NPRM Publication

Thursday,
July 23, 2009

Part II

Department of
Education

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34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal
Family Education Loan Program, and
William D. Ford Federal Direct Loan
Program; Proposed Rule

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules

DEPARTMENT OF EDUCATION
[Docket ID ED–2009–OPE–0004]

34 CFR Parts 674, 682, and 685
RIN 1840–AC98

Federal Perkins Loan Program, Federal
Family Education Loan Program, and
William D. Ford Federal Direct Loan
Program
AGENCY: Office of Postsecondary
Education, Department of Education.
ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to
amend the Federal Perkins Loan
(Perkins Loan) Program, Federal Family
Education Loan (FFEL) Program, and
William D. Ford Federal Direct Loan
(Direct Loan) Program regulations.
These proposed regulations are needed
to implement provisions of the Higher
Education Act of 1965 (HEA), as
amended by the Higher Education
Opportunity Act of 2008 (HEOA).
DATES: We must receive your comments
on or before August 24, 2009.
ADDRESSES: Submit your comments
through the Federal eRulemaking Portal
or via postal mail, commercial delivery,
or hand delivery. We will not accept
comments by fax or by e-mail. Please
submit your comments only one time, in
order to ensure that we do not receive
duplicate copies. In addition, please
include the Docket ID at the top of your
comments.
• Federal eRulemaking Portal: Go to
http://www.regulations.gov to submit
your comments electronically.
Information on using Regulations.gov,
including instructions for accessing
agency documents, submitting
comments, and viewing the docket, is
available on the site under ‘‘How To Use
This Site.’’
• Postal Mail, Commercial Delivery,
or Hand Delivery.
If you mail or deliver your comments
about these proposed regulations,
address them to Pamela Moran, U.S.
Department of Education, 1990 K Street,
NW., room 8033, Washington, DC
20006–8502.

Privacy Note: The Department’s policy for
comments received from members of the
public (including those comments submitted
by mail, commercial delivery, or hand
delivery) is to make these submissions
available for public viewing in their entirety
on the Federal eRulemaking Portal at http://
www.regulations.gov. Therefore, commenters
should be careful to include in their
comments only information that they wish to
make publicly available on the Internet.
FOR FURTHER INFORMATION CONTACT:
Pamela Moran, U.S. Department of

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Education, 1990 K Street, NW., Room
8033, Washington, DC 20006–8502.
Telephone: (202) 502–7732 or via the
Internet at: [email protected].
If you use a telecommunications
device for the deaf, call the Federal
Relay Service (FRS), toll free, at 1–800–
877–8339.
Individuals with disabilities can
obtain this document in an accessible
format (e.g., Braille, large print,
audiotape, or computer diskette) on
request to the contact person listed
under FOR FURTHER INFORMATION
CONTACT.
SUPPLEMENTARY INFORMATION:

Invitation to Comment
As outlined in the section of this
notice entitled ‘‘Negotiated
Rulemaking,’’ significant public
participation, through six public
hearings and three negotiated
rulemaking sessions, has occurred in
developing this notice of proposed
rulemaking (NPRM). In accordance with
the requirements of the Administrative
Procedure Act, the Department invites
you to submit comments regarding these
proposed regulations on or before
August 24, 2009. To ensure that your
comments have maximum effect in
developing the final regulations, we
urge you to identify clearly the specific
section or sections of the proposed
regulations that each of your comments
addresses and to arrange your comments
in the same order as the proposed
regulations.
We invite you to assist us in
complying with the specific
requirements of Executive Order 12866,
including its overall requirements to
assess both the costs and the benefits of
the proposed regulations and feasible
alternatives, and to make a reasoned
determination that the benefits of these
proposed regulations justify their costs.
Please let us know of any further
opportunities we should take to reduce
potential costs or increase potential
benefits while preserving the effective
and efficient administration of the
programs.
As noted elsewhere in this NPRM,
two of the Department’s negotiated
rulemaking committees considered
proposed revisions to 34 CFR 674.51,
Special Definitions, in Subpart D of the
Federal Perkins Loan Program
regulations. Team I—Loans-Lender
General Loan Issues, the negotiating
committee responsible for regulations
involving issues related to lender and
general loan issues, negotiated the
proposed definitions of ‘‘substantial
gainful activity’’ and ‘‘permanent and
total disability.’’ Team II—Loans-

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School-based Loans Issues negotiated all
other changes in this section.
We have included all proposed
changes to 34 CFR 674.51 in this NPRM
as well as in the NPRM that we are
publishing as a result of the negotiations
of Team II—School-based Loans Issues.
However, we ask that when submitting
your comments on the proposed
changes to 34 CFR 674.51, you submit
any comments on the proposed
definitions of ‘‘substantial gainful
activity’’ and ‘‘total and permanent
disability’’ in the docket (Docket ID ED–
2009–OPE–0004) for this NPRM.
Comments on all other provisions in
this section should be submitted in the
docket (Docket ID ED–2009–OPE–0003)
for the Team II—School-based Loans
Issues NPRM.
During and after the comment period,
you may inspect all public comments
about these proposed regulations by
accessing Regulations.gov. You may also
inspect the comments in person in
Room 8033, 1990 K Street, NW.,
Washington, DC between the hours of
8:30 a.m. and 4:00 p.m. Eastern Time,
Monday through Friday of each week
except Federal holidays.
Assistance to Individuals With
Disabilities in Reviewing the
Rulemaking Record
On request, we will supply an
appropriate aid, such as a reader or
print magnifier, to an individual with a
disability who needs assistance to
review the comments or other
documents in the public rulemaking
record for these proposed regulations. If
you want to schedule an appointment
for this type of aid, please contact the
person listed under FOR FURTHER
INFORMATION CONTACT.
Negotiated Rulemaking
Section 492 of the HEA requires the
Secretary, before publishing any
proposed regulations for programs
authorized by title IV of the HEA, to
obtain public involvement in the
development of the proposed
regulations. After obtaining advice and
recommendations from the public,
including individuals and
representatives of groups involved in
the Federal student assistance programs,
the Secretary must subject the proposed
regulations to a negotiated rulemaking
process. All proposed regulations that
the Department publishes on which the
negotiators reached consensus must
conform to final agreements resulting
from that process unless the Secretary
reopens the process or provides a
written explanation to the participants
stating why the Secretary has decided to
depart from the agreements. Further

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
information on the negotiated
rulemaking process can be found at:
http://www.ed.gov/policy/highered/leg/
hea08/index.html.
On September 8, 2008, the
Department published a notice in the
Federal Register (73 FR 51990)
announcing our intent to establish
negotiated rulemaking committees to
develop proposed regulations to (1)
implement the changes made to the
HEA by the Higher Education
Opportunity Act of 2008 (HEOA, Pub. L.
110–315) that affected programs
authorized under title IV of the HEA,
and (2) possibly address the provision
added to section 207(c) of the HEA by
the HEOA regarding the prohibition on
a teacher preparation program from
which the State has withdrawn approval
or terminated financial support from
accepting or enrolling any student who
received title IV aid.
On December 31, 2008, the
Department published a notice in the
Federal Register (73 FR 80314)
announcing our intent to establish up to
five negotiated rulemaking committees
to prepare proposed regulations. The
notice indicated that no requests from
the public were received to negotiate the
provision added to section 207(c) of the
HEA. The Secretary determined it was
not necessary to issue regulations in that
area and therefore did not submit that
issue to a negotiated rulemaking
committee. The five committees that
were established were: (1) A committee
on lender and general loan issues (Loans
Team I); (2) a committee on schoolbased loan issues (Loans Team II); (3) a
committee on accreditation; (4) a
committee on discretionary grant
programs; and (5) a committee on
general and non-loan programmatic
issues. The notice informed the public
that, due to the large volume of changes
made by the HEOA that needed to be
implemented through negotiated
rulemaking, not all provisions would be
addressed during this round of
committee meetings. The notice
requested nominations of individuals
for membership on the committees who
could represent the interests
significantly affected by the proposed
regulations and had demonstrated
expertise or experience in the relevant
subjects under negotiation.
Loans Team I met in three sessions to
develop proposed regulations: Session
1, February 23–25, 2009; session 2,
March 30–April 1, 2009; and session 3,
May 4–6, 2009. These proposed
regulations relate to the administration
of the Federal student loan programs.
This NPRM resulted primarily from the
work of Loans Team I and, in a couple
of instances where the subject matter of

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the proposed regulations overlapped,
the work of Loans Team II.1
The Department developed a list of
proposed regulatory provisions from
advice and recommendations submitted
by individuals and organizations as
testimony to the Department in a series
of six public hearings held on:
• September 19, 2008, at the Texas
Christian University, in Fort Worth,
Texas.
• September 29, 2008, at the
University of Rhode Island, in
Providence, Rhode Island.
• October 2, 2008, at the Pepperdine
University, in Malibu, California.
• October 6, 2008, at Johnson C.
Smith University, in Charlotte, North
Carolina.
• October 8, 2008, at the U.S.
Department of Education, in
Washington, DC.
• October 15, 2008, at Cuyahoga
Community College, in Warrensville
Heights, Ohio.
In addition, the Department accepted
written comments on possible
regulations submitted directly to the
Department by interested parties and
organizations. A summary of all
comments received orally and in writing
is posted as background material in the
docket for this NPRM. Transcripts of the
regional meetings can be accessed at:
http://www.ed.gov/policy/highered/leg/
hea08/index.html. The Department also
identified issues for discussion and
negotiation.
At its first meeting, the Loans Team
I Committee reached agreement on its
protocols and proposed agenda. The
agenda included the statutory changes
identified for the Committee’s
consideration. In addition, at the second
meeting of the Committee, the
negotiators agreed by consensus to add
two additional agenda items affecting
the determination of eligibility and
calculation of borrower payment
amounts under the income-based
repayment plan in the FFEL and Direct
Loan programs that becomes available to
borrowers on July 1, 2009.
The Loans Team I Committee
members (and the organizations they
represented) included the following:
• Representing students: Jonathan S.
Sachs, primary, and Adam Briones,
alternate (U.S. Public Interest Research
1 As discussed elsewhere in this preamble, Loans
Team II was responsible for negotiating the
following provisions, which appear in this NPRM:
34 CFR 674.51, definitions of the terms child with
a disability, community defender organizations,
educational service agency, faculty member at a
Tribal College or University, Federal public
defender organization, firefighter, infant or toddler
with a disability, librarian with a master’s degree,
speech language pathologist with a master’s degree,
and Tribal College or University.

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Group; United States Student
Association; University of Maryland
Student Government Association; The
Greenlining Institute);
• Representing legal assistance
organizations that represent students
and borrowers: Deanne Loonin, primary,
and Lauren Saunders, alternate
(National Consumer Law Center);
• Representing 2-year public
institutions: George Chin, primary
(American Association of State Colleges
and Universities);
• Representing 4-year public
institutions: Carrie Steere-Salazar,
primary, and Kris Wright, alternate
(Association of American Medical
Colleges; National Direct Loan
Coalition);
• Representing private, nonprofit
institutions of higher education: Heather
McDonnell, primary, and Bonnie Lee
Behm, alternate (National Association of
Student Financial Aid Administrators;
Pennsylvania Association of Student
Financial Aid Administrators);
• Representing private, for-profit
institutions of higher education: Thomas
A. Babel, primary, and William Leach,
alternate (DeVry University; Career
College Association);
• Representing guaranty agencies:
Mary Mowdy, primary, and Dick
George, alternate (Oklahoma State
Regents for Higher Education; National
Council of Higher Education Loan
Programs (NCHELP));
• Representing for-profit lenders:
Brenda Dillon, primary, and Tom
Levandowski, alternate (NCHELP;
Consumer Bankers Association);
• Representing not-for-profit lenders:
Cheryl Hughes, primary, and Scott
Giles, alternate (NCHELP; Education
Finance Council (EFC));
• Representing credit unions: Michael
Kim, primary, and Rhonda Summerbell,
alternate (Coalition of the following
credit unions: University Federal Credit
Union, USC Credit Union, UW Credit
Union, Navy Federal Credit Union,
Notre Dame Federal Credit Union);
• Representing lender servicers:
Diane Freundel, primary, and Wanda
Hall, alternate (EFC; NCHELP; Student
Loan Servicing Alliance); and
• Representing the U.S. Department
of Education: Pam Moran.
The Committee’s protocols provided
that the committee would operate by
consensus, meaning there must be no
dissent by any member in order for the
committee to be considered to have
reached agreement. Under the protocols,
if the Committee reaches final
consensus on all issues, the Department
will use the consensus-based language
in the proposed regulations and
committee members and the

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules

organizations whom they represent will
refrain from commenting negatively on
the package, except where provided for
in the agreed upon protocols.
During its meetings, the Loans Team
I Committee reviewed and discussed
drafts of the proposed regulations. At
the final meeting in May 2009, the
Committee reached consensus on the
proposed regulations in this document,
with the exception of those definitions
included in 34 CFR 674.51 that were
negotiated by Loans Team II, as
discussed elsewhere in this notice.
In addition to the proposed
regulations considered by Loans Team I,
this NPRM also includes some
additional definitions that appear in 34
CFR 674.51 (Special Definitions). Only
the definitions of ‘‘substantial gainful
activity’’ and ‘‘total and permanent
disability’’ were included in the
proposed regulations agreed to by Loans
Team I. The remaining definitions in
this section were added or amended as
part of the negotiations of Loans Team
II, but are being included here to
provide context for the changes to this
section.
Team I and Team II were advised that,
to ensure transparency and ease of use
for public commenters, the Department
would propose the entirety of 34 CFR
part 601 in a single NPRM. Given Team
I’s consensus, which included
consensus on the definitions of the
terms lender and private education loan
in proposed § 601.2 as well as the
requirements in § 601.40, Team I
members were advised that they may
not comment negatively on the
provisions they negotiated
notwithstanding that they would appear
in Team II’s NPRM. Likewise, Team II
members were advised that, while they
may not comment negatively on the
majority of proposed 34 CFR part 601 as
a result of their consensus agreement,
they may comment on the definitions of
lender and private education loan as
well as proposed § 601.40.
With regard to the proposed changes
to § 674.51, the Department determined
that it would be helpful for the public
to be able to view all proposed changes
to this special definitions section for the
Perkins Program in both Team I’s NPRM
and Team II’s NPRM. Team I and Team
II were advised that the proposed
changes to § 674.51 would appear in
their entirety in both documents to
provide context and enhance
understanding of both committees’
proposed changes to this section. Each
team was advised by its respective
Federal negotiator that its consensus
agreement did not apply to the
definitions negotiated by the other team
and that any comments they may have

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on the definitions negotiated by the
other team should be submitted in
response to the NPRM published as a
result of the other team’s negotiations.
More information on the work of
Team I can be found at http://
www.ed.gov/policy/highered/reg/
hearulemaking/2009/loans-lender.html
and more information on the work of
Team II can be found at http://
www.ed.gov/policy/highered/reg/
hearulemaking/2009/loans-schoolbased.
Summary of Proposed Changes
These proposed regulations would
implement general and lender-based
loan provisions of the HEA, as amended
by the HEOA, that include:
• A revised definition of ‘‘totally and
permanently disabled’’ for purposes of
discharging a borrower’s title IV loans
and a revised disability discharge
process;
• Expansion of the conditions under
which a borrower with only FFEL loans
may consolidate those loans into a
Direct Consolidation Loan;
• Additional disclosures for FFEL
and Direct consolidation loan
applicants, and a new requirement for
FFEL Consolidation loan lenders to
notify borrowers who have applied for
a Consolidation loan that they may
cancel the loan within a specified time
period;
• An additional method for granting
in-school deferments on FFEL or Direct
Loan program loans, and a new
notification requirement for FFEL
lenders when granting a borrower a
deferment on an unsubsidized loan;
• New in-school deferment
provisions for PLUS loan borrowers and
related changes to administrative
forbearance provisions;
• Clarification of PLUS loan interest
capitalization provisions;
• A revised definition of ‘‘partial
financial hardship’’ for purposes of
determining eligibility for the incomebased repayment (IBR) plan in the FFEL
and Direct Loan programs, and revised
regulations for determining the IBR
payment amount;
• An expansion of the eligibility
requirements for teacher loan
forgiveness in the FFEL and Direct Loan
programs to allow borrowers who
perform qualifying teaching service at
an eligible educational service agency to
receive forgiveness;
• A revision of the regulations related
to loan rehabilitation to provide that a
FFEL or Direct Loan borrower may
rehabilitate a defaulted loan only once;
• Revisions to the regulations
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guaranty agencies and lenders in the
FFEL Program;
• Revised and expanded disclosure
requirements for FFEL Program lenders
at the time of or prior to loan
disbursement and during the loan
repayment period;
• An expansion of the information
that must be provided to a FFEL
borrower when the transfer, sale, or
assignment of the borrower’s loan
results in a change in the identity of the
party to whom payments and
communications must be sent;
• Revised forbearance disclosure
requirements related to interest
capitalization for FFEL lenders;
• Revised regulations related to the
audit requirements for a FFEL school
lender or an eligible lender trustee that
originates FFEL loans for a school or
school-affiliated organization;
• A new requirement for guaranty
agencies to work with the schools that
they serve to develop and make
available to students and their families
consumer education materials related to
budgeting and financial management;
• A new requirement for guaranty
agencies to make available certain
financial and economic education
materials to borrowers who have
rehabilitated defaulted loans;
• Revised consumer credit reporting
requirements for guaranty agencies and
prior loan holders after a borrower has
rehabilitated a defaulted loan; and
• Revised requirements related to the
notifications that guaranty agencies
must send to borrowers with defaulted
loans.
Significant Proposed Regulations
We group major issues according to
subject, with appropriate sections of the
proposed regulations referenced in
parentheses, beginning with issues that
apply to all three title IV loan programs,
followed by issues that apply to the
FFEL and Direct Loan programs, and
then issues that apply only to the FFEL
Program. We discuss substantive issues
under the sections of the proposed
regulations to which they pertain.
Generally, we do not address proposed
regulatory provisions that are technical
or otherwise minor in effect.
Total and Permanent Disability Loan
Discharges
Definitions (§§ 674.51 and 682.200(b))
Statute: Prior to the enactment of the
HEOA, the HEA provided that a Perkins
Loan, FFEL, or Direct Loan could be
discharged if the borrower had a total
and permanent disability as determined
in accordance with the regulations of
the Secretary. The HEOA amended

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sections 437(a) and 464(c)(1)(F) of the
HEA to provide for the discharge of a
borrower’s title IV loans if the borrower
becomes totally and permanently
disabled in accordance with the
Secretary’s regulations, or if the
borrower is unable to engage in any
substantial gainful activity by reason of
any medically determinable physical or
mental impairment that can be expected
to result in death, has lasted for a
continuous period of not less than 60
months, or can be expected to last for
a continuous period of not less than 60
months.
The HEOA further amended sections
437(a) and 464(c)(1)(F) of the HEA by
establishing a separate total and
permanent disability standard for
certain veterans. Specifically, the HEA
now provides that a borrower who is a
military veteran is considered totally
and permanently disabled for title IV
loan discharge purposes if the borrower
provides documentation showing that
he or she has been determined by the
Secretary of Veterans Affairs to be
unemployable due to a serviceconnected disability. A borrower who
provides such documentation is not
required to present additional
documentation for purposes of
establishing eligibility for loan
discharge based on total and permanent
disability.
Current Regulations: The current
regulations governing the Perkins, FFEL,
and Direct Loan programs define ‘‘total
and permanent disability’’ as the
condition of an individual who is
unable to work and earn money because
of an injury or illness that is expected
to continue indefinitely or result in
death. Current regulations do not define
‘‘substantial gainful activity.’’
Proposed Regulations: Proposed
§§ 674.51(aa) and 682.200(b) would
define total and permanent disability as
the condition of an individual who: (1)
Is unable to engage in any substantial
gainful activity by reason of any
medically determinable physical or
mental impairment that can be expected
to result in death, has lasted for a
continuous period of not less than 60
months, or can be expected to last for
a continuous period of not less than 60
months; or (2) is a veteran and who has
been determined by the Secretary of
Veterans Affairs to be unemployable
due to a service-connected disability.
The proposed regulations would also
add a definition of substantial gainful
activity in §§ 674.51(x) and 682.200(b).
The proposed definition would specify
that substantial gainful activity means a
level of work performed for pay or profit
that involves doing significant physical
or mental activities, or both.

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Reasons: The proposed regulations
reflect the new statutory definition of
totally and permanently disabled.
Although the HEA provides that a
borrower may be considered totally and
permanently disabled either in
accordance with the Secretary’s
regulations or under the standards
specified in sections 437(a) and
464(c)(1)(F) of the HEA as described
above, the Department has decided to
use only the new specific statutory
substantial gainful activity standard.
The Department has decided not to add
any additional regulatory standards.
Therefore, the proposed revised
definition of total and permanent
disability reflects only the statutory total
and permanent disability standards that
were added to the HEA by the HEOA.
The proposed definition of substantial
gainful activity is based, in part, on the
definition of substantial gainful activity
that the Social Security Administration
(SSA) uses in connection with
determining an individual’s eligibility
for Social Security disability benefits.
However, the Department’s proposed
definition relies solely on a medical
determination and, unlike SSA’s
definition, does not require a physician
to consider whether a borrower can earn
more than a specified amount. The
Department does not believe that, for
purposes of the discharge, it is
necessary for a physician to evaluate
whether a borrower is able to earn more
than a specified amount each year.
Some of the non-Federal negotiators
asked for clarification of the reference to
work performed ‘‘for profit’’ in the
proposed definition of substantial
gainful activity. They expressed
concerns that the term ‘‘profit’’ would
include income from sources other than
employment. The Department explained
that the reference to work performed for
profit was borrowed from the SSA’s
definition of substantial gainful activity
and is intended to cover self-employed
individuals who are not paid by an
employer. The Department further noted
that the proposed definition of
substantial gainful activity refers to
‘‘work’’ performed for pay or profit. The
term ‘‘work performed for profit’’ does
not refer to income from sources other
than employment (including self
employment) and non-employment
income will not be considered when
determining whether a borrower is
capable of substantial gainful activity.
Discharge Process for Borrowers Other
Than Certain Veterans (§§ 674.61(b),
682.402(c)(2) Through (c)(7), and
685.213(b))
Statute: Sections 437(a)(1) and 464(k)
of the HEA, as amended by the HEOA,

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provide for the discharge of a borrower’s
title IV loans if the borrower becomes
totally and permanently disabled. Those
provisions also authorize the Secretary
to promulgate regulations to reinstate a
borrower’s obligation to repay a loan
that was discharged due to disability if,
after the discharge, the borrower
receives another title IV loan or has
earned income in excess of the poverty
line, or under other circumstances that
the Secretary determines to be
necessary.
Current Regulations: Under current
regulations, a borrower applies for a
total and permanent disability discharge
of a title IV loan by submitting a
completed loan discharge application
that has been certified by a physician to
the borrower’s loan holder. For Perkins
Loans, the loan holder is the Perkins
school lender. For FFEL loans, the
holder is the lender or, if a default claim
has been paid on the loan, the guaranty
agency. For Direct Loans and for Perkins
or FFEL loans that have been assigned
to the Secretary, the loan holder is the
Department.
For a Perkins loan held by a school,
if the loan holder determines that the
information provided on the discharge
application supports the conclusion that
the borrower is totally and permanently
disabled in accordance with the current
regulatory definition, the loan holder
assigns the loan to the Secretary.
For a FFEL loan that is held by a
lender, if the lender determines that the
discharge application supports the
conclusion that the borrower is totally
and permanently disabled, the lender
files a disability discharge claim with
the guaranty agency. The guaranty
agency reviews the borrower’s
application, and if the guaranty agency
concurs with the lender’s preliminary
determination of discharge eligibility, it
pays the lender’s discharge claim and
assigns the loan to the Secretary.
Once the loan has been assigned, the
Secretary reviews the loan discharge
application and makes an initial
determination of the borrower’s
eligibility for discharge. For Direct
Loans or for Perkins or FFEL loans that
were already held by the Secretary, the
Secretary’s review is the initial review
of the borrower’s loan discharge
application.
If the Secretary concludes that the
information on the discharge
application does not support the
conclusion that the borrower is eligible
for a total and permanent disability
discharge, the Secretary notifies the
borrower that the discharge request has
been denied and that the loan is due
and payable to the Secretary under the

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terms and conditions of the promissory
note.
If the Secretary determines that the
borrower appears to meet the eligibility
requirements for a total and permanent
disability discharge, the Secretary grants
the borrower a conditional discharge for
a period of up to three years, beginning
on the date the physician certified the
borrower’s discharge application.
During the conditional discharge period,
the borrower is not required to make
any payments on the loan and no
interest accrues on the loan. The
Secretary grants a final discharge if,
during and at the end of the conditional
discharge period, the borrower: (1) Does
not receive a new title IV loan or a
Teacher Education Assistance for
College and Higher Education (TEACH)
Grant; (2) does not have earnings from
employment that exceed the poverty
line amount for a family of two; and (3)
ensures that the full amount of any title
IV loan disbursement made after the
physician’s certification date for a loan
the borrower received prior to the
physician’s certification date is returned
to the holder within 120 days of the
disbursement date. After granting a final
discharge of a loan, the Secretary
returns to the sender any payments on
the loan that were received after the
physician’s certification date.
If at any time during or at the end of
the conditional discharge period the
borrower fails to meet one of the
requirements for a final discharge, the
Secretary ends the conditional discharge
period and resumes collection activity
on the loan. The borrower is not charged
interest for the period during which the
loan was conditionally discharged.
Proposed Regulations: The proposed
regulations would establish two
separate loan discharge processes, one
for veterans who have been determined
by the Secretary of Veterans Affairs to
be unemployable due to a serviceconnected disability, and a different
process (the general discharge process)
for borrowers who have been
determined (as certified by a physician)
to be unable to engage in substantial
gainful activity due to a physical or
mental impairment that can be expected
to result in death or that has lasted for
a continuous period of not less than 60
months, or that can be expected to last
for a continuous period of not less than
60 months. The discharge process for
veterans who have been determined to
be unemployable due to a serviceconnected disability is discussed below
under the heading ‘‘Discharge Process
for Veterans Who Have Been
Determined to be Unemployable Due to
a Service-Connected Disability.’’ This

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section covers the general discharge
process for other borrowers.
The general discharge process
included in these proposed regulations
is similar in some respects to the
discharge process under the current
regulations. However, instead of using
the current conditional discharge
process, the Secretary would discharge
a borrower’s obligation to repay a loan
after determining that the borrower
meets the discharge eligibility
requirements. The Secretary would then
reinstate the borrower’s obligation to
repay the loan if the borrower fails to
meet certain requirements during a postdischarge monitoring period.
Under the proposed regulations, a
borrower who wishes to apply for a total
and permanent disability loan discharge
would submit to his or her loan holders
a completed loan discharge application
that has been certified by a physician.
The loan holder review process would
be the same as under the current
regulations. If the loan holder and, if
applicable, the guaranty agency
determine that the information provided
on the discharge application supports
the conclusion that the borrower is
totally and permanently disabled in
accordance with the regulatory
definition, the loan would be assigned
to the Secretary, as under the current
regulations. The Secretary would then
review the loan discharge application
and make a determination of the
borrower’s eligibility for discharge. As
under the current regulations, the
Secretary’s review would be the initial
review of the borrower’s discharge
application in the case of a Direct Loan
or a Perkins or FFEL loan that is already
held by the Secretary.
If the Secretary concludes that the
information on the discharge
application does not support the
conclusion that the borrower is eligible
for a total and permanent disability loan
discharge, the Secretary would notify
the borrower that the discharge request
has been denied and that the loan is due
and payable to the Secretary under the
terms and conditions of the promissory
note.
Under the proposed regulations, if the
Secretary determines that the borrower
meets the eligibility requirements for a
total and permanent disability
discharge, the Secretary would grant a
final discharge and return to the sender
any payments on the loan that were
received after the physician’s
certification date. At the same time, the
Secretary would notify the borrower
that the borrower’s obligation to repay
the loan will be reinstated if, within
three years from the discharge date, the
borrower: (1) Receives a new title IV

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loan or TEACH Grant; (2) has earnings
from employment that exceed the
poverty line amount for a family of two;
or (3) fails to ensure that the full amount
of any title IV loan or TEACH Grant
disbursement made after the discharge
date for a loan or TEACH Grant the
borrower received prior to the discharge
date is returned to the holder or to the
Secretary, as applicable, within 120
days of the disbursement date. If a
borrower’s obligation to repay a loan is
reinstated, the borrower is not charged
interest for the period from the
discharge date to the date of the
reinstatement.
The proposed regulations would also
provide that, if a borrower received a
title IV loan or TEACH Grant before the
date the physician certified the loan
discharge application and a
disbursement of that loan or grant is
made after the date of the physician’s
certification but before the date the
Secretary grants the discharge, the
processing of the borrower’s loan
discharge request will be suspended
until the borrower ensures that the full
amount of the disbursement has been
returned to the loan holder or to the
Secretary, as applicable.
Finally, the proposed regulations
would provide that if a borrower’s
obligation to repay a loan is reinstated
after a total and permanent disability
discharge, the Secretary will notify the
borrower of the reinstatement. The
notification will provide the borrower
with the reason or reasons for the
reinstatement, an explanation that the
first loan payment following
reinstatement will be due no earlier
than 60 days after the date of the
notification, and information on how
the borrower may contact the
Department if the borrower has
questions about the reinstatement or
believes that the obligation to repay the
loan was reinstated based on incorrect
information.
Reasons: The proposed regulations
reflect the statutory provisions that
authorize the Secretary to reinstate a
borrower’s obligation to repay a
previously discharged loan under
certain conditions. Under the proposed
regulations, the general discharge
process would, in many respects, be
similar to the discharge process under
the current regulations. The non-Federal
negotiators were generally supportive of
this approach. The most significant
difference between the proposed and
current regulations is that the current
conditional discharge process will be
replaced by a process in which the
Secretary discharges the borrower’s
obligation to repay the loan after
determining that the borrower is totally

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
and permanently disabled, but
reinstates the borrower’s repayment
obligation if the borrower fails to meet
certain requirements during a 3-year
post-discharge monitoring period. The
proposed 3-year post-discharge
monitoring period is consistent with the
current 3-year conditional discharge
period, and the conditions that would
result in the reinstatement of a
borrower’s obligation to repay a
previously discharged loan are
essentially the same as the conditions
that, under the current regulations,
result in a conditionally discharged loan
being returned to repayment status.
The Department initially proposed a
5-year post-discharge monitoring period
and also proposed that upon the
reinstatement of a borrower’s obligation
to repay a previously discharged loan
for failure to meet one of the postdischarge requirements, the borrower
would be charged interest for the period
from the date of discharge to the
reinstatement date. The non-Federal
negotiators did not support these
proposals. Some negotiators questioned
the basis for having a 5-year postdischarge monitoring period, since
under current regulations the
conditional discharge period is only
three years. With regard to the
Department’s initial proposal to charge
interest from the discharge date if a
borrower’s obligation to repay a
discharged loan is reinstated, the nonFederal negotiators noted that, under
current regulations, a borrower is not
charged interest from the conditional
discharge date if a conditionally
discharged loan is returned to
repayment status before the end of the
conditional discharge period. After
further consideration of the non-Federal
negotiators’ concerns, the Department
revised the proposed regulations by
changing the post-discharge monitoring
period from five years to three years,
and by removing the provision that
would have required a borrower to pay
interest from the date of discharge if the
borrower’s repayment obligation is
reinstated.
The Department also initially
proposed that one of the conditions for
reinstatement of a borrower’s obligation
to repay a previously discharged loan
would be if the borrower had annual
earnings from employment during the
post-discharge monitoring period that
exceeded the poverty guideline amount
for the borrower’s family size. Current
regulations provide that a conditionally
discharged loan is returned to
repayment status if the borrower has
employment earnings during the
conditional discharge period that
exceed the poverty guideline amount for

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a family of two, regardless of the
borrower’s actual family size. The
Department believed that the proposed
change to a standard based on the
borrower’s actual family size would be
more equitable, as it would allow a
borrower with a family size greater than
two to have a higher level of
employment earnings during the postdischarge monitoring period without
being subject to reinstatement of the
borrower’s repayment obligation on the
discharged loan. However, some nonFederal negotiators expressed concerns
that the proposed change to an
employment earnings standard based on
actual family size would be confusing to
borrowers, since a borrower’s family
size could change during the postdischarge monitoring period. These
non-Federal negotiators believed that it
would be preferable to maintain the
current standard based on a family size
of two, so that a borrower would not
need to monitor changes in the
employment earnings limit if the
borrower’s family size increased or
decreased during the post-discharge
monitoring period. The Department
agreed.
The Department’s initial proposed
regulations did not include a provision
comparable to the provision in current
regulations that addresses the treatment
of a title IV loan disbursement made
during the conditional discharge period
for a loan the borrower received prior to
the physician’s certification date. Under
the current regulations, a borrower is
ineligible for a final discharge unless the
borrower ensures that such a
disbursement is returned to the loan
holder within 120 days of the
disbursement date. The Department
initially did not include a similar
provision in the proposed regulations
because the current regulatory provision
is tied to the conditional discharge
period, which would be eliminated
under the proposed regulations. Under
the proposed regulations, the postdischarge monitoring period begins on a
later date than the current conditional
discharge period, and a disbursement of
a title IV loan received prior to the
physician’s certification date is less
likely to occur. However, some nonFederal negotiators noted that this
situation could still arise under the
proposed regulations and recommended
that the proposed regulations be revised
to include a provision comparable to the
provision in the current regulations. The
Department agreed. The proposed
regulations would provide that a
borrower’s obligation to repay a
discharged loan will not be reinstated if
the borrower ensures that a title IV loan

