provide the
Secretary and the public with
information on access to a
comprehensive listing of postsecondary
education opportunities, programs and
publications available in the State or
States for which the agency is the
designated guaranty agency. A guaranty
agency must also promote and publicize
information for students and
traditionally underrepresented
populations on how to plan, prepare
and pay for college. The guaranty
agency must pay for these activities
from its Operating Fund or from
remaining funds in restricted accounts
established pursuant to section
422(h)(4) of the HEA. Finally, a guaranty
agency must ensure that this
information is free and available in
printed format by November 5, 2006.
Current Regulations: Current
regulations do not provide for the
College Access Initiative.
New Regulations: Section 682.401 has
been amended to reflect the
requirements of the College Access
Initiative.
Reasons: The regulations are modified
to reflect the changes made by the
HERA.
Reinsurance Claims From Guaranty
Agencies—Exempt Claims (§ 682.404)
Statute: Section 8014(c) of the HERA
amended section 428(c)(1) of the HEA to
provide that, for loans on which the first
disbursement of principal is made on or
after July 1, 2006, a guaranty agency will
receive 100 percent insurance from the
Department for exempt claims under

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new section 428(c)(1)(G) of the HEA.
The statute defines the term exempt
claims to mean claims with respect to
loans for which it is determined that the
borrower (or student on whose behalf a
parent has borrowed), without the
lender’s or institution’s knowledge at
the time the loan was made, provided
false or erroneous information or took
actions that caused the borrower or the
student to be ineligible for all or a
portion of the loan or for interest
benefits on the loan. The new statutory
definition is the same definition used in
§ 682.412(a).
Current Regulations: Current
regulations have addressed exempt
claims in § 682.412(a). Under prior
regulations these claims were paid the
regular reinsurance percentage.
New Regulations: Section 682.404(a)
has been amended to provide 100
percent reinsurance for exempt claims
and to include the statutory definition
of exempt claims.
Reasons: The regulations are modified
to reflect the changes made by the
HERA.
Submission of Reinsurance Claims for
Payment by the Secretary (§ 682.406)
Statute: Section 8014(j) of the HERA
amended section 428(c)(1) of the HEA
by reducing the amount of time a
guaranty agency is allowed for filing a
reinsurance claim with the Department.
Current Regulations: The current
regulations allow guaranty agencies 45
days following the date it paid a
lender’s claim to file a reinsurance
claim with the Department.
New Regulations: The regulations in
§ 682.406(a) have been amended to
allow guaranty agencies 30 days
following the date a lender’s claim has
been paid to file a reinsurance claim
with the Department.
Reasons: The regulations were
modified to reflect the changes made by
the HERA to the HEA in reducing this
time period.
Wage Garnishment (§ 682.410)
Statute: Section 8024 of the HERA
amended section 488A(a)(1) of the HEA
to increase the amount of a borrower’s
disposable pay that can be garnished
from 10 percent to 15 percent effective
July 1, 2006.
Current Regulations: Currently, the
regulations allow a borrower’s
disposable pay to be garnished at a rate
of 10 percent.
New Regulations: Section
682.410(b)(9)(i)(A) has been amended to
allow a borrower’s wages to be
garnished in an amount that does not
exceed 15 percent of the borrower’s
disposable pay. If a guaranty agency

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decides to increase the withholding rate
for a borrower already being garnished
at the lesser rate based on a garnishment
proceeding pre-dating July 1, 2006, the
agency must notify the borrower that:
(1) He or she can obtain a hearing upon
request if he or she objects to the
increased withholding amount on the
basis of undue hardship; and (2) a
borrower who has new information not
presented at the initial garnishment
hearing may request a reconsideration of
the existence or amount of the debt.
In general, a guaranty agency must
follow the procedures in § 682.410(b)(9)
for sending notices to borrowers and
employers and for scheduling a hearing
for a borrower who chooses to have one.
Reasons: The regulations were revised
to reflect changes made by the HERA.

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Exceptional Performers (§ 682.415)
Statute: Section 8014 of the HERA
amended section 428(I) of the HEA to
decrease from 100 percent to 99 percent
the insurance percentage paid to lenders
or lender servicers who are designated
as exceptional performers.
Current Regulations: Section
682.415(a)(1) of the FFEL Program
regulations provides for reimbursement
of 100 percent of the unpaid principal
and interest.
New Regulations: Section
682.415(a)(1) is amended to provide for
reimbursement to a loan holder of 99
percent of the unpaid principal and
interest for default claims submitted to
a guaranty agency on or after July 1,
2006.
Reasons: The regulations are modified
to reflect the change made by the HERA.
School as Lender (§ 682.601)
Statute: Section 8011 of the HERA
amends section 435(d)(2) of the HEA by
replacing the existing school-as-lender
requirements with a new set of
requirements. In addition, to be a school
lender, a school must have met the
school-as-lender requirements as they
existed on February 7, 2006 and must
have made FFEL loans as a lender on or
before April 1, 2006.
Current Regulations: Section 682.601
of the FFEL Program regulations reflects
the school-as-lender requirements as
they existed on February 7, 2006. The
current regulations stipulate the
requirements for establishing loan
denial by a commercial lender, and the
requirements for qualifying for a waiver
of the 50 percent lending limit.
New Regulations: Section 682.601 is
amended by replacing the existing
school-as-lender requirements with the
school-as-lender requirements
established by the HERA. Under the
new regulations, a school lender must

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have met the requirements in effect as
of February 7, 2006, and must have
made loans on or before April 1, 2006.
In addition, the school must not:
• Be a home study school;
• Make a loan to any undergraduate
student;
• Make a loan other than Federal
Stafford loan to a graduate or
professional student; or
• Make a loan to a borrower who is
not enrolled at the school.
The school must:
• Employ at least one person whose
full-time responsibilities are limited to
the administration of the programs of
financial aid for students attending that
school;
• Award any contract for financing,
servicing, or administration of FFEL
loans on a competitive basis;
• Offer loans with an origination fee
and/or interest rate that is less than the
applicable statutory fee or rate for any
loan first disbursed on or after July 1,
2006;
• Maintain a cohort default rate that
is not greater than 10 percent;
• Submit an annual lender
compliance audit, in accordance with
the requirements of 34 CFR
682.305(c)(2), to the Department for any
fiscal year beginning on or after July 1,
2006, in which the school engages in
activities as an eligible lender; and
• Use any special allowance
payments, interest payments from
borrowers, interest subsidy payments
from the Department, and any proceeds
from the sale or other disposition of
loans (exclusive of return of principal,
any financing costs incurred by the
school to acquire funds to make the
loans, and the cost of charging
origination fees or interest rates at less
than the fees or rates authorized under
the HEA) for need-based grants.
However, school lenders may use a
portion of these payments or proceeds
for reasonable and direct administrative
expenses. Such expenses are those that
are incurred by the school that are
directly related to the school’s
performance of an administrative
requirement in the FFEL Program, and
do not include the cost the school pays
to obtain funding, the cost of paying
Federal default fees on behalf of
borrowers, or the cost of providing
origination fees or interest rates at less
than the fee or rate authorized under the
provisions of the Act.
• Funds for need-based grants must
supplement, not supplant, non-federal
funds the school would otherwise use
for need-based grants.
Because schools may no longer make
loans to undergraduate students, the
requirements for establishing loan

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denial from another lender and for
qualifying for a waiver of the 50 percent
lending limit on making loans to
undergraduates have been removed
from the regulations.
The HERA modified the existing
requirements for audits of school
lenders. The new requirements will
apply to audits of lending activities for
any fiscal year beginning on or after July
1, 2006. All school lenders are required
to submit a lender compliance audit
without regard to the amount of loans
the lender makes or holds. The
Department will be issuing further
guidelines for the lender compliance
audits that must be submitted by school
lenders. School lenders subject to the
Single Audit Act, 31 U.S.C. 7502, will
be required to include the lending
activities in the annual audit and to
include information on those activities
in the audit report. Other school lenders
will have to arrange for a separate audit
of their lending activities. School
lenders must submit audits for fiscal
years beginning before July 1, 2006, in
accordance with current requirements.
Reasons: The regulations include
rules for determining how schools may
use the proceeds of loan making
activities for need based grants and
reasonable and direct administrative
costs. These rules reflect the Secretary’s
interpretation of the new statutory
language added by the HERA.
Disbursement Exemptions for Foreign
Schools (§ 682.604)
Statute: Section 8010 of the HERA
amended sections 428G(a)(3), (b)(1), and
(e) of the HEA to end the exemption
from the multiple disbursement
requirements for eligible foreign
institutions.
Current Regulations: Section
682.604(c) of the FFEL Program
regulations reflects the previous
statutory provision exempting eligible
foreign institutions from the multiple
disbursement requirements in section
428G of the HEA.
New Regulations: The regulations in
§ 682.604(c) have been amended to
remove the exemption from the multiple
disbursement requirements for eligible
foreign institutions.
Reasons: The regulations were
modified to reflect the changes made by
the HERA to the HEA.
Direct Loan Program Changes
Repayment Plans (§ 685.208)
Statute: Section 8008(b) of the HERA
amended section 455(d)(1) of the HEA
to provide the same repayment plans in
the Direct Loan program as in the FFEL
program (except for income contingent
repayment).

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Current Regulations: Section 685.208
of the Direct Loan Program regulations
permits a Direct Loan borrower to
choose between the standard, extended,
graduated, income contingent, and if
appropriate, an alternative repayment
plan as determined by the Secretary.
Implementation of the HERA does not
require any changes to the standard,
income contingent, or alternative
repayment plan regulations.
Under the extended repayment plan,
a borrower makes fixed monthly
payments over a period of time that
varies with the total amount of the
borrower’s loans. Under the graduated
repayment plan a borrower makes
payments at two or more levels within
a period of time determined by the
amount of the borrower’s loans. The
repayment schedule used for these two
repayment plans is as follows. If the
total amount of the borrower’s Direct
Loans is:
• Less than $10,000, the borrower
must repay the loans within 12 years of
entering repayment;
• Greater than or equal to $10,000 but
less than $20,000, the borrower must
repay the loans within 15 years of
entering repayment;
• Greater than or equal to $20,000 but
less than $40,000, the borrower must
repay the loans within 20 years of
entering repayment;
• Greater than or equal to $40,000 but
less than $60,000, the borrower must
repay the loans within 25 years of
entering repayment; and
• Greater than or equal to $60,000,
the borrower must repay the loans
within 30 years of entering repayment.
New Regulations: Section 685.208 has
been modified to conform the terms of
the extended and graduated repayment
plans offered in the Direct Loan program
to reflect the similar repayment plans
available in the FFEL Program. Under
the graduated repayment plan a
borrower is required to repay a loan in
full over a fixed period of time not to
exceed ten years. Borrowers with
outstanding loans totaling more than
$30,000 that had no outstanding
principal or interest balances on a Direct
Loan program loan as of October 7,
1998, or on the date the borrower
obtains a Direct Loan program loan after
October 7, 1998, are eligible for the
extended repayment plan. Under this
plan, borrowers are required to repay
either a fixed annual or graduated
repayment amount over a period of time
not to exceed 25 years.
Changes were also made to the
repayment plans available to Direct
Consolidation Loan borrowers to reflect
the terms of the similar repayment plans
in the FFEL program. Under the revised

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regulations, Direct Loan borrowers must
repay their loans under the following
schedule. If the sum of the amount of
the consolidation loan and the unpaid
balance on other student loans to the
applicant:
• Is less than $7,500, the borrower
must repay the consolidation loan in not
more than 10 years;
• Is equal to or greater than $7,500
but less than $10,000, the borrower
must repay the consolidation loan in not
more than 12 years;
• Is equal to or greater than $10,000
but less than $20,000, the borrower
must repay the consolidation loan in not
more than 15 years;
• Is equal to or greater than $20,000
but less than $40,000, the borrower
must repay the consolidation loan in not
more than 20 years;
• Is equal to or greater than $40,000
but less than $60,000, the borrower
must repay the consolidation loan in not
more than 25 years; or
• Is equal to or greater than $60,000,
the borrower must repay the
consolidation loan in not more than 30
years.
Conforming amendments were also
made to § 685.220(2)(i) regarding the
repayment of Direct Consolidation
loans.
Reasons: The regulations were
modified to reflect the changes made to
the HEA by the HERA.
Eligibility of a FFEL Borrower for a
Federal Direct Consolidation Loan
(§§ 685.100 and 685.220)
Statute: Section 8009 of the HERA
amended section 428C(a)(3)(B)(i) of the
HEA and added a provision providing
limited eligibility for a Direct
Consolidation Loan to certain FFEL
Consolidation Loan borrowers.
Current Regulations: The current
regulations allow borrowers with FFEL
Consolidation Loans to obtain a Direct
Consolidation Loan if they are unable to
obtain a FFEL Consolidation Loan with
income-sensitive repayment terms
acceptable to the borrower.
New Regulations: The interim final
regulations implement the HERA and
modify §§ 685.100(c) and 685.220(d) to
provide that a borrower with a FFEL
Consolidation Loan is eligible to receive
a Direct Consolidation Loan if the loan
has been submitted to the guaranty
agency by the lender for default
aversion, and the borrower wants to
consolidate the FFEL Consolidation
Loan into the Direct Loan Program for
the purpose of obtaining an income
contingent repayment plan.
Reasons: The regulations were
modified to reflect changes made by the
HERA to the HEA.

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Federal Direct Consolidation Loans
(§§ 685.102 and 685.220)
Statute: Section 8009 of the HERA
amended section 455(a) of the HEA to
designate that Federal Direct
Consolidation Loans have the same
terms, conditions, and benefits as FFEL
Consolidation Loans, except as
otherwise provided in the HEA.
Previously, the HEA did not require
Federal Direct Consolidation Loans to
have the same terms and conditions as
FFEL Consolidation Loans.
Current Regulations: Under current
regulations, the Federal Direct
Consolidation Loan Program does not
have the same terms, conditions and
benefits as the FFEL Consolidation Loan
Program.
New Regulations: To ensure that
Direct Consolidation Loans and FFEL
Consolidation Loans have the same
terms, conditions and benefits (except
as otherwise provided in the HEA), the
definition of Federal Direct
Consolidation Loan Program in
§ 685.102 has been revised. The prior
regulations established three types of
Direct Consolidation Loans. Under the
interim final regulations, there is only a
single Direct Consolidation Loan, but it
may include up to three separate
components representing subsidized,
unsubsidized, and PLUS loans that were
repaid by the consolidation loan. This
more accurately reflects operational
processes and is consistent with
processes in the FFEL Program. We have
also revised the definition to reflect that
effective for consolidation applications
received on or after July 1, 2006, a
borrower may not consolidate loans that
are in an in-school status. In addition,
the regulations in § 685.220 have been
changed to eliminate the provision that
provided for an interest subsidy on
Direct Subsidized Consolidation Loans
during in-school and grace periods.
Reasons: The regulations were revised
to reflect changes made by the HERA.
Borrowers Subject to a Judgment or
Wage Garnishment (§ 685.220)
Statute: Section 8009 of the HERA
amended section 455(a)(1), (2), and (g)
of the HEA to conform the program
borrower eligibility requirements and
the terms of Federal Direct
Consolidation loans to those of FFEL
Consolidation loans.
Current Regulations: Generally, the
borrower eligibility requirements for
these two programs are similar.
However, the Direct Consolidation Loan
program has allowed borrowers to
obtain a Direct Consolidation Loan
while the borrower is in school. In
addition, the two programs have had

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different rules for borrowers with loans
on which a judgment has been obtained.
The regulations for both programs also
provide for certain situations in which
a borrower may add loans to an existing
consolidation loan or obtain a
subsequent Consolidation Loan.
New Regulations: Section 685.220(d)
of the Federal Direct Consolidation Loan
regulations have been amended to
reflect program borrower eligibility
requirements that have been in the FFEL
Program for loans on which a judgment
has been obtained and for which wage
garnishment has been initiated.
Reasons: The regulations were
modified to reflect the changes made by
the HERA.
Reconsolidation in the Direct Loan
Program (§ 685.220)
Statute: Section 8009 of the HERA
modified section 455(g) of the HEA to
require borrowers seeking a Direct
Consolidation loan to meet the same
eligibility criteria as borrowers seeking
a FFEL Consolidation Loan. One of
these criteria provides that an FFEL
borrower’s eligibility to consolidate is
terminated upon receipt of a FFEL
Consolidation loan, except that an
individual who receives eligible student
loans after the date of receipt of the
consolidation loan may receive a
subsequent consolidation loan.
Current Regulations: The current
regulations permit Direct Loan
borrowers to reconsolidate a Direct
Consolidation loan into a new Direct
Loan Consolidation loan without
including any additional loans.
New Regulations: The regulations in
§ 685.220 have been modified by adding
new paragraph (d)(2), which requires a
Direct Loan borrower seeking to include
an existing Direct Consolidation loan in
a new Direct Consolidation loan to
include at least one additional eligible
loan for consolidation.
Reasons: The regulations were
modified to reflect the changes made by
the HERA to the HEA.
Executive Order 12866

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Regulatory Impact Analysis
Under Executive Order 12866, the
Secretary must determine whether this
regulatory action is ‘‘significant’’ and
therefore subject to the requirements of
the Executive order and subject to
review by the 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

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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
set forth in the Executive order.
Pursuant to the terms of the Executive
order, it has been determined this
regulatory action will have an annual
effect on the economy of more than
$100 million. Therefore, this action is
‘‘economically significant’’ and subject
to OMB review under section 3(f)(1) of
Executive Order 12866. The Secretary
accordingly has assessed the potential
costs and benefits of this regulatory
action and has determined the benefits
justify the costs.
Need for Federal Regulatory Action
These interim final regulations are
needed to implement provisions of the
HERA that affect students, borrowers
and program participants in the Federal
student aid programs authorized under
Title IV of the HEA.
These interim final regulations also
implement provisions of the HERA that
modify and make permanent the
provisions of the Taxpayer-Teacher
Protection Act of 2004 (Pub. L. 108–
409). This Act changed the calculation
of special allowance payments for
certain FFEL Program loans made with
proceeds of tax-exempt obligations and
increased teacher loan forgiveness
amounts for FFEL and Direct Loan
borrowers teaching in certain areas.
These interim final regulations are
also needed to incorporate into the
regulations the provisions of Public Law
107–139, which changed the formula for
calculating special allowance payments
in the FFEL Program for loans made on
or after July 1, 2000 and set interest
rates for FFEL and Direct Loans first
disbursed on or after July 1, 2006 at
fixed interest rates.
These interim final regulations are
also needed to implement the statutory
changes made to the HEA by the Pell
Grant Hurricane and Disaster Relief Act
(Pub. L. 109–66) and the Student Grant
Hurricane and Disaster Relief Act (Pub.
L. 109–67). These laws authorize the
Secretary to waive the requirement that
a student repay a Title IV, HEA grant if
the student withdrew from an
institution because of a major disaster.

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These interim final regulations also
change the Department’s regulations to
reflect changes made to the HEA by the
Emergency Supplemental
Appropriations Act for Defense, the
Global War on Terror, and Hurricane
Recovery, 2006 (Pub. L. 109–234). The
Supplemental Appropriations Act
amended section 428C(b)(1)(A) of the
HEA to eliminate the single holder rule
with respect to any FFEL Consolidation
Loan for which an application is
received by an eligible lender on or after
June 15, 2006. This Act also repealed
section 8009(a)(2) of the HERA and
added back to the HEA the previous
statutory conditions under which a
borrower may consolidate outstanding
FFEL Program loans into the Federal
Direct Consolidation Loan Program.
The Secretary has limited discretion
in implementing most of the HERA
provisions. The majority of the changes
included in these interim final
regulations simply modify the
Department’s regulations to reflect
statutory changes made by the HERA
and the other laws mentioned earlier.
These statutory provisions are either
already effective or will be effective
shortly.
The Secretary has exercised limited
discretion in implementing the HERA
provisions in the following areas:
• Direct Assessment: The HERA
extends eligibility for Title IV, HEA
programs to instructional programs
using or recognizing the use by others
of direct assessment of student learning;
• Identity Theft: The HERA
authorizes a discharge of a FFEL or
Direct Loan Program loan if the
borrower’s eligibility to borrow was
falsely certified because the borrower
was a victim of the crime of identity
theft; and
• Special Allowance Payments: The
HERA modifies the conditions under
which a loan holder qualifies for special
allowance interest benefits related to
PLUS loans the first disbursement of
which was made on or after January 1,
2000.
The following section addresses the
alternatives that the Secretary
considered in implementing these
discretionary portions of the HERA
provisions.
Regulatory Alternatives Considered
Direct Assessment Alternatives: In
developing the direct assessment
regulations, the Secretary drew upon the
Department’s experience with Western
Governors University (WGU), the only
institution currently participating in the
Title IV student financial assistance
programs that uses direct assessment, in
lieu of credit or clock hours, as a

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
measure of student learning. WGU
became an eligible institution by
participating in the Distance Education
Demonstration Program.
The Secretary looked at how the Title
IV student financial aid rules had been
applied in both the nonterm and nonstandard term models employed by
WGU and identified basic principles on
which to base the regulations. One
principle is that institutions that use
direct assessment would need to
develop equivalencies in credit or clock
hours in terms of instructional time for
the amount of student learning being
assessed. This was necessary because
many applicable Title IV, HEA program
requirements use time and/or credit or
clock hours to measure things other
than student learning. In addition,
institutions would have to define
enrollment status, payment periods, and
satisfactory academic progress.
A second principle is tied to the
statutory language that characterizes
direct assessment programs as
instructional programs. The Secretary
determined that institutions must
provide a means for students to fill in
the gaps in their knowledge and that
Title IV, HEA program funds should
only be used to pay for learning that
occurs while the student is enrolled in
the program.
The Secretary considered what should
constitute ‘‘instruction’’ in a direct
assessment program. The word
‘‘instruction’’ is not specifically defined
in the Department’s regulations and, in
its ordinary meaning the word connotes
teaching. There are several other ways,
however, in which an institution might
assist students to prepare for
assessments. The Secretary considered
whether the definition of instructional
time in § 668.8(b)(3), which is used for
other types of programs, could be used
for direct assessment programs and
determined that the definition was not
sufficiently broad to be used in this
context.
The Secretary recognized that
institutions offering direct assessment
programs might use courses or learning
materials developed by other entities,
such as training and professional
development organizations and other
educational institutions, to assist
students in preparing for the
assessments. The Secretary considered
whether the use of outside resources
could be considered contracting out a
portion of an educational program and
determined that it could be. Therefore,
the Secretary included in the direct
assessment regulations a provision that
exempts direct assessment programs
from the limitations on contracting for
part of an educational program.

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Identity Theft Alternatives: Section
8012 of the HERA authorizes a
discharge of a FFEL or Direct Loan
Program loan under section 437(c) of the
HEA if the eligibility of the borrower
was falsely certified as a result of the
crime of identity theft. In developing
regulations to implement section 8012,
we sought to reflect the statutory
language that requires the Department to
discharge the borrower’s responsibility
to repay the loan when a ‘‘crime of
identity theft’’ has occurred. The
interim final regulations require that to
receive a discharge on a loan, an
individual must provide the holder of
the loan, a copy of a local, State, or
Federal court verdict or judgment that
conclusively determines that the
individual who is the named borrower
of the loan was the victim of the crime
of identity theft. We adopted this
standard as an inexpensive and reliable
way to implement the new discharge
provision. If the perpetrator of an
identity theft is never prosecuted, and
no judicial determination that a crime
occurred is rendered, a borrower can
still be relieved of any responsibility to
repay the loan under the common law
(and in many instances, State law)
defense of forgery. We stress this
consideration in the preamble to the
regulations.
One alternative we considered was to
authorize a discharge for ‘‘identity
theft’’ based on representations from the
individual, much as is now done for
closed school discharge relief, that the
crime of identity theft had been
committed, and that the claimant was
the victim of that criminal act. We
rejected this alternative as costly,
unworkable, and unnecessary to provide
relief to the individuals who may be
victims of this crime. Under this
alternative, the claimant and/or the
lender would be required to submit
evidence needed to establish whether
conduct has occurred that would
constitute the crime of identity theft.
That evidence may be voluminous,
difficult to obtain, and would likely
include witness testimony. Amassing
and transmitting that evidence would be
difficult and costly for lenders and
claimants. Furthermore, determining
whether a crime has been committed
requires discerning the identity of the
perpetrator and determining the state of
mind of that person. Neither the
Department nor the guaranty agency is
authorized to determine whether that
evidence shows that a crime has been
committed. That determination is
routinely and reliably made through the
judicial process, which is designed to
perform this function. Moreover, there

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is no need to ignore the judicial process
in order to give relief to those
individuals who did not in fact take out
the loans for which they are listed as
borrowers. Under State statutes and
common law, individuals whose
signatures have been forged on loan
documents are not liable for those debts.
Individuals who show that their
signatures have been forged on loan
documents, and that they neither
authorized nor received a loan made in
their name, are not held liable by the
Department. For these reasons, we
rejected the alternative that would entail
an extra-judicial proof of a crime.
Instead, we simply require the claimant
to submit a copy of a judicial verdict
that identity theft was committed.
Special Allowance Payment
Alternatives: The Department
considered a number of alternatives
related to the effective date for
implementation of Section 8006 of the
HERA, which eliminates the limitation
that special allowance payments on
PLUS loans for which the first
disbursement was made on or after
January 1, 2000, only be paid if the
formula for determining the borrower
interest rate produces a rate that exceeds
the statutory maximum borrower rate of
9 percent.
The first alternative was to make this
provision retroactive to January 1, 2000,
an approach that would result in
substantial additional special allowance
payments to many PLUS loan holders.
Although this option was suggested by
some members of the student loan
industry, the Department determined
that this approach was inconsistent with
the statute.
Other alternatives considered
reflected differing interpretations of the
provision’s effective date. Section 8006
states that ‘‘amendments made by this
subsection shall not apply with respect
to any special allowance payment made
under section 438 of the Higher
Education Act of 1965 (20 U.S.C. 1087–
1) before April 1, 2006.’’ Since special
allowance payments are made on a
quarterly basis, the Department had to
determine whether the statute’s intent
was to remove the limitation on PLUS
special allowance payments for the
quarter of January–March 2006—the
first quarter for which bills would be
submitted, verified, and paid after April
1, 2006 or for the quarter of April–July
2006, the first full quarter after the
HERA’s enactment. The Department
estimated Federal costs would increase
by $53 million if the limitation was
removed for the January–March quarter.
This estimate was based on data on
special allowance rates and balances for
the affected quarter. After a careful

