[Federal Register: November 29, 1996 (Volume 61, Number 231)]
[Rules and Regulations]
[Page 60578-60610]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[[Page 60578]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 668, 674, 675, 676, 682, 685, and 690
RIN 1840-AC37
Student Assistance General Provisions, Federal Perkins Loan
Program, Federal Work-Study Program, Federal Supplemental Educational
Opportunity Grant Program, Federal Family Education Loan Programs,
William D. Ford Federal Direct Loan Program, and Federal Pell Grant
Program
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the regulations governing the student
financial assistance programs authorized under title IV of the Higher
Education Act of 1965, as amended (title IV, HEA programs). These
programs include the campus-based programs (Federal Perkins Loan,
Federal Work-Study (FWS), and Federal Supplemental Opportunity Grant
(FSEOG) programs), the Federal Family Education Loan (FFEL) Programs,
the William D. Ford Federal Direct Loan (Direct Loan) Program, the
Federal Pell Grant Program, the State Student Incentive Grant (SSIG)
Program, and the National Early Intervention Scholarship and
Partnership (NEISP) Program. These regulations further the
implementation of Department of Education (Department) initiatives to
reduce burden and improve program accountability. They clarify and
consolidate current policies and requirements, improve the delivery of
title IV, HEA program funds to students and institutions, and further
protect students and the Federal fiscal interest.
DATES: Effective date: These regulations take effect on July 1, 1997.
However, affected parties do not have to comply with the information
collection requirements in Secs. 668.16, 668.165, and 668.167 until the
Department publishes in the Federal Register the control numbers
assigned by the Office of Management and Budget (OMB) to these
information collection requirements. Publication of the control numbers
notifies the public that OMB has approved these information collection
requirements under the Paperwork Reduction Act of 1995.
FOR FURTHER INFORMATION CONTACT:
1. For Project EASI (Easy Access for Students and Institutions):
Fred Sellers, U.S. Department of Education, 600 Independence Avenue,
S.W., Regional Office Building 3, Room 3045, Washington, D.C. 20202.
Telephone: (202) 708-4607.
2. For the Student Assistance General Provisions: Rachael
Sternberg, U.S. Department of Education, 600 Independence Avenue, S.W.,
Regional Office Building 3, Room 3053, Washington, D.C. 20202.
Telephone: (202) 708-7888;
3. For the Federal Perkins Loan Program: Sylvia R. Ross, U.S.
Department of Education, 600 Independence Avenue, S.W., Regional Office
Building 3, Room 3053, Washington, D.C. 20202. Telephone: (202) 708-
8242;
4. For the Federal Pell Grant, FWS, and FSEOG programs: Kathy S.
Gause, U.S. Department of Education, 600 Independence Avenue, S.W.,
Regional Office Building 3, Room 3053, Washington, D.C. 20202.
Telephone: (202) 708-4690;
5. For the FFEL Programs: Patsy Beavan, U.S. Department of
Education, 600 Independence Avenue, S.W., Regional Office Building 3,
Room 3053, Washington, D.C. 20202. Telephone: (202) 708-8242;
6. For the Direct Loan Program: Rachel Edelstein, U.S. Department
of Education, 600 Independence Avenue, S.W., Regional Office Building
3, Room 3053, Washington, D.C. 20202. Telephone: (202) 708-9406.
Individuals who use a telecommunications device for the deaf (TDD)
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339
between 8 a.m. and 8 p.m., Eastern time Monday through Friday.
SUPPLEMENTARY INFORMATION: On September 23, 1996, the Secretary
published a notice of proposed rulemaking (NPRM) in the Federal
Register (61 FR 49874). In the NPRM, the Secretary proposed to amend
the Student Assistance General Provisions regulations (part 668) which
apply to all of the title IV, HEA programs and the regulations for the
Federal Pell Grant (part 690), Federal Perkins Loan (part 674), FWS
(part 675), FSEOG (part 676), FFEL (part 682), and Direct Loan (part
685) programs. The Secretary proposed to amend these regulations to
further the implementation of several major initiatives within the
Department. These initiatives include: (1) Project EASI; (2) the
President's Regulatory Reform Initiative; and (3) improved program
accountability to protect students and the Federal fiscal interest. A
discussion of these initiatives can be found in the preamble to the
NPRM on pages 49874 through 40875.
The NPRM included a discussion of the major issues surrounding the
proposed changes which will not be repeated here. The following list
summarizes those issues and identifies the pages of the preamble to the
NPRM on which a discussion of those issues can be found:
The adoption of a uniform definition of payment period for all the
title IV, HEA programs as proposed in Sec. 668.4 (pages 49875-49876).
The provision that an institution use electronic services that the
Secretary provides on a substantially free basis as a new standard of
administrative capability as proposed in Sec. 668.16(o) (pages 49876-
49877).
The restructuring and clarification of the provisions under subpart
K, Cash Management, of the Student Assistance General Provisions
regulations (pages 49877-49882).
The inclusion of a just-in-time payment method as proposed in
Sec. 668.162(c) (pages 49877-49878).
The revision of the definition of a disbursement as proposed in
Sec. 668.164(a) (page 49878).
The requirement that title IV, HEA program funds be disbursed on a
payment period basis as proposed in Sec. 668.164(c) (pages 49878-
49879).
The clarification of the requirements for early disbursements as
proposed in Sec. 668.194(f) (page 49879).
The consolidation of the individual title IV, HEA program
requirements regarding late disbursements as proposed in
Sec. 668.164(h) (page 49879).
The revised student notification requirements as proposed under
Sec. 668.165 (pages 49879-49880).
The exemption from the current excess cash requirements for an
institution that receives funds under the just-in-time payment method
as provided in Sec. 668.166(a)(2) (pages 49880-49881).
The requirement that an institution disburse FFEL Program funds
within a timeframe comparable to that permitted for disbursing funds
under the other title IV, HEA programs as proposed in Sec. 668.167(a)
(page 49881).
The requirement that an institution return FFEL Program funds to a
lender if the institution does not disburse those funds within
specified timeframes as proposed in Sec. 668.167(b) (page 49881).
The procedures under which the Secretary would monitor more
carefully an institution's administration of the FFEL Programs as
proposed under Sec. 668.167(d) and (e) (pages 49881-49882).
The elimination of the requirement under Sec. 682.207(b) of the
current FFEL Program regulations that an institution maintain a
separate bank account for FFEL Program funds as proposed in
Sec. 668.163(a) (page 49878).
[[Page 60579]]
The conforming changes for the campus-based, Federal Family
Education Loan, Direct Loan, and Federal Pell Grant programs resulting
from the adoption of a uniform definition of a payment period as
proposed in Secs. 674.2, 675.2, 676.2, 682.200, 685.102, and 690.2
(page 49882).
The amendments to the disbursement rules for the FFEL and Direct
Loan programs as a result of the adoption of a uniform definition of a
payment period as proposed in Secs. 682.207, 682.604, and 685.301 (page
49882).
Substantive Changes to the NPRM
The following discussion reflects substantive changes made to the
NPRM in the final regulations. The provisions are discussed in the
order in which they appear in the proposed rules.
Student Assistance General Provisions
Subpart B--Standard for Participation in the Title IV, HEA Programs
Section 668.16 Standards of Administrative Capability Electronic
Services
To reflect public comment, the Secretary is revising the proposed
regulations by changing the reference to ``electronic services'' to
``electronic processes.'' This revision is being made to clarify that
the Secretary's intent is that institutions participate in the
electronic processes, e.g., electronic data exchange and the Student
Financial Assistance Bulletin Board Service (BBS), by which the
Secretary administers the title IV, HEA programs and that institutions
are not restricted to using software and services provided by the
Secretary.
Subpart K--Cash Management
Section 668.161 Scope and Purpose
The proposed regulations are revised to clarify that FFEL Program
funds are held in trust by an institution for the intended student
beneficiaries, the lenders, the guaranty agencies, and the Secretary.
Section 668.162 Requesting Funds
To take advantage of technological improvements in funding
procedures, the Secretary anticipates the implementation by October 1,
1997, for fiscal year 1998, the Grants and Payments System (GAPS) of
the Department of Education Central Automated Processing System
(EDCAPS). This system, when operational, meets new Federal financial
system standards, provides institutions both grant and payment
information, and simplifies expenditure reporting. A key element of the
new system is the identification of the source of requested funds by
the specific designation assigned to those funds by the Secretary. The
Secretary notifies the institution of this designation at the time the
funds are authorized. Under GAPS, the institution is able to select the
particular authorization under which it seeks funds from among the
various authorizations that may be available. Institutions that lack
the technological capability of accessing GAPS are still able to
request funds from the Department by telephone or other existing
methods. Regardless of the method used by an institution to request
funds, any request made after implementation of GAPS during fiscal year
1998 and thereafter must include the specific designation for those
funds.
Section 668.164 Disbursing Funds
Definition of Disbursement
The Secretary is revising the proposed regulations to clarify that
if an institution credits a student's institutional account with title
IV, HEA program funds earlier than 10 days before the first day of
classes of a payment period, for example, for the purpose of preparing
a tuition and fee bill for that student, the Secretary considers that
the institution makes that disbursement on the 10th day before class.
Early Disbursements
The Secretary is revising the proposed regulations to clarify that,
if an institution offers an educational program using semesters,
trimesters, or quarters, an institution may disburse title IV, HEA
program funds up to 10 days before the beginning of any payment period
even if the previous payment period is not ended.
Late Disbursements
The Secretary is revising the proposed regulations to remove the
requirement that, in order to make a late disbursement of a Federal
Perkins Loan or an FSEOG Program award, an institution must have
received from the student an acceptance of that loan or award. A late
disbursement under these two programs may be made as long as the
student is awarded aid prior to the date the student becomes
ineligible.
The regulations are revised to allow PLUS loans to be disbursed
under the late disbursement provisions.
Section 668.165 Notices and Authorizations Disbursement Notice
The Secretary is revising the proposed notice requirements to allow
a parent, as well as a student, to cancel all or a portion of a loan or
loan disbursement.
The Secretary is revising the proposed timeframe requiring an
institution to notify a student or parent that the institution credited
the student's account with Direct Loan, FFEL, or Federal Perkins Loan
Program funds, the date and amount of the disbursement, and the
student's or parent's right to refuse all or a portion of a loan or
loan disbursement. The revision allows the institution to provide the
required notice at any point in time during a 60-day window that is no
earlier than 30 days before, and no later than 30 days after, the date
the institution disburses those funds.
The timeframe during which a student or parent may request a loan
cancellation is revised to clarify that the student or parent may
request cancellation either for 14 days from the date the notice was
sent by the institution or, if the notice is sent more than 14 days
before the first day of the payment period, the first day of the
payment period.
Section 668.167 FFEL Program Funds
The Secretary is revising the proposed regulations to provide that
an institution must return to a lender loan proceeds received by EFT or
master check if the institution does not disburse the funds within (a)
10 business days following the date the institution receives the loan
funds if the institution receives the funds on or after July 1, 1997
and (b) 3 business days following the date the institution receives the
loan funds if the institution receives the funds on or after July 1,
1999.
The regulations are also revised to provide that, for funds that
are not disbursed within the specified timeframe, the institution must
return the funds to the lender no later than 10 business days after the
last day those funds are required to be disbursed. The Secretary is
also revising the regulations to provide that if the borrower
establishes eligibility before the institution returns the loan funds
to the lender, the institution may disburse those funds to the
borrower.
Executive Order 12866
These final regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those determined by the
Secretary to be necessary for administering the title IV,
[[Page 60580]]
HEA programs effectively and efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these regulations, the Secretary has determined
that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
Summary of Potential Costs and Benefits
The potential costs and benefits of these final regulations are
discussed elsewhere in this preamble under the heading Final Regulatory
Flexibility Analysis, and in the information previously stated under
Supplementary Information and Analysis of Comments and Changes.
Analysis of Comments and Changes
In response to the Secretary's invitation to comment in the NPRM,
more than 250 parties submitted comments. An analysis of the comments
and of the changes in the regulations since the publication of the NPRM
follows.