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36561

or TEACH Grant disbursement made
during the post-discharge monitoring
period for a loan or TEACH Grant
received prior to the discharge date is
returned to the loan holder within 120
days of the disbursement date. The
proposed regulations would include
TEACH Grant disbursements in this
provision because a condition for
receiving a TEACH Grant is that the
student must agree to complete a
teaching service obligation. A student
who accepts a TEACH Grant
presumably would not be totally and
permanently disabled, as this condition
would preclude the student from
completing the TEACH Grant service
obligation.
The Committee also discussed the
possible effect on a borrower’s discharge
request of a disbursement being made
during the period between the
physician’s certification date and the
discharge date for a loan or TEACH
Grant received prior to the physician’s
certification date. This issue does not
arise under the current regulations
because of the structure of the
conditional discharge period. Based on
these discussions, the Department
revised the proposed regulations to
provide that if a disbursement of a title
IV loan or TEACH Grant is made during
the period between the physician’s
certification date and the discharge date,
the processing of the borrower’s loan
discharge request will be suspended
until the borrower ensures that the
disbursement is returned to the loan
holder or the Secretary, as applicable.
Finally, some of the non-Federal
negotiators expressed concern that the
Department’s initial proposal did not
explicitly provide that the Secretary
would notify a borrower who fails to
meet one of the eligibility requirements
during the post-discharge monitoring
period that the borrower’s obligation to
repay the discharged loan has been
reinstated. The Department’s regulations
generally do not specifically address the
actions of the Department, but the nonFederal negotiators strongly urged the
Department to include such a provision
in the proposed regulations. These
negotiators also requested that the
proposed regulations specify that the
Secretary’s notification of reinstatement
will tell borrowers the reason for the
reinstatement and provide the borrower
with information on how to contact an
appropriate office or official if they have
questions or believe that the
reinstatement was based on incorrect
information. The Department agreed to
add to the proposed regulations a
provision stating that the Secretary will
notify a borrower that his or her
obligation to repay a previously

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discharged loan has been reinstated.
The proposed regulations also provide
that the notification of reinstatement
will include the reason or reasons for
the reinstatement, an explanation that
the first payment due date on the loan
following reinstatement will be no
earlier than 60 days after the date of the
notification of reinstatement, and
information on how the borrower may
contact the Department if he or she has
questions about the reinstatement or
believes that the obligation to repay the
loan was reinstated based on incorrect
information.
The Department also agreed to take
steps to further improve its notices to
borrowers who have applied for or
received disability discharges under the
proposed regulations to more clearly
explain the discharge process and the
borrower’s rights and responsibilities
with respect to that process. In
particular, the Department intends to
take steps to develop a process to
acknowledge receipt of a borrower’s
submission of a request that the
Department reconsider its determination
and to provide borrowers with
information on the Secretary’s process
for considering such requests and how
the borrower will be made aware of the
Secretary’s decision.
Discharge Process for Veterans Who
Have Been Determined To Be
Unemployable Due to a ServiceConnected Disability (§§ 674.61(c),
682.402(c)(8), and 685.213(c))
Statute: The HEOA added sections
437(a)(2) and 464(c)(1)(F)(iv) to the HEA
to provide that a borrower who has been
determined by the Secretary of Veterans
Affairs (VA) to be unemployable due to
a service-connected disability and who
provides documentation of that
determination to the Secretary is to be
considered totally and permanently
disabled for the purpose of discharging
the borrower’s title IV loans. Section
437(a)(2) of the HEA further specifies
that a borrower who provides such
documentation may not be required to
present additional documentation for
the purpose of determining eligibility
for a total and permanent disability loan
discharge.
Proposed Regulations: The proposed
regulations would establish a separate
discharge application process for
borrowers who provide documentation
showing that they have been determined
by the VA to be unemployable due to a
service-connected disability. Under the
proposed regulations, the borrower
would submit to the loan holder a loan
discharge application accompanied by
documentation from the VA showing
that the borrower has been determined

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to be unemployable due to a serviceconnected disability. The borrower
would not be required to have a
physician certify the loan discharge
application, and would not be required
to provide any additional
documentation related to the borrower’s
service-connected disability.
If the documentation from the VA
does not indicate that the borrower has
been determined to be unemployable
due to a service-connected disability,
the loan holder would deny the
borrower’s discharge request. However,
if the documentation indicates that the
borrower may be totally and
permanently disabled under the general
definition of a total and permanent
disability, the loan holder would inform
the borrower that he or she may reapply
for a loan discharge under the general
procedures for a disability discharge.
If the documentation indicates that
the VA has determined that a Perkins
Loan borrower is unemployable due to
a service-connected disability, the
Perkins school loan holder would
submit a copy of the borrower’s
discharge application and supporting
documentation to the Secretary, and
would notify the borrower that the
discharge request has been referred to
the Secretary for a determination of
eligibility. In the case of a FFEL loan
that is held by a lender, the lender
would refer the borrower’s application
to the guaranty agency and file a
disability discharge claim with the
agency. If the guaranty agency agrees
that the VA documentation shows the
borrower has been determined to be
unemployable due to a serviceconnected disability, the guaranty
agency would refer the borrower’s
application to the Secretary. In contrast
to the general discharge procedures, the
borrower’s loan would not be assigned
to the Secretary.
Under the proposed regulations, if the
Secretary determines that the borrower
meets the total and permanent disability
standard based on a determination by
the VA that the borrower is
unemployable due to a serviceconnected disability, the Secretary
would notify the Perkins Loan school or
guaranty agency that the borrower is
eligible for a total and permanent
disability loan discharge. The Perkins
Loan school would then discharge the
borrower’s loan and return to the sender
any payments on the loan that were
received on or after the effective date of
the VA’s determination that the
borrower is unemployable due to a
service-connected disability. The
guaranty agency would pay the lender’s
disability discharge claim and notify the
borrower that the borrower’s obligation

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to make any further payments on the
loan has been discharged. Upon receipt
of the claim payment from the guaranty
agency, the lender would return any
payments on the loan received on or
after the effective date of the VA’s
determination to the person who made
the payments. There would be no postdischarge monitoring period for a
borrower who receives a total and
permanent disability discharge through
this process, and the borrower would
not be subject to reinstatement of his or
her obligation to repay the discharged
loan based on post-discharge
employment earnings or receipt of a
new title IV loan or TEACH Grant. The
same discharge process would apply to
borrowers with Direct Loans or Perkins
or FFEL loans that are held by the
Department.
If the Secretary determines, based on
a review of the documentation from the
VA, that the borrower does not meet the
standard for a disability discharge, the
Secretary would notify the Perkins Loan
school or guaranty agency of that
decision, and collection on the loan
would resume.
Reasons: The proposed regulations
are necessary to implement the statutory
total and permanent disability discharge
standard for certain veterans.
Borrower Eligibility for New Title IV
Loans After a Prior Total and
Permanent Disability Discharge
(§§ 674.9(g), 682.201(a), and 685.200(a))
Statute: The HEA does not specify
eligibility requirements for borrowers
who apply for a new title IV loan after
a prior loan has been discharged due to
a total and permanent disability.
Current Regulations: Under the
current regulations in the Perkins, FFEL,
and Direct Loan programs, a borrower
whose prior title IV loan was discharged
due to a total and permanent disability
must meet certain requirements before
receiving a new loan. Specifically, the
borrower must: (1) Provide a
certification from a physician that the
borrower is able to engage in substantial
gainful activity; and (2) sign a statement
acknowledging that any new loan the
borrower receives cannot be discharged
in the future based on any present
condition, unless that condition
substantially deteriorates. In addition, if
a borrower’s prior loan is in a
conditional discharge status, the
conditionally discharged loan must be
returned to repayment status before the
borrower may receive a new loan.
Proposed Regulations: The proposed
regulations would retain the current
requirement that, to receive a new title
IV loan after a disability discharge, a
borrower would have to obtain a

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certification from a physician that the
borrower is able to engage in substantial
gainful activity, and acknowledge that
the new loan may not be discharged in
the future based on any present
condition unless the condition
substantially deteriorates. The proposed
regulations would also provide that if a
borrower receives a new title IV loan
within three years of the date that a
prior title IV loan or TEACH Grant
service obligation was discharged on the
basis of the borrower’s disability, the
borrower would be required to resume
repayment on the previously discharged
loan or acknowledge that he or she is
again subject to the terms of the TEACH
Grant agreement to serve before
receiving the new loan.
The current total and permanent
disability discharge regulations will
continue to apply to any borrower
whose loan discharge application is
received prior to the effective date of
any final regulations published as a
result of this NPRM. Therefore, the
proposed regulations would retain the
current provision that requires a loan in
a conditional discharge status to be
returned to repayment status before a
borrower who received a conditional
discharge may receive a new loan.
Reasons: The changes to the borrower
eligibility regulations are conforming
changes that are needed to effectively
implement the new total and permanent
disability loan discharge process.
Consolidation Loans (§§ 682.201(e),
682.206(f) and 685.220(d))
Statute: The HEOA amended sections
428C(a)(3)(B)(i)(V) and 428C(b)(5) of the
HEA to provide that FFEL loan
borrowers may consolidate their loans
into a Direct Consolidation Loan for the
purpose of using the no interest accrual
benefit for active duty service members,
which is only available in the Direct
Loan Program. This benefit provides
that interest will not accrue on the
Direct Loan of an eligible military
borrower for a period of not more than
60 months while the borrower is serving
on active duty during a war or other
military operation or national
emergency, or performing qualifying
National Guard duty during a war or
other military operation or national
emergency, and is serving in an area of
hostilities in which service qualifies for
special pay under section 310 of title 37
of the United States Code.
The HEOA also amended section 433
of the HEA by adding a separate set of
disclosures for Consolidation loan
borrowers. At the time a lender provides
a Consolidation loan application to a
prospective borrower, it must provide
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Consolidation loans. In particular, a
lender must inform the borrower that by
applying for a Consolidation loan, the
borrower is not obligated to take the
loan.
Current regulations: Section 682.201
of the regulations establishes the
eligibility requirements for borrowers
seeking a FFEL Consolidation loan.
Section 685.220 of the current
regulations establishes the eligibility
requirements for a borrower seeking a
Direct Consolidation Loan. Current
regulations permit borrowers who have
only FFEL loans to consolidate those
loans into a Direct Consolidation Loan
to obtain an income contingent
repayment plan or to qualify for the
Public Service Loan Forgiveness
Program. In addition, FFEL borrowers
whose loans have been submitted to the
guaranty agency for default aversion
assistance may apply for a Direct
Consolidation Loan.
Section 682.206(f) of the current
regulations includes requirements for
lenders in the making of FFEL
Consolidation loans. Those
requirements include the requirement
that the lender obtain lender verification
certifications from the holders of the
loans to be repaid by the Consolidation
loan.
Proposed regulations: The proposed
regulations would amend §§ 682.201(e)
and 685.220(d) to include an additional
condition under which a borrower with
only FFEL loans may consolidate those
loans into a Direct Consolidation Loan.
The proposed regulations would
provide that a borrower with only FFEL
loans may consolidate into the Direct
Loan Program to use the no accrual of
interest benefit for active duty military
service personnel.
The proposed regulations would also
incorporate into the regulations a
statutory change made by the College
Cost Reduction and Access Act of 2007
(CCRAA) that is not currently reflected
in the Department’s regulations.
Specifically, the proposed regulations
would provide that a borrower may
consolidate a FFEL Consolidation loan
into the Direct Loan Program without
including another eligible loan in the
consolidation if the FFEL Consolidation
loan is in default, or if the borrower
wishes to obtain an income-based
repayment plan.
The proposed regulations would also
modify section 682.206(f) to incorporate
a new requirement that is needed to
fully implement § 682.205(i)(7), which
requires lenders to inform borrowers
that, by applying for the Consolidation
loan, the borrower is not obligated to
agree to take the loan. Section 682.206(f)
would be amended to include a

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requirement that the lender provide a
Consolidation loan borrower a period of
not less than 10 days, from the date the
borrower is notified by the lender that
it is ready to make the Consolidation
loan, to cancel the loan. The proposed
regulations would require the lender to
send the notice of the option to cancel
the loan to the borrower before making
any payments to pay off a loan with the
proceeds of a Consolidation loan.
Reasons: The proposed changes to
§§ 682.201(e) and 685.220(d) are being
made to implement statutory
requirements. The proposed change to
§ 682.206(f) is being made to ensure that
borrowers are given an appropriate
opportunity to cancel a Consolidation
loan for which they may have applied.
The HEOA instituted several new
disclosure requirements for lenders and
established very specific disclosures
requirements for lenders making a
Consolidation loan. In particular, the
HEOA requires a lender to inform a
Consolidation loan applicant that
applying for the loan does not obligate
the borrower to agree to take the loan.
The Department determined that it was
important to ensure that borrowers are
given both a clear explanation of the
process for canceling a Consolidation
loan and the time frame within which
they may exercise their right to cancel
the loan. Therefore, the Department is
proposing language in § 682.206(f)
providing borrowers with a 10-day
period, before a Consolidation loan is
made, during which the borrower could
reconsider the Consolidation loan and
cancel the loan if appropriate.
There were a number of issues raised
by the negotiators regarding this
provision. Some non-Federal negotiators
expressed concern about the
Department’s original proposal to
provide a five-day period for a borrower
to cancel the loan with the lender.
These non-Federal negotiators did not
think the initial proposal provided
enough clarity as to the date on which
the five-day period would begin. One
non-Federal negotiator indicated that
the consolidation process is highly
automated and if the servicer of the
loans to be consolidated is also the
servicer or lender for the Consolidation
loan, the loan process could be
completed in as little as 24–48 hours.
The Department was asked to provide
an opportunity for a borrower to waive
his or her right to cancel the loan to
allow the process to occur more quickly
if the borrower chose to do so.
During the negotiations, the
Department described how the Direct
Loan Program currently provides
borrowers an opportunity to affirm their
decision to take a Consolidation loan.

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Based on the practice in the Direct Loan
Program, the Department proposed
revised language establishing a
timeframe for a borrower to cancel a
Consolidation loan that would be
similar to the timeframe in the Direct
Loan Program, and that would be clear
and understandable to all participants.
The language in proposed
§ 682.206(f)(ii) reflects the revised
proposal.
The Department strongly believes that
the HEA clearly intends that a standard
process should be established to provide
a Consolidation loan applicant with the
opportunity to cancel the application for
the loan. The Department believes the
proposed regulatory language reflects an
appropriate balance between allowing
the borrower sufficient time to make an
informed determination about moving
forward with the process for a
Consolidation loan while not
unnecessarily delaying its completion.
The Department does not agree with the
recommendation that the regulations
provide an opportunity for a borrower to
waive the right to cancel a
Consolidation loan if the borrower
wants the consolidation process to
occur more quickly. The Department
believes that the 10-day cancellation
period provides appropriate protection
to the borrower. Accordingly, under the
proposed regulations, the 10-day
cancellation period may not be waived
by the borrower.
One non-Federal negotiator asked if
the proposed cancellation notification
requirement would apply to a request by
a borrower to add loans to an existing
Consolidation loan during a 180-day
period as permitted by the HEA. The
negotiator was concerned that if the
requirement applied to requests to add
loans to an existing Consolidation loan,
it could have a negative consequence to
a borrower if a loan was inadvertently
left out of the consolidation process and
simply needed to be added. The
Department agreed that once the loan is
made, the 10-day waiting period does
not apply if the borrower adds
additional loans during the permitted
180-day period.
In-School Deferments, Interest
Capitalization, and Administrative
Forbearance for PLUS Loans
(§§ 682.202(b), 682.210(v), 682.211(f),
685.202(b), 685.204(g), and 685.205(b))
Statute: Section 428B(d) of the HEA,
as amended by the HEOA, adds new inschool deferment provisions for PLUS
loans first disbursed on or after July 1,
2008. Specifically, the HEA provides
that a parent PLUS borrower may defer
repayment of a PLUS loan first
disbursed on or after July 1, 2008 during

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the period while the student on whose
behalf the loan was obtained is enrolled
at an eligible institution on at least a
half-time basis, and during the 6-month
period that begins on the later of the day
after the student ceases to be enrolled
on at least a half-time basis or, if the
parent borrower is also a student, the
day after the parent ceases to be
enrolled on at least a half-time basis. A
graduate or professional student PLUS
borrower may defer repayment of a
PLUS loan first disbursed on or after
July 1, 2008 during the 6-month period
that begins on the day after the student
ceases to be enrolled at an eligible
institution on at least a half-time basis.
The HEA does not address the
capitalization of interest on a PLUS loan
that accrues during the period from the
date of the first disbursement until the
date the repayment period begins.
Current Regulations: Current
regulations do not address the
capitalization of interest on a PLUS loan
that accrues from the date of the first
disbursement until the date the
repayment period begins.
Proposed Regulations: The proposed
regulations would revise §§ 682.210 and
685.204 to provide that, upon the
request of the borrower, a parent PLUS
borrower must be granted a deferment
on a PLUS loan first disbursed on or
after July 1, 2008, during the period
when the student on whose behalf the
loan was obtained is enrolled on at least
a half-time basis at an eligible
institution, and during the 6-month
period that begins on the later of the day
after the student ceases to be enrolled
on at least a half-time basis or, if the
parent borrower is also a student, the
day after the parent ceases to be
enrolled on at least a half-time basis.
For graduate and professional student
PLUS borrowers, the proposed
regulations would provide that a
borrower may be granted a deferment on
a PLUS loan first disbursed on or after
July 1, 2008 during the 6-month period
that begins on the day after the student
ceases to be enrolled on at least a halftime basis at an eligible institution. If a
lender or the Secretary grants an inschool deferment on a student PLUS
loan based on information from the
borrower’s school about the borrower’s
eligibility for a new loan, student status
information from the school or
information from the National Student
Loan Data System (NSLDS) confirming
the borrower’s half-time enrollment
status, the in-school deferment period
for a student PLUS loan first disbursed
on or after July 1, 2008 would include
the 6-month period that begins on the
day after the student PLUS borrower

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ceases to be enrolled on at least a halftime basis.
The proposed regulations would
revise the interest capitalization
provisions in § 682.202(b) to provide
that a lender may capitalize interest on
a PLUS loan that has accrued from the
date of the first disbursement until the
date the repayment period begins, and
would make a corresponding change in
the Direct Loan Program regulations by
revising § 685.202(b) to provide that the
Secretary may capitalize unpaid interest
on a PLUS loan when the loan enters
repayment.
Finally, the proposed regulations
would add a new administrative
forbearance provision to § 682.211(f)
allowing a lender to grant a forbearance,
upon notice to the borrower, on a
borrower’s PLUS loans first disbursed
before July 1, 2008 to align repayment
with a borrower’s PLUS loans first
disbursed on or after July 1, 2008, or
with a borrower’s Stafford Loans that
are subject to a grace period. The lender
would be required to notify the
borrower that he or she has the option
to cancel the forbearance and to
continue paying on the loan. A
corresponding administrative
forbearance provision would be added
to § 685.205(b) in the Direct Loan
Program regulations.
Reasons: The proposed PLUS loan
deferment regulations implement
statutory provisions that were added to
the HEA by the HEOA.
The Department is proposing to
amend the current interest
capitalization provisions for PLUS loans
to reflect current practice with regard to
capitalization of unpaid loan interest
that accrues from the date of the first
disbursement until the date the loan
enters repayment.
The proposed new administrative
forbearance provision reflects a
recommendation from one of the nonFederal negotiators. This negotiator was
concerned that PLUS loan borrowers,
particularly student PLUS loan
borrowers, who have both PLUS loans
first disbursed before July 1, 2008 and
PLUS loans first disbursed on or after
July 1, 2008 may believe that all of their
PLUS loans are eligible for the new 6month post-enrollment deferment
period. However, this deferment is only
available on PLUS loans first disbursed
on or after July 1, 2008. Because the 6month post-enrollment deferment for
student PLUS loans first disbursed on or
after July 1, 2008 may be granted
automatically as an extension of the
borrower’s in-school deferment period,
a student PLUS borrower who also has
pre-July 1, 2008 PLUS loans may not
understand that the loans first disbursed

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before July 1, 2008 do not qualify for the
post-enrollment deferment, and the inschool deferment period on such loans
will end when the student ceases to be
enrolled on at least a half-time basis.
The non-Federal negotiator asked the
Department to consider amending the
regulations to provide for the alignment
of repayment of a borrower’s PLUS
loans first disbursed before July 1, 2008
with a borrower’s PLUS loans first
disbursed on or after July 1, 2008, and
with a borrower’s Stafford Loans that
have a grace period, so that the borrower
would begin making payments on all of
the loans at the same time. The
Department agreed.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Applicability of the Servicemembers
Civil Relief Act (SCRA) to FFEL and
Direct Loan Program Loans (§§ 682.202,
682.302, and 685.202)
Statute: The HEOA amended section
428(d) of the HEA to provide that FFEL
and Direct Loan program loans are
subject to the provision in section 207
of the Servicemembers Civil Relief Act
(50 U.S.C. 527) (SCRA) that limits the
interest rate on a borrower’s loan to six
percent during periods of active duty
military service. The limitation applies
to loans incurred by the servicemember,
or by the servicemember and the
servicemember’s spouse jointly, before
the servicemember entered military
service. Section 438 of the HEA was also
amended to specify that, for any FFEL
program loan first disbursed on or after
July 1, 2008 that is subject to the six
percent interest rate limit of the SCRA,
the interest rate used to calculate the
lender’s special allowance payment is
the rate that is determined in
accordance with the SCRA.
Proposed Regulations: The proposed
regulations would revise §§ 682.202 and
685.202 to provide that, effective August
14, 2008, upon a loan holder’s receipt of
a written request from a borrower and
a copy of the borrower’s military orders,
the maximum interest rate (as defined in
50 U.S.C. 527, App, section 207(d)) that
may be charged on FFEL or Direct Loan
program loans made prior to the
borrower entering active duty status is
six percent while the borrower is on
active duty status. The proposed
regulations would also revise § 682.302
of the FFEL regulations by adding a new
paragraph (h) that specifies that for
FFEL loans first disbursed on or after
July 1, 2008, that are subject to the
SCRA interest rate cap, a FFEL lender’s
special allowance payment is calculated
as it otherwise would be under program
requirements, except that the applicable
interest rate used is six percent.

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Reasons: The proposed regulations
are necessary to reflect statutory
requirements.
During the negotiations, the
Department clarified that for
determining compliance with this
provision, interest under the SCRA
includes service charges, renewal
charges, fees, or any other charges
(except bona fide insurance) with
respect to an obligation or liability. The
Department also noted that a lender is
prohibited from assessing a borrower
who is subject to the SCRA interest rate
cap an additional charge after the
borrower’s period of active duty military
service that is equal to the difference
between the otherwise applicable
interest rate on the FFEL loan and the
six percent cap.
In response to questions from the
negotiators, the Department also
clarified that the SCRA interest rate cap
applies to the loan, not to the borrower.
As long as the debt was incurred before
the borrower’s military service began,
the interest rate cap applies to any joint
consolidation loan or other co-borrowed
loan, and applies to a PLUS loan made
to a borrower with an endorser even if
only one of the individuals is
performing active duty military service.
For purposes of this restriction, a loan
is considered incurred by an endorser
when the Endorser Addendum to the
PLUS Loan Master Promissory Note is
signed, and the requirement that the
debt be incurred before military service
is based on that date. The debt-beforeservice date on a consolidation loan is
the date the consolidation loan was
made as a new debt, not the
disbursement date of the loans repaid by
the consolidation loan.
In-School Deferment (§§ 682.210(a),
682.210(c)(1), and 685.204(b)(1))
Statute: Section 428(b)(1)(Y) of the
HEA was amended by the HEOA to
include an additional method for
granting an in-school deferment on a
FFEL or Direct Loan. A loan holder may
grant an in-school deferment based on
the lender’s confirmation of the
borrower’s half-time enrollment status
through the use of NSLDS, if the
confirmation is requested by the
institution of higher education. A new
provision was also added to the HEA to
require a lender, at the time the lender
grants a deferment to a borrower with an
unsubsidized Stafford Loan, to provide
the borrower with information to assist
the borrower in understanding the
impact of capitalization of interest on
the borrower’s loan principal and on the
total amount of interest to be paid
during the life of the loan.

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Current Regulations: Section
682.210(c)(1) of the current FFEL
regulations specifies that a lender must
grant an in-school deferment when a
borrower requests and submits
supporting documentation for the
deferment or when the lender receives
information from the school on a
borrower’s eligibility for an in-school
deferment in connection with the
borrower’s receipt of a new loan, or
when the lender receives student status
information, directly or indirectly, from
the borrower’s school indicating the
borrower’s eligibility for the deferment.
Section 685.204(b)(1) of the Direct Loan
program regulations contains
comparable provisions.
Section 682.210(c)(2) of the FFEL
regulations requires the lender, when
granting an in-school deferment on a
FFEL program loan based on
information provided by the school, to
notify the borrower that the deferment
has been granted and that the borrower
has the option to pay the accruing
interest on an unsubsidized loan or to
cancel the deferment and continue
paying on the loan. The lender is also
required to include in the notice an
explanation of the consequences of
those options. Under
§ 685.204(b)(1)(iii)(B) of the Direct Loan
regulations, the Secretary notifies the
borrower after granting an in-school
deferment based on information
provided by the school that the
borrower has the option to continue
paying on the loan, and that if the
borrower elects to cancel the deferment,
the borrower may pay the principal and
interest payments that were deferred. If
the borrower fails to do so, the Secretary
applies a deferment and capitalizes the
interest that accrued during the period
in which payments were not made.
Proposed Regulations: The proposed
regulations would revise
§§ 682.210(c)(1) and
685.204(b)(1)(iii)(A) to reflect the
additional statutory method a lender or
the Secretary may use to grant an inschool deferment, based on
confirmation of the borrower’s half-time
enrollment status through the use of
NSLDS if requested by the borrower’s
school. The proposed regulations would
also revise § 682.210(a)(3) of the FFEL
regulations to provide that if a borrower
is responsible for the interest on a loan
during a deferment period, the lender, at
or before the time the deferment is
granted, must notify the borrower that
he or she has the option to pay the
accruing interest or cancel the
deferment and continue paying on the
loan. The lender would also be required
to provide information, including an
example, on the impact on a borrower’s

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loan debt of capitalization of accrued
unpaid interest and on the total amount
of interest to be paid over the life of the
loan. A similar notification provision
that applied only to the granting of inschool deferments would be removed
from § 682.210(c)(2) of the FFEL
regulations. A comparable change
would be made in § 685.204(b)(1)(iii)(B)
of the Direct Loan regulations to provide
that borrowers will be notified of their
option to cancel a deferment and
continue paying on the loan and will be
provided with information on the
impact of capitalization, including an
example.
Reasons: The proposed changes are
necessary to reflect the statutory
changes made by the HEOA that affect
the process for granting in-school
deferments in the FFEL and Direct Loan
programs and that require that
additional information be provided so
that borrowers better understand the
impact of the capitalization of interest
on the total cost of the loan. At the
request of the negotiators, the
Department clarified that the use of
NSLDS, at the request of a borrower’s
school, to confirm a borrower’s
enrollment status is an additional
method for granting in-school
deferments and does not replace other
pre-existing methods. In-school
deferments may continue to be granted
by a lender consistent with the
requirements of § 682.210(s)(1)(iii) and
based on student status information
provided directly or indirectly by a
school, including status information
reported to NSLDS, without a specific
request from the school.
The Department also clarified that the
information provided to borrowers on
the impact of capitalization of accruing
unpaid interest during deferment
periods, including the example, may be
general in nature rather than borrowerspecific. The Department also agreed
with a proposal from some non-Federal
negotiators that it would be helpful to
borrowers to provide the required
information on capitalization when the
borrower applies for the deferment, by
including it in standardized deferment
forms, rather than only providing the
information when the borrower is
granted the deferment.
Income-Based Repayment (IBR) Plan
(§§ 682.215 and 685.221)
Definition of Partial Financial Hardship
(§§ 682.215(a)(4) and 685.221(a)(4))
Statute: Section 493C(a)(3) of the HEA
provides that a borrower has a partial
financial hardship, for the purpose of
establishing eligibility for the incomebased repayment (IBR) plan, if the

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amount due on all of the borrower’s
eligible FFEL and Direct Loans (as
calculated under a standard repayment
plan based on a 10-year repayment
period) exceeds 15 percent of the
difference between the borrower’s (and,
if applicable, the borrower’s spouse’s)
adjusted gross income (AGI) and 150
percent of the poverty guideline for the
borrower’s family size. If a married
borrower files a separate Federal income
tax return, section 493C(d) of the HEA
provides that only the borrower’s
income and eligible student loan debt
are used in determining the amount of
the borrower’s payment under the IBR
plan. An eligible loan under section
493C(a)(3) is any loan made, insured, or
guaranteed under the FFEL and Direct
Loan programs other than parent PLUS
loans made under the FFEL and Direct
Loan programs and consolidation loans
under both programs that repaid parent
PLUS loans.
Current Regulations: The current
regulations reflect the statutory
definition of the term partial financial
hardship and define the terms ‘‘AGI,’’
‘‘family size,’’ and ‘‘poverty guideline’’
consistent with the use of those terms in
§ 682.210 for purposes of determining a
borrower’s eligibility for an economic
hardship deferment. AGI means the
income reported by the borrower to the
Internal Revenue Service (IRS). For a
married borrower filing jointly, AGI
includes both the borrower’s and
spouse’s income. If a married borrower
files a separate Federal tax return, AGI
includes only the borrower’s income. A
borrower’s family size includes the
borrower, the borrower’s spouse and the
borrower’s children (including unborn
children who will be born during the
year the borrower certifies family size),
if the children receive more than half
their support from the borrower for the
year the borrower certifies family size.
Other individuals are included in family
size if, at the time the borrower certifies
family size, those other individuals live
with the borrower and receive more
than half their support for the year the
borrower certifies family size. Support
includes money, gifts, loans, housing,
food, clothes, car, medical and dental
care, and payment of college costs. The
poverty guideline is the income
categorized by State and family size in
the poverty guidelines published
annually by the United States
Department of Health and Human
Services pursuant to 42 U.S.C. 9902(2).
If the borrower is not a resident of a
State identified in the poverty
guidelines, the poverty guideline to be
used for the borrower is the poverty
guideline (for the relevant family size)

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used for the 48 contiguous States. The
term eligible loan reflects the statutory
definition.
Proposed Regulations: The proposed
regulations would specify that the
annual amount due on a borrower’s
eligible loans for purposes of
determining whether the borrower has a
partial financial hardship is the greater
of the amount due on the eligible loans
as calculated under a standard
repayment plan with a 10-year
repayment period when the borrower
initially entered repayment on those
loans, or the annual amount due on
those loans as calculated under a
standard repayment plan with a 10-year
repayment period when the borrower
elects the IBR plan. The proposed
regulations would also provide that
when a married borrower and his or her
spouse file a joint tax return with the
IRS and both the borrower and the
spouse have eligible loans, the joint AGI
and the total amount of the borrower’s
and spouse’s eligible loans will be used
in determining whether each borrower
has a partial financial hardship.
Reasons: In the regulations governing
the IBR Plan, the Department provided
that, when determining a borrower’s
partial financial hardship for purposes
of IBR, the loan holder should compare
the annual amount the borrower would
pay on the borrower’s eligible loans at
the time the borrower initially entered
repayment on the total outstanding
balance of those loans, based on a
standard repayment over a 10-year
repayment period, to the annual amount
a borrower would pay under the
provisions of the IBR plan. During the
negotiations, a non-Federal negotiator
pointed out that always using the
annual amount the borrower would pay
based on the outstanding balance of the
loans when the borrower initially
entered repayment disadvantages those
borrowers whose outstanding balance
has increased from the date the
borrower initially entered repayment
until the date the borrower requests IBR.
This is particularly true for borrowers
who have experienced significant
difficulty repaying the loans,
particularly unsubsidized loans, and
who have used deferments and
forbearances to avoid delinquency, with
the result that their outstanding loan
principal balance has increased due to
capitalized interest. The Department
and the other negotiators agreed that a
borrower whose outstanding balance
has increased rather than decreased
during the repayment period prior to the
borrower’s request for IBR should be
given the benefit of having partial
financial hardship determined based on
the annual amount due, as calculated

