[Federal Register: July 1, 2008 (Volume 73, Number 127)] [Proposed Rules] [Page 37693-37725] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr01jy08-15] [[Page 37693]] ----------------------------------------------------------------------- Part IV Department of Education ----------------------------------------------------------------------- 34 CFR Parts 674, 682 and 685 Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Proposed Rule [[Page 37694]] ----------------------------------------------------------------------- DEPARTMENT OF EDUCATION 34 CFR Parts 674, 682 and 685 [Docket ID ED-2008-OPE-0009] RIN 1840-AC94 Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Notice of proposed rulemaking. ----------------------------------------------------------------------- SUMMARY: The Secretary proposes to amend the Federal Perkins Loan (Perkins Loan) Program, Federal Family Education Loan (FFEL) Program, and William D. Ford Federal Direct Loan (Direct Loan) Program regulations. These proposed regulations are needed to implement provisions of the Higher Education Act of 1965 (HEA), as amended by the College Cost Reduction and Access Act of 2007 (CCRAA). DATES: We must receive your comments on or before August 15, 2008. ADDRESSES: Submit your comments through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. We will not accept comments by fax or by e-mail. Please submit your comments only one time, in order to ensure that we do not receive duplicate copies. In addition, please include the Docket ID at the top of your comments. Federal eRulemaking Portal: Go to http:// www.regulations.gov to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments, and viewing the docket, is available on the site under ``How To Use This Site.'' Postal Mail, Commercial Delivery, or Hand Delivery. If you mail or deliver your comments about these proposed regulations, address them to Nikki Harris, U.S. Department of Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502. Privacy Note: The Department's policy for comments received from members of the public (including those comments submitted by mail, commercial delivery, or hand delivery) is to make these submissions available for public viewing on the Federal eRulemaking Portal at http://www.regulations.gov. All submissions will be posted to the Federal eRulemaking Portal without change, including personal identifiers and contact information. FOR FURTHER INFORMATION CONTACT: Nikki Harris, U.S. Department of Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502. Telephone: (202) 219-7050 or via the Internet at: Nikki.Harris@ed.gov. If you use a telecommunications device for the deaf, call the Federal Relay Service (FRS), toll free, at 1-800-877-8339. Individuals with disabilities can obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT. SUPPLEMENTARY INFORMATION: Invitation To Comment As outlined in the section of this notice entitled ``Negotiated Rulemaking,'' significant public participation, through three public hearings and four negotiated rulemaking sessions, has occurred in developing this notice of proposed rulemaking (NPRM). Therefore, in accordance with the requirements of the Administrative Procedure Act, the Department invites you to submit comments regarding these proposed regulations on or before August 15, 2008. To ensure that your comments have maximum effect in developing the final regulations, we urge you to identify clearly the specific section or sections of the proposed regulations that each of your comments addresses and to arrange your comments in the same order as the proposed regulations. We invite you to assist us in complying with the specific requirements of Executive Order 12866, including its overall requirements to assess both the costs and the benefits of the intended regulation and feasible alternatives, and to make a reasoned determination that the benefits of this intended regulation justify its costs. Please let us know of any further opportunities we should take to reduce potential costs or increase potential benefits while preserving the effective and efficient administration of the programs. During and after the comment period, you may inspect all public comments about these proposed regulations by accessing Regulations.gov. You may also inspect the comments in person in room 8033, 1990 K Street, NW., Washington, DC between the hours of 8:30 a.m. and 4 p.m. Eastern Time, Monday through Friday of each week except Federal holidays. Assistance to Individuals With Disabilities in Reviewing the Rulemaking Record On request, we will supply an appropriate aid, such as a reader or print magnifier, to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for these proposed regulations. If you want to schedule an appointment for this type of aid, please contact the person listed under FOR FURTHER INFORMATION CONTACT. Negotiated Rulemaking Section 492 of the HEA requires the Secretary, before publishing any proposed regulations for programs authorized by title IV of the HEA, to obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations from the public, including individuals and representatives of groups involved in the Federal student financial assistance programs, the Secretary must subject the proposed regulations to a negotiated rulemaking process. All proposed regulations that the Department publishes on which the negotiators reached consensus must conform to final agreements resulting from that process unless the Secretary reopens the process or provides a written explanation to the participants stating why the Secretary has decided to depart from the agreements. Further information on the negotiated rulemaking process can be found at http:/ /www.ed.gov/policy/highered/reg/hearulemaking/2008/index2008.html. On October 22, 2007,the Department published a notice in the Federal Register (72 FR 59494) announcing our intent to establish up to two negotiated rulemaking committees to prepare proposed regulations. One committee would focus on issues related to the new TEACH Grant Program (TEACH Grant Committee). A second committee would address Federal student loans (Loans Committee). The notice requested nominations of individuals for membership on the committees who could represent the interests of key stakeholder constituencies on each committee. The Loans Committee met to develop proposed regulations during the months of January 2008, February 2008, March 2008, and April 2008. This NPRM resulted from the work of the Loans Committee and proposes regulations relating to the administration of the Federal student loan programs. The Department developed a list of proposed regulatory provisions from advice and recommendations submitted by individuals and organizations as testimony to the Department in a series of three public hearings held on: [[Page 37695]] November 2, 2007, at the Sheraton New Orleans, New Orleans, Louisiana. November 16, 2007, at the U.S. Department of Education in Washington, DC. November 29, 2007, at the Manchester Grand Hyatt San Diego, San Diego, California. In addition, the Department accepted written comments on possible regulatory