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review of the statutory language, the
Department determined that the
statute’s likely intent was to remove the
limitation for the January March 2006
quarter, since this was the first quarter
for which payments would be made
after April 1, 2006. The interim final
regulations reflect this determination.
Benefits
Given the breadth of these
regulations, the discussion of benefits
and costs will be limited in most cases
to provisions with an economic impact
of $100 million or more in any one year.
By facilitating the implementation of
changes made in the HERA and other
recent student aid-related statutes, these
interim final regulations will support
the provision of a broad range of student
benefits. In general, these benefits
reduce the costs of higher education to
students, increase the amount of Federal
student aid or increase the number of
students eligible for Federal student aid.
The economic benefits of any specific
change are difficult to discern, as they
have direct benefit to the individual aid
recipient and broader societal benefits
resulting from the economic impact and
tax-paying potential of a well-educated
population. Research indicates that
reductions in the cost of higher
education are correlated to increased
student enrollment, retention, and
completion. The U.S. Census Bureau
has found people with a bachelor’s
degree realize as much as 75 percent
higher lifetime earnings than those
whose education is limited to a high
school degree. (‘‘The Big Payoff:
Educational Attainment and Synthetic
Estimates of Work-Life Earnings,’’ July
2002.)
Specific benefits provided to student
borrowers in these interim final
regulations include increases in certain
FFEL and Direct Loan Program loan
limits; reduced origination fees in the
FFEL and Direct Loan Programs;
broadened eligibility for PLUS loans to
include graduate and professional
students; expanded access to distance
education programs; permanently
expanded loan forgiveness for highly
qualified math, science, and special
education teachers at low-income
schools; and a new deferment for FFEL,
Direct Loan and Perkins Loan Program
borrowers who serve on active duty
military service during times of war or
national emergency. These benefits are
projected to increase Federal outlays by
$5.2 billion for loans originated in FY
2006–2010. This estimate was
developed using projected interest rate,
loan volume, and borrower
demographic data used in preparing the
FY 2007 President’s Budget. Projected

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loan volume and borrower data are
based on trend analyses of actual
program activity, primarily drawn from
the National Student Loan Data System
(NSLDS) and other Department systems.
The expansion of distance education
made possible by the regulation’s
changes to the ‘‘50 percent rule’’ and the
definition of correspondence courses
will allow institutions to more
aggressively pursue new
communication technologies to provide
students significantly greater flexibility
in the scheduling and location of
academic programs. The Department
estimates this expanded flexibility will
increase the pool of students eligible for
Federal student aid by 30,000 students
a year in 2006 and 2007, of whom
17,000 per year will be eligible to
receive a Pell Grant. These additional
Pell Grant recipients will receive an
estimated $196 million in Pell Grant aid
over 2006–2010. This estimate is based
on a trend analysis of Pell Grant
program data and projections of
institutional and program eligibility for
Federal student aid derived through the
use of accreditation data.
Lastly, the regulation’s teacher loan
forgiveness provisions offer incentives
to help address longstanding national
and regional elementary and secondary
school staffing problems. Many studies
(Boe, Bobbitt, & Cook, 1997; Grissmer &
Kirby, 1992; Murnane et al., 1991;
Rumberger, 1987; and extensive
research prepared for the National
Commission on Mathematics and
Science Teaching) have found math,
science, and special education to be
fields with especially high turnover and
those predicted most likely to suffer
shortages. More than tripling the teacher
loan forgiveness amount—from $5,000
to $17,500—for qualifying teachers in
these fields should offer a powerful
incentive for recruitment and retention,
especially given the additional
eligibility requirement that recipients
teach for five consecutive years before
receiving the benefit. The Department
estimates this expanded benefit will
increase Federal loan subsidy costs in
the FFEL and Direct Loan programs by
$825 million for loans originated in
2007–2010. (The additional benefits
were available for loans made in 2006
as a result of the Taxpayer-Teacher
Protection Act of 2004, so for the
purposes of this analysis benefits have
only been considered for 2007 and
beyond.) This estimate was developed
using projected interest rate, loan
volume, and borrower demographic data
used in preparing the FY 2007
President’s Budget. Estimates of
borrower eligibility were based on
program data—primarily from NSLDS—

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and demographic information from the
National Center for Education Statistics’
Schools and Staffing Survey.
In addition to implementing
expanded borrower benefits, these
interim final regulations also implement
a number of provisions intended to
improve the cost-effectiveness and
efficiency of the FFEL and Direct Loan
programs, streamline program
operations for participating institutions,
and standardize loan terms and
conditions across the two programs.
These changes are estimated to reduce
Federal outlays by $7.0 billion for loans
made in FY 2006–2010, freeing up
resources for other urgent requirements.
This estimate was also developed using
projected interest rate, loan volume, and
borrower demographic data used in
preparing the FY 2007 President’s
Budget. Projected loan volume, guaranty
agency and lender information, and
borrower data are based on trend
analyses of actual program activity,
primarily drawn from the National
Student Loan Data System (NSLDS) and
other Department systems.
Provisions intended to enhance loan
program efficiency include a number of
changes intended to promote risksharing by FFEL participants through
reduced program subsidies, including:
Restrictions on higher-than-standard
special allowance payments for loans
funded through tax-exempt securities;
provisions under which the Department
will recover excess interest paid to loan
holders when student interest payments
exceed the special allowance level set in
statute; and a reduction in loan holder’s
insurance against default from 98
percent to 97 percent of a loan’s
principle and accrued interest. Given
the broad availability of FFEL program
loans—over 4,000 lenders provided
more than $43 billion in new loans and
an additional $53 billion in
consolidation loans in FY 2005—these
changes are not expected to reduce
student and parent access to loan
capital.
The student loan industry features
high competition among loan providers,
using an array of interest rate discounts
and other borrower benefits to attract
volume. The overwhelming majority of
student loans are sold by the originating
lender in the secondary market. The
impact on individual lenders of HERA
provisions reducing Federal subsidies
are inestimable; a substitution of
subsidies for student interest rate cuts
may occur or the secondary market
price of securitized loans may be
revalued. Given the high level of
government guaranty on these loans, as
well as the guaranteed rate of return,
continued access to loan capital for all

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
borrowers should be assured. The
impact on individual loan holders may
be mitigated by investment and tax
considerations from their investment
portfolios as a whole. Higher borrower
loan limits and standardized repayment
terms may increase long-term interest
income to some loan holders under
these regulations.
Lastly, the interim final regulations
include a number of provisions
intended to standardize terms and
conditions and broaden borrower
choices, particularly for consolidation
loans. These changes include the repeal
of the single holder rule, which limits
the ability of FFEL borrowers whose
loans are held by a single holder to
consolidate with other lenders, and the
standardization of graduated and
extended repayment plans—previously
different for Direct Loans and FFEL—on
the FFEL model. The repeal of the single
holder rule should give all borrowers
access to interest rate discounts and
other benefits available through the
highly competitive consolidation loan
market. The standardization of
repayment plan terms will eliminate a
possible source of confusion for
borrowers and promote equity across
the two loan programs. These provisions
also are expected to improve market
transparency and remove transaction
barriers for loan borrowers, improving
market openness and efficiency for both
borrowers and loan providers.
Costs
These interim final regulations
include a number of provisions that will
impose increased costs on some
borrowers, such as an increase in the
loan interest rate for FFEL PLUS
borrowers, the elimination of in-school
and joint consolidation loans, and the
mandatory imposition of the previously
optional 1 percent guaranty agency
default insurance premium. (At the
same time, these provisions will reduce
the Federal costs of these programs and,
in the case of the guaranty fee, improve
the financial stability of guaranty
agencies.) Prior to the HERA, these

provisions allowed loan providers or
guaranty agencies to discriminate
among borrowers through the unequal
distribution of borrower costs. While
some borrowers may lose unearned
benefits through these statutory and
regulatory changes, market equitability
and transparency are improved.
These interim final regulations also
authorize the Secretary to waive a
student’s Title IV grant repayment if the
student withdrew from an institution of
higher education because of a major
disaster as declared by the President in
accordance with the Robert T. Stafford
Disaster Relief and Emergency
Assistance Act. The Secretary will
exercise this waiver authority on a caseby-case basis after determining that a
major disaster has significantly affected
recipients of Title IV grant aid.
Because entities affected by these
regulations already participate in the
Title IV, HEA programs, these lenders,
guaranty agencies, and schools must
have already established systems and
procedures in place to meet program
eligibility requirements. These
regulations generally involve discrete
changes in specific parameters
associated with existing guidance—such
as changes in origination fees, loan
limits, or reinsurance percentages—
rather than wholly new requirements.
Accordingly, institutions wishing to
continue to participate in the student
aid programs have already absorbed
most of the administrative costs related
to implementing these interim final
regulations. Marginal costs over this
baseline are primarily related to onetime system changes that, while
possibly significant in some cases, are
an unavoidable cost of continued
program participation. The Department
is particularly interested in comments
on possible administrative burdens
related to these system or process
changes.
Assumptions, Limitations, and Data
Sources
Because these interim final
regulations largely restate statutory

45687

requirements that would be selfimplementing in the absence of
regulatory action, cost estimates
provided above reflect a prestatutory
baseline in which the HERA and other
statutory changes implemented in this
regulation do not exist. In general, these
estimates should be considered
preliminary; they will be reevaluated in
the final rule, based on comments
received and additional program data
that may be available at that time. Costs
have been quantified for five years, as
over time this has been a typical period
between reauthorizations of the Higher
Education Act.
In developing these estimates, a wide
range of data sources were used,
including the National Student Loan
Data System, operational and financial
data from Department of Education
systems, and data from a range of
surveys conducted by the National
Center for Education Statistics such as
the 2004 National Postsecondary
Student Aid Survey, the 1994 National
Education Longitudinal Study, and the
1996 Beginning Postsecondary Student
Survey.
Elsewhere in this SUPPLEMENTARY
INFORMATION section we identify and
explain burdens specifically associated
with information collection
requirements. See the heading
Paperwork Reduction Act of 1995.
Accounting Statement
As required by OMB Circular A–4
(available at http://
www.Whitehouse.gov/omb/Circulars/
a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement
showing the classification of the
expenditures associated with the
provisions of these interim final
regulations. This table provides our best
estimate of the changes in Federal
student aid payments as a result of these
interim final regulations. Expenditures
are classified as transfers to
postsecondary students; savings are
classified as transfers from program
participants (lenders, guaranty
agencies).

TABLE 2.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

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[In millions]
Category

Transfers

Annualized Monetized Transfers ..............................................................
From Whom To Whom? ...........................................................................

$976.
Federal Government To Postsecondary Students; Student Aid Program
Participants to Federal Government.

Waiver of Proposed Rulemaking
Under the Administrative Procedure
Act (5 U.S.C. 553), the Department is

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generally required to publish a notice of
proposed rulemaking and provide the
public with an opportunity to comment

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on proposed regulations prior to issuing
a final rule. In addition, all Department
regulations for programs authorized

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under title IV of the HEA are subject to
the negotiated rulemaking requirements
of section 492 of the HEA.2 However,
both the APA and HEA provide for
exemptions from these rulemaking
requirements. The APA provides that an
agency is not required to conduct
notice-and-comment rulemaking when
the agency for good cause finds that
notice and comment are impracticable,
unnecessary or contrary to the public
interest. Similarly, section 492 of the
HEA provides that the Secretary is not
required to conduct negotiated
rulemaking for a title IV, HEA program
regulation if the Secretary determines
that applying that requirement is
impracticable, unnecessary or contrary
to the public interest within the
meaning of the HEA.
Although these regulations are subject
to the APA’s notice-and-comment and
the HEA’s negotiated rulemaking
requirements, the Secretary has
determined that it is unnecessary and
impracticable to either conduct
negotiated rulemaking or notice-andcomment rulemaking on these
regulations. Most of the changes made
by the HERA were effective no later
than July 1, 2006. To ensure proper
implementation of these statutory
changes, they need to be reflected in the
Department’s regulations. Waiver of
rulemaking under the impracticability
exemption in the APA and HEA is
warranted because it would not be
possible for the Department to comply
with the APA’s and HEA’s rulemaking
mandates and execute its statutory
duties under the HERA.3
Even on an extremely expedited
timeline, the Department could not have
feasibly conduct negotiated or noticeand-comment rulemaking and then
promulgated these regulations before
the provisions of the HERA became
effective on July 1, 2006. Negotiated
rulemaking requires the Department to
solicit nominations for negotiators to
participate in the negotiated rulemaking
sessions, select a committee of
negotiators, conduct a series of
negotiating sessions, publish a notice of
2 Section 492 provides specifically that any
regulations issued for the title IV, HEA programs
shall be subject to negotiated rulemaking to obtain
the advice of and recommendations from
individuals and groups involved in the student
financial assistance programs.
3 See Riverbend Farms, Inc. v. Madigan, 958 F.2d
1479, 1484, n.2 (9th cir. 1992). The term
‘‘impracticable’’ has also been described as meaning
‘‘a situation in which the due and required
execution of the agency functions would be
unavoidably prevented by its undertaking
rulemaking proceedings. Zhang v. Slattery, 55 F.3d
732, 746 (2d Cir. 1995) citing National Nutiritional
Foods Ass’n v. Kennedy, 572 F.2d 377, 385 (2d Cir.
1978) citing S. Rep. No. 752, 79th Cong., 1st Sess.
(1945).

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proposed rulemaking, review public
comments, and issue final regulations.
Normally this process would take at
least 12 months and possibly longer.
The Department cannot both implement
the provisions in the HERA and conduct
negotiated or notice-and-comment
rulemaking.
In addition, most of the changes
included in these regulations simply
modify the Department’s regulations to
reflect statutory changes made by the
HERA. These statutory provisions are
either already effective or will be
effective within a short period of time.
The Secretary does not have discretion
in implementing these changes. Thus,
negotiated rulemaking and notice-andcomment rulemaking are unnecessary.
Other changes in these regulations
make technical corrections, remove
obsolete regulatory provisions or
references or align related regulatory
provisions as required by the HERA and
other laws. These latter changes do not
establish or affect substantive policy.
Negotiated rulemaking and notice-andcomment rulemaking on these
provisions is unnecessary.
Therefore, under 5 U.S.C. 553(b)(B),
the Secretary has determined that
conducting notice-and-comment
rulemaking is unnecessary and
impracticable. For the same reasons, the
Secretary has determined, under section
492(b)(2) of the Higher Education Act of
1965, as amended, that these regulations
should not be subject to negotiated
rulemaking.
These regulations are final and in
effect as published, thirty days after
publication in the Federal Register.
Although the Department is adopting
these regulations on an interim final
basis, the Department requests public
comment on these regulations. After full
consideration of public comments, the
Secretary will publish final regulations
with any necessary changes to be
effective July 1, 2007.
As discussed above, all Department
regulations for programs authorized
under the title IV, HEA programs are
subject to the negotiated rulemaking
requirements of section 492 of the HEA.
In addition, section 482 of the HEA
requires that any title IV regulations that
have not been published in final form
by November 1 prior to the start of an
award year cannot become effective
until the beginning of the second award
year following the November 1 date.
Therefore, the Secretary has
determined that although it may be
feasible to conduct notice-and-comment
rulemaking for the regulations that
would be effective July 1, 2007, it would
be impracticable to conduct negotiated
rulemaking to implement the provisions

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of the HERA contained in these interim
final regulations.
Regulatory Flexibility Act Certification
The Secretary certifies that these
regulations will not have a significant
economic impact on a substantial
number of small entities.
Paperwork Reduction Act of 1995
Sections 600.7, 600.10, 668.3, 668.8,
668.10, 668.22, 668.173, 673.5, 674.34,
682.102, 682.200, 682.207, 682.209,
682.210, 682.211, 682.215, 682.305,
682.401, 682.402, 682.404, 682.405,
682.406, 682.410, 682.415, 682.601,
682.604, 685.102, 685.204, 685.208,
685.215, 685.217 and 685.220 contain
information collection requirements. As
required by the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)), the
Department of Education is required to
submit a copy of these sections to the
Office of Management and Budget
(OMB) for its review. In many cases, the
burden associated with the above
provisions is associated with forms and
applications currently approved for use
under existing OMB control numbers.
The Department will revise the existing
information collection packages for the
following sections: §§ 674.34, 682.102,
682.210, 682.402, 685.204, and 685.220.
The Department is working with its
major stakeholders to develop the forms
and applications necessary to
implement these provisions and will
submit these revised packages for OMB
review soon after publication of the
interim final regulations and solicit
comment at that time.
The Department plans to submit a full
information collection package for OMB
review to account for the burden
associated with §§ 682.207 and 682.401
upon publication of these interim final
regulations. We invite comments on
these information collection sections at
this time.
Lastly, the Department has increased
the burden hours for the existing OMBapproved collections associated with
§§ 682.215 and 685.217 to account for
the increased burden. OMB approved
this burden increase on June 16, 2006.
Collection of Information:
Institutional Eligibility Under the
Higher Education Act of 1965, as
amended; Student Assistance General
Provisions; General Provisions for the
Federal Perkins Loan Program; Federal
Work-Study Program; and Federal
Supplemental Educational Opportunity
Grant Program; Federal Perkins Loan
Program; Federal Family Education
Loan Program; and William D. Ford
Federal Direct Loan Program.

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Sections 600.7 and 600.10—
Modification of the 50 Percent Rules
The definition of
‘‘telecommunications course’’ is revised,
and the references to
telecommunications courses pertaining
to calculating the percentage of
correspondence courses offered by an
institution are deleted so that an
otherwise eligible institution that offers
over 50 percent of its courses by
telecommunications is now eligible to
participate in the title IV, HEA
programs. However, institutions that
offer over 50 percent of their courses
through correspondence, and foreign
institutions that provide any of their
programs by telecommunications or
correspondence, continue to be
ineligible to participate. There is no
burden associated with the change in
the definition of telecommunications
course.
Section 668.3—Academic Year
The definition of academic year is
amended to reduce from 30 to 26 the
number of weeks of instructional time
for a program that measures its length in
clock hours. There is no burden
associated with the reduction in the
number of weeks of instructional time.

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Section 668.8—Eligible Program
An otherwise eligible program that is
offered in whole or in part through
telecommunications is an eligible
program for title IV, HEA program
purposes. The eligible
telecommunications program must be
offered by an institution in the United
States. The institution must have been
evaluated and determined to have the
capability to effectively deliver distance
education programs by an accrediting
agency or association. The accrediting
agencies are currently reviewing
telecommunications programs
consistent with the scope of their
authority. Therefore there is no
additional burden associated with this
provision.
Section 668.10—Direct Assessment
Programs
The interim final regulations provide
that ‘‘direct assessment programs’’ are
eligible programs for Title IV purposes.
A direct assessment program is an
instruction program that, in lieu of
credit hours or clock hours as a measure
of student learning, utilizes direct
assessment of student learning, or
recognizes the direct assessment of
student learning by other measures.
This assessment must be consistent with
the accreditation of the institution or
program utilizing the results of the
assessment.

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In the short-term, we expect no
additional burden to be associated with
direct assessment programs. We are
currently aware of only one institution
that utilizes such programs. Therefore,
this section is not subject to the
Paperwork Reduction Act of 1995.
Sections 668.22 and 668.173—
Treatment of Title IV Funds When a
Student Withdraws
Under these interim final regulations,
the following provisions apply to title
IV, HEA program funds when a student
withdraws:
• The amount of a grant overpayment
due from a student is limited to the
amount by which the original grant
overpayment amount exceeds half of the
total title IV grant funds received by the
student.
• When the original amount of a
student’s title IV grant overpayment
amount is $50 or less, it is considered
‘‘de minimis’’ and does not have to be
repaid or reported.
• An institution must contact a
withdrawn student prior to making a
post-withdrawal disbursement of a title
IV loan. The institution must explain
the obligation to repay the loan funds,
if the post-withdrawal disbursement is
accepted by the borrower. If the
borrower’s acceptance of the postwithdrawal disbursement is received by
the institution after the deadline date for
the return of the acceptance of the
disbursement, and the institution
chooses not to make the postwithdrawal disbursement, the
institution is required to notify the
borrower of the institution’s action.
• Only scheduled hours, not
completed hours, are used to determine
the percentage of the period completed
by a student withdrawing from a clock
hour program.
• A student withdrawing from a clock
hour program earns 100 percent of his
or her aid if the student’s withdrawal
date occurs after the point when he or
she was scheduled to complete 60
percent of the scheduled hours in the
payment period or period of enrollment.
• An institution must return
unearned funds no later than 45 days
after a student withdraws.
• An institution may grant more than
one leave of absence.
• The return of title IV funds
provisions no longer apply to LEAP,
SLEAP, GEAR UP and Student Support
Services funds.
The burden associated with the
requirement that an institution must
contact and counsel a withdrawn
student before making a late
disbursement is offset by the
requirements that simplify and facilitate

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the return of title IV program funds.
Consequently, these changes do not
increase burden.
Sections 673.5 and 682.200—Estimated
Financial Assistance
Under the interim final regulations,
the term ‘‘resources’’ is changed to
estimated financial assistance for the
purposes of the Federal Perkins Loan
program, the Federal Work-Study
program, and the FSEOG program. The
term estimated financial assistance has
also been modified to include the two
new grant programs created by the
HERA, and the new chapter 1607
veterans education benefits established
under the Ronald W. Reagan National
Defense Authorization Act for 2005. The
interim final regulations also make
technical changes to help clarify the
existing regulatory language and to
standardize the similar definitions used
in the Federal Perkins Loan program,
the Federal Work-Study programs, the
FSEOG program, and the FFEL and
Direct Loan programs. There is no
burden associated with these
provisions.
Section 674.34, 682.210, and 685.204—
Active Duty Military Deferments
A new military deferment is
established for FFEL, Direct and Perkins
Loan Program borrowers who are
serving on active duty, or are
performing qualifying National Guard
duty during a war or other military
operation or national emergency. The
addition of a new deferment will
increase the burden hours associated
with two existing OMB Control
Numbers, 1845–0005—FFEL Deferment
Requests and 1845–0011—Direct Loan
Program Deferment Request Forms.
These forms will be submitted for OMB
review by November 2006. Until new
forms are approved, borrowers may
submit documentation to the loan
holder demonstrating their eligibility for
the new deferment.
Section 682.102—Obtaining and
Repaying a Loan
Under the interim final regulations,
this section is amended to repeal the
single holder rule and to add graduate
and professional students as eligible
borrowers of a PLUS Loan. Repeal of the
single holder rule will allow borrowers
to apply to any eligible lender when
consolidating their loans and will not
increase or decrease the actual burden
associated with obtaining a
Consolidation Loan. The burden
associated with the addition of the new
graduate/professional PLUS Program
will be reflected in the collection of
information under modified OMB

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Control Numbers 1845–0068—Federal
Direct PLUS Loan Application and MPN
and Endorser Addendum and 1845–
0069—Federal PLUS Loan Application
and MPN, endorser Addendum and
School Certification. Borrowers may use
these temporary forms until revised
forms are submitted for OMB review.
That submission will occur no later than
October 2006.
Section 682.207—Due Diligence in
Disbursing a Loan for Attendance at a
Foreign School
The Department currently has the
paperwork requirements in this section
approved under OMB control number
1845–0020 which will be modified to
reflect the burden associated with this
provision. For a U.S. student attending
an eligible foreign institution, FFEL
program funds may be disbursed
directly to the student only if the
institution requests this method. For a
student enrolled at a foreign institution,
and a student enrolled in a study-abroad
program, the lender must verify the
student’s enrollment at the foreign
school before making a direct
disbursement of FFEL funds. These new
requirements represent an increased
burden that will be reflected in OMB
Control No. 1845–0020.
Section 682.209—Repayment of a Loan
An FFEL Stafford loan borrower may
no longer request to enter repayment
early on her loans. There is no
additional burden associated with this
provision.

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Section 682.211—Forbearance
Under these interim final regulations,
a lender must confirm any non-written
forbearance agreement by recording the
terms of the agreement in the borrower’s
file. There is no additional burden
associated with this provision as the
current regulations already permit this
practice under OMB Control Number
1845–0020.
Section 682.215 and 685.217—Teacher
Loan Forgiveness
Under these interim final regulations,
increased teacher loan forgiveness in the
amount of $17,500 is made permanent
for teachers in certain specialties as
originally authorized by the TaxpayerTeacher Protection Act (TTPA) of 2004.
The regulations also provide that
teachers in private non-profit schools
may qualify for the same forgiveness
benefits if they are ‘‘highly qualified.’’
The current teacher loan forgiveness
form, as currently approved by OMB
under Control Number 1845–0059,
reflects all of the new teacher loan
forgiveness requirements of the TTPA

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with the exception of criteria for
teachers in a private non-profit school.
The current form will be revised to
reflect the new criteria, but we expect
no additional burden because most
applicants for forgiveness are employed
in public elementary and secondary
schools, not private non-profit schools.
Section 682.305—Procedures for
Payment of Interest and Special
Allowance
These interim final regulations
require the repayment by a lender of
excess interest paid by the Department
when the applicable interest rate on a
loan for any quarter exceeds the special
allowance support level for the loan.
The Secretary will collect the excess
interest from lenders quarterly. This
change represents no increase in
burden. The Secretary will make the
calculation of excess interest owed by a
lender. The lender will pay excess
interest to the Secretary under existing
processes.
Section 682.401—Basic Program
Agreement
The HERA establishes a new College
Access Initiative for guaranty agencies
to create and carry out a plan to promote
access to postsecondary education for
each State. While most of the agencies
and/or other State government entities
already offer this information, we expect
this requirement will affect the 35
existing guaranty agencies by 100 hours
each, creating a total burden of 3500
hours. The Department will amend
OMB Control Number 1845–0020—
Federal Family Education Loan Program
Regulations to reflect this increase in
burden hours.
The following other provisions are
being amended but will not produce
additional burden. The amount of
lender insurance paid to lenders as
reimbursement for defaulted loans will
decrease. This will not require
additional burden since it is merely a
change in the percentage used in the
calculation of the payment to the lender.
Each guaranty agency must now
establish procedures to ensure that
consolidation loans are not an excessive
proportion of its recoveries on defaulted
loans. In addition, a guaranty agency
must now remit to the Secretary 8.5%
of the collection costs it recovers from
the borrower or, if the amount of the
proceeds from the consolidation of
defaulted loans exceeds 45 percent of
the agency’s total collections on
defaulted loans in that Federal fiscal
year, all of the collection costs
recovered by payment from the
consolidation loan. Remitting part or all
of the collection costs will not result in

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additional burden to the guaranty
agency since it is already calculated for
other purposes. The interim final
regulations eliminate the current,
optional 1 percent insurance premium
fee that guaranty agencies may charge
the lender, and replace it with a
mandatory 1 percent Federal default fee
deducted and collected from the
proceeds of the loan or from other nonfederal sources. This will not result in
additional burden since the prior fee
calculation is eliminated and the new
fee replaces it.
Sections 682.402 and 685.215—Identity
Theft
Under these interim final regulations,
the regulations have been amended to
authorize discharge of a FFEL or Direct
Loan Program loan if the borrower’s
eligibility was falsely certified because
the borrower was a victim of the crime
of identity theft. The regulations
provide that the borrower’s obligation is
discharged if the borrower provides the
holder of a loan, or the Secretary in the
case of a Direct Loan, a copy of a local,
State, or Federal court verdict or
judgment that conclusively determines
that the individual who is the named
borrower was the victim of the crime of
identity theft. If the judgment or
conviction did not expressly reference
that loan, the individual must provide
authentic examples of his other
identification credentials, and an
explanation of facts that demonstrate
that this criminal conduct resulted in
the school certifying that individual’s
eligibility to borrow, and, as a result, in
the loan being made.
The additions do not change the
burden hours associated with this
section of the regulations. The burden
associated with the new requirements
will be accounted for under OMB
Control Number 1845–0015—FFEL,
Direct Loan and Perkins Loan Discharge
Applications. These forms will be
submitted for OMB review by December
2006. Until new forms are approved,
borrowers may submit documentation to
the loan holder demonstrating their
eligibility for the discharge.
Section 682.404—Federal Reinsurance
Agreement
Under these interim final regulations,
for loans on which the first
disbursement of principal is made on or
after July 1, 2006, a guaranty agency will
receive 100 percent reinsurance from
the Department on ‘‘exempt claims.’’
The interim final regulation simply
increases the amount of reinsurance
paid to guaranty agencies on these
claims. This provision does not increase
burden because payment of these claims

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is already part of the process under
which the Secretary pays reinsurance to
the guaranty agencies.
Section 682.405—Rehabilitation of a
Defaulted Loan
The regulations have been amended
to require a FFEL borrower to make 9
payments within 20 days of the due date
during a period of 10 consecutive
months to rehabilitate a defaulted loan.
Previously, the regulations required the
borrower to make 12 consecutive ontime monthly payments. The new
requirement that the borrower make
fewer payments will not change the
burden associated with the
rehabilitation of a defaulted FFEL loan.
The requirements that a borrower must
request rehabilitation, and that a
guaranty agency must attempt to secure
a lender to purchase the loan after it has
been successfully rehabilitated, remain
unchanged.
Section 682.406—Conditions for Claim
Payments From the Federal Fund and
Reinsurance Coverage
The amount of time a guaranty agency
is allowed for filing a reinsurance claim
with the Department is reduced from 45
days to 30 days. However, the process
under which the guaranty agency is
required to submit a reinsurance claim
is unchanged. Consequently, there is no
change in burden.
Section 682.410—Fiscal, Administrative
and Enforcement Procedures
The amount of a borrower’s
disposable pay that can be garnished is
increased from 10 to 15 percent effective
July 1, 2006. There is no burden
associated with this change because it
has no impact on the manner in which
any borrower’s wages are currently
garnished.