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under a standard repayment plan with
a 10-year repayment period, on the
borrower’s increased outstanding loan
principal balance.
The Department also proposed a
change related to how eligibility for
partial financial hardship is determined
for married borrowers who file a joint
Federal tax return and who both have
eligible loans. The proposed change
would ensure that if both borrowers
qualify for IBR, their combined payment
amounts will not exceed the 15 percent
threshold under the IBR plan. The
Department initially proposed the use of
each individual borrower’s portion of
the joint AGI and eligible loan amount
to determine eligibility for IBR. After
additional discussion, however, the
Department and the negotiators agreed
that this approach would impose a
significant burden on borrowers, who
would be required to submit additional
documentation to identify their
individual portion of any joint income,
and would also require the loan holder
to determine each borrower’s eligibility
using a manual (instead of an
automated) process. The Department
and the negotiators agreed to adopt a
suggestion by one of the non-Federal
negotiators to use the joint AGI and the
annual amount due on both the
borrower’s and the spouse’s eligible
loans to determine eligibility for IBR
and the partial financial hardship
payment amount. That payment amount
would then be adjusted based on the
percentage of the combined total eligible
loan debt attributable to each individual
borrower, with a further adjustment if
the borrower has multiple loan holders.
Income-Based Payment Amount
(§§ 682.215(b)(1) and 685.221(b)(2))
Statute: Under section 493C(b)(1) of
the HEA, the monthly payment amount
for a borrower who has a partial
financial hardship is determined by
calculating 15 percent of the amount
obtained by subtracting 150 percent of
the poverty guideline amount for the
borrower’s family size from the
borrower’s AGI, and then dividing this
amount by 12.
Current Regulations: Sections
682.215(b) and 685.221(b) provide that
if a borrower’s eligible loans are held by
more than one holder, the loan holder
must adjust the amount of a borrower’s
calculated monthly payment. The
borrower’s adjusted monthly payment is
determined by multiplying the
calculated monthly payment amount by
the percentage of the total outstanding
principal amount of eligible loans that
are held by that holder.
Proposed Regulations: Under the
proposed regulations, if a borrower and

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a borrower’s spouse both have eligible
loans and filed a joint Federal tax
return, each borrower’s percentage of
the couple’s total eligible loan debt
would be determined, and the
calculated partial financial hardship
payment amount for each borrower
would be adjusted by multiplying the
payment by the applicable borrower’s
percentage. As with other borrowers,
each borrower’s adjusted payment
amount would be further adjusted if the
borrower’s loans are held by multiple
holders. In this case, the adjusted
payment amount would be multiplied
by the percentage of the borrower’s total
outstanding principal amount of eligible
loans that are held by the loan holder.
Reasons: Without the proposed
payment adjustment based on the
borrower’s percentage of the combined
eligible loan debt of the borrower and
his or her spouse that is used to
calculate the partial financial hardship
of both borrowers, the borrower’s
monthly payment amount could exceed
the statutory maximum amount the
borrower can be required to pay.
FFEL and Direct Loan Program Teacher
Loan Forgiveness (§§ 682.216 and
685.217)
Statute: The HEOA amended the
FFEL and Direct Loan teacher loan
forgiveness provisions in sections 428J
and 460 of the HEA to specify that an
otherwise eligible borrower may qualify
for teacher loan forgiveness based on
teaching service performed at a location
operated by an educational service
agency if the educational service agency
meets the eligibility criteria that apply
to elementary or secondary schools for
teacher loan forgiveness purposes. In
the case of a teacher who is employed
by an educational service agency, the
HEA provides that the chief
administrative officer of the educational
service agency must certify the
borrower’s qualifying teaching service.
The HEOA also amended the teacher
loan forgiveness provisions to prohibit a
borrower from receiving double benefits
for the same teaching service. The HEA
now prohibits a borrower from receiving
loan forgiveness under both the FFEL
and Direct Loan teacher loan forgiveness
programs for the same qualifying
teaching service. In addition, a borrower
may not receive loan forgiveness
benefits for the same teaching service
under either the FFEL or Direct Loan
teacher loan forgiveness programs and
the Direct Loan public service loan
forgiveness program (§ 685.219), subtitle
D of title I of the National and
Community Service Act of 1990 (the
AmeriCorps program), or the Loan
Forgiveness for Service in Areas of

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National Need program authorized by
section 428K of the HEA.
Current Regulations: Under current
regulations, an otherwise eligible FFEL
or Direct Loan borrower may qualify for
teacher loan forgiveness only by
performing qualifying teaching service
in an eligible elementary or secondary
school that serves low-income families.
Borrowers who teach at a location
operated by an educational service
agency are not eligible for loan
forgiveness.
Current regulations prohibit a
borrower from receiving loan
forgiveness for the same teaching
service under either the FFEL or Direct
Loan teacher loan forgiveness programs
and under subtitle D of title I of the
National and Community Service Act of
1990. A borrower who has both FFEL
and Direct Loan program loans may not
receive more than the maximum loan
forgiveness amount on the borrower’s
combined outstanding FFEL and Direct
Loan balance, but is not otherwise
prohibited from receiving forgiveness
under both the FFEL and Direct Loan
teacher loan forgiveness programs for
the same qualifying teaching service.
Proposed Regulations: The proposed
regulations would allow a borrower who
otherwise meets the eligibility
requirements for teacher loan
forgiveness to receive forgiveness based
on teaching service performed at one or
more locations of an eligible educational
service agency that serves low-income
families. A borrower could also qualify
based on teaching service performed at
a combination of eligible elementary or
secondary schools and eligible
educational service agencies. To be
considered eligible service for teacher
loan forgiveness purposes, an
educational service agency would have
to meet the same eligibility
requirements that apply to elementary
and secondary schools under current
regulations. For a borrower employed at
an eligible educational service agency,
the borrower’s qualifying teaching
service would have to be certified by the
chief administrative officer of the
educational service agency.
Under the proposed regulations,
qualifying teaching service performed at
an eligible educational service agency
could be counted toward the required
five consecutive complete years of fulltime teaching only if the consecutive
five-year period includes qualifying
teaching service performed at an eligible
educational service agency after the
2007–2008 academic year.
The proposed regulations would
define the term ‘‘educational service
agency’’ as a regional multiservice
agency authorized by State law to

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develop, manage, and provide services
or programs to local educational
agencies, as defined in section 9101 of
the Elementary and Secondary
Education Act of 1965, as amended.
Finally, the proposed regulations
would prohibit a borrower from
receiving loan forgiveness under both
the FFEL and Direct Loan teacher loan
forgiveness programs for the same
teaching service, or from receiving loan
forgiveness for the same teaching
service under either the FFEL or Direct
Loan teacher loan forgiveness programs
and: (1) The Direct Loan public service
loan forgiveness program in § 685.219;
(2) subtitle D of title I of the National
and Community Service Act of 1990; or
(3) the Loan Forgiveness for Service in
Areas of National Need program
authorized by section 428K of the HEA.
Reasons: The proposed changes
reflect statutory requirements.
One of the non-Federal negotiators
noted that some teachers do not have a
fixed location of employment but
instead perform qualifying teaching
service at multiple eligible elementary
or secondary schools, or at multiple
eligible educational service agencies.
This negotiator requested clarification
that such ‘‘traveling’’ teachers, if
otherwise eligible, would qualify for
loan forgiveness if they are not actually
employed by the individual schools or
educational service agencies where they
teach. The Department agreed that such
teachers, if otherwise eligible, would
qualify for teacher loan forgiveness. The
current and proposed regulations
provide that a borrower’s qualifying
teaching service must be performed ‘‘in’’
or ‘‘at’’ an eligible elementary or
secondary school or eligible educational
service agency and do not rely on the
identity of the employer.
The Department’s initial proposed
regulations allowed qualifying teaching
service performed at an eligible
educational service agency to be
counted toward a borrower’s required
five complete consecutive years of
teaching service only if the service was
performed after August 14, 2008, the
date of enactment of the HEOA. One of
the non-Federal negotiators argued that
the amendments to the teacher loan
forgiveness provisions of the HEA were
intended to apply retroactively to
October 1, 1998, the date of enactment
of the FFEL and Direct Loan teacher
loan forgiveness provisions. However,
the Department does not agree with this
interpretation of the law. The
Department noted that Congress has
specifically made other changes to the
HEA retroactive, but chose not to do so
in this case. However, the Department
agreed to revise the proposed

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regulations to provide that the required
five complete consecutive years of
teaching may include any combination
of qualifying teaching service at an
eligible elementary or secondary school
or at an eligible educational service
agency, but teaching at an educational
service agency may be counted toward
the five years only if the consecutive
five-year period includes qualifying
teaching at an eligible educational
service agency performed after the
2007–2008 academic year.
Eligibility for Rehabilitation of
Defaulted FFEL and Direct Loans
(§§ 682.405(a) and (b)(1)(iii) and
685.211(f))
Statute: Section 428F(a) of the HEA
was amended by the HEOA to prohibit
a borrower from rehabilitating a
defaulted loan more than once.
Current Regulations: The regulations
in §§ 682.405 and 685.211 provide for
the rehabilitation of defaulted FFEL and
Direct Loan program loans after a
borrower makes nine voluntary,
reasonable and affordable payments to
the guaranty agency holding the
defaulted loan, or to the Secretary in the
case of a defaulted Direct Loan. After
the borrower meets the payment
requirements to reestablish a successful
repayment pattern, a defaulted FFEL
loan is rehabilitated upon resale of the
loan to an eligible FFEL lender, at
which time the borrower returns to
normal repayment servicing. In the
Direct Loan Program, after the borrower
meets the payment requirements, the
loan is transferred from a default
collection status to a normal repayment
servicing status. Current regulations do
not include a limit on the number of
times a borrower may rehabilitate a
defaulted loan.
Proposed Regulations: The proposed
regulations would amend
§§ 682.405(a)(3) and 685.211(f)(3) to
provide that for any loan that is
rehabilitated on or after August 14,
2008, the borrower may not rehabilitate
the loan again if the loan returns to a
default status following the
rehabilitation.
The proposed regulations would also
amend § 682.405(b)(1)(iii) to clarify that
the guaranty agency and its agents must
comply with the requirements of that
section when determining a borrower’s
‘‘reasonable and affordable’’ payment
amount for loan rehabilitation purposes.
Reasons: The proposed regulations
are necessary to reflect the change in
section 428F(a) of the HEA that
prohibits a borrower from rehabilitating
a defaulted loan more than once, and to
clarify that guaranty agencies and their
agents must comply with current

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regulatory requirements for determining
reasonable and affordable payments.
The Department’s original proposed
regulations specified only that a
borrower is prohibited from
rehabilitating a defaulted loan more
than once. Several non-Federal
negotiators expressed the view that the
Department’s interpretation of the
statutory effective date of August 14,
2008 for this provision should be
included in the regulations or discussed
in the preamble to the proposed
regulations. The non-Federal negotiators
also requested that the Department
identify in the regulations the triggering
event that results in a borrower’s
inability to rehabilitate the loan again.
The Department agreed and revised the
proposed regulations to specify that the
one-time limit on rehabilitation applies
only to a defaulted loan that was
rehabilitated on or after August 14,
2008. A borrower who rehabilitated a
defaulted loan before that date, and later
defaults again on the loan, could
rehabilitate that loan again. However, if
the borrower rehabilitates the loan a
second time, the loan would become
subject to the limit. The Department
also revised the proposed regulations to
specify that the triggering event for the
application of the one-time
rehabilitation limit on a loan is the
borrower’s return to a default status on
that previously rehabilitated loan.
Another non-Federal negotiator
expressed concern about the process for
determining payment amounts for
rehabilitation. The negotiator stated that
there was no consistent, standardized
approach to determining ‘‘reasonable
and affordable’’ borrower payments for
purposes of loan rehabilitation across
the guaranty agencies and their agents.
The negotiator stated that some agencies
and agents demanded a specified
percentage or payment amount without
apparent regard to the borrower’s
financial circumstances, in violation of
the HEA, and expressed the view that
this perhaps represented a program
compliance issue. The Department
stated its belief that the requirements for
determining reasonable and affordable
borrower payments were already
sufficiently detailed and explicit in
§ 682.405(b)(1)(iii). However, the
Department agreed to revise the lead-in
language to this regulation to make it
clear that a guaranty agency and all of
its agents are subject to the requirements
of § 682.405(b)(1)(iii) when determining
a borrower’s reasonable and affordable
payment amount for purposes of loan
rehabilitation. This clarifying change is
intended to ensure compliance with this
requirement by a guaranty agency and
all of the agency’s agents, particularly

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collection agents that may be working
with defaulted borrowers.
Guaranty Agency and Lender
Prohibited Inducements (§§ 682.200(b)
and 682.401(e))
Statute: Section 435(d)(5) of the HEA
provides that, after notice and an
opportunity for a hearing, the Secretary
may disqualify a FFEL lender from
participation in the FFEL Program if it
is determined that the lender engaged in
certain prohibited activities to secure
applicants for FFEL loans. These
prohibited activities include offering,
directly or indirectly, points, premiums,
payments, prizes, stock or other
securities, travel, entertainment
expenses, tuition payment or
reimbursement, providing information
technology at below-market value, and
providing additional financial aid funds
to any institution of higher education or
its employees. Lenders are prohibited
from entering into any type of
consulting arrangement or other type of
contract to provide services to a lender
with an employee who is employed in
an institution’s financial aid office or
who otherwise has responsibility over
student loans or other student aid. The
HEA also prohibits lenders from
performing any function for an
institution of higher education that is a
required function for that institution
under title IV of the HEA, other than
exit counseling.
Similarly, section 428(b)(3) of the
HEA restricts guaranty agencies from
offering inducements or engaging in
certain prohibited activities to secure
applicants for FFEL loans or to secure
the designation as the insurer of loans.
Guaranty agencies are prohibited from
offering, directly or indirectly,
premiums, payments, stock or other
securities, prizes, travel, entertainment
expenses, tuition payments or
reimbursements to any institution of
higher education or to any employee of
the institution to secure FFEL loan
applications; or to lenders or their
agents or employees, or to an
independent contractor of any lender or
guaranty agency to administer or market
FFEL loans for the purpose of securing
the designation of insurer of the loans.
In addition, a guaranty agency may not
conduct fraudulent or misleading
advertising concerning loan availability,
terms or conditions and, like lenders,
guaranty agencies may not perform for
an institution of higher education any
function the institution is required to
perform under title IV, other than exit
counseling. The statute allows both
lenders and guarantors to provide
technical assistance to an institution of
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technical assistance provided by the
Department to schools participating in
the Direct Loan Program.
Current Regulations: Prohibited
activities by lenders and guaranty
agencies are specified in current
regulations in §§ 682.200(b) and
682.401(e), respectively. These
regulations were amended in 2007 and
provide lists of prohibited and
permissible activities by lenders and
guaranty agencies. The regulations
governing the activities of lenders and
guaranty agencies are different, most
specifically in the area of training for
schools (a guaranty agency may pay for
travel and lodging for school personnel
to attend training programs). The
current regulations also permit guaranty
agencies to pay school officials to
participate on governing boards or
advisory committees.
Proposed Regulations: The proposed
regulations would incorporate all of the
new prohibited and permitted activities
for lenders and guaranty agencies as
specified in the HEA. Section
682.200(b)(5) of the proposed
regulations specifically addresses the
prohibition on lenders providing
processing, referral or finder fees and
expands the prohibition of such
payments to institutions, employees of
the institutions or to any other party,
including a school-affiliated
organization or its employees, to secure
FFEL loans. The payment of stock,
securities or tuition reimbursements is
also a prohibited inducement. The
proposed regulations prohibit a lender
from providing compensation for
service on a lender advisory board,
commission or other group to an
employee who is employed in an
institution’s financial aid office or to an
institutional employee with
responsibility for student loans or other
financial aid, but would permit the
lender to reimburse the employee for
reasonable expenses related to service
on the board, commission or group. The
proposed regulations also specifically
prohibit a lender from performing any
function for a school that is a
requirement of the school except for exit
counseling.
Section 682.401(e) of the proposed
regulations, which governs guaranty
agency prohibited inducements,
generally mirrors the proposed
regulations for lenders. The proposed
regulations would prohibit guaranty
agencies from performing any function
required by a school under title IV
except for exit counseling. Guaranty
agencies would be prohibited from
providing any payments of stock,
securities or tuition reimbursement to
any institution of higher education or its

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employees to secure applicants for FFEL
loans, or to any lender, agent, or
independent contractor of any lender or
guaranty agency to administer or market
FFEL loans for the purpose of securing
designation as the insurer of the loans.
A guaranty agency would not be
permitted to pay travel and lodging
costs of school employees to attend
training conducted by the agency. The
proposed regulations would allow for
the reimbursement of reasonable
expenses incurred by school employees
to participate in an agency’s advisory
committee or governing board activity.
The proposed regulations would
prohibit lenders or guaranty agencies
from providing staffing services to
schools under any conditions. Finally,
the proposed regulations would revise
the provision that allows a lender or
guaranty agency to provide assistance to
schools comparable to the assistance
that the Secretary provides to schools
under the Direct Loan Program by
clarifying that the assistance to schools
that may be provided is ‘‘technical’’
assistance comparable to the technical
assistance that the Secretary provides to
Direct Loan schools.
Reasons: The proposed changes to the
prohibited inducement regulations for
both lenders and guaranty agencies
reflect statutory changes made by the
HEOA.
During the negotiated rulemaking
discussions, non-Federal negotiators
raised a concern about the prohibition
on lenders and guaranty agencies paying
processing fees. Some negotiators asked
the Department to clarify the term
‘‘processing fees.’’ The negotiators were
concerned that a broad definition could
include permissible borrower benefits
on FFEL loans. The Department
clarified that, in this context, processing
fees do not include permissible
borrower benefit programs for student
and parent borrowers that may be
provided by lenders and guarantors to
reduce the cost of borrowing for
students and parents.
Another non-Federal negotiator raised
a concern that standard commercial
practices may be affected by the
prohibition on inducements with regard
to the payment of processing fees. The
Department made it clear that these
regulations are not intended to thwart
standard business practices unless there
is a quid-pro-quo under which a lender
pays the processing fees to secure loan
applications or volume. The Department
believes that these proposed regulations
appropriately implement the statute and
will not interfere with standard
commercial business practices.
Another negotiator raised a concern
about what would be deemed

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‘‘reasonable’’ with regard to the
payment of reasonable costs in
association with lenders and guaranty
agencies paying for items such as meals
or refreshments. The Department
believes that the regulations are clear in
their intent and that the determination
of reasonable costs should be
considered carefully by FFEL
participants and viewed in light of what
was deemed by the negotiators the
‘‘prudent person test.’’
Disclosure Requirements for Lenders
(§ 682.205)
Statute: Section 433 of the HEA
requires lenders to provide borrowers a
series of informational disclosures
throughout the life of a loan. Specific
types of disclosures are required based
on the borrower’s status within the
borrowing process, i.e., at or before
disbursement, at or before repayment,
during repayment, during delinquency,
at a time the borrower may be having
difficulty making payments, and when
the borrower considers taking out a
Consolidation loan. Lenders are
required to make these required
disclosures simple and understandable
for the borrower.
The information the lender must
disclose to the borrower at or before
disbursement of the loan includes:
Contact information for the lender; the
amount of any charges on the loan,
including origination fees and the
Federal default fee; the interest rate on
the loan; the annual and aggregate
maximum amount that may be
borrowed, when repayment is required
and when interest must be paid, as well
as the borrower’s right to prepay all or
part of the loan at any time without
penalty; a statement summarizing the
circumstances in which a borrower may
obtain a deferment or forbearance; and
the options for and requirements for
forgiveness of the loan. For borrowers of
unsubsidized Stafford loans or
borrowers of student PLUS loans, the
lender must also provide information
about the borrower’s right to pay the
interest on the loan while the borrower
is in school and, if interest is not paid,
when and how often the lender will
capitalize the interest. For parent PLUS
loan borrowers, the lender must provide
information about how the parent may
defer payment on the loan while the
student on whose behalf the parent
borrowed is in school at least half-time.
The disclosure information that the
lender must provide to the borrower at
or before the borrower begins repayment
includes: The scheduled date repayment
is to begin; the estimated balance,
including the amount of interest to be
capitalized as of the date on which

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repayment is to begin; the borrower’s
repayment schedule; special loan
repayment benefits offered on the loan,
including those contingent on
repayment behavior; any limitations on
a repayment benefit provided by the
lender; information on how a borrower
may lose eligibility for the repayment
benefit and whether and how the
borrower can regain eligibility for the
benefit; a description of how the
borrower can avoid or be removed from
default; and any additional resources
available to the borrower to assist in
loan repayment.
While the borrower is in repayment
on the loan, the lender must
periodically provide additional
disclosure information to the borrower.
The lender must provide the borrower
with a bill or statement that corresponds
to each payment installment time period
in which a payment is due. That bill or
statement must also include: The
borrower’s original principal loan
amount; the borrower’s current balance,
as of the time of the bill or statement;
the interest rate on the loan; the
aggregate amount the borrower has paid
on the loan, including the amount of
interest and fees and the amount paid
against the balance; a description of any
fees charged on the loan; the date by
which the borrower must make a
payment to avoid additional fees; and a
reminder that the borrower has the
option to change repayment plans as
well as a list of available repayment
plans.
The HEA also requires lenders to
make certain disclosures to borrowers
who are having difficulty making
payments, including: A description of
the repayment plans available to the
borrower and information as to how the
borrower may request a change in his or
her repayment plan; the requirements
for obtaining forbearance including any
cost or fees associated with forbearance;
and a description of the options for the
borrower to avoid default and any fees
or costs associated with each option.
If a borrower is 60 or more days
delinquent in making payments, the
lender must provide the borrower with
information including: The date on
which the loan will default if no
payments are made; the minimum
payment the borrower must make to
avoid default; a description of the
options available to the borrower to
avoid default and any fees or costs
associated with each option; discharge
options to which the borrower may be
entitled; and information about any
additional resources available to the
borrower, including the Department’s
Ombudsman’s Office, to assist the
borrower in loan repayment.

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Finally, the HEA requires lenders to
provide a separate disclosure for
borrowers applying for Consolidation
loans. When a lender provides a
borrower with an application for a
Consolidation loan, the lender must
disclose information about the loan
including: Whether or not consolidation
will result in a loss of loan benefits for
the borrower, including loan
forgiveness, cancellation, deferment or a
reduced interest rate; and if the
borrower is consolidating a Perkins
Loan, that the borrower will lose
interest free periods available on the
Perkins Loan while the borrower is
enrolled in school at least half-time, in
the grace period or in deferment, and
that the borrower will lose cancellation
benefits available in the Perkins Loan
Program. The lender must also provide
the borrower with: A list of the Perkins
Loan cancellation benefits that would
no longer, upon consolidation, be
available to the borrower; information
about repayment plans available;
information about the borrower’s option
to prepay the Consolidation loan or pay
on a shorter repayment schedule; and a
notice that applying for the
Consolidation loan does not obligate the
borrower to agree to take the loan.
Current Regulations: Section 682.205
of the current regulations reflects the
pre-HEOA requirements for lender
disclosures. Lenders are required to
provide information to borrowers at or
before the time of loan disbursement,
and at or prior to the beginning of
repayment. Information that must be
disclosed at or prior to disbursement
includes: The lender’s name and contact
information; the principal amount of the
loan; the amount of charges to be
collected by the lender, including the
origination fee and if those charges will
be deducted from the loan; the
minimum and maximum number of
years for repayment; deferment options;
collection costs; and the possible effects
of accepting the loan on the borrower’s
eligibility for other aid. The regulations
also require borrowers to be made aware
that information concerning the loan,
including the date of disbursement and
the amount of the loan, will be reported
to a national credit bureau.
Information that must be disclosed at
or prior to repayment includes: The
scheduled date repayment is to begin;
the estimated balance on the loan,
including estimated interest to be
capitalized; the interest rate on the loan;
an explanation of fees that may accrue
or be charged during the repayment
period; and an explanation of special
options the borrower may have for
consolidating or refinancing the loans
and the terms of those options.

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
Proposed Regulations: Section
682.205 of the proposed regulations
would retain the current regulatory
language as to required disclosures, but
would reorganize this section to
accommodate the new disclosure
requirements added by the HEOA. The
HEOA added additional disclosures by
lenders before disbursement and
provided for new requirements at
differing points in the repayment cycle
of the borrower. The HEOA also added
a separate set of disclosures specifically
for Consolidation loan borrowers.
The proposed regulations would
incorporate the requirement for new
disclosures by the lender at or prior to
disbursement of the loan. In regard to
unsubsidized loans, these disclosures
must include: An explanation that the
borrower may pay accruing interest
while in school and, if the interest is not
paid, when and how often it will be
capitalized; for parent PLUS borrowers,
an explanation that the payment may be
deferred while the student on whose
behalf the parent borrowed is in school
as well as, if the interest is capitalized,
when and how often it will be
capitalized; information on
forbearances; and a description of loan
forgiveness options and the
requirements to receive forgiveness.
The HEOA also changed the
numerous references to ‘‘credit bureaus’’
to refer to ‘‘consumer reporting
agencies’’ and the proposed regulations
reflect that change.
To incorporate the many new
disclosures required during the
repayment period of a loan for a
borrower, the proposed regulations
reorganize § 682.205(c) to better separate
and distinguish the different
disclosures.
Under proposed § 682.205(c)(2), the
lender must disclose to the borrower:
Information on any special loan
repayment benefits available, the
requirements to maintain the benefit,
and the impact on the borrower’s overall
repayment; and any limitations
associated with the benefit and the
circumstances that would cause the
borrower to lose the benefit, as well as
how the borrower may be able to regain
the benefit. The lender must also
provide a borrower with the list of
repayment plans available and remind
the borrower that he or she may change
plans at least once a year. The borrower
must be informed about how to avoid
default and, if the borrower is in default,
how to get out of default. The lender
must also provide the borrower with
information about additional resources
available to assist in loan repayment,
including nonprofit organizations,

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advocates and counselors, and the
Department’s Ombudsman.
Proposed § 682.205(c)(3) requires
lenders to provide specific repayment
information to the borrower with a bill
or statement that corresponds to each
payment installment time period in
which a payment is due. That
information must include: The original
principal amount of the borrower’s loan;
the current balance as of the time of the
bill or statement; the interest rate on the
loan; the interest paid by the borrower
since the last statement or bill; aggregate
totals paid; and a description of each fee
the borrower has been charged for the
most recent period. The borrower must
be told the date by which payments
must be made to avoid additional fees
and the amount of that payment and the
fees. Finally, the lender must remind
the borrower of the option to change
repayment plans and what plans are
available with a link to the Department’s
Web site for that repayment plan
information.
Proposed § 682.205(c)(4) adds a new
section of required disclosures for
borrowers who contact the lender and
inform the lender that they are having
difficulty making their required
payments. Lenders must inform these
borrowers of the repayment plans
available, the requirements for
forbearance and the options available to
avoid default as well as any fees or costs
associated with those options.
Proposed § 682.205(c)(5) adds a new
section on the required disclosures for
borrowers who are 60-days delinquent
on repayment of their loans. Lenders
must provide borrowers who are 60days delinquent with information
regarding the date on which the loan
will default if no payment is made, the
minimum payment to avoid default, and
the payment amount that would bring
the loan to a current status or pay the
loan in full. Lenders must inform
borrowers about: The options for
avoiding default, including deferments
and forbearance; any costs associated
with those options; and any opportunity
for loan discharge the borrower may
have. The notice required by
§ 682.205(c)(5) must be sent to the
borrower within five days of the
borrower becoming 60-days delinquent,
unless the lender has sent the notice
within the previous 120 days.
Reasons: The proposed regulations
implement statutory requirements.
Negotiators discussed how these
disclosures could best be managed in a
way that will be most beneficial to
borrowers. Negotiators asked if the
information required under
§ 682.205(c)(2)(xiii) needed to be
specific to the individual borrower’s

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circumstances, or if the information
could be general and outline the options
for any borrower to avoid default or to
bring a loan out of default. In
discussions with the negotiators, the
Department agreed it would be
permissible for this information, i.e.,
how a borrower can avoid or remove a
default status, to be general, since other
required disclosures will provide the
borrower with specific information
pertaining to their individual
circumstances and account information.
Negotiators raised questions about the
disclosures required in
§ 682.205(c)(2)(xiv) and what
information would need to be included.
The Department believes that these
disclosures should provide borrowers
with information about an additional set
of tools that are available to help them
manage their student loan debt. In doing
so, lenders need to ensure that
borrowers are aware of any appropriate
Web sites, organizations, and counseling
services of which the lender is aware
and that can be of assistance to
borrowers when managing the
repayment of their debt. The
Department agreed to provide lenders a
Web link to its Ombudsman’s Office.
Lenders may provide borrowers seeking
to reach the Department’s Ombudsman’s
Office with the following link: http://
www.ombudsman.ed.gov/.
Some non-Federal negotiators also
asked for clarification of when a lender
must send the disclosure that is
required at or prior to repayment, in
accordance with § 685.205(c)(1), in the
case of a PLUS loan that immediately
enters an in-school deferment status
upon the start of the repayment period.
Specifically, the negotiators asked if the
lender should wait until the end of the
in-school deferment period (and any
post-enrollment deferment period, if
applicable) before sending the
disclosure, or if the lender would be
required to send the disclosure when
the loan has been fully disbursed. The
Department noted that a PLUS loan
enters the repayment period on the date
that the final disbursement of the loan
is made. Therefore, the disclosure that
is required at or prior to repayment
must be sent at or before the time of the
final loan disbursement rather than at
the end of the deferment period.
A non-Federal negotiator raised a
concern about flexibility in the
distribution of the disclosures required
in this section of the regulations in light
of the regulatory authority in 34 CFR
682.205(f) that allows a lender to
provide disclosures through written or
electronic means. The negotiator wanted
to ensure that lenders may provide the
disclosures using the method best suited

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to the borrower’s repayment method.
The negotiator asked the Department to
clarify that a lender would be able to
provide the required disclosures
through secure e-mail or electronic links
to the borrower’s account-specific
information.
The Department is concerned that the
purpose of the statute would not be
served if a lender simply provides a
general electronic source for a borrower
to retrieve the required disclosure
information. Lenders may use
appropriate electronic methods to
provide the required disclosure
information directly to the borrower.
For example, if the lender sends an email to the borrower containing the
required general disclosures as well as
a secure link to allow the borrower to
obtain specific account information, the
lender will have met the requirement.
However, if the lender receives
information that the e-mail address used
is no longer valid or not the borrower’s,
the lender must take appropriate action
as it would in situations when a mailing
address used to communicate with the
borrower is determined to be incorrect.
Similarly, a lender may mail the
required general disclosures to a
borrower with information about a
secure Web site for the borrower to
access specific personal account
information. If no return mail or
evidence of a bad address is received by
the lender, the lender may assume the
mail has been received. Thus, we are
proposing to treat these electronic
disclosures similarly to mailed
disclosures.
Many non-Federal negotiators assured
the Department that the required
disclosure information, particularly the
borrower-specific account information,
could be provided through secure
means and could provide confirmation
that the borrower has accessed the
information. The Department is not
requiring lenders to document that the
borrower has accessed the information,
but would encourage lenders to do so to
help identify borrowers who may need
additional contact.
The Department does not agree with
the suggestion that it would be
sufficient for a lender to provide general
instructions on a statement, bill, coupon
or other form (electronically or by mail)
to a borrower that directs the borrower
to a particular Web site for disclosure
information. This approach would not
fulfill the intent of the statute or serve
the borrower. The Department fully
supports the appropriate use of
electronic communication with a
borrower, but the Department must also
ensure the statute is properly
implemented and that borrowers are

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provided the required information in a
manner that best serves both statutory
intent and the needs of the borrower.
Negotiators representing the student
loan industry raised a concern about the
impact of the distribution of the
disclosures required by proposed
§ 682.205(c)(3), those that are required
during repayment, on their current loan
servicing systems. The Department
expects that the disclosures required by
§ 682.205(c)(3) will be provided in
accordance with the lender’s or
servicer’s current account organizational
practices. The disclosures may be
provided by account or by borrower.
The Department understands that
lenders and servicers have developed
systems to comply with disclosure
requirements during repayment and
does not intend to require lenders and
servicers to unnecessarily alter those
systems. Therefore, lenders and
servicers may make the disclosures
pursuant to § 682.205(c)(3) by loan, by
account, or by borrower.
Information to Borrowers Upon
Transfer, Sale or Assignment of a FFEL
Program Loan (§ 682.208(e))
Statute: Section 428(b)(2)(F)(i) of the
HEA was amended by the HEOA to
require that a borrower be provided
with additional information when the
transfer, sale, or assignment of the
borrower’s FFEL loan results in a
change in the identity of the party to
whom payments and communications
must be sent. The borrower must now
be notified of the effective date of the
assignment or transfer of the loan, the
date that the current loan servicer will
stop accepting the borrower’s payments,
and the date the new loan servicer will
begin accepting those payments.
Current Regulations: Current FFEL
Program regulations require that if the
assignment of a FFEL Program loan
results in a change in the identity of the
party to whom the borrower must send
subsequent payments, the assignor and
the assignee of the loan must, within 45
days from the date the assignee acquires
the legally enforceable right to receive
payment from the borrower on the
assigned loan, provide the borrower
with a notice, either jointly or
separately, that informs the borrower of
the assignment, the identity of the party
to which the loan is assigned, the name
and address of the party to whom the
borrower must send subsequent
payments or communications, and the
telephone numbers of both the assignor
and assignee. If a separate notice is sent
by each party, each notice must indicate
that a corresponding notice will be sent
by the other party. The current
regulations define assignment for this