Major issues are discussed under the section of the regulations to
which they pertain. Technical and other minor changes--and suggested
changes the Secretary is not legally authorized to make under
applicable statutory authority--are not addressed. An analysis of the
comments received regarding the initial regulatory flexibility analysis
can be found elsewhere in this preamble under the heading Final
Regulatory Flexibility Analysis.
Part 668--Student Assistance General Provisions
Subpart A--General
Section 668.4 Payment Period
Payment Period Definition (Sec. 668.4)
Comments: Many commenters supported the Secretary's efforts to
provide consistency among the title IV, HEA programs through the
proposed uniform payment period definition. One institution
specifically endorsed the requirement that, in the case of the FFEL and
Direct Loan Programs, as in other title IV, HEA programs, quarter
institutions make at least one disbursement each quarter. Two
commenters advocated bringing the loan programs further in line with
the Federal Pell Grant Program by requiring that loan disbursements be
prorated according to Federal Pell Grant Program rules. Another
commenter argued for expanding the use of payment periods for loans in
order to eliminate the distinction between borrower-based and scheduled
academic years and the confusion over whether summer terms should be
headers or trailers.
A student advocate organization supported the proposed amendment
permitting clock-hour institutions or institutions that use credit
hours without terms to make the second disbursement only after that
student actually completes one-half the required clock or credit hours,
rather than when half the number of days in the loan period have
elapsed. This commenter believed this change would protect students,
many of whom withdraw from trade institutions before completing one-
half the required hours, from incurring double the loan obligation.
Discussion: The Secretary agrees that title IV, HEA program
requirements should be made more consistent. With regard to the
suggestions that the loan programs be brought further in line with the
Federal Pell Grant Program, the Secretary will consider this option for
the future but notes that currently there are statutory prohibitions
against any further conforming changes. Further, the Secretary does not
intend to eliminate the use of borrower-based academic years and
scheduled academic years in the FFEL and Direct Loan Programs. These
options provide institutions flexibility in awarding loans and
monitoring annual loan maximums for an academic year.
Changes: None.
Comments: A significant number of commenters objected to the
proposed payment period provisions. One commenter who believed the
uniform payment period definition would create great inefficiency and
confusion urged the Secretary to delay implementing the payment period
provisions in order to consult with institutions, associations, and
lenders to try to accommodate program differences. Some commenters
stated that the Secretary did not identify any areas of abuse by
institutions or lenders in connection with the second disbursement of
loan proceeds or did not provide sufficient reasons for the proposed
changes in policy. Several commenters assumed that the Secretary is
proposing additional disbursement requirements on quarter and trimester
institutions for the benefit of the federal fiscal interest. Many
commenters who objected to the proposed payment period provisions
stated that institutional default rates have significantly decreased
over the past six years and suggested that there is no need for the
additional burden of increased disbursements and monitoring of student
progress proposed in this regulation. In response to the Secretary's
efforts to streamline and simplify the disbursement rules for all title
IV, HEA programs, one commenter questioned the validity of establishing
the same disbursement rules for programs with different eligibility
requirements and also questioned who would benefit from the proposed
change.
Discussion: The Secretary continues to believe that establishing a
uniform payment period definition is appropriate at this time. The
Secretary does not expect the proposed changes to cause title IV, HEA
program participants significant problems and, therefore, does not
intend to delay revising program regulations accordingly. Although the
Secretary has not identified any particular areas of abuse of the
existing disbursement rules, the Secretary believes that revising these
existing rules to make them more consistent facilitates the
administration of the title IV, HEA programs including simplification
of the delivery system and provides additional protections to limit
excessive borrowing. In addition, the Secretary believes that the
proposed changes are in the Federal fiscal interest.
Changes: None.
Comments: With regard to the proposed requirements for term
institutions, commenters argued against the proposal to require more
than two disbursements for programs using quarters or trimesters,
stating that this proposal would increase the administrative burden and
expenses for the institution, lenders, and guaranty agencies. Several
of these commenters noted that this policy would increase the
administrative burden of verifying eligibility as well. Many of these
commenters suggested that institutions using academic terms and credit
hours should be allowed to choose whether to make a disbursement each
semester, trimester, or quarter, as applicable, or twice a year as is
currently allowed. Several commenters argued that, for quarter or
trimester institutions, scheduling two larger disbursements, rather
than three or four smaller disbursements, is particularly appropriate
for graduate and professional institutions, where no Federal Pell Grant
and virtually no campus-based funding are disbursed to students. One
commenter stated that requiring more frequent disbursements for quarter
and trimester institutions will complicate loan processing for midyear
transfers and will make the
[[Page 60581]]
paper financial aid transcript an absolute necessity for these
transfers.
Discussion: In response to the arguments against requiring quarter
or trimester institutions to disburse on a term basis rather than twice
per year, the Secretary has proposed this change for two reasons.
First, these disbursement rules aid students in managing their funds
and may reduce overborrowing.
Second, as stated in the preamble to the NPRM, this approach
simplifies the administration of the title IV, HEA programs. This
change assists in the development of a single, integrated title IV
delivery system.
The Secretary recognizes that an institution is required to make
three disbursements of a loan for an academic year if an educational
program is offered using quarters that conform to the traditional usage
of that term, i.e., each term consists of approximately 10-12 weeks of
instruction, full-time is defined as at least 12 quarter credits, and
the program's academic calendar includes three quarters in the fall,
winter, and spring, and often a summer quarter. As noted, the Secretary
believes that students enrolled in educational programs offered using
quarters will be assisted in managing their funds and prevented from
overborrowing.
Although several commenters suggested that the proposed regulations
require institutions using trimesters to make more disbursements than
is currently required, most trimester institutions will be required to
make only two disbursements under these proposed provisions. Most
traditional institutions using trimesters typically schedule only two
trimesters in an academic year; therefore, these institutions are
usually required to make only two disbursements for the loan period. In
some instances, the Secretary is aware that an educational program may
use the term ``trimester'' to describe its academic terms but those
academic terms do not conform to the traditional usage, i.e., each term
consists of approximately 15 weeks of instruction, full-time is defined
as at least 12 semester or trimester hours, and the program's academic
calendar generally consists of three terms, one each in fall, spring,
and summer.
If a term referred to as a trimester or quarter does not conform to
the traditional usage, the references to trimesters or quarters in the
title IV, HEA program regulations do not apply.
With regard to the comment concerning midyear transfers, the
Secretary does not believe that the proposed changes create any extra
institutional burden in processing aid for mid-year transfers.
Changes: None.
Comments: Many commenters stated that the Secretary was imposing
additional requirements on clock-hour and nonterm credit-hour
institutions by requiring that their students complete the necessary
number of hours prior to receiving a subsequent disbursement of title
IV, HEA program assistance. Commenters who objected to this proposal
stated that this requirement would result in a constant readjustment of
scheduled disbursements, would require institutions to monitor
individual student's progress, and would result in disbursements
occurring earlier than the midpoint of the loan period or later than
the midpoint, depending on each individual student's progress.
Commenters also argued against the proposed payment period policy
because they indicated that students do not incur costs according to
hours completed. These commenters argued that payment periods for these
programs should be measured in length of time rather than by completion
of credits.
One institution using credit hours without terms explained that
scheduled breaks in the year fall close to the timing of traditional
semesters. The institution noted that under the proposed regulations,
because the institution does not use terms, the time when the student
completes half of the credits for the year may be significantly longer
than half the year in length. Another commenter who objected to the
proposed requirement for credit-hour programs without terms stated that
the Secretary is imposing more stringent standards on nonterm
institutions than on term institutions.
Several commenters objected to the proposed policy that eliminates
the current Federal Pell Grant payment period definition for clock-hour
programs that are offered in terms. Clock-hour institutions with terms
argued that a term is a payment period, regardless of whether the
courses are measured in clock or credit hours. Commenters argued that
this proposal would create cash flow problems for clock-hour
institutions with academic terms and would result in students receiving
their aid at unpredictable times with payments overlapping terms and
academic years. The institutions explained that they assess fees on a
term basis; they also argued that if they are not allowed to schedule
disbursements according to terms, their students may have fewer
disbursements, which might be a detriment to students with poor money
management skills. Further, they noted that because institutions would
not be allowed to make disbursements until after the student completes
the required number of clock hours, students will not have loan funds
when tuition and fees are due. Finally, these institutions argued that
allowing clock-hour institutions to disburse according to academic
terms would simplify the rules and streamline the disbursements of
title IV, HEA program funds.
Discussion: In response to the commenters objecting to the proposed
requirement that clock-hour institutions with terms track hours
completed, the Secretary reminds commenters that clock-hour
institutions with or without terms are currently required to track
hours completed in order to make subsequent Federal Pell Grant
disbursements. Under the current Federal Pell Grant Program
requirements, if a student does not complete all of the clock hours in
a term for which he or she has been paid, the student may not receive
the payment for the subsequent term until the student has completed the
clock hours for the prior term. Further, the second disbursement is
reduced in accordance with the number of hours that are attributed to
the first payment period. For example, a student is enrolled in a 600
clock-hour program with two terms of 300 clock hours each. In the first
term, the student completes only 250 clock hours. The first payment
period is extended into the second term. When the student completes the
first 50 hours in the second term, the student may receive a second
disbursement based on 250 clock hours (i.e., the balance of the hours
in the second term. The student would then receive a third disbursement
based on 50 clock hours after completing the 250 hours of the second
term for which he or she was paid. Under the revised payment period
definition, the student receives a second disbursement after completing
50 hours in the second term and that disbursement is based on 300 clock
hours. There is no third disbursement.
Through subregulatory guidance, the Secretary has directed clock-
hour institutions without terms to track clock hours completed for
subsequent loan disbursements. In proposing this rule, the Secretary
intended to require clock-hour institutions with and without terms to
track clock hours completed for purposes of disbursing subsequent loan
proceeds in order to align the loan programs more closely with the
Federal Pell Grant Program. However, the Secretary emphasizes to the
commenters that there are differences between the disbursement rules
for loans and for the Federal Pell Grant Program regarding
[[Page 60582]]
clock-hour programs. Because of the statutory requirement that
institutions not disburse the second disbursement of a FFEL or Direct
Loan until at least one-half of the loan period has elapsed (see
Sec. 428G(b) of the HEA), the Secretary proposed that programs
measuring progress in clock hours may not make the second disbursement
until the later of the calendar midpoint of the loan period or the date
that the student completes half the clock hours in the loan period.
These provisions should address the commenters' concerns that students
might receive proceeds prior to the midpoint of the loan period.
In response to the clock-hour institutions that stated that the
proposed payment period definitions would limit their ability to
disburse as often as they currently disburse, the Secretary reminds
them that they can always make smaller, more frequent, equal
disbursements of the proceeds within the payment period, as long as the
student is completing the required number of clock hours necessary for
the next disbursement.
The Secretary also believes that it is appropriate that credit-hour
institutions without terms track credit hours completed. This policy
has been a long-standing requirement in the Federal Pell Grant Program,
and the Secretary believes that this requirement is appropriate for
loan disbursements as well. The Secretary wishes to emphasize that the
loan disbursement rules differ from the Federal Pell Grant disbursement
rules for credit-hour institutions without terms; these rules are found
under 34 CFR 682.604(c)(7) and 34 CFR 685.301(b)(5). As discussed
above, because of the statutory requirement that institutions not
disburse the second disbursement until at least one-half of the loan
period has elapsed, the Secretary proposed that programs measuring
progress in credit hours without terms may not make the second
disbursement until the later of the calendar midpoint of the loan
period or the date that the student completes half the academic
coursework in the loan period.
Changes: None.
Comments: Several commenters stated that the Secretary's efforts to
use terms to protect students and title IV, HEA program recipients has
been ineffective and that the Secretary should define a standard
minimum term. These commenters further stated that some institutions
have defined academic terms for as little as four weeks in length in
order to circumvent federal regulations such as those for pro rata
refunds.