provisions submitted directly to the Department by interested parties and organizations. A summary of all comments received orally and in writing is posted as background material in the docket. Transcripts of the regional meetings can be accessed at http:// www.ed.gov/policy/highered/reg/hearulemaking/2008/index2008.html. Staff within the Department also identified issues for discussion and negotiation. At its first meeting, the Loans Committee reached agreement on its protocols and proposed agenda. These protocols provided that the non- Federal negotiators would participate in the negotiated rulemaking process based on each Committee member's experience and expertise and would not represent specific constituencies. The Loans Committee included the following members: Luke Swarthout, U.S. Public Interest Research Group, and Rebecca Thompson (alternate), United States Student Association. Carrie Steere-Salazar, Association of American Medical Colleges, and Radhika Miller (alternate), National Lawyers Guild Partnership for Civil Justice. Deanne Loonin, National Consumer Law Center, and Lauren Saunders (alternate), National Consumer Law Center. Allison Jones, California State University, and Anna Griswold (alternate), Pennsylvania State University. Eileen O'Leary, National Direct Student Loan Coalition, and Kathleen Koch (alternate), Seattle University School of Law. George Chin, University Director of Student Financial Assistance, The City University of New York, and John Curtice (alternate), The State University of New York System Administration. Mark Pelesh, Corinthian Colleges, and Tammy Halligan, (alternate), Career College Association. Tom Levandowski, Wachovia Corporation, and Walter Balmas (alternate), MyRichUncle Student Loans. Scott Giles, Vermont Student Assistance Corporation, and Phil Van Horn (alternate), Wyoming Student Loan Corporation. Gene Hutchins, New Jersey Higher Education Student Assistance Authority, and Dick George (alternate), Great Lakes Higher Education Guaranty Corporation. Wanda Hall, Edfinancial Services, and Robert Sommer (alternate), Sallie Mae. Martin Damian, Windham Professionals, and Carl Perry (alternate), Progressive Financial Services, Inc. Anne Gross, National Association of College and University Business Officers, and Larry Zaglaniczny (alternate), National Association of Student Financial Aid Administrators. Dan Madzelan, U.S. Department of Education. These protocols also provided that, unless agreed to otherwise, consensus on all of the amendments in the proposed regulations had to be achieved for consensus to be reached on the entire NPRM. Consensus means that there must be no dissent by any member. During its meetings, the Loans Committee reviewed and discussed drafts of proposed regulations. At the final meeting in April 2008, the Loans Committee reached consensus on all of the proposed regulations in this document. More information on the work of the Loans Committee can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2008/ loans.html. Following the Loans Committee's final meeting the proposed regulations were reviewed by the Department of Defense (DOD) and the Department of Health and Human Services (HHS). Based on the comments we received from DOD and HHS, we made technical changes to the proposed regulations. HHS pointed out that the correct technical term for the specific set of dollar figures published annually by HHS for use in determining eligibility for certain programs is ``the poverty guidelines'' rather than ``the poverty line guidelines.'' The poverty guidelines are used to determine whether a title IV borrower is eligible for an economic hardship deferment or has a partial financial hardship under the IBR plan. HHS recommended that we replace all references to ``the poverty line guidelines'' in the proposed regulations with the term ``poverty guidelines.'' We agreed and made this change. DOD questioned one provision in the proposed definition of ``active duty'' for purposes of determining a borrower's eligibility for the post-active duty student deferment in the Federal Perkins, FFEL, and Direct Loan programs. DOD indicated that the reference to ``section 101(19) of title 32'' in proposed 34 CFR 674.34(i)(2)(iv), 682.210(u)(2)(iv), and 685.204(f)(2)(iv) was incorrect because State active duty, which is not Federally funded, would not be covered under section 101(19) of title 32, but under State law and regulations. To correct the reference and to accomplish the goal of the proposed provision, which was to exclude from deferment eligibility those individuals who are employed in permanent full-time positions with the National Guard unless they are subject to a further call-up to active State duty, DOD recommended language that we have substantively incorporated in the relevant sections of the proposed regulations. These proposed regulations would implement a new loan repayment plan and a new loan forgiveness program created by the CCRAA. In addition, these proposed regulations would implement several other provisions enacted by the CCRAA that relate to the title IV HEA loan programs. The CCRAA added a new income-based repayment (IBR) plan to the FFEL and Direct Loan Programs. Under the IBR plan, effective July 1, 2009, a borrower who has a partial financial hardship is eligible to make reduced monthly payments on his or her loan for a period of up to 25 years, after which the Secretary cancels any remaining principal and accrued interest on the loan, provided the borrower meets certain requirements. The CCRAA also added the new Public Service Loan Forgiveness program to the Direct Loan Program. Under this loan forgiveness program, the Secretary forgives any remaining principal and accrued interest on a borrower's eligible Direct Loan if, after October 1, 2007, the borrower makes 120 monthly payments on the loan while the borrower is employed full-time in a public service job. The CCRAA provides that a FFEL borrower may obtain a Direct Consolidation Loan if the borrower wants to participate in the Public Service Loan Forgiveness Program, but this provision does not take effect until July 1, 2008. This NPRM also addresses changes made by the CCRAA to military and economic hardship deferments, special allowance payments, and not-for- profit holders under the FFEL Program. Significant Proposed Regulations We group major issues according to subject, with appropriate sections of the proposed regulations referenced in parentheses. We discuss substantive issues under the sections of the [[Page 37696]] proposed regulations to which they pertain. Generally, we do not address proposed regulatory provisions that are technical or otherwise minor in effect. Economic Hardship Deferment (Sec. Sec. 674.34 and 682.210) Statute: Section 435(o) of the HEA defines economic hardship as when a borrower is working full-time and is earning an amount that does not exceed either an amount equal to 150 percent of the poverty guideline applicable to the borrower's family size or the Federal minimum wage rate. The poverty guidelines are issued annually by the Department of Health and Human