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Section 682.415—Special Insurance and
Reinsurance
The insurance percentage applicable
to lenders or lenders servicers who are
designated as exceptional performers is
decreased from 100 percent to 99
percent. There is no burden associated
with this change. All other factors of
reimbursement remain the same.
Section 682.601—School-as-Lender
The current regulations are replaced
with an expanded set of requirements
for participation as a school-as-lender.
The primary requirement to be
designated a school-as-lender is that the
institution met the requirements in
effect as of February 7, 2006, and made
loans on or before April 1, 2006. There
is no additional burden for institutions
since the new requirements are based on

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data already collected by the institution,
reports that are already required, and/or
procedures of standard use at
institutions.
Section 682.604—Processing Loan
Proceeds and Counseling the Borrower
The exemption from the multiple
disbursement requirements for eligible
foreign institutions is removed. Lenders
and guaranty agencies are now required
to disburse the proceeds of a loan in two
or more installments, neither of which
exceeds one-half of the loan. This
change will not increase burden. In the
vast majority of cases, the lender or
guaranty agency is already required to
disburse a loan in two installments as a
regular business practice under the
requirements of the HEA and the FFEL
Program regulations.
Section 685.220—Consolidation
Under these interim final regulations,
the borrower eligibility requirements of
the FFEL and Federal Direct
Consolidation Loan programs are
harmonized to eliminate program
differences and to reflect the repeal of
section 8009(a)(2) of the HERA, which
restricted the conditions under which a
FFEL borrower could obtain a Federal
Consolidation Loan. The burden
associated with the collection of
information will be reflected in the
modified OMB Control Number 1845–
0036—FFEL Consolidation Loan
Application and Promissory Note and
OMB Control Number 1845–0053—
Federal Direct Consolidation Loan
Program Application Documents.
If you want to comment on the
information collection requirements,
please send your comments to the Office
of Information and Regulatory Affairs,
OMB, room 10235, New Executive
Office Building, Washington, DC 20503;
Attention: Desk Officer for U.S.
Department of Education. You may also
send a copy of these comments to the
Department representative named in the
FOR FURTHER INFORMATION CONTACT

section of this preamble.
We consider your comments on these
proposed collections of information in—
• Deciding whether the proposed
collections are necessary for the proper
performance of our functions, including
whether the information will have
practical use;
• Evaluating the accuracy of our
estimate of the burden of the proposed
collections, including the validity of our
methodology and assumptions;
• Enhancing the quality, usefulness,
and clarity of the information we
collect; and
• Minimizing the burden on those
who must respond. This includes

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45691

exploring the use of appropriate
automated, electronic, mechanical, or
other technological collection
techniques or other forms of information
technology; e.g., permitting electronic
submission of responses.
OMB is required to make a decision
concerning the collection of information
contained in these interim final
regulations between 30 and 60 days
after publication of this document in the
Federal Register. Therefore, to ensure
that OMB gives your comments full
consideration, it is important that OMB
receives the comments within 30 days
of publication.
Assessment of Educational Impact
Based on our own review, we have
determined that these interim final
regulations do not require transmission
of information that any other agency or
authority of the United States gathers or
makes available.
Electronic Access to This Document
You may view this document, as well
as all other Department of Education
documents published in the Federal
Register, in text or Adobe Portable
Document Format (PDF) on the Internet
at the following site: http://www.ed.gov/
news/Fedregister.
To use PDF you must have Adobe
Acrobat Reader, which is available free
at this site. If you have questions about
using PDF, call the U.S. Government
Printing Office (GPO), toll free, at 1–
888–293–6498; or in the Washington,
DC, area at (202) 512–1530.
Note: 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 on GPO
Access at: http://www.gpoaccess.gov/nara/
index.html.
(Catalog of Federal Domestic Assistance
Numbers: 84.032 Federal Family Education
Loan Program; 84.038 Federal Perkins Loan
Program; 84.268 William D. Ford Federal
Direct Loan Program)

List of Subjects
34 CFR Parts 600 and 668
Administrative practice and
procedure, Colleges and universities,
Consumer protection, Education, Grant
programs—education, Loan programs—
education, Reporting and recordkeeping
requirements, Student Aid, Vocational
education.
34 CFR Parts 673, 675 and 676
Administrative practice and
procedure, Colleges and universities,
Consumer protection, Education,
Employment, Grant programs—
education, Loan programs—education,

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Reporting and recordkeeping
requirements, Student aid, Vocational
education.
34 CFR Parts 674, 682, and 685
Administrative Practice and
Procedure, Colleges and universities,
Education, Loans program—education,
Reporting and recordkeeping
requirements, Student aid, Vocational
education.
Dated: August 1, 2006.
Margaret Spellings,
Secretary of Education.

For the reasons discussed in the
preamble, the Secretary amends parts
600, 668, 673, 674, 675, 676, 682, and
685 of title 34 of the Code of Federal
Regulations as follows:

■

PART 600—INSTITUTIONAL
ELIGIBILITY UNDER THE HIGHER
EDUCATION ACT OF 1965, AS
AMENDED
1. The authority citation for part 600
continues to read as follows:

■

Authority: 20 U.S.C. 1001, 1002, 1003,
1088, 1091, 1094, 1099b, and 1099(c), unless
otherwise noted.

2. Section 600.2 is amended by:
A. In the definition of Correspondence
course, removing paragraph (3) and
redesignating paragraph (4) as paragraph
(3);
■ B. Adding a definition of Direct
assessment program;
■ C. Revising the definitions of
Educational program and
Telecommunications course.
The revisions and addition read as
follows:
■
■

§ 600.2

Definitions.

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*

*
*
*
*
Direct assessment program: A
program as described in 34 CFR 668.10.
Educational program: (1) A legally
authorized postsecondary program of
organized instruction or study that:
(i) Leads to an academic, professional,
or vocational degree, or certificate, or
other recognized educational credential;
and
(ii) May, in lieu of credit hours or
clock hours as a measure of student
learning, utilize direct assessment of
student learning, or recognize the direct
assessment of student learning by
others, if such assessment is consistent
with the accreditation of the institution
or program utilizing the results of the
assessment and with the provisions of
§ 668.10.
(2) The Secretary does not consider
that an institution provides an
educational program if the institution
does not provide instruction itself

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(including a course of independent
study) but merely gives credit for one or
more of the following: Instruction
provided by other institutions or
schools; examinations or direct
assessments provided by agencies or
organizations; or other accomplishments
such as ‘‘life experience.’’
* * *
Telecommunications course: A course
offered principally through the use of
one or a combination of technologies
including television, audio, or computer
transmission through open broadcast,
closed circuit, cable, microwave, or
satellite; audio conferencing; computer
conferencing; or video cassettes or discs
to deliver instruction to students who
are separated from the instructor and to
support regular and substantive
interaction between these students and
the instructor, either synchronously or
asynchronously. The term does not
include a course that is delivered using
video cassettes or disc recordings unless
that course is delivered to students
physically attending classes at the
institution providing the course during
the same award year. If the course does
not qualify as a telecommunications
course, it is considered to be a
correspondence course.
*
*
*
*
*
■ 3. Section 600.7 is amended by:
■ A. Removing paragraph (b)(1).
■ B. Redesignating paragraphs (b)(2) and
(b)(3) as paragraphs (b)(1) and (b)(2),
respectively;
■ C. Revising the heading of the newly
redesignated paragraph (b)(1) to read as
set forth below;
■ D. In the newly redesignated
paragraph (b)(2)(i), removing the words
‘‘section 521(4)(C)’’ and adding in their
place the words ‘‘section 3(3)(C)’’ and
adding at the end of the sentence the
words ‘‘of 1995.’’

6. Section 600.51 is amended by
adding a new paragraph (d) to read as
follows:

■

§ 600.51

*
*
*
*
(d)(1) A program offered by a foreign
school through any use of a
telecommunications course,
correspondence course, or direct
assessment program is not an eligible
program;
(2) Correspondence course has the
meaning given in § 600.2;
(3) Direct assessment program has the
meaning given in § 668.10(a)(1) of this
chapter;
(4) Telecommunications course is a
course offered through any one or a
combination of the technologies listed
in the definition of telecommunications
course in § 600.2, except that
telecommunications technologies may
be used to supplement and support
instruction that is offered in a classroom
located in the foreign country where the
students and instructor are physically
present.
*
*
*
*
*
PART 668—STUDENT ASSISTANCE
GENERAL PROVISIONS
7. The authority citation for part 668
continues to read as follows:

■

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

8. Section 668.2(b) is amended by
removing the word ‘‘parent’’ from the
definition of Federal Consolidation
Loan Program and by revising the
definitions of Federal Direct PLUS
Program and Federal PLUS program.
The authority citations for these
definitions remain unchanged.
The revisions read as follows:

■

§ 668.2
§ 600.7 Conditions of institutional
ineligibility.

*

*
*
*
*
(b)* * *
(1) Calculating the number of
correspondence courses. * * *
*
*
*
*
*
§ 600.10

[Amended]

4. Section 600.10(c)(2) is amended by
adding the words ‘‘except as provided
in 34 CFR 668.10’’ after the words
‘‘eligible program of that institution’’.
■

§ 600.21

[Amended]

5. Section 600.21(a)(4) is amended by
adding at the beginning of the
paragraph, the words ‘‘Except as
provided in 34 CFR 668.10,’’.

■

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Purpose and scope.

*

General definitions.

*

*
*
*
*
(b) * * *
Federal Direct PLUS Program: A loan
program authorized by title IV, Part D of
the HEA that is one of the components
of the Direct Loan Program. The Federal
Direct PLUS Program provides loans to
parents of dependent students attending
schools that participate in the Direct
Loan Program. The Federal Direct PLUS
Program also provides loans to graduate
or professional students attending
schools that participate in the Direct
Loan Program. The borrower is
responsible for the interest that accrues
during any period.
*
*
*
*
*
Federal PLUS program: The loan
program authorized by Title IV–B,

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
section 428B, of the HEA, that
encourages the making of loans to
parents of undergraduate students.
Before October 17, 1986, the PLUS
Program also provided for making loans
to graduate, professional, and
independent undergraduate students.
Before July 1, 1993, the PLUS Program
also provided for making loans to
parents of dependent graduate students.
Beginning July 1, 2006, the PLUS
Program provides for making loans to
graduate and professional students.
*
*
*
*
*
■ 9. Section 668.3 is amended by
revising paragraph (a) to read as follows:
§ 668.3

Academic year.

(a) General. Except as provided in
paragraph (c) of this section, an
academic year for a program of study
must include—
(1)(i) For a program offered in credit
hours, a minimum of 30 weeks of
instructional time; or
(ii) For a program offered in clock
hours, a minimum of 26 weeks of
instructional time; and
(2) For an undergraduate educational
program, an amount of instructional
time whereby a full-time student is
expected to complete at least—
(i) Twenty-four semester or trimester
credit hours or 36 quarter credit hours
for a program measured in credit hours;
or
(ii) 900 clock hours for a program
measured in clock hours.
*
*
*
*
*
■ 10. Section 668.8 is amended by
adding new paragraphs (m) and (n) to
read as follows:
§ 668.8

Eligible program.

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*

*
*
*
*
(m) An otherwise eligible program
that is offered in whole or in part
through telecommunications is eligible
for title IV, HEA program purposes if the
program is offered by an institution,
other than a foreign institution, that has
been evaluated and is accredited for its
effective delivery of distance education
programs by an accrediting agency or
association that—
(1) Is recognized by the Secretary
under subpart 2 of part H of the HEA;
and
(2) Has accreditation of distance
education within the scope of its
recognition.
(n) For title IV, HEA program
purposes, the term eligible program
includes a direct assessment program
approved by the Secretary under 34 CFR
668.10.
*
*
*
*
*
■ 11. New Section 668.10 is added to
read as follows:

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§ 668.10

Direct assessment programs.

(a)(1) A direct assessment program is
an instructional program that, in lieu of
credit hours or clock hours as a measure
of student learning, utilizes direct
assessment of student learning, or
recognizes the direct assessment of
student learning by others. The
assessment must be consistent with the
accreditation of the institution or
program utilizing the results of the
assessment.
(2) Direct assessment of student
learning means a measure by the
institution of what a student knows and
can do in terms of the body of
knowledge making up the educational
program. These measures provide
evidence that a student has command of
a specific subject, content area, or skill
or that the student demonstrates a
specific quality such as creativity,
analysis or synthesis associated with the
subject matter of the program. Examples
of direct measures include projects,
papers, examinations, presentations,
performances, and portfolios.
(3) All regulatory requirements in this
chapter that refer to credit or clock
hours as a measurement apply to direct
assessment programs. Because a direct
assessment program does not utilize
credit or clock hours as a measure of
student learning, an institution must
determine the number of credit or clock
hours that the program (or portion of the
program, as applicable) is equivalent to
in credit hours or clock hours in order
to demonstrate compliance with the
regulatory requirements in this chapter.
The institution must provide a factual
basis satisfactory to the Secretary for its
claim that the program is equivalent to
a specific number of credit or clock
hours.
(i) An academic year in a direct
assessment program is a period of
instructional time that consists of a
minimum of 30 weeks of instructional
time during which, for an
undergraduate educational program, a
full-time student is expected to
complete the equivalent of at least 24
semester or trimester credit hours, 36
quarter credit hours or 900 clock hours.
(ii) A payment period in a direct
assessment program for which
equivalence in credit hours has been
established must be determined under
the requirements in § 668.4(a) or (b), as
applicable, using the academic year
determined in accordance with
paragraph (a)(3)(i) of this section (or the
portion of that academic year
comprising or remaining in the
program). A payment period in a direct
assessment program for which
equivalence in clock hours has been
established must be determined under

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45693

the requirements in § 668.4(c), using the
academic year determined in
accordance with paragraph (a)(3)(i) of
this section (or the portion of that
academic year comprising or remaining
in the program).
(iii) A week of instructional time in a
direct assessment program is any sevenday period in which at least one day of
educational activity occurs. Educational
activity in a direct assessment program
includes regularly scheduled learning
sessions, faculty-guided independent
study, consultations with a faculty
mentor, development of an academic
action plan addressed to competencies
identified by the institution, or, in
combination with any of the foregoing,
assessments. It does not include credit
for ‘‘life experience’’.
(iv) A full-time student in a direct
assessment program is an enrolled
student who is carrying a full-time
academic workload as determined by
the institution under a standard
applicable to all students enrolled in the
program. However, for an undergraduate
student, the institution’s minimum
standard must equal or exceed the
minimum full-time requirements
specified in the definition of full-time
student in § 668.2 based on the credit or
clock hour equivalency established by
the institution for the direct assessment
program.
(v) A half-time student in a direct
assessment program is an enrolled
student who is carrying half of the
academic workload of a full-time
student in that program.
(vi) A three-quarter-time student in a
direct assessment program is an
enrolled student who is carrying threequarters of the academic workload of a
full-time student in that program.
(b) An institution that offers a direct
assessment program must apply to the
Secretary to have that program
determined to be an eligible program for
title IV, HEA program purposes. The
institution’s application must provide
information satisfactory to the Secretary
that includes—
(1) A description of the educational
program, including the educational
credential offered (degree level or
certificate) and the field of study;
(2) A description of how the
assessment of student learning is done;
(3) A description of how the direct
assessment program is structured,
including information about how and
when the institution determines on an
individual basis what each student
enrolled in the program needs to learn;
(4) A description of how the
institution assists students in gaining
the knowledge needed to pass the
assessments;

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(5) The number of semester or quarter
credit hours, or clock hours, that are
equivalent to the amount of student
learning being directly assessed for the
certificate or degree, as required by
paragraph (b)(3) of this section;
(6) The methodology the institution
uses to determine the number of credit
or clock hours to which the program is
equivalent;
(7) The methodology the institution
uses to determine the number of credit
or clock hours to which the portion of
a program an individual student will
need to complete is equivalent;
(8) Documentation from the
institution’s accrediting agency
indicating that the agency has evaluated
the institution’s offering of direct
assessment program(s) and has included
the program(s) in the institution’s grant
of accreditation;
(9) Documentation from the
accrediting agency or relevant state
licensing body indicating agreement
with the institution’s claim of the direct
assessment program’s equivalence in
terms of credit or clock hours; and
(10) Any other information the
Secretary may require to determine
whether to approve the institution’s
application.
(c) To be an eligible program, a direct
assessment program must meet the
requirements in § 668.8 including, if
applicable, minimum program length
and qualitative factors.
(d) Notwithstanding paragraphs (a)
through (c) of this section, no program
offered by a foreign institution that
involves direct assessment will be
considered to be an eligible program
under § 668.8.
(e) A direct assessment program may
use learning resources (e.g., courses or
portions of courses) that are provided by
entities other than the institution
providing the direct assessment program
without regard to the limitations on
contracting for part of an educational
program in § 668.5(c)(3).
(f) Title IV, HEA program funds may
be used only for learning that results
from instruction provided, or overseen,
by the institution, not for the portion of
the program that the student has
demonstrated mastery of prior to
enrollment in the program or tests of
learning that are not associated with
educational activities overseen by the
institution.
(g) Title IV, HEA program eligibility
with respect to direct assessment
programs is limited to direct assessment
programs approved by the Secretary.
Title IV, HEA program funds may not be
used for—

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(1) the course of study described in
§ 668.32(a)(1)(ii) and (iii) if offered by
direct assessment, or
(2) remedial coursework described in
§ 668.20 offered by direct assessment.
However, remedial instruction that is
offered in credit or clock hours in
conjunction with a direct assessment
program is eligible for title IV, HEA
program funds.
(h) The Secretary’s approval of a
direct assessment program expires on
the date that the institution changes one
or more aspects of the program
described in the institution’s
application submitted under paragraph
(b) of this section. To maintain program
eligibility, the institution must obtain
prior approval from the Secretary
through reapplication under paragraph
(b) of this section that sets forth the
revisions proposed.
§ 668.15

[Amended]

12. Section 668.15 is amended by:
A. In paragraph (d)(1)(i)(C) removing
the parentheticals ‘‘(j)(4)’’ and adding,
in their place, the parenthetical ‘‘(j)’’.
■ B. In paragraph (d)(1)(ii)(B) removing
the figure ‘‘§ 668.22(h)’’ and adding, in
its place, the figure ‘‘§ 668.22(i)’’.
■ 13. Section 668.22 is amended by:
■ A. Revising paragraph (a)(1).
■ B. Redesignating paragraphs (a)(2),
(a)(3), and (a)(4) as paragraphs (a)(3),
(a)(4), and (a)(5), respectively.
■ C. Adding a new paragraph (a)(2).
■ D. In newly redesignated paragraph
(a)(4) removing the parenthetical
‘‘(a)(4)’’ and adding, in its place, the
parenthetical ‘‘(a)(5)’’.
■ E. Revising newly redesignated
paragraph (a)(5).
■ F. Revising paragraph (e)(2).
■ G. Revising paragraph (f)(1)(ii).
■ H. In paragraph (h)(3) in the
introductory text, adding the word
‘‘parent’’ after the words ‘‘funds due to
a’’.
■ I. Revising paragraph (h)(3)(ii).
■ J. Adding a new paragraph (h)(5).
■ K. Revising paragraph (i)(2).
■ L. In paragraph (j)(1), removing the
figure ‘‘30’’ and adding, in its place, the
figure ‘‘45’’.
The revisions and additions read as
follows:
■
■

§ 668.22 Treatment of title IV funds when
a student withdraws.

(a) General. (1) When a recipient of
title IV grant or loan assistance
withdraws from an institution during a
payment period or period of enrollment
in which the recipient began
attendance, the institution must
determine the amount of title IV grant
or loan assistance that the student
earned as of the student’s withdrawal

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date in accordance with paragraph (e) of
this section.
(2) For purposes of this section, ‘‘title
IV grant or loan assistance’’ includes
only assistance from the Federal Perkins
Loan, Direct Loan, FFEL, Federal Pell
Grant, Academic Competitiveness
Grant, National SMART Grant, and
FSEOG programs, not including the
non-Federal share of FSEOG awards if
an institution meets its FSEOG
matching share by the individual
recipient method or the aggregate
method.
*
*
*
*
*
(5)(i) A post-withdrawal disbursement
must be made from available grant
funds before available loan funds.
(ii)(A) If outstanding charges exist on
the student’s account, the institution
may credit the student’s account up to
the amount of outstanding charges with
all or a portion of any—
(1) Grant funds that make up the postwithdrawal disbursement in accordance
with § 668.164(d)(1) and (d)(2); and
(2) Loan funds that make up the postwithdrawal disbursement in accordance
with § 668.164(d)(1), (d)(2) and (d)(3)
only after obtaining confirmation from
the student or parent, in the case of a
parent PLUS loan, that they still wish to
have the loan funds disbursed in
accordance with paragraph (a)(5)(iii) of
this section.
(B)(1) The institution must offer to
disburse directly to a student, or parent
in the case of a parent PLUS loan, any
amount of a post-withdrawal
disbursement that is not credited to the
student’s account, or for which the
institution is not required to obtain
confirmation to credit to the student’s
account, to the student, or the parent in
the case of a parent PLUS loan, in
accordance with paragraph (a)(5)(iii) of
this section.
(2) The institution must make a direct
disbursement of any grant or loan funds
that make up the post-withdrawal
disbursement only after obtaining the
student’s, or parent’s in the case of a
parent PLUS loan, confirmation that
they still wish to have the grant or loan
funds disbursed in accordance with
paragraph (a)(5)(iii).
(iii)(A) The institution must provide
within 30 days of the date of the
institution’s determination that the
student withdrew, as defined in
paragraph (l)(3) of this section, a written
notification to the student, or parent in
the case of parent PLUS loan, that—
(1) Requests confirmation of any postwithdrawal disbursement of loan funds
that the institution wishes to credit to
the student’s account in accordance
with paragraph (a)(5)(ii)(A)(2),

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identifying the type and amount of
those loan funds and explaining that a
student, or parent in the case of a parent
PLUS loan, may accept or decline some
or all of those funds;
(2) Requests confirmation of any postwithdrawal disbursement of grant or
loan funds that the student, or parent in
the case of a parent PLUS loan, can
receive as a direct disbursement,
identifying the type and amount of these
title IV funds and explaining that the
student, or parent in the case of a parent
PLUS loan, may accept or decline some
or all of those funds;
(3.) Explains that a student, or parent
in the case of a parent PLUS loan, who
does not confirm that a post-withdrawal
disbursement of loan funds may be
credited to the student’s account may
not receive any of those loan funds as
a direct disbursement unless the
institution concurs;
(4) Explains the obligation of the
student, or parent in the case of a parent
PLUS loan, to repay any loan funds he
or she chooses to have disbursed; and
(5) Advises the student, or parent in
the case of a parent PLUS loan, that no
post-withdrawal disbursement will be
made, unless the institution chooses to
make a post-withdrawal disbursement
based on a late response in accordance
with paragraph (a)(5)(iii)(C) of this
section, if the student or parent in the
case of a parent PLUS loan, does not
respond within 14 days of the date that
the institution sent the notification, or a
later deadline set by the institution.
(B) The deadline for a student, or
parent in the case of a parent PLUS
loan, to accept a post-withdrawal
disbursement under paragraph
(a)(5)(iii)(A)(4) must be the same for
both a confirmation of a direct
disbursement of the post-withdrawal
disbursement and a confirmation of a
post-withdrawal disbursement of loan
funds to be credited to the student’s
account;
(C) If the student, or parent in the case
of a parent PLUS loan, submits a timely
response that confirms that they wish to
receive all or a portion of a direct
disbursement of the post-withdrawal
disbursement, or confirms that a postwithdrawal disbursement of loan funds
may be credited to the student’s
account, the institution must disburse
the funds in the manner specified by the
student, or parent in the case of a parent
PLUS loan, within 120 days of the date
of the institution’s determination that
the student withdrew, as defined in
paragraph (l)(3) of this section.
(D) If a student, or parent in the case
of a parent PLUS loan, submits a late
response to the institution’s notice
requesting confirmation, the institution

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may make the post-withdrawal
disbursement as instructed by the
student, or parent in the case of a parent
PLUS loan (provided the institution
disburses all the funds accepted by the
student, or parent in the case of a parent
PLUS loan), or decline to do so.
(E) If a student, or parent in the case
of a parent PLUS loan, submits a late
response to the institution and the
institution does not choose to make the
post-withdrawal disbursement, the
institution must inform the student, or
parent in the case of a parent PLUS
loan, electronically or in writing of the
outcome of the post-withdrawal
disbursement request.
(F) If the student, or parent in the case
of a parent PLUS loan, does not respond
to the institution’s notice, no portion of
the post-withdrawal disbursement of
loan funds that the institution wishes to
credit to the student’s account, nor any
portion that would be disbursed directly
to the student, or parent in the case of
a parent PLUS loan, may be disbursed.
(iv) An institution must document in
the student’s file the result of any
notification made in accordance with
paragraph (a)(5)(iii) of this section of the
student’s right to cancel all or a portion
of loan funds or of the student’s right to
accept or decline loan funds, and the
final determination made concerning
the disbursement.
*
*
*
*
*
(e) * * *
(2) Percentage earned. The percentage
of title IV grant or loan assistance that
has been earned by the student is—
(i) Equal to the percentage of the
payment period or period of enrollment
that the student completed (as
determined in accordance with
paragraph (f) of this section) as of the
student’s withdrawal date, if this date
occurs on or before—
(A) Completion of 60 percent of the
payment period or period of enrollment
for a program that is measured in credit
hours; or
(B) Sixty percent of the clock hours
scheduled to be completed for the
payment period or period of enrollment
for a program that is measured in clock
hours; or
(ii) 100 percent, if the student’s
withdrawal date occurs after—
(A) Completion of 60 percent of the
payment period or period of enrollment
for a program that is measured in credit
hours; or
(B) Sixty percent of the clock hours
scheduled to be completed for the
payment period or period of enrollment
for a program measured in clock hours.
*
*
*
*
*
(f) * * *

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45695

(1) * * *
(ii)(A) In the case of a program that is
measured in clock hours, by dividing
the total number of clock hours in the
payment period or period of enrollment
into the number of clock hours
scheduled to be completed as of the
student’s withdrawal date.
(B) The scheduled clock hours used
must be those established by the
institution prior to the student’s
beginning class date for the payment
period or period of enrollment and must
be consistent with the published
materials describing the institution’s
programs, unless the schedule was
modified prior to the student’s
withdrawal.
(C) The schedule must have been
established in accordance with
requirements of the accrediting agency
and the State licensing agency, if such
standards exist.
*
*
*
*
*
(h) * * *
(3) * * *
(ii) Any title IV grant program as an
overpayment of the grant; however, a
student is not required to return the
following—
(A) The portion of a grant
overpayment amount that is equal to or
less than 50 percent of the total grant
assistance that was disbursed (and that
could have been disbursed, as defined
in paragraph (l)(1) of this section) to the
student for the payment period or
period of enrollment.
(B) A grant overpayment amount, as
determined after application of
paragraph (h)(3)(ii)(A) of this section, of
50 dollars or less that is not a remaining
balance.
*
*
*
*
*
(5) The Secretary may waive grant
overpayment amounts that students are
required to return under this section if
the withdrawals on which the returns
are based are withdrawals by students—
(i) Who were residing in, employed
in, or attending an institution of higher
education that is located in an area in
which the President has declared that a
major disaster exists, in accordance with
section 401 of the Robert T. Stafford
Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5170);
(ii) Whose attendance was interrupted
because of the impact of the disaster on
the student or institution; and
(iii) Whose withdrawal ended within
the award year during which the
designation occurred or during the next
succeeding award year.
*
*
*
*
*
(i) * * *
(2) Remaining funds. If unearned
funds remain to be returned after

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repayment of all outstanding loan
amounts, the remaining excess must be
credited to any amount awarded for the
payment period or period of enrollment
for which a return of funds is required
in the following order:
(i) Federal Pell Grants.
(ii) Academic Competitiveness Grants.
(iii) National SMART Grants.
(iv) FSEOG Program aid.
*
*
*
*
*
■ 14. Section 668.32 is amended by:
■ A. In paragraph (k)(7), removing the
word ‘‘and’’ after the punctuation ‘‘;’’ at
the end of the paragraph.
■ B. In paragraph (l), removing the
punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
words ‘‘; and’’.
■ C. Adding a new paragraph (m).
The addition reads as follows:
§ 668.32

Student eligibility—general.

