FR Doc E8-24922[Federal Register: October 23, 2008 (Volume 73, Number 206)]
[Rules and Regulations]
[Page 63231-63259]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc08-15]
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Part II
Department of Education
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34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal Family Education Loan Program,
and William D. Ford Federal Direct Loan Program; Final Rule
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DEPARTMENT OF EDUCATION
34 CFR Parts 674, 682, and 685
RIN 1840-AC94
[Docket ID ED-2008-OPE-0009]
Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the Federal Perkins Loan (Perkins Loan)
Program, Federal Family Education Loan (FFEL) Program, and William D.
Ford Federal Direct Loan (Direct Loan) Program regulations to implement
provisions of the College Cost Reduction and Access Act of 2008 (CCRAA)
(Pub. L. 110-84), including the statutory provisions that establish the
Income-Based Repayment (IBR) plan and the Public Service Loan
Forgiveness Program.
DATES: Effective Date: These regulations are effective July 1, 2009.
Implementation date: The Secretary has determined, in accordance
with section 482(c)(2)(A) of the Higher Education Act of 1965, as
amended (HEA) (20 U.S.C. 1089(c)(2)(A)), that institutions, lenders,
guaranty agencies, and loan servicers that administer the Perkins Loan,
FFEL and Direct Loan programs, may, at their discretion, choose to
implement the new and amended provisions of Sec. Sec. 674.34, 682.210,
682.211, and 685.204 governing the military service and post-active
duty student deferments, including related forbearance provisions
contained in these final regulations on or after November 1, 2008. For
further information, see the section entitled Implementation Date of
These Regulations in the SUPPLEMENTARY INFORMATION section of this
preamble.
FOR FURTHER INFORMATION CONTACT: For information related to the IBR
plan, Pamela Moran or John Kolotos. Telephone: (202) 502-7732 or (202)
502-7762 or via the Internet at: Pamela.Moran@ed.gov or
John.Kolotos@ed.gov. For information related to the Public Service Loan
Forgiveness Program, Nikki Harris. Telephone: (202) 219-7050 or via the
Internet at: Nikki.Harris@ed.gov. For information related to the
economic hardship deferment, the military service deferment, or the
post-active duty student deferment, Vanessa Freeman. Telephone: (202)
502-7523 or via the Internet at: Vanessa Freeman@ed.gov. For
information related to not-for-profit loan holders, Pamela Moran.
Telephone: (202) 502-7732 or via the Internet at: Pamela.Moran@ed.gov.
If you use a telecommunications device for the deaf (TDD), call the
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Individuals with disabilities can obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in this section.
SUPPLEMENTARY INFORMATION: On July 1, 2008, the Secretary published a
notice of proposed rulemaking (NPRM) for the Perkins Loan, FFEL, and
Direct Loan Programs in the Federal Register (73 FR 37694).
In the preamble to the NPRM, the Secretary discussed on pages 37695
through 37697 the major regulations proposed in that document to
implement provisions of the CCRAA, including the following:
Amending Sec. Sec. 674.34 and 682.210, which govern
economic hardship deferments in the Perkins Loan and FFEL programs to
define the term ``family size'', clarify that the poverty guidelines
used in determining economic hardship are issued by the U.S. Department
of Health and Human Services (HHS), provide that the poverty guideline
used for a borrower who is not a resident of a State identified in the
poverty guidelines is the poverty guideline for the relevant family
size for the 48 contiguous States, and eliminate the economic hardship
deferment categories based on the 20/220 provisions.
Amending Sec. Sec. 674.34(i)(3), 682.210(u)(3), and
685.204(f)(1)(ii) to clarify that a borrower's eligibility for a post-
active duty student deferment terminates if the borrower returns to
enrolled student status on at least a half-time basis, and that a
borrower returning from active duty who is in a grace period is not
required to waive the grace period to use the 13-month post-active duty
student deferment.
Amending Sec. Sec. 674.34(i)(2)(i) and (ii),
682.210(u)(2)(i) and (ii), and 685.204(f)(2)(i) and (ii) to clarify
that, for purposes of the post-active duty student deferment, active
State duty for members of the National Guard includes both active State
duty under which a Governor activates members of the National Guard
under State statute or policy and the activities are paid for with
State funds, and active State duty under which a governor, with the
approval of the President or the U.S. Secretary of Defense, activates
members of the National Guard and the activities are paid for with
Federal funds.
Amending Sec. Sec. 674.34(i)(2)(iv), 682.210(u)(2)(iv),
and 685.204(f)(2)(iv) to specify that active duty for purposes of the
active duty deferment does not include a borrower who is serving full-
time in a permanent position with the National Guard, unless the
borrower is reassigned as part of a call-up to active duty service.
Amending Sec. Sec. 674.34(h)(7), 682.210(t)(9), and
685.204(e)(7) to authorize loan holders to grant a military service
deferment to an otherwise eligible borrower for an initial deferment
period not to exceed 12 months based on a request from either the
borrower or the borrower's representative.
Amending Sec. Sec. 674.34(i)(4), 682.210(u)(4), and
685.214(f)(4) to specify that if a borrower is eligible for both the
180-day military service deferment following the borrower's
demobilization, and the 13-month post-active duty student deferment,
the borrower's eligibility for these separate deferments runs
concurrently.
Amending Sec. 682.211(h) to require a FFEL loan holder to
grant a mandatory forbearance to a borrower who is called to active
State duty for more than 30 days and who does not qualify for a
military service deferment during the active State duty service period,
but who qualifies for the post-active duty student deferment.
Adding new Sec. Sec. 682.215(a) and 685.221(a) to
incorporate the statutory definition of the term partial financial
hardship, and define related terms including Adjusted Gross Income
(AGI), family size, poverty guideline, and eligible loan.
Adding new Sec. Sec. 682.215(b) and 685.221(b) to
incorporate the statutory formula for calculating a monthly payment
under the IBR plan, adjusting that payment when the borrower's loans
are held by more than one loan holder, and establishing minimum payment
amounts.
Adding new Sec. Sec. 682.215(b), 682.215(c), 685.221(b),
and 685.221(c), and amending Sec. 682.300(b) to incorporate the
statutory provisions requiring IBR payments to be applied first toward
interest due on the loan, next toward any fees, and then to the loan
principal, and to provide that if the borrower's payment is
insufficient to pay accrued interest, the Department pays (or on a
Direct Loan, does not charge) the accrued interest on an eligible
subsidized loan for a period of three consecutive years from the date
the borrower initially began repayment on each loan under the IBR plan.
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Adding new Sec. Sec. 682.215(d) and 685.221(d) to
establish the terms and repayment amounts for a borrower who no longer
has a partial financial hardship but wants to continue making income-
based payments under IBR, or for a borrower who wants to leave the IBR
plan entirely.
Adding new Sec. Sec. 682.215(e) and 685.221(e) to
establish the procedures a loan holder must follow to determine
annually whether a borrower has a partial financial hardship by
verifying the borrower's AGI and family size. If the borrower does not
provide family size information, the loan holder uses a family size of
one.
Adding new Sec. Sec. 682.215(f) and 685.221(f) to
establish the conditions that a borrower must satisfy to qualify for
loan forgiveness under IBR, establish how a loan holder determines
whether a borrower made qualifying payments, and provide that the
Department will repay or cancel the loan after 25 years if the borrower
makes qualifying payments and meets certain requirements.
Amending Sec. 682.302(a) to provide for a separate
calculation of the special allowance rate for the unpaid accrued
interest on a loan in repayment under the IBR plan.
Amending Sec. 685.209(c) to identify the periods
specified in section 455(e) of the HEA that count toward the 25-year
repayment requirement under the Income Contingent Repayment (ICR) plan,
and to provide that repayment periods will continue to count for
certain borrowers currently in ICR.
Amending Sec. 682.302(f) to incorporate statutory changes
to the definition of not-for-profit holder and to describe the
circumstances in which a State or non-profit entity is deemed to be
owned or controlled by a for-profit entity.
Adding a new Sec. 685.219(c) to incorporate the statutory
requirements that a borrower must satisfy to qualify for public service
loan forgiveness and provide that a borrower in an AmeriCorps position
may make qualifying payments by using his or her AmeriCorps education
award.
Adding a new Sec. 685.219(b) to define several terms
including employee, full-time, public interest law, and public service
organization, needed to implement the public service loan forgiveness
program.
Adding a new Sec. 685.219(d) and (e) to provide that the
Department will cancel any balance remaining on a loan for a borrower
who works in a qualifying public service job and who makes 120
qualifying payments while employed in such a job and requests loan
forgiveness on a form provided by the Department.
Amending Sec. Sec. 682.201 and 685.220 to provide that a
FFEL borrower may obtain a Direct Consolidation loan for the purpose of
using the public service loan forgiveness program.
There are no significant differences between the NPRM and these
final regulations resulting from public comments.
In addition to the changes necessary to implement provisions of the
CCRAA, these final regulations also incorporate certain changes made to
the HEA by the Higher Education Opportunity Act (HEOA) (Pub. L. 110-
315) enacted on August 14, 2008. These changes are:
Amending Sec. Sec. 682.215(a)(2) and 685.221(a)(2) to
exclude defaulted loans from the category of eligible loans for IBR
repayment and deleting the proposed amendments to Sec. Sec.
682.215(g)(7), 682.410(b)(5)(vi)(G), and (b)(9)(i)(D) that regulated a
guaranty agency's consideration of a defaulted loan for IBR and the
reimbursement to a guaranty agency on a defaulted loan that was
forgiven under IBR.
Amending the definition of Public Service Organization in
Sec. 682.219 for the purpose of the Public Service Loan Forgiveness
program to replace in paragraph (5)(i) the term ``public child care''
with the phrase ``early childhood education (including licensed or
regulated child care, Head Start, and State-funded pre-kindergarten)'';
and to add in paragraph (5)(i) a parenthetical statement after ``public
health'' that reads ``(including nurses, nurse practitioners, nurses in
a clinical setting and full-time professionals engaged in health care
practitioner occupations and health care support occupations as such
terms are defined by the Bureau of Labor Statistics).''
Amending the definition of Government employee in Sec.
682.219 for the purpose of the Public Service Loan Forgiveness program
to exclude members of the U.S. Congress.
Because these amendments merely implement statutory changes made to
the HEA by the HEOA, we do not discuss them in the Analysis of Comments
and Changes section.
Waiver of Proposed Rulemaking and Negotiated Rulemaking Regulations
Implementing the HEOA
Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the
Department is generally required to publish an NPRM and provide the
public with an opportunity to comment on proposed regulations prior to
issuing final regulations. In addition, all Department regulations for
programs authorized under title IV of the HEA are subject to the
negotiated rulemaking requirements of section 492 of the HEA. However,
the APA provides that an agency is not required to conduct notice-and-
comment rulemaking when the agency for good cause finds that notice and
comment are impracticable, unnecessary or contrary to the public
interest. Similarly, section 492 of the HEA provides that the Secretary
is not required to conduct negotiated rulemaking for title IV, HEA
program regulations if the Secretary determines that applying that
requirement is impracticable, unnecessary or contrary to the public
interest within the meaning of the APA.
Although the regulations implementing the HEOA are subject to the
APA's notice-and-comment and the HEA's negotiated rulemaking
requirements, the Secretary has determined that it is unnecessary to
conduct negotiated rulemaking or notice-and-comment rulemaking on the
limited regulatory changes. These changes simply amend the Department's
regulations to reflect statutory changes made by the HEOA that are
already effective. The Secretary does not have discretion as to whether
or how to implement these changes.
Implementation Date of These Regulations
Section 482(c) of the HEA requires that regulations affecting
programs under title IV of the HEA be published in final form by
November 1 prior to the start of the award year (July 1) to which they
apply. However, that section also permits the Secretary to designate
any regulation as one that an entity subject to the regulation may
choose to implement earlier and the conditions under which the entity
may implement the provisions early.