Services (HHS). The statute also authorizes the Secretary to establish other criteria by regulation. Any regulatory criteria added by the Secretary would have to consider a borrower's income and debt-to-income ratio as primary factors. Current Regulations: The regulations governing the economic hardship deferment in the FFEL, Direct Loan, and Federal Perkins Loan programs were amended on November 1, 2007 (72 FR 61960) to incorporate the change in the eligibility standard enacted as part of the CCRAA. The CCRAA changed the applicable standard used to determine eligibility for the deferment from ``an amount equal to 100 percent of the poverty line for a family of two, as determined in accordance with section 673(2) of the Community Service Block Grant Act'' to ``an amount equal to 150 percent of the poverty line applicable to the borrower's family size, as determined in accordance with section 673(2) of the Community Service Block Grant Act.'' The current regulations also include criteria under which a borrower could qualify for the deferment if the borrower is: (1) Working full-time and has a Federal educational debt burden that equals or exceeds 20 percent of the borrower's monthly income, and that income, minus the borrower's Federal education debt burden, is less than 220 percent of either the Federal minimum wage rate or the poverty guideline, or (2) working less than full-time and has a monthly income that does not exceed twice the Federal minimum wage rate or poverty guideline and, after deducting the borrower's Federal education debt burden, the remaining amount of that income does not exceed the Federal minimum wage rate or the poverty guideline. Proposed Regulations: The Secretary proposes to amend the regulations governing eligibility for an economic hardship deferment to include a definition of family size. The proposed definition of family size would be the number that is determined by counting the borrower, the borrower's spouse, and the borrower's children, if the children receive more than half their support from the borrower. A borrower's family size could include other individuals if, at the time the borrower requests the economic hardship deferment, the other individuals reside with the borrower and receive more than half of their support from the borrower, and if they will continue to receive that support from the borrower. The kinds of support provided by the borrower to the individual could include money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs. The proposed regulations also would remove the reference to ``section 673(2) of the Community Service Block Grant Act'' and substitute, in its place, a reference to ``the Department of Health and Human Services guidelines pursuant to 42 U.S.C. 9902(2).'' The regulations also would specify that 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. Finally, the proposed regulations would eliminate both the economic hardship criterion for a borrower who is working full-time and has a 20/220 debt-to-income ratio, and the corresponding debt-to-income ratio criterion for a borrower who is working part-time. Reasons: A definition of family size is not currently part of the poverty guidelines. A definition is now necessary because the applicable poverty guideline used to determine whether a borrower has an economic hardship is based on the borrower's family size at the time the borrower requests, or applies for renewed eligibility for, the deferment. A standard definition is needed to ensure that borrowers are treated equitably in determining economic hardship. Because they share the same statutory basis in section 435(o) of the HEA, the proposed definition of family size for the purpose of determining eligibility for an economic hardship deferment is also the definition proposed for use to determine a borrower's partial economic hardship under the new IBR plan. The proposed regulations would clarify that HHS is the source of the poverty guidelines and provide guidance on the treatment of a borrower who is not residing in a ``State'' identified in the poverty guidelines. In particular, the proposed regulations address situations in which a borrower resides in a foreign country when the borrower applies for the deferment. Some non-Federal negotiators indicated that they believed that the Department's prior operational guidance on economic hardship deferments directed them to use the poverty guideline for the State in which the borrower last resided. However, the borrower's last residence in that State might be many years in the past and irrelevant to the borrower's current circumstances. Moreover, such an approach could result in using a more favorable poverty guideline for borrowers who formerly resided in either Alaska or Hawaii than borrowers who formerly lived in one of the 48 contiguous States. In light of these factors, the negotiators decided that using the contiguous 48-State poverty guideline for borrowers living outside the United States would be more equitable for similarly situated borrowers. The CCRAA eliminated the provision in section 435(o) of the HEA under which a borrower could be considered to have an economic hardship if the borrower was working full-time and had a Federal educational debt burden that equaled or exceeded 20 percent of the borrower's adjusted gross income (AGI). Previously, borrowers were eligible for an economic hardship deferment if they could demonstrate that they were working full-time and had a Federal education debt burden that equaled or exceeded 20 percent of the borrower's income, and that the borrower's income minus the borrower's Federal education debt burden would leave the borrower with an available income that was less than 220 percent of the Federal minimum wage rate or an amount equal to 150 percent of the poverty guideline based on the borrower's family size. A comparable debt-to-income ratio provision applied to borrowers working less than full-time. This has been referred to as ``the 20/220 rule.'' The Department retained the 20/220 rule in regulations published on November 1, 2007, so that borrowers could continue to qualify for an economic hardship deferment on this basis until the newly created IBR plan became operational on July 1, 2009. Consequently, a borrower who is in an economic hardship deferment under either one of the debt-to- income provisions (applicable to borrowers working full-time or on a less than full-time basis), with a deferment period that starts prior to July 1, 2009, will continue in that status for one year after the start date of that deferment period. However, no subsequent economic hardship deferment will be available under that [[Page 37697]] criterion for any deferment request made on or after July 1, 2009. Some non-Federal negotiators asked the Department to retain the 20/ 220 rule. They argued that the elimination of the rule would have an adverse impact on borrowers (i.e., some borrowers who would not have to make payments under the 20/220 rule would now be required to make payments), particularly on medical and other health professionals who have a large amount of