Interim Final[1]

Vol. 78

Thursday,

No. 95

May 16, 2013

Part II

Department of Education

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34 CFR Part 685
William D. Ford Federal Direct Loan Program; Interim Final Rule

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28954

Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
Privacy Note: The Department’s policy is
to make all comments received from
members of the public available for public
viewing in their entirety on the Federal
eRulemaking Portal at www.regulations.gov.
Therefore, commenters should be careful to
include in their comments only information
that they wish to make publicly available.

DEPARTMENT OF EDUCATION
34 CFR Part 685
[Docket ID ED–2013–OPE–0066]
RIN 1840–AD13

William D. Ford Federal Direct Loan
Program

FOR FURTHER INFORMATION CONTACT:

Office of Postsecondary
Education, Department of Education.
ACTION: Interim final rule; request for
comments.
AGENCY:

The Secretary amends the
William D. Ford Federal Direct Loan
Program (Direct Loan Program)
regulations to reflect changes made to
the program by the Moving Ahead for
Progress in the 21st Century Act (MAP–
21), Public Law 112–141. Specifically,
these interim final regulations reflect
the provisions in MAP–21 that amended
the Higher Education Act of 1965, as
amended (HEA) to extend the 3.4
percent interest rate on Direct
Subsidized Loans from July 1, 2012, to
July 1, 2013, and to ensure that a
borrower may not receive Direct
Subsidized Loans for more than 150
percent of the published length of the
educational program in which the
borrower is enrolled. Under the changes
made by MAP–21, if the borrower
exceeds this Direct Subsidized Loan
limit, the borrower also becomes
responsible for the accruing interest on
the Direct Subsidized Loans.
DATES: These interim final regulations
are effective May 16, 2013. We must
receive your comments on or before July
1, 2013.
ADDRESSES: Submit your comments
through the Federal eRulemaking Portal
or via U.S. mail, commercial delivery, or
hand delivery. We will not accept
comments by fax or by email. Please
submit your comments only once 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
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 interim final
regulations, address them to Nathan
Arnold, U.S. Department of Education,
1990 K Street NW., Room 8084,
Washington, DC 20006–8542.

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SUMMARY:

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Nathan Arnold, U.S. Department of
Education, 1990 K Street NW., Room
8084, Washington, DC 20006–8542.
Telephone: (202) 219–7134 or via
Internet at: [email protected].
If you use a telecommunications
device for the deaf (TDD) or a text
telephone (TTY), call the Federal Relay
Service (FRS), toll free, at 1–800–877–
8339.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of This Regulatory Action:
On July 6, 2012, the President signed
into law MAP–21, which, among other
things, made two changes to section 455
of the HEA. First, the law extended for
an additional year the 3.4 percent
interest rate that had applied to Direct
Subsidized Loans made to
undergraduate students since July 1,
2011. Second, the law placed a limit on
Direct Subsidized Loan eligibility for
new borrowers on or after July 1, 2013.
Specifically, the statute provides that a
new borrower on or after July 1, 2013,
becomes ineligible to receive additional
Direct Subsidized Loans if the period
during which the borrower has received
such loans exceeds 150 percent of the
published length of the borrower’s
educational program. The borrower also
becomes responsible for accruing
interest during all periods as of the date
the borrower exceeds the 150 percent
limit. The purpose of the statutory
changes is to encourage students to
complete their academic programs in a
timely manner. Timely completion of
programs will allow borrowers to reap
the benefits of a postsecondary degree or
credential and avoid incurring
unnecessary student loan debt. This
interim final rule implements the
required statutory changes.
Summary of the Major Provisions of
This Regulation:
Action: This interim final rule
incorporates the statutory changes made
by MAP–21 by—
• Providing that a Direct Subsidized
Loan first disbursed on or after July 1,
2012, and before July 1, 2013, has an
interest rate of 3.4 percent.
• Establishing new Direct Loan
Program regulations that provide that a
new borrower on or after July 1, 2013,
is no longer eligible to receive
additional Direct Subsidized Loans if

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the period during which the borrower
has received such loans meets or
exceeds 150 percent of the published
length of the program in which the
borrower is currently enrolled. These
borrowers may still receive Direct
Unsubsidized Loans for which they are
otherwise eligible.
• Establishing new Direct Loan
Program regulations that provide that
new borrowers who are ineligible for
Direct Subsidized Loans as a result of
these provisions and enroll in a program
for which the borrower would otherwise
be eligible for a Direct Subsidized Loan
become responsible for accruing interest
on all previously received Direct
Subsidized Loans during all future
periods, beginning on the date of the
triggering enrollment.
• Prorating periods of Direct
Subsidized Loan receipt during parttime enrollment for purposes of the
limit on Direct Subsidized Loan
eligibility.
• Establishing special rules for
applying the limit on Direct Subsidized
Loan eligibility for borrowers enrolled
in preparatory coursework required for
enrollment in an undergraduate or a
graduate or professional program and
teacher certification coursework
necessary for a State teaching credential
for which the institution awards no
academic credential. These special rules
limit the borrower’s responsibility for
accruing interest in certain
circumstances.
• Modifying existing entrance- and
exit-counseling requirements to provide
borrowers with information regarding
the 150 percent limit on Direct
Subsidized Loans.
Please refer to the Significant Proposed
Regulations section of this preamble for
a detailed discussion of the major
provisions contained in this interim
final rule.
Chart 1 summarizes the interim final
regulations and related benefits, costs,
and transfers that are discussed in more
detail in the Regulatory Impact Analysis
of this preamble. The Department
estimates that approximately 62,000
borrowers will be affected by these
interim final regulations in the 2013
loan cohort, with the number of
borrowers affected increasing in each
cohort to approximately 578,000
borrowers in the 2023 loan cohort. The
benefits of these interim final
regulations include reduced loan
balances and lower payments for
borrowers receiving Direct Subsidized
Loans between July 1, 2012, and July 1,
2013, and the creation of incentives for
first-time borrowers on or after July 1,
2013, to complete academic programs in

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a timely manner. The net budget impact
of the interim final regulations is ¥$3.9

28955

billion over the 2013 to 2023 loan
cohorts.

CHART 1—SUMMARY OF THE PROPOSED REGULATIONS
Issue and key features

Benefits

Interest rate reduction, limitations on eligibility for Direct Subsidized
Loans, and responsibility for accruing interest for first-time borrowers on or after July 1, 2013 (34 CFR part 685)
Reduction of interest rate on Direct Subsidized Loans to 3.4 percent after July 1, 2011, and before July 1, 2013.
Limitation on Direct Subsidized Loan eligibility for borrowers who
receive such loans for 150 percent of the published length of
the educational program and borrower responsibility for accruing interest for enrollment after meeting or exceeding this limit.
Prorating periods of Direct Subsidized Loan receipt during parttime enrollment.

Reduced loan balance and lower
payments for borrowers.
Create incentives for students to
complete academic programs in
a timely manner and avoid incurring unnecessary loan debt.
Account for differing enrollment
levels for borrower equity.

Specialized treatment for borrowers enrolled in preparatory
coursework required for enrollment in an eligible program and
teacher certification coursework necessary for a State teaching
credential for which the institution awards no academic credential.
Modified entrance- and exit-counseling requirements to provide
borrowers with information regarding the 150 percent limit on
Direct Subsidized Loans.

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Invitation to Comment
We invite you to submit comments
regarding these interim final
regulations. 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 interim final
regulations that each of your comments
addresses and to arrange your comments
in the same order as the interim final
regulations. We will consider these
comments in determining whether to
revise these interim final regulations.
We invite you to assist us in
complying with the specific
requirements of Executive Orders 12866
and 13563 and their overall requirement
of reducing regulatory burden that
might result from these interim final
regulations. Please let us know of any
further ways we could reduce potential
costs or increase potential benefits
while preserving the effective and
efficient administration of the Direct
Loan Program.
During and after the comment period,
you may inspect all public comments
about these interim final regulations by
accessing www.regulations.gov. You
may also inspect the comments in
person in room 8083, 1990 K Street,
NW., Washington, DC, between 8:30
a.m. and 4:00 p.m. Washington, DC
time, Monday through Friday of each
week, except Federal holidays.

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Provide borrowers with information
on eligibility limitations and potential responsibility for accruing
interest.

On request, we will provide an
appropriate accommodation or auxiliary
aid to an individual with a disability
who needs assistance to review the
comments or other documents in the
public rulemaking record for these
interim final regulations. If you want to
schedule an appointment for this type of
accommodation or auxiliary aid, please
contact the person listed under FOR
FURTHER INFORMATION CONTACT.
Background
On July 6, 2012, the President signed
MAP–21 into law. MAP–21 included
two changes to the Direct Loan Program.
First, MAP–21 amended section 455 of
the HEA to extend the 3.4 percent fixed
interest rate that applies to Direct
Subsidized Loans made to
undergraduate students before July 1,
2013. Second, the law placed a limit on
Direct Subsidized Loan eligibility for
new borrowers on or after July 1, 2013.
Specifically, a new borrower on or after
July 1, 2013 is no longer eligible to
receive additional Direct Subsidized
Loans if the period during which the
borrower has received such loans
exceeds 150 percent of the published
length of the borrower’s educational
program. Additionally, the borrower
becomes responsible for accruing
interest on any Direct Subsidized Loan
made to the borrower on or after July 1,
2013 if he or she is enrolled in an
undergraduate program after reaching

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Estimated net budget impact of
¥$3.9 billion over the 2013–
2023 loan cohort.

Limit borrower responsibility for
accruing interest to encourage
completion.

Assistance to Individuals With
Disabilities in Reviewing the
Rulemaking Record

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Cost/transfers

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Estimated cost of $4.21 million in
increased burden to institutions
and borrowers.

this 150 percent limit. These restrictions
apply to a ‘‘first-time borrower’’ on or
after July 1, 2013; a first-time borrower
is one who on that date has no
outstanding balance of principal or
interest on a Direct Loan Program or
FFEL Program loan.
The amendments to section 455 of the
HEA that limit eligibility for Direct
Subsidized Loans require implementing
regulations. Under MAP–21 these
regulations are not subject to the
requirements in sections 482 and 492 of
the HEA for negotiated rulemaking and
publication of regulations in accordance
with the master calendar provisions.
These interim final regulations contain
the provisions necessary to implement
the amendments to section 455 of the
HEA.
The Department will be making
significant changes to its student
financial aid systems to implement the
new statutory requirements. Those
changes are described in more detail at
the conclusion of this preamble. The
Department will be responsible for the
following: tracking borrowers’ Direct
Subsidized Loan borrowing in greater
detail; informing institutions of the
number of periods a borrower has
received Direct Subsidized Loans; and
informing borrowers when they exceed
the eligibility limit and become
responsible for accruing interest.
Institutions will not be required to track
this information or inform borrowers of
their status on a continual basis.
However, for the Department to ensure
the integrity of the Direct Loan Program
and compliance with the new statutory

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and regulatory requirements,
institutions will be required to report
certain additional program and
borrower enrollment information to the
Department.
Significant Regulations
We discuss substantive issues under
the sections of the regulations to which
they pertain. Generally, we do not
address regulatory provisions that are
technical or otherwise minor in effect.
Part 685—William D. Ford Federal
Direct Loan Program Extension of the
3.4 Percent Fixed Interest Rate on Direct
Subsidized Loans until July 1, 2013
(§ 685.202(a)(1)(v)(E))
Statute: MAP–21 amended section
455(b)(7)(D) of the HEA to extend, until
July 1, 2013, the period during which
the fixed interest rate on new Direct
Subsidized Loans will be 3.4 percent.
The interest rate on new loans was
scheduled to increase to a fixed interest
rate of 6.8 percent beginning with loans
first disbursed on or after July 1, 2012.
The increase in the interest rate to 6.8
percent is now scheduled to begin with
loans first disbursed on or after July 1,
2013.
Current Regulations: Under current
§ 685.202(a)(1)(v)(E) of the regulations,
the interest rate on a Direct Subsidized
Loan first disbursed on or after July 1,
2011, and before June 30, 2012, is 3.4
percent. Under § 685.202(a)(1)(iv), the
interest rate on Direct Subsidized Loans
disbursed on or after July 1, 2012, is 6.8
percent. Direct Subsidized Loans are
only available to undergraduate
borrowers.
New Regulations: We are revising
§ 685.202(a)(1)(v)(E) of the Direct Loan
regulations to reflect that the unpaid
balance on a Direct Subsidized Loan
first disbursed on or after July 1, 2011,
and before July 1, 2013, has an interest
rate of 3.4 percent.
Reasons: This change reflects the
amendment to section 455(b)(7)(D) of
the HEA.

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Application of the 150 Percent Direct
Subsidized Loan Limit to First-Time
Borrowers on or After July 1, 2013
(§ 685.200(f)(1)(i))
Statute: MAP–21 added section
455(q)(1) to the HEA, which provides
that any borrower who is a new
borrower on or after July 1, 2013, is
subject to the revised eligibility
requirements that limit the borrower’s
receipt of Direct Subsidized Loans to
150 percent of the published length of
the borrower’s educational program.
Current Regulations: There are no
existing regulations.

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New Regulations: Section
685.200(f)(1)(i) defines the term ‘‘firsttime borrower’’ as an individual who
has no outstanding balance of principal
or interest on a loan made under the
Direct Loan Program or the FFEL
Program (regardless of loan type) on July
1, 2013, or on the date the borrower
obtains a Direct Loan after July 1, 2013.
The limitation on Direct Subsidized
Loan eligibility only applies to a ‘‘firsttime borrower’’ on or after July 1, 2013.
A borrower who has an outstanding
loan balance as of that date is not
subject to the 150 percent Direct
Subsidized Loan eligibility limit. If the
borrower had such a loan balance prior
to July 1, 2013, and paid off that balance
in full, and then received a new Direct
Loan on or after July 1, 2013, the
borrower is considered a ‘‘first-time
borrower’’ and subject to the Direct
Subsidized Loan eligibility limit.
A borrower who has an outstanding
balance on a Direct Loan or a FFEL
program loan prior to July 1, 2013, and
who consolidates those loans on or after
July 1, 2013, does not become a ‘‘firsttime borrower’’ for this purpose by
consolidating the loans. Finally, we do
not consider a borrower’s outstanding
balance on a Federal Perkins loan in the
determination of whether a borrower is
a first-time borrower who will be subject
to the Direct Subsidized loan eligibility
limit.
Reasons: We have defined the term
‘‘first-time borrower’’ to reflect the
provision of MAP–21 that applies the
150 percent Direct Subsidized Loan
eligibility limit to first-time borrowers
on or after July 1, 2013. The definition
of ‘‘first-time borrower’’ for this purpose
is consistent with how we have treated
similarly situated borrowers for other
purposes elsewhere in the Direct Loan
and FFEL program regulations (see, e.g.,
§§ 685.209(a)(1) and 685.217(a)(1)).
Limitations on Eligibility for Direct
Subsidized Loans (§ 685.200(a)(2),
§ 685.200(f)(2))
Statute: MAP–21 added section
455(q)(1) to the HEA. Section 455(q)(1)
of the HEA provides that any borrower
who is a new Direct Loan borrower on
or after July 1, 2013, is not eligible for
a Direct Subsidized Loan if the period
of time for which the borrower has
received Direct Subsidized Loans, in the
aggregate, exceeds 150 percent of the
published length of the borrower’s
educational program. Such a borrower
may still receive any Direct
Unsubsidized Loan for which the
borrower is otherwise eligible.
Current Regulations: There are no
existing regulations.

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New Regulations: Section
685.200(f)(2) provides that a first-time
borrower loses eligibility for new Direct
Subsidized Loans when the borrower
has no remaining eligibility period, as
defined in § 685.200(f)(1)(iv) (this and
other defined terms are discussed in the
next section of the preamble). The
interim final regulations also provide
that such a borrower may still receive a
Direct Unsubsidized Loan for which the
borrower is otherwise eligible. In
addition, we have updated
§ 685.200(a)(2)(i) to reflect that, in
addition to demonstrating financial
need in accordance with Title IV, part
F of the HEA, a first-time borrower must
also not have met or exceeded the
limitations on receipt of Direct
Subsidized Loans described in
§ 685.200(f).
Reasons: Section 685.200(f)(2) reflects
section 455(q)(1) of the HEA, which
places a limit on eligibility for Direct
Subsidized Loans if a first-time
borrower on or after July 1, 2013,
receives Direct Subsidized Loans in
excess of 150 percent of the published
length of the borrower’s educational
program. We are including a cross
reference to § 685.200(f) in
§ 685.200(a)(2)(i) to ensure that firsttime borrowers understand that
eligibility for Direct Subsidized Loans
depends on meeting the eligibility
requirements in § 685.200(f).
Calculation of a Borrower’s Maximum
Eligibility Period, Subsidized Usage
Period, and Remaining Eligibility Period
(§ 685.200(f)(1)(ii)–(f)(1)(iv))
Statute: Under section 455(q) of the
HEA a borrower is no longer eligible for
additional Direct Subsidized Loans if
the period of time for which the
borrower has received Direct Subsidized
Loans exceeds the aggregate period of
enrollment described in section
455(q)(3). Section 455(q)(3) defines the
term ‘‘aggregate period of enrollment’’
as the lesser of: (1) a period equal to 150
percent of the published length of the
educational program in which the
student is enrolled; or (2) in the case of
a borrower who was previously enrolled
in one or more other educational
programs that began on or after July 1,
2013, a period of time equal to the
difference between 150 percent of the
published length of the longest
educational program in which the
borrower was, or is, enrolled and any
periods of enrollment in which the
borrower received a Direct Subsidized
Loan.
Current Regulations: There are no
existing regulations.
New Regulations: Section
685.200(f)(1)(ii) defines the term

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28957

‘‘maximum eligibility period’’ and
describes how we will calculate it for a
borrower. The ‘‘maximum eligibility
period’’ is the regulatory term we have
adopted to refer to the ‘‘aggregate period
of enrollment’’ described in section
455(q)(1) and (q)(3)(A) of the HEA.
Section 685.200(f)(1)(ii) provides that a
borrower’s maximum eligibility period
for Direct Subsidized Loans is equal to
150 percent of the length of the
educational program, as published by
the institution, in which the borrower is
currently enrolled. Therefore, we will
calculate a borrower’s ‘‘maximum
eligibility period’’ by multiplying the
published length of the borrower’s
current educational program by 1.5.
Section 685.200(f)(1)(iii) defines the
term ‘‘subsidized usage period’’ and
provides that we will calculate it by
dividing the number of days in the
borrower’s loan period for a Direct
Subsidized Loan by the number of days
in the academic year for which the
borrower receives the Direct Subsidized
Loan. The interim final regulations
provide that this time period will be
measured in academic years, which we
will calculate using the information
provided by the institution (this
reporting requirement is discussed in
more detail in the section of this
preamble covering operational issues).
A borrower’s ‘‘subsidized usage period’’
includes only those periods of time for
which the borrower received a Direct
Subsidized Loan, rather than all of the

periods that a borrower is enrolled in
one or more educational programs.
Section 685.200(f)(1)(iii) also specifies
that the number of years in a borrower’s
subsidized usage period will be rounded
down to the nearest quarter of a year.
For example, a subsidized usage period
of 0.53 years would be rounded to 0.5
years and a subsidized usage period of
0.88 years would be rounded to 0.75
years.
Section 685.200(f)(1)(iv) of the interim
final regulations defines the term
‘‘remaining eligibility period’’ and
provides that it is calculated as the
difference, measured in academic years,
between the borrower’s maximum
eligibility period and the sum of the
borrower’s subsidized usage periods.
When the difference between a
borrower’s maximum eligibility period
and the sum of the borrower’s
subsidized usage periods is zero, the
borrower has no remaining eligibility
period. As provided in § 685.200(f)(2), a
first-time borrower who has no
remaining eligibility period is no longer
eligible for additional Direct Subsidized
Loans. A borrower’s ability to regain
eligibility for Direct Subsidized Loans is
discussed later in this preamble.
A borrower’s maximum eligibility
period and remaining eligibility period
are calculated in the same manner
regardless of whether the borrower
graduates, transfers, or withdraws from
the program. However, the interim final
regulations treat a borrower who

graduates from his or her program in a
timely manner differently for purposes
of borrower responsibility for the
accruing interest (see the preamble
discussion of § 685.200(f)(3)).
Section 685.200(f)(1)(ii) provides that
we will calculate a borrower’s
maximum eligibility period based on
the published length of the educational
program in which the borrower is
currently enrolled. Therefore, if a
borrower subsequently enrolls in a
program that is shorter or longer than
the borrower’s current program, we will
recalculate the borrower’s maximum
eligibility period based on the length of
the new program. Because
§ 685.200(f)(1)(iv) provides that a
borrower’s remaining eligibility period
is based (in part) on the sum of the
borrower’s subsidized usage periods,
subsidized usage periods accrued
during previously-enrolled programs
count against the maximum eligibility
period of the program in which the
borrower is currently enrolled.
Examples 1 through 5 illustrate how
we will calculate a borrower’s
maximum eligibility period, subsidized
usage period, and remaining eligibility
period:
Example 1: A borrower enrolls in a
two-year undergraduate program and
receives Direct Subsidized Loans for one
academic year. The program’s academic
year is comprised of 30 weeks (or 210
days) of instructional time.

The borrower’s maximum eligibility
period is 150 percent of the two-year
program, or three academic years.
Because the borrower has already
received a Direct Subsidized Loan for
one academic year, the borrower’s
subsidized usage period is one academic
year. The difference between the
borrower’s maximum eligibility period

(three academic years) and the sum of
the borrower’s subsidized usage periods
(one academic year) is the borrower’s
remaining eligibility period (two
academic years). (For purposes of
simplicity and clarity, subsequent
examples will not include the
conversion from days to years for a
borrower’s subsidized usage period for

each loan and will refer to an ‘‘academic
year’’ as a ‘‘year’’ unless necessary to
illustrate the operation of a specific
regulatory provision.)
Example 2: A borrower enrolls in a
four-year program and receives Direct
Subsidized Loans for each of the four
years.