Discussion: With regard to defining a standard minimum term, the
Secretary does not believe it is appropriate to define what an
institution's academic calendar must be. Further, the commenters are
reminded that the loan programs require institutions to use either
credit hours with standard terms or to monitor credit and clock hours
earned. For the Federal Pell Grant Program, institutions can disburse
according to short nonstandard terms. However, payments are prorated
based on the hours in these short terms, so there is no need to require
disbursements according to a defined minimum term.
Changes: None.
Comments: In the NPRM, the Secretary specifically requested
comments on whether to incorporate the proposed approach or the
existing Federal Pell Grant Program rules for certain remaining
portions of programs less than one academic year but greater than one-
half an academic year. Under the proposed approach, for credit-hour
programs without terms or clock-hour programs greater than an academic
year, when the remainder of the program is less than an academic year
but greater than one-half an academic year, this remainder comprises
two equal payment periods. Several commenters supported the proposed
policy, noting that this approach allocates title IV, HEA program funds
more evenly over the remaining portion of the programs than do the
current Federal Pell Grant provisions.
One commenter stated that the proposal to change the determination
of payment periods for the remainder of certain programs longer than
one year in length would require major changes in software programs
that have been designed to pay under the existing payment period
definitions. The commenter stated that the change would decrease the
amount of Federal Pell Grant funds awarded in the third payment period
of a program greater than one year, but less than two, and would place
additional, unnecessary financial burden on both students and
institutions. This commenter also stated that the 1994 attribution
rules were eliminated in reference to loan payments, but that this
change appears to be suggesting that attribution rules are again
effective. Another commenter argued against the proposed rule because,
the commenter stated, this rule would result in some students receiving
less Federal Pell Grant funding when cross-over periods are used. This
commenter suggested that the strict cut off for award-year eligibility
be revised to allow students impacted by this policy to either receive
more than a full Federal Pell Grant in a given award year or that the
concept of cross-over payment be redefined to allow a student to
receive payment from a subsequent award year for a payment period
completed in the prior award year. Another commenter similarly argued
that institutions be allowed to disburse more than one Federal Pell
Grant to degree-seeking students completing more than one academic year
during an award year.
One commenter stated that the commenter's organization did not have
sufficient time for analysis of whether the Federal Pell Grant approach
or the proposed approach should be adopted for the final rule.
Therefore, the commenter suggested either a pilot program to collect
data or allowing institutions to choose either the existing Federal
Pell Grant approach or the proposed approach, as long as they use one
approach consistently.
Discussion: Although one commenter suggested that these rules would
result in decreased Federal Pell Grant awards in some circumstances,
the Secretary assures the commenter that the total amount of Federal
Pell Grant awarded under the proposed rules would be the same as the
amount awarded under the existing rules. For programs that are longer
than one year in length but less than two, where the remaining period
of enrollment is greater than half an academic year, the student would
receive a smaller third disbursement than under the current rules, but
the fourth disbursement would be earlier and larger, and the total
amount would be the same.
With regard to the question concerning whether a student whose
payment period includes a cross-over period would receive less Federal
Pell Grant funding under the proposed rule, the Secretary acknowledges
that in some limited cases recipients may receive less Federal Pell
Grant funding under these provisions than under the current provisions.
However, the Secretary reminds the commenter that even under the
current provisions, some students receive reduced Federal Pell Grant
amounts when their payment period is not included as a cross-over
period as a result of the timing of the academic schedule. When these
regulations become effective, institutions can adjust their academic
calendars to ensure that their students are not affected by the cross-
over payment period restrictions.
In response to the suggestion that institutions be allowed to
disburse more than one Federal Pell Grant in a given award year, the
Secretary recognizes that there was a statutory provision that
[[Page 60583]]
would have allowed the Secretary to increase the number of Federal Pell
Grant awards a recipient can receive within one award year; however,
there has never been any appropriation available to fund additional
Federal Pell Grants. Therefore, the Secretary does not intend to
increase the number of Federal Pell Grant awards a recipient can
receive within one award year.
Changes: None.
Comments: One commenter asked for clarification concerning the
meaning of the phrase, ``other academic term'' in proposed
Sec. 668.4(a). This commenter further noted a contradiction between
proposed Sec. 668.4(a) and proposed 34 CFR 685.301(b)(5), as this
latter section provides that institutions using nonstandard terms
cannot disburse Direct Loans according to the nonstandard terms. This
commenter suggested defining payment periods for nonstandard terms as
the periods of time needed to complete the first and second halves of
the programs, as measured in clock or credit hours.
Another commenter asked for clarification as to how to apply
payment periods to nonstandard term programs when the academic year
exceeds a 12-month period or calendar year. The commenter noted that,
in accordance with 34 CFR 682.603(f)(2), a loan period may not exceed
12 months. Therefore, the commenter suggested that payment periods are
greatly disproportional to the loan period. The commenter gave an
example where the first payment period could be nine months for an
academic year that is 18 months in duration, even though the loan
period is 12 months. This commenter stated that the proposed changes do
not accommodate eligible programs with an academic year exceeding 12
months.
Discussion: The commenter is correct in noting a difference in
language between proposed Sec. 668.4(a) and the Direct Loan
disbursement rules found in proposed 34 CFR 685.301(b)(5). There is
also a difference in the proposed FFEL rules under 34 CFR
682.604(c)(7). The reason for this disparity is that institutions can
disburse according to ``other academic terms,'' that is, nonstandard
terms, in the Federal Pell Grant Program. In the loan programs,
institutions using nonstandard terms cannot disburse according to these
terms. For nonstandard term credit-hour institutions, institutions are
required to disburse the second loan disbursement on the later of the
calendar midpoint between the first and last scheduled days of class or
the date that the student has completed half the academic coursework in
the loan period. The slight difference between the Federal Pell Grant
Program's and the loan programs' disbursement rules exists because of
the statutory requirement that institutions not disburse the second
disbursement of a Direct or FFEL loan until at least one-half of the
loan period has elapsed. See Sec. 428G(b) of the HEA. Also, Federal
Pell Grant Program requirements allow institutions to disburse Federal
Pell Grants according to nonstandard terms because Federal Pell Grant
funds are prorated according to the number of hours in the term
relative to the number of hours in the academic year. Institutions may
not disburse Direct Loan or FFEL program loans according to nonstandard
terms; unlike under the Federal Pell Grant Program, loans are not
prorated based on the number of hours in a term.
The commenter above correctly noted that a loan period cannot be
greater than 12 months. Institutions disbursing loans would not be able
to certify or originate a loan for a period greater than one year in
length. Institutions with an academic year longer than 12 months would
be required to schedule disbursements according to the rules in 34 CFR
682.604(c)(7) and 34 CFR 685.301(b)(5), as applicable.
Changes: None.
Comments: One commenter noted that the Secretary is moving towards
all title IV, HEA program funds being disbursed at the same time and
asked whether the Secretary would propose that certain Federal Pell
Grant recipients be subject to the 30-day delayed disbursement required
for first-time, first-year FFEL and Direct Loan student borrowers.
Discussion: The Secretary does not intend to propose that Federal
Pell Grant recipients be subject to the 30-day delay required for
first-time, first-year borrowers. Although the Secretary has proposed
certain changes in order to promote conformity among disbursement rules
for different programs, the Secretary does not believe that all
restrictions within certain programs should be implemented across all
of the title IV, HEA programs. Just as the Secretary does not propose
to require multiple disbursement of Federal Pell Grants for students
enrolled in one payment period only, the Secretary believes it is not
necessary to require that any Federal Pell Grant recipients be subject
to a 30-day delay in disbursements.
The Secretary notes that under the Federal Pell Grant Program,
institutions have the authority to make disbursements at such times as
best meet the needs of students. See 34 CFR 690.76(a). The Secretary
notes, however, that delaying disbursement for institutional purposes
to avoid refund requirements would not be in compliance with 690.76(a).
Changes: None.
Comments: One institution suggested that the language in this
section identifying payment periods as the ``period of time in which
the student completes [the first or second half of the program] as
measured in credit or clock hours,'' does not require that the student
must successfully complete the credit or clock hours in a payment
period. This institution argued that, for a student who did not
successfully complete the hours in a payment period, the institution
should determine financial aid eligibility, based on the institution's
satisfactory academic progress policy. Another commenter asked which
concept of payment period completion would be used: scheduled hours or
hours actually completed.
Discussion: The Secretary intends that institutions subject to
these provisions, i.e., institutions offering programs using credit
hours without terms or clock hours, monitor credit or clock hours that
are successfully completed including excused absences as provided in
Sec. 668.164(b)(3). For credit-hour programs without terms and clock-
hour programs, students may not receive subsequent disbursements until
they have actually completed the required number of credit or clock
hours.
Changes: None.
Comments: One commenter noted that proposed Sec. 668.4(b)(3)
provides an exception to the payment period definition for programs
where students do not earn any credits until the last day of the year.
The commenter noted that the section refers back to paragraphs (b)(1)
and (b)(2), which affect not only credit-hour institutions without
terms but also clock-hour institutions. The commenter asked, therefore,
whether the Secretary intends to apply this rule to programs using
credit hours without terms only or to both credit-hour programs without
terms and all clock-hour programs.
Discussion: As under the current Federal Pell Grant Program
regulations, the Secretary intends that this provision apply only to
educational programs without terms that measure progress in credit
hours.
Changes: The Secretary has added a clarification that
Sec. 668.4(b)(3) applies only to eligible programs that measure
academic progress using credit hours.
Comments: Several commenters suggested that the proposed policy
would affect the current refund provisions. One commenter stated that
defining payment periods by completion of credit hours is in
[[Page 60584]]
contradiction to the pro rata refund regulations that require refunds
to be calculated based on the portion of the period of enrollment.
Several commenters noted under this proposed policy, certain
institutions would be required to make fewer, and therefore, larger
disbursements; thus, students who withdraw early will owe greater
repayments than if funds had been disbursed according to academic
terms.
One institution objected to the universal payment period definition
specifically because if the first payment period changes to the
completion of the first half of the academic year, and the student
leaves before the completion of the payment period, what the student
would have received in grants will now come out of pocket.
One commenter stated that if the institution must use as a minimum
450 hours for a period of enrollment as a basis for charges, but can
only disburse 289.5 hours worth of Federal Pell Grant funds, there may
be a balance due which would be reflected as an unpaid scheduled cash
payment for refund purposes.
Discussion: With regard to the general comment that the proposed
payment period policy would affect refunds provisions, the Secretary
notes that the requirements for disbursements of title IV aid are not
related to title IV refund requirements. In response to the commenter
who stated that refunds must be calculated based on the portion of the
period of enrollment, the Secretary wishes to clarify that the refund
calculation determines the unearned portion of the actual charges for
the period of enrollment for which the student was charged. Although
one commenter suggested a relationship to the amount of grants received
and the refund calculation, the Secretary notes that the refund
calculation does not determine the source from which an institution
earns funds. Several commenters noted that the proposed payment period
provisions would result in institutions making fewer, and therefore,
larger disbursements; however, institutions are reminded that they are
allowed to schedule smaller, more frequent, disbursements within a
payment period, rather than making one disbursement per payment period.
Finally, in response to the commenter who noted a possible discrepancy
between the minimum number of clock hours that may be used as a basis
for charges vs. the amount of Federal Pell Grant funds that may be
disbursed, the Secretary notes that such a discrepancy may exist under
the current disbursement rules and, therefore, is not a result of the
proposed changes to the payment period requirements.
Changes: None.
Comments: Several commenters objected to the Secretary's proposal
that, for a student enrolled in an eligible clock-hour program, the
institution may include excused absences for up to 10 percent of the
clock hours in the payment period in determining whether the student
has completed the payment period, stating that this proposal dictates
an attendance policy to clock-hour institutions. One commenter stated
that mandating 10 percent of the clock hours in a payment period as the
maximum excused absences an institution may include in determining
whether the student has completed the payment period impinges on
academic freedom and that the satisfactory academic progress
regulations, as well as State and accrediting agency oversight, already
address this area. This commenter noted that many colleges maintain no
attendance requirements.
On the other hand, one student advocate organization generally
supported the proposed regulation's policy regarding excused absences
for clock-hour institutions. However, this commenter suggested lowering
the percentage of excused absences that could be counted towards
attendance from 10 percent to 5 percent, arguing that if these programs
are meaningful, students should not be permitted to miss so many hours
and still receive Federal aid.