student loan debt and will spend a number of years in low paying medical internships and residencies as part of their training. The Department believes, however, that Congress intended to eliminate the 20/220 rule and replace it with the new IBR plan that is meant to provide assistance to this kind of borrower during periods of limited earnings. Both the definition of partial financial hardship for purposes of the IBR plan and the criteria for economic hardship deferment are based on the definition of economic hardship in section 435(o) of the HEA. The Congress expanded the potential applicability of a partial financial hardship, which supports IBR eligibility, by changing the applicable poverty guideline for eligibility in section 435(o)(1)(A)(ii), while at the same time deleting section 435(o)(1)(B), which specifically supported the 20/220 criteria for the economic hardship deferment. The Department's action to retain the 20/220 rule in the November 1, 2007, regulations was designed to ease the transition for affected borrowers until the IBR plan is implemented. Although the IBR plan, unlike a deferment, does not permit a borrower to postpone payments, it does provide for reduced payments because borrowers who initially select the IBR plan must have a partial financial hardship. A borrower has a partial financial hardship if the annual amount due on all 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 most recent, documented AGI and 150 percent of the poverty guideline for the borrower's family size. Some borrowers in the IBR plan will not be required to make monthly loan payments. Other borrowers will have monthly payment amounts that are much less than those normally calculated under a standard repayment plan. Military Service Deferment and Post-Active Duty Student Deferment (Sec. Sec. 674.34, 682.210, 682.211, and 685.204) Statute: The Higher Education Reconciliation Act of 2005 (HERA) established a new military service deferment in the FFEL, Direct Loan, and Federal Perkins Loan programs for military personnel and members of the National Guard who are called to active duty military service during a war or other military operation or national emergency. The CCRAA expanded the military service deferment to allow all eligible borrowers to receive the deferment on all their outstanding title IV loans, rather than just on loans that were first disbursed on or after July 1, 2001, and eliminated the maximum three-year limit on the deferment. The CCRAA also extended the military service deferment for an additional 180 days following the date the borrower is demobilized from the qualifying active duty service. The expansion of the military deferment is for all periods of active duty service that include October 1, 2007, or begin on or after that date. The CCRAA also created a new post-active duty student deferment in the FFEL, Direct Loan, and Federal Perkins Loan programs for members of the National Guard or Armed Forces Reserve, and members of the Armed Forces who are in a retired status who are called or ordered to active duty service. The deferment is available for up to 13 months following the borrower's demobilization from active duty service. To be eligible, the borrower must have been called to active duty service while the borrower was enrolled in a program of instruction at an eligible institution or within six months of having been enrolled. The deferment expires if the borrower reenrolls in school. Active duty for the purpose of this deferment is defined in the CCRAA as active duty as the term is used in 10 U.S.C. section 101(d)(1); however, it does not include active duty for attendance at a service school or for training duty, and it does include active duty of members of the National Guard (``active State duty''). Consistent with the date of enactment of the CCRAA, the deferment is available to an eligible borrower who was serving on active duty on October 1, 2007, or was called to active duty service on or after that date. Current Regulations: The FFEL, Direct Loan, and Federal Perkins Loan program regulations governing the military service deferment were amended on November 1, 2007, to reflect the expansion of deferment benefits resulting from the CCRAA. The references in prior regulations to a three-year time limit and its applicability only to loans first disbursed on or after July 1, 2001 were removed from the regulations, and the new 180-day post-active duty deferment was added. A provision for the new 13-month post-active duty student deferment and the statutory definition of the term ``active duty'' for purposes of this deferment were also added to the regulations. Proposed Regulations: The proposed regulations would clarify the current regulations, incorporate guidance on the deferments that was provided to program participants in Dear Colleague Letter GEN-08-01 (issued January 8, 2008), and would provide relief to borrowers who may qualify for a post-active duty student deferment after demobilization, but do not qualify for the military service deferment during their active State duty service. The proposed regulations would clarify that the expansion of the military service deferment to include a 180-day post demobilization period, and the post-active duty student deferment would be available to borrowers who were serving on active duty on October 1, 2007, or who are called to active duty on or after that date. The proposed regulations in Sec. Sec. 674.34(i)(3), 682.210(u)(3), and 685.204(f)(1)(ii) would also clarify that a borrower's eligibility for the post-active duty student deferment terminates only 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 the grace period on a loan is not required to waive the grace period to use the 13-month post-active duty student deferment. The proposed regulations in Sec. Sec. 674.34(i)(2)(i) and (ii), 682.210(u)(2)(i) and (ii), and 685.204(f)(2)(i) and (ii) would also clarify that active State duty for members of the National Guard includes, for purposes of the post-active duty student deferment, both active 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 duty under which a Governor is authorized, with the approval of the President or U.S. Secretary of Defense to activate members of the National Guard and the activities are paid for with Federal funds. The proposed regulations in Sec. Sec. 674.34(i)(2)(iv), 682.210(u)(2)(iv), and 685.204(f)(2)(iv) would also specify that active duty for this purpose does not include a borrower who is serving in a full-time, permanent position of employment with the National Guard, [[Page 37698]] unless the borrower is reassigned as part of a call-up to active duty service. At the recommendation of DOD, the incorrect reference to section 101(19) of title 32, U.S.C. has been removed, as discussed elsewhere in this preamble. The proposed regulations also incorporate the Department's earlier guidance (Dear Colleague Letter GEN-08-01) on implementation of the CCRAA military-related deferment provisions. As provided in that guidance, the proposed regulations in Sec. Sec. 674.34(h)(7), 682.210(t)(9), and 685.204(e)(7) would