Maximum eligibility period for program ................................................
Subsidized usage period .....................................................................
Sum of all subsidized usage periods ...................................................

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Year 1

Year 2

Year 3

6 years .............
1 year ...............
1 year ...............

6 years .............
1 year ...............
2 years .............

6 years ..............
1 year ...............
3 years ..............

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Year 4
6 years.
1 year.
4 years.

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Remaining eligibility period at end of year ..........................................

The borrower’s program has a
published length of four years and a
maximum eligibility period of six years
(150 percent of the four-year program)
and the borrower received Direct
Subsidized Loans for four years. The
subsidized usage period for each year is
one year and the sum of the subsidized

Year 1

Year 2

Year 3

5 years ..............

4 years .............

3 years ..............

usage periods is four years. At the end
of the fourth year, the borrower’s
remaining eligibility period is two years,
which is the difference between the
borrower’s maximum eligibility period
(six years) and the sum of the borrower’s
subsidized usage periods (four years).

Maximum eligibility period for program .............................................................................................................
Sum of all subsidized usage periods ................................................................................................................
Remaining eligibility period ................................................................................................................................

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Maximum eligibility period for twoyear program.
Sum of all subsidized usage periods.
Remaining eligibility period ............

3 years.
2 years.
1 year.

The borrower’s four-year program has
a maximum eligibility period of six
years. When the borrower enrolls in the
two-year program, the borrower’s

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maximum eligibility period is
recalculated as three years (150 percent
of the two-year program). The
borrower’s prior subsidized usage
periods (two years) in the four-year
program count against the borrower’s
new maximum eligibility period in the
two-year program. Therefore, the
borrower’s remaining eligibility period
is one year, which is the difference
between the borrower’s maximum
eligibility period (three years) and the
sum of the borrower’s subsidized usage
periods (two years).
Example 5: A borrower enrolls in a
four-year program and receives Direct
Subsidized Loans for three years. The
borrower completes the degree program
at the end of the fourth year, but does
not receive any Direct Subsidized Loans
for that year. The borrower then enrolls
in a different four-year undergraduate
program, but has not yet received any
Direct Subsidized Loans in the new
program.
Maximum eligibility period ..............
Sum of the subsidized usage periods.
Remaining eligibility period ............

6 years.
3 years.
3 years.

The borrower’s original four-year
program has a maximum eligibility
period of six years. The borrower
received Direct Subsidized Loans for
three years. The borrower’s maximum
eligibility period in the second four-year
program is also six years, and the
borrower’s prior subsidized usage
periods count against the borrower’s
maximum eligibility period in the
second program. Therefore, the
borrower’s remaining eligibility period
is three years, which is the difference
between the borrower’s maximum
eligibility period (six years) and the sum

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2 years.

Example 3: A borrower enrolls in a
two-year program and receives Direct
Subsidized Loans for two years. The
borrower then transfers to a four-year
program, but has not yet received any
Direct Subsidized Loans for attendance
in the four-year program.
After year 2 of
two-year program

The borrower’s original two-year
program had a maximum eligibility
period of three years. Because the
borrower received Direct Subsidized
Loans for each of the two years of
enrollment, the sum of the borrower’s
subsidized usage periods is two years.
When the borrower enrolls in the fouryear program, the borrower’s maximum
eligibility period is recalculated to six
years (150 percent of the four-year
program). The borrower’s prior
subsidized usage periods in the twoyear program count against the
borrower’s new maximum eligibility
period. Therefore, the borrower’s
remaining eligibility period is four
years, which is the difference between
the borrower’s new maximum eligibility
period (six years) and the sum of the
borrower’s subsidized usage periods
(two years). (Subsequent examples will
only detail the sum of all of a borrower’s
subsidized usage periods unless
necessary to clarify the application of
the interim final regulations.)
Example 4: A borrower enrolls in a
four-year program and receives Direct
Subsidized Loans for two years. The
borrower then withdraws before
completing the four-year program, and
subsequently enrolls in a two-year
program. The borrower has not yet
received any Direct Subsidized Loans
for attendance in the two-year program.

Year 4

3 years .............
2 years .............
1 years .............

Upon transfer to
four-year program
6 years.
2 years.
4 years.

of the borrower’s subsidized usage
periods (three years). The borrower’s
fourth year of enrollment in the original
program has no effect on the borrower’s
remaining eligibility period because the
borrower did not receive any Direct
Subsidized Loans for that year.
In addition to the standard
calculations described above, we note
that § 685.301(a)(10) and (c) continue to
apply and effectively limit the length of
time a borrower may receive loans
under the interim final regulations.
Specifically, § 685.301(a)(10)
describes the minimum permissible
length of a loan period. If the borrower’s
remaining eligibility period (as
calculated under § 685.200(f)(1)(iv)) is
less than the minimum permissible loan
period associated with the borrower’s
program of study, then the institution
may not disburse a Direct Subsidized
Loan to that borrower.
Under § 685.301(c), borrowers
enrolled in clock-hour, non-term, or
certain non-standard term programs are
not eligible for a new annual loan limit
until they complete either the weeks of
instructional time or clock hours
required. Thus, students enrolled in
these types of programs are effectively
limited to receiving Direct Subsidized
Loans for 100 percent of the length of
the program, notwithstanding the 150
percent maximum eligibility period of
the program as calculated under section
455(q) of the HEA. As a result, the 150
percent limit does not affect a borrower
enrolled in such a program unless the
borrower subsequently enrolls in
another educational program (whether a
standard-term, non-standard-term, or
non-term program).
The requirements of § 685.301(a)(10)
are summarized in Table 1, below.
Examples 6 and 7 illustrate the effect on

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the 150 percent limitations of
§ 685.301(a)(10) and (c), respectively.

TABLE 1—MINIMUM LOAN PERIODS FOR DIFFERING PROGRAM TYPES
Type of program

Minimum loan period

Lesser of the length of the program or the program’s academic year.
Lesser of the length of the program or the program’s academic year.
Lesser of the length of the program or the program’s academic year.

completing the certificate program, the
borrower enrolls in a two-year
associate’s degree program that defines
its academic year as 30 weeks (or 210
days) of instructional time, and that
uses credit hours and semesters. In each
of the borrower’s first two years in the
After Certificate
program

Maximum eligibility period of program ....
Subsidized usage period .........................
Sum of all subsidized usage periods ......
Remaining eligibility period at end of the
year.

1.27
0.85
0.75
0.52

The borrower’s 22-week certificate
program, which is the equivalent of 0.85
academic years

has a maximum eligibility period of 1.27
academic years (0.85 academic years
multiplied by 150 percent). The
borrower’s subsidized usage period for
the certificate program is the same as
the length of the program, 0.85
academic years

which is rounded down to the nearest
quarter-year, or 0.75 years. Upon
transferring to the two-year program, the
borrower’s maximum eligibility period

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The borrower’s one-year program has
a maximum eligibility period of 1.5
years and the borrower’s subsidized
usage period is one year. The borrower’s
remaining eligibility period is 0.5 years
(the difference between the borrower’s
maximum eligibility period (1.5 years)
and the sum of the borrower’s

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After year 1 in the two-year program

years ..............................................
years, rounded down to 0.75 years
years ..............................................
years ..............................................

3 years ...................................................
1 year .....................................................
1.75 years ..............................................
1.25 years ..............................................

is three years. After two years in the
two-year program, during which the
borrower receives Direct Subsidized
Loans equaling two years, the sum of
the borrower’s subsidized usage periods
is 2.75 years (two years from the twoyear program plus 0.75 years from the
certificate program). After two years in
the two-year program, the borrower’s
remaining eligibility period is 0.25 years
(the difference between the two-year
program’s maximum eligibility period
(three years) and the sum of the
borrower’s subsidized usage periods
(2.75 years)). The borrower has a
remaining eligibility period of 52.5 days
(0.25 years × 210 days in an academic
year). Because the borrower is enrolled
in a program that uses credit hours and
semesters, under § 685.301(a)(10), the

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................

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Fmt 4701

After year 2 in
the two-year
program
3 years.
1 year.
2.75 years.
0.25 years.

minimum loan period for this borrower
is one term. Because the borrower’s
remaining eligibility period of 52.5 days
is less than the length of a semester
(generally 98–112 days, or 14–16
weeks), the institution cannot disburse
a Direct Subsidized Loan to this
borrower, even though the borrower’s
remaining eligibility period is greater
than zero.
Example 7: The borrower is enrolled
in a one-year, 900 clock hour certificate
program that defines its academic year
as 26 weeks (or 182 days) of
instructional time. The institution
disburses a Direct Subsidized Loan to
the borrower for the academic year. The
borrower completes only 700 clock
hours of instructional time during the
academic year.

1.5 years.
1 year.
0.5 years, subject to the limitation below.

subsidized usage periods (one year)).
Because the program is a clock hour
program, and because the borrower has
only completed 700 clock hours of
instructional time, the borrower may not
progress to the next academic year.
Because § 685.301(c) applies, this
borrower is not eligible to receive an

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associate’s degree program, the borrower
receives a Direct Subsidized Loan for
the academic year. The borrower has not
yet completed the associate’s degree
program, and is requesting loans for the
third year.

Sfmt 4700

additional Direct Subsidized Loan in
this program, notwithstanding the
borrower’s remaining eligibility period
of 0.5 years.
Example 7 illustrates that borrowers
in clock-hour, non-term, and certain
non-standard term programs are
effectively limited to receiving Direct
Subsidized Loans for 100 percent of the

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ER16MY13.002

Example 6: The borrower is enrolled
in a 22-week (or 154-day), 800-clockhour certificate program that defines its
academic year as 26 weeks (or 182 days)
of instructional time. The borrower
receives a Direct Subsidized Loan that
covers the length of the program. Upon

One term.
One term.

ER16MY13.001

Credit hour, standard term program .........................................................
Credit hour, non-standard term program with terms substantially equal
and at least nine weeks of instructional time.
Credit hour, non-standard term program without terms substantially
equal or at least nine weeks of instructional time.
Credit hour, non-term program .................................................................
Clock hour program ..................................................................................

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length of the program. Borrowers in
such programs are not able to receive
Direct Subsidized Loans for their
remaining eligibility period unless they
subsequently enroll in another program,
as illustrated in example 6.
Reasons: MAP–21 added section
455(q)(3)(A) to the HEA, which provides
the method by which a borrower’s
eligibility for Direct Subsidized Loans is
determined. To implement this
provision, it is necessary to issue
regulations that describe the statutory
calculations with greater specificity.
Section 685.200(f)(1)(ii) implements
section 455(q)(3) of the HEA and
establishes the rule for determining a
borrower’s maximum eligibility period
for Direct Subsidized Loans. To avoid
potentially misleading borrowers, we
elected to use the term ‘‘maximum
eligibility period’’ rather than the
statutory term ‘‘aggregate period of
enrollment.’’ Because the 150 percent
limit on eligibility is measured by the
period for which a borrower receives
Direct Subsidized Loans, rather than the
period of time that a borrower is
enrolled, using the statutory term could
cause borrower confusion.
Section 685.200(f)(1)(ii) bases the
calculation of a borrower’s maximum
eligibility period on the published
length of the program in which the
borrower is currently enrolled because
failing to do so would result in
inequitable treatment of similarly
situated borrowers. For example, if
enrolling in a new, shorter educational
program did not result in recalculating
a borrower’s maximum eligibility
period, transfer and non-transfer
students would have significantly
divergent remaining eligibility periods
simply by virtue of enrollment in a
different program. Suppose a borrower
is enrolled in a four-year program,
receives a Direct Subsidized Loan for
one year, and then transfers to a twoyear program. If we did not recalculate
the borrower’s maximum eligibility
period, that borrower would be eligible
for five additional years of Direct
Subsidized Loans. In contrast, a
borrower who had been enrolled in the
two-year program from the beginning
and also received a Direct Subsidized
Loan for one year would only have two
years of eligibility remaining. Without
recalculating a borrower’s maximum
eligibility period when the borrower
enrolls in a different program,
otherwise-equivalent borrowers would
have inconsistent and inequitable
eligibility periods. To treat all borrowers
who receive Direct Subsidized Loans
equitably, regardless of whether they
have previously enrolled in programs of
differing durations for which they

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received Direct Subsidized Loans, we
are determining eligibility for Direct
Subsidized Loans in this manner.
Section 685.200(f)(1)(iii) of the
interim final regulations, which defines
the term ‘‘subsidized usage period,’’ is
necessary to implement the requirement
in section 455(q)(1) of the HEA that the
borrower not receive Direct Subsidized
Loans for a period in excess of the
borrower’s maximum eligibility period.
This provision provides a method to
calculate the period for which a
borrower has received Direct Subsidized
Loans to ensure the statutory maximum
is not exceeded. We chose to round
borrowers’ subsidized usage periods
down to the nearest quarter year to
make it easier for borrowers and
institutions to understand and
communicate a borrower’s eligibility for
Direct Subsidized Loans. In addition,
we chose to round down to ensure that
borrowers were not denied eligibility for
Direct Subsidized Loans solely on the
basis of rounding.
Because section 455(q)(3)(A) of the
HEA does not explicitly provide a
method for calculating a borrower’s
remaining eligibility period, we needed
to issue regulations to establish rules for
calculation of that period. Section
685.200(f)(1)(iv) provides that a
borrower’s ‘‘remaining eligibility
period’’ is defined as the difference,
measured in academic years, between
the borrower’s maximum eligibility
period and the sum of the borrower’s
subsidized usage periods with certain
exceptions as discussed in the next
paragraph. The remaining eligibility
period will inform borrowers of the
period they have remaining before
becoming ineligible for Direct
Subsidized Loans.
Finally, as explained above,
§ 685.200(f)(1)(iv) is subject to the
existing provisions of § 685.301(a)(10)
and (c), which govern the minimum
length of loan periods for students
enrolled in clock hour, non-term, or
certain non-standard term programs.
Because MAP–21 did not include any
changes to the statutory provisions
reflected in § 685.301(a)(10) and (c), the
calculations specified under
§ 685.200(f)(1) must be consistent with
those existing regulatory requirements.
Exceptions to the Calculation of the 150
Percent Limit for Students Enrolled on
Less Than a Full-Time Basis or Who
Receive the Full Annual Loan Limit for
a Loan Period of Less Than an
Academic Year (§ 685.200(f)(4))
Statute: MAP–21 added section
455(q)(3)(B) to the HEA, which directs
the Department to specify in regulations
how the aggregate period of enrollment

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will be calculated with respect to
borrowers who are enrolled on less than
a full-time basis. While section
428(b)(1)(A) of the HEA permits
borrowers to receive an amount equal to
the full annual loan limit for periods of
less than an academic year, revised
section 455(q) of the HEA does not
provide a specific rule for applying the
150 percent limit to these borrowers.
Current Regulations: There are no
existing regulations.
New Regulations: The interim final
regulations provide two exceptions to
the rules for the calculation of a
borrower’s subsidized usage period in
§ 685.200(f)(1)(iii).
The first exception applies to
borrowers who receive the full Direct
Subsidized Loan annual loan limit for a
period of enrollment that is less than an
academic year. Section 685.200(f)(4)(i)
provides that, in this circumstance, a
borrower’s subsidized usage period is
one year notwithstanding the subsidized
usage period calculated under
§ 685.200(f)(1)(iii).
The second exception applies to
borrowers who are enrolled in an
educational program on less than a fulltime basis. Section 685.200(f)(4)(ii) of
the interim final regulations provides
that, except as provided in
§ 685.200(f)(4)(i) (the exception
described in the preceding paragraph),
the Secretary will prorate the subsidized
usage period for borrowers enrolled on
a half-time or three-quarter-time basis.
This proration is done by multiplying
the borrower’s subsidized usage period
by 0.5 (for half-time) or 0.75 (for threequarter-time), respectively.
Examples 8 through 11 illustrate the
calculation of a borrower’s maximum
eligibility period, subsidized usage
period, and remaining eligibility period
if the borrower receives a Direct
Subsidized Loan in the amount of the
full annual loan limit for a period less
than an academic year, for less than fulltime enrollment, or both.
Example 8: A first-year borrower is
enrolled in a four-year, semester-based
program and has received a Direct
Subsidized Loan in the amount of
$3,500 (the full annual loan limit) that
covers the fall semester. The borrower
does not enroll in the spring semester.
Maximum eligibility period ..............
Subsidized usage period ................
Remaining eligibility period ............

6 years.
1 year.
5 years.

The borrower’s four-year program has
a maximum eligibility period of six
years. The borrower received a Direct
Subsidized Loan in the amount of the
full annual loan limit for one term.
Under § 685.200(f)(1)(iii), the borrower’s

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Maximum eligibility period for
program.
Subsidized usage period .......
Applicable Proration ...............
Prorated subsidized usage
period (if applicable).
Remaining eligibility period at
end of year.

Maximum eligibility period ..............
Sum of the subsidized usage periods.
Applicable Proration .......................
Prorated subsidized usage period
Remaining eligibility period ............

6 years.
2 years.
0.5.
1 year.
5 years.

The borrower’s four-year program has
a maximum eligibility period of six
years. Because the borrower was
enrolled on a half-time basis, each of the
borrower’s subsidized usage periods is

prorated by multiplying the subsidized
usage period by 0.5, resulting in two
separate 0.5-year subsidized usage
periods, for a total subsidized usage
period of one year. Therefore, the
borrower’s remaining eligibility period
is five years, the difference between the
borrower’s maximum eligibility period
(six years) and the sum of the borrower’s
prorated subsidized usage periods (one
year).
Example 10: A borrower enrolls in a
four-year program and receives Direct
Subsidized Loans for all four academic
years. The borrower is enrolled full time
during the first academic year, half time
during the second and third academic
years, and three-quarter time during the
fourth year.

Year 1

Year 2

Year 3

6 years ..................................

6 years ..................................

6 years ..................................

6 years

1 year ....................................
N/A ........................................
1 year (not prorated) .............

1 year ....................................
0.5 .........................................
0.5 years ...............................

1 year ....................................
0.5 .........................................
0.5 years ...............................

1 year
0.75
0.75 years

5 years ..................................

4.5 years ...............................

4 years ..................................

3.25 years

The borrower’s maximum eligibility
period for the four-year program is six
years. Because the borrower had varying
enrollment levels during the four years,
prorated subsidized usage periods must
be determined and then added together
to determine the borrower’s remaining
eligibility period. As the table above
shows, in the first year, the borrower’s
subsidized usage period is not prorated
because the borrower is enrolled full
time. In the second and third years,
however, the borrower’s subsidized
usage period is prorated by 0.5 because
the borrower is enrolled half time. In the
fourth year, the borrower’s subsidized

usage period is prorated by 0.75 because
the borrower is enrolled three-quarter
time. If the borrower had been enrolled
full time during all four academic years,
and received Direct Subsidized Loans
for each of those years, the sum of the
borrower’s subsidized usage periods
would be four years at the end of the
four academic years. However, because
the borrower was not enrolled on a fulltime basis during all four academic
years, and has subsidized usage periods
that are prorated, the sum of the
borrower’s subsidized usage periods is
2.75 years. As a result, the borrower’s
remaining eligibility period is 3.25

years, which is the difference between
the borrower’s maximum eligibility
period (six years) and the sum of the
borrower’s subsidized usage periods
(2.75 years).
Example 11: Two first-year borrowers
are enrolled in a two-year, semesterbased program. Both borrowers are
enrolled on a half-time basis. Borrower
1 receives a Direct Subsidized Loan for
the fall term in the amount of $3,500,
which is the full annual loan limit.
Borrower 2 receives a Direct Subsidized
Loan for the fall term in the amount of
$3,000. Neither borrower enrolls in the
spring semester.

Borrower 1

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Maximum eligibility period ............................................................
Subsidized usage period ..............................................................
Applicable proration ......................................................................
Prorated usage period ..................................................................
Remaining eligibility period ...........................................................

The two-year program in which the
borrowers are enrolled has a maximum
eligibility period of three years.
Borrower 1 received a Direct Subsidized
Loan in the amount of the full annual
loan limit for one term. Borrower 2
received a Direct Subsidized Loan for
one term, but for less than the amount
of the full annual loan limit. Both
borrowers were enrolled on a half-time
basis.

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However, because Borrower 1 received
a subsidized loan in the amount of the
full annual loan limit for a period of less
than a full academic year,
§ 685.200(f)(4)(i) applies. Therefore, the

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Frm 00009

Borrower 2

3 years ................................................
1 year ..................................................
N/A ......................................................
N/A ......................................................
2 years ................................................

For Borrower 1, the calculated
subsidized usage period under
§ 685.200(f)(1)(iii) would be 0.5 years

Fmt 4701

Sfmt 4700

Year 4

3 years.
0.5 years.
0.5.
0.25 years.
2.75 years.

borrower’s subsidized usage period is
one year and is not prorated.
For Borrower 2, the calculated
subsidized usage period is 0.5 years

Because the borrower’s loan amount is
for less than the full annual loan limit,
§ 685.200(f)(4)(i) does not apply.
Therefore, in accordance with

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ER16MY13.004 ER16MY13.005

However, because the borrower received
a Direct Subsidized Loan in the amount
of a full annual loan limit for a period
of less than a full academic year,
§ 685.200(f)(4)(i) applies, and the
borrower’s subsidized usage period is
one year, notwithstanding the
subsidized usage period calculated
under § 685.200(f)(1)(iii). Therefore, the
borrower’s remaining eligibility period
is five years, which is the difference
between the borrower’s maximum
eligibility period (six years) and the sum

of the borrower’s subsidized usage
periods (one year).
Example 9: A borrower enrolls on a
half-time basis for two years of a fouryear program and receives Direct
Subsidized Loans for each of the two
academic years.