Consistent with the intent of this regulatory effort to strengthen
and improve the administration of the title IV, HEA programs, the
Secretary is using the authority granted her under section 482(c) of
the HEA to designate the new and amended provisions in Sec. Sec.
674.34, 682.210, 682.211, and 685.204 governing the military service
deferment and post-active duty student deferment, including related
forbearance provisions for early implementation at the discretion of
each institution, lender, guaranty agency, or servicer, as appropriate.
Analysis of Comments and Changes
Except as noted above in regard to the limited regulations
implementing provisions of the HEOA, the regulations in this document
were developed
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through the use of negotiated rulemaking. Section 492 of the HEA
requires that, before publishing any proposed regulations to implement
programs under title IV of the HEA, the Secretary must obtain public
involvement in the development of the proposed regulations. After
obtaining advice and recommendations, the Secretary must conduct a
negotiated rulemaking process to develop the proposed regulations. All
proposed regulations must conform to agreements resulting from the
negotiated rulemaking process unless the Secretary reopens that process
or explains any departure from the agreements to the negotiated
rulemaking participants.
These regulations were published in proposed form on July 1, 2008,
in conformance with the consensus of the negotiated rulemaking
committee. Under the committee's protocols, consensus meant that no
member of the committee dissented from the agreed-upon language. The
Secretary invited comments on the proposed regulations by August 15.
More than 1700 parties submitted comments, many of which were
substantially similar. An analysis of the comments and the changes in
the regulations since publication of the NPRM follows.
We group major issues according to subject, with appropriate
sections of the regulations referenced in parentheses. We discuss other
substantive issues under the sections of the regulations to which they
pertain. Generally, we do not address minor, non-substantive changes.
Economic Hardship Deferment (Sec. Sec. 674.34 and 682.210)
Comment: Many commenters objected to the proposed elimination of
what has been referred to as the ``20/220'' debt-to-income eligibility
criterion for an economic hardship deferment in the title IV student
loan programs. Medical and dental school students and residents,
medical and dental school administrators, and major medical and dental
associations voiced particular concern about the impact of the
elimination of the 20/220 debt-to-income test on medical and dental
interns and residents with high debt burdens and limited income during
several years of required additional training that coincide with the
borrower's first few years of loan repayment. The commenters believed
that the impact of eliminating this criterion would be particularly
acute for those borrowers pursuing their additional training in urban
areas with high living costs. The commenters urged the Secretary to use
the discretion provided to her under section 435(o)(1)(B) of the HEA to
establish additional criteria for economic hardship deferments to
either reinstate the 20/220 test permanently or to provide an
equivalent loan deferment funding mechanism to help these types of
borrowers. The commenters contended that doing so would enable these
borrowers to continue to have the option to postpone loan payments. The
commenters noted that the only other option for these borrowers would
be to request a period of forbearance during which interest would be
capitalized during this crucial period of training.
Several commenters argued that the loss of this repayment option
will deter new physicians from pursuing primary care and research
specialties, pursuing a career with the public health service, or
practicing medicine in underserved areas, in lieu of more lucrative
specialties.
A commenter who represents participating Federal Perkins Loan
schools and loan servicers argued that the rationale for eliminating
the 20/220 economic hardship category in the FFEL and Direct Loan
Programs (i.e., the availability of the new IBR plan and program costs)
does not apply to the Federal Perkins Loan program. The commenter
believed that there are no Federal costs associated with deferments
granted in the Federal Perkins Loan program and noted that IBR is not
available to Perkins Loan borrowers except through loan consolidation
in the FFEL or Direct Loan Programs, which also results in the loss to
the borrower of several Federal Perkins loan benefits. Consequently,
the commenter asked the Department to retain the 20/220 debt-to-income
criterion for an economic hardship deferment in the Federal Perkins
Loan Program regulations.
A few commenters recommended that the definition of ``family size''
for the purpose of the economic hardship deferment be revised to
specify the period of time a borrower must provide support to ``other
individuals'' in order to include those individuals in the borrower's
family size. To ensure consistent application of the definition of
``family size'' in the regulations for IBR, as the Secretary indicates
she intended, the commenters recommended that the prescribed period be
specified to be ``the year the borrower certifies family size.''
Additionally, the same commenters recommended that the definition of
``family size'' be further modified for both IBR and economic hardship
deferment purposes to include the borrower's unborn children who will
be born during the year in which the borrower will be certifying family
size and for whom the borrower will be providing more than half their
support to ensure consistency with the definition of ``household size''
used in the Free Application for Federal Student Aid (FAFSA).
An organization that includes FFEL Program lenders and loan
servicers noted that the July 1, 2009, effective date for the
elimination of the 20/220 debt-to-income economic hardship criterion
did not appear to permit a lender to grant a deferment on or after July
1, 2009, to an eligible borrower for a retroactive deferment period
that began prior to July 1, 2009, as would normally be the case for
deferments granted under the FFEL Program. The commenter requested that
the Department clarify the implementation of the effective date to
allow a lender to grant such a deferment to an eligible borrower after
July 1, 2009, for up to a 12-month period for a deferment period that
starts prior to that date.
Discussion: The Department did not eliminate the 20/220 rule in the
final regulations published on November 1, 2007, (72 FR 61959) so that
borrowers could temporarily continue to qualify for an economic
hardship deferment on that basis and to ease the transition for
affected borrowers until the newly created IBR plan becomes available
on July 1, 2009. Congress eliminated the 20/220 rule from the HEA and
effectively replaced it with the new IBR plan, which will provide
assistance to more borrowers with high levels of debt over a much
longer period of limited earnings than the economic hardship deferment.
The IBR plan does not provide for postponing all borrower payments
for a period of time like a deferment. It provides for reduced payments
when a borrower can demonstrate partial financial hardship. Depending
upon the borrower's circumstances, IBR payments may be less than
accrued interest and some borrowers may not be required to make a
payment. A borrower has a partial financial hardship if the annual
amount due on all of his or her eligible loans, as calculated under a
standard repayment plan based on a 10-year repayment period, is more
than 15 percent of the difference between the borrower's AGI and 150
percent of the poverty line income for the borrower's family size. If
the borrower's monthly payment amount is not sufficient to cover the
accruing interest on the borrower's subsidized Stafford Loans (or on
the portion of the borrower's Consolidation Loan that represents
subsidized Stafford Loans), the
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Secretary pays the unpaid accrued interest for a period of up to three
consecutive years from the point the borrower entered the IBR plan on
the loan. Any unpaid accruing interest on the same borrower's
unsubsidized Stafford Loans would be capitalized less frequently under
IBR than it otherwise would be under either an economic hardship
deferment or during a forbearance period. The Department believes that
this plan will be advantageous to many borrowers, including borrowers
who would have been eligible for the economic hardship deferment under
the 20/220 criterion.
The Department disagrees with the commenter's recommendation that
the 20/220 economic hardship eligibility criterion be retained in the
Federal Perkins Loan Program. The commenter is correct that IBR is not
available to Federal Perkins Loan borrowers unless they consolidate
their Perkins loans into a FFEL or Direct Consolidation Loan and that a
Perkins Loan borrower loses the various employment-related Perkins Loan
cancellation opportunities and other benefits by consolidating. Perkins
Loan holders, however, may provide low-income borrowers with relief
from high payments under Sec. 674.33(c)(2) by extending the borrower's
repayment period for up to an additional 10 years for low-income
individuals, which will, in most cases, result in reduced monthly
payment amounts.
The Department disagrees with the contention that there would be no
Federal costs in keeping the 20/220 provision for the Federal Perkins
Loan Program. The Perkins loan fund is a Federal asset and, during
deferment periods, the fund loses both borrower principal payments and
interest that would otherwise accrue and be paid by the borrower.
The Department also does not believe it is appropriate to continue
the 20/220 economic hardship criterion only for borrowers in the
Perkins Loan Program, the title IV loan program with the lowest average
indebtedness and the most generous repayment terms. Finally, the
Department believes that since Perkins Loan borrowers generally also
have FFEL or Direct Loans, the regulations that govern the economic
hardship deferment should be consistent across all the title IV student
loan programs.
With regard to the comments on the definition of ``family size,''
we disagree that for purposes of determining family size the period a
borrower must provide support to other individuals is the same period
as that specified for purposes of IBR. Borrowers requesting a deferment
are certifying to their eligibility for the period for which they are
requesting the deferment, and a borrower's family size is relevant for
that period. Under the IBR plan, borrowers certify to their family size
so that the loan holder can determine a borrower's eligibility for the
year the borrower elects the plan, and for each subsequent year that
the borrower remains on the plan. The period for which a borrower may
request a deferment will often differ from the initial and each
subsequent year a borrower is repaying under the IBR plan. However, we
agree that the time period for which the borrower certifies family size
for purposes of the IBR plan should be clearer in the regulations. We
also agree that an unborn child may be included if that child will be
born during the year the borrower certifies family size or for the
period the borrower requests an economic hardship deferment.
The Department agrees that a loan holder may grant an economic
hardship deferment under the 20/220 criterion to an eligible borrower
who requests a deferment after July 1, 2009, for a deferment period
that began prior to July 1, 2009, and is for a period not to exceed 12
months from that pre-July 1, 2009, start date. No additional economic
hardship deferment periods may be granted based on that criterion to
the borrower at the conclusion of that deferment period, or for any
deferment request on or after July 1, 2009, for a deferment period that
begins on or after that date.
Changes: We have added the phrase ``at the time the borrower
certifies family size'' to the definition of ``family size'' in
Sec. Sec. 682.215(a)(3) and 685.221(a)(3) for purposes of the IBR
plan. We have also amended the definition of family size for purposes
of the economic hardship deferment and the IBR plan in Sec. Sec.
674.34(e)(8)(ii), 682.210(s)(6)(ix), 682.215(a)(3), and 685.221(a)(3)
to clarify that an unborn child is included if that child will be born
in the year the borrower certifies family size.
Military Service Deferment and Post-Active Duty Student Deferment
(Sec. Sec. 674.34, 682.210, 682.211, and 682.204)
Comment: One commenter asked that we clarify that all borrowers who
return to school on at least a half-time basis after being demobilized
from active duty military service, lose the ability to defer payments
via the post-active duty student deferment. The commenter believed that
the reference in the proposed regulations to ``the conclusion of the
borrower's active duty military service and any applicable grace
period'' could create a loophole for borrowers who re-enroll after
their date of demobilization but prior to the end of their grace
period. The commenter believes that this language would unintentionally
allow ineligible borrowers to receive deferments.
Another commenter asked the Department to clarify that the
mandatory forbearance described in Sec. 682.211(h)(2)(iii) does not
cover National Guard members who are called to Federal active duty if
the active duty does not fall under a war, a military operation as
defined in 10 U.S.C. 101(a)(13), or a national emergency declared by
the President due to a terrorist attack. Another commenter also
recommended that the same mandatory forbearance provision be amended to
clarify that the forbearance would begin after the borrower ceases at
least half-time enrollment.
Discussion: The reference in the proposed regulations governing the
post-active duty student deferment to the expiration of the borrower's
applicable grace period was not intended to provide a borrower who
returns to school after being demobilized, but before using the full
grace period on a loan, with an opportunity to retain unlimited
eligibility for the post-active duty student deferment after completing
school or dropping to less than half-time enrollment, which could be
many years later. Under these final regulations, all borrowers who
return to at least half-time enrollment following demobilization will
lose eligibility for the deferment. Eligible borrowers who do not
return to school after being demobilized, however, will receive their
full grace period on a loan before the 13-month post-active duty
student deferment period would begin.
With regard to the comment on clarifying the applicability of
mandatory forbearance, we note that the provision in Sec.
682.211(h)(2)(iii) mentioned by the commenter only applies to members
of the National Guard who qualify for a post-active duty student
deferment. A member of the National Guard cannot qualify for a post-
active duty student deferment for Federal duty. A member of the
National Guard may only qualify for the post-active duty student
deferment for active State duty. The active State duty may be paid for
with State funds, as provided in Sec. 682.210(u)(2)(i), or with
Federal funds, as provided in Sec. 682.210(u)(2)(ii). But, in both
cases, the member of the National Guard is on active State duty, not on
Federal duty.