authorize loan holders to grant a military service deferment to an otherwise eligible borrower for an initial deferment period not to exceed 12 months from the date the borrower's qualifying active duty service begins based on a request from either the borrower or the borrower's representative. Consistent with that earlier guidance, although supporting documentation is not required for this initial 12-month deferment period, it is required for any subsequent deferment period. Additionally, Sec. Sec. 674.34(i)(4), 682.210(u)(4), and 685.214(f)(4) of the proposed regulations would 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 those separate deferments runs concurrently. Finally, a change has been proposed in the FFEL program regulations in Sec. 682.211(h) governing mandatory forbearance that would require the loan holder to grant forbearance to a borrower who is called to active State duty for more than a 30-day period 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. Reasons: The negotiators agreed that the regulations governing the two military service-related deferments required clarifying amendments, and that the Department's earlier guidance should be included in the proposed regulations to ease program administration. That guidance addressed the October 1, 2007, effective date for the new benefits, and clarified that a borrower who received a military service deferment that began prior to October 1, 2007, would qualify for the extra 180 days of deferment if the borrower's period of military service included the October 1, 2007, date. Non-federal negotiators noted that the post-active duty student deferment does not relieve a borrower of the obligation to make payments on a student loan during the borrower's period of active duty military service. A borrower in an in-school status would be required to make payments after the initial grace period elapses. A borrower receiving an in-school deferment would be required to make payments on a student loan after the borrower drops below half-time status at the school and reports for active duty service. The non-federal negotiators recommended that the Department provide for a mandatory forbearance to cover this gap, so that borrowers who will qualify for a post-active duty student deferment, but are no longer in an in-school status or qualify for an in-school deferment, will not be obligated to make loan payments during the period of active duty service. The Department agreed with the non-federal negotiators. The proposed revisions to Sec. 682.211(h) provide for the mandatory forbearance to begin after the initial grace period elapses, for borrowers in an in-school status, and to begin after the borrower ceases enrollment, for borrowers who are in an in-school deferment at the time of the call to active duty. Some of the non-Federal negotiators expressed concern over the confusion that may result for borrowers and those assisting them with respect to the different eligibility requirements for the two different military service-related deferments. The negotiators discussed different approaches to providing information on the various forms of relief available to title IV student loan borrowers called to active duty military service, such as charts and brochures, but determined that these efforts were operational in nature and would not affect the regulations. Income-Based Repayment Plan Definitions (Sec. Sec. 682.215(a) and 685.221(a)) Partial Financial Hardship Statute: Section 493C(a)(3) of the HEA provides that a borrower has a partial financial hardship if the annual amount due on all of the borrower's eligible FFEL and Direct Loans (as calculated under a standard repayment plan based on a 10-year repayment period) exceeds 15 percent of the difference between the borrower's AGI and 150 percent of the poverty guideline for the borrower's family size. If a married borrower files a separate Federal income tax return, section 493C(d) of the HEA provides that only the borrower's income and student debt are used in determining the amount of the borrower's payment under the IBR plan. Proposed Regulations: Proposed Sec. Sec. 682.215(a)(4) and 685.221(a)(4) would incorporate the statutory definition of the term partial financial hardship. The proposed regulations would also incorporate the terms and definitions of ``AGI,'' ``family size,'' and ``poverty guideline'' from existing Sec. 682.210, which addresses how to determine whether a borrower qualifies for an economic hardship deferment. Under the proposed regulations, AGI would mean the income reported by the borrower to the Internal Revenue Service (IRS). For a married borrower filing jointly, AGI would include both the borrower's and spouse's income. If a married borrower files separately, AGI would include only the borrower's income. Under the proposed regulations, family size would include the borrower, the borrower's spouse, and the borrower's children if the children receive more than half their support from the borrower. Other individuals could be included in family size if, at the time the borrower certifies family size, those other individuals live with the borrower and receive more than half their support from the borrower and will continue to receive this support for the year the borrower certifies family size. Support would include money, gifts and payment of other expenses, including college costs. Under the proposed regulations, poverty income would be the income categorized by State and family size in the poverty guidelines. Finally, under the proposed regulations, the term ``eligible loan'' would refer to any outstanding FFEL or Direct Loan made to a borrower, except for a FFEL or Direct PLUS Loan made to a parent borrower or a FFEL or Direct Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a parent borrower. Reasons: For consistency and ease of administering the title IV loan programs, the definitions of AGI, family size, and poverty guidelines would be the same in all sections of the regulations to which they apply. While supporting this approach, some non-Federal negotiators suggested that AGI or the total amount of eligible loans should be adjusted in cases when a married borrower and his or her spouse both have outstanding loans, file a joint Federal tax return, and both qualify for IBR. In these cases, the combined monthly student loan payments of the borrower and the spouse could exceed the 15 percent payment threshold under the IBR plan. The Department acknowledged this possibility but noted that the negotiators' suggested change would be [[Page 37699]] inconsistent with the HEA. First, section 493C(d) of the HEA, as amended by Public Law 110-153, specifically provides for considering the individual AGI of one married borrower only when the borrower and the borrower's spouse file separate Federal tax returns. Second, section 493C(a)(3)(A) of the HEA requires that only the borrower's eligible loans, not the spouse's, are considered in determining whether the borrower has a partial financial hardship. Income-Based Payment Amount (Sec. Sec. 682.215(b) and 685.221(b)) Statute: Under section 