ER16MY13.003

subsidized usage period would be 0.5
years

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§ 685.200(f)(4)(ii), Borrower 2’s
subsidized usage period is prorated
based on the borrower’s half-time
enrollment status. Because Borrower 2
is enrolled on a half-time basis, the
borrower’s subsidized usage period of
0.5 years is multiplied by 0.5, resulting
in a prorated subsidized usage period of
0.25 years.
For Borrower 1, the remaining
eligibility period is two years, which is
the difference between the borrower’s
maximum eligibility period (three years)
and the sum of the borrower’s
subsidized usage periods (one year). For
Borrower 2, the remaining eligibility
period is 2.75 years, which is the
difference between the borrower’s
maximum eligibility period (three years)
and the sum of the borrower’s
subsidized usage periods (0.25 years).
Reasons: Section 685.200(f)(4)(i)
provides the first exception to the
definition of the term ‘‘subsidized usage
period’’: If a first-time borrower receives
a Direct Subsidized Loan in an amount
that is equal to the annual loan limit for
a loan period that is less than a full
academic year in length, the subsidized
usage period is one year.
Under current law and regulations, a
borrower can receive a Direct
Subsidized Loan in an amount equal to
the full annual loan limit for a period
that is as short as a term (e.g., a
semester). Absent § 685.200(f)(4)(i), a
borrower would be able to partially
circumvent the limitations on Direct
Subsidized Loan eligibility enacted by
MAP–21: An institution could double a
borrower’s Direct Subsidized Loan
eligibility by disbursing the full annual
Direct Subsidized Loan limit for a single
term of the academic year (e.g., one
semester). If this pattern were extended
for the duration of the program, the
borrower’s subsidized usage period
would be only 0.5 years for each
academic year and the borrower would
have effectively doubled his or her
eligibility for Direct Subsidized Loans.
Section 685.200(f)(4)(i) prevents this
type of circumvention of MAP–21’s
limitations on Direct Subsidized Loan
eligibility.
Section 685.200(f)(4)(ii) provides the
second exception to the definition of the
term ‘‘subsidized usage period’’: If a
first-time borrower is enrolled on a halftime or three-quarter-time basis, the
borrower’s subsidized usage period is
prorated by multiplying the borrower’s
subsidized usage period, as determined
in accordance with § 685.200(f)(1)(iii),
by 0.5 or 0.75, respectively. Section
685.200(f)(4)(ii) implements revised
section 455(q)(3)(B)(i) of the HEA,
which directs the Secretary to specify in
regulation how a borrower’s subsidized

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usage period will be calculated when
the borrower is enrolled on less than a
full-time basis. Unlike other Federal
student aid programs, such as the
Federal Pell Grant Program, Direct
Loans are not prorated based on the
borrower’s enrollment status. Thus, if a
borrower who is enrolled on a part-time
basis has the same costs and financial
need as a borrower who is enrolled on
a full-time basis, then both borrowers
will be eligible for a Direct Subsidized
Loan in the same amount (assuming the
borrowers’ years in school are
equivalent). Because borrowers may
decide to enroll on less than a full-time
basis for many different reasons, we
believe it is unlikely that failing to
prorate such borrowers’ subsidized
usage periods would provide a
sufficient incentive for such borrowers
to enroll on a full-time basis.
Furthermore, we believe that not
prorating a borrower’s subsidized usage
period based on the borrower’s
enrollment status would unfairly punish
borrowers who choose to enroll on a
part-time basis, by further limiting such
borrower’s eligibility for Direct
Subsidized Loans. Finally, prorating a
borrower’s subsidized usage period will
not result in these borrowers receiving
significantly higher levels of Direct
Subsidized Loan funds than borrowers
who are enrolled full time, because
many borrowers who take out Direct
Subsidized Loans in significant amounts
will reach the aggregate Direct
Subsidized Loan limit of $23,000 prior
to reaching their maximum eligibility
period under these provisions.
Borrower Responsibility for Accruing
Interest on Existing Direct Subsidized
Loans for Borrowers Who Continue
Enrollment After Reaching the 150
Percent Subsidized Loan Limit
(§ 685.200(f)(3))
Statute: Section 455(q)(2) of the HEA,
added by MAP–21, provides that
interest accrues on all Direct Subsidized
Loans disbursed to certain borrowers on
or after July 1, 2013. A borrower is
responsible for the accruing interest on
these loans if the borrower is ineligible
for additional Direct Subsidized Loans
because of the 150 percent limitation
and is enrolled in a program that would
otherwise qualify the borrower for a
Direct Subsidized Loan. Section
455(q)(2) further provides that interest
on a Direct Subsidized Loan is paid and
capitalized in the same manner as
interest on a Direct Unsubsidized Loan.
Current Regulations: There are no
existing regulations.
New Regulations: Section
685.200(f)(3)(i) describes the
circumstances under which a first-time

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borrower becomes responsible for
accruing interest on his or her existing
Direct Subsidized Loans.
Notwithstanding any other provision in
the regulations that limits the
borrower’s responsibility for accruing
interest, the borrower exceeds the
eligibility limit and becomes
responsible for accruing interest on all
Direct Subsidized Loans if the borrower:
(1) has no remaining eligibility period;
and (2) attends any undergraduate
program or preparatory coursework on
at least a half-time basis at an eligible
institution that participates in the Title
IV, HEA programs. (Note: throughout
this preamble the terms enrollment and
attendance are used interchangeably to
describe a borrower taking courses at a
program.)
Attendance in an eligible
undergraduate program causes a
borrower to become responsible for
accruing interest even if the borrower
does not request or receive a new loan.
A borrower’s enrollment in graduate or
professional programs, enrollment on
less than a half-time basis, or enrollment
in programs at an institution that does
not participate in the Title IV loan
programs will not result in borrower
responsibility for accruing interest
because borrowers in those programs are
not eligible for Direct Subsidized Loans.
In addition, if a borrower has a Direct
Consolidation Loan that repaid a Direct
Subsidized Loan, and then the borrower
subsequently becomes responsible for
accruing interest, interest that accrues
on that portion of the Direct
Consolidation Loan is the responsibility
of the borrower.
There are three circumstances in
which a borrower becomes responsible
for accruing interest on all Direct
Subsidized Loans. The first is when a
borrower who has no remaining
eligibility period for Direct Subsidized
Loans continues enrollment in the
program for which the borrower
received the loans. The second is when
a borrower has no remaining eligibility
period for a program and, after
withdrawing or transferring, enrolls in a
different program that is equal to or
shorter in duration than the prior
program. The third is when a borrower
who previously received Direct
Subsidized Loans and who still has
some remaining eligibility period for
that program withdraws or transfers
from that program to a program of a
shorter duration than the prior program.
In some cases, enrolling in another
program results in the sum of the
borrower’s subsidized usage periods
equaling or exceeding the new
program’s maximum eligibility period.
In such cases, the borrower’s enrollment

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in the shorter program causes the
borrower to have no remaining
eligibility period (which causes a loss of
eligibility for additional Direct
Subsidized Loans) and to become
responsible for accruing interest on the
outstanding loans.
Under § 685.200(f)(3)(i), a borrower
becomes responsible for accruing
interest on his or her outstanding loans
from the date that the conditions of
§ 685.200(f)(3)(i)(A) and (B) are both
met. The borrower is responsible for
accruing interest when the borrower is
enrolled at least half time at an eligible
institution, during the grace period,
during deferment periods, or during
certain periods when the borrower is
repaying Direct Loans under the Pay As
You Earn or Income-Based Repayment
plans (existing regulations governing
those repayment plans provide that
under certain circumstances borrowers
are not responsible for accruing
interest).
Section 685.200(f)(3)(ii) provides that,
if a borrower previously became

responsible for accruing interest on a
Direct Subsidized Loan and then
receives a Direct Consolidation Loan
that repays that loan, the borrower
continues to be responsible for the
accruing interest on the portion of that
Direct Consolidation Loan that repaid
the Direct Subsidized Loan.
Section 685.200(f)(3)(iii) provides
that, for any outstanding Direct
Subsidized Loans for which the
borrower becomes responsible for
accruing interest, interest that accrued
prior to the date on which the borrower
became responsible for accruing interest
does not become the borrower’s
responsibility; rather, the borrower is
responsible only for the interest that
accrues after the borrower meets both
conditions specified in
§ 685.200(f)(3)(i)(A) and (B) (we use the
term ‘‘accruing interest’’ in this
preamble to indicate this distinction).
Borrowers have the option of paying the
interest portion or allowing interest to
be capitalized. Unpaid interest is

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

The maximum eligibility period for
the four-year program is six years. The
borrower received Direct Subsidized
Loans for all six years, meaning that the
borrower is no longer eligible for
additional Direct Subsidized Loans.
Because the borrower continues
enrollment in the same program after
losing eligibility for additional Direct
Subsidized Loans, the borrower

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The borrower’s four-year program has
a maximum eligibility period of six
years. The borrower receives Direct
Subsidized Loans for the four years the
borrower is enrolled in that program.
Upon withdrawing from that program,
the borrower would have been eligible
for Direct Subsidized Loans for an
additional two years if he or she had
remained in that program. However,
when the borrower enrolls in the twoyear program, the borrower’s maximum
eligibility period is recalculated as three
years. Furthermore, the period during
which the borrower previously received

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Example 13: A borrower enrolls in a
four-year program, receives Direct
Subsidized Loans for four years, but
discontinues enrollment before
completing the program. The borrower
then enrolls in a two-year program, but
does not request Federal student aid of
any kind.

3 years.
4 years.
¥1 years.
The borrower becomes responsible for accruing interest upon enrollment in the two-year program.

Direct Subsidized Loans counts against
the borrower’s new maximum eligibility
period. The borrower is ineligible for
additional Direct Subsidized Loans
because the borrower has no remaining
eligibility period (the borrower’s
maximum eligibility period upon
enrollment in the two-year program
(three years) is less than the sum of the
borrower’s subsidized usage periods
(four years)). The borrower’s enrollment
in the shorter program causes the
borrower to become ineligible for
additional Direct Subsidized Loans and
to become responsible for accruing

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capitalized in the same manner as it is
on a Direct Unsubsidized Loan.
Section 685.200(f)(3)(iv) specifies the
effect on a borrower’s responsibility for
accruing interest caused by attendance
in a subsequent program if the borrower
completes his or her current program in
a timely manner. If a borrower
completes an undergraduate program
without becoming responsible for
accruing interest, attendance in a
subsequent program will not cause
borrower responsibility for accruing
interest on previously received loans,
even if the borrower has no remaining
eligibility period.
Examples 12 through 16 illustrate
how a borrower becomes responsible for
accruing interest under § 685.200(f)(3):
Example 12: A borrower enrolls in a
four-year program, but takes six years to
complete the program and receives
Direct Subsidized Loans for each of
those six years. The borrower then
continues to be enrolled in the same
program for a seventh year.

6 years.
6 years.
0 years.
The borrower becomes responsible for accruing interest upon enrollment in the seventh year.

becomes responsible for accruing
interest on all of his or her outstanding
Direct Subsidized Loans, regardless of
whether he or she requests or receives
additional Federal student aid. If the
borrower had graduated or discontinued
enrollment before the seventh year, the
borrower would not have become
responsible for accruing interest on his
or her Direct Subsidized Loans.

Maximum eligibility period for 2-year program .........................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

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interest on all previously received
Direct Subsidized Loans.
We note that, although the
calculations in example 13
arithmetically result in a remaining
eligibility period that is a negative
number, the effect is the same as if the
borrower had a remaining eligibility
period of zero years and then enrolled
in a program of equal or shorter
duration. A negative remaining
eligibility period does not require that
the borrower or institution return any
portion of previously disbursed Direct
Subsidized Loan.

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Example 14: A borrower enrolls in a
four-year undergraduate program and
receives Direct Subsidized Loans for six

years. The borrower then enrolls in a
two-year master’s degree program.

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

The borrower’s four-year program has
a maximum eligibility period of six
years. The borrower received Direct
Subsidized Loans for six years. When
the borrower enrolls in the graduate
program, the borrower is not eligible for
additional Direct Subsidized Loans
because graduate students are not

eligible for Direct Subsidized Loans.
Under § 685.200(f)(3)(i)(B), enrollment
in such programs does not result in a
borrower becoming responsible for
accruing interest. Therefore, enrollment
in the master’s degree program does not
cause the borrower to become

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

The borrower’s four year program had
a maximum eligibility period of six
years and the borrower received Direct
Subsidized Loans for four years in that
program. When the borrower enrolls in
the two-year program, the borrower’s
maximum eligibility period is
recalculated as three years. The sum of
the borrower’s subsidized usage periods
(four years) exceeds the borrower’s
maximum eligibility period (three
years); the borrower has no remaining

tkelley on DSK3SPTVN1PROD with RULES2

Maximum eligibility period for program.
Sum of all subsidized usage periods.
Remaining eligibility period ............
Borrower responsibility for accruing
interest.

17:57 May 15, 2013

responsible for accruing interest on
Direct Subsidized Loans.
Example 15: A borrower enrolls in a
four-year undergraduate program,
receives Direct Subsidized Loans for
four years, and graduates on time. The
borrower then enrolls in a two-year
undergraduate program.

3 years.
4 years.
¥1 years.
The borrower is not responsible for accruing interest.

eligibility period and is therefore no
longer eligible for Direct Subsidized
Loans. Under § 685.200(f)(3)(i), because
the borrower had no remaining
eligibility period upon enrollment in an
undergraduate program, the borrower
would normally become responsible for
accruing interest. However, under
§ 685.200(f)(3)(iv), because the borrower
graduated from the four-year program
before becoming responsible for
accruing interest, enrollment in the two-

year program does not result in the
borrower becoming responsible for
accruing interest on any loans.
Example 16: A borrower enrolls in a
two-year program and receives Direct
Subsidized Loans for two years. The
borrower does not complete that
program, but transfers to a four-year
program and receives four years of
Direct Subsidized Loans, graduating on
time. The borrower then enrolls in a
one-year certificate program.

After year 2 of two-year program

Upon completion of four-year
program

3 years ..........................................

6 years ..........................................

1.5 years.

2 years ..........................................

6 years ..........................................

6 years.

1 year ............................................
Borrower not responsible for accruing interest.

0 years ..........................................
Borrower not responsible for accruing interest.

¥4.5 years.
Borrower not responsible for accruing interest.

The borrower transferred to the fouryear program before becoming
responsible for accruing interest in the
two-year program. When the borrower
transferred, the borrower’s maximum
eligibility period was recalculated as six
years, resulting in a remaining eligibility
period of four years. The borrower
completed the four-year program before
becoming responsible for accruing
interest. Therefore, under
§ 685.200(f)(3)(iv), upon enrollment in
the one-year certificate program, the
borrower does not become responsible
for accruing interest on any of the
borrower’s previously received Direct
Subsidized Loans. However, the
borrower is not eligible to receive Direct

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Not applicable.
6 years.
Not applicable.
The borrower is not responsible for accruing interest.

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Subsidized Loans while attending the
one-year certificate program.
Reasons: MAP–21 added section
455(q)(2) to the HEA, which provides
that if a borrower is no longer eligible
for Direct Subsidized Loans and is
enrolled in a program of education or
training for which the borrower is
otherwise eligible to receive Direct
Subsidized Loans, interest will accrue
on all of the borrower’s Direct
Subsidized Loans that were disbursed to
the borrower on or after July 1, 2013. We
believe that the limit on subsidy
duration in MAP–21 was meant to
encourage timely completion.1 We have
1 The Senate Appropriations Committee’s report
on the 2013 Appropriations bill funding the

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Upon attendance in the one-year
program

therefore drafted implementing
regulations consistent with that goal.
Section 685.200(f)(3) provides that a
borrower becomes responsible for
accruing interest on all Direct
Subsidized Loans only if the borrower
has no remaining eligibility period and
then enrolls at least half time in an
eligible undergraduate program or
preparatory coursework at an institution
that participates in the Title IV, HEA
programs. This is consistent with the
requirements of section 455(q) of the
HEA. Specifically, the statute provides a
progression of actions and consequences
Department states that limiting ‘‘subsidy duration
will encourage borrowers to complete their
educational program in a timelier manner.’’ S.Rpt.
112–176, 112th Cong. 2d Sess. at 190 (2012).

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
for Direct Subsidized Loan borrowers
which ultimately results in a borrower
becoming responsible for accruing
interest. First, section 455(q)(3)(A) of the
HEA provides that a borrower may not
receive Direct Subsidized Loans in
excess of the borrower’s maximum
eligibility period. Second, section
455(q)(1) of the HEA provides that such
borrowers lose eligibility for Direct
Subsidized Loans if the borrower meets
or exceeds his or her maximum
eligibility period. Finally, section
455(q)(2) of the HEA provides that, if
the borrower is enrolled in a program of
education or training after having lost
eligibility for Direct Subsidized Loans,
interest on the borrower’s Direct
Subsidized Loans disbursed on or after
July 1, 2013 accrues, notwithstanding
any other provision of law that would
relieve the borrower of the obligation to
pay interest.
A consequence of § 685.200(f)(3)(i) is
that a borrower will become responsible
for accruing interest on outstanding
Direct Subsidized Loans by enrolling in
an undergraduate program that is
shorter than the program for which the
borrower previously received Direct
Subsidized Loans, even if the borrower
does not receive new Direct Subsidized
Loans. For the reasons articulated in the
preamble discussion of
§ 685.200(f)(1)(ii)–(iv), the interim final
regulations require that a borrower’s
maximum eligibility period changes to
reflect the length of the program in
which the borrower is currently
enrolled. If a borrower had previously
borrowed for a longer program (even if
the borrower had a remaining eligibility
period greater than zero for that
program), then, by virtue of the previous
borrowing, it is possible for the
borrower to have no remaining
eligibility period for the shorter program
even if the borrower does not receive
any Direct Subsidized Loans for the
shorter program. By enrolling in the
shorter program, the borrower
immediately satisfies the condition of
section 455(q)(3)(A) of the HEA (that the
borrower is no longer eligible for Direct
Subsidized Loans) as well as the
condition of section 455(q)(2) of the
HEA (that the borrower is enrolled after
losing eligibility for additional Direct
Subsidized Loans). Therefore, to
implement section 455(q) of the HEA,
the interim final regulations require that
enrollment in a shorter program after
meeting or exceeding the borrower’s
maximum eligibility period will result
in the borrower becoming responsible
for accruing interest on all outstanding
Direct Subsidized Loans.
We recognize that under this
framework, a borrower could become

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Jkt 229001

responsible for accruing interest on his
or her Direct Subsidized Loans by
enrolling in a program of equal or
shorter duration even if the borrower
completed a prior program in a timely
manner. Because we believe that MAP–
21 was intended to encourage borrowers
to complete their programs in a timely
manner, § 685.200(f)(3)(iv) specifies that
such a circumstance will not result in
borrower responsibility for accruing
interest (see examples 15 and 16).
Absent such treatment, borrowers who
complete their programs in a timely
manner, consistent with the statutory
intent, could still become responsible
for accruing interest. In addition,
without this treatment, the regulations
would create a disincentive for
borrowers who completed their
programs on time but are nevertheless
unemployed or underemployed and
need to return to a short-term
educational program for job retraining.
For these reasons, we have specified in
regulation that borrowers who complete
their programs in a timely manner do
not become responsible for accruing
interest, consistent with the intent of
MAP–21.
Section 685.200(f)(3)(i) also specifies
that borrowers who become responsible
for accruing interest on outstanding
Direct Subsidized Loans will be
responsible for such interest for the life
of the loans, including periods of inschool status, grace periods, deferment
periods, and certain periods of
repayment under the Income-Based
Repayment and Pay As You Earn
Repayment plans. Section 455(q)(2) of
the HEA provides that the borrower is
responsible for accruing interest on
outstanding Direct Subsidized Loans
‘‘notwithstanding subsection (f)(1)(A) or
any other provision of this title.’’
Section 455(f)(1)(A) of the HEA provides
that during periods of eligible
deferments, interest does not accrue and
is not paid by the borrower. Therefore,
under section 455(q)(2) a borrower who
becomes responsible for accruing
interest does so even during periods of
deferment. The interim final regulations
implement this statutory requirement by
providing that, when a borrower
becomes responsible for accruing
interest on Direct Subsidized Loans,
interest accrues and is the responsibility
of the borrower even during periods of
deferment. Similarly, section 455(a)(2)
of the HEA requires that the borrower
becomes responsible for accruing
interest during similar periods when
interest would not otherwise be the
responsibility of the borrower. The
interim final regulations therefore
require that, when repaying Direct

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28965

Subsidized Loans under the Pay As You
Earn or Income-Based Repayment plans,
a borrower who would otherwise not be
responsible for accruing interest during
certain periods of repayment will
become responsible for such interest if
the borrower meets the conditions of
§ 685.200(f)(3).
Finally, § 685.200(f)(3)(i)(B) reflects
section 455(q)(2) of the HEA, which
provides that a borrower becomes
responsible for accruing interest if the
borrower is enrolled in a program for
which the borrower is otherwise eligible
to receive a Direct Subsidized Loan.
Regaining Eligibility for Direct
Subsidized Loans (§ 685.200(f)(5))
Statute: MAP–21 added section
455(q)(1) to the HEA to provide that a
borrower loses eligibility for Direct
Subsidized Loans if the period of time
for which the borrower has received
Direct Subsidized Loans exceeds the
aggregate period of enrollment as
described in section 455(q)(3) of the
HEA.
Current Regulations: There are no
existing regulations.
New Regulations: Section
685.200(f)(5) provides that a first-time
borrower who had previously lost
eligibility to receive additional Direct
Subsidized Loans may regain eligibility
for Direct Subsidized Loans if the
borrower attends an educational
program that is longer than the prior
educational program in which the
borrower was enrolled. This provision
applies even if the borrower has become
responsible for accruing interest on
previously received Direct Subsidized
Loans under § 685.200(f)(3). Example 17
illustrates this regulatory provision:
Example 17: A borrower enrolls in a
two-year program and receives Direct
Subsidized Loans for the maximum
eligibility period of three years. The
borrower is no longer eligible for further
Direct Subsidized Loans in this
program. Then, the borrower enrolls in
a four-year undergraduate program.
Maximum eligibility period for 4year program.
Subsidized usage period ................
Remaining eligibility period ............

6 years.
3 years.
3 years.

