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federal register

June 12, 1996

Part VI

Department of
34 CFR Part 600, et al.
William D. Ford Federal Direct Loan
Program; Final Rule

29898 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations

DEPARTMENT OF EDUCATION description of a Direct Subsidized deferments are fully repaid, even if the
Consolidation Loan under the definition borrower repays the FFEL Program
34 CFR Parts 600, 668, and 685 of the Federal Direct Consolidation Loan loans in full before the Direct Loans are
Program. In order to reflect a statutory paid in full.
RIN 1840–AC18 change made by the Higher Education Section 685.204 also has been
Technical Amendments of 1993, Public amended to add language that reflects
William D. Ford Federal Direct Loan
Law 103–208, this section also has been the existing policy in the Direct Loan
Program; Institutional Eligibility Under
amended to clarify that a borrower may Program that a borrower who has
the Higher Education Act of 1965, as
make satisfactory repayment defaulted on the repayment of a Direct
Amended; Student Assistance General
arrangements on a defaulted Direct Loan Loan generally is not eligible for a
for the purposes of regaining title IV deferment. However, comparable to
AGENCY: Department of Education. eligibility only one time. § 682.210(a)(8) in the FFEL Program,
ACTION: Final Regulations. Section 685.200 has been amended to § 685.204(e) allows a borrower who has
accurately reflect the requirement that a defaulted on a Direct Loan to be eligible
SUMMARY: This document contains student must be enrolled or accepted for for a deferment if the borrower contacts
corrections and other technical changes enrollment on at least a half-time basis the Direct Loan Servicing Center and
to the William D. Ford Federal Direct in order to be eligible to receive a Direct makes payment arrangements
Loan (Direct Loan) Program final Loan. Paragraph (c) of this section has satisfactory to the Secretary.
regulations published in the Federal been amended to clarify the definition Section 685.205 has been corrected to
Register on December 1, 1994 (59 FR of ‘‘satisfactory repayment arrangement’’ state that a borrower, not the endorser,
61664). These regulations apply to loans for the purpose of consolidating a must be the recipient of a national
under the Federal Direct Stafford/Ford defaulted loan. Further, this section has service educational award in order to
Loan Program, the Federal Direct been amended to correct a grammatical qualify for forbearance.
Unsubsidized Stafford/Ford Loan error in the text and an error in a cross- Section 685.212 has been amended to
Program, the Federal Direct PLUS reference to another section in Part 685. clarify which payments the Secretary
Program, and the Federal Direct Section 685.202 clarifies the interest returns to a borrower when a loan is
Consolidation Loan Program, rate calculations for Direct Subsidized discharged. Once the Secretary receives
collectively referred to as the Direct and Direct Unsubsidized Loans. The 2.5 acceptable documentation that a
Loan Program. The Secretary also percentage point adjustment on the borrower is eligible for a specific
corrects minor technical errors and interest rate for in-school, grace, and discharge, any payments received
omissions in the Institutional Eligibility deferment periods only applies to loans during the period between the date the
regulations contained in 34 CFR Part first disbursed on or after July 1, 1995. borrower met the eligibility
600, Subpart A, and the Student For loans disbursed prior to July 1, requirements and the date the discharge
Assistance General Provisions 1995, the interest rate calculation for all was approved will be returned to the
regulations contained in 34 CFR Part periods is based on a 3.1 percentage person who sent the payment.
668, Subpart B. point adjustment. Furthermore, any payments received
Paragraphs (b)(1) through (5) of after the date the discharge was
EFFECTIVE DATE: These regulations take § 685.202 clarify that the Secretary does approved will be returned to the person
effect July 12, 1996. not capitalize all interest that has who sent the payment.
FOR FURTHER INFORMATION CONTACT: Ms. accrued on a borrower’s principal Section 685.214 has been amended to
Meredith Merrill, Program Specialist, balance. Instead, the Secretary only conform with the technical corrections
U.S. Department of Education, 600 capitalizes the amount of interest that made in § 685.301.
Independence Avenue, S.W. (ROB–3, accrues on the loan amount that the Section 685.215 has been amended to
Room 3053), Washington, DC 20202– borrower has not paid. specify which loans under subpart II of
5400. Telephone: (202) 708–9406. Paragraph (b)(2) of § 685.202 is part A of title VII of the Public Health
Individuals who use a amended to clarify that, when a Service Act may be consolidated into a
telecommunications device for the Deaf borrower enters repayment, the Direct Consolidation Loan. Paragraph
(TDD) may call the Federal Information Secretary will capitalize the unpaid (d) of this section is amended to reflect
Relay Service (FIRS) at 1–800–877–8339 interest that accrued during the in- terminology consistent with the
between 8 a.m. and 8 p.m., Eastern time, school and grace periods on a Direct definitions in § 685.102(b). This section
Monday through Friday. Unsubsidized Consolidation Loan that also has been amended to specify that
SUPPLEMENTARY INFORMATION: The is eligible for a grace period. the limit on collection costs charged to
following regulations are amended to Paragraph (b)(3) of § 685.202 also a borrower who consolidates a defaulted
clarify the regulations and to correct clarifies the Secretary’s intent that the loan applies only to defaulted Direct
errors and omissions in the text of the limit on the amount of interest that is Loans and FFEL Program loans.
Direct Loan Program final regulations capitalized under the Income Section 685.301 clarifies that,
published on December 1, 1994 (59 FR Contingent Repayment and Alternative although certain circumstances allow
61664), the Institutional Eligibility Repayment plans does not apply during for a late disbursement of a loan, a
regulations, 34 CFR Part 600, and the periods of deferment for unsubsidized school must originate a loan while the
Student Assistance General Provisions loans and does not apply during periods student meets the borrower eligibility
regulations, 34 CFR Part 668. of forbearance for any Direct Loan. requirements in § 685.200. The
Section 685.204 has been amended to terminology in this section has been
The Direct Loan Program clarify that a Direct Loan borrower who changed to reflect that schools certify
Section 685.102 has been amended to has an outstanding balance on a FFEL loan information in the Direct Loan
correct a typographical error in a Program loan made prior to July 1, 1993, Program by means of the origination
reference to the Federal Family at the time he or she applies for a first process.
Education Loan (FFEL) Program and to Direct Loan, will remain eligible for the Section 685.301 also has been
include a reference to grace period, FFEL Program deferments on all Direct amended to clarify that a Direct Loan
which was inadvertently omitted in the Loans until all loans with those may be disbursed in a single installment
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations 29899