493C(b)(1) of the HEA, the monthly payment amount of a borrower who qualifies for a partial financial hardship is determined by calculating 15 percent of the amount obtained by subtracting 150 percent of the borrower's poverty guideline from the borrower's AGI, and then dividing this amount by 12 (an example of this calculation is provided in Appendix A of this preamble). Proposed Regulations: If a borrower's eligible loans are held by more than one loan holder, proposed Sec. Sec. 682.215(b)(1) and 685.221(b)(2) would require each loan holder to adjust the amount of a borrower's calculated monthly payment. The borrower's adjusted monthly payment would be determined by multiplying the calculated monthly payment amount by the percentage of the total outstanding principal amount of eligible loans held by that holder (see the example in Appendix A of this preamble). If the borrower's calculated monthly payment is less than $5.00, the borrower would not be required to make a payment. If the borrower's calculated monthly payment is between $5.00 and $10.00, the borrower would be required to make a $10.00 payment. Reasons: Without the proposed adjustment by each loan holder of the borrower's eligible loans, a borrower who selects the IBR plan with two or more loan holders would have to make total monthly payments in excess of the statutory maximum. With regard to minimum monthly payment amounts, the Department initially proposed to adopt the $5.00 minimum monthly payment provision used in the Direct Loan Program income contingent repayment (ICR) plan. Under the ICR plan, a minimum payment of $5.00 is required whenever the borrower's calculated monthly payment is greater than zero but equal to or less than $5.00. The non-Federal negotiators argued that, because a borrower's calculated monthly payment amount under the IBR plan could be zero, a minimum $5.00 payment (or any payment amount over zero) would violate the 15 percent payment threshold. As a result, the Department agreed to allow zero payment amounts, which will require no collection action on the part of the loan holder. However, as an administrative matter, taking into consideration the cost of processing payments, the non-Federal negotiators agreed to the Department's proposal to establish a minimum payment of $10.00 whenever the borrower's calculated monthly payment is between $5.00 and $10.00. This represents a compromise approach for dealing with de minimis payment amounts for borrowers with low income and high debt. On one hand, it satisfies the concern of the non-Federal negotiators that a borrower with a calculated payment at or near zero should not have to make any payments. On the other hand, setting the minimum payment at $10 (an amount agreed to by the Loans Committee as part of the negotiations) mitigates the financial risk to FFEL loan holders, servicers, and the Department that the marginal cost of processing the payment is not more than the payment amount. Borrower Payments (Sec. Sec. 682.215(b), 682.215(c), 685.221(b), 685.221(c), and 682.300(b)) Statute: Section 493C(b)(2) of the HEA specifies that monthly loan payments made under the IBR plan are applied first toward interest due on the loan, next toward any fees, and then to the principal balance of the loan. In addition, section 493C(b)(3) provides that if the borrower's monthly payment does not cover the accrued interest on a subsidized loan, the Secretary will pay the interest for up to three years after the date the borrower elects IBR. The three-year period does not include any period during which a borrower receives an economic hardship deferment. Proposed Regulations: Proposed Sec. Sec. 682.215(c) and 685.221(c) would incorporate the provisions from the HEA regarding the order in which IBR payments are to be applied by a loan holder. Proposed Sec. Sec. 682.215(b)(4) and 682.300(b)(1)(iv) and (b)(2)(x) would provide that, if the borrower's payment is insufficient to pay the accrued interest on a loan, the Secretary pays the accrued interest on a subsidized Stafford Loan, or on the subsidized portion of a Consolidation Loan, to the FFEL loan holder for up to three consecutive years from the date that the borrower initially began repayment on each loan under the IBR plan. In the Direct Loan Program, proposed Sec. 685.221(b)(3) would provide that the Secretary will not charge interest to borrowers during this three-year period. In the proposed regulations for both the FFEL and Direct Loan Programs, the three-year period would not include any period during which a borrower receives an economic hardship deferment. Reasons: Some of the non-Federal negotiators believed that the statutory provisions regarding the three-year interest subsidy period were ambiguous in three respects. First, these negotiators believed that the date that a borrower elects the IBR plan could be interpreted to mean the date the borrower notified the holder, or any other date up to the date the borrower makes a payment under the IBR plan. Second, they believed it was unclear whether the three-year period was applicable to each of the borrower's loans or was the cumulative period of the borrower's eligibility for the subsidy payments. The proposed regulations would address both of these issues by providing that the three-year period starts on the date the borrower initially begins repayment on each loan under the IBR plan. Third, some of the non-Federal negotiators did not agree with the Department's determination that the three-year period is a consecutive period. The Department notes that section 493C(b)(3)(A) of the HEA specifically states that the subsidy period starts on the date the borrower selects the IBR plan and provides for only one type of interruption or break in the three-year period--economic hardship deferments. Therefore, once the subsidy period begins, it runs continuously for three years as long as the borrower's monthly payment under the IBR plan is not sufficient to pay the accrued interest on the borrower's loan. Changes in Payment Amount (Sec. Sec. 682.215(d) and 685.221(d)) Statute: For a borrower who no longer has a partial financial hardship, or who no longer wants to continue making income-based payments under the IBR plan, section 493C(b)(6) of the HEA provides that the maximum monthly payment the borrower may be required to make must not exceed the monthly amount calculated for the borrower under a 10-year repayment period when the borrower first entered IBR. Under either of these circumstances, the repayment period may exceed 10 years. Section 493C(b)(8) of the HEA also provides that a borrower who is paying under the IBR plan may elect, at any time, to terminate payment under the IBR plan and repay under the standard repayment plan. [[Page 37700]] Proposed Regulations: Proposed Sec. Sec. 682.215(d) and 685.221(d) would provide for the recalculation of the borrower's monthly payment if the borrower no longer has a partial financial hardship, chooses to stop making income-based payments, or elects to leave the IBR plan entirely. The proposed regulations provide that if a borrower no longer has a