Discussion: As stated in the preamble to the proposed rule, except
where an accrediting agency or State licensing agency sets a more
rigorous standard, the Secretary believes that excused absences of more
than 10 percent of clock hours in a payment period would impair the
educational attainment of the student and would not make the best use
of Federal funds (60 FR 49879). This requirement is for purposes of
title IV, HEA programs only and does not infringe on academic
prerogatives of the institution. Institutions can adopt another policy
for other purposes.
Changes: None.
Comments: Many commenters argued that, if the loan period is only
one term, only one disbursement should be required. Several commenters
stated that for a student using the loan for living expenses, getting
the second disbursement halfway through the term does not adequately
cover the student's financial needs. One institution suggested that if
the Secretary cannot change the regulations for all institutions, the
Secretary might establish eligibility criteria for certain institutions
that would be allowed to make one disbursement in a single-term
situation. One commenter pointed out that allowing for a single
disbursement of a loan when the payment period is only one term would
further align loan disbursement rules with Federal Pell Grant
disbursement rules.
One experimental site institution that is exempt from the multiple
disbursement requirements for single semester loans noted that it has
received positive feedback from students regarding single disbursements
for one term. This institution recognized that the multiple
disbursement requirement is statutory and stated its support for
efforts to remove this statutory requirement. Another experimental site
institution that is exempt from multiple disbursement requirements for
single-term loans asked for confirmation that the multiple disbursement
requirement for single payment periods in these regulations will not
affect the exemption for experimental site institutions.
Discussion: The Secretary reminds commenters that unless
institutions have received waiver under the Experimental Sites Program
(authorized under Sec. 487A(d) of the HEA), the statute requires
multiple disbursements of loan proceeds for single-term loans. See
Sec. 428G(a) of the HEA. These regulations do not affect the
experimental site institutions that are exempt from this requirement.
The Secretary will take into consideration the commenter
recommendations in the context of HEA reauthorization.
Changes: None.
Comments: In proposed 34 CFR 682.604(c)(7)(ii), commenters
suggested replacing the proposed phrase, ``academic coursework'' with
the term ``credit hours'' because, the commenters stated, this phrase
is more specific.
Discussion: The Secretary has used the phrase ``academic
coursework'' rather than credit hours in 34 CFR 682.604(c)(7)(ii) and
in 34 CFR 685.301(b)(5)(ii) for two reasons. First, this phrase
provides institutions with flexibility to measure progress by other
means than credit hours. If they choose to do so, they can make this
determination based on credit hours completed; however, they can also
use other measures such as lessons completed in those circumstances
where the midpoint of a student's academic program does not coincide
with the midpoint in credit hours earned. In addition, some
institutions do not allow students to earn credits until the end of a
program or academic year. Under this proposed provision, even if the
institution does not award credit hours until the end of the
[[Page 60585]]
program or academic year, the student could receive the second loan
disbursement according to another measure of progress. Also this policy
is consistent with the similar circumstances addressed in
Sec. 668.4(b)(3).
Changes: None.
Comments: Several institutions advocated allowing unequal loan
disbursements, noting that while the proposed regulations provide that
loans must be disbursed in equal installments, educational costs are
often unequal across terms.
One institution currently addresses the problem of unequal costs by
scheduling three disbursements for one type of loan (e.g., subsidized)
and two disbursements for another (e.g., unsubsidized) for the same
student and notes that this practice would not be permitted according
to the proposed regulations.
Another institution noted that the Direct Loan software allows
institutions to make unequal disbursements and argued that unequal
disbursements also be permitted in the FFEL Program.
One institution expressed concern that the equal disbursement
requirements would reduce the amount the student would receive in
situations where at least one-half the loan period has elapsed prior to
the first disbursement so that the first disbursement is combined with
a subsequent disbursement.
Discussion: The Secretary notes that the statute requires equal
disbursements of loan proceeds. See Sec. 428G(c)(3) of the HEA. The
Secretary will take into consideration allowing unequal disbursements
in the context of HEA reauthorization. With regard to the comment from
the institution that schedules subsidized and unsubsidized loan
disbursements differently in order to meet the student's unequal costs,
this practice goes against the statutory intent that all loans for a
student be disbursed in equal installments. Similarly, the Secretary
reminds Direct Loan institutions that, even though the software for the
Direct Loan program does not reject unequal disbursements, the statute
prohibits Direct Loan institutions from scheduling unequal
disbursements.
Finally, with regard to the question of whether the equal
disbursement requirements would reduce the amount the student would
receive in situations where at least one-half the loan period has
elapsed prior to the first disbursement, the Secretary assures the
commenter that this provision does not reduce the amount the student
would receive. For example, in a quarter situation where a disbursement
is not made until after the start of the second quarter, the
institution could combine the first and second disbursement in one
transaction. Subsequently, the institution could disburse the final
installment in the third quarter. In this situation, statute and
regulations permit the combined first and second disbursements to
exceed the amount of the final disbursement.
Changes: None.
Subpart B--Standards for Participation in Title IV, HEA Programs
Section 668.16 Standards of Administrative Capability
Electronic Processes (Sec. 668.16(o))
Comments: Most commenters supported the concept of moving to
electronic processes in the delivery of title IV, HEA program
assistance. Many commenters recognized and supported the need for
institutions to use electronic processes in order to move to a Project
EASI delivery system and encouraged the Secretary to use the best
available electronic services. One association commenter stated that
the Secretary must be aggressive with regard to institutions'
capabilities to participate in information sharing via electronic
means. Another commenter stated that mandating the use of electronic
processes would enhance the level of student services at institutions.
Another commenter supported this provision because the commenter
believed it was essential to achieving Project EASI's goal of providing
comprehensive, current student information.
Discussion: The Secretary very much appreciates, and thanks the
financial aid community for, its support in moving to greater use of
electronic processes and its contributions to developing and
implementing Project EASI. The Secretary believes that, by working with
the community in these areas, we will be able to improve services for
students and institutions.
Changes: None.
Comments: Several commenters believed that the Secretary proposed
to restrict institutions to using electronic services provided only by
the Secretary. Some commenters were concerned that, while the preamble
to the notice of proposed rulemaking indicated that an institution
would be able to use software developed by the Secretary or software
developed by the institution or its vendor, the proposed regulations
only referenced electronic services provided by the Secretary. Other
commenters were concerned that the proposed regulations would not allow
an institution to be considered administratively capable if it
participated in electronic services through an agency such as the
Pennsylvania Higher Education Assistance Authority. Another commenter
was concerned that an institution would be unable to comply with the
proposed regulations through a third-party servicer. The commenters
suggested that the Secretary should clarify this provision.
Discussion: As some of the commenters noted, it is not the
Secretary's intent to restrict institutions to using only software and
services provided by the Secretary. Nor is it the Secretary's intent to
restrict the ability of institutions to comply with the requirement by
employing third-party servicers. The Secretary agrees with the
commenters that the provision needs clarification since it is his
intent that institutions have the ability to participate in electronic
processes such as electronic data exchange and the BBS, but that
institutions should have available options to achieve compliance other
than by using software or products that the Secretary provides.
Changes: The Secretary has revised the reference to ``electronic
services'' in Sec. 668.16(o) to refer instead to ``electronic
processes.''
Comments: One commenter stated that the Federal Register notice
announcing the electronic processes in which an institution must
participate should address not only the electronic processes or
functionalities an institution must be capable of performing but should
include other information such as optimal system configurations and
network configurations.
Discussion: The Secretary very much appreciates the commenter's
concerns but does not believe that the addition of this information
would be appropriate for publication in the Federal Register. The
Secretary believes that it is more appropriate to include this type of
information in the other publications that he provides that include
such items as systems specifications and record layouts.
Changes: None.
Comments: Many commenters were concerned that the Secretary should
provide institutions reasonable notice and timeframes to implement
these processes. The commenters were concerned that some institutions
may not immediately have the necessary resources to participate in
electronic processes. The commenters believed that additional training
of staff would be needed. One commenter suggested that notice was
needed by December 1 prior to an award year. Another commenter
[[Page 60586]]
also indicated that the Secretary should provide as much advanced
notice as possible of the electronic processes which the Secretary
expects to require over the next several years so that institutions may
include these expectations in securing the necessary resources.
Discussion: The Secretary agrees with the commenters concern that
institutions be provided advanced notice of electronic processes in
which they are expected to participate. The Secretary expects to
provide such notice as soon as the information is available. Under the
current systems development cycles by award year, the Secretary expects
to be able to provide notice before December 1 prior to the award year.
To the extent it is possible to provide a notice covering subsequent
award years, the Secretary will provide such notice.
With respect to training, the Secretary agrees that additional
training is needed for institutional personnel and expects to announce
shortly additional training opportunities that will be available in all
10 regional training facilities.
Changes: None.
Comments: Some commenters believed that the Secretary should use
open networks such as the Internet to provide electronic interfaces
rather than rely on the Title IV Wide Area Network. One commenter was
concerned that security was not adequate on the Internet. Another
commenter believed that it would be beneficial for all institutions to
use the Title IV Wide Area Network but that it should be recommended,
instead of being required, during the 1997-98 award year. Another
commenter believed institutions should be expected to participate in
the Title IV Wide Area Network, to receive Institutional Student
Information Records (ISIRs), and to participate in the National Student
Loan Data System. The commenter questioned whether the Student
Financial Assistance Bulletin Board System (BBS) was duplicated in
other forums.
Discussion: The Secretary is currently exploring issues related to
the use of open systems like the Internet including such issues as
security, authentication, and reliability. The Secretary's primary
concern, however, is that institutions begin to use electronic
processes for delivering title IV, HEA program assistance regardless of
the network configurations that may be available to implement a
particular electronic process. For example, the BBS is currently
available through two electronic networks: the Title IV Wide Area
Network and the Internet (the Internet address is: http://sfa.ed.gov).
If the Secretary requires institutions to be able to access the BBS,
using either electronic network would satisfy the requirement.
Comments: A few commenters proposed that the Secretary provide
additional administrative cost allowances to allow institutions to meet
the requirement to use electronic processes. One commenter was
concerned that the proposed regulations were an unfunded mandate to the
States. The commenter believed that the administrative cost allowance
was not sufficient to cover the costs to institutions of using
electronic services.
Discussion: The current administrative cost allowances are set by
specific statutory authorizations and appropriations and the Secretary,
therefore, is unable to provide a specific administrative cost
allowance for funding institutions using electronic processes. The
Secretary will take into consideration these comments while developing
proposals in the context of HEA reauthorization.
The Secretary does not agree with the comment that these
requirements are an unfunded mandate. Institutions are provided with
administrative cost allowances to administer the title IV, HEA
programs, and these funds may be used by the institution for funding
institutional use of electronic processes that the Secretary does not
expect to have significant cost implications.
Comments: Two commenters were concerned about the meaning of the
phrase ``at no substantial charge to the institution.'' One commenter
believed that the Secretary should absorb all the costs of the central
processor's services.
Discussion: The Secretary considers an electronic process to be
offered to an institution at no substantial charge if the process is
provided for free or there are generally no additional charges for
normal business activity. For example, an institution may make regular
phone calls to a customer service office but, if an institution makes
excessive phone calls, the Secretary believes it is appropriate to
charge for use beyond that normally needed even though the Secretary is
requiring institutions to use that process.
Changes: None.
Comments: One commenter questioned the benefit of using electronic
processes and requested that institutions be able to receive exemptions
from this requirement. Another commenter was concerned that the
Secretary needed to develop an alternative, cost-effective option for
small institutions.
Discussion: As the Secretary noted in the preamble discussion of
this requirement in the proposed regulations, the Secretary believes
that the use of electronic services by institutions is essential to
achieving better services for students and institutions, the Project
EASI goal of an integrated student aid delivery system for students and
institutions, and necessary improvements in program accountability. As
a result, the Secretary does not expect to provide for any alternative
processes such as using paper documents. With respect to small
institutions, the Secretary notes that a number of options are
available to, and are currently being used by, small institutions.