*

*
*
*
*
(m) In the case of a student who has
been convicted of, or has pled nolo
contendere or guilty to, a crime
involving fraud in obtaining title IV,
HEA program assistance, has completed
the repayment of such assistance to:
(1) The Secretary; or
(2) The holder, in the case of a title
IV, HEA program loan.
*
*
*
*
*
■ 15. Section 668.35 is amended by:
■ A. Revising the introductory text in
paragraph (e).
■ B. In paragraph (h)(2)(ii), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
words ‘‘; and’’.
■ C. Adding new paragraph (i).
The revisions and additions read as
follows:
§ 668.35 Student debts under the HEA and
to the U.S.

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*

*
*
*
*
(e) Except as provided in 34 CFR
668.22(h), a student who receives an
overpayment under the Federal Perkins
Loan Program, or under a title IV, HEA
grant program, may nevertheless be
eligible to receive title IV, HEA program
assistance if—
*
*
*
*
*
(i) In the case of a student who has
been convicted of, or has pled nolo
contendere or guilty to a crime
involving fraud in obtaining title IV,
HEA program assistance, has completed
the repayment of such assistance to:
(1) The Secretary; or
(2) The holder, in the case of a title
IV, HEA program loan.
*
*
*
*
*
■ 16. Section 668.38 is amended by:
■ A. Removing paragraph (b)(3); and

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B. Revising paragraphs (b)(1) and
(b)(2).
The revisions read as follows:

■

§ 668.38 Enrollment in
telecommunications and correspondence
courses.

*

*
*
*
*
(b) * * *
(1) For purposes of this section, a
student enrolled in a
telecommunications course at an
institution of higher education is not
enrolled in a correspondence course.
(2) For purposes of paragraph (b)(1) of
this section, an institution of higher
education is one that is not an institute
or school described in section 3(3)(C) of
the Carl D. Perkins Vocational and
Applied Technology Act of 1995.
*
*
*
*
*
■ 17. Section 668.40(a)(1) is revised to
read as follows:
§ 668.40 Conviction for possession or sale
of illegal drugs.

(a)(1) A student is ineligible to receive
title IV, HEA program funds, for the
period described in paragraph (b) of this
section, if the student has been
convicted of an offense under any
Federal or State law involving the
possession or sale of illegal drugs for
conduct that occurred during a period of
enrollment for which the student was
receiving title IV, HEA program funds.
However, the student may regain
eligibility before that time period
expires under the conditions described
in paragraph (c) of this section.
*
*
*
*
*
§ 668.164

[Amended]

18. Section 668.164 is amended by, in
paragraph (g)(3)(i), removing the
parentheticals ‘‘(a)(4)’’ and adding, in
their place, the parentheticals ‘‘(a)(5)’’
and removing the parentheticals ‘‘(a)(3)’’
and adding, in their place the
parentheticals ‘‘(a)(4)’’.
■ 19. Section 668.173 is amended by
revising paragraph (b) to read as follows:
■

§ 668.173

Refund reserve standards.

*

*
*
*
*
(b) Timely return of title IV, HEA
program funds. In accordance with
procedures established by the Secretary
or FFEL Program lender, an institution
returns unearned title IV, HEA program
funds timely if—
(1) The institution deposits or
transfers the funds into the bank
account it maintains under § 668.163 no
later than 45 days after the date it
determines that the student withdrew;
(2) The institution initiates an
electronic funds transfer (EFT) no later

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than 45 days after the date it determines
that the student withdrew;
(3) The institution initiates an
electronic transaction, no later than 45
days after the date it determines that the
student withdrew, that informs a FFEL
lender to adjust the borrower’s loan
account for the amount returned; or
(4) The institution issues a check no
later than 45 days after the date it
determines that the student withdrew.
An institution does not satisfy this
requirement if—
(i) The institution’s records show that
the check was issued more than 45 days
after the date the institution determined
that the student withdrew; or
(ii) The date on the cancelled check
shows that the bank used by the
Secretary or FFEL Program lender
endorsed that check more than 60 days
after the date the institution determined
that the student withdrew.
*
*
*
*
*
PART 673—GENERAL PROVISIONS
FOR THE FEDERAL PERKINS LOAN
PROGRAM, FEDERAL WORK-STUDY
PROGRAM, AND FEDERAL
SUPPLEMENTAL EDUCTIONAL
OPPORTUNITY GRANT PROGRAM
20. The authority citation for part 673
continues to read as follows:

■

Authority: 20 U.S.C. 421–429, 1070b–
1070b–3, and 1087aa–1087ii; 42 U.S.C. 2751–
2756b, unless otherwise noted.

21. Section 673.5 is amended by
revising paragraphs (a), (b), (c) and (d)
to read as follows:

■

§ 673.5

Overaward.

(a) Overaward prohibited—(1) Federal
Perkins Loan and FSEOG Programs. An
institution may only award or disburse
a Federal Perkins loan or an FSEOG to
a student if that loan or the FSEOG,
combined with the other estimated
financial assistance the student receives,
does not exceed the student’s financial
need.
(2) FWS Program. An institution may
only award FWS employment to a
student if the award, combined with the
other estimated financial assistance the
student receives, does not exceed the
student’s financial need.
(b) Awarding and disbursement. (1)
When awarding and disbursing a
Federal Perkins loan or an FSEOG or
awarding FWS employment to a
student, the institution shall take into
account those amounts of estimated
financial assistance it—
(i) Can reasonably anticipate at the
time it awards Federal Perkins Loan
funds, an FSEOG, or FWS funds to the
student;
(ii) Makes available to its students; or

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(iii) Otherwise knows about.
(2) If a student receives amounts of
estimated financial assistance at any
time during the award period that were
not considered in calculating the
Federal Perkins Loan amount or the
FWS or FSEOG award, and the total
amount of estimated financial assistance
including the loan, the FSEOG, or the
prospective FWS wages exceeds the
student’s need, the overaward is the
amount that exceeds need.
(c) Estimated financial assistance. (1)
Except as provided in paragraphs (c)(2)
and (c)(3) of this section, the Secretary
considers that ‘‘estimated financial
assistance’’ includes, but is not limited
to, any—
(i) Funds a student is entitled to
receive from a Federal Pell Grant;
(ii) William D. Ford Federal Direct
Loans;
(iii) Federal Family Education Loans;
(iv) Long-term need-based loans,
including Federal Perkins loans;
(v) Grants, including FSEOGs, State
grants, Academic Competitiveness
Grants, National SMART Grants, and
ROTC subsistence allowances;
(vi) Scholarships, including athletic
scholarships and ROTC scholarships;
(vii) Waivers of tuition and fees;
(viii) Fellowships or assistantships,
except non-need-based employment
portions of such awards;
(ix) Veterans educational benefits
paid under Chapters 30 (Montgomery GI
Bill-Active Duty), 31 (Vocational
Rehabilitation and Employment
Program), 32 (Veterans’ Educational
Assistance Program), and 35
(Dependents’ Educational Assistance
Program) of title 38 of the United States
Code, and Chapters 31 (National Call to
Service), 1606 (Montgomery GI BillSelected Reserve), and 1607 (Reserve
Educational Assistance Program) of title
10 of the United States Code;
(x) National service education awards
or post-service benefits paid for the cost
of attendance under title I of the
National and Community Service Act of
1990 (AmeriCorps);
(xi) Net earnings from need-based
employment;
(xii) Insurance programs for the
student’s education; and
(xiii) Any educational benefits paid
because of enrollment in a
postsecondary education institution, or
to cover postsecondary education
expenses.
(2) The Secretary does not consider as
estimated financial assistance—
(i) Any portion of the estimated
financial assistance described in
paragraph (c)(1) of this section that is
included in the calculation of the
student’s expected family contribution
(EFC);

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(ii) Earnings from non-need-based
employment;
(iii) Those amounts used to replace
EFC, including the amounts of any
unsubsidized Federal Stafford or Direct
Loans, Federal PLUS or Federal Direct
PLUS Loans, and non-federal non-needbased loans, including private, statesponsored, and institutional loans.
However, if the sum of the loan amounts
received that are being used to replace
the student’s EFC actually exceed the
EFC, the excess amount must be treated
as estimated financial assistance; and
(iv) Assistance not received under this
part if that assistance is designated to
offset all or a portion of a specific
component of the cost of attendance and
that amount is excluded from the cost
of attendance as well. If that assistance
is excluded from either estimated
financial assistance or cost of
attendance, that amount must be
excluded from both.
(3) The institution may also exclude
as estimated financial assistance any
portion of a subsidized Federal Stafford
or Direct Loan that is equal to or less
than the amount of a student’s veterans
education benefits paid under Chapter
30 of title 38 of the United States Code
(Montgomery GI Bill—Active Duty) and
national service education awards or
post service benefits paid for the cost of
attendance under title I of the National
and Community Service Act of 1990
(AmeriCorps).
(d) Treatment of estimated financial
assistance in excess of need—General.
An institution shall take the following
steps if it learns that a student has
received additional amounts of
estimated financial assistance not
included in the calculation of Federal
Perkins Loan, FWS, or FSEOG eligibility
that would result in the student’s total
amount of estimated financial assistance
exceeding his or her financial need by
more than $300:
(1) The institution shall decide
whether the student has increased
financial need that was unanticipated
when it awarded financial aid to the
student. If the student demonstrates
increased financial need and the total
amount of estimated financial assistance
does not exceed this increased need by
more than $300, no further action is
necessary.
(2) If the student’s total amount of
estimated financial assistance still
exceeds his or her need by more than
$300, as recalculated pursuant to
paragraph (d)(1) of this section, the
institution shall cancel any undisbursed
loan or grant (other than a Federal Pell
Grant).
(3) Federal Perkins loan and FSEOG
overpayment. If the student’s total

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amount of estimated financial assistance
still exceeds his or her need by more
than $300, after the institution takes the
steps required in paragraphs (d)(1) and
(2) of this section, the institution shall
consider the amount by which the
estimated financial assistance amount
exceeds the student’s financial need by
more than $300 as an overpayment.
*
*
*
*
*
■ 22. Section 673.6 is amended by
revising paragraph (a) to read as follows:
§ 673.6

Coordination with BIA grants.

(a) Coordination of BIA grants with
Federal Perkins loans, FWS awards, or
FSEOGs. To determine the amount of a
Federal Perkins loan, FWS
compensation, or an FSEOG for a
student who is also eligible for a Bureau
of Indian Affairs (BIA) education grant,
an institution shall prepare a package of
student aid—
(1) From estimated financial
assistance other than the BIA education
grant the student has received or is
expected to receive; and
(2) That is consistent in type and
amount with packages prepared for
students in similar circumstances who
are not eligible for a BIA education
grant.
*
*
*
*
*
PART 674—FEDERAL PERKINS LOAN
PROGRAM
23. The authority citation for part 674
continues to read as follows:

■

Authority: 20 U.S.C. 1087aa–1087hh and
20 U.S.C. 421–429, unless otherwise noted.
§ 674.9

[Amended]

24. Section 674.9 is amended in
paragraph (a) by removing the words
‘‘34 CFR 668.32’’ and adding, in its
place, the words ‘‘34 CFR part 668’’.
■ 25. Section 674.16 is amended by
revising paragraph (c) to read as follows:
■

§ 674.16

Making and disbursing loans.

*

*
*
*
*
(c) If a student incurs uneven costs or
estimated financial assistance amounts
during an academic year and needs
additional funds in a particular payment
period, the institution may disburse
loan funds to the student for those
uneven costs.
*
*
*
*
*
■ 26. Section 674.34 is amended by:
■ A. In paragraph (a), adding the words
‘‘paragraphs (b), (c), (d), (e), (f), and (g)
of’’ immediately after the words
‘‘described in’’.
■ B. Redesignating paragraphs (h) and
(i) as paragraphs (i) and (j), respectively.
■ C. Adding a new paragraph (h).

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D. In newly redesignated paragraph
(i), removing the word ‘‘and’’
immediately after the parenthetical
‘‘(f)’’, adding the words ‘‘, and (h)’’
immediately after the parenthetical
‘‘(g),’’ and removing the words
‘‘paragraph (i)’’ and adding, in their
place, the words ‘‘paragraph (j)’’.
■ E. In newly redesignated paragraph (j),
removing the word ‘‘and’’ immediately
after the parenthetical ‘‘(f)’’, and adding
the words ‘‘, and (h)’’ immediately after
the parenthetical ‘‘(g)’’.
■ F. The addition reads as follows:
■

§ 674.34 Deferment of repayment—Federal
Perkins loans, NDSLs and Defense loans.

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*

*
*
*
*
(h)(1) The borrower need not pay
principal and interest does not accrue
on a Federal Perkins Loan made on or
after July 1, 2001, for any period not to
exceed 3 years during which the
borrower is—
(i) Serving on active duty during a
war or other military operation or
national emergency; or
(ii) Performing qualifying National
Guard duty during a war or other
military operation or national
emergency.
(2) Serving on active duty during a
war or other military operation or
national emergency means service by an
individual who is—
(i) A Reserve of an Armed Force
ordered to active duty under 10 U.S.C.
12301(a), 12301(g), 12302, 12304, or
12306;
(ii) A retired member of an Armed
Force ordered to active duty under 10
U.S.C. 688 for service in connection
with a war or other military operation
or national emergency, regardless of the
location at which such active duty
service is performed; or
(iii) Any other member of an Armed
Force on active duty in connection with
such emergency or subsequent actions
or conditions who has been assigned to
a duty station at a location other than
the location at which the member is
normally assigned.
(3) Qualifying National Guard duty
during a war or other operation or
national emergency means service as a
member of the National Guard on fulltime National Guard duty, as defined in
10 U.S.C. 101(d)(5), under a call to
active service authorized by the
President or the Secretary of Defense for
a period of more than 30 consecutive
days under 32 U.S.C. 502(f) in
connection with a war, other military
operation, or national emergency
declared by the President and supported
by Federal funds.
(4) As used in this section—
(i) Active duty means active duty as
defined in 10 U.S.C. 101(d)(1) except

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that it does not include active duty for
training or attendance at a service
school;
(ii) Military operation means a
contingency operation as defined in 10
U.S.C. 101(a)(13); and
(iii) National emergency means the
national emergency by reason of certain
terrorist attacks declared by the
President on September 14, 2001, or
subsequent national emergencies
declared by the President by reason of
terrorist attacks.
(5) These provisions do not authorize
the refunding of any payments made by
or on behalf of a borrower during a
period for which the borrower qualified
for a military service deferment.
*
*
*
*
*
§ 674.39

[Amended]

27. Section 674.39 is amended in
paragraph (a) by adding the words ‘‘or
loans obtained by fraud for which the
borrower has been convicted of, or has
pled nolo contendere or guilty to, a
crime involving fraud in obtaining title
IV, HEA program assistance.’’ after the
word ‘‘secured’’.

■

PART 675—FEDERAL WORK STUDY
PROGRAM
28. The authority citation for part 675
continues to read as follows:

■

Authority: 42 U.S.C. 2751–2756b, unless
otherwise noted.

29. Section 675.26 is amended by
revising paragraph (a)(4) to read as
follows:

■

§ 675.26

FWS Federal share limitations.

(a) * * *
(4) An institution may not use FWS
funds to pay a student after he or she
has, in addition to other estimated
financial assistance, earned $300 or
more over his or her financial need.
*
*
*
*
*
PART 676—FEDERAL
SUPPLEMENTAL EDUCATIONAL
OPPORTUNITY GRANT PROGRAM
30. The authority citation for part 676
continues to read as follows:

■

Authority: 20 U.S.C. 1070b–1070b–3,
unless otherwise noted.

31. Section 676.16 is amended by
revising paragraph (b) to read as follows:

■

§ 676.16

Payment of an FSEOG.

*

*
*
*
*
(b) If a student incurs uneven cost or
estimated financial assistance amounts
during an academic year and needs
additional funds in a particular payment
period, the institution may pay FSEOG

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funds to the student for those uneven
costs.
*
*
*
*
*
PART 682—FEDERAL FAMILY
EDUCATION LOAN (FFEL) PROGRAM
32. The authority citation for part 682
continues to read as follows:

■

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

33. Section 682.100 is amended in
paragraph (a)(3), by adding a sentence to
the end of the paragraph to read as
follows:

■

§ 682.100 The Federal Family Education
Loan program.

*

*
*
*
*
(3) * * * The PLUS Program also
provides for making loans to graduate
and professional students on or after
July 1, 2006.
*
*
*
*
*
■ 34. Section 682.101 is amended in
paragraph (c) by adding a sentence to
the end of the paragraph to read as
follows:
§ 682.101 Participation in the FFEL
programs.

*

*
*
*
*
(c) * * * The PLUS Program also
provides for making loans to graduate
and professional students on or after
July 1, 2006.
*
*
*
*
*
■ 35. Section 682.102 is amended by:
■ A. In paragraph (a), by removing the
words ‘‘or contacting’’ and adding, in
their place, the words ‘‘and contacting’’.
■ B. Revising paragraphs (c) and (d).
■ C. In paragraph (e)(1), in the third
sentence removing the words ‘‘The
borrower’s obligation to repay a PLUS
Loan’’ and adding, in their place, the
words ‘‘A parent borrower’s obligation
to repay a PLUS loan’’.
The revision reads as follows:
§ 682.102

Obtaining and repaying a loan.

*

*
*
*
*
(c) PLUS loan application. (1) For a
parent to obtain a PLUS loan, the parent
completes an application and submits it
to the school for certification. After the
school certifies the application, the
application is submitted to a
participating lender. If the lender
decides to make the loan, the lender
obtains a loan guarantee from a guaranty
agency or the Secretary. Prior to loan
disbursement, the parent completes a
PLUS MPN, unless the parent has
previously completed a PLUS MPN that
the lender may use for the new loan.
(2) For a graduate or professional
student to obtain a PLUS loan, the

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student applies for a PLUS Loan by
completing a Free Application for
Federal Student Aid (FAFSA) and
contacting the school, lender or
guarantor. The school determines and
certifies the student’s eligibility for the
PLUS loan. After the school certifies the
application, the application is submitted
to a participating lender. If the lender
decides to make the loan, the lender
obtains a loan guarantee from a guaranty
agency or the Secretary. Prior to loan
disbursement, the student completes a
PLUS MPN, unless the student has
previously completed a PLUS MPN that
the lender may use for the new loan.
(d) Consolidation loan application.
Generally, to obtain a Consolidation
loan, a borrower completes an
application and submits it to a lender
participating in the Consolidation Loan
Program. If the lender decides to make
the loan, the lender obtains a loan
guarantee from a guaranty agency or the
Secretary.
*
*
*
*
*
36. Section 682.200(b) is amended by
revising the definition of estimated
financial assistance to read as follows:

■

§ 682.200

Definitions

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*

*
*
*
*
(b) * * *
Estimated financial assistance. (1)
The estimated amount of assistance for
a period of enrollment that a student (or
a parent on behalf of a student) will
receive from Federal, State,
institutional, or other sources, such as,
scholarships, grants, the net earnings
from need-based employment, or loans,
including but not limited to—
(i) Except as provided in paragraph
(2)(iii) of this definition, national
service education awards or post-service
benefits under title I of the National and
Community Service Act of 1990
(AmeriCorps) and veterans’ educational
benefits paid under chapters 30
(Montgomery GI Bill—Active Duty), 31
(Vocational Rehabilitation and
Employment Program), 32 (Veterans’
Educational Assistance Program, and 35
(Dependents’ Educational Assistance
Program) of title 38 of the United States
Code;
(ii) Educational benefits paid under
Chapters 31 (National Call to Service),
1606 (Montgomery GI Bill-Selected
Reserve), and 1607 (Reserve Educational
Assistance Program) of Title 10 of the
United States Code;
(iii) Reserve Officer Training Corps
(ROTC) scholarships and subsistence
allowances awarded under Chapter 2 of
Title 10 and Chapter 2 of Title 37 of the
United States Code;

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(iv) Benefits paid under Pub. L. 96–
342, section 903: Educational Assistance
Pilot Program;
(v) Any educational benefits paid
because of enrollment in a
postsecondary education institution, or
to cover postsecondary education
expenses;
(vi) Fellowships or assistantships,
except non-need-based employment
portions of such awards;
(vii) Insurance programs for the
student’s education; and
(viii) The estimated amount of other
Federal student financial aid, including
but not limited to a Federal Pell Grant,
Academic Competitiveness Grant,
National SMART Grant, campus-based
aid, and the gross amount (including
fees) of subsidized and unsubsidized
Federal Stafford Loans or subsidized
and unsubsidized Federal Direct
Stafford/Ford Loans, and Federal PLUS
or Federal Direct PLUS Loans.
(2) Estimated financial assistance does
not include—(i) Those amounts used to
replace the expected family
contribution, including the amounts of
any unsubsidized Federal Stafford or
Federal Direct Stafford/Ford Loans,
Federal PLUS or Federal Direct PLUS
Loans, and non-federal non-need-based
loans, including private, statesponsored, and institutional loans.
However, if the sum of the loan amounts
received that are being used to replace
the student’s EFC exceed the EFC, the
excess amount is treated as estimated
financial assistance;
(ii) Federal Perkins loan and Federal
Work-Study funds that the student has
declined;
(iii) For the purpose of determining
eligibility for a subsidized Stafford loan,
veterans’ educational benefits paid
under chapter 30 of title 38 of the
United States Code (Montgomery GI
Bill—Active Duty) and national service
education awards or post-service
benefits under title I of the National and
Community Service Act of 1990
(AmeriCorps);
(iv) Any portion of the estimated
financial assistance described in
paragraph (1) of this definition that is
included in the calculation of the
student’s expected family contribution
(EFC);
(v) Non-need-based employment
earnings; and
(vi) Assistance not received under this
title, if that assistance is designated to
offset all or a portion of a specific
amount of the cost of attendance and
that component is excluded from the
cost of attendance as well. If that
assistance is excluded from either
estimated financial assistance or cost of

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45699

attendance, it must be excluded from
both.
*
*
*
*
*
■ 37. Section 682.201 is amended by:
■ A. In paragraph (a), revising the
paragraph heading to read as set forth
below.
■ B. Removing paragraph (e).
■ C. Redesignating paragraphs (b), (c),
and (d) as paragraphs (c), (d), and (e),
respectively.
■ D. Adding a new paragraph (b).
■ E. In newly redesignated paragraph
(c), revising the paragraph heading to
read as set forth below and adding a
new paragraph (c)(1)(viii).
■ F. In newly redesignated paragraph
(d)(1)(i)(B), removing the word ‘‘or’’.
■ G. Adding new paragraph (d)(1)(i)(D).
■ H. In newly redesignated paragraph
(d)(1)(ii), adding the word ‘‘and’’ after
the punctuation ‘‘;’’.
■ I. In newly redesignated paragraph
(d)(1)(iii), removing the words ‘‘; and’’
and inserting, in their place, the
punctuation ‘‘.’’.
■ J. In newly redesignated paragraph (d),
removing paragraphs (d)(1)(iv)(A) and
(B).
■ K. Revising newly redesignated
paragraph (d)(2).
■ L. In newly redesignated paragraph
(e)(2), adding the words ‘‘before or’’
immediately after the words ‘‘eligible
loan’’ and removing the word ‘‘and’’.
■ M. In newly redesignated paragraph
(e)(3), removing the word ‘‘only’’,
removing the punctuation ‘‘.’’ and
adding in its place the punctuation ‘‘;’’,
and adding the word ‘‘and’’
immediately after the punctuation ‘‘;’’.
■ N. Adding a new paragraph (e)(4).
The additions read as follows:
§ 682.201

Eligible borrowers.

(a) Student Stafford borrower. * * *
*
*
*
*
*
(b) Student PLUS borrower. A
graduate or professional student who is
enrolled or accepted for enrollment on
at least a half-time basis at a
participating school is eligible to receive
a PLUS Loan on or after July 1, 2006, if
the student—
(1) Meets the requirements for an
eligible student under 34 CFR 668;
(2) Meets the requirements of
paragraphs (a)(4), (a)(5), (a)(6), (a)(7),
(a)(8), and (a)(9) of this section, if
applicable;
(3) Has received a determination of
his or her annual loan maximum
eligibility under the Federal Subsidized
and Unsubsidized Stafford Loan
Program; and
(4) Does not have an adverse credit
history in accordance with paragraphs
(c)(2)(i) through (c)(2)(v) of this section,

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or obtains an endorser who has been
determined not to have an adverse
credit history, as provided for in
paragraph (c)(1)(vii) of this section.
*
*
*
*
*
(c) Parent PLUS borrower.
(1) * * *
(viii) 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.
*
*
*
*
*
(d) * * *
(1) * * *
(i) * * *
(D) Not in default status resulting
from a claim filed under § 682.412.
*
*
*
*
*
(2) A borrower may not consolidate a
loan under this section for which the
borrower is wholly or partially
responsible.
(e) * * *
(4) If the consolidation loan has been
submitted to the guaranty agency for
default aversion, the borrower may
obtain a subsequent consolidation loan
under the Federal Direct Consolidation
Loan Program for purposes of obtaining
an income contingent repayment plan.
*
*
*
*
*
■ 38. Section 682.202 is amended by:
■ A. In paragraph (a)(1)(viii), by adding
after the words ‘‘July 1, 1998,’’ the
words ‘‘ and prior to July 1, 2006,’’.
■ B. Adding a new paragraph (a)(1)(ix).
■ C. In paragraph (a)(2)(vi)(A), adding
after the words ‘‘July 1, 2001,’’ the
words ‘‘and prior to July 1, 2006,’’.
■ D. Adding a new paragraph (a)(2)(vii).
■ E. Revising paragraph (c)(1).
■ F. Revising paragraph (d).
The revisions and additions read as
follows:

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§ 682.202 Permissible charges by lenders
to borrowers.