partial financial hardship or wishes to stop making income-based payments, but remains within the IBR plan, the maximum monthly amount that the borrower would be required to repay must be recalculated. The recalculated amount the borrower would be required to repay is the amount the borrower would have paid under the standard repayment plan with a 10-year repayment period based on the eligible loans that were outstanding at the time the borrower began repayment under the IBR plan. The proposed regulations would also provide that the borrower's total repayment period based on the recalculated payment amount may exceed 10 years. If a borrower no longer wishes to pay under the IBR plan, the proposed regulations would require the borrower to pay under the standard repayment plan for the remaining term available based on the borrower's initial standard repayment disclosure. The loan holder would recalculate the borrower's monthly payment based on the time remaining under the maximum 10-year repayment period for the amount of the borrower's loans that were outstanding at the time the borrower discontinued paying under the IBR plan. For a Consolidation Loan borrower who elects to leave the IBR plan, the applicable repayment period would be the repayment period remaining based on the total amount of that loan and the balance on other student loans that were outstanding at the time the borrower discontinued paying under the IBR plan. Reasons: The proposed regulations would reflect the statutory provisions in section 493C(b)(6) of the HEA, which require a loan holder to recalculate the borrower's monthly payment if the borrower no longer has a partial financial hardship, chooses to stop making income- based payments, or leaves the IBR plan entirely. The proposed regulations would also provide for a different calculation of monthly payment amounts for Consolidation Loans when a borrower elects to leave the IBR plan and must repay under a standard repayment plan. The Department is proposing this distinction because a Consolidation Loan can have a repayment period of up to 30 years. The negotiators agreed with this approach. Eligibility Documentation and Verification (Sec. Sec. 682.215(e) and 685.221(e)) Statute: Section 493C(c) of the HEA requires the Department to establish procedures for annually determining whether a borrower qualifies for IBR. These procedures include verifying the borrower's annual income and the annual amount due on the borrower's loans, and other procedures necessary to effectively implement the IBR plan. Proposed Regulations: Under proposed Sec. Sec. 682.215(e) and 685.221(e), the loan holder would determine whether a borrower has a partial financial hardship to qualify for the IBR plan for the year the borrower initially selects the plan and for each subsequent year that the borrower remains in the plan. To make this determination, the loan holder would require the borrower to (1) provide written consent to the disclosure of AGI and other tax return information by the IRS to the loan holder, and (2) annually certify family size. The borrower would provide consent by signing a consent form and returning it to the loan holder. If the borrower's AGI is not available, or the loan holder believes that the borrower's reported AGI does not reasonably reflect the borrower's current income, the proposed regulations would allow the loan holder to use other documentation provided by the borrower (for example, a current pay stub or unemployment benefits letter) to verify income. If the borrower fails to respond to a loan holder's request to certify family size for a particular year, the loan holder must assume a family size of one for that year. The proposed regulations would require the loan holder to place the borrower in a standard repayment plan if the borrower selects the IBR plan, but fails to provide the required written consent necessary for the loan holder to determine whether the borrower initially qualifies for the IBR plan. The proposed regulations also designate the recalculated monthly payment option as discussed under the ``Changes in Payment Amount'' for a borrower who no longer has a partial financial hardship or a borrower who fails to renew the required written consent for income verification (or withdraws that consent) but does not select another repayment plan. Reasons: If a borrower initially selects the IBR plan but fails to provide the necessary consent for securing income information, the loan holder would place the borrower into the standard repayment plan. This approach is consistent with the current FFEL and Direct Loan regulations that provide for a borrower to be placed on the standard repayment plan if the borrower selects the income-sensitive repayment plan in the FFEL Program or the ICR plan in the Direct Loan Program, but then fails to provide the information or authorization that is necessary for the borrower to enter that repayment plan. The non-Federal negotiators proposed that borrowers should be allowed to provide consent for the disclosure of income information for multiple years, rather than annually. Although the Department does not object to this proposal, the forms used to provide consent are IRS- produced forms. The Department has no authority to specify the period of time an IRS consent form may cover, so the proposed regulations do not specify the duration of the consent form. The Department initially proposed that a loan holder would automatically change the borrower's repayment option if the borrower fails to provide annual information on family size. The non-Federal negotiators recommended that the Department instead allow the borrower's family size to default to one in these cases to allow the loan holder to recalculate the borrower's eligibility for a partial financial hardship. If the borrower no longer qualifies for a partial financial hardship based on a family size of one, the loan holder would recalculate the borrower's monthly payment as discussed under ``Changes in Payment Amount.'' The Department agreed with this proposal. Loan Forgiveness (Sec. Sec. 682.215(f) and 685.221(f)) Statute: Section 493C(b)(7) of the HEA provides that the Department will repay or cancel the outstanding balance and accrued interest on an eligible loan for a borrower who participates in the IBR plan for a period not to exceed 25 years and meets certain requirements or makes qualifying payments during the maximum 25-year period. Proposed Regulations: Sections 682.215(f) and 685.221(f) of the proposed regulations would: (1) Establish the conditions that a borrower must satisfy to qualify for loan forgiveness under the IBR plan; (2) identify the beginning date of the 25-year period for determining whether a borrower made qualifying payments or received economic hardship deferments during that period; and (3) provide that the Department will repay or cancel the outstanding balance and accrued interest on an eligible loan at the end of the 25-year period. [[Page 37701]] Under the proposed regulations, a borrower would qualify for loan forgiveness after 25 years as long as the borrower