The borrower’s two-year program had
a maximum eligibility period of three
years and the borrower received Direct
Subsidized Loans for three years for that
program. Because the borrower had no
remaining eligibility period in that
program, the borrower becomes
ineligible for additional Direct
Subsidized Loans. However, when the
borrower enrolls in the four-year
program the borrower’s maximum

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eligibility period is 6 years. Since the
borrower has used three years of
eligibility, the borrower now becomes
eligible for an additional three years of
Direct Subsidized Loans. Therefore, the
borrower has regained eligibility by
enrolling in a program of greater
duration than the borrower’s previous
program.
Reasons: Section 685.200(f)(5)
incorporates the calculations of section
455(q)(3) of the HEA into the interim
final regulations. Specifically, this
regulatory provision provides that a
borrower may regain eligibility for
Direct Subsidized Loans if the borrower
attends an educational program longer
than the program in which the borrower
was previously enrolled. A borrower
enrolling in such a program would have
a new, longer eligibility period and
would regain eligibility for additional
Direct Subsidized Loans.
Failing to allow a borrower to regain
eligibility in this manner would result
in inequitable treatment of similarly
situated borrowers. For example, if
enrolling in a new, longer educational
program did not expand a borrower’s
maximum eligibility period, students
enrolling in two different programs
would have significantly reduced Direct
Subsidized Loan eligibility compared to
borrowers who only enrolled in the
longer program. Suppose a borrower is
enrolled in a two-year program and
receives Direct Subsidized Loans for
three years. If the borrower then
transfers to a four-year program and if
the borrower’s maximum eligibility
period were not adjusted to six years,
then the borrower would not be eligible
for any additional Direct Subsidized
Loans. In contrast, a borrower who had
been enrolled in the four-year program
from the beginning and who had also
received Direct Subsidized Loans for
three years would have three years of
eligibility remaining. Therefore, to
provide equal treatment to these and
similar borrowers, under these interim
final regulations, borrowers who attend
programs of greater duration can regain
eligibility for Direct Subsidized Loans.
Treatment of Preparatory Coursework
Required for Enrollment in a Degree or
Certificate Program (§ 685.200(f)(6))
Statute: MAP–21 added section
455(q)(3)(B) to the HEA. This section
directs the Secretary to specify in
regulation how the 150 percent limit on
Direct Subsidized Loans applies to
students who are enrolled in
coursework necessary for admission
into a degree or certificate program.
Section 484(b)(3)(B) of the HEA
authorizes an otherwise-eligible student
to receive a Direct Loan for one 12-

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month period in a course of study
necessary for enrollment in a degree or
certificate program.
Current Regulations: Current 34 CFR
668.32(a)(1)(ii) reflects the requirements
of section 484(b)(3)(B) of the HEA.
Section 685.203(a)(6) provides that, for
one 12-month period, a student may
receive a Direct Loan up to an annual
loan limit of $2,625 for coursework
necessary for enrollment in an
undergraduate degree or certificate
program, and up to an annual loan limit
of $5,500 for coursework necessary for
a graduate or professional degree or
certificate program. There are no current
regulations that address the application
of the 150 percent Direct Subsidized
Loan limit on borrowers enrolled in
coursework necessary for a graduate or
professional program.
New Regulations: The interim final
regulations provide that the provisions
of § 685.200(f), which govern the 150
percent limit on Direct Subsidized Loan
eligibility, do not supersede the existing
12-month maximum period of loan
eligibility limitation imposed by
§ 668.32(a)(1)(ii). Section 685.200(f)(6)
of the interim final regulations
establishes rules for determining the
eligibility for Direct Subsidized Loans
received for preparatory coursework
necessary for enrollment in
undergraduate or graduate or
professional programs. Section
685.200(f)(6) treats coursework required
for an undergraduate degree or
certificate program differently than
coursework required for a graduate or
professional program. However,
§ 685.200(f)(6)(i) specifies that Direct
Subsidized Loans received for either
type of preparatory coursework are
included in the calculation of a
borrower’s subsidized usage period.
Section 685.200(f)(6)(ii) provides that
the maximum eligibility period for
Direct Subsidized Loans for students
completing preparatory coursework
required for enrollment in an
undergraduate program is the maximum
eligibility period applicable to the
undergraduate program for which the
preparatory coursework is required.
Enrollment in preparatory coursework
does not increase the borrower’s
maximum eligibility period.
Furthermore, § 685.200(f)(6)(iv)
provides that for undergraduate
preparatory coursework, the borrower
becomes responsible for accruing
interest if the borrower has no
remaining eligibility period in the
program for which the coursework is
required. This occurs if the maximum
eligibility period of the undergraduate
program for which the preparatory
coursework is required is less than the

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sum of the borrower’s subsidized usage
periods based on the borrower’s prior
enrollment in one or more educational
programs.
Section 685.200(f)(6)(iii) provides that
the maximum eligibility period for
preparatory coursework required for
enrollment in a graduate or professional
program is the maximum eligibility
period for the undergraduate program
for which the borrower most recently
received a Direct Subsidized Loan. A
borrower with no remaining eligibility
period based on the maximum
eligibility period for that undergraduate
program may not receive Direct
Subsidized Loans to complete the
required coursework; however, the
borrower may receive Direct
Unsubsidized Loans.
Section 685.200(f)(6)(v) provides that
enrollment in preparatory coursework
required for enrollment in a graduate or
professional program does not result in
the borrower becoming responsible for
accruing interest on previously received
Direct Subsidized Loans. Examples 18
through 22 illustrate the regulatory
treatment of preparatory coursework:
Example 18: A borrower enrolls in
preparatory coursework required for
enrollment in an undergraduate
program and receives Direct Subsidized
Loans for one year. The borrower then
enrolls in a four-year degree program for
which the preparatory coursework was
required.
Maximum eligibility period ..............
Subsidized usage period ................
Remaining eligibility period ............

6 years.
1 year.
5 years.

Under § 685.200(f)(6)(ii), the
borrower’s maximum eligibility period
is calculated as 150 percent of the fouryear program, which results in a
maximum eligibility period of six years.
The borrower received Direct
Subsidized Loans for one year of
preparatory coursework; under
§ 685.200(f)(6)(i), this period counts
toward the borrower’s maximum
eligibility period for the four-year
program for which the preparatory
coursework was required. The
difference between the maximum
eligibility period (six years) and the sum
of the borrower’s subsidized usage
periods from the preparatory
coursework (one year) results in a
remaining eligibility period of five years
for the four-year program.
Example 19: A borrower enrolls in
preparatory coursework for enrollment
in a two-year undergraduate program
and receives Direct Subsidized Loans
for one year. The borrower then enrolls
in the two-year undergraduate program
for which the preparatory coursework

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was required and receives Direct
Subsidized Loans for two years. The

borrower then enrolls in a four-year
program.

Maximum eligibility period of the program ..............................
Sum of subsidized usage periods ...........................................
Remaining eligibility period ......................................................

When the borrower enrolled in the
preparatory coursework, the borrower’s
maximum eligibility period under
§ 685.200(f)(6)(ii) was the maximum
eligibility period for the two-year
program for which the coursework is
required, or three years. The borrower
received Direct Subsidized Loans for
one year of preparatory coursework and
had two years of eligibility remaining.
The borrower then enrolled in the twoyear program. The borrower received
Direct Subsidized Loans for two years
and, after two years, had no remaining
eligibility for Direct Subsidized Loans.

After
preparatory coursework

After
2-year program

3 years ...................................
1 year .....................................
2 years ...................................

3 years ...................................
3 years ...................................
0 years ...................................

When the borrower enrolls in the fouryear program, the borrower’s maximum
eligibility period under
§ 685.200(f)(1)(ii) is calculated as 150
percent of the four-year program, or six
years. Under §§ 685.200(f)(1)(iii) and
685.200(f)(6)(i), the period in which the
borrower previously received Direct
Subsidized Loans, including the loan
received for the preparatory coursework,
count against the borrower’s new sixyear maximum eligibility period. The
sum of the borrower’s subsidized usage
periods upon enrollment in the fouryear program is three years. The

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

When the borrower enrolled in the
initial two-year program, the borrower’s
maximum eligibility period was three
years. The borrower received Direct
Subsidized Loans for the three-year
maximum eligibility period. The
borrower wants to enroll in another twoyear program but is required to
complete preparatory coursework for
admission to that program. Under
§ 685.200(f)(6)(ii), the borrower’s
maximum eligibility period for the
preparatory coursework is three years—
the maximum eligibility period for the

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Under § 685.200(f)(1)(ii), the
borrower’s maximum eligibility period
for the four-year program is six
academic years (150 percent of the fouryear undergraduate program). The
borrower received Direct Subsidized
Loans for five years. Under
§ 685.200(f)(6)(iii), the borrower’s
eligibility for Direct Subsidized Loans
for preparatory coursework necessary
for enrollment in a graduate program is
based on the borrower’s most recent

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borrower has three years of Direct
Subsidized Loan eligibility remaining—
the difference between six years and
three years.
Example 20: A borrower enrolls in a
two-year program and receives Direct
Subsidized Loans for the maximum
eligibility period of three years. The
borrower withdraws and wants to enroll
in another two-year program, but is
required to complete preparatory
coursework for enrollment in that
program.

remaining eligibility period. Finally,
§ 685.200(f)(3)(iv) does not apply
because the borrower did not complete
the initial two-year program.
Example 21: A borrower enrolls in a
four-year undergraduate program and
receives Direct Subsidized Loans for
five years. The borrower wants to enroll
in a graduate degree program, but is
required to complete preparatory
coursework for enrollment in that
program.

6 academic years.
5 academic years.
1 academic year, subject to the limitation below.

undergraduate program of study in
which the borrower received a Direct
Subsidized Loan. The borrower has a
remaining eligibility period of one
academic year based on the six
academic year maximum eligibility
period for the prior undergraduate
program, but § 668.32(a)(1)(ii) limits
loan eligibility for preparatory
coursework to one consecutive 12calendar month period. The borrower
therefore has a remaining eligibility

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................

6 years.
3 years.
3 years.

3 years.
3 years.
0 years.
The borrower is responsible for accruing interest.

new two-year program. Upon
enrollment in the preparatory
coursework for the new two-year
program, the borrower does not have
any remaining eligibility period because
the borrower has already received Direct
Subsidized Loans for three years. In
addition, under § 685.200(f)(6)(iv),
enrollment in the undergraduate
preparatory coursework causes the
borrower to become responsible for
accruing interest on all of the borrower’s
previously received Direct Subsidized
Loans, because the borrower has no

Maximum eligibility period ........................................................................
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................

Upon enrollment
in
4-year program

period of one academic year, but must
use that eligibility during one
consecutive 12 calendar month period.
Example 22: A borrower enrolls in a
four-year undergraduate program and
receives Direct Subsidized Loans for the
maximum eligibility period of six years.
The borrower wants to enroll in a
graduate program, but is required to
complete preparatory coursework for
enrollment in that program.

6 years.
6 years.

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tkelley on DSK3SPTVN1PROD with RULES2

Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

Under § 685.200(f)(1)(ii), the
borrower’s maximum eligibility period
for the four-year program is six years.
The borrower received Direct
Subsidized Loans for the maximum
eligibility period of six years. Under
§ 685.200(f)(6)(iii), the borrower’s
eligibility for Direct Subsidized Loans
for preparatory coursework for
enrollment in a graduate program is
based on the borrower’s most recent
undergraduate program of study in
which the borrower received a Direct
Subsidized Loan. In this case, the
borrower used the six years of
maximum eligibility for the four-year
undergraduate program and has no
remaining eligibility period in the
preparatory coursework necessary for
enrollment in the graduate program.
Although the borrower has lost
eligibility for Direct Subsidized Loans,
§ 685.200(f)(6)(v) provides that the
borrower’s enrollment in the
preparatory coursework does not result
in the borrower becoming responsible
for accruing interest on the borrower’s
previously received Direct Subsidized
Loans.
Reasons: Section 685.200(f)(6) of the
interim final regulations implements
section 455(q)(3)(B)(ii) of the HEA,
which requires the Secretary to
promulgate regulations that address
how the 150 percent limitations apply
to borrowers enrolled in coursework
necessary for enrollment in an eligible
undergraduate program or a graduate or
professional program.
We chose to treat Direct Subsidized
Loans received for preparatory
coursework as part of the borrower’s
related undergraduate program for
purposes of the 150 percent limit. This
approach is consistent with the
statutory goal of creating an incentive
for borrowers to complete their
programs in a timely manner. We also
believe the maximum eligibility period
calculated under the 150 percent limit
will generally allow borrowers to
receive Direct Subsidized Loans while
completing 12 calendar months of
preparatory coursework and the
undergraduate program for which the
preparatory coursework is intended.
Furthermore, borrowers in such
preparatory coursework that are
ineligible for further Direct Subsidized
Loans would still be eligible for Direct
Unsubsidized Loans to complete their
preparatory coursework.
The interim final regulations treat
preparatory coursework for enrollment

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0 years.
The borrower is not responsible for accruing interest.

in a graduate or professional program
differently than coursework required for
an undergraduate program. Section
685.200(f)(6)(iii) limits a borrower’s
Direct Subsidized Loan eligibility for
graduate or professional preparatory
coursework to the maximum eligibility
period applicable to the undergraduate
program for which the borrower most
recently received a Direct Subsidized
Loan.
We chose this approach because
preparatory coursework for graduate or
professional programs is considered
baccalaureate in nature for Direct Loan
purposes and is therefore subject to
undergraduate loan limits under current
§ 685.203. Such coursework is also
limited to one 12-calendar month period
and is a series of specified courses
required for admission to a program
rather than a stand-alone program of
study. An alternative we considered was
to treat this coursework as a one-year
stand-alone program; however, we
rejected this approach because it would
cause all borrowers with subsidized
usage periods of 1.5 years or more from
their prior undergraduate enrollment to
become ineligible for Direct Subsidized
Loans to complete this preparatory
coursework (see example 13 and
discussion in the related reasons
section).
In addition to addressing borrower
eligibility for Direct Subsidized Loans
during preparatory coursework, the
interim final regulations also address
the possibility that a borrower will
become responsible for accruing interest
that could result from enrollment in
such coursework after a borrower
reaches the 150 percent limit and is no
longer eligible for additional Direct
Subsidized Loans. For enrollment in
preparatory coursework necessary for
enrollment in an undergraduate
program, § 685.200(f)(6)(iv) provides
that a borrower would become
responsible for accruing interest only if
the borrower had no remaining
eligibility period in the program for
which the coursework is required. We
believe that this provision will be
inapplicable to most borrowers because
borrowers rarely enroll in preparatory
coursework for an undergraduate
program after having already received a
significant number of Direct Subsidized
Loans. In addition, such borrowers will
ultimately become responsible for
accruing interest by enrolling in the
undergraduate program for which the
preparatory coursework is required.

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Therefore, preventing borrower
responsibility for accruing interest
during the related preparatory
coursework would only delay borrower
responsibility for accruing interest for a
short period.
In contrast, under § 685.200(f)(6)(v), a
borrower’s enrollment in preparatory
coursework required for a graduate or
professional program does not result in
the borrower becoming responsible for
accruing interest on previously received
loans. Borrowers enrolling in graduate
or professional preparatory coursework
often have borrowed Direct Subsidized
Loans during undergraduate programs.
Borrower responsibility for accruing
interest caused by enrollment in such
preparatory coursework could have a
significant impact on borrowers who
then enroll in a graduate or professional
program—such borrowers would be
responsible for interest that accrues
during all the years of the graduate or
professional program. If this were to
occur, the costs of borrowing for
graduate or professional programs
would increase significantly. For
example, suppose a borrower with no
remaining eligibility period and $23,000
in Direct Subsidized Loan principal (the
aggregate loan limit) enrolled in one
year of preparatory coursework for a
two-year master’s degree program.
Assuming an interest rate of 6.8% on
the borrower’s loans, the borrower
would be responsible for more than
$5,000 in capitalized interest that
accrued during those three years of
enrollment. Without § 685.200(f)(6)(v),
we believe such increased costs of
borrowing could deter borrowers who
require preparatory coursework from
pursuing graduate- or professional-level
study.
Furthermore, without
§ 685.200(f)(6)(v), borrowers who
require preparatory coursework for
graduate or professional programs
would otherwise be treated inequitably
compared to those who do not need
such preparatory coursework. Because
enrollment in graduate and professional
programs does not result in borrower
responsibility for accruing interest,
without § 685.200(f)(6)(v), borrowers
who need such preparatory coursework
would become responsible for accruing
interest while those who do not need
preparatory coursework would not. This
would result in significantly divergent
and inequitable principal balances at
the conclusion of the graduate or
professional coursework. For these

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reasons, the interim final regulations
prevent enrollment in such preparatory
coursework from resulting in borrower
responsibility for accruing interest.
Treatment of Teacher Certification
Coursework for Which the Institution
Awards No Academic Credential
(§ 685.200(f)(7))

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Statute: MAP–21 added section
455(q)(3)(B) to the HEA. This section
directs the Secretary to specify in
regulations how the 150 percent Direct
Subsidized Loan eligibility limit will
apply to borrowers at an eligible
institution who are enrolled in
coursework required for a professional
State credential or certification
necessary for employment as an
elementary or secondary school teacher,
but for which the institution awards no
academic credential. Section 484(b)(4)
of the HEA authorizes a student to
receive Title IV student loans for such
coursework.
Current Regulations: Current 34 CFR
668.32(a)(1)(iii) reflects section 484(b)(4)
of the HEA, which provides that
students are eligible for Direct Loans if
they are enrolled in teacher certification
coursework that does not lead to an
academic credential awarded by an
institution, but which is required for
certification by the State to teach in an
elementary or secondary school. Current
§ 685.203(a)(7) provides that a student
may receive up to an annual Direct
Subsidized Loan limit of $5,500 for such
coursework. There are no current
regulations that specify the treatment of
students enrolled in teacher certification
coursework for purposes of the 150
percent Direct Subsidized Loan limit.
(Throughout the preamble to this
interim final regulation, any reference to
‘‘teacher certification coursework’’ only
includes teacher certification
coursework for which the institution
awards no academic credential, unless
otherwise specified.)
New Regulations: Section
685.200(f)(7)(i) of the regulations
provides that the maximum eligibility
period for a first-time borrower enrolled
in teacher certification coursework is
calculated as 150 percent of the
published length of the teacher
certification coursework in which the
borrower is currently enrolled.

Section 685.200(f)(7)(ii) provides that,
when determining a borrower’s
remaining eligibility period for teacher
certification coursework, only periods
in which a borrower received Direct
Subsidized Loans for such teacher
certification coursework are included in
the borrower’s subsidized usage period.
Section 685.200(f)(7)(iii) provides
that, when determining a borrower’s
remaining eligibility period for any
program or coursework other than
teacher certification coursework,
periods in which a borrower received
Direct Subsidized Loans for such
teacher certification coursework are
excluded.
Together, these latter two paragraphs
provide that we treat the sum of the
borrower’s subsidized usage periods
accrued during teacher certification
coursework separately from the
borrower’s subsidized usage periods
accrued during all other undergraduate
programs or coursework in which the
borrower may have enrolled. Direct
Subsidized Loans received for teacher
certification coursework count only
against the maximum eligibility period
for the borrower’s teacher certification
coursework.
Finally, § 685.200(f)(7)(iv) provides
that enrollment in teacher certification
coursework for which an academic
credential is not awarded by the
institution does not cause a borrower to
become responsible for accruing interest
on the borrower’s outstanding Direct
Subsidized Loans, including any Direct
Subsidized Loans received for periods
of undergraduate study.
The provisions of § 685.200(f)(7) cover
teacher certification coursework for
which an institution does not award an
academic credential. Teacher
preparation programs for which an
institution awards an academic
credential are governed by
§ 685.200(f)(1)–(f)(6), similar to other
undergraduate or graduate programs.
Examples 23 through 25 illustrate the
treatment of borrowers enrolled in
teacher certification coursework.
Example 23: A borrower completes a
four-year baccalaureate degree program
and receives four years of Direct
Subsidized Loans for that program. The
borrower then enrolls in teacher
certification coursework that is one year
in duration.

Maximum eligibility period for the teacher certification coursework ........
Subsidized usage period ..........................................................................
Remaining eligibility period .......................................................................
Borrower responsibility for accruing interest ............................................

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Maximum eligibility period for the
teacher certification
coursework.
Subsidized usage period ............
Remaining eligibility period .........

28969
1.5 years.
0 years.
1.5 years.

The borrower received Direct
Subsidized Loans for four years before
enrolling in the teacher certification
coursework. When the borrower enrolls
in the one year of teacher certification
coursework, the calculation of the
borrower’s maximum eligibility period,
subsidized usage period, and remaining
eligibility period are unaffected by the
borrower’s prior enrollment or
borrowing. The borrower therefore has
1.5 years of eligibility for Direct
Subsidized Loans remaining.
Example 24: A borrower enrolls in
one year of teacher certification
coursework and receives Direct
Subsidized Loans for one year. The
borrower then enrolls in separate
teacher certification coursework for two
years.
Maximum eligibility period for the
teacher certification coursework.
Subsidized usage period ................
Remaining eligibility period ............

3 years.
1 year.
2 years.

The borrower received Direct
Subsidized Loans for one year of teacher
certification coursework, and has a
remaining eligibility period of 0.5 years
after the first year. When the borrower
enrolls in the separate two years of
teacher certification coursework, the
borrower’s maximum eligibility period
is three years (150 percent of the two
years of coursework), but the borrower’s
previous subsidized usage period of one
year counts against the borrower’s new
maximum eligibility period. Therefore,
the borrower has a remaining eligibility
period of two years.
Example 25: A borrower enrolls in a
two-year undergraduate degree program
and receives Direct Subsidized Loans
for three years. The borrower then
enrolls in two years of teacher
certification coursework, receives Direct
Subsidized Loans for three years, and is
therefore not eligible for more Direct
Subsidized Loans. The borrower
continues enrollment in the teacher
certification coursework.

3 years.
3 years.
0 years.
The borrower does not become responsible for accruing interest on
loans for the undergraduate program or teacher certification
coursework.