These institutions either are using the services and free products
provided by the Department; or are using the products and services of
private vendors, third-party servicers; or are using the Internet
directly.
Changes: None.
Comments: One commenter opposed the proposed regulations because
the commenter thought that institutions, that the commenter believed
offered quality educational programs, would have difficulty meeting the
requirement. Another commenter opposed the proposed regulations because
the commenter believed that they would result in the elimination of all
small institutions because they rely on Federal information.
Discussion: The Secretary recognizes that some institutions may
have difficulty in meeting the requirement. The Secretary does not
believe that it need result in the elimination of any small
institutions because small institutions are already participating in
electronic processes directly or are participating through third-party
servicers.
Changes: None.
Comments: Two other commenters questioned whether an institution's
electronic capabilities indicated that an institution was
administratively capable.
Discussion: The Secretary believes that an institution's
participation in electronic processes are essential to its
demonstrating administrative capability. The Secretary believes that
institutional use of electronics will result in business processes that
improve service to, and reduce burden on, students and will result in
improved institutional administration and accountability.
Changes: None.
Subpart K--Cash Management
Section 668.161 Scope and Purpose
Comments: One commenter, on behalf of student legal aid services
[[Page 60587]]
organizations, supported the Secretary's stated goals with regard to
the purpose of the cash management regulations, and specifically
appreciated the incorporation of the goal to minimize costs that accrue
to students under the title IV, HEA loan programs as proposed in
Sec. 668.161(a)(1)(iii).
One commenter on behalf of the lending community recommended that
the Secretary clarify in regulations that the cash management rules
under subpart K apply to a third-party servicer employed by the
institution to distinguish between other third-party servicers employed
by lenders and guaranty agencies.
A few commenters on behalf of the lending community expressed
concerns about proposed Sec. 668.161(a)(3)(iii) with regard to the use
of the term ``disburse'' to mean the same as deliver loan proceeds
under 34 CFR 682 of the FFEL Program regulations. These commenters were
worried that the distinction between the terms ``disburse'' and
``deliver'' would be eliminated in the FFEL Program regulations. The
commenters pointed out that under the FFEL Programs a lender or escrow
agent is the disbursing agent who disburses the funds to the
institution who, in turn, delivers the funds to the borrower and that
the distinction is important in determining interest that accrues to
the government and to borrowers. One commenter noted that current
provisions regarding restricted interest arose out of Negotiated
Rulemaking discussions. The commenter argued that the current
definition of disbursement in the FFEL program regulations allows the
lender to utilize a readily identifiable date for this purpose and that
the definition should be retained under the FFEL Program regulations.
Several commenters writing on behalf of the lending community
opined that because FFEL Program funds are provided by lenders, rather
than the Secretary, and unlike other title IV, HEA programs those funds
are private capital, FFEL Program funds are held in trust by the
institutions for the student beneficiaries, the lenders and the
Secretary, and the distinction should be noted in this section.
Discussion: The Secretary disagrees with the commenter who
suggested that Sec. 668.161(a)(2) be revised to distinguish between
third-party servicers employed by institutions and other third-party
servicers employed by lenders and guaranty agencies. The Student
Assistance General Provisions regulations govern institutions and their
third-party servicers. The rules that govern lenders, guaranty agencies
and their third-party servicers are found in 34 CFR 682 of the FFEL
Program regulations. Therefore, it is unnecessary to distinguish in
these regulations that the third-party servicers affected are those
employed by institutions.
With respect to the concerns raised regarding the use of the term
``disburse'' under subpart K to mean the same as ``deliver loan
proceeds'' under the FFEL Program regulations, the Secretary wishes to
clarify that this is not a change from current rules.
For the FFEL Programs, the Secretary is cognizant of the
distinction made in the HEA between a ``disbursement'' by a lender and
``delivering the proceeds of the loan'' by an institution to a
borrower. The definition of disburse under the FFEL Program regulations
remains unchanged for purposes of determining interest due. As
discussed previously in the cash management NPRM of September 29, 1994
(59 FR 49766-49773), the term disburse solely as used in subpart K,
corresponds to the concept of delivery of proceeds under the FFEL
Program regulations in order to prevent confusion by utilizing a single
term for all title IV, HEA programs to which certain rules and
timeframes under subpart K apply. In the most recent NPRM, the
Secretary merely relocated the explanation from the definitions
section, which was eliminated, to Sec. 668.161, Scope and purpose. The
Secretary will take into consideration this issue in the context of HEA
reauthorization.
The Secretary agrees with those commenters who suggested that a
distinction should be made between those funds provided by the
Secretary and those funds provided by lenders and guaranty agencies for
purposes of clarifying that an institution holds FFEL Program funds in
trust and may not use those funds for any unintended or unauthorized
purpose.
Changes: Section 668.161(b) is revised to clarify that FFEL Program
funds are held in trust by an institution for the intended student
beneficiaries, the lenders, the guaranty agencies, and the Secretary.
Comments: One commenter requested clarification concerning the
applicability of the provisions of these regulations to State
institutions in a State with an agreement between the State and the
U.S. Department of the Treasury (Treasury) under the Cash Management
Improvement Act of 1990 (CMIA). The commenter recommended that
provision for the CMIA agreements be incorporated into these
regulations.
Discussion: The Secretary agrees with the validity of the
commenter's concern regarding the applicability of the provisions of
these regulations to State institutions in a State with an agreement
with the Treasury under the CMIA. Such an agreement is uniquely
negotiated between the Treasury and the State and concerns requesting
and transferring funds between a State and the Treasury. Further, a
State's agreement with the Treasury is specific as to the federally
funded programs that are covered. For these reasons the Secretary does
not believe it is necessary or appropriate to incorporate specific
references to CMIA agreements into these regulations.
Changes: None.
Section 668.162 Requesting Funds
Just-In-Time Payment Method (Sec. 668.162(c))
Comments: While most commenters understood and supported the
Secretary's plans to transition the operations of the title IV, HEA
programs into an integrated delivery system and to improve program
accountability, many commenters expressed reservations about the
implementation of the just-in-time payment method.
Their reservations primarily were due to their perceptions that
there was a lack of specificity concerning operational features,
concerns regarding potential expenses and reporting burden, issues such
as the unpredictability of changes in student eligibility, and a belief
that the Secretary was addressing issues of fraud and abuse that should
be addressed through enforcement actions. Commenters were concerned
about whether there would be adequate Department staff and resources to
ensure that all requested funds would be sent to institutions within
adequate timeframes. Some commenters recommended that the Secretary
develop a pilot to provide adequate testing of the new payment method.
Commenters were also concerned that institutions would lose
flexibility under this payment method as opposed to the advance payment
method under which an institution may receive Federal funds without
providing information on the students for whom the funds are intended.
The commenters stated that financial aid offices are at their busiest
just before the start of classes, and the commenters believed that they
would be coping with an increase in reporting activity that would be
time-consuming and staff-intensive. Other commenters were concerned
that a student's funds might be held up due to processing problems;
thus, the student would be forced to take out a short-term loan, to
borrow from family or friends, or to withdraw from the institution.
[[Page 60588]]
Discussion: As the Secretary noted in the preamble to the NPRM, the
just-in-time payment method is a core element to creating the Project
EASI vision of a student-centered integrated student aid delivery
system. Providing student-level information for one or more programs in
a single process and using that same information to provide funds to
institutions is the basis for reengineering the delivery system and
reducing duplicative, uncoordinated, and unreconcilable systems. The
Secretary believes that using a just-in-time payment method in a
reengineered delivery system will result in improved business processes
and better management of the title IV, HEA programs and will improved
accountability at problem institutions. The Secretary recognizes and
very much appreciates the concerns that the commenters have expressed.
The Secretary believes that many of these concerns will be addressed in
the design of the system that will support the just-in-time payment
method. The Secretary understands that further work is needed on the
development of the system before the system can be implemented, and the
Secretary plans to further involve institutions and other participants
in the Title IV, HEA Programs in the development of the system. In
addition, when the system is further developed, the Secretary expects
to use this payment method only at institutions that volunteer to
participate in it. Moreover, the Secretary will permit those
institutions to choose the particular Title IV, HEA programs to run
under the just-in-time method. Thus, for example, an institution may
volunteer to participate in the just-in-time method for the Pell Grant
program only and continue to receive funds under the advance system of
payment for the Direct Loan and campus-based programs.
Changes: None.
Section 668.163 Maintaining and Accounting for Funds
Comments: A number of commenters supported the Secretary's proposal
to eliminate the requirement under Sec. 682.207(b) that an institution
maintain a separate bank account for FFEL Program funds. One commenter
expressed concern that not requiring a separate account may provide an
opportunity for institutions to abuse title IV, HEA program funds.
Discussion: The Secretary appreciates the commenters support of
this proposal. The Secretary continues to believe that there is no
longer any compelling reason to require a separate account for FFEL
Program funds provided by EFT or master check. The Secretary further
believes that, by requiring an institution to comply with the bank
account notification requirements and the accounting and financial
records prescribed in this section, he will greatly reduce the
opportunity for institutions to abuse Federal funds.
Changes: None.
Section 668.164 Disbursing Funds
Definition, Disbursement
Comments: Several commenters requested that the Secretary clarify
the discussion in the preamble that ``a disbursement occurs when an
institution makes the benefits of title IV, HEA program funds
constructively available to students.'' These commenters maintained
that it is difficult, if not impossible, to determine the difference
between funds made constructively available and bill preparation that
includes crediting the student's account. The commenters argued that
since institutions consider a student's title IV, HEA program awards as
a payment toward tuition and fee charges, students realize the benefits
of their title IV, HEA program awards when institutions allow them to
enroll for and attend classes even though institutions have not yet
received Federal funds for those awards.
A few other commenters suggested that the preamble discussion that
``the Secretary does not consider that a disbursement is made if,
solely for the purpose of preparing a bill for a student, an
institution must credit the student's account at the institution'' be
codified in final regulations to avoid any misunderstanding between the
preamble and the regulations.
Many commenters representing institutions and higher education
associations objected to the provision that a title IV, HEA program
disbursement occurs on the date that an institution credits a student's
account or pays the student or parent directly with institutional funds
used in advance of receiving title IV, HEA program funds. Some of these
commenters regarded this provision as an intrusion in the way that
institutions bill students and post payments to student accounts and
questioned whether the Secretary has the authority to regulate the use
of institutional funds in this manner. Other commenters believed that
an institution should have a choice in determining whether to use
institutional funds in advance of title IV, HEA program funds since the
institution is solely liable for any funds advanced. In addition, the
commenters stated that at many institutions tuition is generally billed
and payable long before acceptable disbursement dates for title IV, HEA
program purposes. At these institutions, students are not considered to
be ``officially enrolled'' until tuition is paid in cash or by
institutional credit, with such payments or credits occurring many
months prior to the start of classes. Another commenter believed that
the use of institutional funds to credit a student's account should not
be held to the same requirements as a credit of actual title IV, HEA
program funds. This commenter, along with other commenters, noted that
in many cases the crediting of institutional funds is the result of a
``short-term loan'' from the institution to the student (e.g., to
enable the student to pay for off-campus housing) pending the
institution's receipt of title IV, HEA program funds and the subsequent
disbursement of those funds to the student. Still another commenter
maintained that the ability to credit a student's account with
institutional funds prior to the receipt of title IV, HEA program funds
offers important administrative flexibility to institutions to manage
workload and was adamant in stating that until title IV, HEA program
funds are utilized no disbursement of any Federal funds has taken
place. One commenter recommended that the Secretary include in the
final regulations the exception to the definition of disbursement found
in the preamble discussion of the proposed regulations concerning
institutions that, in order to create a bill, must credit the student's
account on the general ledger. The commenter was referring to the
discussion in the preamble of the proposed regulations where the
Secretary noted that he does not consider that a disbursement is made
if, solely for the purpose of preparing a bill for a student, an
institution must credit the student's account at the institution by
making a general ledger entry.