A member of the National Guard on Federal duty is on ``full-time
National Guard duty'', as that term is defined in
[[Page 63236]]
10 U.S.C. 101(d)(5). The post-active duty student deferment only
applies to borrowers on active duty as defined in 10 U.S.C. 101(d)(1).
The definition of ``active duty'' in section 101(d)(1) explicitly
excludes ``full-time National Guard duty''. Therefore, a borrower on
``full-time National Guard duty'' may not qualify for a post-active
duty student deferment, or for the mandatory forbearance specified in
Sec. 682.211(h)(2)(iii).
A borrower on ``full-time National Guard duty'' may qualify for a
military service deferment, if the borrower meets the other eligibility
criteria for the military service deferment. A forbearance covering the
period of active duty military service is not necessary for a borrower
who qualifies for a military service deferment.
We agree with the commenter that the mandatory forbearance period
would begin only after the borrower ceases at least half-time
enrollment.
Changes: Section 682.211(h)(2)(iii)(B) has been amended to specify
that the mandatory forbearance period for a FFEL loan in repayment
begins on the day after the borrower ceases enrollment on at least a
half-time basis.
Income-Based Repayment (IBR) Plan
General Comments
Comment: A couple of commenters recommended that a borrower's total
student loan debt, including private education loans and the Federal
student loan debt held by all the borrower's loan holders, be
considered when calculating the borrower's maximum payment amount under
the IBR plan. Another commenter asked that the Department provide
reduced interest rates, or forgiveness of a portion of the loan
principal, during periods of financial hardship when a borrower is
making payments. This commenter also recommended that lenders use a
standardized format to explain the determination of the payment amount
under IBR to the borrower, so that both the calculation and the source
of information can be verified.
One commenter recommended that we include illustrations that
demonstrate a borrower's successful compliance or technical
noncompliance with the IBR requirements in the final regulations.
A few commenters noted that a lender may use alternative
documentation to verify the borrower's income when the borrower's AGI
is not available, or the loan holder suspects that the AGI does not
accurately reflect the borrower's current income. These commenters
recommended that the borrower, as well as the lender, have the option
to provide alternative documentation in place of the AGI. Another
commenter recommended that we not use AGI at all, but rely on current
year income instead.
Another commenter noted that the IRS disclosure form that will be
used to determine a borrower's AGI permits the IRS to provide AGI and
``other'' tax information to the lender. This commenter recommended
that ``other'' be removed from the regulations, so that extraneous tax
information is not provided to lenders.
Discussion: The HEA provisions governing IBR do not authorize the
use of non-Federal education debt in determining whether a borrower has
a partial financial hardship or in calculating IBR payment amounts. Nor
does the law provide for reduced interest rates for borrowers in IBR,
or for loan forgiveness before the borrower has made 25 years of
payments. The Secretary does not have the authority to make these
changes to the IBR plan. However, as specified in Sec.
682.215(b)(1)(i), loan holders must take into account a borrower's
eligible Federal student loans held by all of the borrower's loan
holders when determining monthly payment amounts.
The Department thanks the commenter for the recommendation that
lenders use a standardized format to provide IBR payment amount
information to a borrower. This is an operational issue and the
Department will consider the commenter's recommendation when developing
operational guidance to implement the IBR plan.
The Department does not generally include illustrations in its
regulations, but will consider providing examples and illustrations, as
necessary, in other operational guidance, training materials, and
consumer information developed to implement IBR.
The IBR provisions of the HEA require the use of the borrower's AGI
to determine whether a borrower has a partial financial hardship. The
Department believes that using AGI from the borrower's most recent tax
return is the most accurate method to document and verify the
borrower's annual income for the purpose of calculating IBR payment
amounts. However, we recognize that, in some cases a tax return AGI
will not be available, or will not accurately reflect the borrower's
current financial circumstances. Therefore, the regulations allow a
loan holder to use alternative documentation of the borrower's income
under those circumstances. It is up to the loan holder to decide if it
is appropriate to use alternative documentation. However, a borrower
may alert the loan holder to any changed financial circumstances that
may support the use of alternate documentation.
The consent form the borrower signs is an IRS form, not a
Department of Education form. The IRS consent form is used for many
purposes unrelated to the IBR plan. The ``other'' tax information
referenced in the regulations includes any other tax information
covered by the standard IRS form. Tax information covered by the
consent form but not needed for IBR determinations would not need to be
tracked or captured in any way by the loan holder.
Changes: None.
Electing IBR
Comment: Several commenters opined that, under the proposed
regulations, low-income borrowers who have partially paid the principal
on their loans and have less than 10 years remaining to repay their
loans would not qualify for lower payments under the IBR plan even if
the borrowers' loan payments were high. The commenters argued that
these borrowers would not be considered to have partial financial
hardships based on a 10-year repayment of their current loan balance.
The commenters recommended that the regulations be changed to use the
borrowers' current payments to determine if the borrowers would be
eligible for lower IBR payments. They contend that this would avoid
penalizing borrowers who made payments on their loans, but who might
benefit from the IBR plan.
Discussion: The commenters misinterpreted the proposed regulations,
which reflect the statutory requirement by providing that a borrower
may elect the IBR plan only if the borrower has a partial financial
hardship. In determining whether a borrower has a partial financial
hardship, the loan holder compares two amounts: (1) The annual amount a
borrower would pay, at the time the borrower initially entered
repayment, on the total outstanding balance of his or her loans, based
on a standard repayment over a 10-year repayment period; and (2) the
annual amount the borrower would pay under the income-based provisions.
The commenters' belief that the borrower's current loan balance would
be used as the first part of this comparison is not accurate. Rather,
the first part of the comparison uses the annual amount determined as
of the date the borrower entered
[[Page 63237]]
repayment, without regard to the borrower's current payments.
Changes: None.
Comment: A group of commenters noted that because the HEOA amended
the HEA with respect to the eligibility of defaulted borrowers for the
IBR plan, the Department should revise the regulations to reflect that
change and clarify that borrowers who are in default are not eligible
for the IBR plan for their defaulted loans.
Discussion: The Department agrees that under the HEA, as amended by
the HEOA, a defaulted borrower is not entitled to elect IBR as a
repayment plan. Upon default, a loan is due and payable in full by the
borrower and the borrower no longer has the option to choose among the
pre-default repayment plans. Under section 422(j) of the HEA, as
amended by the HEOA, the Secretary has discretion to require a borrower
of a defaulted FFEL loan to repay the loan under the IBR plan after it
is assigned to the Department by a guaranty agency, and to require
borrowers of other defaulted FFEL and Direct Loans held by the
Department to also pay under the IBR plan.
Changes: Section 682.215(a)(2) has been amended to exclude
defaulted loans from the category of eligible loans for IBR repayment.
Proposed Sec. Sec. 682.215(g)(7) and 682.410(b)(5)(vi)(G) and
(b)(9)(i)(D), which would have regulated a guaranty agency's
consideration of a defaulted loan for IBR and reimbursement to a
guaranty agency on a defaulted loan that was forgiven under IBR have
been removed.
IBR Payment Amounts
Comment: Many commenters argued that the proposed regulations for
the IBR plan would disadvantage married borrowers in cases where the
borrower and his or her spouse both have outstanding loans, file a
joint Federal tax return, and both qualify for IBR. In these cases,
married borrowers could pay up to double the monthly loan payment of
two unmarried borrowers in a similar financial situation. Each of the
two married borrowers could be required to make payments representing
up to 30 percent of discretionary income (the amount of a borrower's
income that exceeds 150 percent of the poverty guideline applicable to
the borrower's family size) whereas the HEA limits payments under the
IBR plan to 15 percent of discretionary income. The commenters
contended that this approach amounts to a ``double-counting penalty''
because the proposed regulations assumed that each spouse has access to
the couple's total discretionary income, without considering that the
other spouse is also making loan payments from the same discretionary
income. To avoid this penalty for married borrowers, the commenters
suggested that we consider both spouses' loan debt (instead of just the
borrower's loan debt) in determining eligibility for the IBR plan.
Discussion: This issue was raised during the negotiated rulemaking
sessions to develop the proposed regulations and was discussed in the
preamble to the NPRM (73 FR 37698-37699). As the Department noted in
that discussion, section 493C(a) of the HEA provides that only the
borrower's loan debt is considered when determining whether the
borrower has a partial financial hardship. Moreover, section 493C(d) of
the HEA specifically provides for considering the individual AGI of a
married borrower only when the borrower and his or her spouse file
separate Federal tax returns. Thus, the policy advocated by these
commenters would not be consistent with the HEA.
Changes: None.
Comment: A group of commenters asked the Department to confirm in
the preamble to the final regulations that lenders may use the
Department's National Student Loan Data System (NSLDS) to determine the
number and amount of loans a borrower has that are eligible to be
included in the IBR plan. The commenters said that a lender would need
access to NSLDS because a borrower may choose which eligible loans he
or she wants to include under the IBR plan, and a lender needs to know
how much the borrower owes to other lenders to calculate the payment
amount under the IBR plan.
Discussion: The Department agrees that lenders may use NSLDS for
this purpose.
Changes: None.
Comment: Several commenters indicated that the IBR regulations for
monthly payments of $0.00 and $10.00 were clear in the proposed
regulations except when the borrower's eligible loans are held by
multiple lenders. The commenters recommended that when there are
multiple lenders, the application of the IBR regulations for monthly
payments of $0.00 and $10.00 should apply at the lender level rather
than at the borrower level.
Discussion: We agree.
Changes: Sections 682.215(b)(1)(ii) and (iii) and 685.221(b)(2)(ii)
and (iii) have been revised to provide that the $0.00 and $10.00
monthly payment regulations also apply when the borrower has multiple
loan holders.
Comment: Several commenters asserted that the NPRM did not clearly
state when the three-year period during which the Secretary pays a
borrower's unpaid accrued interest under the IBR plan would begin. The
proposed regulations stated that this period would begin on ``the date
the borrower initially began repayment on each loan under the income-
based repayment plan''. The commenters recommended that the regulations
specify that this period begins with the established payment period
start date on the loan. The commenters also stated that it was unclear
under the proposed regulations whether the amount of the subsidy
payment on behalf of the borrower was based on the borrower's monthly
scheduled payment amount or the borrower's actual payment amount, and
recommended that the subsidy payment be based on the borrower's actual
payment. In addition, several commenters recommended that the
regulations clarify that the 3-year interest subsidy period excludes
any period during which the borrower receives an economic hardship
deferment.
Discussion: The Department agrees that the ``established payment
period start date'' is the appropriate date for beginning the three-
year period during which the Secretary pays interest on the borrower's
behalf. The Department also agrees that the regulations should reflect
the provision in section 493C(b)(3) of the HEA that excludes periods of
economic hardship deferment from the 3-year subsidy period. The
Secretary disagrees, however, that the subsidy payment amount should be
based on the actual payment of the borrower rather than the borrower's
monthly scheduled payment amount. A borrower's scheduled monthly
payment amount, regardless of whether it covers accrued interest, is
the borrower's payment obligation. During the 3-year period, the
Department's obligation under the law is to pay only the amount of
unpaid accrued interest that is not the borrower's obligation to pay
during this period.
Changes: Sections 682.215(b)(4) and 682.300(b)(1)(iv) have been
amended to clarify that the 3-year period during which the Secretary
will pay interest for a borrower under the IBR plan begins on the
borrower's established repayment period start date and excludes any
period during which the borrower receives an economic hardship
deferment. Similar changes have also been made to Sec. 685.221(b)(2)
for the Direct Loan Program.