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After completing the two-year
undergraduate program, the borrower
enrolled in two years of teacher
certification coursework and received
Direct Subsidized Loans for three years.
When the borrower enrolled in the
teacher certification coursework, the
borrower’s maximum eligibility period
and remaining eligibility period were
both three years because the borrower’s
previous undergraduate borrowing does
not count against the teacher
certification maximum eligibility
period. The borrower subsequently used
all three years of Direct Subsidized Loan
eligibility for the teacher certification
coursework and therefore has no
remaining eligibility period for Direct
Subsidized Loans in the teacher
certification coursework. When the
borrower continues enrollment in the
teacher certification coursework, this
does not result in the borrower
becoming responsible for accruing
interest on his or her existing Direct
Subsidized Loans, either those received
for the undergraduate degree program or
those received for the teacher
certification coursework.
Reasons: Section 685.200(f)(7)
implements section 455(q)(3)(B)(ii) of
the HEA, which requires the Secretary
to promulgate regulations that address
how the 150 percent Direct Subsidized
Loan eligibility limitations apply to
borrowers enrolled in teacher
certification coursework for which the
institution awards no academic
credential. The interim final regulations
reflect the unique characteristics of this
coursework within the general
requirements of section 455(q)(3)(A) of
the HEA.
We chose to calculate the 150 percent
subsidized limit for teacher certification
coursework in a manner similar to the
approach used to calculate the limit for
undergraduate degree programs.
However, in calculating the remaining
eligibility period, we chose to exclude
Direct Subsidized Loans borrowed for
earlier undergraduate programs.
Borrowers enrolled in teacher
certification coursework required for
licensure or certification have already
completed baccalaureate degree
programs for which they may have
received numerous Direct Subsidized
Loans. Because this teacher certification
coursework is typically one or two years
in duration, counting earlier
undergraduate loans would likely cause
numerous borrowers to lose eligibility
for further Direct Subsidized Loans and
to become responsible for accruing
interest upon enrollment (see example
13). This may discourage students from
pursuing education to become teachers.
Therefore, we chose to treat borrowing

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and enrollment in this coursework
separately from the borrowing and
enrollment in undergraduate programs.
The Secretary believes that
individuals should be encouraged to
become teachers and to continue
teaching. The Secretary also believes
that teacher certification coursework is
an important national resource for
teacher preparation and continued
professional development. Treating
borrowing during teacher certification
coursework separately for purposes of
the 150 percent limit preserves
sufficient Direct Subsidized Loan
eligibility for most borrowers who have
financial need while preventing such
borrowers from having unlimited Direct
Subsidized Loan eligibility for teacher
certification coursework. Allowing
unlimited eligibility for such
coursework would be contrary to the
intent of MAP–21, which established a
time limit on eligibility for Direct
Subsidized Loans and we believe was
intended to provide incentives for
timely completion.
In addition to treating Direct
Subsidized Loans borrowed for teacher
certification coursework as separate
from prior undergraduate Direct
Subsidized Loan borrowing,
§ 685.200(f)(7)(iv) also provides that a
borrower will not be responsible for
accruing interest on prior loans based
on subsequent enrollment in teacher
certification coursework. Many States
have certification standards that require
teachers to take teacher certification
coursework to continue teaching in the
State. For these teachers, enrollment in
this coursework is legally required for
continued employment, not an option
that a borrower can exercise. Therefore,
we have determined that enrollment in
this coursework should not result in the
borrower becoming responsible for
accruing interest on all of the borrower’s
outstanding loans.
New Entrance and Exit Counseling
Requirements (§ 685.304(a)(6)(xiii),
§ 685.304(b)(4)(xii))
Statute: Section 485(l) of the HEA
requires an eligible institution to
provide entrance counseling to firsttime borrowers at or prior to
disbursement of a Direct Subsidized
Loan or a Direct Unsubsidized Loan.
The counseling may be provided in
person, on a separate written form
provided to and signed and returned by
the borrower, or online with the
borrower acknowledging receipt. The
entrance counseling must include:
• Information on the terms and
conditions of the loan;
• The borrower’s responsibilities
under the loan;

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• The effects of the loan on other
student aid eligibility;
• An explanation of the use of the
master promissory note;
• An explanation of interest accrual
and capitalization;
• The borrower’s option to pay the
accruing interest while in school;
• The consequences of not
maintaining half-time enrollment;
• The borrower’s responsibility to
contact the institution if the borrower
withdraws;
• Sample monthly repayment
amounts;
• Information on the National
Student Loan Data System (NSLDS);
• The borrower’s obligation to repay
the loan regardless of program
completion or completion within the
regular timeframe for completion;
• The consequences of default; and
• The name and contact information
for a person the borrower may contact
if the borrower has any questions.
Section 485(b) of the HEA requires
eligible institutions to provide exit
counseling to Direct Subsidized Loan or
Direct Unsubsidized Loan borrowers
prior to the borrower completing the
course of study or at the time the
borrower departs from, or drops below
half-time enrollment at, the institution.
The exit counseling must provide:
• Information on the available
repayment plans and their features;
• Debt management strategies to
facilitate loan repayment;
• Loan forgiveness and cancellation
provisions with a description of their
terms and conditions;
• Forbearance provisions and their
terms and conditions;
• The consequences of default;
• The effects of loan consolidation;
• The types of tax benefits that may
be available; and
• The availability of NSLDS and how
it can be used by borrowers to access
their records and obtain information on
the repayment status of their loans.
Current Regulations: Current
§ 685.304(a)(6) and (b)(4) of the
Department’s regulations reflect the
borrower entrance and exit counseling
requirements contained in the HEA. The
information that institutions are
required to provide to borrowers during
entrance and exit counseling does not
currently include information on the
Direct Subsidized Loan eligibility limits
and the potential borrower
responsibility for accruing interest.
New Regulations: The regulations
governing entrance and exit counseling
requirements are being amended to
require that institutions inform
borrowers of the 150 percent Direct
Subsidized Loan eligibility limitations

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and possible borrower responsibility for
accruing interest.
We have added § 685.304(a)(6)(xiii) of
the Direct Loan regulations to require
that the information provided as part of
entrance counseling include:
• The possible loss of eligibility for
additional Direct Subsidized Loans;
• How a borrower’s maximum
eligibility period, remaining eligibility
period, and subsidized usage period are
determined;
• The potential for a borrower
becoming responsible for all accruing
interest on Direct Subsidized Loans
during in-school periods, grace periods,
and periods of authorized deferment;
and
• The impact of borrower
responsibility for accruing interest on
the borrower’s total debt.
We have also amended
§ 685.304(b)(4)(xii) of the Direct Loan
regulations governing required exit
counseling to require, in addition to the
information required as part of entrance
counseling, that information be
provided to the borrower on:
• The sum of the borrower’s
subsidized usage periods at the time of
the exit counseling;
• How to get information from
NSLDS on whether he or she has
become responsible for accruing interest
on any of his or her Direct Subsidized
Loans and whether the borrower is
eligible to receive additional Direct
Subsidized Loans;
• The possible consequences of
receiving additional Direct Subsidized
Loans for additional undergraduate
programs; and
• The potential for a borrower
becoming responsible for all accruing
interest on Direct Subsidized Loans
during in-school periods, grace periods,
and periods of authorized deferment,
even if the borrower does not receive an
additional Direct Subsidized Loan.
We will modify our entrance
counseling material prior to July 1 to
reflect the additional information that
must be provided to borrowers under
new § 685.304(a)(6)(xiii). We will also
modify our exit counseling material to
reflect the additional information that
must be provided to borrowers under
new § 685.304(b)(4)(xii). Institutions
may continue to rely on the
Department’s revised counseling
materials to comply with these revised
regulatory requirements. The
Department will post an electronic
announcement on the Information for
Financial Aid Professionals Web site
when revised counseling materials are
available.
Reasons: The amendments made to
the HEA by MAP–21 significantly alter

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borrower eligibility requirements for
Direct Subsidized Loans for first-time
borrowers on or after July 1, 2013. The
amendments also make changes to the
terms and conditions of those loans. It
is critical that institutions communicate
information on these important changes
to borrowers as part of their entrance
and exit counseling. Without this
information, borrowers could be
affected by the 150 percent limit
without knowing about the limit,
without understanding how it is
calculated, and without understanding
the significant financial implications for
them if they reach or exceed the limit.
Therefore, we have added this
information to the information that
institutions must provide during
entrance and exit counseling. Enhanced
counseling about these requirements
will mitigate borrower confusion,
encourage accurate budgeting and debt
management by borrowers, and help
borrowers make informed educational
plans mindful of all potential costs.
Additional Reporting Requirements and
Modifications to Departmental Systems
To effectively implement the
regulatory provisions contained in these
interim final regulations, the
Department will make a number of
changes to NSLDS and to the Common
Origination and Disbursement (COD)
System. The COD System will collect
information needed to determine
whether a borrower continues to be
eligible for Direct Subsidized Loans;
NSLDS will collect information needed
to determine whether a borrower
becomes responsible for the accruing
interest on the Direct Subsidized Loans
the borrower previously received.
Institutions will not be responsible for
officially determining whether a
borrower has a remaining eligibility
period under these interim final
regulations. The Department will have
the primary responsibility for making
eligibility determinations, determining
whether a borrower becomes
responsible for accruing interest, and
making this information available to
borrowers. In the event that there are
questions regarding the validity of any
determination made by the Department
with respect to these provisions, we will
develop a process to research data
integrity issues, and, if necessary, adjust
previously made determinations.
However, institutions will be required
to report additional information to both
the COD System and NSLDS, as
discussed below. We are committed to
making the necessary systems changes
as quickly as possible and will issue
further guidance at a later date.

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The 150 percent limit only applies to
borrowers who are ‘‘first-time
borrowers’’ on or after July 1, 2013. The
Secretary will have the information
necessary to determine whether a
borrower is a first-time borrower as
defined in § 685.200(f)(1)(i). Institutions
will not be required to determine or
report this information. However,
institutions will be required to supply
the information below for all borrowers
who receive Direct Loans on or after the
date that we implement the system
changes necessary to support these
interim final regulations.
To allow the Department to calculate
a borrower’s maximum eligibility
period, institutions will be required to
report additional information to the
COD System when originating and
disbursing Direct Loans. The additional
information will include, but not be
limited to:
• The Classification of Instructional
Programs (CIP) Code for the program in
which the borrower is enrolled;
• The credential level for the
borrower’s program;
• The length of the borrower’s
program (in academic years, months, or
weeks);
• The enrollment status of the
borrower at the time the loan is
disbursed (full time, half time, or threequarter time);
• If appropriate, an indication that
the Direct Loan is intended for
preparatory coursework for an
undergraduate program;
• If appropriate, an indication that
the Direct Loan is intended for
preparatory coursework for a graduate
or professional program; and
• If appropriate, an indication that
the Direct Loan is intended for teacher
certification coursework for which the
institution does not award an academic
credential.
Note: An enrollment status of less than half
time will not be included in the COD System
because a borrower is not eligible to receive
a Direct Loan for enrollment on a less than
half-time basis (this information will
continue to be included in NSLDS, however).

We will use the CIP Code, credential
level, and program length to define the
program in which the borrower is
enrolled. We need this information
because section 455(q) of the HEA and
these implementing regulations require
that the borrower’s maximum eligibility
period be determined program by
program.
We are requiring that institutions
report the borrower’s enrollment status
as of the date that the loan is disbursed,
as full time, three-quarter time, or half
time because the Secretary generally

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prorates the subsidized usage period in
cases where the borrower is enrolled
less than full time.
Finally, institutions must identify
Direct Loans that are intended to
support preparatory coursework for
undergraduate programs, preparatory
coursework for graduate or professional
programs, and teacher certification
coursework because the interim final
regulations treat loans for such
coursework differently than loans for
other programs.
To calculate the borrower’s
subsidized usage period, the COD
System will divide the number of days
in each loan period by the number of
days in the academic year associated
with the loan, as reported by the
institution in the award record for the
loan. An institution’s failure to report
this information accurately will not only
cause borrowers to appear to have less
eligibility for Direct Subsidized Loans
than they should but may also cause
disbursement records to be rejected by
the COD System or result in adverse
findings in compliance reviews of the
institution, fines, or other sanctions.
By comparing the sum of the
borrower’s subsidized usage periods to
the borrower’s maximum eligibility
period, the COD System will reject any
disbursement record of a Direct
Subsidized Loan if the borrower has lost
eligibility for Direct Subsidized Loans as
a result of new § 685.200(f)(2).
The COD System will track and
calculate a borrower’s maximum
eligibility period, subsidized usage
period, and remaining eligibility period,
and the Secretary will provide
borrowers and institutions with
information about the borrower’s
subsidized usage periods using Student
Aid Reports (SARs) and Institutional
Student Information Records (ISIRs)
through the Central Processing System
(CPS). This will allow institutions to
counsel Direct Loan borrowers about
their maximum eligibility periods and
remaining eligibility periods based on
the length of the program in which the
borrower is enrolled. This information
will also allow institutions to determine
whether the borrower has any Direct
Subsidized Loan eligibility remaining
before submitting an origination or
disbursement record to the COD System.
In addition to the additional reporting
to the COD System, institutions will be
required to report additional
information to NSLDS as part of their
reporting of enrollment information on
student loan borrowers. The Department
requires this additional information to
implement the requirements concerning
borrowers’ responsibility for accruing

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interest. The additional information will
include, but not be limited to:
• The CIP Code and credential level
for the program in which the borrower
is enrolled;
• The length of the program in which
the borrower is enrolled in academic
years, months, or weeks (consistent with
institutional reporting in the COD
System);
• The enrollment status of the
borrower at the time the institution
completes the enrollment reporting;
• If appropriate, an indication that
the borrower is enrolled in preparatory
coursework for an undergraduate
program;
• If appropriate, an indication that
the borrower is enrolled in preparatory
coursework for a graduate or
professional program; and
• If appropriate, an indication that
the borrower is enrolled in teacher
certification coursework for which the
institution does not award an academic
credential.
The Secretary will use the
information regarding CIP Code,
credential level, and program length to
define the program in which the
borrower is enrolled (e.g., as a graduate
program or an undergraduate program)
and to calculate the appropriate 150
percent limit.
The Secretary will also use the
information about the length of the
borrower’s current program to ensure
that borrowers do not improperly
become responsible for accruing
interest.
Finally, the Secretary will use
information that institutions are already
required to report concerning a
student’s graduation to determine
whether a borrower will not become
responsible for accruing interest under
§ 685.200(f)(3)(iv) because the borrower
completed his or her program in a
timely manner.
The Secretary is requiring that
institutions flag borrower enrollment in
preparatory coursework and teacher
certification coursework because of the
special rules that apply to borrowers
enrolled in those programs.
We will use this information in
NSLDS to determine whether a
borrower becomes responsible for
accruing interest on his or her Direct
Subsidized Loans (and the effective date
on which the borrower becomes
responsible for that interest). This
information will be conveyed to the
borrower’s Federal loan servicer, which
will notify the borrower that he or she
is responsible for accruing interest. The
servicer will also make the necessary
adjustments to reflect the borrower’s

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responsibility for accruing interest on
the borrower’s Direct Subsidized Loans.
The Department will modify its
entrance and exit counseling material
on StudentLoans.gov to provide the
information described in new
§§ 685.304(a)(6)(xiii) and
685.304(b)(4)(xii) for institutions that
use the Department’s online counseling
material to comply with the regulatory
entrance and exit counseling
requirements.
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Under Executive Order 12866, the
Secretary must determine whether this
regulatory action is ‘‘significant’’ and,
therefore, subject to the requirements of
the Executive order and subject to
review by the Office of Management and
Budget (OMB). Section 3(f) of Executive
Order 12866 defines a ‘‘significant
regulatory action’’ as an action likely to
result in a rule that may—
(1) Have an annual effect on the
economy of $100 million or more, or
adversely affect a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local, or tribal governments or
communities in a material way (also
referred to as an ‘‘economically
significant’’ rule);
(2) Create serious inconsistency or
otherwise interfere with an action taken
or planned by another agency;
(3) Materially alter the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or
(4) Raise novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
stated in the Executive Order.
This regulatory action would have an
annual effect on the economy of more
than $100 million because the transfers
between borrowers who exceed the 150
percent limit and the government total
approximately $3.9 billion over loan
cohorts 2013 to 2023. Therefore, this
action is ‘‘economically significant’’ and
subject to review by OMB under section
3(f)(1) of Executive Order 12866.
Notwithstanding this determination, we
have assessed the potential costs and
benefits, both quantitative and
qualitative, of this regulatory action and
have determined that the benefits justify
the costs.
We have also reviewed these interim
final regulations under Executive Order
13563, which supplements and
explicitly reaffirms the principles,
structures, and definitions governing
regulatory review established in
Executive Order 12866. To the extent

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
permitted by law, Executive Order
13563 requires that an agency—
(1) Propose or adopt regulations only
upon a reasoned determination that
their benefits justify their costs
(recognizing that some benefits and
costs are difficult to quantify);
(2) Tailor its regulations to impose the
least burden on society, consistent with
obtaining regulatory objectives and
taking into account—among other things
and to the extent practicable—the costs
of cumulative regulations;
(3) In choosing among alternative
regulatory approaches, select those
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety,
and other advantages, distributive
impacts, and equity);
(4) To the extent feasible, specify
performance objectives, rather than the
behavior or manner of compliance a
regulated entity must adopt; and
(5) Identify and assess available
alternatives to direct regulation,
including economic incentives—such as
user fees or marketable permits—to
encourage the desired behavior, or
provide information that enables the
public to make choices.
Executive Order 13563 also requires
an agency ‘‘to use the best available
techniques to quantify anticipated
present and future benefits and costs as
accurately as possible.’’ The Office of
Information and Regulatory Affairs of
OMB has emphasized that these
techniques may include ‘‘identifying
changing future compliance costs that
might result from technological
innovation or anticipated behavioral
changes.’’
We are issuing these interim final
regulations only on a reasoned
determination that their benefits justify
their costs. In choosing among
alternative regulatory approaches, we
selected those approaches that
maximize net benefits. Based on the
analysis that follows, the Department
believes that these regulations are
consistent with the principles in
Executive Order 13563.
We also have determined that this
regulatory action would not unduly
interfere with State, local, and tribal
governments in the exercise of their
governmental functions.
In this regulatory impact analysis we
discuss the need for regulatory action,
the potential costs and benefits, net
budget impacts, assumptions,
limitations, and data sources, as well as
regulatory alternatives we considered.
1. Potential costs and benefits
These interim final regulations
implement the statutory requirements in
MAP–21 that limit the availability of

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Direct Subsidized Loans to 150 percent
of the program length and that cause
borrowers to become responsible for
accruing interest if they are no longer
eligible for Direct Subsidized Loans as
a result. The net budget savings that will
be generated by these interim final
regulations will contribute to paying for
the extension of the 3.4 percent interest
rate on Direct Subsidized Loans made
between July 1, 2012, and June 30, 2013.
In the following sections, we summarize
the effects these interim final
regulations are likely to have on the
Federal Government, institutions of
higher education (IHEs), and students.
Federal Government: The eligibility
limitations and potential borrower
responsibility for accruing interest
implemented in these interim final
regulations are expected to result in net
budget savings as some Direct
Subsidized Loans shift to Direct
Unsubsidized Loans and as some
borrowers become responsible for
accruing interest on their Direct
Subsidized Loans earlier than they
otherwise would. The estimated savings
associated with the interim final
regulations were initially analyzed as
PB 2013 budget policy, and that
estimate of $3.597 billion in savings was
included in the Department’s midsession review (MSR) budget baseline in
the summer of 2012, shortly before the
passage of MAP–21. When the specifics
of the legislation and interim final
regulations became available, the
estimate was updated, using revised
economic assumptions and loan
volume, resulting in additional
estimated savings of approximately
$325 million.
Consistent with the requirements of
the Credit Reform Act of 1990 (CRA),
budget cost estimates for the Federal
student loan programs reflect the
estimated net present value of all future
non-administrative Federal costs
associated with a cohort of loans. A
cohort reflects all loans originated in a
given fiscal year. These estimates were
developed using OMB’s Credit Subsidy
Calculator. 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

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28973

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 interim
final regulations.
In order to evaluate the effect of these
interim final regulations, the
Department used data from NSLDS to
simulate a representative pool of Direct
Subsidized Loan borrowers for the
upcoming cohorts affected by the
interim final regulations. Based on
borrowing patterns in the NSLDS data
for existing cohorts, the Department
estimated which borrowers will lose
eligibility for Direct Subsidized Loans
and which borrowers will become
responsible for accruing interest. The
model accounted for program length,
type, and whether the borrower
transferred from one institution to
another to determine the loss of Direct
Subsidized Loan eligibility and
borrower responsibility for accruing
interest. The estimated savings were
then generated using the Department’s
Student Loan Model based on the
anticipated shift in loan volume from
Direct Subsidized Loans to Direct
Unsubsidized Loans, a reduction in
anticipated deferments, and a reduced
number of days for which the borrower
is not responsible for interest that
accrues. Additional information on the
effect of these factors is available in the
Students section of this regulatory
impact analysis.
Institutions of Higher Education: The
interim final regulations most directly
affect the Federal Government and
student borrowers, with a more limited
effect on IHEs. While a small percentage
of student borrowers is expected to lose
eligibility for additional Direct
Subsidized Loans or to become
responsible for accruing interest on
existing Direct Subsidized Loans, those
students would still be eligible for
Direct Unsubsidized Loans and would
not necessarily withdraw from their
program of study, potentially limiting
the effect of the interim final regulations
on an IHE’s revenues. While some
Direct Subsidized Loan borrowers may
shift their educational plans or the
sources of funding used to pay for their
programs, the availability of substitute
sources of funding or other students
who would fill the IHE’s capacity could
also limit the effect of the interim final
regulations on institutions.
The Paperwork Reduction Act section
of this preamble describes the
additional reporting requirements for
IHEs related to these interim final
regulations, such as requirements to
identify the length of the programs in
which a student borrower is enrolled,

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the borrower’s enrollment status, and
the type of program. In addition, IHEs
will need to update the financial aid
counseling they provide to student
borrowers to reflect the new limitations
on Direct Subsidized Loans and the
Department will provide guidance to
assist with this process. The Department
estimates that this reporting and
financial aid counseling activity will
cost IHEs approximately $1.6 million.
Students: The effect of these interim
final regulations on students is the
potential loss of Direct Subsidized Loan
eligibility and responsibility for
accruing interest on existing Direct
Subsidized Loans for new borrowers
starting on July 1, 2013. The examples
presented in this preamble demonstrate
the effect of the changes in a variety of
scenarios under the interim final
regulations. While the specific effects on
individual students will depend on
many factors (including the use of
Direct Subsidized Loans, transfers
between programs of different published
lengths, program completion, or

enrollment in multiple programs), we
have analyzed the effects of the interim
final regulations across a simulated pool
of borrowers subject to the regulations.
As discussed, first-time borrowers as
of July 1, 2013, will be subject to the
new eligibility limitations. Borrowers
who are otherwise eligible for Direct
Subsidized Loans will not be eligible for
additional Direct Subsidized Loans after
taking out Direct Subsidized Loans for
a period that equals or exceeds 150
percent of the published length of their
program. The limitation has two parts:
(1) The determination that a borrower
has received Direct Subsidized Loans
for a period equal to or greater than 150
percent of the length of the borrower’s
program, and (2) once that limit has
been reached or exceeded, the
borrower’s responsibility for accruing
interest on prior undergraduate loans is
triggered by the borrower’s further
enrollment in an undergraduate
program of equal or shorter duration,
except for borrowers who complete their
programs before becoming responsible

for accruing interest. The borrower is
responsible for interest that accrues
from the date that he or she becomes
responsible for accruing interest, not
from the original disbursement date of
the loan. As described in more detail in
the Federal Government section of this
regulatory impact analysis, the
Department generated estimates of the
effect of the interim final regulations on
the Federal budget and on student
borrowers using a pool of hypothetical
borrowers and patterns of borrowing
behavior from NSLDS. Based on NSLDS
data, the Department was able to
estimate the percentage of student
borrowers in different categories who
would potentially trigger the eligibility
limitations and responsibility for
accruing interest under the interim final
regulations. Transfer students and those
at two-year programs were most affected
by the interim final regulations. The
estimates presented in Table 2
demonstrate the effect of the interim
final regulations by sector.