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purpose to mean any kind of transfer of
an interest in the loan, including a
pledge of such an interest as security.
The notification requirements apply if
the borrower is in the grace period or
has entered repayment on the loan. The
assignee, or the assignor on the
assignee’s behalf, must also notify the
guaranty agency of the assignment, and
the name, address, and telephone
number of the assignee within 45 days
of the date the assignee acquires a
legally enforceable right to receive
payment on the loan.
Proposed Regulations: The proposed
regulations incorporate the additional
information specified in the HEA that
must be provided to a borrower if the
assignment or transfer of ownership
interest on a FFEL Program loan results
in a change in the identity of the party
to whom subsequent payments must be
sent. The date on which the current
servicer will stop accepting payments is
required only if that is applicable.
Reasons: The proposed regulations
reflect the HEOA changes to the HEA.
Notification of the date on which the
current servicer will stop accepting
payments is not required if the servicer
continues to accept payments
throughout the assignment process and
forwards them on to the assignee. NonFederal negotiators with knowledge of
loan servicing practices indicated that
loan servicers do not stop accepting
borrower payments during sales,
transfers, and assignment.
Forbearance (§ 682.211)
Statute: Section 428(c)(3)(C) of the
HEA outlines what disclosures the
lender must make to the borrower upon
granting forbearance and during a
forbearance period. The HEA requires
lenders to provide a borrower with
information regarding the impact that
capitalizing interest will have on the
loan and the total balance to be repaid.
It requires lenders to provide additional
disclosures to borrowers during a
forbearance period, including the
amount of interest that will be
capitalized, the date on which
capitalization will occur and the option
of the borrower to pay the interest that
has accrued before the interest is
capitalized.
Current Regulations: Current
§ 682.211(e) requires the lender to
contact a borrower at least once every
six months during a period of
forbearance only when the forbearance
involves the cessation of all payments.
The lender must provide the borrower
with a reminder of the obligation to
repay the loan, the amount of principal
and interest on the loan, the fact that
interest will continue to accrue and the

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borrower’s or endorser’s option to
cancel the forbearance at any time.
Proposed Regulations: Section
682.211(e) of the proposed regulations
would require the lender, at the time the
borrower is granted a forbearance, to
give the borrower information about the
impact of capitalization of interest on
the loan and the total amount to be
repaid over the life of the loan. The
proposed regulations would also require
the lender to contact the borrower at
least once every 180 days during any
period of forbearance and to give the
borrower or endorser more specific
information, in conjunction with that
required under previous regulations, as
to the impact of forbearance on the loan.
This information includes the amount of
interest that will be capitalized and
when that capitalization will take place
and the option of the borrower or
endorser to pay the interest that has
accrued before it is capitalized.
Reasons: The proposed regulations
implement statutory requirements.
Some negotiators asked the
Department to clarify the new
forbearance disclosure requirement as
they relate to administrative
forbearances. Some negotiators were
concerned that lenders will not be able
to satisfy the disclosure requirements if
an administrative forbearance is granted
to provide a borrower assistance with a
situation occurring in the past. The
Department agreed with the other
negotiators that if an administrative
forbearance is granted retroactively, the
lender need not go back in time to
provide the required information
retroactively. Lenders must, however,
contact the borrower as required going
forward from the date the lender
applied the forbearance.
Audit Requirement for a FFEL School
Lender or an Eligible Lender Trustee
(ELT) That Originates FFEL Loans for a
School or School-Affiliated
Organization (§§ 682.305(c) and
682.601(a)(7))
Statute: The HEOA added section
435(d)(8) to the HEA which requires any
school that serves as a FFEL lender or
any eligible lender that serves as an
Eligible Lender Trustee (ELT) for a
school or school-affiliated organization
for the purpose of making FFEL loans to
complete and submit annually to the
Secretary a compliance audit. The
compliance audit must determine that
the school or lender: Used all proceeds
from special allowance payments,
borrower interest payments, interest
subsidy payments received from the
Department and any proceeds from the
sale or other disposition of the loans
originated for need-based grants; that no

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more than a reasonable portion of the
proceeds were used for direct
administrative expenses; and that the
need-based grants made from the
proceeds supplemented and did not
supplant Federal and non-Federal funds
that would otherwise have been used by
the school for need-based grant
programs.
Current Regulations: Section
682.305(c) of the FFEL Program
regulations requires all FFEL lenders
that originate or hold at least $5 million
in FFEL loans during the lender’s fiscal
year to complete and submit to the
Department an independent annual
compliance audit for that year. The
audit must be completed by a qualified,
independent organization or person.
Section 682.601(a)(7) requires a school
that makes or originates FFEL loans,
regardless of the dollar volume, to
submit an annual compliance audit to
the Department. For a school that is not
a governmental entity or a nonprofit
organization, the audit must examine
the school lender’s compliance with the
HEA and applicable regulations,
examine the school lender’s financial
management of its FFEL Program
activities, and be conducted in
accordance with the standards for audits
issued by the United States Government
Accountability Office’s Government
Auditing Standard using the procedures
outlined in an audit guide produced by
the Department’s Office of Inspector
General. For a school lender that is a
governmental entity or a nonprofit
organization, the audit must meet the
same standards as audits for other
school lenders and be conducted in
accordance with chapter 75 of title 31 of
the United States Code. In addition, in
years in which student financial aid is
not audited as a ‘‘Major Program,’’ as
defined under 31 U.S.C. 7501, the
school’s lending activities, regardless of
dollar amount, must be included in the
audit as a Major Program.
Proposed Regulations: The proposed
regulations would revise § 682.305(c) to
require that a FFEL school lender, or a
lender serving as a trustee on behalf of
a school or school-affiliated
organization for the purpose of
originating loans, submit an annual
compliance audit to the Department
regardless of the dollar volume of loans
originated. The proposed regulations
also require that the audit be conducted
by a qualified, independent organization
or person. A new proposed
§ 682.305(c)(2)(vii) would govern the
compliance audit of a school or schoolaffiliated organization’s lender trustee.
The proposed regulations require that
the trustee’s audit include a
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the lender serves as trustee used all the
proceeds from special allowance
payments, interest subsidies received
from the Department, and any proceeds
from the sale or other disposition of the
loans originated through the lender for
need-based grants, and that those funds
supplemented, but did not supplant,
other Federal or non-Federal funds
otherwise available to the school to
make need-based grants to its students.
The proposed regulations also require
that the audit must determine that no
more than a reasonable portion of the
payments and proceeds from the loans
were used for direct administrative
expenses in accordance with
§ 682.601(b) of the current regulations.
These same requirements with regard to
annual compliance audit determinations
were also added to the FFEL school
lender audit requirements in
§ 682.601(a)(7) of the regulations.
Reasons: The proposed regulations
reflect the HEOA changes made to the
HEA provisions governing the
compliance audit of a FFEL school
lender or an eligible FFEL lender in its
capacity as trustee for a school or
school-affiliated organization for the
purpose of making FFEL loans. The
audit determination will ensure that
funds received by a school as a lender
or through an ELT arrangement with an
eligible FFEL lender will be used to
benefit students enrolled at the school
as intended by the HEA.
Consumer Education Information
Provided by Guaranty Agencies
(§ 682.401(g))
Statute: The HEOA added a new
section 433A to the HEA that requires
a guaranty agency to work with the
schools that it serves to develop and
make available high-quality educational
materials and programs that provide
training for students and their families
in budgeting and financial management,
including debt management and other
aspects of financial literacy, such as the
cost of using high-interest loans to pay
for postsecondary education, and how
budgeting and financial management
relate to the title IV student loan
programs. The HEA requires these
programs and materials to be in formats
that are simple and understandable to
students and their families, and
specifies that they must be provided
before, during, and after a student’s
enrollment at an institution of higher
education. A guaranty agency’s
activities under section 433A are
considered default reduction activities
for the purposes of section 422 of the
HEA.
A guaranty agency is not prohibited
from using existing activities, programs,

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and materials to meet the requirements
of section 433A, and may provide
programs or materials similar to the
programs and materials required by
section 433A to schools that participate
only in the Direct Loan Program.
A lender or loan servicer may also
provide outreach or financial aid
literacy information in accordance with
the requirements of section 433A.
Proposed Regulations: The proposed
regulations would reflect the
requirements of section 433A of the
HEA as described above.
Reasons: The proposed changes are
necessary to reflect a statutory
requirement.

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Financial and Economic Literacy for
Rehabilitated Borrowers (§ 682.405)
Statute: The HEOA amended section
428F of the HEA to require a guaranty
agency to make available financial and
economic education materials for a
borrower who has rehabilitated a
defaulted loan.
Proposed Regulations: The proposed
regulations would revise § 682.405,
regarding loan rehabilitation
agreements, by adding a provision
requiring guaranty agencies to make
available financial and economic
education materials, including debt
management information, to any
borrower who has rehabilitated a
defaulted loan.
Reasons: The proposed change is
necessary to implement a statutory
requirement. Some of the non-Federal
negotiators requested clarification of the
methods by which a guaranty agency
may make the required information
available to borrowers who have
rehabilitated a defaulted loan. One nonFederal negotiator representing students
asked for clarification that the required
information must be provided to
individual borrowers who have
rehabilitated defaulted loans, and not
simply made available on a guaranty
agency’s Web site or in other general
materials.
The Department confirmed that a
guaranty agency must provide the
required financial and economic
education materials to each individual
borrower who has rehabilitated a
defaulted loan. A guaranty agency may
provide the required information to
individual borrowers by mailing written
materials or through electronic means.
The materials may provide general
financial and economic education
information that would be applicable to
any borrower, including information on
debt management, and need not be
specific to the individual borrower’s
circumstances.

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Consumer Credit Reporting Following
Loan Rehabilitation (§ 682.405(b)(1)(iii)
and (b)(3))
Statute: Section 428F(a)(1)(A) of the
HEA was amended by the HEOA to
require that, upon sale of a rehabilitated
loan to an eligible lender, the guaranty
agency or other holder of the loan must
request any consumer reporting agency
to which the guaranty agency or holder
had reported the default of the loan to
remove the record of default from the
borrower’s credit history.
Current Regulations: Section
682.405(b)(3) of the FFEL regulations
states that the guaranty agency must
report to all national credit bureaus
within 90 days of the date the loan was
rehabilitated that the loan is no longer
in a default status and that the default
is to be removed from the borrower’s
credit history.
Proposed Regulations: The proposed
regulations would require the prior
holder of the loan, in addition to the
guaranty agency, to request that a
consumer reporting agency to which the
default was reported remove the default
from the borrower’s credit history. The
proposed regulations would also
provide more detailed reporting
deadlines for the guaranty agency and
the prior loan holder to request removal
of the report of the default from the
borrower’s credit history, and would
reduce the overall period for this
activity from 90 to 75 days. Under the
proposed regulations, the guaranty
agency must, within 45 days of the sale
of the rehabilitated loan to an eligible
lender, request that the consumer
reporting agency remove the record of
default from the borrower’s credit
history and notify the prior holder of the
loan rehabilitation. The proposed
regulations would require the prior
holder of the loan, within 30 days of the
guaranty agency’s notification of the
loan’s rehabilitation, to request that the
consumer reporting agency remove the
loan holder’s default claim record or its
equivalent from the borrower’s credit
history.
Reasons: The proposed regulations
incorporate the HEOA changes to the
HEA provisions governing default
rehabilitation-related reporting to
consumer reporting agencies.
Establishing specific deadlines for a
guaranty agency’s notice to the prior
holder and for the guaranty agency and
loan holder to make their requests to
consumer reporting agencies will ensure
that affected borrowers receive the
primary loan rehabilitation benefit in a
timely and efficient manner.
The Department initially proposed
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reporting to the consumer reporting
organizations from the current 90 days
to 45 days without separate reporting
deadlines for the guaranty agency and
loan holder. Several non-Federal
negotiators expressed concern that 45
days did not provide sufficient time for
both parties to report to consumer
reporting agencies and noted that the
prior loan holder would not be aware
that it was required to initiate such a
request unless it was informed by the
guaranty agency of the sale. These
negotiators also recommended that
separate deadlines be established for the
guaranty agency and the loan holder so
that one party’s failure to meet the
deadline would not result in a
compliance failure for both parties. A
non-Federal negotiator familiar with
guaranty agency requirements also
requested that the Department clarify a
guaranty agency’s responsibilities when
the prior loan holder that reported the
default was no longer in existence. The
negotiators discussed consumer credit
reporting in greater detail, with the
Federal negotiator providing an
overview of the process and information
on the Department’s consumer credit
reporting process for rehabilitated Direct
Loans. In both the FFEL and Direct Loan
programs a record of the default, or an
equivalent reporting code, is reported by
the loan holder (in FFEL) or the Direct
Loan servicer and by the guaranty
agency (in FFEL) or the Department’s
debt collection unit (in Direct Loans)
and that neither the Department nor a
guaranty agency has the authority to
request deletion by the consumer
reporting organization of another
creditor’s reported ‘‘trade line.’’ If the
loan holder that reported a default
insurance claim no longer exists, the
borrower’s recourse is to directly
request that the consumer reporting
organization remove the defunct loan
holder’s reported record of default or its
equivalent from the borrower’s credit
history. The Department expects
guaranty agencies to assist borrowers to
the extent possible under these
circumstances by informing the
borrower of the identity of the prior
holder and of the borrower’s right to
directly request removal of the default
by the consumer reporting agency.
However, the Department understands
that a guaranty agency’s ability to assist
borrowers is limited in this area.
Notifications to Borrowers in Default
and Definition of Nationwide Consumer
Reporting Agency (§§ 682.410(b) and
682.200(b))
Statute: The HEOA amended section
428(k) of the HEA by adding a
requirement for guaranty agencies that

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
have received a default claim from a
lender to provide the defaulted
borrower with at least two separate
notices, using simple and
understandable terms, that explain, at a
minimum, the borrower’s options for
removing the loan from default, and the
fees and conditions associated with
each option.
The HEOA also changed all current
references to ‘‘credit bureaus’’ in the
HEA to ‘‘consumer reporting agencies.’’
Current Regulations: Section
682.410(b)(5)(ii) requires a guaranty
agency, after it pays a default claim on
a loan but before it reports the default
to a credit bureau or assesses collection
costs against the borrower, to provide
the borrower, within a specified
timeframe, with a notice that advises the
borrower of the actions that will be
taken with regard to the default claim
and explains the borrower’s rights in
connection with the claim. Section
682.410(b)(6) specifies the collection
efforts that a guaranty agency must take
on a defaulted loan.
Proposed Regulations: The proposed
regulations would expand the
information that must be provided in
the notice required under
§ 682.410(b)(5)(ii) to include
information on the options that are
available to the borrower to remove the
loan from default, including an
explanation of the fees and conditions
associated with each option. The
proposed regulations would also require
a guaranty agency to provide this same
information to a defaulted borrower in
a second notice that the guaranty agency
must send as part of its required
collection efforts on a defaulted loan
under § 682.410(b)(6). The second
notice would have to be sent within a
reasonable time after the end of the
period during which the borrower may
request an administrative review as
specified in § 682.410(b)(5)(iv)(B) or, if
the borrower has requested an
administrative review, within a
reasonable time following the
conclusion of the administrative review.
The proposed regulations would also
remove the definition of National credit
bureau from § 682.200(b) and replace it
with a definition of Nationwide
consumer reporting agency, and would
replace all references to ‘‘credit bureau’’
with ‘‘consumer reporting agency’’
throughout § 682.410(b)(5) and (b)(6).
The proposed regulations would specify
that a nationwide consumer reporting
agency is a consumer reporting agency
as defined in 15 U.S.C. 1681a.
Reasons: The proposed changes in
§ 682.410(b) reflect statutory
requirements. The proposed definition
of nationwide consumer reporting

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agency refers to the definition of this
term in the Fair Credit Reporting Act.
Executive Order 12866
Regulatory Impact Analysis
Under Executive Order 12866, the
Secretary must determine whether the
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
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
proposed regulatory action will not have
an annual effect on the economy of
more than $100 million. Therefore, this
action is not ‘‘economically significant’’
and subject to OMB review under
section 3(f)(1) of Executive Order 12866.
Notwithstanding this determination, the
Secretary has assessed the potential
costs and benefits of this regulatory
action and has determined that the
benefits justify the costs.
Need for Federal Regulatory Action
These proposed regulations are
needed to implement provisions of the
HEA, as amended by the HEOA,
particularly related to changes related to
loan discharge, deferment,
consolidation, rehabilitation, and
repayment plan provisions, and the
addition of a new Part E to title I of the
HEA which establishes extensive new
disclosure requirements for lenders and
institutions participating in Federal and
private student loan programs.
In general, these proposed regulations
simply restate specific HEOA
requirements, in many cases using
language drawn directly from the
statute. In the following areas, the
Secretary has exercised limited
discretion in implementing the HEOA

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provisions through proposed
regulations:
Total and permanent disability
discharges: The Secretary determined
that the monitoring period after a
borrower receives a discharge due to
total and permanent disability would be
three years; that interest would not
accrue during this period for loans that
are ultimately reinstated; that the
employment earnings standard would
be based on the poverty guideline
amount for a family of two; that, for
student loan and TEACH grant
disbursements received during the
monitoring period, a borrower’s
obligation to repay a discharged loan
will not be reinstated if funds are
returned to the holder within 120 days
of the disbursement date; and that the
Secretary will provide certain
information to a borrower as part of a
notification to the borrower that his or
her obligation to repay a previously
discharged loan has been reinstated.
Opportunity to cancel a consolidation
loan: The Secretary would require
lenders to provide a Consolidation loan
borrower a period of not less than 10
days, from the date the borrower is
notified the lender is ready to make the
Consolidation loan, to cancel the loan.
PLUS loan deferment: The Secretary
aligned the repayment of a borrower’s
PLUS loans first disbursed before July 1,
2008, with a borrower’s PLUS loans first
disbursed on or after July 1, 2008, and
with a borrower’s Stafford Loans that
have a grace period, so that the borrower
would begin making payments on all of
the loans at the same time.
Income-based repayment: The
Secretary determined that a borrower
whose outstanding balance has
increased rather than decreased
throughout the repayment period prior
to the borrower’s request for IBR should
be given the benefit of determining
partial financial hardship based on the
borrower’s increased outstanding loan
principal balance.
The Secretary would require that, for
married borrowers, joint AGI and the
annual amount due on both the
borrower’s and the spouse’s eligible
loans be used to determine eligibility for
IBR and the partial financial hardship
payment amount. That payment amount
would then be adjusted based on the
percentage of the combined total eligible
loan debt attributable to each individual
borrower, with a further adjustment if
the borrower has multiple loan holders.
Teacher loan forgiveness: The
Secretary determined that the five
complete consecutive years of teaching
required to qualify for loan forgiveness
may include any combination of
qualifying teaching service at an eligible

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elementary or secondary school or at an
eligible educational service agency, but
teaching at an educational service
agency may be counted toward the five
years only if the consecutive five-year
period includes qualifying teaching at
an eligible educational service agency
performed after the 2007–2008
academic year.
Forbearance: The Secretary
determined that, if an administrative
forbearance is granted retroactively, the
lender need not go back in time to
provide the required information
retroactively. Lenders must, however,
contact the borrower as required going
forward from the date the lender
applied the forbearance.
Consumer credit reporting after loan
rehabilitation: The Secretary
determined that guaranty agencies must,
within 45 days of the sale of the
rehabilitated loan to an eligible lender,
request that the consumer reporting
agency remove the record of default
from the borrower’s credit history and
notify the prior holder of the loan
rehabilitation. The Secretary also
determined that the prior holder of the
loan, within 30 days of the guaranty
agency’s notification of the loan’s
rehabilitation, must request that the
consumer reporting agency remove the
loan holder’s default claim record or its
equivalent from the borrower’s credit
history.
The following section addresses the
alternatives that the Secretary
considered in implementing these
discretionary portions of the HEOA
provisions. These alternatives are also
discussed in more detail in the Reasons
sections of this preamble related to the
specific regulatory provisions.
Regulatory Alternatives Considered
Total and permanent disability
discharges: The Department’s initial
proposals included a 5-year postdischarge monitoring period and
interest charges for the period from the
date of discharge to the reinstatement
date when a borrower’s obligation to
repay a previously discharged loan is
reinstated for failure to meet one of the
post-discharge requirements. NonFederal negotiators did not support
these proposals, questioning the
rationale for changing the current
policies—under which the conditional
discharge period is three years and
interest is not charged for reinstated
loans during the conditional period—in
the absence of a specific statutory
requirement to do so. After considering
the negotiators’ concerns, the
Department revised the proposed
regulations by changing the postdischarge monitoring period from five

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years to three years, and by removing
the provision that would have required
a borrower to pay interest from the date
of discharge if the borrower’s repayment
obligation is reinstated.
Under the Department’s initial
proposal, a borrower’s obligation to
repay a previously discharged loan
would be reinstated if the borrower’s
annual earnings from employment
during the monitoring period exceeded
the poverty guideline amount for the
borrower’s family size. Non-Federal
negotiators raised concerns about this
proposal, noting that while the
proposed approach could be seen as
more equitable than the current
regulatory approach—under which the
criteria for the reinstatement of a loan is
tied to poverty guideline amount for a
family of two, regardless of the
borrower’s actual family size—it also
could be confusing to borrowers, since
a borrower’s family size could change
during the post-discharge monitoring
period. These negotiators argued that
the current standard based on a family
size of two would be preferable, as it
would eliminate the need for borrowers
to monitor changes in the employment
earnings limit during the post-discharge
monitoring period. The Department
agreed.
Non-Federal negotiators also raised
concerns about the treatment of a title
IV loan disbursement made during the
post-discharge monitoring period for a
loan the borrower received prior to the
physician’s certification date. The
Department initially did address this
issue in the proposed regulations
because the current regulatory
provision, under which a borrower is
ineligible for a final discharge unless the
borrower ensures that such a
disbursement is returned to the loan
holder within 120 days of the
disbursement date, is tied to the
conditional discharge period, which
would be eliminated under the
proposed regulations. After considering
the concerns of the non-Federal
negotiators, the Department agreed to
change the proposed regulations to
provide that a borrower’s obligation to
repay a discharged loan will not be
reinstated if the borrower ensures that a
title IV loan or TEACH Grant
disbursement made during the postdischarge monitoring period for a loan
or TEACH Grant received prior to the
discharge date is returned to the loan
holder within 120 days of the
disbursement date. The Department also
agreed to revise the proposed
regulations to provide that if a
disbursement of a title IV loan or
TEACH Grant is made during the period
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date and the discharge date, the
processing of the borrower’s loan
discharge request will be suspended
until the borrower ensures the
disbursement is returned to the loan
holder or the Secretary, as applicable.
Lastly, the Department’s initial
proposal did not explicitly provide that
the Secretary would notify a borrower
who fails to meet one of the eligibility
requirements during the post-discharge
monitoring period that the borrower’s
obligation to repay the discharged loan
has been reinstated. In response to
serious concerns from non-Federal
negotiators, the Department agreed to
add a provision to the proposed
regulations stating the Secretary will
notify a borrower that his or her
obligation to repay a previously
discharged loan has been reinstated, and
that the notification of reinstatement
will explain why the obligation was
reinstated, that the first payment due
date following reinstatement will be no
earlier than 60 days after the date of the
notification of reinstatement, and how
the borrower may contact the
Department if he or she has questions or
believes the obligation to repay was
reinstated based on incorrect
information.
Opportunity to cancel a consolidation
loan: A number of non-Federal
negotiators raised concerns about the
requirement that lenders provide
Consolidation loan borrowers an
explicit period of time to cancel the loan
after the date the borrower is notified
that the lender is ready to make the
Consolidation loan. These negotiators
argued that the Department’s original
proposal to provide a five-day period for
a borrower to cancel the loan with the
lender lacked clarity and did not fully
recognize the highly automated
consolidation process in which some
loans could be fully processed in as
little as 24–48 hours. One negotiator
suggested that the Department provide
borrowers with the opportunity to
expedite processing by waiving their
right to cancel the loan. After
considering these concerns and
suggestions, the Department proposed
revised language establishing a
timeframe for a borrower to cancel a
Consolidation loan that would be
similar to the operational timeframe
used in the Direct Loan Program, which
would be clear and understandable to
all participants. This revised proposal is
reflected in the proposed regulations.
PLUS loan deferment: A non-Federal
negotiator raised concerns that, under
the Department’s original proposal,
borrowers with PLUS loans first
disbursed before July 1, 2008, and PLUS
loans first disbursed on or after July 1,

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2008, could erroneously believe that all
their PLUS loans are eligible for the new
6-month post-enrollment deferment
period, which is actually only available
on PLUS loans first disbursed on or after
July 1, 2008. This negotiator suggested,
and the Department agreed, that the
proposed regulations be revised to
provide an administrative forbearance
that would allow a lender to align
repayment of a borrower’s PLUS loans
first disbursed before July 1, 2008 with
a borrower’s PLUS loans first disbursed
on or after July 1, 2008, and with a
borrower’s Stafford Loans that have a
grace period.
Income-based repayment: A nonFederal negotiator noted that borrowers
whose outstanding loan balance
increased after they initially entered
repayment and before they request IBR
would be disadvantaged under the
Department’s original proposal to
always base a borrower’s annual
payment amount on the outstanding
balance when the borrower initially
entered repayment. The negotiator
argued that borrowers who have had
difficulty repaying the loan and who
have taken advantage of deferments and
forbearances to avoid delinquency
would be particularly disadvantaged as
their outstanding loan principal balance
would have increased due to capitalized
interest. After considering these factors,
the Department agreed that, for a
borrower whose outstanding balance
has increased during the repayment
period prior to the borrower’s request
for IBR, the determination of partial
financial hardship should be based on
the borrower’s increased outstanding
loan principal balance.
The Department also considered
alternative approaches for determining
eligibility for partial financial hardship
for married borrowers who file a joint
Federal tax return and who both have
eligible loans. The Department initially
proposed using each individual
borrower’s portion of the joint AGI and
eligible loan amount to determine
eligibility for IBR. Following
discussions with non-Federal
negotiators, the Department determined
that this approach would impose
significant burdens both on borrowers,
who would be required to submit
additional documentation to identify
the individual portion of any joint
income, and loan holders, who would
need to determine each borrower’s
eligibility using a manual process
(rather than automated process). As an
alternative, the Department agreed to
adopt a non-Federal negotiator’s
suggestion to determine eligibility for
IBR using married borrowers’ joint AGI
and the annual amount due on both the

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borrower’s and the spouse’s eligible
loans, with the payment amount
adjusted based on the percentage of the
combined total eligible loan debt
attributable to each individual borrower
and with a further adjustment for
borrowers with multiple loan holders.
The alternatives adopted would
increase Federal costs for fiscal years
2009 through 2019 related to the IBR
program by an estimated $101 million
compared with baseline estimated costs
for the original authorizing legislation.
(These costs include the impact of the
proposed changes on loans made prior
to FY 2009.) The Department does not
forecast any new borrowers will choose
the IBR repayment schedule beyond
those assumed in the baseline because
the alternatives adopted were relatively
minor and, therefore, not likely to
change borrowers’ repayment choices.
Projected costs were determined based
on those borrowers from the 1994
through 2019 cohorts already assumed
to choose the IBR repayment schedule.
Estimates were derived using data from
the Department’s Direct Loan servicing
system on borrowers who have chosen
income-contingent repayment, merged
with a statistically significant sample of
National Student Loan Data System
data. Current Population Survey data
from the Census Bureau was used to
project borrower incomes. Estimated
loan volume associated with borrowers
affected by the alternatives adopted is
$93 billion over 1994 through 2019.
While the cost of these provisions
would normally need to be offset, the
Department requested and the Office of
Management and Budget granted an
exception to budget neutrality
requirements. This exception reflects
the relatively small cost of the
provisions and the fact that in their
absence borrowers would be harmed by
having unduly high payment amounts
or being denied access to IBR entirely.
This harm would be most significant to
married borrowers with significant
student loan debt, including those
engaged in public service careers, which
often pay less than comparable jobs in
the private sector.
Teacher loan forgiveness: The
Department’s initial proposal allowed
only qualifying teaching service
performed at an eligible educational
service agency after August 14, 2008,
the date of enactment of the HEOA, to
be counted toward a borrower’s required
five complete consecutive years of
teaching service. A non-Federal
negotiator argued that this approach was
too restrictive, and that the HEOA’s
provisions in this area were intended to
apply retroactively to October 1, 1998,
the date of enactment of the original

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FFEL and Direct Loan teacher loan
forgiveness provisions. While the
Department did not agree with this
interpretation of the HEOA, the
proposed regulations were revised to
provide that the required five complete
consecutive years of teaching may
include any combination of qualifying
teaching service at an eligible
elementary or secondary school or at an
eligible educational service agency,
provided the consecutive five-year
period includes qualifying teaching at
an eligible educational service agency
performed after the 2007–2008
academic year.
Forbearance: Some non-Federal
negotiators raised concerns that lenders
will not be able to satisfy disclosure
requirements if an administrative
forbearance is granted to assist a
borrower with a situation occurring in
the past. The Department, after
discussions with other negotiators,
agreed that if an administrative
forbearance is granted retroactively, the
lender need not go back in time to
provide the required information
retroactively. The lender must, however,
contact the borrower as required going
forward from the date the lender
applied the forbearance.
Consumer credit reporting after loan
rehabilitation: The Department initially
proposed reducing the overall
timeframe for both guaranty agency and
loan holder reporting to the consumer
reporting organizations from the current
90 days to 45 days. Non-Federal
negotiators argued that 45 days was not
enough time for both parties to report to
consumer reporting agencies, noting
that the prior loan holder would be
unaware of the requirement until
informed by the guaranty agency of the
sale. These negotiators recommended
separate deadlines for the guaranty
agency and the loan holder to ensure
that one party’s failure to comply with
the deadline would not result in a
compliance failure for both parties.
After consideration of these concerns,
the Department agreed to an alternative
approach that would reduce the overall
period for this activity from 90 to 75
days. Under this alternative approach,
the guaranty agency must, within 45
days of the sale of the rehabilitated loan
to an eligible lender, request that the
consumer reporting agency remove the
record of default from the borrower’s
credit history and notify the prior
holder of the loan rehabilitation. The
proposed regulations would require the
prior holder of the loan, within 30 days
of the guaranty agency’s notification of
the loan’s rehabilitation, to request that
the consumer reporting agency remove
the loan holder’s default claim record or

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its equivalent from the borrower’s credit
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Benefits
Benefits provided in these proposed
regulations include greater transparency
for borrowers participating in the
Federal and private student loan
programs; clearer guidelines on
acceptable behavior by and
relationships among institutions
participating in the student loan
programs; improvements to the IBR
plan, particularly for married borrowers;
a simpler process for obtaining loan
discharges due to total and permanent
disability; and expanded eligibility for
Teacher Loan forgiveness benefits. It is
difficult to quantify benefits related to
the new institutional and lender
requirements, as there is little specific
data available on either the extent of
improper or questionable relationships
between institutions and lenders prior
to the HEOA or of the harm such
relationships actually caused for either
borrowers, institutions, or the Federal
taxpayer. The extent these relationships
prevented borrowers from accessing the
most favorable loan terms, however, is
likely to have changed in any case since
recent shifts in economic conditions
and lender net revenues have greatly
reduced the availability of borrower
benefits in the FFEL program. The
Department is interested in receiving
comments or data that would support a
more rigorous analysis of the impact of
these provisions.
These benefits all flow directly from
statutory changes included in the
HEOA; they are not materially affected
by discretionary choices exercised by
the Department in developing these
regulations. As discussed in greater
detail under Net Budget Impacts, these
proposed provisions result in net costs
to the government of $192.7 million
over 2009–2013.
Costs
Many of the statutory provisions
implemented though this NPRM will
require regulated entities to develop
new disclosures and other materials, as
well as accompanying dissemination
processes. Other proposed regulations
generally would require discrete
changes in specific parameters
associated with existing guidance—such
as changes to the process for loan
discharges, IBR, and various deferment
and forbearance benefits—rather than
wholly new requirements. In total, these
changes are estimated to increase
burden on entities participating in the
FFEL program by 1,313,964 hours. Of
this increased burden, 1,184,115 hours
are associated with lenders, 110,360

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hours with guaranty agencies, and 7,200
hours with institutions. An additional
12,289 hours are associated with
borrowers, generally reflecting the time
required to read new disclosures or
submit required information. The
monetized cost of this additional
burden, using loaded wage data
developed by the Bureau of Labor
Statistics, is $24,334,225.
While there is additional burden
associated with a range of proposed
provisions in this NPRM, nearly 95
percent of the burden hours associated
with this package result from six
provisions, all with a burden greater
than 20,000 hours. In estimating the cost
of these provisions, the Department
used wage information from the Bureau
of Labor Statistics. For lenders,
institutions, and guaranty agencies, the
May 2009 total private non-agricultural
average hourly earnings of $18.54 was
used as the hourly rate to monetize the
burden of these provisions. For
borrowers, the first quarter 2009 median
weekly earnings for full-time wage and
salary workers by age range were used.
This was weighted to reflect the age
profile of the student loan portfolio,
with 50 percent of the portfolio assigned
to the 20-to-24 age category and 50
percent to the 25-to-34 age category.
Using median weekly earnings of $472
for workers in the 20-to-24 age category
and $674 for workers in the 25-to-34 age
category and assuming a 35-hour work
week, the Department calculated an
hourly rate of $16.37 to use in
monetizing the burden on borrowers.
The following discussion provides
additional detail on the impact of these
provisions.
The greatest number of burden hours
is associated with proposed § 682.205,
which implements new statutory
requirements for lenders to disclose
specified information to borrowers
throughout the life-cycle of the loan.
These required disclosures include
information about a 10-day cancellation
period for consolidation loans, the
availability of forbearance and its
effects, discharge options, repayment
plans, and resources available to
borrowers, among others. The
Department determined that the lenders
will have increased burden due to the
additional disclosures for two groups of
borrowers: Borrowers that are having
difficulty making payments, and
borrowers that are 60-days delinquent.
There is no additional burden
associated with the disclosures that loan
holders are already required to make to
borrowers prior to and during
repayment. An estimated 4,692,126
borrowers fall within these two
categories with additional burden, and

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the burden of developing and
distributing the new disclosures is
estimated to be .17 hours per borrower,
for a total burden of 797,661 hours for
this provision. Using the lender rate of
$18.54 per hour, the cost associated
with this provision is $14.8 million.
The next highest number of burden
hours is associated with proposed
§ 682.211, which specifies lender
disclosure requirements related to
forbearance and creates a new
administrative forbearance to align
repayment of PLUS loans. Lenders must
disclose the effect of interest
capitalization and the total to be repaid
during the life of a loan under this
provision. An estimated 215,734
borrowers are affected by this provision,
and the hour burden on lenders is
estimated to be .03 hours per borrower,
for a total of 215,734 hours. Therefore,
the cost associated with this provision
is approximately $4.0 million.
An estimated 90,286 burden hours are
associated with § 682.215 and § 685.221,
the provisions related to the definition
of partial financial hardship and the
calculation of the borrower’s payment
under income-based repayment plans.
The change in the method of calculating
an income-based repayment will
increase burden to loan holders by .08
hours per borrower. The number of
borrowers expected to qualify for IBR is
1,128,579, generating a total burden of
90,286. Using the lender rate, the cost
associated with this provision is $1.7
million.
Another provision that has an
estimated burden greater than 20,000
hours is § 682.206, which requires
lenders to offer consolidation borrowers
a 10-day cancellation period. The
burden of this provision falls on
borrowers, who have to read the
disclosure about cancellations and act if
they want to pursue that option, and
lenders, who have to provide the
disclosure about cancellation and delay
loan processing to allow cancellations.
An estimated 10,032 FFEL
consolidation borrowers are affected by
this provision, with an estimated
burden of one hour for a total of 10,032
hours. For lenders, the burden of
providing application disclosures to
approximately 670,753 potential
consolidation loan applicants and
information about cancellations to
approximately 11,147 consolidated
borrowers, calculated at a rate of .08
hours per borrower, totals 54,552 hours.
Applying the appropriate rates for
borrowers and lenders, the total cost
associated with this provision is $1.2
million.
An estimated 58,793 burden hours are
associated with § 682.410, the provision

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requiring guaranty agencies to provide
certain notifications to borrowers who
are in default. Guaranty agency default
notices must include information on the
options that are available to the
borrower to remove the loan from
default, including an explanation of the
fees and conditions associated with
each option. Approximately 734,918
borrowers in default are affected by this
provision, with a burden of .08 hours
per borrower. At the guaranty agency
rate of $18.54 per hour, the cost
associated with this provision totals
$1.1 million.
The final provision estimated to result
in over 20,000 burden hours is
§ 682.405, which requires guaranty
agencies to provide certain information
to borrowers who have rehabilitated
defaulted loans. Guaranty agencies are
required to provide financial and
economic educational materials to
borrowers who have rehabilitated loans.
Given an estimated 143,687
rehabilitated loans and an increase in
burden of .17 hours per loan, the burden
hours associated with this provision
total 24,427. Applying the guaranty
agency rate, the cost associated with this
provision totals $0.5 million.
The other provisions that increase
burden and associated costs are
relatively minor, especially when
looked at for an individual entity rather
than in total. In general, entities wishing
to continue to participate in the student
aid programs have already absorbed
most of the administrative costs related
to implementing these provisions.
Marginal costs over this baseline are
primarily related to one-time system
changes that, while possibly significant
for some entities, are an unavoidable—
and in most cases minor—cost of
continued program participation.
Additional workload would normally be
expected to result in estimated costs
associated with either the hiring of
additional employees or opportunity
costs related to the reassignment of
existing staff from other activities.
Given the limited data available, the
Department is interested in comments
and supporting information related to
possible burden stemming from the
proposed regulations. In particular, we
ask institutions to provide detailed data
on actual staffing and system costs
associated with implementing these
proposed regulations; data on the
implementation of proposed regulations
regarding the adoption and distribution
of required disclosures would be
especially helpful. Estimates included
in this notice will be reevaluated based
on any information received during the
public comment period.