Comment: Several commenters noted that there are three types of
repayment amounts calculated under the IBR plan. The first repayment
amount is calculated to determine whether a
[[Page 63238]]
borrower has a partial financial hardship and is the annual payment
amount calculated for a 10-year repayment period under Sec.
682.209(a)(6)(vi) of the FFEL Program regulations and is based on the
loan balance outstanding when the borrower initially entered repayment
on the loan. The second calculated payment amount is the maximum
monthly payment amount calculated when a borrower no longer has a
partial financial hardship or no longer wishes to make IBR based
payment amounts but stays within the IBR plan, and is based on a 10-
year repayment period using the loan balance outstanding when the
borrower began repayment on the loan under the IBR plan. The third
payment amount is calculated when the borrower elects to leave the IBR
plan entirely and is calculated, for a Stafford Loan, on the time
remaining on a 10-year repayment period using the borrower's
outstanding balance on the loan when the borrower discontinued paying
under the IBR plan, and for a Consolidation Loan, on the remaining
repayment period using the borrower's outstanding balance on the loan
and on other student loans that were outstanding when the borrower
discontinued paying under the IBR plan. During the negotiated
rulemaking process, the non-Federal negotiators from the FFEL industry
used the terms standard-standard, standard-permanent, and standard-
expedited to designate these three calculated amounts and the
commenters recommended that the Department incorporate these terms into
the regulations for ease of understanding.
Discussion: The Department thanks the commenters for suggesting
these terms. However, these terms are not used in the HEA and the
Department does not believe that they should be used in the program
regulations. These terms may be used for illustrative and training
purposes in nonregulatory guidance.
Changes: None.
Comment: Several commenters recommended that we include preamble
language to clarify that the $50 minimum payment rule that generally
applies in the FFEL Program would apply to the monthly payment
calculated when a borrower no longer has a partial financial hardship.
These commenters also believed that the proposed regulations regarding
the maximum monthly payment amount could be interpreted to give the
borrower the discretion to make a lower payment. They recommended that
we clarify the regulations to specify that the loan holder, not the
borrower, determines this payment amount.
Discussion: We agree that the minimum monthly payment of $50
applies when the borrower no longer has a partial financial hardship.
We also agree that the maximum monthly repayment amount is an amount
determined by the loan holder, not by the borrower, based on a FFEL
standard repayment plan with a 10-year repayment period.
Changes: Section 682.215(d)(1)(i) has been revised to clarify that
the loan holder determines the monthly payment amount.
Comment: Several commenters recommended that the regulations in
proposed Sec. 682.215(c)(3) that require a loan holder to apply any
prepayment amount or any amount that exceeds the monthly payment amount
consistent with the requirements of Sec. 682.209(b)(2)(ii) and which
would advance the borrower's payment due date under certain
circumstances, should not apply when a borrower's monthly payment
amount is $0.00.
Discussion: We agree that there is no need to advance the next
monthly due date under 34 CFR Sec. 682.215(c)(3) when a borrower sends
in a prepayment at a time when the borrower's monthly payment amount is
$0.00. The prepayment amount should be applied in the order specified
in Sec. 682.215(c)(1): interest, collection costs, late charges, and
loan principal.
Changes: Section 682.215(c)(3) has been revised to clarify that the
requirement to advance a payment due date applies only when the
prepayment amount equals or exceeds the monthly payment amount of
$10.00 or more. We also have added a new Sec. 682.215(c)(4) to clarify
that when the prepayment amount exceeds the monthly payment amount of
$0.00, the prepayment amount is applied consistent with Sec.
682.215(c)(1).
Documentation and Verification Requirements
Comment: Under the proposed regulations, if a borrower selects the
IBR plan, but does not provide or renew the required written consent
for income verification, or withdraws consent and does not select
another repayment plan, the lender places the borrower in the IBR plan,
and the borrower is required to make payments based on a 10-year FFEL
standard repayment plan. Several commenters recommended that the
Department revise the regulations to clarify that if a borrower
requests IBR, but does not provide documentation to prove partial
financial hardship, then the request must be denied and the borrower
must remain in his current repayment plan or choose another plan for
which he is eligible.
Discussion: The regulations address the impact of a borrower's
failure to submit required documentation for the IBR plan in two
places. Under Sec. 682.209(a)(6)(v)(C), a lender must deny a
borrower's request for an IBR repayment schedule if the borrower does
not submit the required documentation within the time specified by the
lender. The provisions in Sec. Sec. 682.215(e)(2)(i) and
685.221(e)(2)(i) that are discussed by the commenters apply only to
borrowers who are already in the IBR plan, but in a subsequent year
fail to renew their written consent for income verification. We agree
to revise the regulations to clarify this distinction.
Changes: Sections 682.215(e)(2)(i) and 685.221(e)(2)(i) have been
revised to clarify that if a borrower who is already in the IBR plan
fails to renew his or her consent for income verification, the loan
holder treats the borrower in the same way as a borrower who no longer
has a partial financial hardship.
Comment: The proposed regulations require a loan holder to
determine whether a borrower has a partial financial hardship each year
the borrower is in the IBR plan. Several commenters argued that a
borrower who no longer has a partial financial hardship but remains in
the IBR plan should not be required to provide partial financial
hardship eligibility documentation for subsequent years.
Discussion: Section 493C(c) of the HEA requires a loan holder to
verify each year that a borrower has a partial financial hardship and
is eligible for IBR. The regulations must reflect this requirement.
Changes: None.
Comment: Under the proposed regulations, in determining whether a
borrower has a partial financial hardship, the family size
determination defaults to one for any year for which a borrower does
not certify family size. Some commenters suggested that family size
default instead to the family size previously certified by the
borrower.
Discussion: The Department believes that defaulting to the prior
year's family size would be a disincentive for borrowers in the IBR
plan to provide to loan holders timely, updated information on their
family size. Moreover, allowing family size to default to the
borrower's family size for the prior year would increase Federal costs
and would require a budgetary offset.
Changes: None.
[[Page 63239]]
Processing Loan Forgiveness in the IBR Plan
Comment: Under the proposed regulations, if a borrower leaves the
IBR plan, the borrower must pay under the FFEL standard repayment plan,
and the lender recalculates the borrower's monthly payments based on
the time remaining in the standard 10-year repayment period. Several
commenters believed the time that the borrower is in the IBR plan
should be treated like a deferment or forbearance and should not be
counted towards the 10-year repayment period. These commenters argued
that borrowers should have the option to switch out of the IBR plan to
any repayment plan for which they are eligible--not just the FFEL
standard repayment plan--and effectively have a full repayment period
available to them after leaving the IBR plan.
Discussion: Section 493C(b)(8) of the HEA specifies that a borrower
who is repaying a loan under the IBR plan may, at any time, terminate
repayment under the IBR plan and ``repay such loan under the standard
repayment plan.'' The law does not give the borrower the option to
choose a different repayment plan when terminating repayment under the
IBR plan. Nor is there authority in the HEA to treat the borrower's
time in the IBR plan as a deferment or forbearance that is excluded
from the repayment period. However, the HEA does not require that
borrowers stay in the standard 10-year repayment plan for the remaining
life of the loan. As with any other borrower in the FFEL and Direct
Loan programs, these borrowers may request a change in repayment plan
no more frequently than annually as provided in the HEA. However, since
the maximum repayment periods under other FFEL and Direct Loans
repayment plans, except extended repayment and Consolidation, are 10
years, in most circumstances the repayment options for the borrower
will be severely limited depending on the period of time the borrower
remained in the IBR plan.
Changes: None.
Comment: Several commenters stated that they believe that under the
HEA any borrower payment that is not less than either the payment
calculated based on a 10-year repayment plan using the outstanding
balance when the borrower began repayment, or the payment based on a
10-year repayment plan using the outstanding balance when the borrower
first began IBR, should count toward the 25-year forgiveness period.
The commenters asked that this reading of the HEA be reflected in the
regulations.
Discussion: Section 493C(b)(7) of the HEA specifically lists the
types of payments and payment plans that qualify the borrower for IBR
loan forgiveness. Only payments made under the specified repayment
plans and for the stipulated amounts count toward the 25 year period
for forgiveness.
Changes: None.
Comment: The loan holder must request payment from the guaranty
agency no later than 60 days after the loan holder determines that the
borrower qualifies for loan forgiveness. Several commenters noted that
the actual date a borrower qualifies for loan forgiveness under the IBR
plan is a date the lender tracks, and recommended that that date be the
start date for the 60-day filing period, rather than the date the
lender makes the determination that the borrower qualifies, as provided
for in the proposed regulations.
Discussion: We disagree with the commenters' recommendation. In the
case of other loan discharges under the HEA, the trigger date for
lender filing deadlines is the date the lender makes a determination of
the borrower's eligibility, or the date the borrower submits a written
request for discharge. The trigger date is not the actual date that the
borrower became eligible for the discharge. We believe that IBR loan
forgiveness should be treated similarly to loan discharges in this
regard, with the 60-day filing period beginning on the date the lender
determines that the borrower qualifies for loan forgiveness.
Changes: None.
Comment: Several commenters urged the Department to provide
specific guidance regarding qualifying loan payments for the 25-year
IBR loan forgiveness in light of the HEOA change to the HEA that
excludes defaulted borrowers from IBR. The commenters asked whether all
pre-default, post-default, and loan rehabilitation payments would count
towards satisfying the 25-year payment requirement.
Discussion: When a borrower defaults on a loan, the loan is
immediately due and payable in full. Any payments made by a borrower to
the holder of the defaulted loan are not made under an authorized
repayment plan. Payments made under a rehabilitation agreement with the
holder are payments made on a defaulted loan. The Department believes
that the result of the change made by the HEOA is that only pre-default
payments will be considered qualifying payments for the purpose of the
25-year IBR forgiveness, unless the borrower is in an authorized post-
default IBR plan on a defaulted loan held by the Department. However, a
borrower repaying under the IBR plan who defaults, then successfully
rehabilitates the defaulted loan, and then returns to IBR on the
rehabilitated loan would simply resume the 25-year repayment period for
forgiveness.
Changes: Section 682.215(f) has been revised to specify that
payments made on a defaulted loan are not made under a qualifying
repayment plan and therefore, do not count toward the 25-year
forgiveness period. A conforming change has been made to Sec.
685.221(f).
Comment: Several commenters recommended that the regulations
specify that a holder must promptly return any payment received on a
loan after the guaranty agency pays the holder the forgiveness amount.
Discussion: We agree.
Changes: We have added a new Sec. 682.215(g)(8) to the
regulations, to read: ``The loan holder must promptly return to the
sender any payment received on a loan after the guaranty agency pays
the loan holder the amount of loan forgiveness.''
Comment: Under the proposed regulations, a loan holder must provide
the borrower with information on the required handling of the
forgiveness amount. Some commenters requested that the Department
clarify in the preamble that it is inappropriate for a holder to
provide tax advice and that holders could comply with the regulatory
requirement by directing the borrower to the IRS Web site or to IRS
Publication 970 for more information. The commenters also pointed out
that this provision is not in the corresponding section in the Direct
Loan program regulations.
Discussion: A loan holder is expected to make a general disclosure
to the borrower on what it believes to be the current tax treatment of
such amounts and is encouraged to refer borrowers to the IRS for
further information. The Department will provide similar information to
Direct Loan borrowers but the Direct Loan program regulations do not
need to be amended since the Secretary does not issue regulations to
govern the Department.
Changes: None.
Comment: The proposed regulations provide that if a guarantor does
not pay an IBR loan forgiveness claim, the lender resumes collection
activity on the loan. Several commenters requested that we specify that
the lender may capitalize the interest that accrued but was not paid on
the loan for the period during which the borrower's obligation to repay
the loan was suspended.
Discussion: In general, we agree that interest that accrued during
the period when collection on the loan is
[[Page 63240]]
suspended while the loan forgiveness claim is being processed should be
capitalized. However, the loan holder should not benefit if the loan
holder submits the claim for forgiveness in error. Therefore, we have
modified the regulations to provide for capitalization only if the
forgiveness claim is not submitted by the lender in error.