TABLE 2—ESTIMATED EFFECT OF INTERIM FINAL REGULATIONS BY SECTOR
First-time borrowers at

Percent of loans

Percent of loans
in category
affected by
the policy

Percent of
affected loans in
each category

16.8
10.5
38.9
13.6
20.2

20.0
4.8
3.3
2.3
3.0

55.2
8.3
21.5
5.2
9.8

<4-Year Public .................................................................................................................
<4-Year Private ................................................................................................................
4-Year Public ...................................................................................................................
4-Year For-Profit ..............................................................................................................
4-Year Not-for-Profit ........................................................................................................

Affected borrowers may be subject to
different combinations of limitations
depending on their situations. For
example, some borrowers who do not
intend to take out additional Direct
Subsidized Loans will still become
responsible for accruing interest on
existing loans if they enroll in an
undergraduate program after reaching or
exceeding the 150 percent limit, except
for those borrowers who complete their
first program before becoming
responsible for accruing interest. In
contrast, other borrowers may not
trigger the eligibility limitations on prior
loans from a two-year program if they

later transfer to a four-year program and
become eligible for additional
subsidized loans for which they are
otherwise eligible.
To quantify the effect of the interim
final regulations on student borrowers,
the Department estimated the number of
borrowers in each cohort who would
exceed the 150 percent Direct
Subsidized Loan limit. Because
borrowers can have loans in multiple
cohorts, Table 3 presents the estimated
percentage and number of borrowers in
a particular cohort year affected by the
interim final regulations, not an
unduplicated number of borrowers

across all cohort years. The percentage
of borrowers affected increases in later
cohorts as the percentage of the cohort
representing first-time borrowers after
July 2013 increases. The percentage of
borrowers affected reaches
approximately 6.54 percent by the 2023
cohort when almost all borrowers
should be first-time borrowers who are
subject to the interim final regulations.
Those included as affected borrowers,
approximately 578,000 by the 2023
cohort, would lose eligibility for future
Direct Subsidized Loans and become
responsible for accruing interest.

TABLE 3—ESTIMATED NUMBER OF AFFECTED BORROWERS BY COHORT

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2013
Estimated Borrowers in Cohort ................................................................
% affected ................................................................................................
Estimated Borrowers Affected .................................................................
2018
Estimated Borrowers in Cohort ........................................

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8,042,264

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2014

7,149,480
0.87%
62,429
2019

2020

8,234,825

Sfmt 4700

7,319,118
1.87%
136,827

8,432,361

E:\FR\FM\16MYR2.SGM

2015
7,493,094
3.02%
226,332
2021
8,635,008

16MYR2

2016
7,671,527
4.03%
309,205
2022
8,842,911

2017
7,854,541
4.78%
375,793
2023
8,842,911

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2018
% affected ........................................................................
Estimated Borrowers Affected .........................................

Another factor in the savings to the
Federal Government and the costs to
affected borrowers is borrower
responsibility for accruing interest on
existing Direct Subsidized Loans once

2019

5.28%
424,358

2020

5.59%
460,359

2021

5.88%
495,568

the borrower enrolls after meeting or
exceeding the 150 percent Direct
Subsidized Loan limit. Table 4 presents
the estimated average number of days
that borrowers would be responsible for

6.11%
527,703

2022

2023

6.32%
558,766

6.54%
577,928

accruing interest across the whole
cohort and for affected borrowers in the
cohort only.

TABLE 4—ESTIMATED AVERAGE NUMBER OF DAYS OF BORROWER RESPONSIBILITY FOR INTEREST BY COHORT
Average days interest

2013

All Borrowers ...........................................................................................
Affected Borrowers Only ..........................................................................
Average days interest

2018

All Borrowers ....................................................................
Affected Borrowers Only ..................................................

The Department used this information
to estimate the cost of the loss of Direct
Subsidized Loan eligibility and the days
for which the borrower is responsible
for accruing interest on existing Direct
Subsidized Loans for individual affected
borrowers. While the specific impact on
a given borrower depends on multiple
factors, the average cost to affected
borrowers is approximately $843, based

2014

3.7579
430.360

8.6056
460.328

2019

22.4407
471.536

2015

2020

22.9607
463.780

2021

23.4826
457.369

on an assumed interest rate of 6.8
percent.
In addition to the NSLDS-based
analysis, the Department also examined
data from the 2004/2009 Beginning
Postsecondary Students Longitudinal
Study 2 (BPS) and analyzed what the
impacts would have been if the interim
final regulations had been in place for
the 2003 cohort. BPS data show that the
average borrower who started in a four-

14.2657
472.287

24.0255
453.188

2016

2017

18.9932
482.849
2022

21.2188
475.775
2023

24.4895
449.612

24.9137
444.795

year program and who was still enrolled
in his or her original undergraduate
program with no stops, transfers, or
degree after six years had a little under
$14,000 in outstanding subsidized
loans. Overall, the average borrower
who was still enrolled after six
consecutive years of undergraduate
studies at the same institution with no
degree had just under $24,000 in Direct
Subsidized and Unsubsidized Loans.

TABLE 5A—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR
AND HAD NO STOPOUTS 3 THROUGH 2009 (EDUCATION CONTINUED AT FIRST INSTITUTION ONLY)
Percent of
students with
unsub. loan
debt > 0
through 2009
(percent)

Avg total
unsub.
through 2009

No degree, still enrolled ...................................
No degree, transferred .....................................
No degree, left without return ..........................
Attained degree ................................................

When borrowers who transferred to
another institution but did not have any

$14,028
9,046
6,753
9,014

Avg total
sub. and unsub.
loan debt
through 2009

57
46
35
39

Avg total
sub, loan
debt through
2009

$23,947
14,687
9,998
15,574

stopouts in the six-year period are
included, the average subsidized and

Percent of
students with
sub. loan
debt > 0
through 2009

$13,792
9,913
6,364
11,418

74
58
52
49

total Stafford loan debts are slightly
lower, as displayed below in Table 5b.

TABLE 5B—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR
AND HAD NO STOPOUTS THROUGH 2009 (EDUCATION CONTINUED ANYWHERE)

tkelley on DSK3SPTVN1PROD with RULES2

)

No degree, still enrolled ...................................
2 Tracy Hunt-White, ‘‘2004/2009 Beginning
Postsecondary Students Longitudinal Study,’’
March 2011, http://nces.ed.gov/datalab/
index.aspx?ps_x=ceabdef.

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Percent of
students with
unsub. loan
debt > 0
through 2009
(percent)

Avg total
unsub.
through 2009

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$12,741

Avg total
sub. and unsub.
loan debt
through 2009

58

3 ‘‘Stopout’’ is defined as an interruption of
continuous enrollment during the measured time
period. Students who did not have a stopout were

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Avg total
sub. loan
debt through
2009

$21,765

Percent of
students with
sub. loan debt
> 0 through
2009

$13,128

continuously enrolled during the measured time
period.

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TABLE 5B—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR
AND HAD NO STOPOUTS THROUGH 2009 (EDUCATION CONTINUED ANYWHERE)—Continued
Percent of
students with
unsub. loan
debt > 0
through 2009
(percent)

Avg total
unsub.
through 2009

%

No degree, left without return ..........................
Attained degree ................................................

Under these interim final regulations,
a borrower who enrolls in a seventh
year of undergraduate studies in a fouryear program would become responsible
for accruing interest on Direct
Subsidized Loans. Using the data from
Table 5b, if the interim final regulations
were in place, the average borrower
would have entered that seventh year
with $13,128 in Direct Subsidized
Loans. In that seventh year, in addition
to losing eligibility for additional Direct
Subsidized Loans, the borrower would
become responsible for $892.67 of
interest (this and other calculations
assume that current law applies—
therefore interest would accrue at a rate

6,667
9,067

Avg total
sub. and unsub.
loan debt
through 2009

36
40

Percent of
students with
sub. loan debt
> 0 through
2009

Avg total
sub. loan
debt through
2009

9,949
15,558

6,416
11,308

52
50

borrower had taken out an additional
loan in the seventh year, he or she
would have been limited to Direct
Unsubsidized Loans then and in the
future, and interest would have accrued
on all of the borrower’s loans. Under a
10-year Standard Repayment Plan, the
additional costs for a borrower who
becomes responsible for interest on
previously subsidized loans would be
about $20 per month and $2,400 over
the life of the borrower’s loans. This
estimate does not account for the
possibility that the borrower could
request deferments, during which time
the borrower would also be responsible
for accruing interest.

of 6.8 percent). This is in addition to
interest accruing on existing Direct
Unsubsidized Loans as well as any
Direct Unsubsidized Loans taken out
during that seventh year.
Based on data from the 2004/2009
BPS and assuming these interim final
regulations were in place, the average
borrower who became responsible for
accruing interest on existing Direct
Subsidized Loans by enrolling in a
seventh year of undergraduate studies
but did not take out any additional
student loans would have accrued
almost $1,800 more in interest during
that seventh year of school and the
following grace period (assuming
graduation in the seventh year). If the

TABLE 6—ESTIMATED IMPACTS OF INTERIM FINAL REGULATIONS ON SIXTH-YEAR AND SEVENTH-YEAR UNDERGRADUATE
STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR AND HAD NO STOPOUTS
THROUGH 2009 (EDUCATION CONTINUED ANYWHERE). NOTE: CHART CALCULATES INTEREST USING RELEVANT INTEREST RATES FROM 2003–2009 AND ASSUMES AN EQUAL DISTRIBUTION OF LOANS THROUGH GRADUATION. THESE
FIGURES ARE ONLY INTENDED TO SERVE AS EXAMPLES OF HOW THE INTERIM FINAL REGULATIONS COULD AFFECT
BORROWERS, NOT TO FORECAST ACTUAL FUTURE EFFECTS ON INDIVIDUAL BORROWERS
Total
stafford

tkelley on DSK3SPTVN1PROD with RULES2

Borrower 1, graduated at end of year six
Borrower 2, enrolls in seventh year but
takes out no additional loans ...............
Borrower 3, enrolls in seventh year and
takes out an additional unsub loan ......

Borrowers who start in two-year
programs will have three years of Direct
Subsidized Loan eligibility. However,
some borrowers may choose to transfer
to a longer program (e.g., a four-year
program) after that third year and
subsequently increase their maximum
eligibility for Direct Subsidized Loans.
Data from the 2004/2009 BPS show that
the average borrower who began at a
two-year institution in fall 2003 and was

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Sub loans

Unsub loans

Amount
due at
repayment

Interest

10-Year
standard
monthly
payments
(6.8%)

Total
amount
repaid
(10-year
standard)

$21,765

$13,128

$8,638

$1,828

$23,593

$271

$32,507

21,765

13,128

8,638

3,531

25,297

291

34,933

25,393

13,128

12,265

3,778

29,171

336

40,284

still enrolled without a degree at the end
of the 2005–2006 academic year had
approximately $4,652 of Direct
Subsidized Loan debt. However,
approximately 20 percent of students
who began at a two-year institution in
fall 2003 and were still enrolled without
a degree at the end of the 2005–2006
academic year had any subsidized loan
debt.

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Unlike a borrower in a four-year
program who reaches the eligibility
limits, a borrower in a two-year program
who has taken out three years of Direct
Subsidized Loans will not become
responsible for interest on existing
Direct Subsidized Loans if he or she
enrolls in a longer program instead of
enrolling in the fourth year of the twoyear program.

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TABLE 7—LOAN DEBT FOR STUDENTS WHO BEGAN AT A TWO-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR
AND HAD NO STOPOUTS THROUGH 2006 (EDUCATION CONTINUED AT FIRST INSTITUTION ONLY)
Percent of
students with
unsub loan
debt > 0
through 2006
(percent)

Avg total
stafford unsub
loan debt
through 2006
Attained associate’s degree .............................
Attained certificate ...........................................
No degree, still enrolled ...................................
No degree, not enrolled ...................................
No degree, transferred .....................................
No degree, left without return ..........................

The data in Table 8 show that
borrowers in two-year programs who
become responsible for interest on
Direct Subsidized Loans by enrolling in
a fourth year of that program (but who
do not take out an additional loan)

$1,843
860
855
445
997
954

Percent of
students with
sub loan
debt > 0
through 2006
(percent)

Avg total
stafford sub
loan debt
through 2006

29.5
17.7
17.6
12.2
23.0
19.5

$6,011
4,157
4,652
2,954
4,100
4,051

Avg total
stafford
loan debt
through 2006

39.9
33.1
20.6
22.9
33.9
26.3

$9,517
6,499
7,209
4,558
6,213
6,927

because the loan received in the fourth
year would be a Direct Unsubsidized
Loan and such borrowers would be
responsible for accruing interest on all
loans, including Direct Subsidized
Loans.

would not experience a significant
financial impact during that fourth year
under these interim final regulations.
Those who receive an additional Direct
Unsubsidized Loan during the fourth
year would experience a larger impact

TABLE 8—ESTIMATED IMPACT OF INTERIM FINAL REGULATIONS ON THIRD- AND FOURTH-YEAR UNDERGRADUATE STUDENTS WHO STARTED IN A TWO-YEAR PROGRAM IN FALL 2003 AND HAVE NOT TRANSFERRED OR HAD ANY LAPSES
IN ENROLLMENT
[Note: Chart calculates interest using relevant interest rates from 2003–2007 and assumes an equal distribution of loans through graduation.
These figures are only intended to serve as examples of how the interim final regulations could affect borrowers, not to forecast actual future
effects on individual borrowers.]

tkelley on DSK3SPTVN1PROD with RULES2

Total sub.
and unsub.

Sub. loans

Unsub.
loans

Amount
due at
repayment

Interest

10-year
standard
monthly
payments
(6.8%)

Total
amount
repaid
(10-year
standard)

Borrower 1, graduates at end of year 3 ..
Borrower 2, enrolls in fourth year of twoyear program and graduates with no
additional loans ....................................
Borrower 2, enrolls in fourth year of twoyear program and graduates with additional loans ...........................................

$7,209

$4,652

$2,557

$213

$7,422

$85

$10,250

7,209

4,652

2,557

782

7,992

92

11,037

9,612

4,652

4,960

946

10,558

122

14,580

As mentioned earlier, some borrowers
who begin in two-year programs will
transfer to longer programs. A borrower
may enroll in a two-year program for
three years and decide to transfer to a
four-year program for the fourth year,
which would prevent the borrower from
becoming responsible for accruing
interest and allow the borrower to
receive three additional years of Direct
Subsidized Loans. However, there is a
risk that borrowers who transfer from
two-year programs after three years
without completing an associate’s
degree and who lose some of their
earned credit hours may become
responsible for interest on existing
Direct Subsidized Loans if they are
unable to complete the four-year degree
in the three years of remaining
eligibility.
The financial impact of these interim
final regulations on borrowers who are
responsible for accruing interest during

the repayment period will depend upon
a number of factors. As stated earlier,
borrowers with equal loan debt entering
repayment may end up paying
substantially different amounts overall
depending on whether borrowers
request deferments because a borrower
who becomes responsible for interest on
existing Direct Subsidized Loans will
also be responsible for such interest
during any periods of deferment.
Borrowers who do not continue
enrollment after meeting or exceeding
the 150 percent limit are not responsible
for accruing interest during such
periods.
These interim final regulations also
limit Direct Subsidized Loan eligibility
for borrowers in teacher certification
coursework. Previous borrowing for
other programs does not affect a
borrower’s eligibility for Direct
Subsidized Loans for teacher
certification coursework; instead,

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borrowers will begin new eligibility
periods upon enrollment in such a
program and receipt of a Direct
Subsidized Loan. As with any other
program, a borrower can only extend his
or her eligibility period by enrolling in
longer teacher certification coursework.
As discussed previously in this
preamble, subsidized usage periods
accrued in teacher certification
coursework will count against the
maximum eligibility period of other
teacher certification coursework. Once
the borrower has met or exceeded the
150 percent limitation, he or she will
still be able to use Direct Unsubsidized
Loans to pay for eligible programs and
subsequent enrollment in such
programs will not cause a borrower to
become responsible for accruing interest
on any existing Direct Subsidized
Loans.
The limits on the use of Direct
Subsidized Loans to pay for teacher

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations

certification coursework may come at a
cost to affected borrowers. Some States
require teachers to complete these
programs on a periodic basis to
maintain their ability to teach, and these
teachers may have to use Direct
Unsubsidized Loans to pay for
additional certificates. As with other
programs, the overall impact of these
regulations on borrowers will depend
upon borrower behavior throughout
repayment.
These interim final regulations will
also have potential financial effects on
borrowers who enroll in preparatory
coursework for undergraduate or
graduate programs. Direct Subsidized
Loans used to pay for preparatory
coursework for undergraduate programs
will count against borrowers’ maximum
eligibility periods. Therefore, borrowers
enrolled in preparatory courses for
undergraduate studies will have shorter
periods to complete their undergraduate
coursework without losing eligibility for
Direct Subsidized Loans. Enrolling in
preparatory coursework for a graduate
program will not cause a borrower to
become responsible for interest on
existing Direct Subsidized Loans, but
will still count against the maximum
eligibility period of the undergraduate
program for which the borrower most
recently received a Direct Subsidized
Loan. Borrowers who exhaust their
Direct Subsidized Loan eligibility
during their undergraduate studies will
be limited to Direct Unsubsidized Loans
during these courses.
In addition to the estimated costs
described above, these interim final
regulations may offer non-quantifiable
benefits to students and the general
population. Data from the 2004/2009
BPS show that about 58 percent of firsttime, full-time students in bachelor
degree programs completed their
programs within six years. These
interim final regulations could motivate
students to finish on time and increase
the nation’s on-time college graduation

rate. An improved on-time graduation
rate could help reduce student debt and
provide more qualified and highly
trained individuals for the country’s
workforce. Reduced debt levels may
allow graduates greater economic
participation, such as by purchasing
homes or cars or starting small
businesses.
We welcome comments about the
costs and benefits of the changes
implemented in these interim final
regulations.
Elsewhere in this section under the
heading Paperwork Reduction Act of
1995, we identify and explain burdens
specifically associated with information
collection requirements.
2. Alternatives considered.
No alternatives were considered for
the amendments to §§ 685.202 and
685.304 because these amendments
implement changes to the HEA enacted
by Congress, and we did not have
discretion in developing these
amendments. With respect to § 685.200,
we did discuss and consider alternative
approaches to the regulations on
preparatory coursework for
undergraduate studies and treatment of
teacher preparatory programs.
In the case of preparatory coursework,
the Department wanted to ensure that
the regulations did not have a
significant negative impact on
borrowers who need this coursework to
prepare for undergraduate studies.
Research shows that preparatory
coursework only has a modest effect on
the length of time that students take to
graduate.4 For this reason, we declined
to treat these courses as stand-alone
programs for the purposes of subsidized
loan eligibility.
We also considered multiple
approaches to the treatment of teacher
certification coursework. MAP–21
requires the Secretary to promulgate
regulations that address how the
eligibility limit on Direct Subsidized
Loans and borrower responsibility for

accruing interest will operate for
borrowers enrolled at an eligible
institution in a program necessary for a
professional credential or a certification
from a State that is required for
employment as a teacher in an
elementary or secondary school in that
State. Because many States require
teachers to obtain such certificates as a
prerequisite for teaching or as a
requirement to continue teaching, we
believed that these programs should be
treated as stand-alone entities not
affected by Direct Subsidized Loan
receipt in prior undergraduate
programs. However, to be consistent
with the overall intent of the 150
percent limitation, we provided in these
interim final regulations that teacher
certification coursework is a
continuation of the previous teacher
certification coursework for the purpose
of subsidized loan eligibility.
In the spirit of good governance, the
Department has done its due diligence
to ensure that these interim final
regulations represent the Department’s
best efforts to regulate and are
consistent with Congress’s intent in
passing MAP–21.
Accounting Statement
As required by OMB Circular A–4
(available at www.whitehouse.gov/sites/
default/files/omb/assets/omb/circulars/
a004/a-4.pdf), in the following table we
have prepared an accounting statement
showing the classification of the
expenditures associated with the
provisions of these interim final
regulations. This table provides our best
estimate of the changes in annual
monetized transfers as a result of these
interim final regulations. Expenditures
are classified as transfers from affected
student loan borrowers to the Federal
Government and the IHEs’ cost of
compliance with the paperwork
requirements.