Discussion: The Secretary appreciates the commenters' concerns
regarding the proposed definition of ``disbursement'' and the apparent
ambiguities surrounding that term both in the proposed regulation
itself and in the preamble. The Secretary hopes to clarify that term in
the following discussion and in a revision to the final regulations.
It is the Secretary's view that a disbursement of Title IV, HEA
program funds occurs when an institution credits a student's account or
pays a student directly, and indicates that the source of that payment
is a Title IV, HEA program. Thus, if an institution credits a student's
account at the institution with $1,200 and indicates on the account
that the $1,200 credit is a
[[Page 60589]]
Federal Pell Grant award, the institution has made a Federal Pell Grant
disbursement regardless of whether the institution used its own funds
or federal funds for that credit.
On the other hand, if the institution simply makes a memo entry for
billing purposes or credits a student's account and does not identify
the credit as a credit for a title IV, HEA program, the Secretary
considers that the institution did not make a Title IV, HEA program
disbursement. For example, if the ledger entry calls the credit an
``estimated Federal Pell Grant,'' the Secretary does not consider the
institution to have made a Federal Pell Grant disbursement.
Consequently, it is the institution that controls whether a payment to
a student is a Title IV, HEA program payment.
The Secretary understands that there are institutions that are
required by State or local law to credit a student's tuition and fee
account with Title IV, HEA program funds in order to send the student a
tuition and fee bill. In addition the Secretary believes that there are
other institutions that, because of accounting and billing systems
constraints, also credit students' accounts in order to generate
billing statements. These institutions may send these bills far in
advance of the first date that an institution can disburse Title IV,
HEA program funds under these rules. The Secretary further understands
that these institutions credit a student's tuition and fee account with
Title IV, HEA program funds but do not actually take Federal funds to
satisfy these credits until they are permitted to do so under the cash
management rules.
The Secretary has amended the definition of the term
``disbursement'' to accommodate these institutions. Under the amended
definition, the Secretary will not recognize that a disbursement of
Title IV, HEA program funds takes place until the first day that such a
disbursement can take place, 10 days before the first day classes, or
30 days after the first day of classes for FFEL or Direct Loan proceeds
for a first year first time borrower.
The Secretary acknowledges that some institutions may need to make
administrative or systems changes to comply with these new
requirements. Therefore, the Secretary may not take an adverse action
against an institution that fails to satisfy the requirements during
the 1997-98 award year if the Secretary determines that the institution
had insufficient time to make the necessary changes.
Changes: The Secretary is revising the definition ``disbursement''
in Sec. 668.164(a) to provide that if an institution credits a
student's institutional account with title IV HEA program funds earlier
permitted under the provisions of Sec. 668.164 solely for the purpose
of preparing a tuition and fee bill for that student, the Secretary
will recognize that disbursement as being made on the first day that it
would be permitted to be made under that section.
Direct Loan Disbursements (Sec. 668.164(d)(3))
Comments: Several commenters questioned the significance of the
provision that requires that institutions disbursing Direct Loans to
student accounts must first credit Direct Loan funds to the student's
account to pay for outstanding current and authorized charges. These
commenters asked why the Secretary does not require Federal Perkins
Loan Program and FFEL Program loans disbursed to student accounts to be
applied first to the student's account to cover outstanding current and
authorized charges and suggested that the Secretary may be moving away
from parity between the Direct Loan and FFEL programs.
Discussion: This provision is based on the statutory requirement
that Direct Loans be applied to the student's account for tuition and
fees, and in the case of institutionally owned housing, to room and
board. See Sec. 455(j)(1) of the HEA. This requirement does not result
in any significant inequity between the FFEL and Direct Loan programs.
Rather, this provision simply promotes the use of EFT to student
accounts as a means of disbursing to borrowers. This statutory
requirement only applies to schools that actually disburse funds
directly to student accounts. Furthermore, this statutory requirement
does not require that Direct Loan funds must be credited to the
student's account prior to other funds, i.e., grants and other loans.
This provision simply requires that if there is any outstanding balance
for current outstanding or authorized charges on the student's account
when Direct Loan funds are disbursed to that account, Direct Loan funds
must be applied to those outstanding charges before any Direct Loan
funds are disbursed directly to the borrower.
Changes: None.
Early Disbursements (Sec. 668.164(f))
Comments: One commenter was concerned about the requirement that an
institution may disburse title IV, HEA program funds on the later of 10
days before the first day of class or the end of the prior payment
period in which the student received title IV, HEA program funds. The
commenter believed that this requirement would delay disbursements
until after classes would have started in instances where the time
between payment periods is less than 10 days. The commenter believed,
for example, that if only seven days separated two quarters, the
disbursement for the second payment period would be delayed until the
third day of classes in the second quarter.
Two other commenters were concerned that the requirements were a
change from current requirements for educational programs using
academic terms and credit hours. For these educational programs, the
commenters understood the current requirements to allow an institution
to make a disbursement up to 10 days prior to the subsequent term. For
example, one of these commenters noted that, when one term ends on
Friday and the next term begins on a Monday, the current regulations
(34 CFR 668.165(c)) provide that an institution may make a disbursement
up to 10 days prior to the Monday on which the subsequent term begins.
Discussion: In general, under proposed Sec. 668.164(f), an
institution would be able to disburse funds for a subsequent payment
period the later of (1) 10 days before the first day of classes of the
payment period, or (2) the date the student completes the previous
payment period for which he or she receives title IV, HEA program
funds. Under the proposed regulations, in the first commenter's
example, the institution would be able to make a disbursement for the
second quarter up to seven days prior to the beginning of the second
quarter instead of three days into the second quarter as the commenter
believed.
The Secretary agrees with the comments of the other two commenters
that the proposed regulations would be a change in the requirements.
The Secretary intended to coordinate the requirements for early
disbursements with the implementation of the disbursement of all title
IV, HEA assistance by payment periods. The Secretary did not intend to
change the current policy for educational programs offered using
semesters, trimesters, or quarters that allows an institution to
disburse title IV, HEA assistance up to 10 days prior to the beginning
of a payment period regardless of the ending date of the prior payment
period.
Changes: The Secretary has revised the requirements in
Sec. 668.164(f) to provide that, in the case of an educational program
offered using semesters, trimesters, or quarters, an institution may
disburse title IV, HEA program assistance up to 10 days prior to the
beginning of any payment period.
[[Page 60590]]
This revision is also in accordance with the disbursement requirements
for the FFEL and Direct Loan programs for educational programs that do
not use semesters, trimesters or quarters.
Late Disbursements (Sec. 668.164(g))
Comments: Several commenters expressed support for the proposal to
consolidate the late disbursement requirements into the cash management
subpart of the regulations. They believed that this proposal would
promote clarity and that the uniformity will enhance program
efficiency.
One commenter believed that a conflict has been created in the
Secretary's effort to consolidate the Federal Pell Grant Program rules
with the other title IV, HEA program's late disbursement rules in
Sec. 668.164(g). The commenter stated that the proposed provision in
paragraph (g)(2) gives an institution discretion to make late
disbursement payments to a student for up to 90 days after the
student's last date of attendance to pay for educational costs that the
student incurred while enrolled. The commenter stated that Sec. 690.78
of the current Federal Pell Grant regulations requires the institution
to disburse funds to a student if the student requests those funds
within 15 days after the last date of his or her enrollment ends in the
award year. If the student has not picked up the payment at the end of
the 15-day period, then he or she forfeits the right to it. However, an
institution could use its discretion to disburse Federal Pell Grant
funds after the 15th day.
Discussion: The Secretary appreciates the commenters' support for
the proposal to consolidate the late disbursement provisions into the
cash management subpart of the regulations.
The Secretary does not agree with the commenter that there is a
conflict between the provisions of Sec. 690.78 and the proposed rule in
Sec. 668.164(g) because they each deal with a different matter. Section
690.78 deals with the situation where an institution pays an eligible
student by check but the student does not pick up the check. That
section indicates that the student forfeits his or her right to the
check after a certain time. Section 668.164(g)(2) deals with the
situation where a student becomes ineligible before the institution
makes a payment to that student and the circumstances under which the
institution can make that payment anyway.
Changes: None.
Comments: One commenter representing a guaranty agency objected to
the proposal that in order to make a late payment of an FFEL Program
loan, before the date the student became ineligible, an institution
must have received a SAR from the student or an ISIR from the
Secretary, and must have been certified the student's loan application.
The commenter indicated that this proposal would penalize students due
to the institution's failure or inability to drawdown ISIRs before a
student became ineligible. The commenter believed that if the student
is otherwise eligible and the institution draws down (or obtains) the
student's ISIR or SAR prior to the disbursement of funds, the
institution should be able to deliver the loan to the student. The same
commenter also indicated that the certification of a loan application
after the date on which the borrower becomes ineligible does not impact
program integrity since the institution would still be required to
certify a cost of attendance which only covers costs incurred by the
student during the period when the student was eligible.
One commenter questioned why there are different proposed rules for
loans and grants. The commenter objected to the proposal that
disbursement of loans may only be made if the student has graduated or
completed the loan period, while grant payments may be made regardless
of the student's status. The commenter believes that the loan
provisions should match the late disbursement provisions for Federal
Pell Grants.
Discussion: Under the FFEL Programs, the HEA requires that an
institution certify that a student is an eligible student at the time
it certifies the student's loan application. Therefore, the commenter's
suggestion is not legally supportable. In addition, the Secretary
believes that in order for an institution to make a late disbursement
to an ineligible student, that student must meet a core requirement: he
or she must have applied for those funds and the institution must
received an ISIR or an SAR with an official EFC before he or she became
ineligible.
The Secretary also disagrees with the commenter who believes the
late disbursement provisions should be identical for loans and Federal
Pell Grants. Under the HEA, an institution is prohibited from making a
late second disbursement of a Direct Loan or FFEL loan unless the
student had graduated or successfully completed the period of
enrollment for which the loan was intended. No legal restriction
applies to grants.
Changes: None.
Comments: Several commenters objected to the proposed requirement
that would make a written acceptance of a Federal Perkins Loan or an
FSEOG Program award from a student a condition for making a late
disbursement. The commenters noted that the Federal Perkins Loan and
FSEOG Program regulations do not require signed acceptance letters. The
commenters view this proposal, therefore, as unnecessarily burdensome.
Several commenters writing on behalf of guaranty agencies, student
loan servicers, and education associations believed that in paragraph
(g)(3) the proposed language, ``If a student qualifies for a late
disbursement . . .'', should be changed to read, ``If a borrower
qualifies for a late disbursement . . .''. The commenters stated that
the current proposed language using the word ``student'' restricts the
approval of late disbursements to student borrowers, and fails to
account for PLUS loans made to parent borrowers who are eligible to
receive a late disbursement.
Discussion: The Secretary agrees with the commenter's objections
regarding late disbursements of a Federal Perkins Loan or an FSEOG
Program award and has made appropriate changes.
The Secretary also agrees with the commenters that the proposed
regulations restrict the approval of late disbursements to student
borrowers and fails to account for PLUS loans made to parent borrowers,
and will revise the section accordingly.
Changes: The Secretary revises paragraph (g) to remove the proposed
provision that would require an institution to have received from the
student an acceptance of the Federal Perkins Loan or an FSEOG Program
award before making a late disbursement. Instead the institution will
merely have to show that it awarded a student a loan or grant before
the student became ineligible.
The Secretary also revises paragraph (g) to allow for PLUS loans to
be disbursed under these same late disbursement provisions.
Comments: One commenter writing on behalf of a consumer law center
objected to the Secretary's discussion of documented educational costs
that student's incur before they become ineligible. The commenter
believed that the preamble statement leaves the impression that the
Department is creating a lesser standard of proof for institutional
charges. The commenter believed that this would permit institutions to
charge students with improper and inflated costs. For example, the
commenter was concerned that the preamble discussion would allow an
institution to charge students who have withdrawn after just two
[[Page 60591]]
weeks for all the term's books and supplies regardless of whether the
student received them or returned them. According to the commenter,
inflated add-on expenses have been a serious problem area with some
institutions, particularly those that require high-cost supplies and
that have their own book distribution and even publishing companies.