(a) * * *
(1) * * *
(ix) For a Stafford loan for which the
first disbursement is made on or after
July 1, 2006, the interest rate is 6.8
percent.
(2) * * *
(vii) For a PLUS loan first disbursed
on or after July 1, 2006, the interest rate
is 8.5 percent.
*
*
*
*
*
(c) Fees for FFEL Program loans. (1)(i)
For Stafford loans first disbursed prior
to July 1, 2006, a lender may charge a
borrower an origination fee not to
exceed 3 percent of the principal
amount of the loan.
(ii) For Stafford loans first disbursed
on or after July 1, 2006, but before July

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1, 2007, a lender may charge a borrower
an origination fee not to exceed 2
percent of the principal amount of the
loan.
(iii) For Stafford loans first disbursed
on or after July 1, 2007, but before July
1, 2008, a lender may charge a borrower
an origination fee not to exceed 1.5
percent of the principal amount of the
loan.
(iv) For Stafford loans first disbursed
on or after July 1, 2008, but before July
1, 2009, a lender may charge a borrower
an origination fee not to exceed 1
percent of the principal amount of the
loan.
(v) For Stafford loans first disbursed
on or after July 1, 2009, but before July
1, 2010, a lender may charge a borrower
an origination fee not to exceed .5
percent of the principal amount of the
loan.
(vi) For Stafford loans first disbursed
on or after July 1, 2010, a lender may
not charge a borrower an origination fee.
(vii) Except as provided in paragraph
(c)(2) of this section, a lender must
charge all borrowers the same
origination fee.
*
*
*
*
*
(d) Insurance premium and Federal
default fee.
(1) For loans guaranteed prior to July
1, 2006, a lender may charge the
borrower the amount of the insurance
premium paid by the lender to the
guarantor (up to 1 percent of the
principal amount of the loan) if that
charge is provided for in the promissory
note.
(2) For loans guaranteed on or after
July 1, 2006, other than an SLS or PLUS
loan refinanced under § 682.209(e) or
(f), a lender may charge the borrower the
amount of the Federal default fee paid
by the lender to the guarantor (up to 1
percent of the principal amount of the
loan) if that charge is provided for in the
promissory note.
(3) If the borrower is charged the
insurance premium or the Federal
default fee, the amount charged must be
deducted proportionately from each
disbursement of the borrower’s loan
proceeds, if the loan is disbursed in
more than one installment.
(4) The lender shall refund the
insurance premium or Federal default
fee paid by the borrower in accordance
with the circumstances and procedures
applicable to the return of origination
fees, as described in paragraph (c)(7) of
this section.
*
*
*
*
*
§ 682.204

§ 682.205
lenders.

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Disclosure requirements for

(a) * * *
(2) * * *
(xix) In the case of a Stafford or
student PLUS loan, a statement that the
loan proceeds will be transmitted to the
school for delivery to the borrower;
*
*
*
*
*
■ 41. Section 682.207 is amended by:
■ A. In paragraph (b)(1)(iv), removing
the figure ‘‘21’’ and adding, in its place,
the figure ‘‘10’’.
■ B. Revising paragraph (b)(1)(v)(B), (C),
and (D), and removing paragraph
(b)(1)(v)(E).
■ C. Redesignating paragraph (b)(2) as
paragraph (b)(3).
■ D. Adding new paragraph (b)(2).
The revisions and addition read as
follows:
§ 682.207
loan.

Due diligence in disbursing a

(b) * * *
(1) * * *
(v) * * *
(B) In the case of a Federal PLUS loan

[Amended]

39. Section 682.204 is amended by:
A. In paragraph (a)(1)(i), adding the
words ‘‘, or, for a loan certified on or

■
■

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after July 1, 2007, $3,500,’’ immediately
after the figure ‘‘$2,625’’.
■ B. In paragraph (a)(1)(ii), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $3,500,’’ immediately
after the figure ‘‘$2,625’’.
■ C. In paragraph (a)(1)(iii), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $3,500’’ immediately
after the figure ‘‘$2,625’’.
■ D. In paragraph (a)(2)(i), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $4,500,’’ immediately
after the figure ‘‘$3,500’’.
■ E. In paragraph (a)(2)(ii), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $4,500,’’ immediately
after the figure ‘‘$3,500’’.
■ F. In paragraph (d)(5), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $12,000.’’
immediately after the figure ‘‘$10,000’’.
■ G. In paragraph (d)(6)(ii), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $7,000,’’ immediately
after the figure ‘‘$5,000’’.
■ H. In paragraph (d)(6)(iii), adding the
words ‘‘, or, for a loan certified on or
after July 1, 2007, $7,000.’’ immediately
after the figure ‘‘$5,000’’.
■ I. In paragraph (h), removing the
words ‘‘that parents may borrow on
behalf of each dependent student’’ and
adding, in their place, the words ‘‘that
a parent or student may borrow’’.
■ 40. Section 682.205 is amended by
revising paragraph (a)(2)(xix) to read as
follows:

—
(1) By electronic funds transfer or
master check from the lender in

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accordance with the disbursement
schedule provided by the school to an
account maintained in accordance with
§ 668.163 by the school as trustee for the
lender. A disbursement made by
electronic funds transfer or master
check must be accompanied by a list of
the names, social security numbers, and
loan amounts for the parent or student
borrowers who are receiving a portion of
the disbursement and the names and
social security numbers of the students
on whose behalf the parents are
borrowing parent PLUS loans.
(2) By a check from the lender that is
made co-payable to the institution and
the parent borrower, for a parent PLUS
loan, or student borrower, for a student
PLUS loan, directly to the institution of
higher education.
(C) In the case of a student enrolled
in a study-abroad program approved for
credit at the home institution in which
the student is enrolled, if the student
requests—
(1) A Stafford loan directly to the
student only after verification of the
student’s enrollment by the lender or
guaranty agency; or
(2) To the home institution if the
borrower provides a power-of-attorney
to an individual not affiliated with the
institution to endorse the check or
complete an electronic funds transfer
authorization.
(D) In the case of a student enrolled
in an eligible foreign school, if the
foreign school requests, a Stafford loan
directly to the student only after
verification of the student’s enrollment
by the lender or guaranty agency.
*
*
*
*
*
(2)(i) A lender or guaranty agency
must verify a borrower’s enrollment at
the foreign school, or a borrower’s
enrollment in a study-abroad program,
prior to each disbursement of Stafford
loan funds directly to a student by—
(A) For a student enrolled at a foreign
school—
(1) The guaranty agency accessing the
Department’s Postsecondary Education
Participants System (PEPS) Database (or
any successor system) and confirming
that the foreign school the student is to
attend is certified to participate in the
FFEL program.
(2) For a new student, contacting the
foreign school the student is to attend
by telephone or e-mail to verify the
student’s admission to the foreign
school for the period for which the loan
is intended at the enrollment status for
which the loan was certified.
(3) For a continuing student,
contacting the foreign school the
student is to attend by telephone or email to verify that the student is still

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enrolled at the foreign school for the
period for which the loan is intended at
the enrollment status for which the loan
was certified.
(B) For a student enrolled in a studyabroad program, contacting the home
institution in which the student is
enrolled by telephone or e-mail to
verify—
(1) For a new student, the student’s
admission to the study-abroad program
for the period for which the loan is
intended at the enrollment status for
which the loan is certified.
(2) For a continuing student, that the
student is still enrolled in the studyabroad program for the period for which
the loan is intended at the enrollment
status for which the loan is certified.
(ii) The lender or guaranty agency that
is verifying enrollment at the institution
the student is to attend must maintain
the following information in the
student’s file:
(A) The name and telephone number
of the school representative contacted;
(B) The date of the contact;
(C) The enrollment period;
(D) Whether enrollment was verified
at the enrollment status for which the
loan was certified; and
(E) Any other pertinent information
received from the school.
(iii) Guaranty agencies and lenders
must coordinate their activities to
ensure that the requirements of this
paragraph are met prior to making any
direct disbursement to a student.
(iv) If a lender disburses a Stafford
loan directly to the borrower for
attendance at an eligible foreign school,
or to a borrower enrolled in a studyabroad program approved for credit at
the home institution, as provided in
paragraphs (b)(1)(v)(C)(1) and
(b)(1)(v)(D)(1) of this section, the lender
must, at the time of disbursement, notify
the foreign school, for a borrower
attending a foreign school, or the home
institution in which the student is
enrolled, for a borrower enrolled in a
study-abroad program, of—
(A) The name and social security
number of the student;
(B) The type of loan;
(C) The amount of the disbursement,
including the amount of any fees
assessed the borrower;
(D) The date of the disbursement; and
(E) The name, address, telephone and
fax number or electronic address of the
lender, servicer, or guaranty agency to
which any inquiries should be
addressed.
*
*
*
*
*
§ 682.208
■

[Amended]

42. Section 682.208 is amended by:

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A. In paragraph (c)(2), adding the
words ‘‘or a student PLUS loan
borrower’’ immediately after the words
‘‘Stafford loan borrower’’.
■ B. In paragraph (d)(2), adding the
words ‘‘, as authorized and if
practicable,’’ immediately after
‘‘repayment schedule’’.
■ C. In paragraph (f)(1) introductory
text, adding the words ‘‘has been
convicted of, or has pled nolo
contendere or guilty to, a crime
involving fraud in obtaining title IV,
HEA program assistance,’’ immediately
after the word ‘‘borrowed,’’.
■

§ 682.209

[Amended]

43. Section 682.209 is amended by:
A. In paragraph (a)(3)(i) introductory
text, removing the words ‘‘paragraphs
(a)(4) and (5)’’ and adding, in their
place, the words ‘‘paragraph (a)(4)’’.
■ B. Removing paragraph (a)(5) and
redesignating paragraphs (a)(6) through
(a)(9) as paragraphs (a)(5) through (a)(8),
respectively.
■ C. In newly-redesignated paragraph
(a)(6)(v), removing the parentheticals
‘‘(a)(7)(vi)’’ and adding, in their place,
the parentheticals ‘‘(a)(6)(vi)’’.
■ D. In newly-redesignated paragraphs
(a)(6)(vii)(A)(2) and (a)(6)(viii)(A)(2),
removing the parentheticals ‘‘(a)(7)(i)’’
and adding, in their place, the
parentheticals ‘‘(a)(6)(i)’’.
■ E. In newly-redesignated paragraph
(a)(6)(viii)(E), removing the
parentheticals ‘‘(a)(8)’’ and adding, in
their place, the parentheticals ‘‘(a)(7)’’.
■ F. In newly-redesignated paragraph
(a)(7)(i), removing the parentheticals
‘‘(a)(7)(ix)’’ and adding, in their place,
the parentheticals ‘‘(a)(6)(ix)’’.
■ G. In newly-designated paragraph
(a)(7)(i), removing the parentheticals
‘‘(a)(8)(ii)’’ and adding, in their place,
the parentheticals ‘‘(a)(7)(ii)’’.
■ H. In paragraph (e)(2)(ii), removing
the parentheticals ‘‘(a)(8)(i)’’ and
adding, in their place, the parentheticals
‘‘(a)(7)(i)’’.
■ I. In paragraph (e)(3), adding the
words ‘‘or Federal default fee’’ after the
word ‘‘premium’’.
■ J. In paragraph (f)(2)(ii), removing the
parentheticals ‘‘(a)(8)(i)’’ and adding, in
their place, the parentheticals
‘‘(a)(7)(i)’’.
■ 44. Section 682.210 is amended by
adding a new paragraph (t) to read as
follows:
■
■

§ 682.210

Deferment.

*

*
*
*
*
(t) Military service deferments for
loans for which the first disbursement is
made on or after July, 1, 2001—(1) A
borrower who receives an FFEL Program
loan first disbursed on or after July 1,

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2001, may receive a military service
deferment for such loans for any period
not to exceed 3 years during which the
borrower is—
(i) Serving on active duty during a
war or other military operation or
national emergency; or
(ii) Performing qualifying National
Guard duty during a war or other
military operation or national
emergency.
(2) Serving on active duty during a
war or other military operation or
national emergency means service by an
individual who is—
(i) A Reserve of an Armed Force
ordered to active duty under 10 U.S.C.
12301(a), 12301(g), 12302, 12304 or
12306;
(ii) A retired member of an Armed
Force ordered to active duty under 10
U.S.C. 688 for service in connection
with a war or other military operation
or national emergency, regardless of the
location at which such active duty
service is performed; or
(iii) Any other member of an Armed
Force on active duty in connection with
such emergency or subsequent actions
or conditions who has been assigned to
a duty station at a location other than
the location at which member is
normally assigned.
(3) Qualifying National Guard duty
during a war or other operation or
national emergency means service as a
member of the National Guard on fulltime National Guard duty, as defined in
10 U.S.C. 101(d)(5), under a call to
active service authorized by the
President or the Secretary of Defense for
a period of more than 30 consecutive
days under 32 U.S.C. 502(f) in
connection with a war, other military
operation, or national emergency
declared by the President and supported
by Federal funds.
(4) Payments made by or on behalf of
a borrower during a period for which
the borrower qualified for a military
service deferment are not refunded.
(5) A borrower is eligible for a
military service deferment on a Federal
Consolidation Loan only if the borrower
meets the conditions described in this
section and all of the title IV loans
included in the Consolidation Loan
were first disbursed on or after July 1,
2001.
(6) As used in this section—
(i) Active duty means active duty as
defined in 10 U.S.C. 101(d)(1) except
that it does not include active duty for
training or attendance at a service
school;
(ii) Military operation means a
contingency operation as defined in 10
U.S.C. 101(a)(13); and

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(iii) National emergency means the
national emergency by reason of certain
terrorist attacks declared by the
President on September 14, 2001, or
subsequent national emergencies
declared by the President by reason of
terrorist attacks.
*
*
*
*
*
■ 45. Section 682.211 is amended by:
■ A. Revising paragraph (b)(1).
■ B. In paragraph (f)(6) adding the word
‘‘parent’’ immediately after the words
‘‘in the case of’’.
The revisions read as follows:
§ 682.211

Forbearance

*

*
*
*
*
(b) * * *
(1) The lender and the borrower or
endorser agree to the terms of the
forbearance and, unless the agreement
was in writing, the lender sends, within
30 days, a notice to the borrower or
endorser confirming the terms of the
forbearance and records the terms of the
forbearance in the borrower’s file; or
*
*
*
*
*
■ 46. Section 682.215 is amended by:
■ A. Revising paragraph (a).
■ B. In paragraph (b), adding, in
alphabetical order, a new definition for
Highly qualified.
■ C. Revising paragraph (c)(1)(iii).
■ D. Revising paragraph (c)(3).
■ E. Revising paragraph (c)(4).
■ F. Redesignating paragraphs (c)(5),
(c)(6), (c)(7), (c)(8), and (c)(9) as
paragraphs (c)(7), (c)(8), (c)(9), (c)(10),
and (c)(11), respectively.
■ G. Adding a new paragraph (c)(5).
■ H. Adding a new paragraph (c)(6).
■ I. Removing the parentheticals
‘‘(c)(5)’’ and adding, in their place, the
parentheticals ‘‘(c)(7)’’ in newly
redesignated paragraph (c)(8).
■ J. Revising paragraph (d)(1).
■ K. Revising paragraph (d)(2).
■ L. In paragraph (f)(3)(ii), removing the
figure ‘‘$5,000’’ and adding, in its place,
the figure ‘‘$17,500’’.
■ M. In paragraph (f)(3)(ii), removing the
parentheticals ‘‘(c)(9)’’ and adding, in its
place, the parentheticals ‘‘(c)(11)’’.
■ N. In paragraph (g), adding the words
‘‘, or up to $17,500,’’ immediately after
the figure ‘‘$5,000’’.
The revisions and additions read as
follows:
§ 682.215
program.

Teacher loan forgiveness

(a) General. The teacher loan
forgiveness program is intended to
encourage individuals to enter and
continue in the teaching profession. For
new borrowers, the Secretary repays the
amount specified in this paragraph on
the borrower’s subsidized and

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unsubsidized Federal Stafford Loans,
Direct Subsidized Loans, Direct
Unsubsidized Loans, and in certain
cases, Federal Consolidation Loans or
Direct Consolidation Loans. The
forgiveness program is only available to
a borrower who has no outstanding loan
balance under the FFEL Program or the
Direct Loan Program on October 1, 1998
or who has no outstanding loan balance
on the date he or she obtains a loan after
October 1, 1998. The borrower must
have been employed as a full-time
teacher for five consecutive complete
academic years, at least one of which
was after the 1997–1998 academic year,
in certain eligible elementary or
secondary schools that serve lowincome families. All borrowers eligible
for teacher loan forgiveness may receive
loan forgiveness of up to a combined
total of $5,000 on the borrower’s eligible
FFEL and Direct Loan Program loans. If
the borrower taught for five consecutive
years as a highly qualified mathematics
or science teacher in an eligible
secondary school or as a special
education teacher in an eligible
elementary or secondary school, the
borrower may receive loan forgiveness
of up to a combined total of $17,500 on
the borrower’s eligible FFEL and Direct
Loan Program loans. The loan for which
the borrower is seeking forgiveness must
have been made prior to the end of the
borrower’s fifth year of qualifying
teaching service.
*
*
*
*
*
(b) * * *
Highly qualified means highly
qualified as defined in section 9101 of
the Elementary and Secondary
Education Act of 1965, as amended.
*
*
*
*
*
(c) * * *
(1) * * *
(iii) Is listed in the Annual Directory
of Designated Low-Income Schools for
Teacher Cancellation Benefits. If this
directory is not available before May 1
of any year, the previous year’s
directory may be used. The Secretary
considers all elementary and secondary
schools operated by the Bureau of
Indian Affairs (BIA) or operated on
Indian reservations by Indian tribal
groups under contract with the BIA to
qualify as schools serving low-income
students.
*
*
*
*
*
(3) In the case of a borrower whose
five consecutive complete years of
qualifying teaching service began before
October 30, 2004, the borrower—
(i) May receive up to $5,000 of loan
forgiveness if the borrower—
(A) Demonstrated knowledge and
teaching skills in reading, writing,

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mathematics, and other areas of the
elementary school curriculum, as
certified by the chief administrative
officer of the eligible elementary school
in which the borrower was employed; or
(B) Taught in a subject area that is
relevant to the borrower’s academic
major as certified by the chief
administrative officer of the eligible
secondary school in which the borrower
was employed.
(ii) May receive up to $17,500 of loan
forgiveness if the borrower—
(A) Taught mathematics or science on
a full-time basis in an eligible secondary
school and was a highly qualified
mathematics or science teacher; or
(B) Taught as a special education
teacher on a full-time basis to children
with disabilities in either an eligible
elementary or secondary school and was
a highly qualified special education
teacher whose special education
training corresponded to the children’s
disabilities and who has demonstrated
knowledge and teaching skills in the
content areas of the elementary or
secondary school curriculum.
(4) In the case of a borrower whose
five consecutive years of qualifying
teaching service began on or after
October 30, 2004, the borrower—
(i) May receive up to $5,000 of loan
forgiveness if the borrower taught full
time in an eligible elementary or
secondary school and was a highly
qualified elementary or secondary
school teacher.
(ii) May receive up to $17,500 of loan
forgiveness if the borrower—
(A) Taught mathematics or science on
a full-time basis in an eligible secondary
school and was a highly qualified
mathematics or science teacher; or
(B) Taught as a special education
teacher on a full-time basis to children
with disabilities in either an eligible
elementary or secondary school and was
a highly qualified special education
teacher whose special education
training corresponded to the children’s
disabilities and who has demonstrated
knowledge and teaching skills in the
content areas of the elementary or
secondary school curriculum.
(5) To qualify for loan forgiveness as
a highly qualified teacher, the teacher
must have been a highly qualified
teacher for all five years of eligible
teaching service.
(6) For teacher loan forgiveness
applications received by the loan holder
on or after July 1, 2006, a teacher in a
private, non-profit elementary or
secondary school who is exempt from
State certification requirements (unless
otherwise applicable under State law)
may qualify for loan forgiveness under

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paragraphs (c)(3)(ii) or (c)(4) of this
section if—
(i) The private school teacher is
permitted to and does satisfy rigorous
subject knowledge and skills tests by
taking competency tests in applicable
grade levels and subject areas;
(ii) The competency tests are
recognized by 5 or more States for the
purposes of fulfilling the highly
qualified teacher requirements under
section 9101 of the Elementary and
Secondary Education Act of 1965; and
(iii) The private school teacher
achieves a score on each test that equals
or exceeds the average passing score for
those 5 states.
*
*
*
*
*
(d) Forgiveness amount. (1) A
qualified borrower is eligible for
forgiveness of up to $5,000, or up to
$17,500 if the borrower meets the
requirements of paragraphs (c)(3)(ii) or
(c)(4)(ii) of this section. The forgiveness
amount is deducted from the aggregate
amount of the borrower’s subsidized or
unsubsidized Federal Stafford or
Federal Consolidation Loan obligation
that is outstanding after the borrower
completes his or her fifth consecutive
complete academic year of teaching as
described in paragraph (c) of this
section. Only the outstanding portion of
the consolidation loan that was used to
repay an eligible subsidized or
unsubsidized Federal Stafford Loan, an
eligible Direct Subsidized Loan, or an
eligible Direct Unsubsidized Loan
qualifies for loan forgiveness under this
section.
(2) A borrower may not receive more
than a total of $5,000, or $17,500 if the
borrower meets the requirements of
paragraphs (c)(3)(ii) or (c)(4)(ii) of this
section, in loan forgiveness for
outstanding principal and accrued
interest under both this section and
under section 34 CFR 685.217.
*
*
*
*
*
■ 47. Section 682.300 is amended by:
■ A. In paragraph (c)(3)(i), removing the
word ‘‘or’’ at the end of the paragraph.
■ B. In paragraph (c)(3)(ii), removing the
punctuation ‘‘.’’ and adding, in its place,
the words ‘‘; or’’.
■ C. Adding new paragraph (c)(3)(iii).
The addition reads as follows:
§ 682.300 Payment of interest benefits on
Stafford and Consolidation Loans.

*

*
*
*
*
(c) * * *
(3) * * *
(iii) In the case of a loan disbursed
through an escrow agent, 3 days prior to
the first day of the period of enrollment
or, if the loan is disbursed after the first

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45703

day of the period of enrollment, 3 days
after disbursement.
*
*
*
*
*
■ 48. Section 682.302 is amended by:
■ A. Revising paragraph (b)(1).
■ B. In paragraph (b)(2), adding the
words ‘‘or on or after January 1, 2000 for
any period prior to April 1, 2006,’’ after
the words ‘‘on or after July 1, 1998’’.
■ C. Revising paragraph (c).
■ D. Revising paragraph (e).
■ E. Adding a new paragraph (f).
The revisions and addition read as
follows:
§ 682.302 Payment of special allowance on
FFEL Loans.