ACCOUNTING STATEMENT CLASSIFICATION OF ESTIMATED EXPENDITURES
[In millions]
Category

Amount or description

Annual Benefits ........................................................................................

Not quantified. The 150% limit may encourage borrowers’ on-time completion of programs.
$5.21 (7%).
$5.31 (3%).
Cost of Paperwork Compliance.
$212.8 (7%).
$237.6 (3%).
From affected student loan borrowers to the Federal Government.

tkelley on DSK3SPTVN1PROD with RULES2

Annual Costs ............................................................................................

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

4 Paul Attewell et al., ‘‘New Evidence on College
Remediation,’’ Journal of Higher Education 77, no.
5 (October 2006): 886–924.

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
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 regulations easier to
understand, including answers to
questions such as the following:
• Are the requirements in the
regulations clearly stated?
• Do the regulations contain technical
terms or other wording that interferes
with their clarity?
• Does the format of the regulations
(grouping and order of sections, use of
headings, paragraphing, etc.) aid or
reduce their clarity?
• Would the 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, § 685.200.)
• Could the description of the
regulations in the SUPPLEMENTARY
INFORMATION section of this preamble be
more helpful in making the regulations
easier to understand? If so, how?
• What else could we do to make the
regulations easier to understand?
To send any comments that concern
how the Department could make these
interim final regulations easier to
understand, see the instructions in the
ADDRESSES section.
Initial Regulatory Flexibility Act
Analysis
These interim final regulations
primarily affect the terms of loans made
by the Department to some student loan
borrowers. However, some of the
provisions also modify the financial aid
counseling and reporting requirements
of IHEs. The U.S. Small Business
Administration Size Standards define
‘‘for-profit institutions’’ as ‘‘small
businesses’’ if they are independently

owned and operated and not dominant
in their field of operation with total
annual revenue below $7,000,000. The
standards define ‘‘non-profit
institutions’’ as ‘‘small organizations’’ if
they are independently owned and
operated and not dominant in their field
of operation, or as ‘‘small entities’’ if
they are institutions controlled by
governmental entities with populations
below 50,000. Under these definitions,
an estimated 4,365 IHEs subject to the
proposed paperwork compliance
provisions of the interim final
regulations are small entities.
Accordingly, we have prepared this
initial regulatory flexibility analysis to
present an estimate of the effect on
small entities of the statutory changes as
implemented through these interim
final regulations. The Department
welcomes comments and information
on this analysis.
Succinct Statement of the Objectives of,
and Legal Basis for, the Regulations
The interim final regulations reflect
changes made to the Direct Loan
Program by MAP–21. Specifically, these
regulations reflect the provisions in
MAP–21 that amended the HEA to
extend the 3.4 percent interest rate on
Direct Subsidized Loans from July 1,
2012 to July 1, 2013, and to limit a
borrower from receiving Direct
Subsidized Loans for a period in excess
of 150 percent of the published length
of the educational program in which the
borrower is enrolled.
Description of and, Where Feasible, an
Estimate of the Number of Small
Entities to Which the Regulations Will
Apply
These interim final regulations affect
IHEs that participate in the Federal
Direct Loan Program and borrowers.
Approximately 60 percent of IHEs
qualify as small entities, even if the
range of revenues at the not-for-profit

28979

institutions varies greatly. Using data
from the Integrated Postsecondary
Education Data System, the Department
estimates that approximately 4,365 IHEs
qualify as small entities—1,891 are notfor-profit institutions, 2,196 are forprofit institutions with programs of two
years or less, and 278 are for-profit
institutions with four-year programs.
Description of the Projected Reporting,
Recordkeeping, and Other Compliance
Requirements of the Regulations,
Including an Estimate of the Classes of
Small Entities That Will Be Subject to
the Requirements
The interim final regulations modify
or increase the paperwork burden on
entities participating in the Direct Loan
Program, as described in the Paperwork
Reduction Act section of this preamble.
In particular, institutions will be
required to report information that will
allow the Department to calculate the
maximum eligibility period, subsidized
usage period, and remaining eligibility
period for each borrower. The
information will include: The program’s
CIP Code; the credential level of each
program; the length of the program for
which the loan is intended; the
enrollment status of the borrower at the
time the loan is disbursed; whether a
loan is for teacher certification
coursework for which the institution
awards no academic credential; whether
a loan is for preparatory coursework
necessary for enrollment in an
undergraduate program; and whether
the loan is for preparatory coursework
necessary for enrollment in a graduate
or professional program. Institutions
will also provide program information
to the Department’s NSLDS system and
include information about the 150
percent limit in financial aid entrance
and exit counseling. The estimated
burden on small entities from these
requirements is summarized in Table 9.

TABLE 9—ESTIMATED PAPERWORK BURDEN ON SMALL ENTITIES

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COD reporting of enrollment status, program length, teacher
preparation programs, preparatory coursework, and CIP
code.
NSLDS reporting ......................................................................
Additional entrance and exit counseling requirements ............

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OMB Control No.

685.301(e) .................

OMB 1845—NEW1 ...

$852,234

$195

685.309(b) .................
685.304 .....................

OMB 1845—NEW1 ...
OMB 1845—NEW1 ...

65,953
268,566

15
62

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Cost per
institution

Reg section

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Identification, to the Extent Practicable,
of All Relevant Federal Regulations
That May Duplicate, Overlap, or
Conflict With These Interim Final
Regulations
These interim final regulations are
unlikely to conflict with or duplicate
existing Federal regulations.
Alternatives Considered
No alternatives were considered for
small entities because these interim
final regulations implement changes to
the HEA enacted by Congress, and are
necessary to implement the statutory
changes. The information required to be
reported should be readily available to
IHEs. Further, the counseling
information is critically important for
borrowers to receive when they first
take out loans subject to the 150 percent
limitation and as they make their
educational plans, so delays for small
entities are not possible. The
Department is committed to helping all
institutions meet the financial
counseling requirements of the interim
final regulations and will provide
materials or guidance to assist with this
requirement.

tkelley on DSK3SPTVN1PROD with RULES2

Waiver of Rulemaking and Delayed
Effective Dates
Under the Administrative Procedure
Act (APA) (5 U.S.C. 553), the
Department is generally required to
publish a notice of proposed rulemaking
and provide the public with an
opportunity to comment on proposed
regulations prior to establishing a final
rule. In addition, all Department
regulations for programs authorized by
Title IV of the HEA (Title IV, HEA
programs) are subject to the negotiated
rulemaking requirements of section 492
of the HEA. Section 492 provides
specifically that any regulations issued
for the Title IV, HEA programs are
subject to negotiated rulemaking to
obtain the advice of and
recommendations from individuals and
groups involved in the student financial
assistance programs.
MAP–21 waives the negotiated
rulemaking requirements in section 492
of the HEA (as well as the master
calendar requirements in section 482 of
the HEA) for regulations to implement
the 150 percent limit on Direct
Subsidized Loan eligibility in the Direct
Loan Program. Consequently, the
negotiated rulemaking requirements in
section 492 of the HEA do not apply to
these interim final regulations and we
will not subject them to negotiated
rulemaking.
Under section 553(a)(3)(B) of the
APA, an agency is not required to

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conduct notice-and-comment
rulemaking when the agency ‘‘for good
cause finds . . . that notice and public
procedure thereon are impracticable,
unnecessary, or contrary to the public
interest.’’ Although these interim final
regulations are subject to the APA’s
notice-and-comment requirements, the
Secretary has determined that it would
be impracticable to conduct notice-andcomment rulemaking in time to
implement these changes by July 1,
2013.
In section 455(q) of the HEA, as added
by MAP–21, Congress made a number of
changes to the Direct Loan Program to
be effective on July 1, 2013. Even on an
extremely expedited timeline, the
Department could not feasibly conduct
notice-and-comment rulemaking,
promulgate final regulations, make
necessary financial aid systems changes,
and provide counseling to borrowers in
time to implement the statutory changes
by July 1, 2013.
Though MAP–21 was signed into law
on July 6, 2012, nearly one year prior to
the date that the first cohort of
borrowers could be affected, the
Department was unable to begin the
regulatory drafting process immediately.
In order to ensure the continued
integrity of the Title IV loan programs,
the Department first had to assess its
operational capabilities and what
limitations these placed on possible
regulatory approaches. This internal
analysis took several months and
therefore limited the period during
which the Department could draft
implementing regulations.
The time period in which the
Department could conduct notice-andcomment rulemaking was further
limited by the statute’s specification of
a July 1, 2013, effective date, and
requirement that institutions and the
Department take specific steps in order
to implement the statutory requirements
by that date. First, although MAP–21
specifies that borrowers are not affected
until July 1, 2013, institutions begin
preparing financial aid packages in the
spring that precedes an award year (an
award year begins on July 1). Shortly
after a student’s financial aid package is
prepared, the student must sign a master
promissory note and complete entrance
counseling. Only then is the financial
aid award, effective as of July 1,
disbursed to the student. Thus, the
regulations need to be in place long
enough before July 1 to allow schools to
prepare, counsel students about, and
make financial aid awards.
Second, the Department must make
certain necessary systems and
operational changes before July 1 in
order to comply generally with the HEA

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and protect borrowers, institutions, and
taxpayers. Without changes to current
financial aid systems, schools would be
unable to accurately monitor a
borrower’s eligibility for Direct
Subsidized Loans under the 150 percent
limit because the determination of a
borrower’s maximum eligibility period
and remaining eligibility period requires
information about a borrower’s
attendance at all institutions, which
may not be available to the institution
the borrower is presently attending.
Therefore, the Department must have
regulations with legal force to make the
necessary system changes to NSLDS and
the COD System to monitor borrower
eligibility, alert borrowers and
institutions that a borrower is about to
reach or has reached the 150 percent
limit on eligibility for Direct Subsidized
Loans, and ensure that no additional
Direct Subsidized Loans are originated
or disbursed to an ineligible borrower.
Making such changes in a timely
manner requires that regulatory drafting
and operational adjustments occur
contemporaneously.
If the Department were required to
conduct notice-and-comment
rulemaking first, the Department could
not begin implementing these changes
until after final regulations were
published. Because interim final
regulations have legal force on the date
of publication, the Department can
begin making these necessary changes.
If the Department were required to
submit draft regulations for notice-andcomment rulemaking, the Department
could not begin implementing such
changes until final regulations were
published. We would be forced to delay
the initiation of operational changes
until late 2013 or early 2014, well after
the July 1, 2013, date set forth in the
statute.
In addition, we need to ensure that
borrowers are advised of the terms and
conditions of their eligibility for Direct
Loans before July 1, 2013. The statute
itself does not provide sufficient detail
on the 150 percent limit. Therefore, we
are not be able to provide borrowers
with the terms of the 150 percent limit
on eligibility or with information on
how they will be affected until the
interim final regulations are published.
Notice-and-comment rulemaking is
impracticable because the Department
could not conduct notice-and-comment
rulemaking, issue final regulations,
make necessary systems changes, and
provide counseling for borrowers by
July 1, 2013. In sum, if notice-andcomment rulemaking were not waived,
the Department would be unable to
administer the Direct Loan Program in
compliance with the HEA.

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
Finally, we note that, contrary to
public interest, there would be a
substantial loss of revenue for the
Federal Government if these interim
final regulations were not implemented
until after July 1, 2013. As previously
noted, section 455(q) of the HEA is not
self-implementing. If the regulations are
not published until after July 1, 2013,
the Department will not be able to apply
the restrictions to borrowers until the
date the regulations are published.
Therefore, borrowers who take out loans
between July 1, 2013, and the date of
publication would not be subject to the
150 percent limit. As a result, the
Government would have increased costs
for interest subsidies on Direct
Subsidized Loans and would not receive
the expected savings from interest
payments made by the borrowers in this
cohort who exceed the 150 percent
limitation.
The Department estimates that
approximately 62,000 borrowers in the
2013 cohort of borrowers (0.87 percent)
would exceed the 150 percent limit at
some point during their postsecondary
education and be affected by the
proposed regulations. Many of them
would not be subject to the regulatory
provisions if the effective date were
delayed. The estimated savings
associated with these affected borrowers
in the 2013 cohort is $197 million. For
example, the Department estimates that
if implementation were delayed until
January 1, 2014, the $197 million in
outlay savings associated with the 2013
cohort in the 2013 MSR Baseline would
be eliminated in addition to $251
million in outlay savings across the
2013 to 2023 cohorts from the PB2014
baseline. This is a total of $448 million
in savings reductions over the 2013 to
2023 cohorts.
For these reasons, the Secretary has
determined that notice-and-comment
rulemaking is impracticable and
contrary to the public interest. Although
the Department is adopting these
regulations on an interim final basis, we
request public comment on these
regulations. After consideration of
public comments, the Secretary will
publish final regulations.
We also note that the APA generally
requires that regulations be published at
least 30 days before their effective date,
unless the agency has good cause to
implement the regulations sooner (5
U.S.C. 553(d)(3)). In addition, these final
regulations are a major rule for purposes
of the Congressional Review Act (CRA)
(5 U.S.C. 801, et seq.). Generally, under
the CRA, a major rule takes effect 60
days after the date on which the rule is
published in the Federal Register.
Section 808(2) of the CRA, however,

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provides that, if an agency finds for
good cause (and incorporates the
finding and a brief statement of reasons
therefor in the rule issued) that notice
of, and public procedure on, a rule are
impracticable, unnecessary, or contrary
to the public interest, the rule shall take
effect at such time as the Federal agency
promulgating the rule determines. We
are waiving the delayed effective dates
under both the APA and CRA and thus
these interim final regulations will take
effect on their date of publication. We
are taking this action because if we do
not waive the delayed effective dates we
are at risk of not meeting the statutory
deadline of July 1, 2013, and facing
significant repercussions, as explained
in this section of the preamble. Thus,
we find there is good cause to waive the
delayed effective dates under the APA
and the CRA.
Paperwork Reduction Act of 1995
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department conducts a
preclearance consultation program to
provide the general public and Federal
agencies with an opportunity to
comment on proposed and continuing
collections of information in accordance
with the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 3506(c)(2)(A)).
This helps ensure that: The public
understands the Department’s collection
instructions; respondents can provide
the requested data in the desired format;
reporting burden (time and financial
resources) is minimized; collection
instruments are clearly understood; and
the Department can properly assess the
impact of collection requirements on
respondents.
A Federal agency may not conduct or
sponsor a collection of information
unless the OMB approves the collection
under the PRA and the corresponding
information collection instrument
displays a currently valid OMB control
number. No person is required to
comply with, or is subject to penalty for
failure to comply with, a collection of
information if the collection instrument
does not display a currently valid OMB
control number.
Under 5 CFR 1320.13 we have
requested OMB to conduct its review of
this collection of information on an
emergency basis. We have asked OMB
to approve the collection of information
on May 16, 2013, the same date these
interim final regulations are published
in the Federal Register. This does not
affect your ability to comment on the
interim final regulations, or the
collection associated with it. In
addition, the Department is
concurrently asking for comments under

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the 60-day comment period for the
regular collection. In order for those
comments to be considered for the
regular collection, the Department
requests comments by July 15, 2013. If
you want to comment on the proposed
information collection requirements,
please send your comments through the
Federal eRulemaking Portal at http://
www.regulations.gov through by
selecting Docket ID number [ED–2013–
OPE–0066].
The manner in which the Department
will be implementing § 685.200 will
require institutions to submit additional
information to the COD System and to
NSLDS under the authority in
§§ 685.301(e) and 685.309(b),
respectively. Therefore, the collection
requirements associated with
§§ 685.301(e) and 685.309(b) will
change as a result of this rulemaking.
Although §§ 685.301(e) and 685.309(b)
are not modified by this rulemaking, the
burden associated with each provision
will ultimately change as a result of this
rulemaking and the analysis of the
burden associated with those provisions
will accompany this rulemaking.
Section 685.304 also contains
information collection requirements.
The Department has submitted a copy of
the information collection requests
associated with these sections to OMB
for its review.
Section 685.301(e)—COD Reporting
Requirements by Institutions
Section 685.301(e) provides that
institutions originating and disbursing
loans under the Direct Loan Program
must report a student’s ‘‘payment data’’
to the Secretary. The term ‘‘payment
data’’ is defined in § 685.102(b) to mean
‘‘an electronic record that is provided to
the Secretary by an institution showing
student disbursement information’’. The
Department has implemented this
provision by requiring that institutions
electronically report student and Direct
Loan information to the COD System.
The provisions of § 685.200(f) provide
that a borrower is not eligible to receive
an additional Direct Subsidized Loan if
the borrower has no remaining
eligibility period. These interim final
regulations also provide different rules
for borrowers who are enrolled in
teacher certification coursework for
which the institution awards no
academic credential, preparatory
coursework necessary for enrollment in
an undergraduate program, and
preparatory coursework necessary for
enrollment in a graduate or professional
program.
The Department will determine
whether the borrower has continued
eligibility for Direct Subsidized Loans.

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To ensure that the Department has the
information necessary to make that
determination, institutions will be
required to report additional
information to the Department’s COD
System. For example, institutions will
be required to report: The program’s CIP
Code; the credential level of each
program; the length of the program for
which the loan is intended; the
enrollment status of the borrower at the
time the loan is disbursed; whether a
loan is for teacher certification
coursework for which the institution
awards no academic credential; whether
a loan is for preparatory coursework
necessary for enrollment in an
undergraduate program; and whether
the loan is for preparatory coursework
necessary for enrollment in a graduate
or professional program.
These data will allow the Department
to calculate the borrower’s maximum
eligibility period, subsidized usage
period, and remaining eligibility period
as described in § 685.200(f)(1)(ii)–
(f)(1)(iv), determine whether the
borrower is eligible to receive an
additional Direct Subsidized Loan, and
ensure that borrowers do not receive
Direct Subsidized Loans if they are no
longer eligible under § 685.200(f)(2).
To estimate the total increase in
burden imposed on institutions, the
Department estimated the average
number of reports that each institution
submitted to COD each business day (by
institutional type, i.e., public, private,
proprietary). We based our calculations
of estimated burdens on a 248 businessday year (365 days, less 104 weekend
days and 13 Federal holidays) and
assumed that institutions submit data in
large batches, not separately, for each
individual borrower. We estimate that
the additional reporting will add 1
minute (0.02 hours) of additional
burden per report.
Of the 5,847 institutions that
disbursed Direct Loans during the most
recently completed award year, 1,933 of
them are public institutions. The
average number of reports per day that
public institutions submit is 2.73. We
further estimate that additional
reporting will add 26,174 hours (1,933
institutions multiplied by 248 business
days, multiplied by 2.73 reports per day,
multiplied by 0.02 hours per report).
Of the 5,847 institutions that
disbursed Direct Loans during the most
recently completed award year, 1,750 of
them are private, not-for-profit
institutions. The average number of
reports per day that private, not-forprofit institutions submit is 1.29. We
estimate that additional reporting will
add 11,197 hours (1,750 institutions
multiplied by 248 business days,

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multiplied by 1.29 reports per day,
multiplied by 0.02 hours per report).
Of the 5,847 institutions that
disbursed Direct Loans during the most
recently completed award year, 2,164 of
them are proprietary institutions. The
average number of reports per day that
proprietary institutions submit is 0.84.
We further estimate that additional
reporting will add 9,016 hours (2,164
institutions multiplied by 248 business
days, multiplied by 0.84 reports per day,
multiplied by 0.02 hours per report).
Collectively, as a result of the new
reporting requirements created for
public, private and proprietary
institutions, the total burden associated
with § 685.301(e), under 1845–NEW1,
will increase by 46,387 hours (26,174
hours for public institutions + 11,197
hours for private, not-for-profit
institutions + 9,016 hours for
proprietary institutions).
Section 685.309(b)—NSLDS Enrollment
Reporting by Institutions
Section 685.309(b) provides that
eligible institutions that enroll a Direct
Loan borrower must report information
about the borrower’s enrollment to the
Secretary. The Department has
implemented these provisions by
requiring institutions to electronically
report, at least twice per year, student
and loan information to NSLDS. The
new Direct Subsidized Loan regulations
in § 685.200(f)(3) provide that a
borrower becomes responsible for
accruing interest on any Direct
Subsidized Loans he or she previously
received if the borrower has no
remaining eligibility period and enrolls
in certain eligible programs. The new
regulations also provide specific rules
for borrowers who are enrolled in
teacher certification coursework for
which the institution awards no
academic credential, preparatory
coursework necessary for enrollment in
a graduate or professional program, and
programs for which borrowers are not
otherwise eligible for Direct Subsidized
Loans.
The Department will determine
whether the borrower is responsible for
accruing interest on his or her
previously received Direct Subsidized
Loans. To ensure that the Department
has the information to necessary to
make that determination, institutions
will be required to report additional
information to NSLDS. For example,
institutions will be required to report:
The CIP code and the credential level
for the program in which a borrower is
enrolled; the length of the program in
academic years, weeks, or months
(consistent with current institutional

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reporting in the COD System); and the
enrollment status of the borrower.
These data will allow the Department
to determine whether a borrower who is
not eligible for additional Direct
Subsidized Loans is responsible for
accruing interest on his or her
previously received Direct Subsidized
Loans.
To estimate the total increase in
burden imposed on institutions due to
the new reporting requirements under
§ 685.309(b), we divided institutions
into two groups—institutions that use
enrollment servicers, which are more
automated and take less time to report
enrollment to the Department, and
institutions that do not use enrollment
servicers and therefore take longer to
report enrollment to the Department.
We assumed that each institution that
reports enrollment does so twice per
year (as minimally required). We
estimate that the additional reporting
will, for institutions using an
enrollment servicer, add 0.25 hours of
burden per report. For institutions that
do not use an enrollment servicer, we
estimate that the additional reporting
will add 0.5 hours of additional burden
per report.
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 2,710 of
them are public institutions. Of the
2,710 public institutions, 2,092 use
enrollment servicers. For the 2,092
public institutions that use enrollment
servicers, we estimate that additional
reporting will add 1,046 hours (2,092
institutions multiplied by 0.25
additional hours per report, multiplied
by 2 reports per year).
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 2,453 of
them are private, not-for-profit
institutions. Of the 2,453 private, notfor-profit institutions, 1,894 use
enrollment servicers. For the 1,894
private, not-for-profit institutions that
use enrollment servicers, we estimate
that additional reporting will add 947
hours (1,894 institutions multiplied by
0.25 additional hours per report,
multiplied by 2 reports per year).
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 3,033 of
them are proprietary institutions. Of the
3,033 proprietary institutions, 2,342 use
enrollment servicers. For the 2,342
proprietary institutions that use
enrollment servicers, we estimate that
additional reporting will add 1,171
hours (2,342 institutions multiplied by
0.25 additional hours per report,
multiplied by 2 reports per year).