The commenter further questioned whether the Department intends to
sanction such overcharges. The commenter suggested that the preamble of
the final regulations specify that the individual student's alleged
costs must be documented, and that any policy the institution develops
must be based solely on books or supplies actually received by the
student and not returned to the institution. The commenter concluded by
suggesting that the preamble of the final regulations specify that such
policies developed by the institution must comply with pertinent State
law, if any, on the issue of permissible charges to students.
Discussion: The Secretary believes that the commenter misconstrued
the intent and effect of the Secretary's preamble discussion on this
matter. The Secretary sought only to expand the means by which an
institution might account for educational costs without the added
burden of requiring each student to keep a detailed expenditure
account. The preamble discussion did not address what the commenter was
concerned about, improper and inflated institutional charges.
It was not the Secretary's intent for that this discussion appear
to sanction unscrupulous practices. With regard to the commenters
suggestion that the preamble should state that institutional policies
on permissible charges to students must comply with State law since the
Secretary assumes that institutions must comply with applicable State
laws at all times.
Changes: None.
Comments: Many commenters writing on behalf of loan servicers,
guaranty agencies, education associations, and business officers
overwhelmingly supported the 90-day timeframe for making a late
disbursement after the date a student becomes ineligible. However,
these commenters were concerned about conflicting policies, such as the
60-day late disbursement timeframe in the current FFEL Program
regulations. The same commenters indicated that since funds are
disbursed by the lender and delivered by the institution, in some
instances, especially with check disbursements, a lender may meet the
90-day disbursement requirement but the institution could not deliver
the proceeds to the student borrower within the 90-day timeframe. These
commenters concluded by suggesting that the provision be revised to
reflect that late disbursements may be delivered by the institution
provided the lender disburses funds, or the institution draws down
funds, within 90 days after the date the student becomes ineligible.
Discussion: The Secretary agrees with the commenters that the 90-
day late disbursement timeframe should coincide with the current FFEL
Program regulations, and that corresponding changes are needed to
remove conflicting policies referenced in those regulations. Section
668.164(g) provides that if a student is eligible for a late
disbursement, the institution is permitted to make the late
disbursement within 90 days after the date the student becomes
ineligible. Contrary to the suggestion of the commenters, the Secretary
requires that the delivery of the FFEL Program loan proceeds to the
student (or parent) by the institution must be made within this 90 day
period. Therefore, a lender would have to make a disbursement to the
school that would provide sufficient time for the school to comply with
this requirement.
Changes: The Secretary revises the late disbursement provisions
found in 34 CFR 682.207 of the FFEL Program regulations to conform to
the changes in Sec. 668.164(g).
Section 668.165 Notices and Authorizations
Award Notice (Sec. 668.165(a)(1))
Comments: One commenter, writing on behalf of student legal aid
services organizations, strongly supported the proposed requirement
concerning notification by the institution of the amount of funds a
student could expect to receive under each title IV, HEA program and
how and when those funds would be disbursed. The commenter also
supported the proposal that, if those funds include Direct Loan or FFEL
Program funds, the notification indicate the amounts of subsidized
loans and the amount of unsubsidized loans. The commenter further noted
that there is apparently a proposal under review to eliminate a
question on the FFEL loan application that provides the applicant with
the opportunity to indicate whether he or she wishes to apply for a
subsidized or an unsubsidized loan. The commenter cautioned that the
notice requirement in Sec. 668.165(a) should not be used as a reason to
eliminate that question on the application.
A couple of commenters suggested that the notification requirement
regarding the amount of subsidized and unsubsidized loans duplicates
information provided by lenders.
Discussion: The Secretary would like to emphasize that the notice
requirement regarding the amount of subsidized and unsubsidized loans
is not intended to eliminate a borrower's right to choose whether to
apply for a subsidized or unsubsidized loan. As to the commenters
suggestion that this notice requirement may duplicate information
otherwise provided by lenders, the Secretary believes that it is useful
for an institution to provide a student with his or her total aid
package even though some of the information provided to the student
might be also provided by others at other times.
Changes: None.
Comments: One commenter was concerned that the institution may not
have definitive information regarding the amount and types of loans
that will be disbursed until the lender issues a disclosure notice. In
addition, the commenter cautioned that while institutions indicate when
a disbursement should be made, sometimes lenders do not adhere to these
dates, and students expect that whatever dates are given to them are
sacrosanct.
Another commenter, writing on behalf of the lending community,
suggested that this section be revised further to state that if the
amount of loan funds or subsidy type (i.e., subsidized or unsubsidized)
changes after the institution's initial notification, the institution
or its agent must notify the borrower within 30 days after the change.
Discussion: With respect to the comment that the institution may
not have definitive information regarding the amount and types of loans
that will be disbursed, the Secretary reminds institutions that they
are responsible for certifying, and thus requesting from the lender, a
specific type and amount of loan, or in the case of a Direct Loan of
originating a specific type and amount. However, the Secretary
understands that in some limited number of instances, the lender may
reduce the certified amount of the loan as a result of a borrower's
request or enforcement edits. The Secretary also understands that the
actual disbursement received from the lender might differ slightly from
what the institution expected because of loan fees and rounding
differences. Thus, the Secretary allows the information provided in
this notice to include the gross amount of the loan disbursement or a
close approximation of the net
[[Page 60592]]
disbursement amount. The Secretary considers that an institution meets
the notice requirement if it provided the best information it had.
With regard to the comment that some lenders do not adhere to the
disbursement dates requested by the institution, the Secretary reminds
both institutions and lenders that the FFEL Program regulations require
the lender to comply with the disbursement dates provided by the
institution, assuming that the requested dates meet all statutory and
regulatory requirements.
With respect to the suggestion that the notice requirement be
expanded to require an institution or its agent to notify a borrower
within 30 days regarding loan changes, the Secretary believes that it
is not necessary to proscribe specific timeframes for either the
initial notice or any required revisions.
Changes: None.
Comments: A few commenters agreed with the proposal to notify
students about PLUS funds. One commenter expressed concern about the
violation of the privacy of a parent borrower under the PLUS programs
when the notice is sent to the student.
Discussion: The Secretary believes that the student should be
informed of all title IV, HEA aid awarded to, or on their behalf. The
Secretary believes that right outweighs any privacy right a parent may
have with regard to a PLUS loan.
Changes: None.
Disbursement Notice (Sec. 668.165(a)(2))
Comments: Many commenters writing on behalf of business officers
and financial aid administrators disagreed with the proposed changes in
the notification requirements regarding the disbursement of Direct
Loan, Federal Perkins Loan Program, or FFEL Program funds that are
provided via EFT or master check. Several commenters disagreed that any
such notification should be required of institutions. These commenters
argued that student and parent borrowers are notified of loan amounts,
estimated disbursement dates, and their rights and responsibilities,
including those regarding the cancellation of loans, several times
during the application process by the institution, lenders, guaranty
agencies, or the Secretary. Many commenters felt that adequate
information was already provided to borrowers through award letters,
loan counseling, debt reduction efforts on behalf of the institution,
and other required notifications such as on the promissory note and in
terms and conditions publications.
A few commenters suggested that if additional information regarding
students' and parents' loan disbursements, rights, and responsibilities
needs to be disclosed to borrowers, the information should be provided
by lenders, included on the promissory notes, or in other consumer
disclosure notices already required. One commenter suggested the
notification be added to the award notice under paragraph (a)(1) of
this section. The commenters indicated that another notice would be
administratively burdensome, costly, and unnecessarily confusing to
students and parents. One commenter thought that the proposal was
contrary to President Clinton's directive to Federal agencies to reduce
regulatory and paperwork burden.
Discussion: The Secretary appreciates the detailed comments
submitted by all parties regarding the requirement that an institution
notify a student or parent borrower of the date and amount of Direct
Loan, FFEL, and Federal Perkins loan funds that are disbursed by
crediting the student's account at the institution. The Secretary
considers the initiation of an EFT of title IV, HEA program loan funds
to a student's or parent's bank account and the subsequent withdrawal
of funds from that account to pay for tuition and fees or other
authorized charges, to be the same as directly crediting the student's
account at the institution and therefore subject to these notification
requirements.
The Secretary wishes to emphasize that this notice requirement is
not new but is a continuation of existing requirements. The provision
reflects the Secretary's continuing view that a borrower is entitled to
be informed when his or her title IV loan funds are being used by the
institution to pay institutional charges thereby generally making the
borrower liable for those loan funds.
Changes: None.
Comments: Several commenters specifically opposed allowing a
student or parent to cancel a loan that had been disbursed, citing
increased administrative burden and inconvenience. Two commenters
argued that the cancellation notice is unnecessary, because an EFT
already requires an authorization and therefore, a borrower's right to
have funds delivered by check is protected, and the current rules
already require a notice to the borrower that loan funds have been
credited to his or her account. The commenters contended that the
proposed rule was designed to undermine the premise by which the loan
was requested. A few commenters suggested that students and parents
would ``game'' the system and misuse the federal loan programs as cash
flow assistance or short-term bridge loans pending receipt of other
funds with which they intend to pay their tuition, fees, room and
board.
Discussion: The Secretary believes that regardless of the manner in
which a loan is provided to an institution, and regardless of the way
the institution chooses to disburse that loan, the borrower should have
the opportunity to decline that loan at, or close to, the time the
funds are disbursed and the debt incurred. Since a borrower has this
opportunity if loans are disbursed in the form of checks, the Secretary
believes an alternative option should be available for EFT and master
check disbursements. The Secretary believes that the borrower's
authorization of an EFT transfer takes place too early in the loan
process to satisfy this consideration.
The Secretary disagrees with the commenters who suggested that this
requirement would be overly burdensome. The Secretary developed this
requirement with the existing notice system in mind. As a result, an
institution can piggyback on other required notices, it does not have
to send a separate notice. This matter is further discussed under
another series of comments.
With respect to the commenters who suggested that the notification
will lead to students and parents ``gaming'' the system and using
Federal funds as cash flow assistance, the Secretary disagrees that the
required notification will in any way influence whether a student or
parent would act in such a manner.
Changes: None.
Comments: Many commenters supported the notification requirement. A
handful of commenters indicated that their institutions grant
cancellation requests of a student or parent request even after the
loan has been disbursed. Several commenters writing on behalf of the
lending community expressed support of the cancellation provision
likening it to a ``right of recession'' period provided for under other
consumer loans.
Some commenters writing on behalf of financial aid administrators
expressed concern regarding how the cancellation provisions would
affect the requirement that a title IV, HEA credit balance must be paid
within 14 days after the first day of classes or within 14 days after
the date on which the credit balance occurs, whichever is later. The
commenters thought there would be a conflict between the 14-day credit
balance rule and the 14-day loan
[[Page 60593]]
cancellation provision and that institutions would be required to
cancel a loan or loan disbursement by returning institutional funds to
cover a loan when all or a portion of the loan was already paid to the
student or parent. The commenters concluded that the institution would
have to then bill the student or parent for those funds.
A few commenters writing on behalf of financial aid administrators
were concerned about how the 14-day cancellation provision would affect
institutional refunds as required under Sec. 668.22. One commenter
contended that the cancellation provision ignored an institution's
right to retain title IV, HEA program funds earned by the institution
under refund regulations. This commenter argued that if a borrower
decided to withdraw and cancel a loan, the institution may be denied
that portion of the loan to which it may be entitled under its refund
policy. It would then be required to bill the student for the unpaid
amount of the tuition and fees to which the institution was entitled.
Discussion: The Secretary appreciates the support of the commenters
for this provision.
The Secretary disagrees with the commenters regarding any conflict
between the loan cancellation provisions and the credit balance
provisions. When a borrower exercises his or her right to request the
cancellation of a loan or loan disbursement, the borrower can only
request that the institution cancel and return to the lender those loan
funds that the institution used to pay institutional charges or is
still holding on behalf of the borrower. Thus, if an institution
released title IV, HEA program loan funds to the student or parent as
part of a credit balance and then received a request to cancel the
loan, it would not be required to return those funds previously
released to the student or parent.