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Net Budget Impacts
HEOA provisions implemented by
these regulations are estimated to have
a net budget impact of $34.7 million in
2009 and $192.7 million over FY 2009–
2013. (The estimated impact for 2009
does not include $144.2 million in costs
related to loans originated in prior fiscal
years.) Consistent with the requirements
of the Credit Reform Act of 1990, budget
cost estimates for the student loan
programs reflect the estimated net
present value of all future nonadministrative Federal costs associated
with a cohort of loans. (A cohort reflects
all loans originated in a given fiscal
year.)
These estimates were developed using
the Office of Management and Budget’s
(OMB’s) Credit Subsidy Calculator.
(This calculator will also be used for reestimates of prior-year costs, which will
be performed each year beginning in FY
2009). The OMB calculator takes
projected future cash flows from the
Department’s student loan cost
estimation model and produces
discounted subsidy rates reflecting the
net present value of all future Federal
costs associated with awards made in a
given fiscal year. Values are calculated
using a ‘‘basket of zeros’’ methodology
under which each cash flow is
discounted using the interest rate of a
zero-coupon Treasury bond with the
same maturity as that cash flow. To
ensure comparability across programs,
this methodology is incorporated into
the calculator and used governmentwide to develop estimates of the Federal
cost of credit programs. Accordingly,
the Department believes it is the
appropriate methodology to use in
developing estimates for these
regulations. That said, however, in
developing the Accounting Statement
included below, the Department
consulted with OMB on how to
integrate our discounting methodology
with the discounting methodology
traditionally used in developing
regulatory impact analyses.
Absent evidence on the impact of
these regulations on student behavior,
budget cost estimates were based on
behavior as reflected in various
Department data sets and longitudinal
surveys listed under Assumptions,
Limitations, and Data Sources. Program
cost estimates were generated by
running projected cash flows related to
each provision through the
Department’s student loan cost
estimation model. Student loan cost
estimates are developed across five risk
categories: Proprietary schools, two-year
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schools, and graduate students. Risk
categories have separate assumptions
based on the historical pattern of
behavior—for example, the likelihood of
default or the likelihood to use statutory
deferment or discharge benefits—of
borrowers in each category.
The budgetary impact of the proposed
regulations is largely driven by statutory
changes involving teacher loan
forgiveness, loan discharges, and IBR.
The Department estimates no budgetary
impact for other proposed regulations
included in this NPRM; there is no data
indicating that the new requirements
related to improper inducements and
additional loan disclosures will have
any impact on the volume or
composition of Federal student loans.
Assumptions, Limitations, and Data
Sources
Because these proposed regulations
would largely restate statutory
requirements that would be selfimplementing in the absence of
regulatory action, impact estimates
provided in the preceding section reflect
a pre-statutory baseline in which the
HEOA changes implemented in these
proposed regulations do not exist. Costs
have been quantified for five years. In
general, these estimates should be
considered preliminary; they will be
reevaluated in light of any comments or
information received by the Department
prior to the publication of the final
regulations. The final regulations will
incorporate this information in a revised
analysis.
In developing these estimates, a wide
range of data sources was used,
including data from the NSLDS;
operational and financial data from
Department 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. Data
from other sources, such as the Census
Bureau, were also used. Data on
administrative burden at participating
schools, lenders, guaranty agencies, and
third-party servicers are extremely
limited; accordingly, as noted above, the
Department is particularly interested in
comments in this area.
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.

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules

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 proposed
regulations. This table provides our best
estimate of the changes in Federal

student aid payments as a result of these
proposed regulations. Expenditures are
classified as transfers from the Federal
government to student loan borrowers
(for expanded loan discharges, teacher
loan forgiveness payments).

TABLE 2—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES
[In millions]
Category

Transfers

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

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Clarity of the Regulations
Executive Order 12866 and the
Presidential memorandum ‘‘Plain
Language in Government Writing’’
require each agency to write regulations
that are easy to understand.
The Secretary invites comments on
how to make these proposed regulations
easier to understand, including answers
to questions such as the following:
• Are the requirements in the
proposed regulations clearly stated?
• Do the proposed regulations contain
technical terms or other wording that
interferes with their clarity?
• Does the format of the proposed
regulations (grouping and order of
sections, use of headings, paragraphing,
etc.) aid or reduce their clarity?
• Would the proposed regulations be
easier to understand if we divided them
into more (but shorter) sections? (A
‘‘section’’ is preceded by the symbol ‘‘§’’
and a numbered heading; for example,
§ 682.209 Repayment of a loan.)
• Could the description of the
proposed regulations in the
SUPPLEMENTARY INFORMATION section of
this preamble be more helpful in
making the proposed regulations easier
to understand? If so, how?
• What else could we do to make the
proposed regulations easier to
understand?
To send any comments that concern
how the Department could make these
proposed regulations easier to
understand, see the instructions in the
ADDRESSES section of this preamble.
Regulatory Flexibility Act Certification
The Secretary certifies that these
proposed regulations would not have a
significant economic impact on a
substantial number of small entities.
These proposed regulations would affect
institutions of higher education,
lenders, and guaranty agencies that
participate in Title IV, HEA programs
and individual students and loan
borrowers. The U.S. Small Business
Administration Size Standards define
institutions and lenders as ‘‘small

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$57.
Federal Government to Student Loan Borrowers.

entities’’ if they are for-profit or
nonprofit institutions with total annual
revenue below $5,000,000 or if they are
institutions controlled by small
governmental jurisdictions, which are
comprised of cities, counties, towns,
townships, villages, school districts, or
special districts, with a population of
less than 50,000.
Based on data from the Integrated
Postsecondary Education Data System
(IPEDS), roughly 1,200 institutions
participating in the FFEL program meet
the definition of ‘‘small entities.’’ More
than half of these institutions are shortterm, for-profit schools focusing on
vocational training. Other affected small
institutions include small community
colleges and Tribally controlled schools.
Burden on institutions associated with
these proposed regulations is associated
with audit requirements for schools
serving as lenders. Institutions meeting
the definition of small entities are
extremely unlikely to act as lenders in
the FFEL program. Accordingly, new
requirements imposed under the
proposed regulations are not expected to
impose significant new costs on these
institutions.
The Department believes few if any
lenders participating in the FFEL
program have revenues of less than $5
million. FFEL program activity is highly
concentrated among the largest lenders;
should an extremely small number of
lenders that meet the threshold
participate in the program, they likely
are making loans as a service to current
clients rather than soliciting new
business. This type of lender, with a
tangential relationship to Federal
student loans, is extremely unlikely to
engage in the type of activities—
inducements, etc.—governed by these
regulations. Accordingly, the
Department has determined that the
regulations would not represent a
significant burden on small lenders.
Guaranty agencies are State and
private nonprofit entities that act as
agents of the Federal government, and
as such are not considered ‘‘small

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entities’’ under the Regulatory
Flexibility Act. The impact of the
proposed regulations on individuals is
not subject to the Regulatory Flexibility
Act.
The Secretary invites comments from
small institutions and lenders as to
whether they believe the proposed
changes would have a significant
economic impact on them and, if so,
requests evidence to support that belief.
Paperwork Reduction Act of 1995
Proposed 674.61, 682.202, 682.205,
682.206, 682.208, 682.210, 682.211,
682.216, 682.302, 682.305, 682.401,
682.402, 682.410, 682.601, 685.202,
685.204, 685.205, 685.213, and 685.217
contain information collection
requirements. Under the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)), the Department of Education
has submitted a copy of these sections
to the Office of Management and Budget
(OMB) for its review.
Sections 674.61, 682.402, and 685.213—
Total and Permanent Disability Loan
Discharges
The proposed regulations would
revise the loan discharge process for
borrowers seeking to have their title IV
loans discharged based on a total and
permanent disability. The proposed
changes to the loan discharge process
affect borrowers, loan holders (and their
servicers), and guaranty agencies.
The burden hour estimate associated
with the current total and permanent
disability loan discharge provisions is
reported under OMB Control Number
1845–0065 (Discharge Application:
Total and Permanent Disability). The
Department does not expect the
proposed changes to increase the
burden for this collection. However, the
Department will need to revise the
Discharge Application: Total and
Permanent Disability currently
approved under 1845–0065 to reflect the
final regulations that will be published
by November 1, 2009. The Department
will submit a revised form for clearance

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after the final regulations have been
published. The revised form will not be
needed until July 1, 2010, the effective
date of the final regulations.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Section 682.206—Consolidation Loans
The proposed regulations would
revise § 682.206(f) to incorporate a new
requirement that is needed to fully
implement proposed § 682.205(i)(7),
which requires lenders to inform
borrowers that, by applying for the
Consolidation loan, the borrower is not
obligated to take the loan. Specifically,
§ 682.206(f) would be revised to include
a requirement that the lender provide a
Consolidation loan borrower a period of
not less than 10 days, from the date the
borrower is notified by the lender that
it is ready to make the Consolidation
loan, to cancel the loan. The proposed
regulations would require the lender to
send the notice of the option to cancel
the loan to the borrower before making
any payments to pay off a loan with the
proceeds of a Consolidation loan.
We estimate that the proposed
changes will increase burden for
borrowers by 10,032 hours and for loan
holders (and their servicers) by 54,552
hours for a total increase in burden of
64,584 hours in OMB Control Number
1845–0020.
Sections 682.210, 682.211, 685.204 and
685.205—In-School Deferments and
Administrative Forbearance for PLUS
Loans
The proposed regulations would
revise §§ 682.210 and 685.204 to reflect
statutory deferment provisions for FFEL
and Direct PLUS loan borrowers with
loans first disbursed on or after July 1,
2008. Upon the request of the borrower,
a parent PLUS borrower must be granted
a deferment on a PLUS loan first
disbursed on or after July 1, 2008,
during the period when the student on
whose behalf the loan was obtained is
enrolled on at least a half-time basis at
an eligible institution, and during the 6month period that begins on the later of
the day after the student ceases to be
enrolled on at least a half-time basis or,
if the parent borrower is also a student,
the day after the parent ceases to be
enrolled on at least a half-time basis.
For graduate and professional student
PLUS borrowers, the proposed
regulations would provide that a
borrower may be granted a deferment on
a PLUS loan first disbursed on or after
July 1, 2008 during the 6-month period
that begins on the day after the student
ceases to be enrolled on at least a halftime basis at an eligible institution. If a
lender or the Secretary grants an inschool deferment on a student PLUS
loan based on information from the

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borrower’s school about the borrower’s
eligibility for a new loan, student status
information from the school or
information from NSLDS confirming the
borrower’s half-time enrollment status,
the in-school deferment period for a
student PLUS loan first disbursed on or
after July 1, 2008 would include the 6month period that begins on the day
after the student PLUS borrower ceases
to be enrolled on at least a half-time
basis.
The proposed regulations would also
add a new administrative forbearance
provision to § 682.211(f) allowing a
lender to grant a forbearance, upon
notice to the borrower, on a borrower’s
PLUS loans first disbursed before July 1,
2008 to align repayment of the loans
with a borrower’s PLUS loans first
disbursed on or after July 1, 2008, or
with a borrower’s Stafford loans that are
subject to a grace period. The lender
would be required to notify the
borrower that he or she has the option
to cancel the forbearance and to
continue paying on the loan. A
corresponding administrative
forbearance provision would be added
to § 685.205(b) in the Direct Loan
Program regulations.
The proposed changes to §§ 682.210
and 685.204 affect borrowers and loan
holders (and their servicers). The new
deferment provisions for certain PLUS
borrowers are expected to increase the
number of borrowers who apply for
deferments. Because these statutory
provisions could be implemented
without regulations, the FFEL and
Direct Loan deferment request forms
were previously revised to include the
new deferments for PLUS borrowers and
have been approved under OMB Control
Numbers 1845–0005 (FFEL Program
Deferment Request Forms) and 1845–
0011 (Direct Loan Program Deferment
Request Forms). The increased burden
associated with the proposed regulatory
changes is reflected in the burden
estimates reported under those control
numbers.
We estimate that the proposed
regulations in § 682.211(e) related to
administrative forbearances will
increase burden for loan holders by
14,440 hours in OMB Control Number
1845–0020.
Sections 682.215 and 685.221—IncomeBased Repayment (IBR) Plan
The proposed regulations would
revise the definition of partial financial
hardship in § 682.215(a)(4) and
685.221(a)(4) to specify that the annual
amount due on a borrower’s eligible
loans for purposes of determining
whether the borrower has a partial
financial hardship is the greater of the

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36581

amount due on the eligible loans when
the borrower initially entered
repayment on those loans, or the
amount due on those loans when the
borrower elects the IBR plan. The
proposed regulations would also
provide that when a married borrower
and his or her spouse file a joint Federal
tax return with the IRS and both the
borrower and the spouse have eligible
loans, the joint AGI and the total
amount of the borrower’s and spouse’s
eligible loans will be used in
determining whether each borrower has
a partial financial hardship.
The proposed regulations would
revise §§ 682.215(b)(1)and 685.221(b)(2)
to provide that if a borrower and a
borrower’s spouse both have eligible
loans and filed a joint Federal tax
return, each borrower’s percentage of
the couple’s total eligible loan debt
would be determined, and the
calculated partial financial hardship
payment amount for each borrower
would be adjusted by multiplying the
payment by the applicable borrower’s
percentage. As with all other borrowers,
each borrower’s adjusted payment
amount would be further adjusted if the
borrower’s loans are held by multiple
holders.
We estimate that the proposed
regulations will increase burden for loan
holders by 90,286 hours in OMB Control
Number 1845–0020.
Sections 682.202, 682.302, and
685.202—Applicability of the
Servicemembers Civil Relief Act
(SCRA) to FFEL and Direct Loan
Program Loans
The proposed regulations would
revise §§ 682.202 and 685.202 to
provide that, effective August 14, 2008,
upon a loan holder’s receipt of a written
request from a borrower and a copy of
the borrower’s military orders, the
maximum interest rate (as defined in 50
U.S.C. 527, App, section 207(d)) that
may be charged on FFEL or Direct Loan
program loans made prior to the
borrower entering active duty status is
six percent while the borrower is on
active duty status. The proposed
regulations would also revise § 682.302
of the FFEL regulations by adding a new
paragraph (h) that specifies that, for
FFEL loans first disbursed on or after
July 1, 2008, that are subject to the
SCRA interest rate cap, the FFEL
lender’s special allowance payment is
calculated as it otherwise would be
under program requirements, except
that the applicable interest rate used is
six percent.
We estimate that the proposed
regulations will increase burden for
borrowers by 1,694 hours and for loan

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holders by 542 hours in new OMB
Control Number 1845–XXX1. We
estimate that the proposed regulations
will increase burden for borrowers by
563 hours in new OMB Control Number
1845–XXX2.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

Sections 682.210 and 685.204—InSchool Deferment
The proposed regulations would
revise § 682.210(a)(3) of the FFEL
regulations to provide that if a borrower
is responsible for the interest on a loan
during a deferment period, the lender, at
or before the time the deferment is
granted, must notify the borrower that
he or she has the option to pay the
accruing interest or cancel the
deferment and continue paying on the
loan. The lender would also be required
to provide information, including an
example, on the impact on a borrower’s
loan debt of capitalization of accrued
unpaid interest and on the total amount
of interest to be paid over the life of the
loan. A similar notification provision
that applied only to the granting of inschool deferments would be removed
from § 682.210(c)(2) of the FFEL
regulations. A comparable change
would be made in § 685.204(b)(1)(iii)(B)
of the Direct Loan regulations to provide
that borrowers will be notified of their
option to cancel a deferment and
continue paying on the loan and will be
provided with information on the
impact of capitalization, including an
example.
The proposed changes to §§ 682.210
and 685.204 affect borrowers and loan
holders (and their servicers). The FFEL
and Direct Loan deferment request
forms currently approved under OMB
Control Numbers 1845–0005 and 1845–
0011 already include the information
that a loan holder must provide to a
borrower at or before the time a
deferment is granted, as described
above. Therefore, there is no increase in
burden associated with the proposed
regulations.
Sections 682.216 and 685.217—FFEL
and Direct Loan Program Teacher Loan
Forgiveness
The proposed regulations would
allow a borrower who otherwise meets
the eligibility requirements for teacher
loan forgiveness to receive forgiveness
based on teaching service performed at
one or more eligible elementary or
secondary schools that serve lowincome families, or one or more eligible
educational service agencies that serve
low-income families. A borrower could
also qualify based on teaching service
performed at a combination of eligible
elementary or secondary schools and
eligible educational service agencies. To

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be considered eligible for teacher loan
forgiveness purposes, an educational
service agency would have to meet the
same eligibility requirements that apply
to elementary and secondary schools.
The proposed changes will increase
the number of borrowers who are
eligible for teacher loan forgiveness, and
will require a revision of the FFEL and
Direct Loan Program Teacher Loan
Forgiveness Application that is
currently approved under OMB Control
Number 1845–0059. The Department
will submit a change request for 1845–
0059 (including an adjustment to the
burden hours associated with this
collection) after the final regulations
have been published.
Section 682.205—Disclosure
Requirements for Lenders
The proposed regulations would
reorganize and expand § 682.205 to
reflect new disclosure requirements
added by the HEOA. The HEOA added
additional disclosures by lenders before
disbursement and requires new
disclosures at differing points in the
borrower’s repayment cycle. The HEOA
also added a separate set of disclosures
specifically for Consolidation loan
borrowers.
We estimate that the proposed
regulations will increase burden for loan
holders (and their servicers) by 797,661
hours in OMB Control Number 1845–
0020.
Section 682.208—Information to
Borrowers Upon Transfer, Sale or
Assignment of a FFEL Program Loan
The proposed regulations incorporate
three additional information items
specified in the HEA that must be
provided to a borrower if the assignment
or transfer of an ownership interest in
a FFEL program loan results in a change
in the identity of the party to whom
subsequent payments must be sent. The
three additional data items are: (1) The
effective date of the assignment or
transfer of the loan; (2) the date on
which the current loan servicer will
cease accepting payments; and (3) the
date on which the new loan servicer
will begin accepting payments. The date
on which the current servicer will stop
accepting payments is required only if
that is applicable.
Loan holders are already required,
under current regulations, to provide
certain information to a borrower if the
assignment of a FFEL Program loan
results in a change in the identity of the
party to whom the borrower must send
payments. The proposed regulations
merely add three additional items to the
notice that a loan holder is already
required to provide. Therefore, the

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Department believes that the proposed
regulations will not significantly
increase burden for loan holders (and
their servicers) in OMB Control Number
1845–0020.
Section 682.211—Forbearance
Section 682.211(e) of the proposed
regulations would require the lender, at
the time the borrower is granted a
forbearance, to give the borrower
information about the impact of
capitalization of interest on the loan and
the total amount to be repaid over the
life of the loan. The proposed
regulations would also require the
lender to contact the borrower at least
once every 180 days during any period
of forbearance and to give the borrower
or endorser more specific information,
in conjunction with that required under
existing regulations, as to the impact of
forbearance on the loan. This
information includes the amount of
interest that will be capitalized and
when that capitalization will take place
and the option of the borrower or
endorser to pay the interest that has
accrued before it is capitalized.
We estimate that the proposed
regulations will increase burden for loan
holders (and their servicers) by 215,734
hours in OMB Control Number 1845–
0020.
Sections 682.305 and 682.601—Audit
Requirements for a FFEL School Lender
or an Eligible Lender Trustee (ELT)
The proposed regulations would
revise § 682.305(c) to require that a
FFEL school lender, or a lender serving
as a trustee on behalf of a school or
school-affiliated organization for the
purpose of originating loans, submit an
annual compliance audit to the
Department regardless of the dollar
volume of loans originated. The
proposed regulations also require that
the audit be conducted by a qualified,
independent organization or person. A
new proposed § 682.305(c)(2)(vii) would
govern the compliance audit of a school
or school-affiliated organization lender
trustee. The proposed regulations
require that the trustee’s audit include
a determination that the school for
whom the lender serves as trustee used
all the proceeds from special allowance
payments, interest subsidies received
from the Department, and any proceeds
from the sale or other disposition of the
loans originated through the lender for
need-based grants, and that those funds
supplemented, but did not supplant,
other Federal or non-Federal funds
otherwise available to the school to
make need-based grants to its students.
The proposed regulations also require
that the audit determine that no more

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
than a reasonable portion of the
payments and proceeds from the loans
were used for direct administrative
expenses in accordance with
§ 682.601(b) of the current regulations.
These same requirements with regard to
annual compliance audit determinations
were also added to the FFEL school
lender audit requirements in
§ 682.601(a)(7) of the regulations.
We estimate that the proposed
regulations will increase burden for
institutions by 7,200 hours and for loan
holders (and their servicers) by 10,900
hours for a total increase in burden of
18,100 hours in OMB Control Number
1845–0020.
Section 682.401—Consumer Education
Information Provided by Guaranty
Agencies
The proposed regulations require
guaranty agencies to work with the
schools that it serves to develop and
make available high-quality educational
materials and programs that provide
training for students and their families
in budgeting and financial management,
including debt management and other
aspects of financial literacy, such as the
cost of using high-interest loans to pay
for postsecondary education, and how
budgeting and financial management
relate to the title IV student loan
programs.
We estimate that the proposed
regulations will increase burden for
institutions and guaranty agencies by
8,748 hours in OMB Control Number
1845–0020.
Regulatory section

The proposed regulations would
revise § 682.405, regarding loan
rehabilitation agreements, by adding a
provision requiring guaranty agencies to
make available financial and economic
education materials, including debt
management information, to any
borrower who has rehabilitated a
defaulted loan.
We estimate that the proposed
regulations will increase burden for
guaranty agencies by 24,427 hours in
OMB Control Number 1845–0020.
Section 682.405—Consumer Credit
Reporting Following Loan
Rehabilitation
If a borrower successfully
rehabilitates a previously defaulted
loan, the proposed regulations would
require the prior holder of the loan, in
addition to the guaranty agency, to
request that a consumer reporting
agency to which the default was
reported remove the default from the
borrower’s credit history. The proposed
regulations would also provide more
detailed reporting deadlines for the
guaranty agency and prior loan holder
to request removal of the report of the
default from the borrower’s credit
history, and would reduce the overall
period for this activity from 90 to 75
days.
We estimate that the proposed
regulations will increase burden for
guaranty agencies by 18,392 hours in
OMB Control Number 1845–0020.

Section 682.410—Notifications to
Borrowers in Default
The proposed regulations would
expand the information that must be
provided in the notice required under
§ 682.410(b)(5)(ii) to include
information on the options that are
available to the borrower to remove the
loan from default, including an
explanation of the fees and conditions
associated with each option. The
proposed regulations would also require
a guaranty agency to provide this same
information to a defaulted borrower in
a second notice that the guaranty agency
must send as part of its required
collection efforts on a defaulted loan
under § 682.410(b)(6). The second
notice would have to be sent within a
reasonable time after the end of the
period during which the borrower may
request an administrative review as
specified in § 682.410(b)(5)(iv)(B) or, if
the borrower has requested an
administrative review, within a
reasonable time following the
conclusion of the administrative review.
We estimate that the proposed
regulations will increase burden for
guaranty agencies by 58,793 hours in
OMB Control Number 1845–0020.
Consistent with the discussion above,
the following chart describes the
sections of the proposed regulations
involving information collections, the
information being collected, and the
collections that the Department will
submit to the Office of Management and
Budget for approval and public
comment under the Paperwork
Reduction Act.

Information collection

Collection

674.61, 682.402, and
685.213.

The proposed regulations would revise the loan discharge process for borrowers seeking to have their
title IV loans discharged based on total and permanent disability. Borrowers who apply for a total and
permanent disability discharge must complete a discharge application that collects the information needed to determine their eligibility for discharge.

682.206 ...............................

§ 682.206(f) would be amended to include a requirement that the lender provide a Consolidation loan
borrower a period of not less than 10 days, from the
date the borrower is notified by the lender that it is
ready to make the Consolidation loan, to cancel the
loan.
The proposed regulations implement new deferment
provisions for FFEL and Direct PLUS loan borrowers
with loans first disbursed on or after July 1, 2008 that
were added to the HEA by the HEOA. A loan holder
must collect the information needed to determine that
a borrower is eligible for a deferment.

OMB 1845–0065. The Discharge Application: Total and
Permanent Disability that is currently approved under
1845–0065 will be revised to reflect the final regulations that will be published by November 1, 2009.
The Department will submit a revised form for clearance after the final regulations have been published.
The revised form will not be needed until July 1,
2010, the effective date of the final regulations.
OMB 1845–0020.

682.210, 682.211, 685.204
and 685.205.
srobinson on DSKHWCL6B1PROD with PROPOSALS2

Section 682.405—Financial and
Economic Literacy for Rehabilitated
Borrowers

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OMB 1845–0005, 1845–0011 and 1845–0020. The
FFEL and Direct Loan deferment request forms were
previously revised to include the new deferments for
PLUS borrowers and have been approved under
OMB Control Numbers 1845–0005 (FFEL) and 1845–
0011 (Direct Loan).

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Regulatory section
682.202, 682.302, and
685.202.

682.210 and 685.204 ..........

682.215 and 685.221 ..........

682.216 and 685.217 ..........

682.205 ...............................

682.208 ...............................

682.211 ...............................

682.305 and 682.601 ..........

682.401 ...............................

srobinson on DSKHWCL6B1PROD with PROPOSALS2

682.405 ...............................

682.405 ...............................

682.410 ...............................

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Information collection

Collection

The proposed regulations provide that, effective August
14, 2008, upon a loan holder’s receipt of a written request from a borrower and a copy of the borrower’s
military orders, the maximum interest rate that may
be charged on FFEL or Direct Loan program loans
made prior to the borrower entering active duty status
is six percent while the borrower is on active duty
status.
The proposed regulations would require a loan holder
to provide information about interest capitalization to
a borrower prior to or at the time of granting a
deferment on an unsubsidized loan.

OMB 1845–XXX1 and 1845–XXX2. These will be new
collections. A separate 60-day Federal Register Notice will be published to solicit comments.

The proposed regulations would revise the definition of
partial financial hardship for purposes of determining
a borrower’s eligibility for the income-based repayment plan and would also revise the provisions governing a loan holder’s calculation of a borrower’s income-based payment amount.
The proposed regulations would expand eligibility for
teacher loan forgiveness to allow a borrower who otherwise meets the loan forgiveness eligibility requirements to receive forgiveness based on teaching service performed at one or more eligible educational
service agencies that serve low-income families.

The proposed regulations implement new statutory requirements for lenders to disclosure certain information to borrowers at various points during the lifecycle
of a borrower’s loan. The proposed regulations also
add new lender disclosure requirements for consolidation loan borrowers.
The proposed regulations incorporate three additional
information items that must be provided to a borrower
if the assignment or transfer of an ownership interest
in a FFEL program loan results in a change in the
identity of the party to whom subsequent payments
must be sent.
The proposed regulations would require the lender, at
the time the borrower is granted a forbearance, to
give the borrower information about the impact of
capitalization of interest on the loan and the total to
be repaid over the life of the loan.
The proposed regulations would amend § 682.305(c) to
require that a FFEL school lender, or a lender serving
as a trustee on behalf of a school or school-affiliated
organization for the purpose of originating loans, submit an annual compliance audit to the Department regardless of the dollar volume of loans originated.
The proposed regulations require guaranty agencies to
work with the schools that it serves to develop and
make available high-quality educational materials and
programs to provide training for students and their
families in budgeting and financial management, including debt management and other aspects of financial literacy, such as the cost of using high-interest
loans to pay for postsecondary education, and how
budgeting and financial management relate to the title
IV student loan programs.
The proposed regulations would require guaranty agencies to provide certain information to borrowers who
have rehabilitated defaulted loans.
The proposed regulations would require the prior holder
of a previously defaulted loan, in addition to the guaranty agency, to request that consumer reporting
agencies remove the record of the default from the
borrower’s credit history after the borrower has successfully rehabilitated the loan.
The proposed regulations require guaranty agencies to
provide certain additional notifications to borrowers
who are in default.

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OMB 1845–0005 and 1845–0011. These collections
(FFEL and Direct Loan Program deferment request
forms) were previously revised to include the required
information about interest capitalization and have
been approved by OMB.
OMB 1845–0020.

OMB 1845–0059. The proposed changes will require a
revision of the FFEL and Direct Loan Program
Teacher Loan Forgiveness Application currently approved under OMB Control Number 1845–0059. The
Department will submit a change request for 1845–
0059 (including an adjustment to the burden hours
associated with this collection) after the final regulations have been published.
OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

OMB 1845–0020.

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If you want to comment on the
proposed information collection
requirements, please send your
comments to the Office of Information
and Regulatory Affairs, OMB, Attention:
Desk Officer for U.S. Department of
Education. Send these comments by
e-mail to [email protected]
or by fax to (202) 395–6974. You may
also send a copy of these comments to
the Department contact named in the
ADDRESSES 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
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 collections of
information contained in these
proposed 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. This does not affect
the deadline for your comments to us on
the proposed regulations.
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.

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(Catalog of Federal Domestic Assistance
Numbers: 84.032 Federal Family Education
Loan Program; 84.038 Federal Perkins Loan
Program; 84.268 William D. Ford Federal
Direct Loan Program)

List of Subjects in 34 CFR 674, 682 and
685
Administrative practice and
procedure, Colleges and universities,
Education, Loan programs—education,
Reporting and recordkeeping
requirements, Student aid, Vocational
education.
Dated: July 13, 2009.
Arne Duncan,
Secretary of Education.

For the reasons discussed in the
preamble, the Secretary proposes to
amend 34 CFR chapter VI as follows:
PART 674—FEDERAL PERKINS LOAN
PROGRAM
1. 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.