prior to the midpoint of the loan period General Provisions Regulatory Flexibility Act Certification
if the date of the scheduled The Secretary certifies that these
Section 668.15 has been amended to
disbursement coincides with the regulations will not have significant
clarify that the audit described in
beginning of the next scheduled term for economic impact on a substantial
paragraph (e)(1) also may be performed
which the school has an anticipated by State auditors if they meet the number of small entities. Small entities
disbursement date. For example, a independence requirements of affected by these regulations are small
borrower at a term-based school that Government Auditing Standards. institutions of higher education. These
uses quarter hours would be allowed to regulations contain technical
receive the first and second Direct Loan Waiver of Proposed Rulemaking amendments designed to clarify and
disbursements in a single installment at In accordance with the correct current regulations. The changes
the beginning of the second quarter even Administrative Procedure Act, 5 U.S.C. will not have a significant economic
though this may occur prior to the mid- 553, it is the practice of the Secretary to impact on the institutions affected.
point of the loan period. offer interested parties the opportunity Assessment of Educational Impact
Section 685.303 has been amended to to comment on proposed regulations.
However, the regulatory changes in this The Secretary has determined that the
clarify that a school must determine
document are necessary to correct minor regulations in this document would not
whether or not a student has
technical errors and omissions in the require transmission of information that
continuously maintained eligibility
Direct Loan Program final regulations is being gathered by or is available from
before Direct PLUS proceeds are
published on December 1, 1994, the any other agency or authority of the
disbursed to the parent borrower.
Institutional Eligibility regulations, 34 United States.
Paragraph (d) of this section has been
amended to clarify that a school may CFR Part 600, and the Student List of Subjects
not make a late disbursement to a Assistance General Provisions
regulations, 34 CFR Part 668. The 34 CFR Parts 600 and 668
borrower that exceeds the student’s cost
of attendance for the period of changes in this document do not Administrative practice and
enrollment completed by the student. establish any new substantive rules. procedure, Colleges and universities,
Further, paragraph (d) clarifies that a Therefore, the Secretary has determined Consumer protection, Education, Grant
school may not make a late that publication of a proposed rule is programs-education, Loan programs-
disbursement if the student’s last unnecessary and contrary to the public education, Reporting and recordkeeping
recorded date of attendance is earlier interest under 5 U.S.C. 553(b)(B). requirements, Student Aid.
than the 30th day of the period of Executive Order 12866 34 CFR Part 685
enrollment if the loan was subject to the Administrative practice and
30-day delayed disbursement These final regulations have been
reviewed in accordance with Executive procedure, Colleges and universities,
requirements for first-year, first-time Education, Loan programs-education,
borrowers. These requirements are the Order 12866. Under the terms of the
order, the Secretary has assessed the Reporting and recordkeeping
same as in the FFEL Program. requirements, Student Aid, Vocational
potential costs and benefits of this
Section 685.305 has been amended to regulatory action. education.
clarify those procedures a school must (Catalog of Federal Domestic Assistance
The potential costs associated with
follow for determining the withdrawal these final regulations are those Numbers: 84.007 Federal Supplemental
date for a student who did not return for resulting from statutory requirements Education Opportunity Grant Program;
the next scheduled term following a 84.032 Federal Stafford Loan Program; 84.032
and those determined by the Secretary Federal PLUS Program; 84.032 Federal
summer break. This section also is as necessary for administering these
amended to correct an error in the cross- Supplemental Loans for Students Program;
programs effectively and efficiently. 84.033 Federal Work Study Program; 84.038
reference to the Student Assistance Burdens specifically associated with Federal Perkins Loan Program; 84.063
General Provisions regulations. information collection requirements, if Federal Pell Grant Program; 84.069 Federal
Institutional Eligibility any, are identified and explained State Student Incentive Grant Program;
elsewhere in this preamble under the 84.268 William D. Ford Federal Direct Loan
Section 600.5 has been amended to heading Paperwork Reduction Act of Program; and 84.272 National Early
correct a technical error which 1995. Intervention Scholarship and Partnership
references the manner in which certified In assessing the potential costs and
Dated: June 3, 1996.
public accountants must examine the benefits—both quantitative and
accuracy of a proprietary institution’s Richard W. Riley,
qualitative—of these final regulations,
calculations regarding the 85 percent the Secretary has determined that the Secretary of Education.
rule contained in § 600.5(a)(8). benefits of the regulations justify the The Secretary amends Parts 600, 668,
Paragraph (e) of this section was costs. and 685 of title 34 of the Code of
mistakenly amended in the Federal The Secretary has also determined Federal Regulations as follows:
Register of November 29, 1994, to that this regulatory action does not
reference an accountant performing an unduly interfere with State, local, and PART 685—WILLIAM D. FORD
‘‘agreed-upon procedures attestation tribal governments in the exercise of FEDERAL DIRECT LOAN PROGRAM
engagement.’’ This paragraph has been their governmental functions. 1. The authority citation for Part 685
corrected to accurately reflect the is revised to read as follows:
Paperwork Reduction Act of 1995
Secretary’s intent that a certified public
Authority: 20 U.S.C. 1087a et seq., unless
accountant must engage in an These regulations have been otherwise noted.
‘‘examination’’ level attestation examined under the Paperwork
agreement under which he or she Reduction Act of 1995 and have been § 685.102 [Amended]
examines management’s assertions that found to contain no information 2. In § 685.102, paragraph (a)(3),
it satisfied the 85 percent requirement. collection requirements. introductory text, after the word ‘‘Loan’’
29900 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations

remove the word ‘‘Program’’; in beginning on July 1 and ending on June 9. In § 685.215, paragraph (b)(19), add
paragraph (b), in the definition of 30 is determined on the June 1 ‘‘and Loans for Disadvantaged Students
‘‘Federal Direct Consolidation Loan immediately preceding that period. The (LDS) made under subpart II of part A
Program’’, in paragraph (1), add ‘‘, interest rate is equal to the bond of title VII of the Public Health Service
grace,’’ after ‘‘in-school’’; in the equivalent rate of 91-day Treasury bills Act’’ after ‘‘(HPSL)’’; paragraph (b)(21) is
definition of ‘‘Satisfactory repayment auctioned at the final auction held prior removed; paragraph (b)(22) is
arrangement’’, at the end of paragraph to that June 1 plus 2.5 percentage redesignated as (b)(21); in redesignated
(1), add a new sentence to read, ‘‘A points, but does not exceed 8.25 paragraph (b)(21), remove the word
borrower may only obtain the benefit of percent. ‘‘Loans’’ and add, at the beginning of the
this paragraph with respect to renewed (B) During all other periods. The paragraph, the words ‘‘Nursing loans’’;
eligibility once.’’. interest rate during any twelve-month in paragraph (c)(3) remove ‘‘(22)’’ and
3. In § 685.200, paragraph (a)(1)(i), period beginning on July 1 and ending add, in its place, ‘‘(21)’’; paragraph (d)
add ‘‘, or accepted for enrollment, on at on June 30 is determined on the June 1 (1)(ii)(E) is revised; and, in paragraph
least a half-time basis’’ after the word immediately preceding that period. The (f)(1)(iii), add ‘‘Direct Loan or FFEL
‘‘enrolled’’; in paragraph (b)(7)(iii), interest rate is equal to the bond Program’’ before the word ‘‘loan’’ to
remove the word ‘‘is’’ after the word equivalent rate of 91-day Treasury bills read as follows:
‘‘history’’; and paragraph (c) is revised auctioned at the final auction held prior
to read as follows: § 685.215 Consolidation.
to that June 1 plus 3.1 percentage
points, but does not exceed 8.25 * * * * *
§ 685.200 Borrower eligibility. (d) * * *
* * * * * (1) * * *
(c) Defaulted FFEL Program and * * * * * (ii) * * *
Direct Loan borrowers. Except as noted 5. In § 685.204, in paragraph (b), (E) In default but has made
in § 685.215(d)(1)(ii)(F), in the case of a remove ‘‘paragraph (d)’’ and add, in its satisfactory repayment arrangements, as
student or parent borrower who is place, ‘‘paragraphs (d) and (e)’’; in defined in paragraph (2) of that term
currently in default on an FFEL Program paragraph (d) introductory text, add under § 685.102(b), on the defaulted
or a Direct Loan Program Loan, the ‘‘borrower’s first’’ before ‘‘Direct Loan’’, loan; or
borrower shall make satisfactory and add new paragraph (e) to read as * * * * *
repayment arrangements, as described follows: 10. In § 685.301, in the section
in paragraph (2) of the definition of that § 685.204 Deferment.
heading, remove the word
term under § 685.102(b), on the ‘‘Certification’’ and add, in its place,
* * * * * ‘‘Origination’’; paragraph (a)(1) is
defaulted loan.
(e) A borrower whose loan is in revised; in paragraph (a)(3) introductory
* * * * * default is not eligible for a deferment,
4. In § 685.202, paragraph (a)(1)(i), text, remove the word ‘‘certify’’ and add,
unless the borrower has made payment in its place, ‘‘originate’’; in paragraph
before the first sentence, add, ‘‘Loans