*

*
*
*
*
(b) * * *
(1) Except for non-subsidized Federal
Stafford loans disbursed on or after
October 1, 1981, for periods of
enrollment beginning prior to October 1,
1992, or as provided in paragraphs
(b)(2), (b)(3), or (e)(1) of this section,
FFEL loans that otherwise meet program
requirements are eligible for special
allowance payments.
*
*
*
*
*
(c) Rate. (1) Except as provided in
paragraph (c)(2), (c)(3), or (e) of this
section, the special allowance rate for an
eligible loan during a 3-month period is
calculated by—
(i) Determining the average of the
bond equivalent rates of—
(A) The quotes of the 3-month
commercial paper (financial) rates in
effect for each of the days in such
quarter as reported by the Federal
Reserve in Publication H–15 (or its
successor) for such 3-month period for
a loan for which the first disbursement
is made on or after January 1, 2000; or
(B) The 91-day Treasury bills
auctioned during the 3-month period for
a loan for which the first disbursement
is made prior to January 1, 2000;
(ii) Subtracting the applicable interest
rate for that loan;
(iii) Adding—
(A)(1) 2.34 percent to the resulting
percentage for a Federal Stafford loan
for which the first disbursement is made
on or after January 1, 2000;
(2) 2.64 percent to the resulting
percentage for a Federal PLUS loan for
which the first disbursement is made on
or after January 1, 2000;
(3) 2.64 percent to the resulting
percentage for a Federal Consolidation
Loan that was made based on an
application received by the lender on or
after January 1, 2000;
(4) 1.74 percent to the resulting
percentage for a Federal Stafford loan
for which the first disbursement is made
on or after January 1, 2000 during the

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borrower’s in-school, grace, and
authorized period of deferment;
(5) 2.8 percent to the resulting
percentage for a Federal Stafford loan
for which the first disbursement is made
on or after July 1, 1998 and prior to
January 1, 2000;
(6) 2.2 percent to the resulting
percentage for a Federal Stafford loan
for which the first disbursement is made
on or after July 1, 1998 and prior to
January 1, 2000, during the borrower’s
in-school, grace, and authorized period
of deferment;
(7) 2.5 percent to the resulting
percentage for a Federal Stafford loan
for which the first disbursement is made
on or after July 1, 1995 and prior to July
1, 1998 for interest that accrues during
the borrower’s in-school, grace, and
authorized period of deferment;
(B) 3.1 percent to the resulting
percentage for—
(1) A Federal Stafford Loan made on
or after October 1, 1992 and prior to July
1, 1998, except as provided in paragraph
(c)(1)(iii)(A)(7) of this section;
(2) A Federal SLS Loan made on or
after October 1, 1992;
(3) A Federal PLUS Loan made on or
after October 1, 1992 and prior to July
1, 1998;
(4) A Federal PLUS loan made on or
after July 1, 1998 and prior to October
1, 1998, except that no special
allowance shall be paid during any
quarter unless the average of the 91-day
Treasury bills auctioned during that
quarter, plus 3.1 percent, exceeds the
rate determined under
§ 682.202(a)(2)(v);
(5) A Federal PLUS loan made on or
after October 1, 1998 and prior to
January 1, 2000, except that no special
allowance shall be paid during any
quarter unless the rate determined
under § 682.202(a)(2)(v) exceeds 9
percent;
(6) A Federal Consolidation Loan for
which the application was received by
the lender prior to January 1, 2000,
except that no special allowance shall
be paid during any quarter on a loan for
which the application was received on
or after October 1, 1998 unless the
average of the bond equivalent rate of
the 91-day Treasury bills auctioned
during that quarter, plus 3.1 percent,
exceeds the rate determined under
Section 682.202(a)(4)(iv);
(C) 3.25 percent to the resulting
percentage, for a loan made on or after
November 16, 1986, but prior to October
1, 1992;
(D) 3.25 percent to the resulting
percentage, for a loan made on or after
October 17, 1986 but prior to November
16, 1986, for a period of enrollment

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beginning on or after November 16,
1986;
(E) 3.5 percent to the resulting
percentage, for a loan made prior to
October 17, 1986, or a loan described in
paragraph (c)(2) of this section; or
(F) 3.5 percent to the resulting
percentage, for a loan made on or after
October 17, 1986 but prior to November
16, 1986, for a period of enrollment
beginning prior to November 16, 1986;
(iv) Rounding the result upward to the
nearest one-eighth of 1 percent, for a
loan made prior to October 1, 1981; and
(v) Dividing the resulting percentage
by 4.
(2) The special allowance rate
determined under paragraph
(c)(1)(iii)(E) of this section applies to
loans made or purchased from funds
obtained from the issuance of an
obligation of the—
(i) Maine Educational Loan Marketing
Corporation to the Student Loan
Marketing Association pursuant to an
agreement entered into on January 31,
1984; or
(ii) South Carolina Student Loan
Corporation to the South Carolina
National Bank pursuant to an agreement
entered into on July 30, 1986.
(3)(i) Subject to paragraphs (c)(3)(iii),
(c)(3)(iv), and (e) of this section, the
special allowance rate is that provided
in paragraph (c)(3)(ii) of this section for
a loan made or guaranteed on or after
October 1, 1980 that was made or
purchased with funds obtained by the
holder from—
(A) The proceeds of tax-exempt
obligations originally issued prior to
October 1, 1993;
(B) Collections or payments by a
guarantor on a loan that was made or
purchased with funds obtained by the
holder from obligations described in
paragraph (c)(3)(i)(A) of this section;
(C) Interest benefits or special
allowance payments on a loan that was
made or purchased with funds obtained
by the holder from obligations described
in paragraph (c)(3)(i)(A) of this section;
(D) The sale of a loan that was made
or purchased with funds obtained by the
holders from obligations described in
paragraph (c)(3)(i)(A) of this section; or
(E) The investment of the proceeds of
obligations described in paragraph
(c)(3)(i)(A) of this section.
(ii) The special allowance rate for a
loan described in paragraph (c)(3)(i) is
one-half of the rate calculated under
paragraph (c)(1) of this section, except
that in applying paragraph (c)(1)(iii), 3.5
percent is substituted for the
percentages specified therein.
(iii) The special allowance rate
applicable to loans described in
paragraph (c)(3)(i) of this section that

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are made prior to October 1, 1992, may
not be less than—
(A) 2.5 percent per year on eligible
loans for which the applicable interest
rate is 7 percent;
(B) 1.5 percent per year on eligible
loans for which the applicable interest
rate is 8 percent; or
(C) One-half of 1 percent per year on
eligible loans for which the applicable
rate is 9 percent.
(iv) The special allowance rate
applicable to loans described in
paragraph (c)(3)(i) of this section that
are made on or after October 1, 1992,
may not be less than 9.5 percent minus
the applicable interest rate.
(4) Loans made or purchased with
funds obtained by the holder from the
issuance of tax-exempt obligations
originally issued on or after October 1,
1993, and loans made with funds
derived from default reimbursement
collections, interest, or other income
related to eligible loans made or
purchased with those tax-exempt funds,
do not qualify for the minimum special
allowance rate specified in paragraph
(c)(3)(iii) or (iv) of this section, and are
not subject to the 50 percent limitation
on the maximum rate otherwise
applicable to loans made with taxexempt funds.
(5) For purposes of paragraphs (c)(3)
and (c)(4), a loan is purchased with
funds described in those paragraphs
when the loan is refinanced in
consideration of those funds.
*
*
*
*
*
(e) Limits on special allowance
payments on loans made or purchased
with funds derived from tax-exempt
obligations.
(1) General. (i) The Secretary pays a
special allowance on a loan described in
paragraph (c)(3) or (c)(4) of this section
that is held by or on behalf of an
Authority only if the loan meets the
requirements of § 682.800.
(ii) The Secretary pays a special
allowance at the rate prescribed in
paragraph (c)(1) or (c)(3) of this section
on a loan described in paragraph
(c)(3)(i) of this section that is held by or
on behalf of an Authority in accordance
with paragraphs (e)(2) through (e)(5) of
this section, as applicable. References to
‘‘loan’’ or ‘‘loans’’ in paragraphs (e)(2)
through (e)(5) include only loans
described in paragraph (c)(3)(i).
(2) Effect of Refinancing on Special
Allowance Payments. Except as
provided in paragraphs (e)(3) through
(e)(5) of this section—
(i) The Secretary pays a special
allowance at the rate prescribed in
paragraph (c)(3) of this section to an
Authority that holds a legal or equitable

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
interest in the loan that is pledged or
otherwise transferred in consideration
of—
(A) Funds listed in paragraph (c)(3)(i)
of this section;
(B) Proceeds of a tax-exempt
refunding obligation that refinances a
debt that—
(1) Was first incurred pursuant to a
tax-exempt obligation originally issued
prior to October 1, 1993;
(2) Has been financed continuously by
tax-exempt obligation.
(ii) The Secretary pays a special
allowance to an Authority that holds a
legal or equitable interest in the loan
that is pledged or otherwise transferred
in consideration of funds other than
those specified in paragraph (e)(2)(i) of
this section either—
(A) At the rate prescribed in
paragraph (c)(1) of this section, ifl
(1) The prior tax-exempt obligation is
retired; or
(2) The prior tax-exempt obligation is
defeased by means of obligations that
the Authority certifies in writing to the
Secretary bears a yield that does not
exceed the yield restrictions of section
148 of the Internal Revenue Code and
the regulations thereunder, or
(B) At the rate prescribed in paragraph
(c)(3) of this section.
(3) Loans affected by transactions or
events after September 30, 2004. The
Secretary pays a special allowance to an
Authority at the rate prescribed in
paragraph (c)(1) of this section if, after
September 30, 2004—
(i) The loan is refinanced with funds
other than those listed in paragraph
(e)(2)(i) of this section;
(ii) The loan is sold or transferred to
any other holder; or
(iii)(A) The loan is financed by a taxexempt obligation included in the
sources in paragraph (e)(2)(i), and
(B) That obligation matures, is
refunded, is defeased, or is retired,
whichever occurs earliest.
(4) Loans Affected by Transactions
After February 7, 2006. Except as
provided in paragraph (e)(5) of this
section, the Secretary pays a special
allowance at the rate prescribed in
paragraph (c)(1) of this section on any
loan—
(i) That was made or purchased on or
after February 8, 2006, or
(ii) That was not earning, on February
8, 2006, a quarterly rate of special
allowance determined under paragraph
(c)(3) of this section.
(5) Loans affected by transactions
after December 30, 2010. (i) The
Secretary pays a special allowance to a
holder described in paragraph (e)(5)(ii)
of this section at the rate prescribed in
paragraph (c)(3) of this section only on
a loan—

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(A) That was made or purchased prior
to December 31, 2010, or
(B) That was earning, before
December 31, 2010, a quarterly rate of
special allowance determined under
paragraph (c)(3) of this section.
(ii) A holder for purposes of this
paragraph is an entity that—
(A) On February 8, 2006 and during
the quarter for which special allowance
is determined under this paragraph—
(1) Is a unit of State or local
government or a private nonprofit
entity, and
(2) Is not owned or controlled by, or
under common ownership or control by,
a for-profit entity; and
(B) In the most recent quarterly
special allowance payment prior to
September 30, 2005, held, directly or
through any subsidiary, affiliate, or
trustee, a total unpaid balance of
principal of $100,000,000 or less for
which special allowance was
determined and paid under paragraph
(c)(3) of this section.
(f) As used in this section—
(1) A tax-exempt obligation is an
obligation the income of which is
exempt from taxation under the Internal
Revenue Code of 1986 (26 U.S.C.);
(2) An obligation is originally issued
at the time that an Authority issues the
obligation to obtain funds to make loans
or to purchase loans that an Authority
does not hold or have any interest in;
(3) A loan is refinanced when an
Authority that has pledged the loan as
collateral for an obligation of that
Authority retains an interest in the loan,
but causes the loan to be released from
the lien of that obligation and pledged
as collateral for a different obligation of
that Authority.
(4) References to an Authority include
a successor entity that may not qualify
as an Authority under § 682.200(b).
*
*
*
*
*
■ 49. Section 682.305 is amended by:
■ A. In paragraph (a)(3)(i)(A)(2),
removing the punctuation ‘‘.’’ at the end
of the paragraph and adding, in its
place, the words ‘‘; and’’.
■ B. Adding a new paragraph
(a)(3)(i)(A)(3).
■ C. Revising paragraph (c)(1).
■ D. Adding a new paragraph (d).
The revisions and additions read as
follows:
§ 682.305 Procedures for payment of
interest benefits and special allowance and
collection of origination and loan fees.

(a) * * *
(3)(i)(A) * * *
(3) The amount of excess interest, as
calculated in accordance with paragraph
(d) of this section.
*
*
*
*
*

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(c) Independent audits. (1) A lender
(other than a school lender) originating
or holding more than $5 million in
FFEL loans during its fiscal year, and a
school lender under § 682.601 that
originates or holds any FFEL loans
during its fiscal year, must submit an
independent annual compliance audit
for that year, conducted by a qualified
independent organization or person.
The Secretary may, following written
notice, suspend the payment of interest
benefits and special allowance to a
lender that does not submit its audit
within the time period prescribed in
paragraph (c)(2) or this section.
*
*
*
*
*
(d) Recovery of excess interest paid by
the Secretary.
(1) For any loan for which the first
disbursement of principal is made on or
after April 1, 2006, the Secretary
collects the amount of excess interest
paid to a lender on a quarterly basis
when the applicable interest rate on a
loan for each quarter exceeds the special
allowance support level in paragraph
(d)(2) of this section for the loan. Excess
interest is calculated and recovered each
quarter by subtracting the special
allowance support level from the
applicable interest, multiplying the
result by the average daily principal
balance of the loan (not including
unearned interest added to principal)
during the quarter, and dividing by four.
(2) The term special allowance
support level means a number expressed
as a percentage equal to the sum of—
(i) The average of the bond equivalent
rates of the quotes of the 3-month
commercial paper (financial) rates in
effect for each of the days in such
quarter as reported by the Federal
Reserve in Publication H–15 (or its
successor) for such 3-month period;
plus
(ii) 2.34 percent for a Federal Stafford
loan in repayment;
(iii) 1.74 percent for a Federal Stafford
loan during the in-school, grace, and
deferment periods; or
(iv) 2.64 percent for a Federal PLUS
or Consolidation Loan.
*
*
*
*
*
■ 50. Section 682.401 is amended by:
■ A. In paragraph (b)(3)(i), removing the
word ‘‘SLS’’ and inserting, in its place,
the words ‘‘PLUS Loan’’.
■ B. Amending the first sentence of
paragraph (b)(4) by adding the words
‘‘and § 668.35(i) for a borrower who
fraudulently obtained title IV, HEA
program assistance’’ after the word
‘‘obtained’’.
■ C. In paragraph (b)(4)(iv), removing
the figure ‘‘six’’ and inserting, in its
place, the figure ‘‘three’’.

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D. In paragraph (b)(5)(ii) introductory
text, by inserting the word ‘‘parent’’
before the word ‘‘PLUS’’.
■ E. Revising paragraphs (b)(10)(i), (ii),
(iii), (iv), (v), (vi) introductory text,
(vi)(A), and (vi)(B) introductory text.
■ F. In paragraph (b)(14)(i), removing
the word ‘‘and’’.
■ G. In paragraph (b)(14)(ii), removing
the punctuation ‘‘.’’ and adding the
words ‘‘and before July 1, 2006; and’’
immediately after the date ‘‘October 1,
1993’’.
■ H. Adding a new paragraph
(b)(14)(iii).
■ I. In paragraph (b)(19)(i)(F), by adding
the words ‘‘unpaid refunds, identity
theft’’ after the word ‘‘certification,’’.
■ J. Revising paragraph (b)(27).
■ K. Adding a new paragraph (b)(29).
■ L. Adding a new paragraph (f).
The revisions and additions read as
follows:
■

§ 682.401

Basic program agreement.

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*

*
*
*
*
(b) * * *
(10) Insurance premiums and Federal
default fees. (i) Except for a
Consolidation Loan or SLS or PLUS
loans refinanced under § 682.209 (e) or
(f), a guaranty agency:
(A) May charge the lender an
insurance premium for Stafford, SLS, or
PLUS loans it guarantees prior to July 1,
2006; and
(B) Must collect, either from the
lender or by payment from any other
non-Federal source, a Federal default
fee for any Stafford or PLUS loans it
guarantees on or after July 1, 2006, to be
deposited into the Federal Fund under
§ 682.419.
(ii) The guaranty agency may not use
the Federal default fee for incentive
payments to lenders, and may only use
the insurance premium or the Federal
default fee for costs incurred in
guaranteeing loans or in the
administration of the agency’s loan
guarantee program, as specified in
§ 682.410(a)(2) or § 682.419(c).
(iii) If a lender charges the borrower
an insurance premium or Federal
default fee, the lender must deduct the
charge proportionately from each
disbursement of the borrower’s loan
proceeds.
(iv) The amount of the insurance
premium or Federal default fee, as
applicable—
(A) May not exceed 3 percent of the
principal balance for a loan disbursed
on or before June 30, 1994;
(B) May not exceed 1 percent of the
principal balance for a loan disbursed
on or after July 1, 1994;
(C) Shall be 1 percent of the principal
balance of a loan guaranteed on or after
July 1, 2006.

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(v) If the circumstances specified in
paragraph (vi) exist, the guaranty agency
shall refund to the lender any insurance
premium or Federal default fee paid by
the lender.
(vi) The lender shall refund to the
borrower by a credit against the
borrower’s loan balance the insurance
premium or Federal default fee paid by
the borrower on a loan under the
following circumstances:
(A) The insurance premium or
Federal default fee attributable to each
disbursement of a loan must be
refunded if the loan check is returned
uncashed to the lender.
(B) The insurance premium or Federal
default fee, or an appropriate prorated
amount of the premium or fee, must be
refunded by application to the
borrower’s loan balance if—
*
*
*
*
*
(14) * * *
(iii) Not more than 97 percent of the
unpaid principal balance of each loan
guaranteed for loans first disbursed on
or after July 1, 2006.
*
*
*
*
*
(27) Consolidation of defaulted FFEL
loans.
(i) A guaranty agency may charge
collection costs in an amount not to
exceed 18.5 percent of the outstanding
principal and interest on a defaulted
FFEL Program loan that is paid off by a
Federal Consolidation loan.
(ii) Prior to October 1, 2006, when
returning the proceeds from the
consolidation of a defaulted loan to the
Secretary, a guaranty agency may only
retain the amount charged to the
borrower pursuant to this paragraph.
(iii) On or after October 1, 2006, when
returning proceeds to the Secretary from
the consolidation of a defaulted loan, a
guaranty agency that charged the
borrower collection costs must remit an
amount that equals the lesser of the
actual collection costs charged or 8.5
percent of the outstanding principal and
interest of the loan.
(iv) On or after October 1, 2009, when
returning proceeds to the Secretary from
the consolidation of a defaulted loan
that is paid off with excess
consolidation proceeds as defined in
paragraph (b)(27)(ii)(D) of this section, a
guaranty agency must remit the entire
amount of collection costs repaid
through the consolidation loan pursuant
to paragraph (b)(27)(ii) of this section.
(v) The term excess consolidation
proceeds means, for any Federal fiscal
year beginning on or after October 1,
2009, the amount of Consolidation Loan
proceeds received for defaulted loans
under the FFEL Program that exceed 45
percent of the agency’s total collections

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on defaulted loans in that Federal fiscal
year.
*
*
*
*
*
(29) Plans to Reduce Consolidation of
defaulted loans. A guaranty agency shall
establish and submit to the Secretary for
approval, procedures to ensure that
consolidation loans are not an excessive
proportion of the guaranty agency’s
recoveries on defaulted loans.
*
*
*
*
*
(f) College Access Initiative. (1) A
guaranty agency shall establish a plan to
promote access to postsecondary
education by—
(i) Providing the Secretary and the
public with information on Internet web
links and a comprehensive listing of
postsecondary education opportunities,
programs, publications and other
services available in the State, or States
for which the guaranty agency serves as
the designated guaranty agency;
(ii) Promoting and publicizing
information for students and
traditionally underrepresented
populations on college planning, career
preparation, and paying for college in
coordination with other entities that
provide or distribute such information
in the State, or States for which the
guaranty agency serves as the
designated guaranty agency;
(2) The activities required by this
section may be funded from the
guaranty agency’s Operating Fund in
accordance with § 682.423(c)(1)(vii) or
from funds remaining in restricted
accounts established pursuant to section
422(h)(4) of the HEA.
(3) The guaranty agency shall ensure
that the information required by this
subsection is available to the public by
November 5, 2006 and is—
(i) Free of charge; and
(ii) Available in print.
*
*
*
*
*
■ 51. Section 682.402 is amended by:
■ A. Amending paragraph (a)(4) by
removing the words ‘‘paragraphs
(e)(1)(ii)’’ and, inserting in their place,
the words ‘‘paragraph (e)(1)(ii) or (iii)’’.
■ B. Revising paragraph (e)(1)(i)
introductory text.
■ C. Adding a new paragraph
(e)(1)(i)(C).
■ D. Adding a new paragraph (e)(1)(iii).
■ E. Redesignating paragraphs (e)(3)(v)
and (e)(3)(vi) as paragraphs (e)(3)(vi)
and (e)(3)(vii), respectively.
■ F. Adding a new paragraph (e)(3)(v).
■ G. In the heading of paragraph (e)(7),
adding the words ‘‘that he or she was a
victim of the crime of identity theft’’
after the word ‘‘note.’’
■ H. In paragraph (e)(7)(ii)(C)(2),
removing the punctuation ‘‘.’’, and
adding, in its place, the words ‘‘; and’’.

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I. In paragraph (e)(7)(ii), adding a new
paragraph (e)(7)(ii)(D).
■ J. In the heading of the paragraph
(e)(9), adding the words ‘‘that he or she
was a victim of the crime of identity
theft,’’ after the word ‘‘note,’’.
■ K. In paragraph (e)(9)(ii)(B), removing
the word ‘‘and’’.
■ L. In paragraph (e)(9)(ii)(C), removing
the punctuation ‘‘.’’, and adding, in its
place, the words ‘‘; and’’.
■ M. In paragraph (e)(9)(ii), adding a
new paragraph (e)(9)(ii)(D).
■ N. Redesignating paragraph (e)(14) as
paragraph (e)(15).
■ O. Adding a new paragraph (e)(14).
The revisions and additions read as
follows:
■

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

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*

*
*
*
*
(e) False certification by a school of a
student’s eligibility to borrower and
unauthorized disbursements.
(1) General. (i) The Secretary
reimburses the holder of a loan received
by a borrower on or after January 1,
1986, and discharges a current or former
borrower’s obligation with respect to the
loan in accordance with the provisions
of paragraph (e) of this section, if the
borrower’s (or the student for whom a
parent received a PLUS loan) eligibility
to receive the loan was falsely certified
by an eligible school. On or after July 1,
2006, the Secretary reimburses the
holder of a loan, and discharges a
borrower’s obligation with respect to the
loan in accordance with the provisions
of paragraph (e) of this section, if the
borrower’s eligibility to receive the loan
was falsely certified as a result of a
crime of identity theft. For purposes of
a false certification discharge, the term
‘‘borrower’’ includes all endorsers on a
loan. A student’s or other individual’s
eligibility to borrow shall be considered
to have been falsely certified by the
school if the school—
*
*
*
*
*
(C) Certified the eligibility of an
individual for an FFEL Program loan as
a result of the crime of identity theft
committed against the individual, as
that crime is defined in § 682.402(e)(14).
*
*
*
*
*
(iii) If a loan was made as a result of
the crime of identity theft that was
committed by an employee or agent of
the lender, or if at the time the loan was
made, an employee or agent of the
lender knew of the identity theft of the
individual named as the borrower—
(A) The Secretary does pay
reinsurance, and does not reimburse the
holder, for any amount disbursed on the
loan; and

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(B) Any amounts received by a holder
as interest benefits and special
allowance payments with respect to the
loan must be refunded to the Secretary,
as provided in paragraphs (e)(8)(ii)(B)(4)
and (e)(10)(ii)(D) of this section.
*
*
*
*
*
(3) * * *
(v) In the case of an individual who
is requesting a discharge of a loan
because the individual’s eligibility was
falsely certified as a result of a crime of
identity theft committed against the
individual—
(A) Certify that the individual did not
sign the promissory note, or that any
other means of identification used to
obtain the loan was used without the
authorization of the individual claiming
relief;
(B) Certify that the individual did not
receive or benefit from the proceeds of
the loan with knowledge that the loan
had been made without the
authorization of the individual;
(C) Provide a copy of a local, State, or
Federal court verdict or judgment that
conclusively determines that the
individual who is named as the
borrower of the loan was the victim of
a crime of identify theft;
(D) If the judicial determination of the
crime does not expressly state that the
loan was obtained as a result of the
crime, provide—
(1) Authentic specimens of the
signature of the individual, as provided
in paragraph (e)(3)(iii)(B), or other
means of identification of the
individual, as applicable, corresponding
to the means of identification falsely
used to obtain the loan; and
(2) A statement of facts that
demonstrate, to the satisfaction of the
Secretary, that eligibility for the loan in
question was falsely certified as a result
of the crime of identity theft committed
against that individual.
*
*
*
*
*
(7) * * *
(ii) * * *
(D) Within 30 days, demand payment
in full from the perpetrator of the
identity theft committed against the
individual, and if payment is not
received, pursue collection action
thereafter against the perpetrator.
*
*
*
*
*
(9) * * *
(ii) * * *
(D) Within 30 days, demand payment
in full from the perpetrator of the
identity theft committed against the
individual, and if payment is not
received, pursue collection action
thereafter against the perpetrator.
*
*
*
*
*
(14) Identity theft. (i) The
unauthorized use of the identifying

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information of another individual that is
punishable under 18 U.S.C. 1028, 1029,
or 1030, or substantially comparable
State or local law.
(ii) Identifying information includes,
but is not limited to—
(A) Name, Social Security number,
date of birth, official State or
government issued driver’s license or
identification number, alien registration
number, government passport number,
and employer or taxpayer identification
number;
(B) Unique biometric data, such as
fingerprints, voiceprint, retina or iris
image, or unique physical
representation;
(C) Unique electronic identification
number, address, or routing code; or
(D) Telecommunication identifying
information or access device (as defined
in 18 U.S.C. 1029(e)).
*
*
*
*
*
■ 52. Section 682.404 is amended by:
■ A. Redesignating paragraph
(a)(1)(iii)(D) as paragraph (a)(1)(iii)(E).
■ B. Adding a new paragraph
(a)(1)(iii)(D).
■ C. Adding a new paragraph (a)(2)(iii).
The additions read as follows:
§ 682.404

Federal reinsurance agreement.

(a) * * *
(1) * * *
(iii) * * *
(D) For loans that meet the definition
of exempt claims in paragraph (a)(2)(iii)
of this section;
(2) * * *
(iii) Exempt claims means claims with
respect to loans for which it is
determined that the borrower (or
student on whose behalf a parent has
borrowed), without the lender’s or the
institution’s knowledge at the time the
loan was made, provided false or
erroneous information or took actions
that caused the borrower or the student
to be ineligible for all of a portion of the
loan or for interest benefits on the loan.
*
*
*
*
*
■ 53. Section 682.405 is amended by:
■ A. Revising paragraphs (a)(1) and (2).
■ B. Revising paragraph (b)(1).
■ C. Redesignating paragraphs (b)(2) and
(b)(3) as paragraphs (b)(3) and (b)(4),
respectively.
■ D. In newly redesignated paragraph
(b)(4), removing the words ‘‘12
consecutive’’ both times they appear
and adding, in their place, the figure
‘‘9’’.
■ E. Add new paragraph (b)(2).
The revisions read as follows:
§ 682.405

Loan rehabilitation agreement.

(a) General. (1) A guaranty agency that
has a basic program agreement must

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enter into a loan rehabilitation
agreement with the Secretary. The
guaranty agency must establish a loan
rehabilitation program for all borrowers
with an enforceable promissory note for
the purpose of rehabilitating defaulted
loans, except for loans for which a
judgment has been obtained, loans on
which a default claim was filed under
§ 682.412, and loans on which the
borrower has been convicted of, or has
pled nolo contendere or guilty to, a
crime involving fraud in obtaining title
IV, HEA program assistance, so that the
loan may be purchased, if practicable,
by an eligible lender and removed from
default status.
(2) A loan is considered to be
rehabilitated only after—
(i) The borrower has made and the
guaranty agency has received nine of the
ten payments required under a monthly
repayment agreement.
(A) Each of which payments is—
(1) Made voluntarily;
(2) In the full amount required; and
(3) Received within 20 days of the due
date for the payment, and
(B) All nine payments are received
within a 10-month period that begins
with the month in which the first
required due date falls and ends with
the ninth consecutive calendar month
following that month, and
(ii) The loan has been sold to an
eligible lender.
(b) * * *
(1) A borrower may request
rehabilitation of the borrower’s
defaulted loan held by the guaranty
agency. In order to be eligible for
rehabilitation of the loan, the borrower
must voluntarily make at least nine of
the ten payments required under a
monthly repayment agreement.
(i) Each of which payment is—
(A) Made voluntarily,
(B) In the full amount required, and
(C) Received within 20 days of the
due date for the payment, and
(ii) All nine payments are received
within a ten-month period that begins
with the month in which the first
required due date falls and ends with
the ninth consecutive calendar month
following that month.
(2) For the purposes of this section,
payment in the full amount required
means payment of an amount that is
reasonable and affordable, based on the
borrower’s total financial circumstances,
as agreed to by the borrower and the
agency. Voluntary payments are those
made directly by the borrower and do
not include payments obtained by
Federal offset, garnishment, income or
asset execution, or after a judgment has
been entered on a loan. A guaranty
agency must attempt to secure a lender

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to purchase the loan at the end of the
9- or 10-month payment period as
applicable.
§ 682.406

[Amended]

54. Section 682.406 is amended in
paragraph (a)(9) by removing the figure
‘‘45’’ and adding, in its place, the figure
‘‘30’’.
■ 55. Section 682.408 is amended by
revising paragraph (c) to read as follows:
■

§ 682.408 Loan disbursement through an
escrow agent.

*

*
*
*
*
(c) Transmittal of FFEL loan proceeds
by an escrow agent. The escrow agent
shall transmit Stafford and PLUS loan
proceeds received from a lender under
this section to a school in accordance
with the requirements of
§ 682.207(b)(1)(ii) and (iv) not later than
10 days after the agent receives the
funds from the lender.
*
*
*
*
*
§ 682.410

[Amended]

56. Section 682.410 is amended by:
A. In paragraph (a)(1)(i), adding the
words ‘‘and Federal default fees’’ after
the word ‘‘premiums’’.
■ B. In paragraph (a)(2)(vi), adding the
words ‘‘and Federal default fees’’ after
the word ‘‘premiums’’.
■ C. In paragraph (b)(9)(i)(A), removing
the figure ‘‘10’’ and adding, in its place,
the figure ‘‘15’’.
■ 57. Section 682.415 is amended by
revising paragraph (a)(1) to read as
follows:
■
■

§ 682.415 Special insurance and
reinsurance rules.