Changes: Section 682.215(g) has been revised by adding the
following sentence: ``Unless the denial of the forgiveness claim was
due to an error by the lender, the lender may capitalize, in accordance
with Sec. 682.202(b), any interest accrued and not paid during this
period.''
Eligible Not-for-Profit Holder Definition (Sec. 682.302(f)(3))
Comment: On the issue of determining when a for-profit controls a
not-for-profit holder, several commenters representing FFEL industry
members stated that a distinction made in the preamble to the NPRM
between family members employed as lower level employees at a not-for-
profit loan holder and those employed in more responsible positions is
not reflected in the regulations. The commenters believed that the
proposed regulations relating to a for-profit entity exercising control
over a State or non-profit entity leave to the discretion of the
Secretary the determination of whether the nature of a family member's
employment is likely to affect the integrity of decisions made by a
non-profit entity's boards or committee. The commenters pointed out
that in very large organizations someone could be in a ``responsible
position'' but have no influence or control over student loans. The
commenters asked the Department to clarify that the Secretary has the
discretion to determine whether a family member could be employed at a
non-profit organization in a responsible position unrelated to student
loans.
Discussion: The Department agrees that the proposed regulations do
not draw any distinction based on the level of a family member's
employment in determining whether that employment or appointment by a
for-profit entity constitutes control of the non-profit entity. We
note, however, that Sec. 682.302(f)(3)(vi)(B) assumes that the
employment or appointment of a family member at any level of employment
constitutes controlling influence of the non-profit entity unless the
Secretary specifically determines otherwise. The Secretary will
examine, among other factors, the family member's level of employment
or appointment in determining whether that employment affects the
integrity of the non-profit entity's decisions.
Changes: None.
Comment: Several commenters representing FFEL industry participants
noted that State and non-profit entities are often required to create
and use special purpose entities in connection with financing the
origination or purchase of FFEL Program loans. This kind of special
purpose entity is often called a ``bankruptcy remote vehicle'' because,
although it was created by, and may appear to be a subsidiary or
affiliate of, the State or non-profit entity, its asset and liability
structure and its legal structure and status make its obligations
secure in the event of the bankruptcy of the non-profit entity parent
or guarantor. Such a special purpose entity is separate from the State
or non-profit entity. By complying with various criteria established by
bond rating agencies or lenders that support its bankruptcy remote
status, its loans and other assets are viewed as sufficiently protected
from claims by creditors of the State or non-profit entity in the event
of such a bankruptcy. The commenters noted that the Department has
previously taken the position that an eligible lender trustee may
qualify as an eligible not-for-profit holder when it is acting on
behalf of a special purpose entity related to a State or non-profit
entity, even though the special purpose entity--and not the State or
non-profit entity--held beneficial or legal ownership, or both, of the
loans. The proposed regulations as drafted would have disqualified
loans for which a State or non-profit entity was not the sole
beneficial owner. Commenters asked that the Department specify in the
final regulations that the Department considers loans that would
qualify for the higher special allowance payment (SAP) rate if owned
directly by an eligible not-for-profit holder that is a State or non-
profit entity will qualify for that rate if now owned solely by its
related special purpose entity.
Discussion: The Department acknowledges that the use of a special
purpose entity, sometimes called a ``bankruptcy remote vehicle,'' is
often a required element of financing FFEL program loan originations
and purchases by State and non-profit entities. Because the special
purpose entity holds beneficial or legal ownership, or both, of the
loans originally acquired by the not-for-profit holder, the Department
believes the regulations, as proposed, should be revised for two
reasons. First, the proposed regulations have been revised to ensure
that loans acquired by a State or non-profit entity that is an eligible
not-for-profit holder but which are now held by a special purpose
entity qualify for the higher SAP rate. Second, changes have been made
to apply to the special purpose entity used by a not-for-profit holder
the same tests that apply directly to the State or non-profit entity.
The final regulations apply without regard to whether a particular
special purpose entity is sufficiently remote from the State or non-
profit entity to insulate the former from the claims that might be
asserted in the bankruptcy of the latter. Similarly, the regulations
apply without regard to whether a particular special purpose entity is
a ``qualifying SPE'' under Financial Accounting Standards Board
Statement No. 140.
Changes: We have amended the regulations to address a not-for-
profit holder's use of a special purpose entity.
Public Service Loan Forgiveness
Most of the comments received by the Department in response to the
NPRM pertained to the public service loan forgiveness program. A
majority of those comments were from law schools, law students, legal
aid centers, clinics, and associations, public interest attorneys and
public defenders. The commenters overwhelmingly supported the program
because it would provide relief to borrowers who choose charity and
other public service and nonprofit employment, and because they believe
it will prove to be an important tool for attracting graduates and
retaining talented employees in critical jobs that support our
society's well-being. The specific comments are discussed below.
Borrower Eligibility
Comment: Some commenters working at nonprofit or governmental
organizations noted that the loan forgiveness program became effective
on October 1, 2007, and asked that payments made on their loans and
service performed before that date be counted toward satisfying the
loan forgiveness requirements.
A few commenters who are borrowers of joint FFEL Program
consolidation loans asked whether they could reconsolidate that loan
either jointly or separately into the Direct Loan program to qualify
for the public service loan forgiveness benefit.
A Peace Corps official asked that Peace Corps service be considered
qualifying service for public service loan forgiveness and be treated
in the same manner as service in full-time AmeriCorps positions,
including counting payments made during Peace Corps service as
qualifying payments for loan forgiveness. The commenter stated
[[Page 63241]]
that even though individuals serving in the Peace Corps are not
considered Federal government employees, they are treated as such for
certain purposes, such as retirement and under the Federal Employees
Compensation Act.
Discussion: The CCRAA establishes October 1, 2007, as the effective
date for the beginning of the public service loan forgiveness program
and requires that a borrower's qualifying payments be made while the
borrower is providing the qualifying full-time service. Consequently,
periods of service or payments made on an eligible loan prior to the
October 1, 2007, effective date do not count towards the requirements
for loan forgiveness.
The HEA authorizes borrowers to consolidate their FFEL Program
loans into the Direct Loan program for the purpose of public service
loan forgiveness. However, there is no authority to make new joint
consolidation loans in either the FFEL or Direct Loan programs. In
taking out a joint consolidation loan, both borrowers become jointly
and severally liable for the repayment of the full amount of the loan.
There is no statutory authority to allow one of the borrowers to assume
the entire joint consolidation debt or for the borrowers to somehow
separate the joint consolidation loan into separate individual loans.
Therefore, borrowers with joint FFEL consolidation loans cannot become
eligible for the public service loan forgiveness program.
The Department agrees with the commenter that individuals serving
in the Peace Corps perform valuable public service on behalf of their
fellow citizens and that they should be treated like borrowers serving
in AmeriCorps positions. However, under the HEA, to qualify for
forgiveness, the borrower must be making payments while performing
public service. Unlike a borrower serving in a full-time AmeriCorps
position, a borrower serving full-time in the Peace Corps is eligible
for an economic hardship deferment for the entire period of the
borrower's Peace Corps service and has no obligation to make payments.
Additionally, the Peace Corps does not provide an educational benefit
that the borrower can choose to use to repay title IV student loans,
but instead provides an individual leaving Peace Corps service with a
lump sum transition allowance. Given these circumstances, the
Department has determined that an individual serving in the Peace Corps
may meet the loan forgiveness payment requirement in one of two ways:
(1) By declining the economic hardship deferment and making scheduled
payments on the loan during the service period; or (2) by making a lump
sum payment on the loan from the Peace Corps transition allowance no
later than six months after the borrower's receipt of those funds. A
lump sum payment on a title IV loan from Peace Corps transition funds
will be treated like a payment made from an AmeriCorps borrower's Segal
Education Award in determining the number of the borrower's qualifying
payments.
Changes: Section 685.219(b) has been amended to include a
definition of a Peace Corps position, Sec. 685.219(c)(1)(ii) has been
amended to include a reference to a Peace Corps position, and Sec.
685.219(c)(2) has been amended to apply the treatment of lump sum
payments to a payment made from Peace Corps transition funds.
Documenting and Maintaining Eligibility
Comment: Many commenters asked the Department to develop a clear
and simple method for the borrower, the employer, or both, to determine
annually the borrower's eligibility for public service loan forgiveness
(i.e., that the borrower's employment was with an eligible employer and
that the borrower was paying under an acceptable repayment plan). The
commenters stated that they believed strongly that borrowers should not
be left in the dark regarding whether they would qualify for loan
forgiveness by applying and documenting their eligibility after 10
years of service and repayment. The commenters noted that this approach
would require the borrower to retain pay stubs or other supporting
documentation of their employment for the entire 10-year period. The
commenters believed that this recordkeeping obligation would be too
great of a burden to impose on recent graduates. The commenters also
believed that ongoing information on the borrower's eligibility is
important for the borrower's career and financial decisions. The
commenters recommended that the Department create an on-line, password-
protected system through which qualifying employers could annually
certify the employment of borrower-employees, or otherwise provide a
reliable system for borrowers to document, confirm, and track job
eligibility. Some of these commenters also asked that we establish a
program of employer pre-certification under which the Department would
maintain an ongoing list of certified eligible employers for borrower
reference. One commenter disagreed with the Department's position in
the NPRM that implementing such a system was an operational rather than
a regulatory issue, and asked that a system for annual eligibility
verification be reflected in the regulations. Another commenter stated
that it was preferable to require a borrower to submit past pay stubs,
direct deposit salary documents, or wage and salary statements (W-2s)
rather than require the employer to provide some certifying document of
the borrower's dates of employment.
Many commenters urged the Department to incorporate the public
service loan forgiveness program as a term and condition in the
Department's Direct Loan master promissory note (MPN). The commenters
believed that making this change to the MPN would prevent Congress from
repealing the forgiveness benefit after borrowers have spent years
working to meet the eligibility requirements.
Another commenter recommended that the Direct Consolidation Loan
application and the public service loan forgiveness application be
combined so that no gap exists in the student's ability to consolidate
and then pursue public service loan forgiveness.
Other commenters representing participants in the FFEL industry
requested that the Department's procedures for eligibility
determinations and notification to borrowers who are not eligible for
loan forgiveness under this program be spelled out in greater detail
consistent with the approach in Sec. 685.216(e)(4).
Discussion: The Department believes that the way in which borrowers
apply for and document their eligibility for the public service loan
forgiveness benefit is best handled administratively. We assure the
commenters that we will continue to examine ways to assist borrowers
who are interested in, or already employed in public service, to
determine and document their eligibility for the loan forgiveness
program.
The Department will develop a form for borrowers to use to apply
for the public service loan forgiveness when the borrower believes he
or she qualifies. The proposed form will be subject to public comment
under the Paperwork Reduction Act of 1995. As with other discharge
applications the Department has developed, the form will include all
the information the borrower and the borrower's employer need regarding
the eligibility criteria, applicable definitions, and procedures for
applying for the loan forgiveness benefit. The form will include an
employer certification section and instructions regarding supporting
documentation that the Department will need to determine the borrower's
[[Page 63242]]
eligibility for the forgiveness benefit. The borrower will be able to
use this form to collect a certification from his or her employer
either annually or at the close of the 120-payment qualifying period.
The form will also be used for certification for borrowers who have
more than one employer. The Department expects the borrower to collect
and retain the necessary records that support the borrower's
eligibility for this benefit. This policy is consistent with the
general practice in the student loan programs--borrowers are always
responsible for collecting and maintaining records to support their
receipt of benefits under the programs.
With regard to incorporating a description of the public service
loan forgiveness benefit in the MPN, the Department is already taking
steps to refer to the program in the MPN and other program documents.
However, the MPN will continue to state, as it currently does, that the
terms and conditions of the loans are subject to the HEA as it is
amended in accordance with the effective date of those amendments.