2. Section 674.9 is amended by:
A. Revising paragraph (g).
B. In the introductory text of
paragraph (h), removing the words
‘‘based on’’ and adding, in their place,
the word ‘‘after’’, and adding the words
‘‘based on a discharge request received
prior to July 1, 2010’’ immediately after
the word ‘‘disabled’’.
C. In paragraph (h)(1), removing the
words ‘‘paragraphs (h)(1) and (h)(2)’’
and adding, in their place, the words
‘‘paragraphs (g)(1) and (g)(2)’’.
D. In paragraph (h)(2)(ii), removing
the words ‘‘, as described in
§ 674.61(b)(9)’’ immediately after the
word ‘‘period’’.
E. In the second sentence of paragraph
(i), removing the words ‘‘described in
§§ 674.61(b), 682.402(e), or 685.213(a)’’
immediately after the word ‘‘period’’.
The revision reads as follows:
§ 674.9

Student eligibility.

*

*
*
*
*
(g) In the case of a borrower whose
prior loan under title IV of the Act was
discharged after a final determination of
total and permanent disability—
(1) Obtains a certification from a
physician that the borrower is able to
engage in substantial gainful activity;
(2) Signs a statement acknowledging
that any new Federal Perkins Loan the
borrower receives cannot be discharged
in the future on the basis of any present
impairment, unless that condition
substantially deteriorates; and
(3) If the borrower receives a new
Federal Perkins Loan within three years
of the date that any previous title IV

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loan or TEACH Grant service obligation
was discharged due to a total and
permanent disability in accordance with
§ 674.61(b)(3)(i), 34 CFR 682.402(c), 34
CFR 685.213, or 34 CFR 686.42(b) based
on a discharge request received on or
after July 1, 2010, resumes repayment
on the previously discharged loan in
accordance with § 674.61(b)(5), 34 CFR
682.402(c)(5), or 34 CFR 685.213(b)(4),
or acknowledges that he or she is once
again subject to the terms of the TEACH
Grant agreement to serve before
receiving the new loan.
*
*
*
*
*
3. Section 674.51 is amended by:
A. Revising paragraph (d).
B. Redesignating paragraphs (e)
through (s) as follows:
Old paragraph
674.51(e) ...........................
674.51(f) ............................
674.51(g) ...........................
674.51(h) ...........................
674.51(i) .............................
674.51(j) .............................
674.51(k) ............................
674.51(l) .............................
674.51(m) ..........................
674.51(n) ...........................
674.51(o) ...........................
674.51(p) ...........................
674.51(q) ...........................
674.51(r) ............................
674.51(s) ............................

New paragraph
674.51(f)
674.51(h)
674.51(l)
674.51(m)
674.51(n)
674.51(p)
674.51(q)
674.51(r)
674.51(s)
674.51(t)
674.51(u)
674.51(w)
674.51(y)
674.51(z)
674.51(aa)

C. Adding new paragraphs (e), (g), (i),
(j), (k), (o), (v), (x), and (bb).
D. In newly redesignated paragraph
(f), removing the number ‘‘672(2)’’, and
adding, in its place, the number
‘‘632(4)’’.
E. Revising newly redesignated
paragraph (n).
F. In newly redesignated paragraph
(t), by removing the number ‘‘672(2)’’,
and adding, in its place, the number
‘‘632’’.
G. Revising newly redesignated
paragraph (aa).
H. Revising the authority citation that
appears at the end of the section.
The revisions and additions read as
follows:
§ 674.51

Special definitions.

*

*
*
*
*
(d) Child with a disability: A child or
youth from ages 3 through 21, inclusive,
who requires special education and
related services because he or she has
one or more disabilities as defined in
section 602(3) of the Individuals with
Disabilities Education Act.
(e) Community defender
organizations: A defender organization
established in accordance with section

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3006A(g)(2)(B) of title 18, United States
Code.
*
*
*
*
*
(g) Educational service agency: A
regional public multi-service agency
authorized by State law to develop,
manage, and provide services or
programs to local educational agencies
as defined in section 9101 of the
Elementary and Secondary Education
Act of 1965, as amended.
*
*
*
*
*
(i) Faculty member at a Tribal College
or University: An educator or tenured
individual who is employed by a Tribal
College or University, as that term is
defined in section 316 of the HEA, to
teach, research, or perform
administrative functions. For purposes
of this definition an educator may be an
instructor, lecturer, lab faculty, assistant
professor, associate professor, or full
professor, dean or academic department
head.
(j) Federal public defender
organization: A defender organization
established in accordance with section
3006A(g)(2)(A) of title 18, United States
Code.
(k) Firefighter: A firefighter is an
individual who is employed by a
Federal, State, or local firefighting
agency to extinguish destructive fires; or
provide firefighting related services
such as—
(1) Providing community disaster
support and, as a first responder,
providing emergency medical services;
(2) Conducting search and rescue; or
(3) Providing hazardous materials
mitigation (HAZMAT).
*
*
*
*
*
(n) Infant or toddler with a disability:
An infant or toddler from birth to age 2,
inclusive, who needs early intervention
services for specified reasons, as defined
in section 632(5)(A) of the Individuals
with Disabilities Education Act.
(o) Librarian with a master’s degree: A
librarian with a master’s degree is an
information professional trained in
library or information science who has
obtained a postgraduate academic
degree in library science awarded after
the completion of an academic program
of up to six years in duration, excluding
a doctorate or professional degree.
*
*
*
*
*
(v) Speech language pathologist with
a master’s degree: An individual who
evaluates or treats disorders that affect
a person’s speech, language, cognition,
voice, swallowing and the rehabilitative
or corrective treatment of physical or
cognitive deficits/disorders resulting in
difficulty with communication,
swallowing, or both.
*
*
*
*
*

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(x) Substantial gainful activity: A
level of work performed for pay or profit
that involves doing significant physical
or mental activities, or a combination of
both.
*
*
*
*
*
(aa) Total and permanent disability:
The condition of an individual who—
(1) Is unable to engage in any
substantial gainful activity by reason of
any medically determinable physical or
mental impairment that—
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period
of not less than 60 months; or
(iii) Can be expected to last for a
continuous period of not less than 60
months; or
(2) Has been determined by the
Secretary of Veterans Affairs to be
unemployable due to a serviceconnected disability.
(bb) Tribal College or University: An
institution that—
(1) Qualifies for funding under the
Tribally Controlled Colleges and
Universities Assistance Act of 1978 (25
U.S.C. 1801 et seq.) or the Navajo
Community College Assistance Act of
1978 (25 U.S.C. 640a note); or
(2) Is cited in section 532 of the
Equity in Education Land Grant Status
Act of 1994 (7 U.S.C. 301 note).
*
*
*
*
*
4. Section 674.61 is amended by:
A. Revising paragraph (b).
B. Redesignating paragraphs (c) and
(d) as paragraphs (d) and (e),
respectively.
C. Adding a new paragraph (c).
The revision and addition read as
follows:
§ 674.61

Discharge for death or disability.

*

*
*
*
*
(b) Total and permanent disability as
defined in § 674.51(aa)(1)—
(1) General. A borrower’s Defense,
NDSL, or Perkins loan is discharged if
the borrower becomes totally and
permanently disabled, as defined in
§ 674.51(aa)(1), and satisfies the
additional eligibility requirements
contained in this section.
(2) Discharge application process for
borrowers who have a total and
permanent disability as defined in
§ 674.51(aa)(1). (i) To qualify for
discharge of a Defense, NDSL, or
Perkins loan based on a total and
permanent disability as defined in
§ 674.51(aa)(1), a borrower must submit
a discharge application approved by the
Secretary to the institution that holds
the loan.
(ii) The application must contain a
certification by a physician, who is a
doctor of medicine or osteopathy legally

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authorized to practice in a State, that the
borrower is totally and permanently
disabled as defined in § 674.51(aa)(1).
(iii) The borrower must submit the
application to the institution within 90
days of the date the physician certifies
the application.
(iv) Upon receiving the borrower’s
complete application, the institution
must suspend collection activity on the
loan and inform the borrower that—
(A) The institution will review the
application and assign the loan to the
Secretary for an eligibility
determination if the institution
determines that the certification
supports the conclusion that the
borrower is totally and permanently
disabled, as defined in § 674.51(aa)(1);
(B) The institution will resume
collection on the loan if the institution
determines that the certification does
not support the conclusion that the
borrower is totally and permanently
disabled; and
(C) If the Secretary discharges the loan
based on a determination that the
borrower is totally and permanently
disabled, as defined in § 674.51(aa)(1),
the Secretary will reinstate the
borrower’s obligation to repay the loan
if, within three years after the date the
Secretary granted the discharge, the
borrower—
(1) Has annual earnings from
employment that exceed 100 percent of
the poverty line for a family of two, as
determined in accordance with the
Community Service Block Grant Act;
(2) Receives a new TEACH Grant or a
new loan under the Perkins, FFEL, or
Direct Loan programs, except for an
FFEL or Direct Consolidation Loan that
includes loans that were not discharged;
or
(3) Fails to ensure that the full amount
of any disbursement of a Title IV loan
or TEACH Grant received prior to the
discharge date that is made during the
three-year period following the
discharge date is returned to the loan
holder or to the Secretary, as applicable,
within 120 days of the disbursement
date.
(v) If, after reviewing the borrower’s
application, the institution determines
that the application is complete and
supports the conclusion that the
borrower is totally and permanently
disabled as defined in § 674.51(aa)(1),
the institution must assign the loan to
the Secretary.
(vi) At the time the loan is assigned
to the Secretary, the institution must
notify the borrower that the loan has
been assigned to the Secretary for
determination of eligibility for a total
and permanent disability discharge and
that no payments are due on the loan.

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(3) Secretary’s eligibility
determination. (i) If the Secretary
determines that the borrower is totally
and permanently disabled as defined in
§ 674.51(aa)(1), the Secretary discharges
the borrower’s obligation to make
further payments on the loan and
notifies the borrower that the loan has
been discharged. The notification to the
borrower explains the terms and
conditions under which the borrower’s
obligation to repay the loan will be
reinstated, as specified in paragraph
(b)(5) of this section.
(ii) If the Secretary determines that
the certification provided by the
borrower does not support the
conclusion that the borrower is totally
and permanently disabled as defined in
§ 674.51(aa)(1), the Secretary notifies the
borrower that the application for a
disability discharge has been denied,
and that the loan is due and payable to
the Secretary under the terms of the
promissory note.
(iii) The Secretary reserves the right to
require the borrower to submit
additional medical evidence if the
Secretary determines that the borrower’s
application does not conclusively prove
that the borrower is totally and
permanently disabled as defined in
§ 674.51(aa)(1). As part of the
Secretary’s review of the borrower’s
discharge application, the Secretary may
arrange for an additional review of the
borrower’s condition by an independent
physician at no expense to the borrower.
(4) Treatment of disbursements made
during the period from the date of the
physician’s certification until the date of
discharge. If a borrower received a Title
IV loan or TEACH Grant prior to the
date the physician certified the
borrower’s discharge application and a
disbursement of that loan or grant is
made during the period from the date of
the physician’s certification until the
date the Secretary grants a discharge
under this section, the processing of the
borrower’s loan discharge request will
be suspended until the borrower
ensures that the full amount of the
disbursement has been returned to the
loan holder or to the Secretary, as
applicable.
(5) Conditions for reinstatement of a
loan after a total and permanent
disability discharge. (i) The Secretary
reinstates a borrower’s obligation to
repay a loan that was discharged in
accordance with paragraph (b)(3)(i) of
this section if, within three years after
the date the Secretary granted the
discharge, the borrower—
(A) Has annual earnings from
employment that exceed 100 percent of
the poverty line for a family of two, as

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determined in accordance with the
Community Service Block Grant Act;
(B) Receives a new TEACH Grant or
a new loan under the Perkins, FFEL or
Direct Loan programs, except for an
FFEL or Direct Consolidation Loan that
includes loans that were not discharged;
or
(C) Fails to ensure that the full
amount of any disbursement of a Title
IV loan or TEACH Grant received prior
to the discharge date that is made
during the three-year period following
the discharge date is returned to the
loan holder or to the Secretary, as
applicable, within 120 days of the
disbursement date.
(ii) If a borrower’s obligation to repay
a loan is reinstated, the Secretary—
(A) Notifies the borrower that the loan
has been reinstated; and
(B) Does not require the borrower to
pay interest on the loan for the period
from the date the loan was discharged
until the date the loan was reinstated.
(iii) The Secretary’s notification under
paragraph (b)(5)(ii)(A) of this section
will include—
(A) The reason or reasons for the
reinstatement;
(B) An explanation that the first
payment due date on the loan following
reinstatement will be no earlier than 60
days after the date of the notification of
reinstatement; and
(C) Information on how the borrower
may contact the Secretary if the
borrower has questions about the
reinstatement or believes that the
obligation to repay the loan was
reinstated based on incorrect
information.
(6) Borrower’s responsibilities after a
total and permanent disability
discharge. During the three-year period
described in paragraph (b)(5)(i) of this
section, the borrower or, if applicable,
the borrower’s representative—
(i) Must promptly notify the Secretary
of any changes in address or phone
number;
(ii) Must promptly notify the
Secretary if the borrower’s annual
earnings from employment exceed the
amount specified in paragraph
(b)(5)(i)(A) of this section; and
(iii) Must provide the Secretary, upon
request, with documentation of the
borrower’s annual earnings from
employment.
(7) Payments received after the
physician’s certification of total and
permanent disability. (i) If, after the date
the physician certifies the borrower’s
loan discharge application, the
institution receives any payments from
or on behalf of the borrower on or
attributable to a loan that was assigned
to the Secretary for determination of

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36587

eligibility for a total and permanent
disability discharge, the institution must
forward those payments to the Secretary
for crediting to the borrower’s account.
(ii) At the same time that the
institution forwards the payment, it
must notify the borrower that there is no
obligation to make payments on the loan
prior to the Secretary’s determination of
eligibility for a total and permanent
disability discharge, unless the
Secretary directs the borrower
otherwise.
(iii) When the Secretary makes a
determination to discharge the loan, the
Secretary returns any payments received
on the loan after the date the physician
certified the borrower’s loan discharge
application to the person who made the
payments on the loan.
(c) Total and permanent disability
discharges for veterans—(1) General. A
veteran’s Defense, NDSL, or Perkins
loan will be discharged if the veteran is
totally and permanently disabled, as
defined in § 674.51(aa)(2).
(2) Discharge application process for
veterans who have a total and
permanent disability as defined in
§ 674.51(aa)(2). (i) To qualify for
discharge of a Defense, NDSL, or
Perkins loan based on a total and
permanent disability as defined in
§ 674.51(aa)(2), a veteran must submit a
discharge application approved by the
Secretary to the institution that holds
the loan.
(ii) With the application, the veteran
must submit documentation from the
Department of Veterans Affairs showing
that the Department of Veterans Affairs
has determined that the veteran is
unemployable due to a serviceconnected disability. The veteran will
not be required to provide any
additional documentation related to the
veteran’s disability.
(iii) Upon receiving the veteran’s
completed application and the required
documentation from the Department of
Veterans Affairs, the institution must
suspend collection activity on the loan
and inform the veteran that—
(A) The institution will review the
application and submit the application
and supporting documentation to the
Secretary for an eligibility
determination if the documentation
from the Department of Veterans Affairs
indicates that the veteran is totally and
permanently disabled as defined in
§ 674.51(aa)(2);
(B) The institution will resume
collection on the loan if the
documentation from the Department of
Veterans Affairs does not indicate that
the veteran is totally and permanently
disabled as defined in § 674.51(aa)(2);
and

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(C) If the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and
permanently disabled as defined in
§ 674.51(aa)(2), but the documentation
indicates that the veteran may be totally
and permanently disabled as defined in
§ 674.51(aa)(1), the veteran may reapply
for a total and permanent disability
discharge in accordance with the
procedures described in § 674.61(b).
(iv) If the documentation from the
Department of Veterans Affairs indicates
that the veteran is totally and
permanently disabled as defined in
§ 674.51(aa)(2), the institution must
submit a copy of the veteran’s
application and the documentation from
the Department of Veterans Affairs to
the Secretary. At the time the
application and documentation are
submitted to the Secretary, the
institution must notify the veteran that
the veteran’s discharge request has been
referred to the Secretary for
determination of discharge eligibility
and that no payments are due on the
loan.
(v) If the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and
permanently disabled as defined in
§ 674.51(aa)(2), the institution must
resume collection on the loan.
(4) Secretary’s determination of
eligibility. (i) If the Secretary
determines, based on a review of the
documentation from the Department of
Veterans Affairs, that the veteran is
totally and permanently disabled as
defined in § 674.51(aa)(2), the Secretary
notifies the institution of this
determination, and the institution
must—
(A) Discharge the veteran’s obligation
to make further payments on the loan;
and
(B) Return to the person who made
the payments on the loan any payments
received on or after the effective date of
the determination by the Department of
Veterans Affairs that the veteran is
unemployable due to a serviceconnected disability.
(ii) If the Secretary determines, based
on a review of the documentation from
the Department of Veterans Affairs, that
the veteran is not totally and
permanently disabled as defined in
§ 674.51(aa)(2), the Secretary notifies the
institution of this determination, and
the institution must resume collection
on the loan.
*
*
*
*
*

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PART 682—FEDERAL FAMILY
EDUCATION LOAN (FFEL) PROGRAM
5. The authority citation for part 682
continues to read as follows:
Authority: 20 U.S.C. 1071–1087–2 unless
otherwise noted.

6. Section 682.200(b) is amended by:
A. Revising paragraph (5) of the
definition of ‘‘Lender.’’
B. Removing the definition of
‘‘National credit bureau.’’
C. Adding a definition of ‘‘Nationwide
consumer reporting agency.’’
D. Adding a definition of ‘‘Substantial
gainful activity.’’
E. Revising the definition of ‘‘Totally
and permanently disabled.’’
The revisions and additions read as
follows:
§ 682.200

Definitions.

*

*
*
*
*
(b) * * *
Lender. * * *
(5)(i) The term eligible lender does not
include any lender that the Secretary
determines, after notice and opportunity
for a hearing before a designated
Department official, has, directly or
through an agent or contractor—
(A) Except as provided in paragraph
(5)(ii) of this definition, offered, directly
or indirectly, points, premiums,
payments (including payments for
referrals, finder fees or processing fees),
or other inducements to any school, any
employee of a school, or any other party
to secure applications for FFEL loans or
to secure FFEL loan volume. This
includes but is not limited to—
(1) Payments or offerings of other
benefits, including prizes or additional
financial aid funds, to a prospective
borrower or to a school or school
employee in exchange for applying for
or accepting a FFEL loan from the
lender;
(2) Payments or other benefits,
including payments of stock or other
securities, tuition payments or
reimbursements, to a school, a school
employee, any school-affiliated
organization, or to any other individual
in exchange for FFEL loan applications,
application referrals, or a specified
volume or dollar amount of loans made,
or placement on a school’s list of
recommended or suggested lenders;
(3) Payments or other benefits
provided to a student at a school who
acts as the lender’s representative to
secure FFEL loan applications from
individual prospective borrowers,
unless the student is also employed by
the lender for other purposes and
discloses that employment to school
administrators and to prospective
borrowers;

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(4) Payments or other benefits to a
loan solicitor or sales representative of
a lender who visits schools to solicit
individual prospective borrowers to
apply for FFEL loans from the lender;
(5) Payment to another lender or any
other party, including a school, a school
employee, or a school-affiliated
organization or its employees, of referral
fees, finder fees or processing fees,
except those processing fees necessary
to comply with Federal or State law;
(6) Compensation to an employee of a
school’s financial aid office or other
employee who has responsibilities with
respect to student loans or other
financial aid provided by the school or
compensation to a school-affiliated
organization or its employees, to serve
on a lender’s advisory board,
commission or other group established
by the lender, except that the lender
may reimburse the employee for
reasonable expenses incurred in
providing the service;
(7) Payment of conference or training
registration, travel, and lodging costs for
an employee of a school or schoolaffiliated organization;
(8) Payment of entertainment
expenses, including expenses for private
hospitality suites, tickets to shows or
sporting events, meals, alcoholic
beverages, and any lodging, rental,
transportation, and other gratuities
related to lender-sponsored activities for
employees of a school or a schoolaffiliated organization;
(9) Philanthropic activities, including
providing scholarships, grants,
restricted gifts, or financial
contributions in exchange for FFEL loan
applications or application referrals, or
a specified volume or dollar amount of
FFEL loans made, or placement on a
school’s list of recommended or
suggested lenders;
(10) Performance of, or payment to
another third party to perform, any
school function required under title IV,
except that the lender may perform exit
counseling as provided in § 682.604(g),
and may provide services to
participating foreign schools at the
direction of the Secretary, as a thirdparty servicer; and
(11) Any type of consulting
arrangement or other contract with an
employee of a financial aid office at a
school, or an employee of a school who
otherwise has responsibilities with
respect to student loans or other
financial aid provided by the school
under which the employee would
provide services to the lender.
(B) Conducted unsolicited mailings,
by postal or electronic means, of student
loan application forms to students
enrolled in secondary schools or

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postsecondary institutions or to family
members of such students, except to a
student or borrower who previously has
received a FFEL loan from the lender;
(C) Offered, directly or indirectly, a
FFEL loan to a prospective borrower to
induce the purchase of a policy of
insurance or other product or service by
the borrower or other person; or
(D) Engaged in fraudulent or
misleading advertising with respect to
its FFEL loan activities.
(ii) Notwithstanding paragraph (5)(i)
of this definition, a lender, in carrying
out its role in the FFEL program and in
attempting to provide better service,
may provide—
(A) Technical assistance to a school
that is comparable to the kinds of
technical assistance provided to a
school by the Secretary under the Direct
Loan program, as identified by the
Secretary in a public announcement,
such as a notice in the Federal Register;
(B) Support of and participation in a
school’s or a guaranty agency’s student
aid and financial literacy-related
outreach activities, excluding in-person
entrance counseling, as long as the
name of the entity that developed and
paid for any materials is provided to the
participants and the lender does not
promote its student loan or other
products;
(C) Meals, refreshments, and
receptions that are reasonable in cost
and scheduled in conjunction with
training, meeting, or conference events
if those meals, refreshments, or
receptions are open to all training,
meeting, or conference attendees;
(D) Toll-free telephone numbers for
use by schools or others to obtain
information about FFEL loans and free
data transmission service for use by
schools to electronically submit
applicant loan processing information
or student status confirmation data;
(E) A reduced origination fee in
accordance with § 682.202(c);
(F) A reduced interest rate as
provided under the Act;
(G) Payment of Federal default fees in
accordance with the Act;
(H) Purchase of a loan made by
another lender at a premium;
(I) Other benefits to a borrower under
a repayment incentive program that
requires, at a minimum, one or more
scheduled payments to receive or retain
the benefit or under a loan forgiveness
program for public service or other
targeted purposes approved by the
Secretary, provided these benefits are
not marketed to secure loan applications
or loan guarantees;
(J) Items of nominal value to schools,
school-affiliated organizations, and
borrowers that are offered as a form of

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generalized marketing or advertising, or
to create good will; and
(K) Other services as identified and
approved by the Secretary through a
public announcement, such as a notice
in the Federal Register.
(iii) For the purposes of this
paragraph (5)—
(A) The term ‘‘school-affiliated
organization’’ is defined in § 682.200.
(B) The term ‘‘applications’’ includes
the Free Application for Federal Student
Aid (FAFSA), FFEL loan master
promissory notes, and FFEL
Consolidation loan application and
promissory notes.
(C) The term ‘‘other benefits’’
includes, but is not limited to,
preferential rates for or access to the
lender’s other financial products,
information technology equipment, or
non-loan processing or non-financial
aid-related computer software at below
market rental or purchase cost, and
printing and distribution of college
catalogs and other materials at reduced
or no cost.
*
*
*
*
*
Nationwide consumer reporting
agency. A consumer reporting agency as
defined in 15 U.S.C. 1681a.
*
*
*
*
*
Substantial gainful activity. A level of
work performed for pay or profit that
involves doing significant physical or
mental activities, or a combination of
both.
*
*
*
*
*
Totally and permanently disabled.
The condition of an individual who—
(1) Is unable to engage in any
substantial gainful activity by reason of
any medically determinable physical or
mental impairment that—
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period
of not less than 60 months; or
(iii) Can be expected to last for a
continuous period of not less than 60
months; or
(2) Has been determined by the
Secretary of Veterans Affairs to be
unemployable due to a serviceconnected disability.
*
*
*
*
*
7. Section 682.201 is amended by:
A. In paragraph (a)(4)(i), removing the
words ‘‘legal costs, and late charges’’
and adding, in their place, the words
‘‘court costs, attorney fees, and late
charges’’.
B. In paragraph (a)(5), removing the
words ‘‘under § 682.402(c)’’.
C. Revising paragraph (a)(6)(iii).
D. In the introductory text of
paragraph (a)(7), removing the words
‘‘based on’’ and adding, in their place,
the word ‘‘after’’, and adding the words

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‘‘based on a discharge request received
prior to July 1, 2010’’ immediately after
the word ‘‘disabled’’.
E. In paragraph (a)(7)(ii)(B), removing
the words ‘‘, as described in paragraph
682.402(c)(16)’’.
F. In paragraph (e)(4), adding the
words ‘‘is in default or’’ immediately
after the first appearance of the words
‘‘consolidation loan’’ and adding the
words ‘‘or an income-based repayment
plan’’ immediately after the words
‘‘income contingent repayment plan’’.
G. In paragraph (e)(5), adding the
words ‘‘, or the no accrual of interest
benefit for active duty service’’
immediately after the words ‘‘Public
Service Loan Forgiveness Program’’.
The revision reads as follows:
§ 682.201

Eligible borrowers.

(a) * * *
(6) * * *
(iii) If a borrower receives a new FFEL
loan within three years of the date that
any previous title IV loan or TEACH
Grant service obligation was discharged
due to a total and permanent disability
in accordance with § 682.402(c)(3)(ii),
34 CFR 674.61(b)(3)(i), 34 CFR 685.213,
or 34 CFR 686.42(b) based on a
discharge request received on or after
July 1, 2010, resume repayment on the
previously discharged loan in
accordance with § 682.402(c)(5), 34 CFR
674.61(b)(5), or 34 CFR 685.213(b)(4), or
acknowledge that he or she is once
again subject to the terms of the TEACH
Grant agreement to serve before
receiving the new loan.
*
*
*
*
*
8. Section 682.202 is amended by:
A. In the introductory text of
paragraph (a), adding the words ‘‘and
(a)(8)’’ after the reference ‘‘(a)(4)’’.
B. Adding a new paragraph (a)(8).
C. In paragraph (b)(2)(i), adding the
words ‘‘or, for a PLUS loan, for the
period from the date the first
disbursement was made to the date the
repayment period begins’’ immediately
before the semicolon.
The addition reads as follows:
§ 682.202 Permissible charges by lenders
to borrowers.

*

*
*
*
*
(a) * * *
(8) Applicability of the
Servicemembers Civil Relief Act (50
U.S.C. 527, App. sec. 207).
Notwithstanding paragraphs (a)(1)
through (a)(4) of this section, effective
August 14, 2008, upon the loan holder’s
receipt of the borrower’s written request
and a copy of the borrower’s military
orders, the maximum interest rate, as
defined in 50 U.S.C. 527, App. section
207(d), on FFEL Program loans made

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prior to the borrower entering active
duty status is 6 percent while the
borrower is on active duty military
service.
*
*
*
*
*
9. Section 682.205 is amended by:
A. In paragraph (a)(2)(vi), removing
the words ‘‘insurance premium’’ and
adding, in their place, the words
‘‘Federal default fee’’, and adding,
immediately before the semicolon, the
words ‘‘or paid by the lender’’.
B. In paragraph (a)(2)(ix), removing
the words ‘‘a national credit bureau’’
and adding, in their place, the words
‘‘each nationwide consumer reporting
agency’’.
C. In paragraph (a)(2)(x), adding,
immediately before the semicolon, the
words ‘‘, and a description of the types
of repayment plans available’’.
D. In paragraph (a)(2)(xvi), removing
the words ‘‘a national credit bureau’’
and adding, in their place, the words
‘‘each nationwide consumer reporting
agency’’.
E. In paragraph (a)(2)(xviii), removing
the words ‘‘in the making or’’ and
adding, in their place, the words
‘‘during repayment or in the’’; adding
the words ‘‘including any fees the
borrower may be charged’’ immediately
after the words ‘‘the loan,’’; and
removing the words ‘‘; and’’ at the end
of the paragraph and adding, in their
place, the punctuation ‘‘;’’.
F. In paragraph (a)(2)(xx), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
punctuation ‘‘;’’.
G. Adding new paragraphs (a)(2)(xxi),
(a)(2)(xxii), (a)(2)(xxiii), and (a)(2)(xxiv).
H. In paragraph (b), in the second
sentence, adding the words ‘‘, and that
the default will be reported to each
nationwide consumer reporting agency’’
immediately after the word ‘‘loan’’.
I. In paragraph (c), in the heading,
removing the words ‘‘Disclosure of
repayment’’ and adding, in their place,
the word ‘‘Repayment’’.
J. In paragraph (c)(1), adding the
heading ‘‘Disclosures at or prior to
repayment.’’ immediately after the
paragraph designation ‘‘(1)’’; removing
the words ‘‘Federal SLS’’ and adding, in
their place, the words ‘‘Federal PLUS’’;
and removing the words ‘‘240 days’’ and
adding, in their place, the words ‘‘150
days’’.
K. In paragraph (c)(2)(ii), adding the
words ‘‘, or a deferment under
§ 682.210(v), if applicable, is to end’’
immediately after the word ‘‘begin’’ at
the end of the sentence.
L. In paragraph (c)(2)(iii), adding the
words ‘‘a deferment under § 682.210(v),
if applicable, is to end,’’ immediately
after the word ‘‘begin’’.

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M. In paragraph (c)(2)(vi), adding the
words ‘‘based on the repayment
schedule selected by the borrower’’
immediately after the word ‘‘payments’’.
N. In paragraph (c)(2)(viii), adding the
words ‘‘if interest has been paid, the
amount of interest paid’’ immediately
after the words ‘‘; and’’.
O. In paragraph (c)(2)(ix), removing
the punctuation ‘‘.’’ at the end of the
sentence and adding, in its place, the
punctuation ‘‘;’’.
P. Adding new paragraphs (c)(2)(x),
(c)(2)(xi), (c)(2)(xii), (c)(2)(xiii) and
(c)(2)(xiv).
Q. Adding new paragraphs (c)(3),
(c)(4) and (c)(5).
R. In paragraph (d), adding the words
‘‘Federal Unsubsidized Stafford loan or
a’’ immediately after the words ‘‘In the
case of a’’ at the beginning of the first
sentence and removing the words ‘‘the
student’’ in the first sentence and
adding, in their place, the words ‘‘the
borrower or student on whose behalf the
loan is made’’.
S. Adding new paragraph (i).
T. Adding new paragraph (j).
The additions read as follows:
§ 682.205
lenders.