(a)(1) A lender or lender servicer (as
an agent for an eligible lender)
designated for exceptional performance
under paragraph (b) of this section shall
receive reimbursement at the applicable
rate under paragraphs (a)(1)(i) or
(a)(1)(ii) of this section on all claims
submitted for insurance during the 12month period following the date the
lender or lender servicer and
appropriate guaranty agencies receive
notification of the designation of the
eligible lender or lender servicer under
paragraph (b) of this section. A guaranty
agency or a guaranty agency servicer (as
an agent for a guaranty agency)
designated for exceptional performance
under paragraph (c) of this section shall
receive the applicable reinsurance rate
under section 428(c)(1) of the Act on all
claims submitted for payments by the
guaranty agency or guaranty agency
servicer during the 12-month period
following the date the guaranty agency
receives notification of its designation,
or its servicer’s designation, under

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paragraph (c) of this section. A notice of
designation for exceptional performance
under this section is deemed to have
been received by the lender, servicer, or
guaranty agency no later than 3 days
after the date the notice is mailed,
unless the lender, servicer, or guaranty
agency is able to prove otherwise. A
lender or lender servicer designated for
exceptional performance shall receive
reimbursement at the rate of—
(i) 100 percent of the unpaid principal
and interest for default claims submitted
to the guaranty agency for payment
before July 1, 2006; and
(ii) 99 percent of the unpaid principal
and interest for default claims submitted
to the guaranty agency for payment on
or after July 1, 2006.
*
*
*
*
*
§ 682.419

[Amended]

58. Section 682.419 is amended by:
A. In paragraph (b)(2), adding the
words ‘‘or Federal default fees’’ after the
word ‘‘premiums’’.
■ B. In paragraph (c)(7), by adding the
words ‘‘or Federal default fees’’ after the
word ‘‘premiums’’.
■ 59. Section 682.601 is revised to read
as follows:
■
■

§ 682.601 Rules for a school that makes or
originates loans.

(a) General. To make or originate
loans under the FFEL program, a
school—
(1) Must employ at least one person
whose full-time responsibilities are
limited to the administration of
programs of financial aid for students
attending the school;
(2) Must not be a home study school;
(3) Must not—
(i) Make a loan to any undergraduate
student;
(ii) Make a loan other than a Federal
Stafford loan to a graduate or
professional student; or
(iii) Make a loan to a borrower who
is not enrolled at that school;
(4) Must award any contract for
financing, servicing, or administration
of FFEL loans on a competitive basis;
(5) Must offer loans that carry an
origination fee or an interest rate, or
both, that are less than the fee or rate
authorized under the provisions of the
Act;
(6) Must not have a cohort default
rate, as calculated under subpart M of
34 CFR part 668, greater than 10
percent;
(7) Must, for any fiscal year beginning
on or after July 1, 2006 in which the
school engages in activities as an
eligible lender, submit a compliance
audit conducted in accordance with the
requirements of 34 CFR 682.305(c)(2);

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
(8) Must use any proceeds from
special allowance payments and interest
payments from borrowers, interest
subsidy payments, and any proceeds
from the sale or other disposition of
loans (exclusive of return of principal,
any financing costs incurred by the
school to acquire funds to make the
loans, and the cost of charging
origination fees or interest rates at less
than the fees or rates authorized under
the HEA) for need-based grants which
does not include providing origination
fees or interest rates at less than the fee
or rate authorized under the provisions
of the Act; and
(9) Must have met the requirements to
be an eligible lender as of February 7,
2006, and must have made loans on or
before April 1, 2006.
(b) An eligible school lender may use
a portion of the proceeds described in
paragraph (a)(8) of this section for
reasonable and direct administrative
expenses. Reasonable and direct
administrative expenses are those that
are incurred by the school and are
directly related to the school’s
performance of actions required of the
school under the Act or the regulations
in this part. Reasonable and direct
administrative expenses do not include
financing and similar costs such as costs
paid by the school to obtain funding to
make FFEL loans, the cost of paying
Federal default fees on behalf of
borrowers, or the cost of providing
origination fees or interest rates at less
than the fee or rate authorized under the
provisions of the Act.
(c) An eligible school lender must
ensure that the proceeds described in
paragraph (a)(8) of this section are used
to supplement, and not to supplant,
non-Federal funds that would otherwise
be used for need-based grant programs.
(Authority: 20 U.S.C. 1077, 1078–1, 1078–2,
1078–3, 1082, 1085)
§ 682.603

60. Section 682.603 is amended, in
paragraph (h), by adding the word
‘‘parent’’ immediately after the words
‘‘in the case of a’’.
*
*
*
*
*

■

61. Section 682.604 is amended by:
A. In paragraph (c)(3) introductory
text, adding the word ‘‘parent’’
immediately after the words ‘‘in the case
of’’.
■ B. Revising paragraph (b)(1).
■ C. In paragraph (c)(2)(i), removing the
words ‘‘§ 682.207(b)(1)(v)(C)(1) and
(D)(1)’’ and adding, in their place, the
words ‘‘§ 682.207(b)(1)(v)(C)(1) and
(D)’’.
■

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■

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§ 682.604 Processing the borrower’s loan
proceeds and counseling borrowers.

*

*
*
*
*
(b) Releasing loan proceeds. (1)(i)
Except as provided in
§ 682.207(b)(1)(v)(C)(1) and (D), the
proceeds of a Stafford or PLUS loan
disbursed using electronic transfer of
funds must be sent directly to the school
by the lender.
(ii) Upon notification by a lender
under § 682.207(b)(2)(iv) that it has
disbursed a loan directly to a borrower
as provided under
§ 682.207(b)(1)(v)(C)(1) and (D), the
institution must immediately notify the
lender if the student is no longer eligible
to receive the disbursement.
*
*
*
*
*
PART 685—WILLIAM D. FORD
FEDERAL DIRECT LOAN PROGRAM
62. The authority citation for part 685
continues to read as follows:

■

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

63. Section 685.100 is amended by:
A. In paragraph (a)(3), adding the
words ‘‘and to graduate or professional
students’’ immediately after the words
‘‘dependent students.’’
■ B. Revising paragraph (c)(2).
The revision reads as follows:
■
■

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

*

[Amended]

VerDate Aug<31>2005

D. In paragraphs (c)(5)(i) and
(c)(10)(i)(B), adding the word ‘‘or’’ after
the punctuation ‘‘;’’.
■ E. In paragraphs (c)(5)(ii) and
(c)(10)(ii), removing the words ‘‘; or’’
and adding, in their place, the
punctuation ‘‘.’’.
■ F. Removing paragraphs (c)(5)(iii) and
(c)(10)(iii).
■ G. In paragraph (h) introductory text,
removing the words ‘‘, or in the case of
a student attending a foreign school,’’.
The revision reads as follows:
■

Jkt 208001

*
*
*
*
(c) * * *
(2) A borrower with a loan made
under the Federal Family Education
Loan Program who—
(i) Is not able to obtain a Federal
Consolidation Loan;
(ii) Is not able to obtain a Federal
Consolidation Loan with incomesensitive repayment terms that are
satisfactory to the borrower; or
(iii) Has a Federal Consolidation Loan
that has been submitted by the lender to
the guaranty agency for default aversion,
and wishes to consolidate the Federal
Consolidation Loan into the Direct Loan
Program for the purpose of obtaining an
income contingent repayment plan.
*
*
*
*
*

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45709

64. Section 685.101 is amended by
revising paragraph (b) to read as follows:

■

§ 685.101 Participation in the Direct Loan
Program.

*

*
*
*
*
(b) An eligible undergraduate student
who is enrolled at a school participating
in the Direct Loan Program may borrow
under the Federal Direct Stafford/Ford
Loan and Federal Direct Unsubsidized
Stafford/Ford Loan Programs. An
eligible graduate or professional student
enrolled at a school participating in the
Direct Loan Program may borrow under
the Federal Direct Stafford/Ford Loan,
Federal Direct Unsubsidized Stafford/
Ford Loan, and Federal Direct PLUS
Programs. An eligible parent of an
eligible dependent student enrolled at a
school participating in the Direct Loan
Program may borrow under the Federal
Direct PLUS Program.
*
*
*
*
*
■ 65. Section 685.102(b) is amended by:
■ A. Revising the definition of estimated
financial assistance.
■ B. Revising the definition of Federal
Direct Consolidation Loan Program.
■ C. Revising the definition of Federal
Direct PLUS Program.
■ D. In paragraph (2) of the definition of
Satisfactory repayment arrangement,
removing the reference to
‘‘685.220(d)(1)(ii)(E)’’ and adding, in its
place, a reference to
‘‘685.220(d)(1)(ii)(C)’’.
The revisions read as follows:
§ 685.102

Definitions.

*

*
*
*
*
(b) * * *
Estimated financial assistance. (1)
The estimated amount of assistance for
a period of enrollment that a student (or
a parent on behalf of a student) will
receive from Federal, State,
institutional, or other sources, such as
scholarships, grants, net earnings from
need-based employment, or loans,
including but not limited to—
(i) Except as provided in paragraph
(2)(iv) of this definition, veterans’
educational benefits paid under
chapters 30 (Montgomery GI Bill—
Active Duty), 31 (Vocational
Rehabilitation and Employment
Program), 32 (Veterans’ Educational
Assistance Program), and 35
(Dependents’ Educational Assistance
Program) of title 38 of the United States
Code;
(ii) Educational benefits paid under
chapters 31 (National Call to Service),
1606 (Montgomery GI Bill—Selected
Reserve), and 1607 (Reserve Educational
Assistance Program) of title 10 of the
United States Code;

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(iii) Reserve Officer Training Corps
(ROTC) scholarships and subsistence
allowances awarded under chapter 2 of
title 10 and chapter 2 of title 37 of the
United States Code;
(iv) Benefits paid under Public Law
96–342, section 903: Educational
Assistance Pilot Program;
(v) Any educational benefits paid
because of enrollment in a
postsecondary education institution, or
to cover postsecondary education
expenses;
(vi) Fellowships or assistantships,
except non-need-based employment
portions of such awards;
(vii) Insurance programs for the
student’s education;
(viii) The estimated amount of other
Federal student financial aid, including
but not limited to a Federal Pell Grant,
Academic Competitiveness Grant,
National SMART Grant, campus-based
aid, and the gross amount (including
fees) of subsidized and unsubsidized
Federal Stafford Loans or subsidized
and unsubsidized Direct Stafford Loans
and Federal PLUS or Direct PLUS
Loans; and
(ix) Except as provided in paragraph
(2)(iii) of this definition, national
service education awards or post-service
benefits under title I of the National and
Community Service Act of 1990
(AmeriCorps).
(2) Estimated financial assistance does
not include—
(i) Those amounts used to replace the
expected family contribution (EFC),
including the amounts of any
unsubsidized Federal Stafford Loans or
Direct Stafford Loans, Federal PLUS or
Direct PLUS Loans, and non-federal
non-need-based loans, including
private, state-sponsored, and
institutional loans. However, if the sum
of the loan amounts received that are
being used to replace the student’s EFC
exceed the EFC, the excess amount must
be treated as estimated financial
assistance;
(ii) Federal Perkins loan and Federal
Work-Study funds that the student has
declined;
(iii) Non-need-based employment
earnings;
(iv) For the purpose of determining
eligibility for a Direct Subsidized Loan,
veterans’ educational benefits paid
under chapter 30 of title 38 of the
United States Code (Montgomery GI
Bill—Active Duty) and national service
education awards or post-service
benefits under title I of the National and
Community Service Act of 1990
(AmeriCorps);
(v) Any portion of the estimated
financial assistance described in
paragraph (1) of this definition that is

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included in the calculation of the
student’s EFC; and
(vi) Assistance not received under this
part if that assistance is designated to
offset all or a portion of a specific
amount of the cost of attendance and
that component is excluded from the
cost of attendance as well. If that
assistance is excluded from either
estimated financial assistance or cost of
attendance, it must be excluded from
both.
*
*
*
*
*
Federal Direct Consolidation Loan
Program: (1) A loan program authorized
by title IV, part D of the Act that
provides loans to borrowers who
consolidate certain Federal educational
loan(s), and one of the components of
the Direct Loan Program. Loans made
under this program are referred to as
Direct Consolidation Loans.
(2) The term ‘‘Direct Subsidized
Consolidation Loan’’ refers to the
portion of a Direct Consolidation Loan
attributable to certain subsidized title IV
education loans that were repaid by the
consolidation loan. Interest is not
charged to the borrower during
deferment periods, or, for a borrower
whose consolidation application was
received before July 1, 2006, during inschool and grace periods.
(3) The term ‘‘Direct Unsubsidized
Consolidation Loan’’ refers to the
portion of a Direct Consolidation Loan
attributable to unsubsidized title IV
education loans, certain subsidized title
IV education loans, and certain other
Federal education loans that were
repaid by the consolidation loan. The
borrower is responsible for the interest
that accrues during any period.
(4) The term ‘‘Direct PLUS
Consolidation Loan’’ refers to the
portion of a Direct Consolidation Loan
attributable to Direct PLUS Loans,
Direct PLUS Consolidation Loans,
Federal PLUS Loans, and Parent Loans
for Undergraduate Students that were
repaid by the consolidation loan. The
borrower is responsible for the interest
that accrues during any period.
*
*
*
*
*
Federal Direct PLUS Program: A loan
program authorized by title IV, Part D of
the Act that is one of the components of
the Federal Direct Loan Program. The
Federal Direct PLUS Program provides
loans to parents of dependent students
attending schools that participate in the
Direct Loan Program. The Federal Direct
PLUS Program also provides loans to
graduate or professional students
attending schools that participate in the
Direct Loan Program. The borrower is
responsible for the interest that accrues
during any period. Loans made under

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this program are referred to as Direct
PLUS Loans.
*
*
*
*
*
■ 66. Section 685.200 is amended by:
■ A. In paragraph (a), revising the
paragraph heading to read as set forth
below.
■ B. Redesignating paragraphs (b), (c),
and (d) as paragraphs (c), (d), and (e),
respectively.
■ C. Adding a new paragraph (b).
■ D. In newly redesignated paragraph
(c), revising the paragraph heading to
read as set forth below and adding a
new paragraph (c)(3).
■ E. In newly redesignated paragraph
(c)(1)(vii)(B) introductory text, removing
the reference to ‘‘(b)(1)(vii)(A)’’ and
adding, in its place, a reference to
‘‘(c)(1)(vii)(A)’’.
■ F. In newly redesignated paragraph
(c)(1)(vii)(C), removing the reference to
‘‘(b)(1)(vii)(A)’’ adding, in its place, a
reference to ‘‘(c)(1)(vii)(A)’’.
■ G. In newly redesignated paragraph
(c)(2), removing the reference to ‘‘(b)(1)’’
and adding, in its place, a reference to
‘‘(c)(1)’’.
■ H. In newly redesignated paragraph
(d), by removing the reference to
‘‘685.220(d)(1)(ii)(F)’’ and adding, in its
place, a reference to
‘‘685.220(d)(1)(ii)(D)’’.
■ I. Revising newly redesignated
paragraph (e).
The additions read as follows:
§ 685.200

Borrower eligibility.

(a) Student Direct Subsidized or
Direct Unsubsidized borrower.
*
*
*
*
*
(b) Student PLUS borrower. (1) A
graduate or professional student is
eligible to receive a Direct PLUS Loan
originated on or after July 1, 2006, if the
student meets the following
requirements—
(i) The student is enrolled, or
accepted for enrollment, on at least a
half-time basis in a school that
participates in the Direct Loan Program.
(ii) The student meets the
requirements for an eligible student
under 34 CFR part 668.
(iii) The student meets the
requirements of paragraphs (a)(1)(iv)
and (a)(1)(v) of this section, if
applicable.
(iv) The student has received a
determination of his or her annual loan
maximum eligibility under the Federal
Direct Stafford/Ford Loan Program and
the Federal Direct Unsubsidized and
Stafford/Ford Loan Program; and
(v) The student does not have an
adverse credit history in accordance
with paragraph (c)(1)(vii) of this section.
*
*
*
*
*

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
(c) Parent PLUS borrower.
*
*
*
*
(3) 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.
*
*
*
*
*
(e) Use of loan proceeds to replace
expected family contribution. The
amount of a Direct Unsubsidized Loan,
a Direct PLUS loan, or a non-federal
non-need based loan, including a
private, state-sponsored, or institution
loan, obtained for a loan period may be
used to replace the expected family
contribution for that loan period.
*
*
*
*
*
■ 67. Section 685.201 is amended by
revising paragraph (b) to read as follows:
*

§ 685.201

Obtaining a loan.

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*

*
*
*
*
(b) Application for a Direct PLUS
Loan. (1) For a parent to obtain a Direct
PLUS Loan, the parent must complete
the Direct PLUS MPN and submit it to
the school at which the student is
enrolled.
(2) For a graduate or professional
student to apply for a Direct PLUS Loan,
the student must complete a Free
Application for Federal Student Aid and
submit it in accordance with
instructions in the application. The
graduate or professional student must
also complete the PLUS MPN and
submit it to the school.
(3) For either a parent or student
PLUS borrower, as applicable, the
school must complete its portion of the
PLUS MPN and submit it to the
Servicer, which makes a determination
as to whether the parent or graduate or
professional student has an adverse
credit history. Unless a school’s
agreement with the Secretary specifies
otherwise, the school must perform the
following functions: A school
participating under school origination
option 2 must draw down funds and
disburse the funds. For a school
participating under school origination
option 1 or standard origination, the
Servicer initiates the drawdown of
funds, and the school disburses the
funds.
*
*
*
*
*
■ 68. Section 685.202 is amended by:
■ A. In the heading of paragraph
(a)(1)(iii), adding the words ‘‘and before
July 1, 2006’’ immediately after the
words ‘‘July 1, 1998’’.
■ B. Adding a new paragraph (a)(1)(iv).
■ C. In the heading of paragraph
(a)(2)(ii), adding the words ‘‘and before

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Jkt 208001

July 1, 2006’’ after the words ‘‘July 1,
1998’’.
■ D. Adding a new paragraph (a)(2)(iii).
■ E. In paragraph (b)(2), adding the
words ‘‘under the regulations that were
in effect for consolidation applications
received before July 1, 2006’’ after the
words ‘‘grace period’’.
■ F. In paragraph (b)(3), removing the
reference to ‘‘685.208(g)(5)’’ and adding,
in its place, a reference to
‘‘85.208(l)(5)’’.
■ G. In paragraph (b)(4), removing the
reference to ‘‘685.208(g)(5)’’ and adding,
in its place, a reference to
‘‘685.208(l)(5)’’.
■ H. Revising paragraph (c)(1).
The revisions and additions read as
follows:
§ 685.202 Charges for which Direct Loan
Program borrowers are responsible.

(a) * * *
(1) * * *
(iv) Loans first disbursed on or after
July 1, 2006. The interest rate is 6.8
percent.
(2) * * *
(iii) Loans first disbursed on or after
July 1, 2006. The interest rate is 7.9
percent.
(c) * * *
(1)(i) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed prior
to February 8, 2006, charges a borrower
a loan fee not to exceed 4 percent of the
principal amount of the loan;
(ii) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed on or
after February 8, 2006, but before July 1,
2007, charges a borrower a loan fee not
to exceed 3 percent of the principal
amount of the loan;
(iii) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed on or
after July 1, 2007, but before July 1,
2008, charges a borrower a loan fee not
to exceed 2.5 percent of the principal
amount of the loan;
(iv) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed on or
after July 1, 2008, but before July 1,
2009, charges the borrower a loan fee
not to exceed 2 percent of the principal
amount of the loan;
(v) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed on or
after July 1, 2009, but before July 1,
2010, charges the borrower a loan fee
not to exceed 1.5 percent of the
principal amount of the loan;
(vi) For a Direct Subsidized or Direct
Unsubsidized loan first disbursed on or
after July 1, 2010, charges the borrower
a loan fee not to exceed 1 percent of the
principal amount of the loan; and
(vii) Charges a borrower a loan fee of
four percent of the principal amount of
the loan on a Direct PLUS loan.
*
*
*
*
*

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§ 685.203

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[Amended]

69. Section 685.203 is amended by:
A. In paragraph (a)(1)(i), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $3,500,’’ immediately
after the figure ‘‘$2,625’’.
■ B. In paragraph (a)(1)(ii), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $3,500,’’ immediately
after the figure ‘‘$2,625’’.
■ C. In paragraph (a)(1)(iii), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $3,500’’ immediately
after the figure ‘‘$2,625’’.
■ D. In paragraph (a)(2)(i), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $4,500,’’ immediately
after the figure ‘‘$3,500’’.
■ E. In paragraph (a)(2)(ii), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $4,500,’’ immediately
after the figure ‘‘$3,500’’.
■ F. In paragraph (c)(2)(v), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $12,000.’’
immediately after the figure ‘‘$10,000’’.
■ G. In paragraph (c)(2)(vi)(B), adding
the words ‘‘, or, for a loan originated on
or after July 1, 2007, $7,000,’’
immediately after the figure ‘‘$5,000’’.
■ H. In paragraph (c)(2)(vii), adding the
words ‘‘, or, for a loan originated on or
after July 1, 2007, $7,000.’’ immediately
after the figure ‘‘$5,000’’.
■ I. In paragraph (f), adding the words
‘‘, or that a graduate or professional
student may borrow,’’ immediately after
the words ‘‘dependent student’’ and
removing the words ‘‘that student’’ and
adding, in their place, the words ‘‘the
student’’.
■ J. In paragraph (g), adding the words
‘‘, or that a graduate or professional
student may borrow,’’ immediately after
the words ‘‘dependent student’’.
■ 70. Section 685.204 is amended by:
■ A. In paragraph (a)(1), removing the
words ‘‘paragraph (b)’’ and adding, in
their place, the words ‘‘paragraphs (b)
and (e)’’.
■ B. In paragraph (a)(2), removing the
words ‘‘paragraph (b)’’ and adding, in
their place, the words ‘‘paragraphs (b)
and (e)’’.
■ C. In paragraph (b), removing the
parenthetical ‘‘(e)’’ and adding, in its
place, the parenthetical ‘‘(f)’’.
■ D. Redesignating paragraph (e) as
paragraph (f).
■ E. In paragraph (d)(1), removing the
words ‘‘paragraph (b)’’ and adding, in
their place, the words ‘‘paragraphs (b)
and (e)’’.
■ F. Adding a new paragraph (e).
The addition reads as follows:
■
■

§ 685.204

*

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Deferment.

*

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(e)(1) A borrower who receives a
Direct Loan Program loan first disbursed
on or after July 1, 2001, may receive a
military service deferment for such loan
for any period not to exceed 3 years
during which the borrower is—
(i) Serving on active duty during a
war or other military operation or
national emergency; or
(ii) Performing qualifying National
Guard duty during a war or other
military operation or national
emergency.
(2) Serving on active duty during a
war or other military operation or
national emergency means service by an
individual who is—
(i) A Reserve of an Armed Force
ordered to active duty under 10 U.S.C.
12301(a), 12301(g), 12302, 12304, or
12306;
(ii) A retired member of an Armed
Force ordered to active duty under 10
U.S.C. 688 for service in connection
with a war or other military operation
or national emergency, regardless of the
location at which such active duty
service is performed; or
(iii) Any other member of an Armed
Force on active duty in connection with
such emergency or subsequent actions
or conditions who has been assigned to
a duty station at a location other than
the location at which the member is
normally assigned.
(3) Qualifying National Guard duty
during a war or other operation or
national emergency means service as a
member of the National Guard on fulltime National Guard duty, as defined in
10 U.S.C. 101(d)(5) under a call to active
service authorized by the President or
the Secretary of Defense for a period of
more than 30 consecutive days under 32
U.S.C. 502(f) in connection with a war,
other military operation, or national
emergency declared by the President
and supported by Federal funds.
(4) These provisions do not authorize
the refunding of any payments made by
or on behalf of a borrower during a
period for which the borrower qualified
for a military service deferment.
(5) A borrower is eligible for a
military service deferment on a Direct
Consolidation Loan only if the borrower
meets the conditions described in this
section and all of the title IV loans
included in the Consolidation Loan
were first disbursed on or after July 1,
2001.
(6) As used in this section—
(i) Active duty means active duty as
defined in 10 U.S.C. 101(d)(1) except
that it does not include active duty for
training or attendance at a service
school;

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(ii) Military operation means a
contingency operation as defined in 10
U.S.C. 101(a)(13); and
(iii) National emergency means the
national emergency by reason of certain
terrorist attacks declared by the
President on September 14, 2001, or
subsequent national emergencies
declared by the President by reason of
terrorist attacks.
*
*
*
*
*
§ 685.205

[Amended]

71. Section 685.205 is amended in
paragraph (b)(5) by adding the words
‘‘obtained by a parent borrower’’ after
the words ‘‘Direct PLUS Loan’’.
■ 72. Section 685.207 is amended by
revising paragraphs (e)(2) and (3).
The revisions read as follows:
■

§ 685.207

Obligation to repay.

*

*
*
*
*
(e) * * *
(2) In the case of a borrower whose
consolidation application was received
before July 1, 2006, a borrower who
obtains a Direct Subsidized
Consolidation Loan during an in-school
period will be subject to the repayment
provisions in paragraph (b) of this
section.
(3) In the case of a borrower whose
consolidation application was received
before July 1, 2006, a borrower who
obtains a Direct Unsubsidized
Consolidation Loan during an in-school
period will be subject to the repayment
provisions in paragraph (c) of this
section.
*
*
*
*
*
■ 73. Section 685.208 is revised to read
as follows:
§ 685.208

Repayment plans.

(a) General. (1) Borrowers who entered
repayment before July 1, 2006. (i) A
borrower may repay a Direct Subsidized
Loan, a Direct Unsubsidized Loan, a
Direct Subsidized Consolidation Loan,
or a Direct Unsubsidized Consolidation
Loan under the standard repayment
plan, the extended repayment plan, the
graduated repayment plan, or the
income contingent repayment plan, in
accordance with paragraphs (b), (d), (f),
and (k) of this section, respectively.
(ii) A borrower may repay a Direct
PLUS Loan or a Direct PLUS
Consolidation Loan under the standard
repayment plan, the extended
repayment plan, or the graduated
repayment plan, in accordance with
paragraphs (b), (d), and (f) of this
section, respectively.
(2) Borrowers entering repayment on
or after July 1, 2006. (i) A borrower may
repay a Direct Subsidized Loan or a

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Direct Unsubsidized Loan under the
standard repayment plan, the extended
repayment plan, the graduated
repayment plan, or the income
contingent repayment plan, in
accordance with paragraphs (b), (e), (g),
and (k) of this section, respectively.
(ii) A borrower may repay a Direct
PLUS Loan under the standard
repayment plan, the extended
repayment plan, or the graduated
repayment plan, in accordance with
paragraphs (b), (e), and (g) of this
section, respectively.
(iii) A borrower may repay a Direct
Consolidation Loan under the standard
repayment plan, the extended
repayment plan, the graduated
repayment plan, or the income
contingent repayment plan, in
accordance with paragraphs (c), (e), (h),
and (k) of this section, respectively.
(3) The Secretary may provide an
alternative repayment plan in
accordance with paragraph (l) of this
section.
(4) All Direct Loans obtained by one
borrower must be repaid together under
the same repayment plan, except that—
(i) A borrower of a Direct PLUS Loan
may repay the Direct PLUS Loan
separately from other Direct Loans
obtained by the borrower; and
(ii) A borrower of a Direct PLUS
Consolidation Loan that entered
repayment before July 1, 2006 may
repay the Direct PLUS Consolidation
Loan separately from other Direct Loans
obtained by that borrower.
(5) The repayment period for any of
the repayment plans described in this
section does not include periods of
authorized deferment or forbearance.
(b) Standard repayment plan for all
Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS
Loan borrowers, regardless of when they
entered repayment, and for Direct
Consolidation Loan borrowers who
entered repayment before July 1, 2006.
(1) Under this repayment plan, a
borrower must repay a loan in full
within ten years from the date the loan
entered repayment by making fixed
monthly payments.
(2) A borrower’s payments under this
repayment plan are at least $50 per
month, except that a borrower’s final
payment may be less than $50.
(3) The number of payments or the
fixed monthly repayment amount may
be adjusted to reflect changes in the
variable interest rate identified in
§ 685.202(a).
(c) Standard repayment plan for
Direct Consolidation Loan borrowers
entering repayment on or after July 1,
2006.