Although there is no history in the program of Congress eliminating or
reducing a borrower benefit, the Department does not believe that a
reference to the public service loan forgiveness program in the MPN
would provide the borrower with a contractual right to the benefit
should Congress take action to eliminate that benefit from the HEA as
of a particular effective date.
The Department declines to modify the Direct Loan Consolidation
Application to include the application for public service loan
forgiveness. Unless the borrower is a FFEL borrower, he or she is not
required to consolidate to receive the public service loan forgiveness
benefit. Additionally, even if a borrower consolidates, the borrower
may not be eligible to apply for the loan forgiveness benefit until
many years after the consolidation, if at all. The Department agrees
that it is appropriate to provide more detail in the regulations,
consistent with what is provided for other loan discharges, on the
procedures it will follow after determining a borrower's eligibility
and when notifying the borrower of his or her ineligibility.
Changes: We have revised Sec. 685.219(e)(3) to specify that if the
Secretary determines that the borrower is not eligible for the public
service loan forgiveness, the Secretary will notify the borrower of
that decision, provide the basis for the denial, and inform the
borrower that the Department will resume collection of the loan. The
Secretary will grant forbearance on the loan for any period during
which collection activity was suspended while the Secretary was
considering the borrower's application and may capitalize any interest
that accrued and was not paid during that period.
Definitions
Full-Time
Comment: Some commenters requested that reference to an employer's
full-time employment standard in the definition of ``full-time'' for
public service employment be eliminated because it penalizes borrowers
whose employers require more than 30 hours per week. Some commenters
also requested that we define full-time employment so that individuals
are able to count multiple eligible part-time public service jobs
toward the full-time requirement and eliminate any conflict that may
arise if any of the part-time employers use a different full-time
standard.
One commenter asked that the definition be amended to specify that
leave taken under a condition covered by the Family and Medical Leave
Act of 1993 (FMLA) does not constitute a break or have the effect of
reducing the borrower's annual average to below 30 hours per week, or
below the employer's full-time standard.
Discussion: The Department understands that some borrowers whose
employers have a standard for full-time employment greater than 30
hours per week may believe that they are being unfairly penalized. The
Department believes, however, that the forgiveness benefit is intended
to acknowledge full-time employment and that it is appropriate to use
an employer's standard when an employer has a full-time employment
standard.
We agree that a borrower who is working part-time in more than one
public service job cannot be held to more than one full-time standard
in fulfilling the full-time requirement. We also agree that leave taken
under conditions covered by the FMLA should not result in the borrower
failing to meet the 30 hours per week annual average or the employer's
full-time standard.
Changes: We have revised the definition of full-time in Sec.
685.219(b) to apply the 30 hours per week annual average as the
governing full-time standard when a borrower is working in more than
one qualifying job and to specify that leave taken for a condition that
is a qualifying reason for leave under the FMLA does not count in
determining whether a borrower meets the full-time definition.
Public Service Organization
Comment: Some commenters asked that the definition of government
employee be clarified to specifically include employees of
intergovernmental or public regional agencies, and to include a public
primary, secondary, or higher education institution, district, or
system.
A few commenters recommended that ``public health'' be defined in
the manner provided in the U.S. Health Code, title 42, chapter 6A,
Public Health Service, subchapter XVIII, part E, subsection 1395X to
include: Doctors of Medicine and Osteopathy, Doctors of Chiropractic,
Doctors of Dental Surgery and Dental Medicine, Doctors of Optometry and
Doctors of Podiatric Medicine. The commenters believed that this level
of specificity was necessary because the public health sector includes
both non-profit entities that have doctors on their staff and for-
profit providers such as doctors in private practice.
Several commenters recommended that contract employees who serve
organizations that are tax exempt under section 501(c)(3) of the
Internal Revenue Code should be considered as employees of a public
service organization. Another commenter claimed that the proposed
regulations improperly excluded employment that is within the statutory
definition such as for-profit businesses, private law firms that
provide defense for indigents through state funding, and non-profit
non-governmental organizations that do not qualify under section
501(c)(3) of the Internal Revenue Code. The commenter stated that the
regulations should specify that Interest on Lawyers' Trust Accounts
(IOLTA) funding would be considered public funding for purposes of
meeting the requirement of being ``funded in whole or in part by a
local, State, Federal, or Tribal government'', and took exception to
the exclusion of labor unions from eligibility as without justification
if the labor union otherwise meets appropriate standards for a public
service organization.
Discussion: As the Department indicated in the preamble to the NPRM
(72 FR 37705), the definition of ``public service organization'' is
derived from the statutory definition of ``public service job'' in
section 455(m)(3)(B) of the HEA, and is intended to identify broad
categories of eligible jobs rather than define specific jobs under
those categories. An intergovernmental or public regional agency would
appear to be encompassed under ``Federal, State, local, or Tribal
government
[[Page 63243]]
organization, agency, or entity'' depending on its governance and the
funding source for salaries. Employees of public and private, non-
profit elementary, secondary, and postsecondary schools would be
covered either as employees of a government organization, agency, or
entity or of a private organization that provides public education.
Employees of tribal colleges and universities are specifically listed
as eligible in the HEA. Contract workers at these institutions who are
not paid by the institution, but are paid by a for-profit company
contracted to provide certain services to the institution would not be
covered.
As part of the HEOA, Congress recently added a clarifying non-
exhaustive list of examples of qualified ``public health'' jobs to
section 455(m)(3)(B) of the HEA. We have incorporated those examples
into these final regulations.
Non-profit organizations that do not qualify under section
501(c)(3) of the Internal Revenue Code may nonetheless qualify as a
private organization that provides qualifying public services.
We do not believe it is appropriate to make employees of for-profit
firms receiving IOLTA funding specifically eligible for the public
service loan forgiveness program. These employees are not employees of
a government agency and are not likely to work full-time at a public
service job.
The Department continues to believe that the term ``public sector
jobs'' does not encompass every job. The nature of the employer and the
funding source of salaries are appropriate considerations.
Changes: None.
Tax Status of Forgiven Amounts
Comment: One commenter asked the Department to clarify ambiguities
related to the tax status of the amount of loans forgiven under the
public service loan forgiveness program.
Discussion: Section 108(f) of the Internal Revenue Code provides
that amounts discharged on loans made by a governmental entity can be
excluded from the borrower's income if the discharge was for work ``in
certain professions for any broad range of employers.'' 26 U.S.C.
108(f). The Internal Revenue Service has not issued any determination
of whether work that qualifies an individual for public service loan
forgiveness under section 455(m) of the HEA would qualify under 26
U.S.C. 108(f), and the Department does not have the legal authority to
make such a determination here.
Changes: None.
Executive Order 12866
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Section 3(f) of Executive Order 12866
defines a ``significant regulatory action'' as an action likely to
result in a rule that may (1) have an annual effect on the economy of
$100 million or more, or adversely affect a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or Tribal governments or communities in a
material way (also referred to as an ``economically significant''
rule); (2) create serious inconsistency or otherwise interfere with an
action taken or planned by another agency; (3) materially alter the
budgetary impacts of entitlement grants, user fees, or loan programs or
the rights and obligations of recipients thereof; or (4) raise novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive order.
Pursuant to the terms of the Executive order, it has been
determined that this regulatory action will have an annual effect on
the economy of more than $100 million. Therefore, this action is
``economically significant'' and subject to OMB review under section
3(f)(1) of Executive Order 12866. In accordance with the Executive
order, the Secretary has assessed the potential costs and benefits of
this regulatory action and has determined that the benefits justify the
costs.
Need for Federal Regulatory Action
As discussed in the NPRM, these final regulations are needed to
implement provisions of the HEA, as amended by the CCRAA, that
established a new IBR plan for FFEL and Direct Loan borrowers, revised
the conditions under which a FFEL or Direct Loan borrower could qualify
for a loan deferment due to economic hardship, changed the terms of a
number of military service deferments, created a loan forgiveness
program in the Direct Loan Program for borrowers who perform public
service, and established a separate special allowance rate formula for
not-for-profit loan holders in the FFEL Program. The Regulatory Impact
Analysis portion of the NPRM discussed areas where the Secretary has
exercised limited discretion in implementing the CCRAA provisions.
These final regulations also implement changes made to two of the
regulations to reflect changes made by the HEOA. However, the changes
only incorporate statutory changes and do not involve any exercise of
discretion by the Secretary.
Regulatory Alternatives Considered
A broad range of alternatives to the regulations was considered as
part of the negotiated rulemaking process. These alternatives were
reviewed in detail in the preamble to the NPRM under both the
Regulatory Impact Analysis and the Reasons sections accompanying the
discussion of each proposed regulatory provision. To the extent that
they were addressed in response to comments received on the NPRM,
alternatives are also considered elsewhere in the preamble to these
final regulations under the Discussion sections related to each
provision. No comments were received related to the Regulatory Impact
Analysis discussion of these alternatives.
As discussed above in the Analysis of Comments and Changes section,
the final regulations reflect statutory amendments included in the HEOA
and minor revisions in response to public comments. None of these
changes result in revisions to cost estimates prepared for and
discussed in the Regulatory Impact Analysis of the NPRM.
Net Budget Impacts
As noted in the NPRM, the CCRAA provisions implemented by these
regulations are estimated to have a net budget impact of $650 million
in 2008 and $9.2 billion over FY 2008-2012. Consistent with the
requirements of the Credit Reform Act of 1990, budget cost estimates
for the student loan programs reflect the estimated net present value
of all future non-administrative Federal costs associated with a cohort
of loans. (A cohort reflects all loans originated in a given fiscal
year.) Details on how these estimates were developed are provided in
the Regulatory Impact Analysis portion of the NPRM.
Assumptions, Limitations, and Data Sources
Because these regulations would largely restate statutory
requirements that would be self-implementing in the absence of
regulatory action, impact estimates provided in the preceding section
reflect a pre-statutory baseline in which the CCRAA changes implemented
in these regulations do not exist. Costs have been quantified for five
years.
In developing these estimates, a wide range of data sources were
used,
[[Page 63244]]
including data from the National Student Loan Data System, operational
and financial data from Department of Education systems, and data from
a range of surveys conducted by the National Center for Education
Statistics such as the 2004 National Postsecondary Student Aid Survey,
the 1994 National Education Longitudinal Study, and the 1996 Beginning
Postsecondary Student Survey. Data from other sources, such as the
Census Bureau, were also used. No comments or additional data were
received related to the estimates or discussions included in the NPRM.
Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and
explain burdens specifically associated with information collection
requirements. See the heading Paperwork Reduction Act of 1995.
Accounting Statement
As required by OMB Circular A-4 (available at
http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of these regulations. This
table provides our best estimate of the changes in Federal student aid
payments as a result of these regulations. Expenditures are classified
as transfers from the Federal government to student loan borrowers (for
the IBR, loan deferment, and loan forgiveness provisions) and from
student loan holders to the Federal government (for the SAP
provisions).
Table 2--Accounting Statement: Classification of Estimated Expenditures
----------------------------------------------------------------------------------------------------------------
Category Transfers Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers........ 3%................................. 7%.
Federal Government to Student Loan $1.292 billion..................... $1.357 billion.
Borrowers.
Federal Government to Student Loan $580 million....................... $568 million.
Holders.
-------------------------------------------------------------------------
Total............................. $1.872 billion..................... $1.925 billion.
----------------------------------------------------------------------------------------------------------------
Regulatory Flexibility Act Certification
The Secretary certifies that these final regulations would not have
a significant economic impact on a substantial number of small
entities. These final regulations would affect institutions of higher
education, lenders, and guaranty agencies that participate in title IV,
HEA programs and individual students and loan borrowers. The U.S. Small
Business Administration Size Standards define these institutions as
``small entities'' if they are for-profit or nonprofit institutions
with total annual revenue below $5,000,000 or if they are institutions
controlled by governmental entities with populations below 50,000.