arrangements satisfactory to the (a)(4)(ii), remove the word ‘‘certifies’’
first disbursed prior to July 1, 1995.’’;
Secretary. and add, in its place, ‘‘originates’’; in
remove the words, ‘‘in repayment’’ and
add, in their place, ‘‘during all periods’’; § 685.205 [Amended] paragraph (b)(2)(iv), add ‘‘or if the date
paragraph (a)(1)(ii) is revised; in of the first disbursement coincides with
6. In § 685.205, paragraph (a)(4), the beginning of the second or
paragraph (b)(1), add the word ‘‘unpaid’’ remove the words, ‘‘or endorser’’.
before the word ‘‘accrued’’; in paragraph subsequent semester, quarter, or similar
7. In § 685.212, paragraph (f) is division of the loan period for which the
(b)(2), add ‘‘or a Direct Unsubsidized
revised to read as follows: loan was made,’’ after ‘‘made’’ to read as
Consolidation Loan that qualifies for a
grace period’’ after ‘‘Direct § 685.212 Discharge of a loan obligation. follows:
Unsubsidized Loan’’, add the word * * * * * § 685.301 Origination of a loan by a Direct
‘‘unpaid’’ before the word ‘‘interest’’; in (f) Payments received after eligibility Loan Program school.
paragraph (b)(3), remove the word ‘‘For’’ for discharge. Upon receipt of (a) * * *
and add ‘‘Notwithstanding acceptable documentation and approval (1) A school participating in the
§ 685.208(g)(5) and § 685.209(d)(3), for’’ of the discharge request, the Secretary Direct Loan Program shall ensure that
at the beginning of the sentence, add the returns to the sender, or, for a discharge any information it provides to the
word ‘‘unpaid’’ after the words based on death, the borrower’s estate, Secretary in connection with loan
‘‘capitalizes the’’; in paragraph (b)(4), those payments received after the date origination is complete and accurate. A
add the word ‘‘unpaid’’ after the word that the eligibility requirements for school shall originate a Direct Loan
‘‘capitalizes’’, remove the words, discharge were met but prior to the date while the student meets the borrower
‘‘payable by the borrower’’; in paragraph the discharge was approved. The eligibility requirements of § 685.200.
(b)(5), add the word ‘‘unpaid’’ after the Secretary also returns any payments Except as provided in 34 CFR Part 668,
word ‘‘capitalize’’, and remove the received after the date the discharge was subpart E, a school may rely in good
words ‘‘payable by the borrower’’ to approved. faith upon statements made in the
read as follows: application by the student.
* * * * *
§ 685.202 Charges for which Direct Loan * * * * *
Program borrowers are responsible. § 685.214 [Amended] 11. In § 685.303, paragraph (b)(2)(i),
(a) * * * 8. In § 685.214, paragraph (a)(1)(iii), add ‘‘, or a parent in the case of a PLUS
(1) * * * before ‘‘in the occupation,’’ remove the Loan,’’ after ‘‘student’’, remove the
(ii) Loans first disbursed on or after word ‘‘certified’’ and add, in its place, words ‘‘whom the school determines’’
July 1, 1995. the word, ‘‘originated’’; in paragraph and add, in their place, ‘‘if the school
(A) During the in-school, grace, and (c)(1)(iii)(B), remove the word determines the student’’; remove ‘‘or’’ at
deferment periods. The interest rate ‘‘certified’’ and add, in its place, the the end of paragraph (d)(3)(i), remove
during any twelve-month period word, ‘‘originated’’. the period at the end of paragraph
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations 29901