Disclosure requirements for

(a) * * *
(1) * * *
(2) * * *
(xxi) For unsubsidized Stafford or
student PLUS borrowers, an explanation
that the borrower may pay the interest
while in school and, if the interest is not
paid by the borrower while in school,
when and how often the interest will be
capitalized;
(xxii) For parent PLUS borrowers, an
explanation that the parent may defer
payment on the loan while the student
on whose behalf the parent borrowed is
enrolled at least half-time and, if the
parent does not pay interest while the
student is in school, when and how
often interest will be capitalized, and
that the parent may be eligible for a
deferment on the loan if the parent is
enrolled at least half-time;
(xxiii) A statement summarizing the
circumstances in which a borrower may
obtain forbearance on the loan; and
(xxiv) A description of the options
available for forgiveness of the loan and
the requirements to obtain that
forgiveness.
*
*
*
*
*
(c) * * *
(2) * * *
(x) Information on any special loan
repayment benefits offered on the loan,
including benefits that are contingent on
repayment behavior, and any other
special loan repayment benefits for
which the borrower may be eligible that

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would reduce the amount or length of
repayment; and at the request of the
borrower, an explanation of the effect of
a reduced interest rate on the borrower’s
total payoff amount and time for
repayment;
(xi) If the lender provides a repayment
benefit, any limitations on that benefit,
any circumstances in which the
borrower could lose that benefit, and
whether and how the borrower may
regain eligibility for the repayment
benefit;
(xii) A description of all the
repayment plans available to the
borrower and a statement that the
borrower may change plans during the
repayment period at least annually;
(xiii) A description of the options
available to the borrower to avoid or be
removed from default, as well as any
fees associated with those options; and
(xiv) Any additional resources,
including nonprofit organizations,
advocates and counselors, including the
Department of Education’s Student Loan
Ombudsman, the lender is aware of
where the borrower may obtain
additional advice and assistance on loan
repayment.
(3) Required disclosures during
repayment. In addition to the
disclosures required in paragraph (c)(1)
of this section, the lender must provide
the borrower of an FFEL loan with a bill
or statement that corresponds to each
payment installment time period in
which a payment is due that includes in
simple and understandable terms—
(i) The original principal amount of
the borrower’s loan;
(ii) The borrower’s current balance, as
of the time of the bill or statement;
(iii) The interest rate on the loan;
(iv) The total amount of interest for
the preceding installment paid by the
borrower;
(v) The aggregate amount paid by the
borrower on the loan, and separately
identifying the amount the borrower has
paid in interest on the loan, the amount
of fees the borrower has paid on the
loan, and the amount paid against the
balance in principal;
(vi) A description of each fee the
borrower has been charged for the most
recent preceding installment time
period;
(vii) The date by which a payment
must be made to avoid additional fees
and the amount of that payment and the
fees;
(viii) The lender’s or servicer’s
address and toll-free telephone number
for repayment options, payments and
billing error purposes; and
(ix) A reminder that the borrower may
change repayment plans, a list of all of
the repayment plans that are available to

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the borrower, a link to the Department
of Education’s Web site for repayment
plan information, and directions on how
the borrower may request a change in
repayment plans from the lender.
(4) Required disclosures for borrowers
having difficulty making payments. The
lender shall provide a borrower who has
notified the lender that he or she is
having difficulty making payments
with—
(i) A description of the repayment
plans available to the borrower, and
how the borrower may request a change
in repayment plan;
(ii) A description of the requirements
for obtaining forbearance on the loan
and any costs associated with
forbearance; and
(iii) A description of the options
available to the borrower to avoid
default and any fees or costs associated
with those options.
(5) Required disclosures for borrowers
who are 60-days delinquent in making
payments on a loan. (i) The lender shall
provide to a borrower who is 60 days
delinquent in making required
payments a notice of—
(A) The date on which the loan will
default if no payment is made;
(B) The minimum payment the
borrower must make, as of the date of
the notice, to avoid default, including
the payment amount needed to bring the
loan current or payment in full;
(C) A description of the options
available to the borrower to avoid
default, including deferment and
forbearance and any fees and costs
associated with those options;
(D) Any options for discharging the
loan that may be available to the
borrower; and
(E) Any additional resources,
including nonprofit organizations,
advocates and counselors, including the
Department of Education’s Student Loan
Ombudsman, the lender is aware of
where the borrower may obtain
additional advice and assistance on loan
repayment.
(ii) The notice must be sent within
five days of the date the borrower
becomes 60 days delinquent, unless the
lender has sent such a notice within the
previous 120 days.
*
*
*
*
*
(i) Separate disclosure for
Consolidation loans. At the time the
lender provides a Consolidation loan
application to a prospective borrower, it
must disclose to the prospective
borrower, in simple and understandable
terms—
(1) Whether consolidation will result
in a loss of loan benefits, including, but
not limited to, loan forgiveness,

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cancellation, deferment, or a reduced
interest rate on FFEL or Direct Loans
repaid through consolidation;
(2) If a borrower is repaying a Federal
Perkins Loan with the Consolidation
loan, that the borrower will lose—
(i) The interest-free periods available
on the Perkins Loan while the borrower
is enrolled in-school at least half-time,
in the grace period, or in a deferment
period; and
(ii) The cancellation benefits on the
Perkins Loan. The lender must provide
to the borrower a list of the Perkins
Loan cancellation benefits that would
not be available on the Consolidation
loan.
(3) The repayment plans available to
the borrower;
(4) The borrower’s options to prepay
the Consolidation loan, to pay the loan
on a shorter repayment schedule, and to
change repayment plans;
(5) That the borrower benefit
programs for a Consolidation loan vary
among lenders;
(6) The consequences of default on
the Consolidation loan; and
(7) That applying for the
Consolidation loan does not obligate the
borrower to agree to take the
Consolidation loan, and the process and
deadline by which the borrower may
cancel the Consolidation loan.
(j) Disclosure procedures when a
borrower’s address is not available. If a
lender receives information indicating it
does not know the borrower’s current
address, the lender is excused from
providing disclosure information under
this section unless it receives
communication indicating a valid
borrower address before the 241st day of
delinquency, at which point the lender
must resume providing the installment
bill or statement, and any other
disclosure information required under
this section not previously provided.
10. Section 682.206 is amended by
revising paragraph (f) to read as follows:
§ 682.206

Due diligence in making a loan.

*

*
*
*
*
(f) Additional requirements for
Consolidation loans. (1) Prior to making
any payments to pay off a loan with the
proceeds of a Consolidation loan, the
lender shall—
(i) Obtain from the holder of each loan
to be consolidated a certification with
respect to the loan held by the holder
that—
(A) The loan is a legal, valid, and
binding obligation of the borrower;
(B) The loan was made and serviced
in compliance with applicable laws and
regulations; and
(C) In the case of a FFEL loan, that the
guarantee on the loan is in full force and
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(ii) Consistent with the requirements
of § 682.205(i)(7), notify the borrower,
upon receipt of all information
necessary to make the Consolidation
loan, of the borrower’s option to cancel
the Consolidation loan, and the
deadline by which the borrower must
notify the lender that he or she wishes
to cancel the loan. The lender must
allow the borrower no less than 10 days
from the date of the notice to cancel the
loan.
(2) The Consolidation loan lender
may rely in good faith on the
certification provided under paragraph
(f)(1)(i) of this section by the holder of
a loan to be consolidated.
11. Section 682.208 is amended by:
A. In paragraph (e)(1) introductory
text, adding the words ‘‘or transfer of
ownership interest’’ immediately after
the word ‘‘assignment’’.
B. In paragraph (e)(1)(iii), removing
the word ‘‘and’’ after the semicolon.
C. In paragraph (e)(1)(iv), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
punctuation ‘‘;’’.
D. Adding new paragraphs (e)(1)(v),
(vi), and (vii).
The additions read as follows:
§ 682.208
loan.

Due diligence in servicing a

*

*
*
*
*
(e) * * *
(1) * * *
(v) The effective date of the
assignment or transfer of the loan;
(vi) The date, if applicable, on which
the current loan servicer will stop
accepting payments; and
(vii) The date on which the new loan
servicer will begin accepting payments.
*
*
*
*
*
§ 682.209

[Amended]

12. Section 682.209 is amended in
paragraph (a)(2)(v) by removing the
reference ‘‘(a)(2)(ii)’’ and adding, in its
place, the reference ‘‘(a)(2)(i)’’.
13. Section 682.210 is amended by:
A. In paragraph (a)(1)(i), adding the
words ‘‘and paragraphs (s) through (v)’’
after the words ‘‘paragraph (b)’’.
B. Revising paragraph (a)(3).
C. In paragraph (c)(1)(ii), removing the
word ‘‘or’’ at the end of the paragraph.
D. In paragraph (c)(1)(iii), removing
the punctuation ‘‘.’’ and adding, in its
place, ‘‘; or’’ at the end of the paragraph.
E. Adding a new paragraph (c)(1)(iv).
F. Revising paragraph (c)(2).
G. In paragraph (c)(3), removing the
word ‘‘SSCR’’ and adding, in its place,
the words ‘‘Student Status Confirmation
Report’’.
H. Adding a new paragraph (v).
The revisions and additions read as
follows:

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Deferment.

(a) * * *
(3)(i) Interest accrues and is paid by—
(A) The Secretary during the
deferment period for a subsidized
Stafford loan and for all or a portion of
a Consolidation loan that qualifies for
interest benefits under § 682.301; or
(B) The borrower during the
deferment period and, as applicable, the
post-deferment grace period, on all
other loans.
(ii) A borrower who is responsible for
payment of interest during a deferment
period must be notified by the lender,
at or before the time the deferment is
granted, that the borrower has the
option to pay the accruing interest or
cancel the deferment and continue
paying on the loan. The lender must
also provide information, including an
example, on the impact of capitalization
of accrued, unpaid interest on loan
principal, and on the total amount of
interest to be paid over the life of the
loan.
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(c) * * *
(1) * * *
(iv) The lender confirms a borrower’s
half-time enrollment status through the
use of the National Student Loan Data
System if requested to do so by the
school the borrower is attending.
(2) The lender must notify the
borrower that a deferment has been
granted based on paragraphs (c)(1)(ii),
(iii), or (iv) of this section and that the
borrower has the option to cancel the
deferment and continue paying on the
loan.
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(v) In-school deferments for PLUS
loan borrowers with loans first
disbursed on or after July 1, 2008. (1)(i)
A student PLUS borrower is entitled to
a deferment on a PLUS loan first
disbursed on or after July 1, 2008 during
the 6-month period that begins on the
day after the student ceases to be
enrolled on at least a half-time basis at
an eligible institution.
(ii) If a lender grants an in-school
deferment to a student PLUS borrower
based on § 682.210(c)(1)(ii), (iii), or (iv),
the deferment period for a PLUS loan
first disbursed on or after July 1, 2008
includes the 6-month post-enrollment
period described in paragraph (v)(1)(i)
of this section. The notice required by
§ 682.210(c)(2) must inform the
borrower that the in-school deferment
on a PLUS loan first disbursed on or
after July 1, 2008 will end six months
after the day the borrower ceases to be
enrolled on at least a half-time basis.
(2) Upon the request of the borrower,
an eligible parent PLUS borrower must

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be granted a deferment on a PLUS loan
first disbursed on or after July 1, 2008—
(i) During the period when the
student on whose behalf the loan was
obtained is enrolled at an eligible
institution on at least a half-time basis;
and
(ii) During the 6-month period that
begins on the later of the day after the
student on whose behalf the loan was
obtained ceases to be enrolled on at
least a half-time basis or, if the parent
borrower is also a student, the day after
the parent borrower ceases to be
enrolled on at least a half-time basis.
14. Section 682.211 is amended by:
A. Revising paragraph (e).
B. In paragraph (f)(11), removing the
word ‘‘or’’ at the end of the paragraph.
C. In paragraph (f)(12), removing the
punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
punctuation ‘‘;’’.
D. In paragraph (f)(13), removing the
punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
punctuation ‘‘;’’.
E. In paragraph (f)(14), removing the
punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, ‘‘;
or’’.
F. Adding new paragraph (f)(15).
The revisions and additions read as
follows:
§ 682.211

Forbearance.

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(e)(1) At the time of granting a
borrower or endorser a forbearance, the
lender must provide the borrower or
endorser with information to assist the
borrower or endorser in understanding
the impact of capitalization of interest
on the loan principal and total interest
to be paid over the life of the loan; and
(2) At least once every 180 days
during the period of forbearance, the
lender must contact the borrower or
endorser to inform the borrower or
endorser of—
(i) The outstanding obligation to
repay;
(ii) The amount of the unpaid
principal balance and any unpaid
interest that has accrued on the loan
since the last notice provided to the
borrower or endorser under this
paragraph;
(iii) The fact that interest will accrue
on the loan for the full term of the
forbearance;
(iv) The amount of interest that will
be capitalized, as of the date of the
notice, and the date capitalization will
occur;
(v) The option of the borrower or
endorser to pay the interest that has
accrued before the interest is
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(vi) The borrower’s or endorser’s
option to discontinue the forbearance at
any time.
(f) * * *
(15) For PLUS loans first disbursed
before July 1, 2008, to align repayment
with a borrower’s PLUS loans that were
first disbursed on or after July 1, 2008,
or with Stafford Loans that are subject
to a grace period under § 682.209(a)(3).
The notice specified in paragraph (f)
introductory text must inform the
borrower that the borrower has the
option to cancel the forbearance and
continue paying on the loan.
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15. Section 682.215 is amended by:
A. Revising paragraph (a)(4).
B. In paragraph (b)(1), removing the
words ‘‘Except as provided under
paragraph (b)(1)(i), (b)(1)(ii), and
(b)(1)(iii) of this section, the’’ in the
second sentence and adding, in their
place, the word ‘‘The’’.
C. In paragraph (b)(1)(i), removing the
word ‘‘The’’ at the beginning of the
paragraph and adding, in its place, the
words ‘‘Except for borrowers provided
for in paragraph (b)(1)(ii) of this section,
the’’.
D. Redesignating paragraphs (b)(1)(ii)
and (b)(1)(iii) as paragraphs (b)(1)(iii)
and (b)(1)(iv), respectively.
E. Adding a new paragraph (b)(1)(ii).
F. In newly redesignated paragraph
(b)(1)(iii), removing the words ‘‘or
(b)(1)(i)’’ and adding, in their place, the
words ‘‘, (b)(1)(i), or (b)(1)(ii)’’.
G. In newly redesignated paragraph
(b)(1)(iv), removing the words ‘‘or
(b)(1)(i)’’ and adding, in their place, the
words ‘‘, (b)(1)(i), or (b)(1)(ii)’’.
H. In paragraph (b)(2), removing the
words ‘‘(b)(1)(ii) and (iii)’’ in the second
sentence and adding, in their place, the
words ‘‘(b)(1)(iii) and (iv)’’.
The revision and addition reads as
follows:
§ 682.215

Income-based repayment plan.

(a) * * *
(4) Partial financial hardship means a
circumstance in which—
(i) For an unmarried borrower or a
married borrower who files an
individual Federal tax return, the
annual amount due on all of the
borrower’s eligible loans, as calculated
under a standard repayment plan based
on a 10-year repayment period, using
the greater of the amount due at the time
the borrower initially entered
repayment or at the time the borrower
elects the income-based repayment
plan, exceeds 15 percent of the
difference between the borrower’s AGI
and 150 percent of the poverty guideline
for the borrower’s family size; or
(ii) For a married borrower who files
a joint Federal tax return with his or her

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
spouse, the annual amount due on all of
the borrower’s eligible loans and, if
applicable, the spouse’s eligible loans,
as calculated under a standard
repayment plan based on a 10-year
repayment period, using the greater of
the amount due at the time the loans
initially entered repayment or at the
time the borrower or spouse elects the
income-based repayment plan, exceeds
15 percent of the difference between the
borrower’s and spouse’s AGI, and 150
percent of the poverty guideline for the
borrower’s family size.
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(b) * * *
(1) * * *
(ii) Both the borrower and the
borrower’s spouse have eligible loans
and filed a joint Federal tax return, in
which case the loan holder
determines—
(A) Each borrower’s percentage of the
couple’s total eligible loan debt;
(B) The adjusted monthly payment for
each borrower by multiplying the
calculated payment by the percentage
determined in paragraph (b)(1)(ii)(A) of
this section; and
(C) If the borrower’s loans are held by
multiple holders, the borrower’s
adjusted monthly payment by
multiplying the payment determined in
paragraph (b)(1)(ii)(B) of this section by
the percentage of the total outstanding
principal amount of eligible loans that
are held by the loan holder;
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16. Section 682.216 is amended by:
A. Revising paragraph (a).
B. In paragraph (b), adding, in
alphabetical order, a definition of
Educational service agency.
C. Revising the introductory text of
paragraph (c)(1).
D. In paragraph (c)(1)(ii), adding the
words ‘‘or educational service agency’s’’
immediately after the words ‘‘the
school’s’’.
E. In paragraph (c)(1)(iii), removing
the words ‘‘Bureau of Indian Affairs
(BIA)’’ and adding, in their place, the
words ‘‘Bureau of Indian Education
(BIE)’’, and removing the words ‘‘the
BIA’’ and adding, in their place, the
words ‘‘the BIE’’.
F. In paragraph (c)(2), adding the
words ‘‘or educational service agency’’
immediately after the words ‘‘If the
school’’ at the beginning of the
paragraph, and removing the words ‘‘the
school’’ immediately after the words
‘‘teaching and’’.
G. In paragraph (c)(3)(i)(A), removing
the words ‘‘in which’’ and adding, in
their place, the words ‘‘or educational
service agency where’’.
H. In paragraph (c)(3)(i)(B), removing
the words ‘‘in which’’ and adding, in

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their place, the words ‘‘or educational
service agency where’’.
I. In paragraph (c)(3)(ii)(A), removing
the word ‘‘in’’ and adding, in its place,
the word ‘‘at’’, and adding the words ‘‘,
or taught mathematics or science to
secondary school students on a full-time
basis at an eligible educational service
agency,’’ immediately after the words
‘‘secondary school’’.
J. In paragraph (c)(3)(ii)(B), removing
the word ‘‘in’’ the first time it appears
and adding, in its place, the word ‘‘at’’,
and adding the words ‘‘or educational
service agency’’ immediately after the
words ‘‘secondary school’’ the first time
they appear.
K. Adding a new paragraph (c)(3)(iii).
L. In paragraph (c)(4)(i), removing the
word ‘‘in’’ and adding, in its place, the
word ‘‘at’’, and adding the words ‘‘or
educational service agency’’
immediately after the words ‘‘secondary
school’’ the first time they appear.
M. In paragraph (c)(4)(ii)(A), removing
the word ‘‘in’’ and adding, in its place,
the word ‘‘at’’, and adding the words ‘‘,
or taught mathematics or science on a
full-time basis to secondary school
students at an eligible educational
service agency,’’ immediately after the
words ‘‘secondary school’’.
N. In paragraph (c)(4)(ii)(B), removing
the word ‘‘in’’ the first time it appears
and adding, in its place, the word ‘‘at’’,
and by adding the words ‘‘or
educational service agency’’
immediately after the words ‘‘secondary
school’’ the first time they appear.
O. Adding a new paragraph (c)(4)(iii).
P. Revising paragraph (c)(9).
Q. Revising paragraph (c)(11).
The revisions and additions read as
follows:
§ 682.216
program.

Teacher loan forgiveness

(a) General. (1) 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.
(2) The borrower must have been
employed at an eligible elementary or
secondary school that serves low-

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36593

income families or by an educational
service agency that serves low-income
families as a full-time teacher for five
consecutive complete academic years.
For teaching service performed at an
eligible elementary or secondary school,
at least one of the academic years must
have been after the 1997–1998 academic
year. For teaching service performed by
an employee of an eligible educational
service agency, at least one of the five
consecutive complete academic years
must have been after the 2007–2008
academic year.
(3) 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.
(4) A 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 if the
borrower was employed for five
consecutive years—
(i) At an eligible secondary school as
a highly qualified mathematics or
science teacher, or at an eligible
educational service agency as a highly
qualified teacher of mathematics or
science to secondary school students; or
(ii) At an eligible elementary or
secondary school or educational service
agency as a special education teacher.
(5) 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) * * *
Educational service agency means a
regional public multiservice agency
authorized by State statute to develop,
manage, and provide services or
programs to local educational agencies,
as defined in section 9101 of the
Elementary and Secondary Education
Act of 1965, as amended.
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(c) * * *
(1) A borrower who has been
employed at an elementary or secondary
school or at an educational service
agency as a full-time teacher for five
consecutive complete academic years
may obtain loan forgiveness under this
program if the elementary or secondary
school or educational service agency—
* * *
(3) * * *
(iii) For teaching service performed by
an employee of an eligible educational
service agency, at least one of the five
consecutive complete academic years
must have been after the 2007–2008
academic year.
(4) * * *
(iii) For teaching service performed by
an employee of an eligible educational

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service agency, at least one of the five
consecutive complete academic years
must have been the 2008–2009
academic year or a subsequent academic
year.
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(9) A borrower who was employed as
a teacher at more than one qualifying
school, at more than one qualifying
educational service agency, or at a
combination of both during an academic
year and demonstrates that the
combined teaching was the equivalent
of full-time, as supported by the
certification of one or more of the chief
administrative officers of the schools or
educational service agencies involved,
is considered to have completed one
academic year of qualifying teaching.
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(11) A borrower may not receive loan
forgiveness for the same qualifying
teaching service under this section if the
borrower receives a benefit for the same
teaching service under—
(i) 34 CFR 685.217;
(ii) Subtitle D of title I of the National
and Community Service Act of 1990;
(iii) 34 CFR 685.219; or
(iv) Section 428K of the Act.
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17. Section 682.302 is amended by
adding a new paragraph (h) to read as
follows:
§ 682.302 Payment of special allowance on
FFEL loans.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

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(h) Calculation of special allowance
payments for loans subject to the
Servicemembers Civil Relief Act (50
U.S.C. 527, App. sec. 207). For FFEL
Program loans first disbursed on or after
July 1, 2008 that are subject to the
interest rate limit under the
Servicemembers Civil Relief Act, special
allowance is calculated in accordance
with paragraphs (c) and (f) of this
section, except the applicable interest
rate for this purpose shall be 6 percent.
18. Section 682.305 is amended by:
A. Revising paragraph (c)(1).
B. In paragraph (c)(2)(v), removing the
word ‘‘and’’ immediately after the
semicolon
C. In paragraph (c)(2)(vi), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
words ‘‘; and’’.
D. Redesignating paragraph (c)(2)(vii)
as paragraph (c)(3).
E. Adding a new paragraph (c)(2)(vii).
The revision and addition read as
follows:
§ 682.305 Procedures for payment of
interest benefits and special allowance and
collection of origination and loan fees.

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(c) Independent audits. (1)(i) A lender
originating or holding more than $5
million in FFEL loans during its fiscal
year must submit an independent
annual compliance audit for that year,
conducted by a qualified independent
organization or person.
(ii) Notwithstanding the dollar
volume of loans originated or held, a
school lender under § 682.601 or a
lender serving as trustee on behalf of a
school or a school-affiliated
organization for the purpose of
originating loans must submit an
independent annual compliance audit
for that year, conducted by a qualified
independent organization or person.
(iii) 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) of this section.
(2) * * *
(vii) With regard to a lender serving
as a trustee for the purpose of
originating loans for a school or schoolaffiliated organization, the audit must
include a determination that—
(A) Except as provided in paragraph
(c)(2)(vii)(B) of this section, the school
used all proceeds from special
allowance payments, interest subsidies
received from the Department, and any
proceeds from the sale or other
disposition of the loans originated
through the lender for need-based grant
programs and that those funds
supplemented, but did not supplant,
other Federal or non-Federal funds
otherwise available to be used to make
need-based grants to its students; and
(B) The lender used no more than a
reasonable portion of payments and
proceeds from the loans for direct
administrative expenses in accordance
with § 682.601(b), with all references to
eligible school lender understood to
mean a lender in its capacity as trustee
on behalf of a school or school-affiliated
organization for the purpose of
originating loans.
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19. Section 682.401 is amended by:
A. In paragraph (e)(1)(i), adding the
words ‘‘stock or other securities, tuition
payment or reimbursement’’
immediately after the word ‘‘payment’’.
B. In paragraph (e)(1)(i)(D), adding the
words ‘‘travel or’’ immediately after the
words ‘‘Payment of’’.
C. Revising paragraph (e)(1)(i)(F).
D. In paragraph (e)(1)(iii)(C), removing
the word ‘‘and’’ immediately after the
semicolon.
E. In paragraph (e)(1)(iii)(D), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
punctuation ‘‘;’’.

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F. Adding new paragraphs
(e)(1)(iii)(E), (F), and (G).
G. In paragraph (e)(1)(v), adding the
words ‘‘, terms or conditions’’
immediately after the word
‘‘availability’’.
H. In paragraph (e)(2)(i), removing the
word ‘‘Assistance’’ at the beginning of
the paragraph and adding, in its place,
the words ‘‘Technical assistance’’, and
removing the words ‘‘that provided’’
and adding, in their place, the words
‘‘the technical assistance provided’’.
I. In paragraph (e)(2)(ii), adding the
words ‘‘and 433A’’ immediately after
the reference to ‘‘422(h)(4)(B)’’.
J. In paragraph (e)(2)(iii), removing the
words ‘‘initial and exit’’ and adding, in
their place, the word ‘‘entrance’’.
K. Revising paragraph (e)(2)(vi).
L. In paragraph (e)(3)(iii), removing
the words ‘‘The terms’’ and adding, in
their place, the words ‘‘The term’’, and
removing the words ‘‘computer
hardware’’ and adding, in their place,
the words ‘‘information technology
equipment’’.
M. Removing paragraph (e)(3)(v).
N. Adding a new paragraph (g).
The revision and additions read as
follows:
§ 682.401

Basic Program Agreement.

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(e) * * *
(1) * * *
(i) * * *
(F) Performance of, or payment to a
third party to perform, any school
function required under title IV, except
that the guaranty agency may provide
exit counseling as provided in
§ 682.604(g), and may provide services
to participating foreign schools at the
direction of the Secretary, as a thirdparty servicer.
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(iii) * * *
(E) Providing or reimbursing travel or
entertainment expenses;
(F) Providing or reimbursing tuition
payments or expenses; and
(G) Offering prizes, or providing
payments of stocks or other securities.
*
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(g)(1) A guaranty agency must work
with schools that participate in its
program to develop and make available
high-quality educational materials and
programs that provide training to
students and their families in budgeting
and financial management, including
debt management and other aspects of
financial literacy, such as the cost of
using high-interest loans to pay for
postsecondary education, and how
budgeting and financial management
relate to the title IV student loan
programs.

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(2) The materials and programs
described in paragraph (g)(1) of this
section must be in formats that are
simple and understandable to students
and their families, and must be made
available to students and their families
by the guaranty agency before, during,
and after a student’s enrollment at an
institution of higher education.
(3) A guaranty agency may provide
similar programs and materials to an
institution that participates only in the
William D. Ford Federal Direct Loan
Program.
(4) A lender or loan servicer may also
provide an institution with outreach
and financial literacy information
consistent with the requirements of
paragraphs (g)(1) and (2) of this section.
20. Section 682.402 is amended by
revising paragraph (c) to read as follows:
§ 682.402 Death, disability, closed school,
false certification, unpaid refunds, and
bankruptcy payments.

srobinson on DSKHWCL6B1PROD with PROPOSALS2

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(c)(1) Total and permanent disability.
(i) A borrower’s loan is discharged if the
borrower becomes totally and
permanently disabled, as defined in
§ 682.200(b), and satisfies the eligibility
requirements in this section.
(ii) For a borrower who becomes
totally and permanently disabled as
described in paragraph (1) of the
definition of that term in § 682.200(b),
the borrower’s loan discharge
application is processed in accordance
with paragraphs (c)(2) through (7) of this
section.
(iii) For a veteran who is totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the veteran’s loan
discharge application is processed in
accordance with paragraph (c)(8) of this
section.
(2) Discharge application process for
a borrower who is totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in § 682.200(b). After being
notified by the borrower or the
borrower’s representative that the
borrower claims to be totally and
permanently disabled, the lender
promptly requests that the borrower or
the borrower’s representative submit a
discharge application to the lender on a
form approved by the Secretary. The
application must contain a certification
by a physician, who is a doctor of
medicine or osteopathy legally
authorized to practice in a State, that the
borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in
§ 682.200(b). The borrower must submit
the application to the lender within 90

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days of the date the physician certifies
the application. If the lender and
guaranty agency approve the discharge
claim under the procedures described in
paragraph (c)(7) of this section, the
guaranty agency must assign the loan to
the Secretary.
(3) Secretary’s eligibility
determination. (i) If, after reviewing the
borrower’s application, the Secretary
determines that the certification
provided by the borrower supports the
conclusion that the borrower is totally
and permanently disabled, as described
in paragraph (1) of the definition of that
term in § 682.200(b), the borrower is
considered totally and permanently
disabled as of the date the physician
certifies the borrower’s application.
(ii) Upon making a determination that
the borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in
§ 682.200(b), the Secretary discharges
the borrower’s obligation to make
further payments on the loan and
notifies the borrower that the loan has
been discharged. Any payments
received after the date the physician
certified the borrower’s loan discharge
application are returned to the person
who made the payments on the loan.
The notification to the borrower
explains the terms and conditions under
which the borrower’s obligation to repay
the loan will be reinstated, as specified
in paragraph (c)(5)(i) of this section.
(iii) If the Secretary determines that
the certification provided by the
borrower does not support the
conclusion that the borrower is totally
and permanently disabled as described
in paragraph (1) of the definition of that
term in § 682.200(b), the Secretary
notifies the borrower that the
application for a disability discharge has
been denied and that the loan is due
and payable to the Secretary under the
terms of the promissory note.
(iv) The Secretary reserves the right to
require the borrower to submit
additional medical evidence if the
Secretary determines that the borrower’s
application does not conclusively prove
that the borrower is totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in § 682.200(b). As part of the
Secretary’s review of the borrower’s
discharge application, the Secretary may
arrange for an additional review of the
borrower’s condition by an independent
physician at no expense to the borrower.
(4) Treatment of disbursements made
during the period from the date of the
physician’s certification until the date of
discharge. If a borrower received a Title
IV loan or TEACH Grant prior to the
date the physician certified the

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borrower’s discharge application and a
disbursement of that loan or grant is
made during the period from the date of
the physician’s certification until the
date the Secretary grants a discharge
under this section, the processing of the
borrower’s loan discharge request will
be suspended until the borrower
ensures that the full amount of the
disbursement has been returned to the
loan holder or to the Secretary, as
applicable.
(5) Conditions for reinstatement of a
loan after a total and permanent
disability discharge. (i) The Secretary
reinstates the borrower’s obligation to
repay a loan that was discharged in
accordance with paragraph (c)(3)(ii) of
this section if, within three years after
the date the Secretary granted the
discharge, the borrower—
(A) Has annual earnings from
employment that exceed 100 percent of
the poverty line for a family of two, as
determined in accordance with the
Community Service Block Grant Act;
(B) Receives a new TEACH Grant or
a new loan under the Perkins, FFEL, or
Direct Loan programs, except for a FFEL
or Direct Consolidation Loan that
includes loans that were not discharged;
or
(C) Fails to ensure that the full
amount of any disbursement of a title IV
loan or TEACH Grant received prior to
the discharge date that is made during
the three-year period following the
discharge date is returned to the loan
holder or to the Secretary, as applicable,
within 120 days of the disbursement
date.
(ii) If a borrower’s obligation to repay
a loan is reinstated, the Secretary—
(A) Notifies the borrower that the loan
has been reinstated; and
(B) Does not require the borrower to
pay interest on the loan for the period
from the date the loan was discharged
until the date the loan was reinstated.
(iii) The Secretary’s notification under
paragraph (c)(5)(ii)(A) of this section
will include—
(A) The reason or reasons for the
reinstatement;
(B) An explanation that the first
payment due date on the loan following
reinstatement will be no earlier than 60
days after the date of the notification of
reinstatement; and
(C) Information on how the borrower
may contact the Secretary if the
borrower has questions about the
reinstatement or believes that the
obligation to repay the loan was
reinstated based on incorrect
information.
(6) Borrower’s responsibilities after a
total and permanent disability
discharge. During the three-year period

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described in paragraph (c)(5)(i) of this
section, the borrower or, if applicable,
the borrower’s representative must—
(i) Promptly notify the Secretary of
any changes in address or phone
number;
(ii) Promptly notify the Secretary if
the borrower’s annual earnings from
employment exceed the amount
specified in paragraph (c)(5)(i)(A) of this
section; and
(iii) Provide the Secretary, upon
request, with documentation of the
borrower’s annual earnings from
employment.
(7) Lender and guaranty agency
actions. (i) After being notified by a
borrower or a borrower’s representative
that the borrower claims to be totally
and permanently disabled, the lender
must continue collection activities until
it receives either the certification of total
and permanent disability from a
physician or a letter from a physician
stating that the certification has been
requested and that additional time is
needed to determine if the borrower is
totally and permanently disabled as
described in paragraph (1) of the
definition of that term in § 682.200(b).
Except as provided in paragraph
(c)(7)(iii) of this section, after receiving
the physician’s certification or letter the
lender may not attempt to collect from
the borrower or any endorser.
(ii) The lender must submit a
disability claim to the guaranty agency
if the borrower submits a certification
by a physician and the lender makes a
determination that the certification
supports the conclusion that the
borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in
§ 682.200(b).
(iii) If the lender determines that a
borrower who claims to be totally and
permanently disabled is not totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in § 682.200(b), or if the lender
does not receive the physician’s
certification of total and permanent
disability within 60 days of the receipt
of the physician’s letter requesting
additional time, as described in
paragraph (c)(7)(i) of this section, the
lender must resume collection of the
loan and is deemed to have exercised
forbearance of payment of both
principal and interest from the date
collection activity was suspended. The
lender may capitalize, in accordance
with § 682.202(b), any interest accrued
and not paid during that period.
(iv) The guaranty agency must pay a
claim submitted by the lender if the
guaranty agency has reviewed the
application and determined that it is

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complete and that it supports the
conclusion that the borrower is totally
and permanently disabled as described
in paragraph (1) of the definition of that
term in § 682.200(b).
(v) If the guaranty agency does not
pay the disability claim, the guaranty
agency must return the claim to the
lender with an explanation of the basis
for the agency’s denial of the claim.
Upon receipt of the returned claim, the
lender must notify the borrower that the
application for a disability discharge has
been denied, provide the basis for the
denial, and inform the borrower that the
lender will resume collection on the
loan. The lender is deemed to have
exercised forbearance of both principal
and interest from the date collection
activity was suspended until the first
payment due date. The lender may
capitalize, in accordance with
§ 682.202(b), any interest accrued and
not paid during that period.
(vi) If the guaranty agency pays the
disability claim, the lender must notify
the borrower that—
(A) The loan will be assigned to the
Secretary for determination of eligibility
for a total and permanent disability
discharge and that no payments are due
on the loan; and
(B) If the Secretary discharges the loan
based on a determination that the
borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in
§ 682.200(b), the Secretary will reinstate
the borrower’s obligation to repay the
loan if, within three years after the date
the Secretary granted the discharge, the
borrower—
(1) Receives annual earnings from
employment that exceed 100 percent of
the poverty line for a family of two, as
determined in accordance with the
Community Services Block Grant;
(2) Receives a new TEACH Grant or a
new title IV loan, except for a FFEL or
Direct Consolidation Loan that includes
loans that were not discharged; or
(3) Fails to ensure that the full amount
of any disbursement of a title IV loan or
TEACH Grant received prior to the
discharge date that is made during the
three-year period following the
discharge date is returned to the loan
holder or to the Secretary, as applicable,
within 120 days of the disbursement
date.
(vii) After receiving a claim payment
from the guaranty agency, the lender
must forward to the guaranty agency
any payments subsequently received
from or on behalf of the borrower.
(viii) The Secretary reimburses the
guaranty agency for a disability claim
paid to the lender after the agency pays
the claim to the lender.