Guaranty agencies are State and private nonprofit entities that act as
agents of the Federal government, and as such are not considered
``small entities'' under the Regulatory Flexibility Act. Individuals
are also not defined as ``small entities'' under the Regulatory
Flexibility Act.
As noted in the NPRM, a significant percentage of the lenders and
schools participating in the Federal student loan programs meet the
definition of ``small entities.'' While these lenders and schools fall
within the SBA size guidelines, the final regulations do not impose
significant new costs on these entities.
In the NPRM the Secretary invited comments from small institutions
as to whether they believe the proposed regulations would have a
significant economic impact on them and, if so, requests evidence to
support that belief. No comments or data were received.
Paperwork Reduction Act of 1995
Sections 674.34, 682.205, 682.209, 682.210, 682.211, 682.215,
682.302, 685.204, 685.205, 685.219, 685.220, and 685.221 contain
information collection requirements. Under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the Department has submitted a copy of
these sections to OMB for its review.
Sections 674.34(h)-(i), 682.210(t)-(u), and 685.204(e)-(f)--
Deferment of Repayment--Federal Perkins Loan, NDSLs, Defense Loans,
FFEL, and Direct Loans.
The final regulations amend the provisions related to the military
service deferment and the post-active duty student deferment in the
Federal Perkins, FFEL, and Direct Loan Programs.
The final regulations regarding the post-active duty student
deferment would result in an increase in the burden hours associated
with the current Federal Perkins/FFEL/Direct Loan military deferment
request form cleared under OMB Control Number 1845-0080. The current
military deferment request form covers only the military service
deferment. The form will be revised to cover both the military service
deferment and the post-active duty student deferment. The Department
expects to submit a revised deferment request form for clearance by
November 2008.
Section 682.205(h)--Disclosure Requirements for Lenders
These final regulations provide that, at the time of offering a
borrower a loan and at the time of offering a borrower repayment
options, the lender must provide the borrower with a notice that
informs the borrower of the availability of the income-sensitive and
the IBR repayment plans, except for parent PLUS borrowers and
Consolidation Loan borrowers whose Consolidation Loan paid off one or
more parent PLUS Loans. This information may be provided in a separate
notice or as part of the other disclosures required by this section.
The Department has determined that this modification to the current
notification requirements would not increase the burden associated with
Sec. 682.205 and the associated collection, OMB Control No. 1845-0020.
Section 682.209(a)--Repayment of a Loan
The final regulations would add the IBR plan as a repayment option
for FFEL borrowers and require lenders to take certain actions when a
borrower fails to select a repayment plan within 45 days after being
notified by the lender to choose a repayment schedule.
The Department has determined that this modification to the current
notification requirements would not increase the burden associated with
Sec. 682.209 and the associated collection, OMB Control No. 1845-0020.
Section 682.211(f)--Forbearance
The final regulations would provide for a period of forbearance,
not to exceed 60 days, necessary for the lender to collect and process
documentation supporting the borrower's eligibility for loan
forgiveness under the IBR plan. The lender must notify the borrower
[[Page 63245]]
that the requirement to make payments on the loans for which
forgiveness was requested has been suspended pending approval of the
forgiveness by the guaranty agency.
The addition of this new type of forbearance under the IBR plan is
estimated to increase the burden hours for lenders and guaranty
agencies by 31,414 hours under OMB Control Number 1845-0020. (Note:
This is an administrative forbearance and does not require an OMB-
approved form.)
Section 682.215--Income-Based Repayment Plan
The final regulations provide that a borrower may elect the IBR
plan only if the borrower has a partial financial hardship. Under this
plan, the borrower's aggregate monthly loan payments would be limited
to no more than 15 percent of the amount by which the borrower's AGI
exceeds 150 percent of the poverty line income applicable to the
borrower's family size, divided by 12. If a borrower no longer has a
partial financial hardship, the borrower may continue to make payments
under the IBR plan, but the loan holder must recalculate the borrower's
monthly payment amount. If the borrower no longer wishes to pay under
the IBR plan, the borrower must pay under a standard repayment plan as
calculated by the loan holder.
The final regulations provide that a loan holder would require the
borrower, in order to establish his or her eligibility for the IBR
plan, to provide written consent to the disclosure of AGI and other tax
return information by the IRS to the loan holder. The borrower also
would be required to annually certify his or her family size; otherwise
the loan holder would assume a family size of one. To determine whether
a borrower qualifies for loan forgiveness after 25 years, the loan
holder must make a determination that the borrower has established
eligibility for loan forgiveness by making payments for 25 years, or,
that, through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments. The loan holder is required, no later than 60 days after it
makes the determination that the borrower is eligible for loan
forgiveness, to request payment from the guaranty agency. Within 45
days of receiving the loan holder's request for payment, the guaranty
agency must determine if the borrower meets the eligibility
requirements for loan forgiveness and must notify the loan holder. If
the guaranty agency determines that the borrower is eligible for loan
forgiveness, it must pay the loan holder within the same 45-day period.
The holder must notify the borrower within 30 days of being notified by
the guaranty agency of its determination on the borrower's eligibility.
We estimate that the final regulations will increase burden for
borrowers, lenders and guaranty agencies by 185,778 hours, under new
OMB Control Number 1845-0086.
Section 682.302(f)--Eligible Not-for-Profit Holder
The final regulations would require a State, non-profit entity, or
eligible lender trustee to provide to the Secretary a certification on
the State or non-profit entity's letterhead signed by the State or non-
profit entity's Chief Executive Officer (CEO) which states the basis
upon which the entity qualifies as a State or non-profit entity. The
submission must include documentation establishing the entity's State
or non-profit status. In addition, the submission must include the name
and lender identification number for which the eligible not-for-profit
designation is being certified. For an entity establishing non-profit
status under section 150(d) of the Internal Revenue Code, the
submission must include copies of the requests of the State or
political subdivision or subdivisions thereof, or requirements
described in section 150(d) of the Internal Revenue Code, and the CEO's
additional certification that the entity has not elected to cease its
status as a qualified scholarship funding corporation. A separately
submitted certification or opinion by the State or non-profit entity's
external legal counsel or the office of the attorney general of the
State, must be submitted with supporting documentation that shows that
the State or non-profit entity is a constituted State entity by
operation of specific State law, has been designated by the State or
one or more political subdivisions of the State to serve as a qualified
scholarship funding corporation, and is incorporated under State law as
a not-for-profit organization, or is an entity described in section
501(c)(3) of the Internal Revenue Code, or has in effect a relationship
with an eligible lender under which the lender is acting as trustee on
behalf of the State or non-profit entity.
Under the final regulations, once an entity has been approved as an
eligible not-for-profit holder, the entity must provide to the
Secretary an annual certification on the State or non-profit entity's
letterhead signed by the CEO, which includes the name and lender
identification number(s) of the entities for which designation is being
recertified. The annual certification must state that the State or non-
profit entity has not altered its status as a State or non-profit
entity since its prior certification to the Secretary and that it
continues to satisfy the requirements of an eligible not-for-profit
holder either in its own right or through a trust agreement with an
eligible lender trustee. A copy of its IRS Form 990--Return of
Organization Exempt From Income Tax, if applicable, must be submitted
at the same time the entity files that return with the IRS as a part of
the annual certification.
Within 10 days of becoming aware of the occurrence of a change that
may result in a State or non-profit entity that has been designated an
eligible not-for-profit holder, either directly or through an eligible
lender trustee, losing that eligibility, the State or non-profit entity
must submit details of the change to the Secretary.
We estimate that the final regulations will increase burden for
States, non-profit entities, and eligible lender trustees by 105 hours
in the new OMB Control Number 1845-0085.
Section 685.205(a)--Forbearance
The final regulations would provide for loan forbearance for a
borrower who qualifies for a post-active duty student deferment, but
does not qualify for a military service or other deferment, and is
engaged in active State duty for a period of more than 30 consecutive
days.
The addition of a new type of forbearance will increase the burden
hours associated with OMB Control Number 1845-0031, the Direct Loan
Program General Forbearance Request form. The Department will submit a
full collections package with a revised form by December 2008.
Section 685.219--Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program created by the CCRAA is
intended to encourage individuals to enter and continue in full-time
public service employment by forgiving the remaining balance of their
eligible Direct loans after they satisfy the public service and loan
repayment requirements of this section.
The burden associated with the final regulations for this program
will be reported in the paperwork clearance package for a new public
service loan forgiveness application form in the new OMB Control Number
1845-XXX3 that the Department will develop.
[[Page 63246]]
Section 685.220--Consolidation
The final regulations permit a borrower to consolidate a FFEL
Consolidation Loan into the Federal Direct Loan Program for the purpose
of participating in the Public Service Loan Forgiveness Program.
We estimate that the expected increase in the number of FFEL
Program borrowers who wish to consolidate into the Federal Direct Loan
Program for the purpose of using the public loan forgiveness program
will increase the burden hours associated with OMB Control Number 1845-
0053 (Direct Consolidation Loan Application and Promissory Note). The
Department will submit an OMB 83-C indicating the increased burden
associated with this collection by October 2008.
Section 685.221--Income-Based Repayment Plan
The final regulations provide that a borrower may elect the IBR
plan only if the borrower has a partial financial hardship. Under this
plan, the borrower's aggregate monthly loan payments would be limited
to no more than 15 percent of the amount by which the borrower's AGI
exceeds 150 percent of the poverty guideline for the borrower's family
size, divided by 12. If a borrower no longer has a partial financial
hardship, the borrower may continue to make payments under the IBR
plan, but the Secretary must recalculate the borrower's monthly payment
amount. If the borrower no longer wishes to pay under the IBR plan, the
borrower must pay under the standard repayment plan as calculated by
the Secretary.
The final regulations provide that the Secretary requires a
borrower to establish his or her eligibility for the IBR plan by
providing written consent to the disclosure of AGI and other tax return
information by the IRS to the Secretary. The borrower annually
certifies his or her family size; otherwise the Secretary assumes a
family size of one. To qualify for loan forgiveness after 25 years, a
determination must be made that the borrower has established
eligibility for loan forgiveness by making payments for 25 years, or
that through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments.
The Department plans to revise the current collection approved
under OMB Control Number 1845-0017, the Direct Loan Program Income
Contingent Repayment Plan Consent to Disclosure of Tax Information, so
that it may also be used to collect the income information needed for
the Income-Based Repayment Plan. The resulting increased burden
associated with OMB Control Number 1845-0017 will be reported in the
paperwork clearance package for the revised form. The Department
expects to submit the revised form for clearance by December 2008.
Collection of Information
Consistent with the discussion in this Paperwork Reduction Act of
1995 section, the following chart describes the sections of the final
regulations involving information collections, the information being
collected and the collections the Department has submitted, or will
submit, to OMB for approval and public comment under the Paperwork
Reduction Act of 1995.
----------------------------------------------------------------------------------------------------------------
Regulatory section Information collection Collection
----------------------------------------------------------------------------------------------------------------
674.34, 682.210, and 685.204...... This final regulation incorporates OMB 1845-0080. This is a revision of
previous interpretive guidance an existing collection. A separate
related to the military service 60-day Federal Register notice will
deferment and the active duty be published to solicit comment on
student deferment. the revised form once it is
developed. The revised form will be
submitted for clearance by
November, 2008.
682.205........................... This final regulation establishes OMB 1845-0020. There is no change
the disclosure requirements for in burden.
lenders.
682.209........................... This final regulation adds, and OMB 1845-0020. There is no change
makes available, the income-based in burden.
repayment plan to FFEL borrowers.
682.211........................... This final regulation establishes OMB 1845-0020. This is a revision
the timeframe that a lender has to of an existing collection which is
collect and process required being submitted to OMB with this
documentation. final regulation.
682.215........................... This final regulation provides for OMB 1845-0086. This is a new
the collection of a borrower's collection which is being submitted
income information from the IRS and to OMB with this final regulation.
an annual certification from a
borrower who elects the income-based
repayment plan.