The Secretary agrees with the commenters who pointed out that the
cancellation provisions may have an impact on an institutional refund
under Sec. 668.22. The Secretary reminds the commenters that the refund
requirements determine the unearned portion of the actual charges for
the period of enrollment for which a student has been charged, not the
source from which the institution earns funds. The determination of the
amount of aid received by, or on behalf of, the student takes place
before a refund is calculated. If students or parents avail themselves
of the cancellation provision, a refund calculation may reflect greater
unpaid charges than would have existed if the loan had not been
cancelled. The Secretary points out that, contrary to the commenter's
assertion, there is no ``portion of the loan to which it (the
institution) may be entitled under its refund policy'' when a student
withdraws.
The institution, after returning the requested loan funds to the
lender, would simply calculate the refund without consideration of the
cancelled loan, much as it would do if the loan had never been
disbursed or the student refused to accept a late disbursement. Any
time a refund calculation establishes unpaid charges to which the
institution is entitled that have not been paid by another source, the
institution may bill the student for the unpaid amount. The Secretary
assumes that the student who requested the loan cancellation understood
the implications of that request and its impact on remaining debt to
the institution.
Changes: None.
Comments: A commenter writing on behalf of student legal services
organizations supported the cancellation provision but suggested that
the Secretary include language in the regulations that allows a student
or parent to refuse a loan or loan disbursement in whole or in part. A
significant number of the commenters agreed with the Secretary that
student and parent borrowers should be informed of their rights to
cancel a loan or loan disbursement, but disagreed with the proposed
timeframe within which the institution would be required to notify the
student or parent borrower. The commenters said the timeframe was too
short, and in many cases would require a completely separate notice to
be sent out by the institution. Most commenters suggested that the
timeframe be extended from the 20-day window between 10 days before the
disbursement and 10 days after the disbursement, to a timeframe that
allows for the notice to be easily included in monthly statements
already prepared and issued by the institutions. These commenters cited
increased administrative burden and the cost of systemic changes for an
additional notice, which would ultimately be passed on to the students,
as reasons to extend the timeframe. Other commenters contended that
such a narrow timeframe in combination with the few number of students
or parents who would take advantage of the cancellation provision would
increase administrative burden on the institutions without providing
much, if any, additional benefit.
A few commenters were concerned that due to the proposed changes in
the definition of disbursement under Sec. 668.164, the 10-day timeframe
on either side of the disbursement would be difficult to determine. One
commenter suggested that the beginning date of the notification
timeframe be pushed back at least to 15 days prior to the first day of
a payment period to allow a cancellation to be made before the
institution might need to process a refund. At least one commenter
suggested that there be no required timeframe; that the institution be
provided flexibility in determining when to notify students and
parents.
Discussion: The Secretary agrees with the commenter that a borrower
should be allowed to cancel all or a portion of his or her loan. With
regard to the number of thoughtful comments provided concerning the
timeframes proposed for the notification by the institution to the
borrower, the Secretary is persuaded that a change is necessary.
Therefore, the Secretary is expanding the timeframe from a 20-day
window to a 60-day window. Institutions will be required to provide the
notice to the borrower by the institution no earlier than 30 days
before the disbursement of the loan funds and no later than 30 days
after the disbursement. The Secretary believes that this 60-day window
will provide sufficient flexibility for institutions to utilize
existing systems and processes to provide information to borrowers that
a loan debt has been, or is about to be incurred and of the right of
the borrower to request that the debt be cancelled.
However, in order to ensure that the borrower has sufficient time
to exercise his or her cancellation rights, the Secretary is also
modifying the proposed timeframe placed on the borrower with regard to
how quickly he or she must notify the institution of the request to
cancel all or a part of the loan. The institution must honor such a
request from the borrower if it is received by the institution no later
than 14 calendar days from the day the institution sent the notice to
the borrower, or the first day of classes for the student, whichever is
later. This extension up to the first day of classes will allow the
borrower who receives the required notice 30 or 40 days before the
beginning of classes (early disbursement allowed 10 days before the
first day of classes of a payment period) the opportunity to consider
other funding options and request the cancellation before incurring the
obligation.
The Secretary notes that an institution is free to agree to a
borrower's request
[[Page 60594]]
for loan cancellation after the timeframe established by this rule.
Changes: The notice requirements in Sec. 668.165(a)(2)(ii) are
amended to allow a student or parent to cancel all or a portion of a
loan or loan disbursement. The timeframe under Sec. 668.165(a)(3)(i) is
amended to allow the institution to provide the required notice no
earlier than 30 days before, and no later than 30 days after, the date
the institution has disbursed, or will disburse loan funds. The
timeframe during which a student or parent may request a loan
cancellation is amended to provide that the student or parent has a
minimum of 14 days from the date the notice was sent by the institution
to request a cancellation. If the notice is sent out prior to the first
day of classes the student or parent has 14 days or until the first day
of classes to request a cancellation, whichever is longer.
Comments: A few commenters wondered how this cancellation provision
would affect the rule that borrowers can have a loan cancelled within
120 days of the disbursement if the net amount (minus the guarantee and
insurance fees) of the loan is returned, and prepaid after 120 days if
the gross amount of the loan is returned (including the guarantee and
insurance fees).
A few commenters indicated that if the notice in Sec. 668.165(a)(2)
is provided electronically the institution should not be required to
request receipt of that notice. One commenter expressed doubt that such
an electronic notification could realistically be provided for the
majority of students and parents. The commenter contended that because
this opportunity could not be utilized by many institutions, that the
overall result is increased administrative burden on institutions. The
commenter urged the Secretary to retain the current notification
requirements.
Discussion: The 14-day cancellation provision does not eliminate or
change the provisions that allow a borrower to return the net amount of
an FFEL or Direct Loan program loan within 120 days or the gross amount
of the loan after 120 days.
The Secretary does not believe that because some institutions do
not have the capability to notify students or parents electronically
that other institutions should be prohibited from utilizing electronic
means of notification. In addition, the Secretary continues to believe
that a ``return receipt'' for notices sent electronically is necessary
in order to ensure that the electronic notification has been properly
transmitted.
Changes: None.
Comments: A commenter writing on behalf of student legal services
organizations suggested that the 14-day timeframe allowed for the
borrower to request cancellation of the loan be from the date the
notice is received by the student or parent rather than on the date the
notice was sent by the institution. The commenter also suggested that
the Secretary expand the timeframe within which a student or parent has
to request a loan or loan disbursement cancellation to at least 60 days
from receipt of the notice. The commenter noted that this period would
parallel the Federal Fair Credit Billing Act, (15 U.S.C. 1666), which
is part of the Consumer Protection Credit Act and provides credit card
consumers with 60 days from the receipt of a credit card bill to
dispute a charge. Under that Act the creditor must acknowledge a
complaint within 30 days, and within 90 days either correct the error
or explain why it cannot be corrected. The commenter argued that giving
the borrower adequate time from receipt of the notice within which to
ascertain whether or not a loan is truly necessary will foster sound
borrowing practices and ultimately reduce loan defaults.
Discussion: The Secretary chose to make the timeframe run from the
date of the institution's notice rather than from the date the student
received the notice to avoid having the institution incur the cost and
burden of sending such a notice return receipt requested. The Secretary
continues to believe that the cost and burden is to great and the
benefit to small to change that procedure. On the other hand, when the
Secretary was considering these timeframes, the Secretary allowed for
the relatively long timeframe of 14 days to take into account that the
time period ran from the date of the notice rather than the date the
borrower received the notice. In the event of a dispute, the
institution would bear the burden of proving when it sent the
questioned notice.
With regard to the reference to consumer credit, the Secretary
points out that, unlike the consumer credit example cited, the purpose
of this notice and cancellation provision is to acknowledge the fact
that student loan debt is incurred, not when the promissory note is
signed, but when the institution disburses the loan. These proposals
are not designed to allow the student to ``test'' the product and then
to make a determination that it is faulty and request that the debt be
cancelled.
Changes: None.
Comments: Commenters writing on behalf of financial aid
administrators believed that the institution should be able to let the
borrower know of the possible impact of cancellation at the time the
institution notifies the student or parent of his or her right to
cancel a loan or loan disbursement.
Discussion: The Secretary agrees and encourages institutions to
keep their students well-informed. However, the Secretary reminds
institutions that they must not, in their attempt to provide this
information, imply that the loan or loan disbursement cannot be
cancelled if the cancellation leaves a balance owed to the school.
Changes: None.
Student and Parent Authorizations (Sec. 668.165(b)(1))
Comments: One commenter, writing on behalf of student legal aid
services organization, asked for clarification of whether a student
must have a title IV, HEA credit balance in order to take advantage of
the authorization provisions in Sec. 668.165(b)(1)(iii). The commenter
also disagreed with the proposal to remove the current restriction
prohibiting an institution that fails to meet the financial
responsibility requirements from holding a student's or parent's title
IV, HEA credit balance funds, and the proposal to remove the language
stating that an institution, in holding title IV, HEA program funds, is
acting as a fiduciary for the benefit of the student or parent. The
commenter suggested that a paragraph be added to the regulations that
prohibits institutions placed on reimbursement from obtaining student
or parent authorizations, and further suggested that the Secretary
retains the authority to prohibit institutions from holding student's
or parent's title IV, HEA funds upon a determination of demonstrated
weakness in administrative or financial capability.
Discussion: In response to the commenter's question, the Secretary
wishes to make clear that a student or parent must have a title IV, HEA
credit balance under Sec. 668.164(e) in order to take advantage of the
authorization provisions under Sec. 668.165(b)(1)(iii).
The Secretary agrees in part with the commenter who suggested that
the Secretary prohibit an institution on the reimbursement payment
method from obtaining authorizations to hold a student's or parent's
title IV, HEA program funds. The Secretary believes that a fixed rule
may not be warranted under all circumstances. If the Secretary
determines that there is demonstrated weakness in administrative or
financial capability at an institution, the Secretary will take
appropriate administrative action against the
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institution which may include preventing it from obtaining student and
parent authorizations under Sec. 668.165.
With regard to the request by the commenter that the regulations in
this section include a statement stating that the institution acts as a
fiduciary for the benefit of the student or parent, the commenter is
referred to Sec. 668.161(b).
Changes: Section 668.165(b)(1)(iii) has been amended to give the
Secretary discretion to prohibit institutions that have been placed on
the reimbursement payment method by the Secretary from holding student
funds in excess of allowable charges.
Comments: A few commenters questioned the necessity of a written
authorization from the student, or parent in the case of PLUS funds.
These commenters also questioned the necessity of obtaining written
authorizations to use title IV, HEA program funds to pay prior-year
charges, charges not included in the cost of attendance, and even
future charges. One commenter contended that students and parents
should be allowed to authorize the use of title IV, HEA credit balance
funds for future charges because the funds, especially loan funds, are
the student's or parent's which they must repay. The commenter argued
that there is no logic to the practice of letting credit balance funds
be used for prior-year charges but not for future-year costs. One
commenter argued that students already sign a statement saying they
will use aid for educational purposes. The same commenter questioned
why an institution would want to pay a student credit balance funds
when the student owes a debt to the institution from a previous year or
for other charges. The commenter contended that this requirement causes
more work for the institutions, confusion to students and parents, and
results in no positive benefits to anyone.
Discussion: The Secretary continues to believe that any student or
parent authorization under this section must be in writing. A student
or parent should have control over the title IV, HEA program funds he
or she receives for educational costs in excess of tuition and fees,
and the Secretary believes that demonstration of that control must be
documented. The Secretary notes that title IV, HEA program funds in
excess of current-year tuition and fee charges are the students' funds
and students are entitled to receive those funds within the specified
timeframe.
With regard to comments concerning the use of current year funds to
pay for prior-year charges or for future year charges, the HEA clearly
indicates that title IV, HEA program funds are awarded to students to
pay current year charges. In fact, the HEA requires that the student
sign a ``Statement of Educational Purpose'' that includes a promise
that any funds received will be used to meet educational expenses for
that year. However, in response to institutional comments about the
administrative problems of lingering prior-year charges on student
accounts, the Secretary has authorized a limited exception and permits
title IV, HEA program