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(ix) The guaranty agency must assign
the loan to the Secretary after the
guaranty agency pays the disability
claim.
(8) Discharge application process for
veterans who are totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b)—(i) General. After
being notified by the veteran or the
veteran’s representative that the veteran
claims to be totally and permanently
disabled, the lender promptly requests
that the veteran or the veteran’s
representative submit a discharge
application to the lender, on a form
approved by the Secretary. The
application must be accompanied by
documentation from the Department of
Veterans Affairs showing that the
Department of Veterans Affairs has
determined that the veteran is
unemployable due to a serviceconnected disability. The veteran will
not be required to provide any
additional documentation related to the
veteran’s disability.
(ii) Lender and guaranty agency
actions. (A) After being notified by a
veteran or a veteran’s representative that
the veteran claims to be totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the lender must
continue collection activities until it
receives the veteran’s completed loan
discharge application with the required
documentation from the Department of
Veterans Affairs, as described in
paragraph (8)(i) of this section. Except
as provided in paragraph (c)(8)(ii)(C) of
this section, the lender will not attempt
to collect from the veteran or any
endorser after receiving the veteran’s
discharge application and
documentation from the Department of
Veterans Affairs.
(B) If the veteran submits a completed
loan discharge application and the
required documentation from the
Department of Veterans Affairs, and the
documentation indicates that the
veteran is totally and permanently
disabled as described in paragraph (2) of
the definition of that term in
§ 682.200(b), the lender must submit a
disability claim to the guaranty agency.
(C) If the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the lender—
(1) Must resume collection and is
deemed to have exercised forbearance of
payment of both principal and interest
from the date collection activity was
suspended. The lender may capitalize,
in accordance with § 682.202(b), any

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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules
interest accrued and not paid during
that period.
(2) Must inform the veteran that he or
she may reapply for a total and
permanent disability discharge in
accordance with the procedures
described in § 682.402(c)(2) through
(c)(7), if the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), but indicates that
the veteran may be totally and
permanently disabled as described in
paragraph (1) of the definition of that
term.
(D) If the documentation from the
Department of Veterans Affairs indicates
that the borrower is totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the guaranty
agency must submit a copy of the
veteran’s discharge application and
supporting documentation to the
Secretary, and must notify the veteran
that the veteran’s loan discharge request
has been referred to the Secretary for a
determination of discharge eligibility.
(E) If the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the guaranty
agency does not pay the disability claim
and must return the claim to the lender
with an explanation of the basis for the
agency’s denial of the claim. Upon
receipt of the returned claim, the lender
must notify the veteran that the
application for a disability discharge has
been denied, provide the basis for the
denial, and inform the veteran that the
lender will resume collection on the
loan. The lender is deemed to have
exercised forbearance of both principal
and interest from the date collection
activity was suspended until the first
payment due date. The lender may
capitalize, in accordance with
§ 682.202(b), any interest accrued and
not paid during that period.
(F) If the Secretary determines, based
on a review of the documentation from
the Department of Veterans Affairs, that
the veteran is totally and permanently
disabled as described in paragraph (2) of
the definition of that term in
§ 682.200(b), the Secretary notifies the
guaranty agency that the veteran is
eligible for a total and permanent
disability discharge. Upon notification
by the Secretary that the veteran is
eligible for a discharge, the guaranty
agency pays the disability discharge
claim and notifies the veteran that the
veteran’s obligation to make any further

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payments on the loan has been
discharged. Upon receipt of the claim
payment from the guaranty agency, the
lender returns to the person who made
the payments on the loan any payments
received on or after the effective date of
the determination by the Department of
Veterans Affairs that the veteran is
unemployable due to a serviceconnected disability.
(G) If the Secretary determines, based
on a review of the documentation from
the Department of Veterans Affairs, that
the veteran is not totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in § 682.200(b), the Secretary
notifies the guaranty agency of this
determination. Upon notification by the
Secretary that the veteran is not eligible
for a discharge, the guaranty agency and
the lender must follow the procedures
described in paragraph (c)(8)(ii)(E) of
this section.
(H) The Secretary reimburses the
guaranty agency for a disability claim
paid to the lender after the agency pays
the claim to the lender.
*
*
*
*
*
21. Section 682.405 is amended by:
A. In paragraph (a)(3), adding the
sentence ‘‘Effective for any loan that is
rehabilitated on or after August 14,
2008, the borrower cannot rehabilitate
the loan again if the loan returns to
default status following the
rehabilitation.’’ at the end of the
paragraph.
B. In paragraph (b)(1)(iii), adding the
words ‘‘by the guaranty agency or its
agents’’ immediately after the word
‘‘affordable’’.
C. Revising paragraph (b)(3).
D. Adding a new paragraph (c).
The revision and addition read as
follows:
§ 682.405

Loan rehabilitation agreement.

*

*
*
*
*
(b) * * *
(3) (3) Upon the sale of a rehabilitated
loan to an eligible lender—
(i) The guaranty agency must, within
45 days of the sale—
(A) Provide notice to the prior holder
of such sale, and
(B) Request that any consumer
reporting agency to which the default
was reported remove the record of
default from the borrower’s credit
history.
(ii) The prior holder of the loan must,
within 30 days of receiving the
notification from the guaranty agency,
request that any consumer reporting
agency to which the default claim
payment or other equivalent record was

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reported remove such record from the
borrower’s credit history.
*
*
*
*
*
(c) A guaranty agency must make
available financial and economic
education materials, including debt
management information, to any
borrower who has rehabilitated a
defaulted loan in accordance with
paragraph (a)(2) of this section.
22. Section 682.410 is amended by:
A. In paragraph (b)(5), removing the
heading ‘‘Credit bureau reports’’ and
adding, in its place, the heading
‘‘Reports to consumer reporting
agencies’’.
B. In paragraph (b)(5)(i), removing the
words ‘‘national credit bureaus’’ at the
end of the paragraph and adding, in
their place, the words ‘‘nationwide
consumer reporting agencies’’.
C. In paragraph (b)(5)(ii), removing
the words ‘‘credit bureau’’ and adding,
in their place, the words ‘‘consumer
reporting agency’’, and removing the
reference ‘‘(b)(6)(v)’’ and adding, in its
place, the reference ‘‘(b)(6)(ii)’’.
D. In paragraph (b)(5)(iv)(A),
removing the words ‘‘credit bureaus’’
and adding, in their place, the words
‘‘consumer reporting agencies’’.
E. In paragraph (b)(5)(vi)(F), removing
the words ‘‘national credit bureaus’’ and
adding, in their place, the words
‘‘nationwide consumer reporting
agencies’’.
F. In paragraph (b)(5)(vi)(G), removing
the words ‘‘credit bureaus’’ and adding,
in their place, the words ‘‘consumer
reporting agencies’’.
G. In paragraph (b)(5)(vi)(K), removing
the word ‘‘and’’ at the end of the
paragraph.
H. In paragraph (b)(5)(vi)(L), removing
the punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, the
words ‘‘; and’’.
I. Adding a new paragraph
(b)(5)(vi)(M).
J. Redesignating paragraph (b)(6)(ii) as
paragraph (b)(6)(v).
K. Redesignating paragraph (b)(6)(iii)
as paragraph (b)(6)(vi).
L. Redesignating paragraph (b)(6)(iv)
as paragraph (b)(6)(vii).
M. Redesignating paragraph (b)(6)(v)
as paragraph (b)(6)(ii).
N. Redesignating paragraph (b)(6)(vi)
as paragraph (b)(6)(iii).
O. In newly redesignated paragraph
(b)(6)(iii), removing the reference
‘‘(b)(6)(v)’’ and adding, in its place, the
reference ‘‘(b)(6)(ii)’’, and removing the
words ‘‘national credit bureaus (if that
is the case)’’ and adding, in their place,
the words ‘‘nationwide consumer
reporting agencies’’.
P. Adding a new paragraph (b)(6)(iv).

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Q. In newly redesignated paragraph
(b)(6)(vi), removing the reference
‘‘(b)(6)(iv)’’ and adding, in its place, the
reference ‘‘(b)(6)(vii)’’.
The additions read as follows:
§ 682.410 Fiscal, administrative, and
enforcement requirements.

*

*
*
*
*
(b) * * *
(5) * * *
(vi) * * *
(M) Inform the borrower of the
options that are available to the
borrower to remove the loan from
default, including an explanation of the
fees and conditions associated with
each option.
(vii) * * *
(6) * * *
(iv) The agency must send a notice
informing the borrower of the options
that are available to remove the loan
from default, including an explanation
of the fees and conditions associated
with each option. This notice must be
sent within a reasonable time after the
end of the period for requesting an
administrative review as specified in
paragraph (b)(5)(iv)(B) of this section or,
if the borrower has requested an
administrative review, within a
reasonable time following the
conclusion of the administrative review.
*
*
*
*
*
23. Section 682.601 is amended by
adding a new paragraph (a)(7)(iii) to
read as follows:
§ 682.601 Rules for a school that makes or
originates loans.

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(a) * * *
(7) * * *
(iii) With regard to any school, the
audit must include a determination
that—
(A) Except as provided in paragraphs
(a)(8) and (b) of this section, the school
used all payments and proceeds from
the loans for need-based grant programs;
(B) The school met the requirements
of paragraph (c) of this section in
making the need-based grants; and
(C) The school used no more than a
reasonable portion of payments and
proceeds from the loans for direct
administrative expenses.
*
*
*
*
*
PART 685—WILLIAM D. FORD
FEDERAL DIRECT LOAN PROGRAM
24. The authority citation for part 685
continues to read as follows:
Authority: 20 U.S.C. 1087a et seq., unless
otherwise noted.

25. Section 685.200 is amended by:
A. In paragraph (a)(1)(iv)(A)(1),
removing the word ‘‘and’’ at the end of
the paragraph.

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B. In paragraph (a)(1)(iv)(A)(2),
removing the punctuation ‘‘.’’ at the end
of the paragraph and adding, in its
place, the words ‘‘; and’’.
C. Adding a new paragraph
(a)(1)(iv)(A)(3).
D. Removing paragraph (a)(1)(iv)(B).
E. Redesignating paragraph
(a)(1)(iv)(C) as paragraph (a)(1)(iv)(B).
F. In newly redesignated paragraph
(a)(1)(iv)(B), removing the words ‘‘based
on’’ and adding, in their place, the word
‘‘after’’, and adding the words ‘‘based on
a discharge request received prior to
July 1, 2010’’ immediately after the
word ‘‘disabled’’.
The addition reads as follows:
§ 685.200

Borrower eligibility.

(a) * * *
(1) * * *
(iv) * * *
(A) * * *
(3) If the borrower receives a new
Direct Subsidized Loan or Direct
Unsubsidized Loan within three years of
the date that any previous title IV loan
or TEACH Grant service obligation was
discharged due to a total and permanent
disability in accordance with
§ 685.213(b)(4), 34 CFR 674.61(b)(3)(i),
34 CFR 682.402(c), or 34 CFR 686.42(b)
based on a discharge request received
on or after July 1, 2010, resumes
repayment on the previously discharged
loan in accordance with
§ 685.213(b)(3)(ii)(A), 34 CFR
674.61(b)(5), or 34 CFR 682.402(c)(5), or
acknowledges that he or she is once
again subject to the terms of the TEACH
Grant agreement to serve before
receiving the new loan.
*
*
*
*
*
26. Section 685.202 is amended by:
A. Adding a new paragraph (a)(4).
B. In paragraph (b)(2), removing the
words ‘‘the Secretary capitalizes’’ and
adding, in their place, the words ‘‘or for
a Direct PLUS Loan, the Secretary may
capitalize’’.
The addition reads as follows:
§ 685.202 Charges for which Direct Loan
Program borrowers are responsible.

(a) * * *
(4) Applicability of the
Servicemembers Civil Relief Act (50
U.S.C. 527, App. sec. 207).
Notwithstanding paragraphs (a)(1)
through (3) of this section, effective
August 14, 2008, upon the Secretary’s
receipt of a borrower’s written request
and a copy of the borrower’s military
orders, the maximum interest rate, as
defined in 50 U.S.C. 527, App. section
207(d), on Direct Loan Program loans
made prior to the borrower entering
active duty status is 6 percent while the

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borrower is on active duty military
service.
*
*
*
*
*
27. Section 685.204 is amended by:
A. In paragraph (b)(1)(iii)(A)(2),
removing the word ‘‘or’’ at the end of
the paragraph.
B. In paragraph (b)(1)(iii)(A)(3),
removing the punctuation ‘‘.’’ and
adding, in its place, ‘‘; or’’ at the end of
the paragraph.
C. Adding a new paragraph
(b)(1)(iii)(A)(4).
D. Revising paragraph (b)(1)(iii)(B).
E. Redesignating paragraphs (g) and
(h) as paragraphs (h) and (i),
respectively.
F. In newly redesignated paragraph
(i)(3), removing the words ‘‘paragraph
(h)(2)’’ each time they appear and
adding, in their place, the words
‘‘paragraph (i)(2)’’.
G. In newly redesignated paragraph
(i)(4), removing the words ‘‘paragraph
(h)(2)’’ and adding, in their place, the
words ‘‘paragraph (i)(2)’’.
H. Adding a new paragraph (g).
The revisions and additions read as
follows:
§ 685.204

Deferment.

*

*
*
*
*
(b) * * *
(1)(i) * * *
(iii)(A) * * *
(4) The Secretary confirms a
borrower’s half-time enrollment status
through the use of the National Student
Loan Data System if requested to do so
by the school the borrower is attending.
(B)(1) Upon notification by the
Secretary that a deferment has been
granted based on paragraph
(b)(1)(iii)(A)(2), (3), or (4) of this section,
the borrower has the option to cancel
the deferment and continue paying on
the loan.
(2) If the borrower elects to cancel the
deferment and continue paying on the
loan, the borrower has the option to
make the principal and interest
payments that were deferred. If the
borrower does not make the payments,
the Secretary applies a deferment for the
period in which payments were not
made and capitalizes the interest. The
Secretary will provide information,
including an example, to assist the
borrower in understanding the impact of
capitalization of accrued, unpaid
interest on the borrower’s loan principal
and on the total amount of interest to be
paid over the life of the loan.
*
*
*
*
*
(g) In-school deferments for Direct
PLUS Loan borrowers with loans first
disbursed on or after July 1, 2008. (1)(i)
A student Direct PLUS Loan borrower is

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entitled to a deferment on a Direct PLUS
Loan first disbursed on or after July 1,
2008 during the 6-month period that
begins on the day after the student
ceases to be enrolled on at least a halftime basis at an eligible institution.
(ii) If the Secretary grants an in-school
deferment to a student Direct PLUS
Loan borrower based on
§ 682.204(b)(1)(iii)(A)(2), (3), or (4), the
deferment period for a Direct PLUS
Loan first disbursed on or after July 1,
2008 includes the 6-month postenrollment period described in
paragraph (g)(1)(i) of this section.
(2) Upon the request of the borrower,
an eligible parent Direct PLUS Loan
borrower will receive a deferment on a
Direct PLUS Loan first disbursed on or
after July 1, 2008—
(i) During the period when the
student on whose behalf the loan was
obtained is enrolled at an eligible
institution on at least a half-time basis;
and
(ii) During the 6-month period that
begins on the later of the day after the
student on whose behalf the loan was
obtained ceases to be enrolled on at
least a half-time basis or, if the parent
borrower is also a student, the day after
the parent borrower ceases to be
enrolled on at least a half-time basis.
*
*
*
*
*
28. Section 685.205 is amended by:
A. In paragraph (b)(8), removing the
word ‘‘or’’ at the end of the paragraph.
B. In paragraph (b)(9), removing the
punctuation ‘‘.’’ at the end of the
paragraph and adding, in its place, ‘‘;
or’’.
C. Adding a new paragraph (b)(10) to
read as follows:
§ 685.205

Forbearance.

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*

*
*
*
*
(b) * * *
(10) For Direct PLUS Loans first
disbursed before July 1, 2008, to align
repayment with a borrower’s Direct
PLUS Loans that were first disbursed on
or after July 1, 2008, or with Direct
Subsidized Loans or Direct
Unsubsidized Loans that have a grace
period in accordance with § 685.207(b)
or (c). The Secretary notifies the
borrower that the borrower has the
option to cancel the forbearance and
continue paying on the loan.
*
*
*
*
*
29. Section 685.211 is amended by:
A. In paragraph (f)(1), removing the
words ‘‘credit bureau’’ in the third
sentence and adding, in their place, the
words ‘‘consumer reporting agency’’.
B. Adding a new paragraph (f)(4).
The addition reads as follows:

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§ 685.211 Miscellaneous repayment
provisions.

*

*
*
*
*
(f) * * *
(4) Effective for any defaulted Direct
Loan that is rehabilitated on or after
August 14, 2008, the borrower cannot
rehabilitate the loan again if the loan
returns to default status following the
rehabilitation.
30. Section 685.213 is revised to read
as follows:
§ 685.213 Total and permanent disability
discharge.

(a) General. (1) A borrower’s Direct
Loan is discharged if the borrower
becomes totally and permanently
disabled, as defined in 34 CFR
682.200(b), and satisfies the eligibility
requirements in this section.
(2) For a borrower who becomes
totally and permanently disabled as
described in paragraph (1) of the
definition of that term in 34 CFR
682.200(b), the borrower’s loan
discharge application is processed in
accordance with paragraph (b) of this
section.
(3) For veterans who are totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in 34 CFR 682.200(b), the veteran’s
loan discharge application is processed
in accordance with paragraph (c) of this
section.
(b) Discharge application process for
a borrower who is totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in 34 CFR 682.200(b). (1) Borrower
application for discharge. To qualify for
a discharge of a Direct Loan based on a
total and permanent disability, a
borrower must submit a discharge
application to the Secretary on a form
approved by the Secretary. The
application must contain a certification
by a physician, who is a doctor of
medicine or osteopathy legally
authorized to practice in a State, that the
borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in 34 CFR
682.200(b). The borrower must submit
the application to the Secretary within
90 days of the date the physician
certifies the application. Upon receipt of
the borrower’s application, the Secretary
notifies the borrower that no payments
are due on the loan while the Secretary
determines the borrower’s eligibility for
discharge.
(2) Determination of eligibility. (i) If,
after reviewing the borrower’s
application, the Secretary determines
that the certification provided by the
borrower supports the conclusion that
the borrower meets the criteria for a

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total and permanent disability
discharge, as described in paragraph (1)
of the definition of that term in 34 CFR
682.200(b), the borrower is considered
totally and permanently disabled as of
the date the physician certifies the
borrower’s application.
(ii) Upon making a determination that
the borrower is totally and permanently
disabled, as described in paragraph (1)
of the definition of that term in 34 CFR
682.200(b), the Secretary discharges the
borrower’s obligation to make any
further payments on the loan, notifies
the borrower that the loan has been
discharged, and returns to the person
who made the payments on the loan any
payments received after the date the
physician certified the borrower’s loan
discharge application. The notification
to the borrower explains the terms and
conditions under which the borrower’s
obligation to repay the loan will be
reinstated, as specified in paragraph
(b)(4)(i) of this section.
(iii) If the Secretary determines that
the certification provided by the
borrower does not support the
conclusion that the borrower is totally
and permanently disabled, as described
in paragraph (1) of the definition of that
term in 34 CFR 682.200(b), the Secretary
notifies the borrower that the
application for a disability discharge has
been denied, and that the loan is due
and payable to the Secretary under the
terms of the promissory note.
(iv) The Secretary reserves the right to
require the borrower to submit
additional medical evidence if the
Secretary determines that the borrower’s
application does not conclusively prove
that the borrower is totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in 34 CFR 682.200(b). As part of
the Secretary’s review of the borrower’s
discharge application, the Secretary may
arrange for an additional review of the
borrower’s condition by an independent
physician at no expense to the borrower.
(3) Treatment of disbursements made
during the period from the date of the
physician’s certification until the date of
discharge. If a borrower received a title
IV loan or TEACH Grant prior to the
date the physician certified the
borrower’s discharge application and a
disbursement of that loan or grant is
made during the period from the date of
the physician’s certification until the
date the Secretary grants a discharge
under this section, the processing of the
borrower’s loan discharge request will
be suspended until the borrower
ensures that the full amount of the
disbursement has been returned to the
loan holder or to the Secretary, as
applicable.

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(4) Conditions for reinstatement of a
loan after a total and permanent
disability discharge. (i) The Secretary
reinstates a borrower’s obligation to
repay a loan that was discharged in
accordance with paragraph (b)(2)(ii) of
this section if, within three years after
the date the Secretary granted the
discharge, the borrower—
(A) Has annual earnings from
employment that exceed 100 percent of
the poverty line for a family of two, as
determined in accordance with the
Community Service Block Grant Act;
(B) Receives a new TEACH Grant or
a new loan under the Perkins, FFEL or
Direct Loan programs, except for a FFEL
or Direct Consolidation Loan that
includes loans that were not discharged;
or
(C) Fails to ensure that the full
amount of any disbursement of a title IV
loan or TEACH Grant received prior to
the discharge date that is made during
the three-year period following the
discharge date is returned to the loan
holder or to the Secretary, as applicable,
within 120 days of the disbursement
date.
(ii) If the borrower’s obligation to
repay the loan is reinstated, the
Secretary—
(A) Notifies the borrower that the loan
has been reinstated; and
(B) Does not require the borrower to
pay interest on the loan for the period
from the date the loan was discharged
until the date the loan was reinstated.
(iii) The Secretary’s notification under
paragraph (b)(4)(ii)(A) of this section
will include—
(A) The reason or reasons for the
reinstatement;
(B) An explanation that the first
payment due date on the loan following
reinstatement will be no earlier than 60
days after the date of the notification of
reinstatement; and
(C) Information on how the borrower
may contact the Secretary if the
borrower has questions about the
reinstatement or believes that the
obligation to repay the loan was
reinstated based on incorrect
information.
(5) Borrower’s responsibilities after a
total and permanent disability
discharge. During the three-year period
described in paragraph (b)(4)(i) of this
section, the borrower or, if applicable,
the borrower’s representative must—
(i) Promptly notify the Secretary of
any changes in address or phone
number;
(ii) Promptly notify the Secretary if
the borrower’s annual earnings from
employment exceed the amount
specified in paragraph (b)(4)(i)(A) of this
section; and

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(iii) Provide the Secretary, upon
request, with documentation of the
borrower’s annual earnings from
employment.
(c) Discharge application process for
veterans who are totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in 34 CFR 682.200(b).
(1) Veteran’s application for
discharge. To qualify for a discharge of
a Direct Loan based on a total and
permanent disability as described in
paragraph (2) of the definition of that
term in 34 CFR 682.200(b), a veteran
must submit a discharge application to
the Secretary on a form approved by the
Secretary. The application must be
accompanied by documentation from
the Department of Veterans Affairs
showing that the Department of
Veterans Affairs has determined that the
veteran is unemployable due to a
service-connected disability. The
Secretary does not require the veteran to
provide any additional documentation
related to the veteran’s disability. Upon
receipt of the veteran’s application, the
Secretary notifies the veteran that no
payments are due on the loan while the
Secretary determines the veteran’s
eligibility for discharge.
(2) Determination of eligibility. (i) If
the Secretary determines, based on a
review of the documentation from the
Department of Veterans Affairs, that the
veteran is totally and permanently
disabled as described in paragraph (2) of
the definition of that term in
§ 682.200(b), the Secretary discharges
the veteran’s obligation to make any
further payments on the loan and
returns to the person who made the
payments on the loan any payments
received on or after the effective date of
the determination by the Department of
Veterans Affairs that the veteran is
unemployable due to a serviceconnected disability.
(ii)(A) If the Secretary determines,
based on a review of the documentation
from the Department of Veterans Affairs,
that the veteran is not totally and
permanently disabled as described in
paragraph (2) of the definition of that
term in 34 CFR 682.200(b), the Secretary
notifies the veteran that the application
for a disability discharge has been
denied, and that the loan is due and
payable to the Secretary under the terms
of the promissory note.
(B) The Secretary notifies the veteran
that he or she may reapply for a total
and permanent disability discharge in
accordance with the procedures
described in paragraph (b) of this
section if the documentation from the
Department of Veterans Affairs does not
indicate that the veteran is totally and

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permanently disabled as described in
paragraph (2) of the definition of that
term in 34 CFR 682.200(b), but indicates
that the veteran may be totally and
permanently disabled as described in
paragraph (1) of the definition of that
term.
31. Section 685.217 is amended by:
A. Revising paragraph (a).
B. In paragraph (b), adding a
definition of Educational service
agency.
C. Revising the introductory text of
paragraph (c)(1).
D. In paragraph (c)(1)(ii), adding the
words ‘‘or educational service agency’s’’
immediately after the words ‘‘the
school’s’’.
E. In paragraph (c)(1)(iii), removing
the words ‘‘Bureau of Indian Affairs
(BIA)’’ and adding, in their place, the
words ‘‘Bureau of Indian Education
(BIE)’’, and removing the words ‘‘the
BIA’’ and adding, in their place, the
words ‘‘the BIE’’.
F. In paragraph (c)(2), adding the
words ‘‘or educational service agency’’
immediately after the words ‘‘If the
school’’ at the beginning of the
paragraph, and removing the words ‘‘the
school failed’’ and adding, in their
place, the word ‘‘fails’’.
G. In paragraph (c)(3)(i)(A), removing
the words ‘‘in which’’ and adding, in
their place, the words ‘‘or educational
service agency where’’.
H. In paragraph (c)(3)(i)(B), removing
the words ‘‘in which’’ and adding, in
their place, the words ‘‘or educational
service agency where’’.
I. In paragraph (c)(3)(ii)(A), removing
the word ‘‘in’’ and adding, in its place,
the word ‘‘at’’, and adding the words ‘‘,
or taught mathematics or science to
secondary school students on a full-time
basis at an eligible educational service
agency,’’ immediately after the words
‘‘secondary school’’.
J. In paragraph (c)(3)(ii)(B), removing
the word ‘‘in’’ the first time it appears
and adding, in its place, the word ‘‘at’’,
and adding the words ‘‘or educational
service agency’’ immediately after the
words ‘‘secondary school’’ the first time
they appear.
K. Adding a new paragraph (c)(3)(iii).
L. In paragraph (c)(4)(i), removing the
word ‘‘in’’ and adding, in its place, the
word ‘‘at’’, and adding the words ‘‘or
educational service agency’’
immediately after the words ‘‘secondary
school’’ the first time they appear.
M. In paragraph (c)(4)(ii)(A), removing
the word ‘‘in’’ and adding, in its place,
the word ‘‘at’’, and adding the words ‘‘,
or taught mathematics or science on a
full-time basis to secondary school
students at an eligible educational

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service agency,’’ immediately after the
words ‘‘secondary school’’.
N. In paragraph (c)(4)(ii)(B), removing
the word ‘‘in’’ the first time it appears
and adding, in its place, the word ‘‘at’’,
and by adding the words ‘‘or
educational service agency’’
immediately after the words ‘‘secondary
school’’ the first time they appear.
O. Adding a new paragraph (c)(4)(iii).
P. Revising paragraph (c)(9).
Q. Revising paragraph (c)(11).
The revisions and additions read as
follows:

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§ 685.217
program.

Teacher loan forgiveness

(a) General. (1) 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.
(2) The borrower must have been
employed at an eligible elementary or
secondary school that serves lowincome families or by an educational
service agency that serves low-income
families as a full-time teacher for five
consecutive complete academic years.
For teaching service performed at an
eligible elementary or secondary school,
at least one of the academic years must
have been after the 1997–1998 academic
year. For teaching service performed by
an employee of an eligible educational
service agency, at least one of the five
consecutive complete academic years
must have been after the 2007–2008
academic year.
(3) 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.
(4) A 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 if the
borrower was employed for five
consecutive years—
(i) At an eligible secondary school as
a highly qualified mathematics or
science teacher, or at an eligible
educational service agency as a highly

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qualified teacher of mathematics or
science to secondary school students; or
(ii) At an eligible elementary or
secondary school or educational service
agency as a highly qualified special
education teacher.
(5) 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) * * *
Educational service agency means a
regional public multiservice agency
authorized by State statute to develop,
manage, and provide services or
programs to local educational agencies,
as defined in section 9101 of the
Elementary and Secondary Education
Act of 1965, as amended.
*
*
*
*
*
(c) * * *
(1) A borrower who has been
employed at an elementary or secondary
school or an educational service agency
as a full-time teacher for five
consecutive complete academic years
may obtain loan forgiveness under this
program if the elementary or secondary
school or educational service agency—
* * *
(3) * * *
(iii) For teaching service performed by
an employee of an eligible educational
service agency, at least one of the five
consecutive complete academic years
must have been after the 2007–2008
academic year.
(4) * * *
(iii) For teaching service performed by
an employee of an eligible educational
service agency, at least one of the five
consecutive complete academic years
must have been after the 2007–2008
academic year.
*
*
*
*
*
(9) A borrower who was employed as
a teacher at more than one qualifying
school, at more than one qualifying
educational service agency, or at a
combination of both during an academic
year and demonstrates that the
combined teaching was the equivalent
of full-time, as supported by the
certification of one or more of the chief
administrative officers of the schools or
educational service agencies involved,
is considered to have completed one
academic year of qualifying teaching.
*
*
*
*
*
(11) A borrower may not receive loan
forgiveness for the same qualifying
teaching service under this section if the
borrower receives a benefit for the same
teaching service under—
(i) 34 CFR 682.216;
(ii) Subtitle D of title I of the National
and Community Service Act of 1990;
(iii) 34 CFR 685.219; or

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(iv) Section 428K of the Act.
*
*
*
*

§ 685.220

[Amended]

32. Section 685.220 is amended by:
A. In paragraph (d)(1)(i)(B)(3), adding
the words ‘‘or the no accrual of interest
benefit for active duty service’’
immediately after the word ‘‘Program’’.
B. In paragraph (d)(1)(i)(B)(4), adding
the words ‘‘or an income-based
repayment plan’’ immediately after the
words ‘‘income contingent repayment
plan’’.
C. In paragraph (d)(1)(i)(B)(5), adding
the words ‘‘or the no accrual of interest
benefit for active duty service’’
immediately after the word ‘‘Program’’.
33. Section 685.221 is amended by:
A. Revising paragraph (a)(4).
B. In paragraph (b)(1), removing the
words ‘‘Except as provided under
paragraph (b)(2) of this section, the’’ in
the second sentence and adding, in their
place, the word ‘‘The’’.
C. In paragraph (b)(2)(i), removing the
word ‘‘The’’ at the beginning of the
sentence and adding, in its place, the
words ‘‘Except for borrowers provided
for in paragraph (b)(2)(ii) of this section,
the’’.
D. Redesignating paragraphs (b)(2)(ii)
and (b)(2)(iii) as paragraphs (b)(2)(iii)
and (b)(2)(iv), respectively.
E. Adding a new paragraph (b)(2)(ii).
F. In newly redesignated paragraph
(b)(2)(iii), removing the words ‘‘or
(b)(2)(i)’’ and adding, in their place, the
words ‘‘, (b)(2)(i), or (b)(2)(ii)’’.
G. In newly redesignated paragraph
(b)(2)(iv), removing the words ‘‘or
(b)(2)(i)’’ and adding, in their place, the
words ‘‘, (b)(2)(i), or (b)(2)(ii)’’.
The revision and addition read as
follows:
§ 685.221

Income-based repayment plan.

(a) * * *
(4) Partial financial hardship means a
circumstance in which—
(i) For an unmarried borrower or a
married borrower who files an
individual Federal tax return, the
annual amount due on all of the
borrower’s eligible loans, as calculated
under a standard repayment plan based
on a 10-year repayment period, using
the greater of the amount due at the time
the borrower initially entered
repayment or at the time the borrower
elects the income-based repayment
plan, exceeds 15 percent of the
difference between the borrower’s AGI
and 150 percent of the poverty guideline
for the borrower’s family size; or
(ii) For a married borrower who files
a joint Federal tax return with his or her
spouse, the annual amount due on all of
the borrower’s eligible loans and, if

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applicable, the spouse’s eligible loans,
as calculated under a standard
repayment plan based on a 10-year
repayment period, using the greater of
the amount due at the time the loans
initially entered repayment or at the
time the borrower or spouse elects the
income-based repayment plan, exceeds
15 percent of the difference between the
borrower’s and spouse’s AGI, and 150
percent of the poverty guideline for the
borrower’s family size.

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(b) * * *
(2) * * *
(ii) Both the borrower and borrower’s
spouse have eligible loans and filed a
joint Federal tax return, in which case
the Secretary determines—
(A) Each borrower’s percentage of the
couple’s total eligible loan debt;
(B) The adjusted monthly payment for
each borrower by multiplying the
calculated payment by the percentage
determined in paragraph (b)(2)(ii)(A) of
this section; and

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(C) If the borrower’s loans are held by
multiple holders, the borrower’s
adjusted monthly Direct Loan payment
by multiplying the payment determined
in paragraph (b)(2)(ii)(B) of this section
by the percentage of the outstanding
principal amount of eligible loans that
are Direct Loans;
*
*
*
*
*
[FR Doc. E9–16952 Filed 7–22–09; 8:45 am]
BILLING CODE 4000–01–P

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