682.302........................... This final regulation requires the OMB 1845-0085. This is a new
submission of documentation by a collection which is being submitted
State, a non-profit entity, or an to OMB with this final regulation.
eligible lender trustee to the
Secretary to establish eligibility
for not-for-profit holder status.
685.205........................... This final regulation provides for OMB 1845-0031. This will be a
the collection of information to revision of an existing collection.
determine if a Direct loan borrower A separate 60-day Federal Register
who is not eligible for a post- notice will be published to solicit
active duty student loan deferment comment on the revised form once it
may receive a forbearance. is developed. The revised form will
be submitted for clearance by
December, 2008.
685.219........................... This final regulation establishes a OMB 1845-XXX3. This will be a new
new Public Service Loan Forgiveness collection. A separate 60-day
program. Federal Register notice will be
published to solicit comment on
this form once it is developed.
685.220........................... This final regulation provides for OMB 1845-0053. This will increase
the consolidation of FFEL loans into the burden associated with an
Direct Consolidation loans for the existing collection. The increase
purpose of using the Public Service will be reported on OMB Form 83-C
Loan Forgiveness program. by October, 2008.
685.221........................... This final regulation provides for OMB 1845-0017. This will be a
the collection of the borrower's revision of an existing collection.
income information from the IRS and A separate 60-day Federal Register
an annual certification from the notice will be published to solicit
borrower who elects the income-based comment on the revised form once it
repayment plan. is developed. The revised form will
be submitted for clearance by
December, 2008.
----------------------------------------------------------------------------------------------------------------
[[Page 63247]]
Assessment of Educational Impact
In the NPRM, we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have determined
that these final regulations do not require transmission of information
that any other agency or authority of the United States gathers or
makes available.
Electronic Access to This Document
You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/news/FedRegister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at:
http://www.access.gpo.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Number: 84.032 Federal
Family Education Loan Program; 84.037 Federal Perkins Loan Program;
and 84.268 William D. Ford Federal Direct Loan Program)
List of Subjects in 34 CFR Parts 674, 682, and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, and Vocational education.
Dated: October 15, 2008.
Margaret Spellings,
Secretary of Education.
0
For the reasons discussed in the preamble, the Secretary amends parts
674, 682, and 685 of title 34 of the Code of Federal Regulations as
follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
0
1. The authority citation for part 674 continues to read as follows:
Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless
otherwise noted.
0
2. Section 674.34 is amended by:
0
A. In the introductory text of paragraph (e), removing the reference
``(e)(6)'' from the cross-reference in the parenthetical phrase that
appears after the word ``time'' and adding, in its place, the reference
``(e)(5)'', and removing the words ``through (e)(6)'' and adding, in
their place, the words ``through (e)(5)''.
0
B. In paragraph (e)(1), removing the word ``FDSL'' and adding, in its
place, ``Federal Direct Loan Program'', and adding the word ``the''
before the words ``FFEL programs''.
0
C. In paragraph (e)(3)(ii), removing the words ``poverty line
applicable to the borrower's family size, as determined in accordance
with section 673(2) of the Community Service Block Grant Act'' and
adding, in its place, the words ``poverty guideline applicable to the
borrower's family size as published annually by the Department of
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower
is not a resident of a State identified in the poverty guidelines, the
poverty guideline to be used for the borrower is the poverty guideline
(for the relevant family size) used for the 48 contiguous States''.
0
D. Removing paragraph (e)(5).
0
E. Redesignating paragraphs (e)(6), (e)(7), (e)(8), (e)(9), and (e)(10)
as paragraphs (e)(5), (e)(6), (e)(7), (e)(8), and (e)(9) respectively.
0
F. In newly redesignated paragraph (e)(6), removing the words ``or
(e)(5)''.
0
G. In newly redesignated paragraph (e)(7), removing the words ``, or
(e)(5)'', removing the punctuation ``,'' after the reference
``(e)(3)'', and adding the word ``and'' after the reference ``(e)(3)''.
0
H. In newly redesignated paragraph (e)(8), adding ``(i)'' after the
number ``(8)'', removing the word ``paragraphs'' and adding in its
place ``paragraph'', and removing the words ``and (e)(5)''.
0
I. Adding new paragraph (e)(8)(ii).
0
J. In newly redesignated paragraph (e)(9), removing the words ``and
(e)(5)''.
0
K. In paragraph (h)(1), adding the heading ``Military service
deferment'' before the paragraph designation ``(1)'' and adding the
punctuation ``,'' after the word ``principal'' and after the word
``accrue''.
0
L. In paragraph (h)(4) introductory text, removing the word ``section''
and adding, in its place, the word ``paragraph''.
0
M. Revising paragraph (h)(6).
0
N. Adding new paragraph (h)(7).
0
O. Adding a heading to paragraph (i).
0
P. In paragraph (i)(1), revising the introductory text.
0
Q. In paragraph (i)(1)(ii), adding the words ``, on at least a half-
time basis,'' after the word ``enrolled''.
0
R. Revising paragraph (i)(2).
0
S. In paragraph (i)(3), adding the words ``, on at least a half-time
basis,'' after the word ``status'' each time it appears.
0
T. Adding new paragraph (i)(4).
0
U. In paragraph (j), removing the words ``paragraph (j)'' and adding,
in their place, the words ``paragraph (k)''.
The revisions and additions read as follows:
Sec. 674.34 Deferment of repayment--Federal Perkins loans, NDSLs, and
Defense loans.
* * * * *
(e) * * *
(8)(i) * * *
(ii) For purposes of paragraph (e)(3)(ii) of this section, family
size means the number that is determined by counting the borrower, the
borrower's spouse, and the borrower's children, including unborn
children who will be born during the period covered by the deferment,
if the children receive more than half their support from the borrower.
A borrower's family size includes other individuals if, at the time the
borrower requests the economic hardship deferment, the other
individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs.
* * * * *
(h) * * *
(6) For a borrower whose active duty service includes October 1,
2007, or begins on or after that date, the deferment period ends 180
days after the demobilization date for each period of service described
in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
(7) Without supporting documentation, a military service deferment
may be granted to an otherwise eligible borrower for a period not to
exceed 12 months from the date of the qualifying eligible service based
on a request from the borrower or the borrower's representative.
(i) Post-active duty student deferment. (1) Effective October 1,
2007, a borrower of a Federal Perkins loan, an NDSL, or a Defense loan
serving on active duty military service on that date, or who begins
serving on or after that date, need not pay principal, and interest
does not accrue for up to 13 months following the conclusion of the
borrower's active duty military service and initial grace period if--
* * *
[[Page 63248]]
(2) As used in paragraph (i)(1) of this section ``Active duty''
means active duty as defined in section 101(d)(1) of title 10, United
States Code, for at least a 30-day period, except that--
(i) Active duty includes active State duty for members of the
National Guard under which the Governor activates National Guard
personnel based on State statute or policy and the activities of the
National Guard are paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
the Governor is authorized, with the approval of the President or the
U.S. Secretary of Defense, to order a member to State active duty and
the activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty for training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed
in such a position is reassigned to active duty under paragraph
(i)(2)(i) of this section or full-time National Guard duty under
paragraph (i)(2)(ii) of this section.
* * * * *
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment under both paragraphs (h) and
(i) of this section, the 180-day post-demobilization military service
deferment period and the 13-month post-active duty student deferment
period apply concurrently.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
0
3. The authority citation for part 682 continues to read as follows:
Authority: 20 U.S.C. 1071 to 1087-2 unless otherwise noted.
0
4. Section 682.201 is amended by:
0
A. In paragraph (e)(3), removing the word ``and'' at the end of the
paragraph.
0
B. In paragraph (e)(4), removing the punctuation ``.'' at the end of
the paragraph and adding, in its place, the words, ``; and''.
0
C. Adding a new paragraph (e)(5) to read as follows:
Sec. 682.201 Eligible borrowers.
* * * * *
(e) * * *
(5) A FFEL borrower may consolidate his or her loans (including a
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan
Program for the purpose of using the Public Service Loan Forgiveness
Program.
0
5. Section 682.205 is amended by:
0
A. Revising the heading to paragraph (h).
0
B. Revising paragraph (h)(1).
The revisions read as follows:
Sec. 682.205 Disclosure requirements for lenders.
* * * * *
(h) Notice of availability of income-sensitive and income-based
repayment options.
(1) At the time of offering a borrower a loan and at the time of
offering a borrower repayment options, the lender must provide the
borrower with a notice that informs the borrower of the availability of
income-sensitive and, except for parent PLUS borrowers and
Consolidation Loan borrowers whose Consolidation Loan paid off one or
more parent PLUS Loans, income-based repayment plans. This information
may be provided in a separate notice or as part of the other
disclosures required by this section. The notice must inform the
borrower--
(i) That the borrower is eligible for income-sensitive repayment
and may be eligible for income-based repayment, including through loan
consolidation;
(ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
(iii) Of where and how the borrower may obtain more information
concerning income-sensitive and income-based repayment plans.
* * * * *
0
6. Section 682.209 is amended by:
0
A. Revising paragraph (a)(6)(iii).
0
B. Revising paragraph (a)(6)(iv).
0
C. Revising paragraph (a)(6)(v).
0
D. Redesignating paragraphs (a)(6)(x) and (a)(6)(xi) as (a)(6)(xi) and
(a)(6)(xii), respectively.
0
E. Adding a new paragraph (a)(6)(x).
0
F. In newly redesignated paragraph (a)(6)(xi), adding the words ``, or
at any time in the case of a borrower in an income-based repayment
plan'' immediately after the word ``annually''.
0
G. In paragraph (a)(8), adding the words ``, except in the case of
payments made under an income-based repayment plan.'' immediately after
the words ``five dollars'' the first time those words appear.
0
H. In paragraph (b)(1), removing the word ``The'' at the beginning of
the sentence and adding, in its place, the words ``Except in the case
of payments made under an income-based repayment plan, the''.
0
I. In paragraph (b)(2)(ii), in the second sentence, removing the words
``borrower coupon book'' and adding, in their place, ``borrower's
coupon book''.
0
J. In paragraph (c)(1)(i), removing the word ``or'' the first time it
appears and adding the words ``, or income-based'' immediately after
the word ``extended''.
The revisions and additions read as follows:
Sec. 682.209 Repayment of a loan.
* * * * *
(a) * * *
(6) * * *
(iii) Not more than six months prior to the date that the
borrower's first payment is due, the lender must offer the borrower a
choice of a standard, income-sensitive, income-based, graduated, or, if
applicable, an extended repayment schedule.
(iv) Except in the case of an income-based repayment schedule, the
repayment schedule must require that each payment equal at least the
interest that accrues during the interval between scheduled payments.
(v) The lender shall require the borrower to repay the loan under a
standard repayment schedule described in paragraph (a)(6)(vi) of this
section if the borrower--
(A) Does not select an income-sensitive, income-based, graduated,
or, if applicable, an extended repayment schedule within 45 days after
being notified by the lender to choose a repayment schedule;
(B) Chooses an income-sensitive repayment schedule, but does not
provide the documentation requested by the lender under paragraph
(a)(6)(viii)(C) of this section within the time period specified by the
lender; or
(C) Chooses an income-based repayment schedule, but does not
provide the income documentation requested by the lender under Sec.
682.215(e)(1)(i) within the time period specified by the lender.
* * * * *
(x) Under an income-based repayment schedule, the borrower repays
the loan in accordance with Sec. 682.215.
* * * * *
0
7. Section 682.210 is amended by:
0
A. Revising paragraph (s)(6)(iii)(B).
0
B. Removing paragraphs (s)(6)(iv), (s)(6)(v), and (s)(6)(vii).
0
C. Redesignating paragraphs (s)(6)(vi), (s)(6)(viii), (s)(6)(ix),
(s)(6)(x) and (s)(6)(xi) as paragraphs (s)(6)(iv), (s)(6)(v),
(s)(6)(vi), (s)(6)(vii), (s)(6)(viii) respect