(d)(3)(ii), and add, in its place, a semi- determining the student’s date of examination-level ‘‘attestation
colon, and add new paragraphs (d)(3) withdrawal except that the school must engagement’’ in accordance with the
(iii) and (iv) to read as follows: determine the student’s date of American Institute of Certified Public
withdrawal no later than 30 days after Accountants (AICPA’s) Statement on
§ 685.303 Processing loan proceeds. the start of the next scheduled term. Standards for Attestation Engagements
* * * * * (c) The school shall use the date #3, Compliance Attestation, and the
(d) * * * determined under paragraph (a) or (b) of certified public accountant shall include
(3) * * * this section for the purpose of reporting that attestation report with the audit
(iii) A late disbursement to a borrower to the Secretary the student’s date of report referenced in paragraph (e)(1) of
if the student’s last recorded day of withdrawal and for determining when a this section.
attendance is earlier than the 30th day refund must be paid under § 685.306.
of the period of enrollment for which (3) The certified public accountant’s
(Authority: 20 U.S.C. 1087 et seq.) attestation report shall indicate whether
the loan is intended if the loan was
subject to the delayed disbursement the institution’s determination that the
PART 600—INSTITUTIONAL percentage of its revenues derived from
under § 685.303(b)(4); or ELIGIBILITY UNDER THE HIGHER
(iv) A late disbursement that, title IV, HEA program funds is not more
EDUCATION ACT OF 1965, AS than 85 percent of its revenues, is
including all prior disbursements, AMENDED
exceeds a student’s documented accurate, i.e. fairly presented in all
educational costs for the period of 1. The authority citation for Part 600 material respects.
enrollment completed by the student continues to read as follows: * * * * *
before the student ceased to be enrolled Authority: 20 U.S.C. 1088, 1091, 1094,
at the school on at least a half-time 1099b, 1099c, and 1141, unless otherwise PART 668—STUDENT ASSISTANCE
* * * * * 2. Section 600.5 is amended by
12. Section 685.305 is revised to read revising paragraph (e) to read as follows: 1. The authority citation for Part 668
as follows: continues to read as follows:
§ 600.5 Proprietary institution of higher Authority: 20 U.S.C. 1085, 1088, 1091,
§ 685.305 Determining the date of a education. 1092, 1099c, and 1141, unless otherwise
student’s withdrawal. * * * * * noted.
(a) Except as provided in paragraph (e)(1) An institution shall substantiate
(b) of this section, a school shall follow the required calculations in paragraph § 668.15 [Amended]
the procedures in 34 CFR 668.22(j) for (a)(8) of this section by having the 2. In § 668.15, paragraph (e)(1), in the
determining the student’s date of certified public accountant who second sentence, remove, ‘‘certified
withdrawal. prepares its audited financial statement public accountant’’ and add, in its
(b) For a student who does not return required under 34 CFR 668.15 report on place, ‘‘auditor’’; remove ‘‘generally
for the next scheduled term following a the accuracy of its determination that accepted auditing standards’’ and add,
summer break, which includes any the percentage of its revenues derived in its place, ‘‘Government Auditing
summer term(s) in which classes are from title IV, HEA program funds is not Standards’’.
offered but students are not generally more than 85 percent of its revenues.
required to attend, a school shall follow (2) The certified public accountant’s [FR Doc. 96–14820 Filed 6–11–96; 8:45 am]
the procedures in 34 CFR 668.22(j) for report shall be based on performing an BILLING CODE 4000–01–P

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