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
(1) Under this repayment plan, a
borrower must repay a loan in full by
making fixed monthly payments over a
repayment period that varies with the
total amount of the borrower’s student
loans, as described in paragraph (j) of
this section.
(2) A borrower’s payments under this
repayment plan are at least $50 per
month, except that a borrower’s final
payment may be less than $50.
(d) Extended repayment plan for all
Direct Loan borrowers who entered
repayment before July 1, 2006.
(1) Under this repayment plan, a
borrower must repay a loan in full by
making fixed monthly payments within
an extended period of time that varies
with the total amount of the borrower’s
loans, as described in paragraph (i) of
this section.
(2) A borrower makes fixed monthly
payments of at least $50, except that a
borrower’s final payment may be less
than $50.
(3) The number of payments or the
fixed monthly repayment amount may
be adjusted to reflect changes in the
variable interest rate identified in
§ 685.202(a).
(e) Extended repayment plan for all
Direct Loan borrowers entering
repayment on or after July 1, 2006.
(1) Under this repayment plan, a new
borrower with more than $30,000 in
outstanding Direct Loans accumulated
on or after October 7, 1998 must repay
either a fixed annual or graduated
repayment amount over a period not to
exceed 25 years from the date the loan
entered repayment. For this repayment
plan, a new borrower is defined as an
individual who has no outstanding
principal or interest balance on a Direct
Loan as of October 7, 1998, or on the
date the borrower obtains a Direct Loan
on or after October 7, 1998.
(2) A borrower’s payments under this
plan are at least $50 per month, and will
be more if necessary to repay the loan
within the required time period.
(3) The number of payments or the
monthly repayment amount may be
adjusted to reflect changes in the
variable interest rate identified in
§ 685.202(a).
(f) Graduated repayment plan for all
Direct Loan borrowers who entered
repayment before July 1, 2006.
(1) Under this repayment plan, a
borrower must repay a loan in full by
making payments at two or more levels
within a period of time that varies with
the total amount of the borrower’s loans,
as described in paragraph (i) of this
section.
(2) The number of payments or the
monthly repayment amount may be
adjusted to reflect changes in the

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variable interest rate identified in
§ 685.202(a).
(3) No scheduled payment under this
repayment plan may be less than the
amount of interest accrued on the loan
between monthly payments, less than
50 percent of the payment amount that
would be required under the standard
repayment plan described in paragraph
(b) of this section, or more than 150
percent of the payment amount that
would be required under the standard
repayment plan described in paragraph
(b) of this section.
(g) Graduated repayment plan for
Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS
Loan borrowers entering repayment on
or after July 1, 2006.
(1) Under this repayment plan, a
borrower must repay a loan in full by
making payments at two or more levels
over a period of time not to exceed ten
years from the date the loan entered
repayment.
(2) The number of payments or the
monthly repayment amount may be
adjusted to reflect changes in the
variable interest rate identified in
§ 685.202(a).
(3) A borrower’s payments under this
repayment plan are at least $50 per
month, except that a borrower’s final
payment may be less than $50. No
single payment under this plan will be
more than three times greater than any
other payment.
(h) Graduated repayment plan for
Direct Consolidation Loan borrowers
entering repayment on or after July 1,
2006.
(1) Under this repayment plan, a
borrower must repay a loan in full by
making monthly payments that
gradually increase in stages over the
course of a repayment period that varies
with the total amount of the borrower’s
student loans, as described in paragraph
(j) of this section.
(2) A borrower’s payments under this
repayment plan are at least $50 per
month, except that a borrower’s final
payment may be less than $50.
(i) Repayment period for the extended
and graduated plans described in
paragraphs (d) and (f) of this section,
respectively. Under these repayment
plans, if the total amount of the
borrower’s Direct Loans is—
(1) Less than $10,000, the borrower
must repay the loans within 12 years of
entering repayment;
(2) Greater than or equal to $10,000
but less than $20,000, the borrower
must repay the loans within 15 years of
entering repayment;
(3) Greater than or equal to $20,000
but less than $40,000, the borrower

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45713

must repay the loans within 20 years of
entering repayment;
(4) Greater than or equal to $40,000
but less than $60,000, the borrower
must repay the loans within 25 years of
entering repayment; and
(5) Greater than or equal to $60,000,
the borrower must repay the loans
within 30 years of entering repayment.
(j) Repayment period for the standard
and graduated repayment plans
described in paragraphs (c) and (h) of
this section, respectively. Under these
repayment plans, if the total amount of
the Direct Consolidation Loan and the
borrower’s other student loans, as
defined in § 685.220(i), is—
(1) Less then $7,500, the borrower
must repay the Consolidation Loan
within 10 years of entering repayment;
(2) Equal to or greater than $7,500 but
less than $10,000, the borrower must
repay the Consolidation Loan within 12
years of entering repayment;
(3) Equal to or greater than $10,000
but less than $20,000, the borrower
must repay the Consolidation Loan
within 15 years of entering repayment;
(4) Equal to or greater than $20,000
but less than $40,000, the borrower
must repay the Consolidation Loan
within 20 years of entering repayment;
(5) Equal to or greater than $40,000
but less than $60,000, the borrower
must repay the Consolidation Loan
within 25 years of entering repayment;
and
(6) Equal to or greater than $60,000,
the borrower must repay the
Consolidation Loan within 30 years of
entering repayment.
(k) Income contingent repayment
plan. (1) Under the income contingent
repayment plan, a borrower’s monthly
repayment amount is generally based on
the total amount of the borrower’s Direct
Loans, family size, and Adjusted Gross
Income (AGI) reported by the borrower
for the most recent year for which the
Secretary has obtained income
information. The borrower’s AGI
includes the income of the borrower’s
spouse. A borrower must make
payments on a loan until the loan is
repaid in full or until the loan has been
in repayment through the end of the
income contingent repayment period.
(2) The regulations in effect at the
time a borrower enters repayment and
selects the income contingent
repayment plan or changes into the
income contingent repayment plan from
another plan govern the method for
determining the borrower’s monthly
repayment amount for all of the
borrower’s Direct Loans, unless—
(i) The Secretary amends the
regulations relating to a borrower’s

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

monthly repayment amount under the
income contingent repayment plan; and
(ii) The borrower submits a written
request that the amended regulations
apply to the repayment of the
borrower’s Direct Loans.
(3) Provisions governing the income
contingent repayment plan are in
§ 685.209.
(l) Alternative repayment. (1) The
Secretary may provide an alternative
repayment plan for a borrower who
demonstrates to the Secretary’s
satisfaction that the terms and
conditions of the repayment plans
specified in paragraphs (b) through (h)
of this section are not adequate to
accommodate the borrower’s
exceptional circumstances.
(2) The Secretary may require a
borrower to provide evidence of the
borrower’s exceptional circumstances
before permitting the borrower to repay
a loan under an alternative repayment
plan.
(3) If the Secretary agrees to permit a
borrower to repay a loan under an
alternative repayment plan, the
Secretary notifies the borrower in
writing of the terms of the plan. After
the borrower receives notification of the
terms of the plan, the borrower may
accept the plan or choose another
repayment plan.
(4) A borrower must repay a loan
under an alternative repayment plan
within 30 years of the date the loan
entered repayment, not including
periods of deferment and forbearance.
(5) If the amount of a borrower’s
monthly payment under an alternative
repayment plan is less than the accrued
interest on the loan, the unpaid interest
is capitalized until the outstanding
principal amount is 10 percent greater
than the original principal amount.
After the outstanding principal amount
is 10 percent greater than the original
principal amount, interest continues to
accrue but is not capitalized. For
purposes of this paragraph, the original
principal amount is the amount owed
by the borrower when the borrower
enters repayment.
(Authority: 20 U.S.C. 1087a et seq.)

74. Section 685.209 is amended by
revising paragraph (c)(4)(ii) to read as
follows:

■

§ 685.209
plan.

Income contingent repayment

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*

*
*
*
*
(c) * * *
(4) * * *
(ii)(A) The repayment period
includes—
(1) Periods in which the borrower
makes payments under the standard

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repayment plan described in
§ 685.208(b); and
(2) If the repayment period is not
more than 12 years, periods in which
the borrower makes payments under the
extended repayment plans described in
§ 685.208(d) and (e), or the standard
repayment plan described in
§ 685.208(c).
(B) The repayment period does not
include—
(1) Periods in which the borrower
makes payments under the graduated
repayment plans described in
§ 685.208(f), § 685.208(g) and
§ 685.208(h);
(2) Periods in which the borrower
makes payments under an alternative
repayment plan;
(3) Periods of authorized deferment or
forbearance; or
(4) Periods in which the borrower
makes payments under the extended
repayment plans described in
§ 685.208(d) and
(e) in which payments are based on a
repayment period that is longer than 12
years.
*
*
*
*
*
■ 75. Section 685.211 is amended by:
■ A. Revising paragraph (d)(3)(ii).
■ B. In paragraph (e)(1) introductory
text, adding the words ‘‘, has been
convicted of, or has pled nolo
contendere or guilty to, a crime
involving fraud in obtaining title IV,
HEA program funds,’’ after the word
‘‘information’’.
■ C. In paragraph (f)(1), in the first
sentence, removing the words ‘‘twelve
consecutive, on-time,’’ and adding, in
their place, the words ‘‘nine voluntary,’’
and adding the words ‘‘within 20 days
of the due date during ten consecutive
months’’ after the word ‘‘payments’’.
■ D. Adding a new paragraph (f)(3).
The additions and revisions read as
follows:
§ 685.211 Miscellaneous repayment
provisions.

*

*
*
*
*
(d) * * *
(3) * * *
(ii) If a borrower defaults on a Direct
Subsidized Loan, a Direct Unsubsidized
Loan, or a Direct Consolidation Loan,
the Secretary may designate the income
contingent repayment plan for the
borrower.
(f) * * *
(3) A Direct Loan obtained by fraud
for which the borrower has been
convicted of, or has pled nolo
contendere or guilty to, a crime
involving fraud in obtaining title IV,
HEA program assistance may not be
rehabilitated.
*
*
*
*
*

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§ 685.212

[Amended]

76. Section 685.212 is amended by:
A. In paragraph (a)(1), in the second
parenthetical, adding the words
‘‘obtained by a parent borrower’’ after
the words ‘‘Direct PLUS loan’’.
■ B. In paragraph (h), adding the words
‘‘, or up to $17,500,’’ after the figure
‘‘$5,000’’.
■ 77. Section 685.215 is amended by:
■ A. Adding a new paragraph (a)(1)(iv).
■ B. In paragraph (c) introductory text,
in the last sentence, by removing the
parenthetical ‘‘(5)’’ and, in its place,
adding the parenthetical ‘‘(6)’’.
■ C. Redesignating paragraphs (c)(4),
(c)(5), and (c)(6) as paragraphs (c)(5),
(c)(6), and (c)(7), respectively.
■ D. Adding a new paragraph (c)(4).
The additions read as follows:
■
■

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

(a) * * *
(1) * * *
(iv) Certified the individual’s
eligibility for a Direct Loan as a result
of the crime of identity theft committed
against the individual, as that crime is
defined in § 682.402(e)(14).
(c) * * *
(4) Identity theft. In the case of an
individual whose eligibility to borrow
was falsely certified because he or she
was a victim of the crime of identity
theft and is requesting a discharge, the
individual shall—
(i) Certify that the individual did not
sign the promissory note, or that any
other means of identification used to
obtain the loan was used without the
authorization of the individual claiming
relief;
(ii) Certify that the individual did not
receive or benefit from the proceeds of
the loan with knowledge that the loan
had been made without the
authorization of the individual;
(iii) Provide a copy of a local, State,
or Federal court verdict or judgment
that conclusively determines that the
individual who is named as the
borrower of the loan was the victim of
a crime of identity theft; and
(iv) If the judicial determination of the
crime does not expressly state that the
loan was obtained as a result of the
crime of identity theft, provide—
(A) Authentic specimens of the
signature of the individual, as provided
in paragraph (c)(2)(ii), or of other means
of identification of the individual, as
applicable, corresponding to the means
of identification falsely used to obtain
the loan; and
(B) A statement of facts that
demonstrate, to the satisfaction of the
Secretary, that eligibility for the loan in

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
question was falsely certified as a result
of the crime of identity theft committed
against that individual.
*
*
*
*
*
■ 78. Section 685.217 is amended by:
■ A. Revising paragraph (a).
■ B. In paragraph (b), adding, in
alphabetical order, a new definition for
‘‘Highly qualified’’.
■ C. Revising paragraph (c)(1)(iii).
■ D. Revising paragraph (c)(3).
■ E. Revising paragraph (c)(4).
■ F. Redesignating paragraphs (c)(5),
(c)(6), (c)(7), (c)(8), and (c)(9) as
paragraphs (c)(7), (c)(8), (c)(9), (c)(10),
and (c)(11), respectively.
■ G. Adding a new paragraph (c)(5).
■ H. Adding a new paragraph (c)(6).
■ I. Removing the parentheticals
‘‘(c)(5)’’ and adding, in their place, the
parentheticals ‘‘(c)(7)’’ in redesignated
paragraph (c)(8).
■ J. Revising paragraph (d)(1).
■ K. Revising paragraph (d)(2).
The revisions and additions read as
follows:

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§ 685.217
program.

Teacher loan forgiveness

(a) General. The teacher loan
forgiveness program is intended to
encourage individuals to enter and
continue in the teaching profession. For
new borrowers, the Secretary repays the
amount specified in this paragraph on
the borrower’s subsidized and
unsubsidized Federal Stafford Loans,
Direct Subsidized Loans, Direct
Unsubsidized Loans, and in certain
cases, Federal Consolidation Loans or
Direct Consolidation Loans. The
forgiveness program is only available to
a borrower who has no outstanding loan
balance under the FFEL Program or the
Direct Loan Program on October 1, 1998
or who has no outstanding loan balance
on the date he or she obtains a loan after
October 1, 1998. The borrower must
have been employed as a full-time
teacher for five consecutive complete
academic years, at least one of which
was after the 1997–1998 academic year,
in certain eligible elementary or
secondary schools that serve lowincome families. All borrowers eligible
for teacher loan forgiveness may receive
loan forgiveness of up to a combined
total of $5,000 on the borrower’s eligible
FFEL and Direct Loan Program loans. If
the borrower taught for five consecutive
years as a highly qualified mathematics
or science teacher in an eligible
secondary school, or as a highly
qualified special education teacher in an
eligible elementary or secondary school,
the borrower may receive loan
forgiveness of up to a combined total of
$17,500 on the borrower’s eligible FFEL
and Direct Loan Program loans. The

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loan for which the borrower is seeking
forgiveness must have been made prior
to the end of the borrower’s fifth year of
qualifying teaching service.
(b) * * *
Highly qualified means highly
qualified as defined in section 9101 of
the Elementary and Secondary
Education Act of 1965, as amended.
*
*
*
*
*
(c) * * *
(1) * * *
(iii) Is listed in the Annual Directory
of Designated Low-Income Schools for
Teacher Cancellation Benefits. If this
directory is not available before May 1
of any year, the previous year’s
directory may be used. The Secretary
considers all elementary and secondary
schools operated by the Bureau of
Indian Affairs (BIA) or operated on
Indian reservations by Indian tribal
groups under contract with the BIA to
qualify as schools serving low-income
students.
*
*
*
*
*
(3) In the case of a borrower whose
five consecutive complete years of
qualifying teaching service began before
October 30, 2004, the borrower—
(i) May receive up to $5,000 of loan
forgiveness if the borrower—
(A) Demonstrated knowledge and
teaching skills in reading, writing,
mathematics, and other areas of the
elementary school curriculum, as
certified by the chief administrative
officer of the eligible elementary school
in which the borrower was employed; or
(B) Taught in a subject area that is
relevant to the borrower’s academic
major as certified by the chief
administrative officer of the eligible
secondary school in which the borrower
was employed.
(ii) May receive up to $17,500 of loan
forgiveness if the borrower—
(A) Taught mathematics or science on
a full-time basis in an eligible secondary
school and was a highly qualified
mathematics or science teacher; or
(B) Taught as a special education
teacher on a full-time basis to children
with disabilities in either an eligible
elementary or secondary school and was
a highly qualified special education
teacher whose special education
training corresponded to the children’s
disabilities and who has demonstrated
knowledge and teaching skills in the
content areas of the elementary or
secondary school curriculum.
(4) In the case of a borrower whose
five consecutive years of qualifying
teaching service began on or after
October 30, 2004, the borrower—
(i) May receive up to $5,000 of loan
forgiveness if the borrower taught full

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45715

time in an eligible elementary or
secondary school and was a highly
qualified elementary or secondary
school teacher.
(ii) May receive up to $17,500 of loan
forgiveness if the borrower—
(A) Taught mathematics or science on
a full-time basis in an eligible secondary
school and was a highly qualified
mathematics or science teacher; or
(B) Taught as a special education
teacher on a full-time basis to children
with disabilities in either an eligible
elementary or secondary school and was
a highly qualified special education
teacher whose special education
training corresponded to the children’s
disabilities and who has demonstrated
knowledge and teaching skills in the
content areas of the elementary or
secondary school curriculum.
(5) To qualify for loan forgiveness as
a highly qualified teacher, the teacher
must have been a highly qualified
teacher for all five years of eligible
teaching service.
(6) For teacher loan forgiveness
applications received by the Secretary
on or after July 1, 2006, a teacher in a
private, non-profit elementary or
secondary school who is exempt from
State certification requirements unless
otherwise applicable under State law
may qualify for loan forgiveness under
paragraphs (c)(3)(ii) or (c)(4) of this
section if—
(i) The private school teacher is
permitted to and does satisfy rigorous
subject knowledge and skills tests by
taking competency tests in applicable
grade levels and subject areas;
(ii) The competency tests are
recognized by 5 or more States for the
purposes of fulfilling the highly
qualified teacher requirements under
section 9101 of the Elementary and
Secondary Education Act of 1965; and
(iii) The private school teacher
achieves a score on each test that equals
or exceeds the average passing score for
those 5 states.
*
*
*
*
*
(d) Forgiveness amount. (1) A
qualified borrower is eligible for
forgiveness of up to $5,000, or up to
$17,500 if the borrower meets the
requirements of paragraphs (c)(3)(ii) or
(c)(4)(ii) of this section. The forgiveness
amount is deducted from the aggregate
amount of the borrower’s Direct
Subsidized Loan or Direct Unsubsidized
Loan or Direct Consolidation Loan
obligation that is outstanding after the
borrower completes his or her fifth
consecutive complete academic year of
teaching as described in paragraph (c) of
this section. Only the outstanding
portion of the Direct Consolidation Loan

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that was used to repay an eligible
subsidized or unsubsidized Federal
Stafford Loan, an eligible Direct
Subsidized Loan, or an eligible Direct
Unsubsidized Loan qualifies for loan
forgiveness under this section.
(2) A borrower may not receive more
than a total of $5,000, or $17,500 if the
borrower meets the requirements of
paragraphs (c)(3)(ii) or (c)(4)(ii) of this
section, in loan forgiveness for
outstanding principal and accrued
interest under both this section and
under section 34 CFR 682.215.
*
*
*
*
*
■ 79. Section 685.220 is amended by:
■ A. In paragraph (a), revising the first
sentence to read as set forth below.
■ B. Revising paragraphs (c) and (d).
■ C. In paragraph (e), in the first
sentence, removing the words ‘‘or
borrowers’’ and removing, in its
entirety, the second sentence.
■ D. In paragraph (f)(1)(iii), removing
the words ‘‘and may impose reasonable
limits on collection costs paid to the
holder’’.
■ E. Revising paragraphs (h) and (i).
■ F. In paragraph (l) introductory text,
adding the words ‘‘in accordance with
the regulations that were in effect for
consolidation applications received
prior to July 1, 2006’’ after the word
‘‘borrowers’’.
The revisions read as follows:

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§ 685.220

Consolidation.

(a) Direct Consolidation Loans. A
borrower may consolidate education
loans made under certain Federal
programs into a Direct Consolidation
Loan. * * *
*
*
*
*
*
(c) Subsidized, unsubsidized, and
PLUS components of Direct
Consolidation Loans. (1) The portion of
a Direct Consolidation Loan attributable
to the loans identified in paragraphs
(b)(1) through (5) of this section, and to
Federal Consolidation Loans under
paragraph (b)(15) of this section if they
are eligible for interest benefits during a
deferment period under Section
428C(b)(4)(C) of the Act, is referred to as
a Direct Subsidized Consolidation Loan.
(2) Except as provided in paragraph
(c)(1) of this section, the portion of a
Direct Consolidation Loan attributable
to the loans identified in paragraphs
(b)(6) through (8) and (b)(13) through
(21) of this section is referred to as a
Direct Unsubsidized Consolidation
Loan.
(3) The portion of a Direct
Consolidation Loan attributable to the
loans identified in paragraphs (b)(9)
through (12) of this section is referred to
as a Direct PLUS Consolidation Loan.

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(d) Eligibility for a Direct
Consolidation Loan. (1) A borrower may
obtain a Direct Consolidation Loan if, at
the time the borrower applies for such
a loan, the borrower meets the following
requirements:
(i) The borrower either—
(A) Has an outstanding balance on a
Direct Loan; or
(B) Has an outstanding balance on an
FFEL loan and—
(1) The borrower is unable to obtain
a FFEL consolidation loan;
(2) The borrower is unable to obtain
a FFEL consolidation loan with incomesensitive repayment terms acceptable to
the borrower; or
(3) The borrower has an FFEL
Consolidation Loan that has been
submitted to the guaranty agency by the
lender for default aversion, and the
borrower wants to consolidate the FFEL
Consolidation Loan into the Direct Loan
Program for the purpose of obtaining an
income contingent repayment plan.
(ii) On the loans being consolidated,
the borrower is—
(A) In a six-month grace period;
(B) In a repayment period but not in
default;
(C) In default but has made
satisfactory repayment arrangements, as
defined in applicable program
regulations, on the defaulted loan; or
(D) Except as provided in paragraph
(d)(4) of this section, in default but
agrees to repay the consolidation loan
under the income contingent repayment
plan described in § 685.208(k) and signs
the consent form described in
§ 685.209(d)(5).
(E) Not subject to a judgment secured
through litigation, unless the judgment
has been vacated; or
(F) Not subject to an order for wage
garnishment under section 488A of the
Act, unless the order has been lifted.
(iii) The borrower certifies that no
other application to consolidate any of
the borrower’s loans listed in paragraph
(b) of this section is pending with any
other lender.
(iv) The borrower agrees to notify the
Secretary of any change in address.
(2) A borrower may not consolidate a
Direct Consolidation Loan into a new
consolidation loan under this section or
under § 682.201(c) unless at least one
additional eligible loan is included in
the consolidation.
(3) Eligible loans received before or
after the date a Direct Consolidation
Loan is made may be added to a
subsequent Direct Consolidation Loan.
(4) A borrower may not consolidate a
defaulted Direct Consolidation Loan.
*
*
*
*
*
(h) Repayment plans. A borrower may
choose a repayment plan for a Direct

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Consolidation Loan in accordance with
§ 685.208, except that a borrower who
became eligible to consolidate a
defaulted loan under paragraph
(d)(1)(ii)(D) of this section must repay
the consolidation loan under the income
contingent repayment plan unless—
(1) The borrower was required to and
did make a payment under the income
contingent repayment plan in each of
the prior three (3) months; or
(2) The borrower was not required to
make payments but made three
reasonable and affordable payments in
each of the prior three (3) months; and
(3) The borrower makes and the
Secretary approves a request to change
plans.
(i) Repayment period. (1) Except as
noted in paragraph (i)(4) of this section,
the repayment period for a Direct
Consolidation Loan begins on the day
the loan is disbursed.
(2)(i) Borrowers who entered
repayment before July 1, 2006. The
Secretary determines the repayment
period under § 685.208(i) on the basis of
the outstanding balances on all of the
borrower’s loans that are eligible for
consolidation and the balances on other
education loans except as provided in
paragraphs (i)(3)(i), (ii), and (iii) of this
section.
(ii) Borrowers entering repayment on
or after July 1, 2006. The Secretary
determines the repayment period under
§ 685.208(j) on the basis of the
outstanding balances on all of the
borrower’s loans that are eligible for
consolidation and the balances on other
education loans except as provided in
paragraphs (i)(3)(i) and (ii) of this
section.
(3)(i) The total amount of outstanding
balances on the other education loans
used to determine the repayment period
under §§ 685.208(i) and (j) may not
exceed the amount of the Direct
Consolidation Loan.
(ii) The borrower may not be in
default on the other education loan
unless the borrower has made
satisfactory repayment arrangements
with the holder of the loan.
(iii) The lender of the other
educational loan may not be an
individual.
(4) Borrowers whose consolidation
application was received before July 1,
2006. A Direct Consolidation Loan
receives a grace period if it includes a
Direct Loan or FFEL Program loan for
which the borrower is in an in-school
period at the time of consolidation. The
repayment period begins the day after
the grace period ends.
*
*
*
*
*

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations
80. Section 682.301 is amended by
revising paragraph (b)(8)(ii) to read as
follows:

■

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

*
*
*
*
(b) * * *
(8) * * *
(ii) Paragraphs (b)(8)(i)(A) and (B) of
this section do not apply to any loans
originated by the school beginning 30
days after the date the school receives
notification from the Secretary of a
cohort default rate, calculated under

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*

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subpart M of 34 CFR part 668, that
causes the school to no longer meet the
qualifications outlined in paragraph (A)
or (B), as applicable.
*
*
*
*
*
■ 81. Section 685.303 is amended by:
■ A. In paragraph (b)(2)(i), by adding the
words ‘‘obtained by a parent borrower’’
after the words ‘‘PLUS loan’’.
■ B. By revising paragraph (b)(4)(ii).
The revisions read as follows:
§ 685.303

*

Processing loan proceeds.

*
*
(b) * * *

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*

*

(4) * * *
(ii) Paragraphs (b)(4)(i)(A) and (B) of
this section do not apply to any loans
originated by the school beginning 30
days after the date the school receives
notification from the Secretary of a
cohort default rate, calculated under
subpart M of 34 CFR part 668, that
causes the school to no longer meet the
qualifications outlined in paragraph (A)
or (B), as applicable.
*
*
*
*
*
[FR Doc. 06–6696 Filed 8–8–06; 8:45 am]
BILLING CODE 4000–01–P

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