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 2,710 of
them are public institutions. Of the
2,710 institutions, 618 of them do not
use enrollment servicers. For the 618
public institutions that do not use
enrollment servicers, we estimate that
additional reporting will add 618 hours
(618 institutions multiplied by 0.5
additional hours per report, multiplied
by 2 reports per year).
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 2,453 of
them are private, not-for-profit
institutions. Of the 2,453 private, notfor-profit institutions, 559 of them do
not use enrollment servicers. For the
559 private, not-for-profit institutions
that do not use enrollment servicers, we
estimate that additional reporting will
add 559 hours (559 institutions
multiplied by 0.5 additional hours per
report, multiplied by 2 reports per year).
Of the 8,196 institutions that reported
enrollment information during the most
recently completed award year, 3,033 of
them are proprietary institutions. Of the
3,033 proprietary institutions, 691 of
them do not use enrollment servicers.
For the 691 proprietary institutions that
do not use enrollment servicers, we
estimate that additional reporting will
add 691 hours (691 institutions
multiplied by 0.5 additional hours per
report, multiplied by 2 reports per year).
Collectively, as a result of the new
reporting requirements, the total burden
associated with § 685.309(b), under
1845–NEW1, will be increased by 5,032
hours (1,046 hours for public
institutions using enrollment servicers +
947 hours for private, not-for-profit
institutions using enrollment servicers +
1,171 hours for proprietary institutions
using enrollment servicers + 618 hours
for public institutions not using
enrollment servicers + 559 hours for
private, not-for-profit institutions not
using enrollment servicers + 691 hours
for proprietary institutions that do not
use enrollment servicers).

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Section 685.304—Entrance and Exit
Counseling for Borrowers by Institutions
The interim final regulations
implement a new statutory requirement
that significantly limits a borrower’s
eligibility for Direct Subsidized Loans
and potentially results in the borrower
becoming responsible for accruing
interest on existing Direct Subsidized
Loans. Under section 485 of the HEA,
which requires that borrowers be
provided with entrance and exit
counseling on the provisions governing
Federal student aid, institutions will be

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required to revise the entrance and exit
counseling provided to borrowers.
For entrance counseling, the added
counseling requirements under
§ 685.304(a)(6)(xiii) will require
institutions to explain: (1) The possible
loss of eligibility for additional Direct
Subsidized Loans; (2) how a borrower’s
maximum eligibility period, remaining
eligibility period, and subsidized usage
period are calculated; (3) the possibility
that the borrower could become
responsible for accruing interest on
previously received Direct Subsidized
Loans during all periods; and (4) the
impact of borrower responsibility for
accruing interest on the borrower’s total
debt.
For exit counseling, the requirements
added under new § 685.304(b)(4)(xii)
will require institutions to explain: (1)
How the borrower’s maximum
eligibility period, remaining eligibility
period, and subsidized usage period are
calculated; (2) the sum of the borrower’s
subsidized usage periods, as determined
under § 685.200(f)(1)(iii), at the time of
the exit counseling; (3) the
consequences of continued borrowing or
enrollment; (4) the impact of the
borrower becoming responsible for
accruing interest on total student debt;
(5) that the Secretary will inform the
student borrower of whether he or she
is responsible for accruing interest on
his or her Direct Subsidized Loans; and
(6) that the borrower can access NSLDS
to determine whether he or she is
responsible for accruing interest on any
Direct Subsidized Loans as provided in
§ 685.200(f)(3).
The burden associated with entrance
and exit counseling is two-fold, there is
burden on borrowers, who are required
to complete entrance counseling by
virtue of their participation in the Title
IV loan programs and there is burden on
institutions, which are required to
provide counseling to such borrowers.
We estimate that each entrance
counseling interview will take 2
additional minutes (0.03 hours) per
borrower to complete and estimate the
number of borrowers who took entrance
counseling in the last award year as
2,723,751. Therefore, we estimate that
burden will increase by 81,713 hours
(2,723,751 borrowers multiplied by 1
interview per borrower multiplied by
0.03 additional hours per interview).
We estimate that, for all institutions,
the additional entrance counseling
requirements will add 1 hour of burden
per institution to incorporate new
material into their counseling and
implement new counseling procedures.
Of the 5,847 institutions that are
required to perform entrance
counseling, 1,933 are public

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institutions, 1,750 are private, not-forprofit institutions, and 2,164 are
proprietary institutions. For the 1,933
public institutions, we estimate that
burden will increase by 1,933 hours
(1,933 institutions multiplied by 1
hour). For the 1,750 private, not-forprofit institutions, we estimate that
burden will increase by 1,750 hours
(1,750 institutions multiplied by 1
hour). Of the 2,164 proprietary
institutions, we estimate that burden
will increase by 2,164 hours (2,164
institutions multiplied by 1 hour).
Collectively, we estimate that the total
burden created for institutions of higher
education to provide the added entrance
counseling is 5,847 hours (1,933 hours
+ 1,750 hours + 2,164 hours).
We estimate that each exit counseling
interview will take an additional 3
minutes (0.05 hours) per borrower to
complete and estimated that 2,699,275
borrowers took exit counseling in the
most recently completed award year.
Therefore, we estimate that burden will
increase by 134,964 hours (2,699,275
borrowers multiplied by 1 interview per
borrower multiplied by 0.05 additional
hours per interview).
Of the 5,847 institutions, 1,933 are
public institutions, 1,750 are private,
not-for-profit institutions, and 2,164 are
proprietary institutions. We estimate
that, for all institutions, the additional
exit counseling requirements will add
1.5 hours of burden per institution to
incorporate new material into their
counseling and implement new
counseling procedures. For the 1,933
public institutions, we estimate that
burden will increase by 2,900 hours
(1,933 institutions multiplied by 1.5
hours). For the 1,750 private, not-forprofit institutions, we estimate that
burden will increase by 2,625 hours
(1,750 institutions multiplied by 1.5
hours). Of the 2,164 proprietary
institutions, we estimate that burden
will increase by 3,246 hours (2,164
institutions multiplied by 1.5 hours).
The total burden created for institutions
of higher education to provide the
added exit counseling is 8,771 hours
(2,900 hours + 2,625 hours + 3,246
hours).
Collectively, under 1845–NEW1 the
new entrance and exit counseling
regulatory requirements in section
685.304, will add 231,295 hours
([81,713 + 134,964 for borrowers] +
[5,847 + 8,771 hours for institutions]) of
additional burden on institutions and
borrowers.
Consistent with the discussion in this
section, the following chart describes
the sections of the interim final
regulations involving information
collections, the information being

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collected, and the collections that the
Department is submitting to OMB for
approval and public comment under the
PRA, and the estimated costs associated
with the information collections. The

monetized net costs of the additional
burden on institutions and borrowers
using wage data developed using BLS
data, available at http://www.bls.gov/
ncs/ect/sp/ecsuphst.pdf, is $5,472,356

as shown in the chart below. This cost
was based on an hourly rate of $24.61
for institutions and $17.88 for
borrowers.

COLLECTION OF INFORMATION
Regulatory section

Information collection

OMB control number and estimated change in the burden

Estimated cost

§ 685.301(e) .........................

The new regulations require institutions to provide program information to the Department’s COD System so that the Department can determine whether and to what extent borrowers continue to have Direct Subsidized Loan eligibility
under § 685.200(f).

OMB 1845–NEW1 ...................

$1,141,584

The burden will increase by
46,387 hours on institutions.
OMB 1845–NEW1 ...................

123,838

§ 685.309(b) .........................

§ 685.304 .............................

The new regulations require institutions to provide program information to NSLDS so that the Department can determine
whether borrowers subject to § 685.200(f) with Direct Subsidized Loans have become responsible for accruing interest based on their enrollment.
The new regulations require institutions to provide additional
entrance and exit counseling to borrowers so that they are
adequately informed of the terms and conditions of their
loans and understand the consequences of § 685.200(f).

Total Change in Burden ......

....................................................................................................

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Intergovernmental Review
This program is not subject to
Executive Order 12372 and the
regulations in 34 CFR part 79.
Assessment of Educational Impact
In accordance with section 411 of the
General Education Provisions Act, 20
U.S.C. 1221e–4, the Secretary
particularly requests comments on
whether these regulations require
transmission of information that any
other agency or authority of the United
States gathers or makes available.
Accessible Format: Individuals with
disabilities can obtain this document in
an accessible format (e.g., braille, large
print, audiotape, or compact disc) on
request to the program contact person
listed under FOR FURTHER INFORMATION
CONTACT.
Electronic Access to This Document:
The official version of this document is
the document published in the Federal
Register. Free Internet access to the
official edition of the Federal Register
and the Code of Federal Regulations is

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available via the Federal Digital System
at: www.gpo.gov/fdsys. At this site you
can view this document, as well as all
other documents of this Department
published in the Federal Register, in
text or Adobe Portable Document
Format (PDF). To use PDF you must
have Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the
Department published in the Federal
Register by using the article search
feature at: www.federalregister.gov.
Specifically, through the advanced
search feature at this site, you can limit
your search to documents published by
the Department.
You may also view this document in
text or PDF at the following site:
www.ifap.ed.gov.
(Catalog of Federal Domestic Assistance
Number: 84.268 William D. Ford Direct Loan
Program)

List of Subjects in 34 CFR Part 685
Colleges and universities, Education,
Loan programs—education, Student aid.

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The burden will increase by
5,032 hours on institutions.
OMB 1845–NEW1.

The burden will increase by
216,677 hours on borrowers.
The burden will increase by
14,618 hours on institutions.
The burden will increase be a
total of 231,294 hours.
Total increase in burden on
borrowers under part 685 is
216,677 hours.
Total increase in burden on institutions under part 685 is
66,037.
Total increase in burden under
part 685 is 282,714 hours.

3,847,185 for
borrowers.
359,749 for institutions.
4,206,934 total.
3,847,185 for
borrowers.
1,625,171 for
institutions.
5,472,356 total.

Dated: May 10, 2013.
Arne Duncan,
Secretary of Education.

For the reasons discussed in the
preamble, the Secretary amends part
685 of title 34 of the Code of Federal
Regulations as follows:
PART 685—WILLIAM D. FORD
FEDERAL DIRECT LOAN PROGRAM
1. The authority citation for part 685
continues to read as follows:

■

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

2. Section 685.200 is amended by:
A. Revising paragraph (a)(2)(i) and the
introductory text in paragraph (a)(2)(ii).
■ B. Adding a new paragraph (f).
The revisions and addition read as
follows:
■
■

§ 685.200

Borrower eligibility.

(a) * * *
(2)(i) A Direct Subsidized Loan
borrower must—

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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations
(A) Demonstrate financial need in
accordance with title IV, part F of the
Act; and
(B) In the case of a first-time borrower
as defined in paragraph (f)(1)(i) of this
section, not have met or exceeded the
limitations on the receipt of Direct
Subsidized Loans described in
paragraph (f) of this section.
(ii) The Secretary considers a member
of a religious order, group, community,
society, agency, or other organization
who is pursuing a course of study at an
institution of higher education to have
no financial need as that term is used in
paragraph (a)(2)(i)(A) of this section if
that organization—
*
*
*
*
*
(f) Limitations on eligibility for Direct
Subsidized Loans and borrower
responsibility for accruing interest for
first-time borrowers on or after July 1,
2013. (1) Definitions. The following
definitions apply to this paragraph:
(i) First-time borrower means an
individual who has no outstanding
balance of principal or interest on a
Direct Loan Program or FFEL Program
loan on July 1, 2013, or on the date the
borrower obtains a Direct Loan Program
loan after July 1, 2013.
(ii) Maximum eligibility period is a
period of time, measured in academic
years, equal to 150 percent of the length
of the educational program, as
published by the institution, in which
the borrower is currently enrolled.
(iii) Subsidized usage period is,
except as provided in paragraph (f)(4) of
this section, a period of time measured
in academic years and rounded down to
the nearest quarter of a year calculated
as the—
Number of days in the borrower’s loan
period for a Direct Subsidized Loan

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Number of days in the academic year
for which the borrower receives
the Direct Subsidized Loan

(iv) Remaining eligibility period is the
difference, measured in academic years,
between the borrower’s maximum
eligibility period and the sum of the
borrower’s subsidized usage periods,
except as provided in paragraphs
(f)(7)(ii) and (f)(7)(iii) of this section.
(2) Loss of eligibility for Direct
Subsidized Loans. A first-time borrower
is not eligible for additional Direct
Subsidized Loans when the borrower
has no remaining eligibility period.
Such a borrower may still receive Direct
Unsubsidized Loans for which the
borrower is otherwise eligible.
(3) Borrower responsibility for
accruing interest. (i) Notwithstanding
any provision of this part that provides
for the borrower to not be responsible

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for accruing interest on a Direct
Subsidized Loan or on the portion of a
Direct Consolidation Loan that repaid a
Direct Subsidized Loan, and except as
provided in paragraphs (f)(6)(v) and
(f)(7)(iv) of this section, a first-time
borrower becomes responsible for the
interest that accrues on a previously
received Direct Subsidized Loan or on
the portion of a Direct Consolidation
Loan that repaid a Direct Subsidized
Loan beginning on the date—
(A) The borrower has no remaining
eligibility period; and
(B) The borrower attends any
undergraduate program or preparatory
coursework on at least a half-time basis
at an eligible institution that
participates in the title IV, HEA
programs.
(ii) The borrower continues to be
responsible for the interest that accrues
on the portion of a Direct Consolidation
Loan that repaid a Direct Subsidized
Loan for which the borrower previously
became responsible for accruing interest
in accordance with paragraph (f)(3)(i) of
this section.
(iii) For any loan for which the
borrower becomes responsible for
accruing interest in accordance with
paragraph (f)(3)(i) of this section, the
borrower is responsible for only the
interest that accrues after the borrower
meets the criteria in paragraph (f)(3)(i)
of this section and unpaid interest is
capitalized in the same manner as for a
Direct Unsubsidized Loan.
(iv) A borrower who completes an
undergraduate program and who has not
become responsible for accruing interest
on Direct Subsidized Loans as a result
of attendance in that program does not
become responsible for accruing interest
under paragraph (f)(3)(i) of this section
on any Direct Subsidized Loans
received for attendance in any program
prior to completing that undergraduate
program and for which the borrower has
not previously become responsible for
accruing interest, regardless of
subsequent attendance in any other
program.
(4) Exceptions to the calculation of
subsidized usage periods. (i) For a firsttime borrower who receives a Direct
Subsidized Loan in an amount that is
equal to the annual loan limit for a loan
period that is less than a full academic
year in length, the subsidized usage
period is one year.
(ii) Except as provided in paragraph
(f)(4)(i) of this section, for a first-time
borrower who is enrolled on a half-time
or three-quarter-time basis, the
borrower’s prorated subsidized usage
period is calculated by multiplying the
borrower’s subsidized usage period by
0.5 or 0.75, respectively.

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28985

(5) Subsequent attendance in
programs of greater duration. A firsttime borrower who subsequently
attends a program that is longer than the
program the borrower previously
attended—
(i) Is eligible for a Direct Subsidized
Loan if the borrower’s remaining
eligibility period is greater than zero;
and
(ii) Regains eligibility for Direct
Subsidized Loans if the borrower
previously lost eligibility for Direct
Subsidized Loans in accordance with
paragraph (f)(2) of this section.
(6) Treatment of preparatory
coursework. For first-time borrowers
who receive a Direct Subsidized Loan
under 34 CFR 668.32(a)(1)(ii) who are
enrolled for no longer than one 12month period in a course of study
necessary for enrollment in an eligible
program—
(i) Direct Subsidized Loans received
for such preparatory coursework are
included in the calculation of the
borrower’s subsidized usage period;
(ii) The maximum eligibility period
for preparatory coursework necessary
for enrollment in an undergraduate
program is the maximum eligibility
period for the undergraduate program
for which the preparatory coursework is
required;
(iii) The maximum eligibility period
for preparatory coursework necessary
for enrollment in a graduate or
professional program is the maximum
eligibility period for the undergraduate
program for which the borrower most
recently received a Direct Subsidized
Loan;
(iv) For enrollment in preparatory
coursework necessary for enrollment in
an undergraduate program, the borrower
becomes responsible for accruing
interest as described in paragraph (f)(3)
of this section only if the borrower has
no remaining eligibility period in the
program for which the coursework is
required; and
(v) Enrollment in preparatory
coursework necessary for enrollment in
a graduate or professional program does
not result in a borrower becoming
responsible for accruing interest as
described in paragraph (f)(3) of this
section.
(7) Treatment of teacher certification
programs for which an institution does
not award an academic credential. For
first-time borrowers who receive a
Direct Subsidized Loan under 34 CFR
668.32(a)(1)(iii) who are enrolled at an
eligible institution in a program
necessary for a professional credential
or certification from a State that is
required for employment as a teacher in
an elementary or secondary school in

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that State but for which the institution
awards no academic credential—
(i) The borrower’s maximum
eligibility period for Direct Subsidized
Loans is a period of time equal to 150
percent of the length of the teacher
certification program, as published by
the institution, in which the borrower is
currently enrolled;
(ii) For purposes of determining a
borrower’s remaining eligibility period
for such teacher certification programs,
only Direct Subsidized Loans the
borrower received for enrollment in
such programs are included in the
borrower’s subsidized usage period;
(iii) For purposes of determining a
borrower’s remaining eligibility period
for programs other than a teacher
certification program for which an
institution does not award an academic
credential, any Direct Subsidized Loans
that the borrower received for
enrollment in such a teacher
certification program are not included
in a borrower’s subsidized usage period;
and
(iv) Enrollment in such a teacher
certification program does not result in
a borrower becoming responsible for
accruing interest on any Direct
Subsidized Loan under paragraph (f)(3)
of this section.
§ 685.202

[Amended]

3. Section 685.202 is amended, in
paragraph (a)(1)(v)(E), by removing the
date ‘‘2012’’ and adding, in its place, the
date ‘‘1, 2013’’.
■ 4. Section 685.304 is amended by:
■ A. In paragraph (a)(6)(xi), removing
the word ‘‘and’’ that appears after the
punctuation ‘‘;’’.

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■

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B. In paragraph (a)(6)(xii), removing
the punctuation ‘‘.’’ and adding, in its
place, the punctuation and word ‘‘;
and’’.
■ C. Adding paragraph (a)(6)(xiii).
■ D. Redesignating paragraphs (b)(4)(xii)
and (b)(4)(xiii) as paragraphs (b)(4)(xiii)
and (b)(4)(xiv), respectively.
■ E. Adding a new paragraph (b)(4)(xii).
The additions read as follows:
■

§ 685.304

Counseling borrowers.

(a) * * *
(6) * * *
(xiii) For first-time borrowers as
defined in § 685.200(f)(1)(i), explain the
limitation on eligibility for Direct
Subsidized Loans and possible borrower
responsibility for accruing interest
described in § 685.200(f), including—
(A) The possible loss of eligibility for
additional Direct Subsidized Loans;
(B) How a borrower’s maximum
eligibility period, remaining eligibility
period, and subsidized usage period are
calculated;
(C) The possibility that the borrower
could become responsible for accruing
interest on previously received Direct
Subsidized Loans and the portion of a
Direct Consolidation Loan that repaid a
Direct Subsidized Loan during in-school
status, the grace period, authorized
periods of deferment, and certain
periods under the Income-Based
Repayment and Pay As You Earn
Repayment plans; and
(D) The impact of borrower
responsibility for accruing interest on
the borrower’s total debt.
*
*
*
*
*
(b) * * *
(4) * * *

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(xii) Explain to first-time borrowers,
as defined in § 685.200(f)(1)(i)—
(A) How the borrower’s maximum
eligibility period, remaining eligibility
period, and subsidized usage period are
determined under § 685.200(f);
(B) The sum of the borrower’s
subsidized usage periods, as determined
under § 685.200(f)(1)(iii), at the time of
the exit counseling;
(C) The consequences of continued
borrowing or enrollment, including-–
(1) The possible loss of eligibility for
additional Direct Subsidized Loans; and
(2) The possibility that the borrower
could become responsible for accruing
interest on previously received Direct
Subsidized Loans and the portion of a
Direct Consolidation Loan that repaid a
Direct Subsidized Loan during in-school
status, the grace period, authorized
periods of deferment, and certain
periods under the Income-Based
Repayment and Pay As You Earn
Repayment plans;
(D) The impact of the borrower
becoming responsible for accruing
interest on total student debt;
(E) That the Secretary will inform the
student borrower of whether he or she
is responsible for accruing interest on
his or her Direct Subsidized Loans; and
(F) That the borrower can access
NSLDS to determine whether he or she
is responsible for accruing interest on
any Direct Subsidized Loans as
provided in § 685.200(f)(3);
*
*
*
*
*
[FR Doc. 2013–11515 Filed 5–15–13; 8:45 am]
BILLING CODE 4000–01–P

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