participated in the IBR plan at any time during that period and satisfied at least one of the following conditions: Made reduced monthly payments on the loan under a partial financial hardship, including a payment of zero dollars. Made reduced monthly payments on the loan after the borrower no longer had a partial financial hardship or stopped making income-based payments. Made monthly payments under any repayment plan that were not less than the amount required under a FFEL or Direct Loan standard repayment plan with a 10-year repayment period based on when the borrower initially entered repayment. Made monthly payments under the FFEL standard repayment plan based on a 10-year repayment period for the amount of the borrower's loans that were outstanding at the time the borrower first selected the IBR plan. Paid a Direct Loan under the income contingent repayment (ICR) plan. Received an economic hardship deferment on an eligible loan. Except for borrowers who repaid Direct Loans under the ICR plan, under proposed Sec. 685.221(f)(3)(ii) the beginning date of the 25- year period would be no earlier than July 1, 2009, which is the effective date for the implementation of the IBR plan. In general, after the borrower selects the IBR plan, the loan holder would establish the beginning date by determining when the borrower made a qualifying payment or received an economic hardship deferment on the loan on or after July 1, 2009. However, under Sec. 685.221(f)(3)(i) of the proposed regulations, for a borrower who made payments under the Direct Loan Program ICR plan, the beginning date would be the date the borrower made a payment on the loan under that plan any time after July 1, 1994. For borrowers who consolidate their eligible loans, the 25- year period would restart from the date of the consolidation. Under proposed Sec. Sec. 682.215(f)(4) and 685.221(f)(4), the Secretary would pay (for a FFEL loan) or forgive (for a Direct Loan) the outstanding balance and accrued interest on the eligible loan after the guaranty agency or the Department determines that the borrower satisfies the loan forgiveness requirements. Reasons: With regard to establishing the beginning date of the 25- year period, some of the non-Federal negotiators suggested that qualifying payments made by an otherwise eligible borrower at any time before July 1, 2009 (i.e., retroactive payments), should count toward the 25-year forgiveness period. The Department considered, but did not adopt this suggestion, for three reasons. First, the statute does not support a general rule that payments made before the effective date of the IBR plan (July 1, 2009) should count toward the forgiveness period. Second, allowing retroactive payments would substantially increase costs to the Federal government and the taxpayers (for more detail see the discussion under the Regulatory Impact Analysis section of the preamble). Third, it would be administratively difficult, if not impossible in some cases, for a loan holder to determine the beginning date of the 25-year period before July 1, 2009, because there was no expectation of loan forgiveness, and therefore, no basis to require loan holders to track and maintain data on individual loan payments in the manner needed to readily identify qualifying payments under the IBR plan. The Department was able, however, to reach a compromise on this issue with the non-Federal negotiators for a group of borrowers that the negotiators acknowledged as the most vulnerable and needy. The Department agreed to count retroactive payments made by borrowers in the Direct Loan Program ICR plan for two reasons. First, there are no material administrative costs because the Department has readily available payment data for ICR borrowers. Second, we do not believe there would be any additional program costs because borrowers repaying their loans under the Direct Loan Program ICR plan are already on a path to loan forgiveness. The proposed conditions and qualifying payments that a borrower must satisfy for loan forgiveness would parallel the statutory requirements. Some non-Federal negotiators encouraged the Department to consider establishing a loan forgiveness period of less than 25 years. The negotiators suggested a 20-year period, stating that the 25-year period is only a statutory maximum. The Department could not adopt this suggestion for two reasons. First, reducing the forgiveness period to 20 years would increase Federal costs (for more detail see the discussion under the Regulatory Impact Analysis section of the preamble). Second, as a policy matter, the Department believes that the loan forgiveness periods for IBR and ICR should be the same for these borrowers because they are in similar circumstances. Loan Forgiveness Processing and Payment (Sec. 682.215(g)) Statute: The HEA does not address procedures for IBR loan forgiveness processing and payment with respect to FFEL loan holders and guaranty agencies. Proposed Regulations: Proposed Sec. 682.215(g) would establish deadlines for FFEL loan holders and guaranty agencies for processing loan forgiveness claims. A loan holder would be required to request payment from a guaranty agency no later than 60 days from the date the holder determines that a borrower qualifies for loan forgiveness. Within 45 days of receiving the lender's request, the guaranty agency would need to determine if the borrower satisfies the forgiveness requirements and notify the lender of that determination. Finally, the proposed regulations would require the loan holder to notify the borrower of the guaranty agency's determination within 30 days. In addition, the proposed regulations would address how the loan holder and guaranty agency resolve any differences between the outstanding balance of the borrower's eligible loans and the forgiveness amount, and how a borrower is treated if it is determined that the borrower is not eligible for loan forgiveness. Although the Department has not included comparable processes in the Direct Loan Program regulations, the Department intends to follow the same deadline and notification provisions specified in these proposed FFEL regulations. Reasons: The non-Federal negotiators supported including these processing requirements in the proposed regulations to provide for the timely processing of IBR forgiveness claims. The deadlines for lenders and guaranty agencies to process IBR loan forgiveness claims are consistent with the deadlines used for other loan discharges. Special Allowance Payments for Income-based Loans (Sec. 682.302(a)) Statute: For loans in repayment under the IBR plan, section 493C(b)(9) of the HEA requires that the special allowance payment to a lender be calculated separately on the principal balance of the loan and on any unpaid accrued interest. In addition, section 493C(b)(3)(B) provides that accrued interest may be capitalized only when the borrower: (1) Elects to leave the IBR plan; or (2) begins making payments of not less than the amount the borrower would have made under a standard 10-year repayment plan based on the outstanding amount of the borrower's [[Page 37702]] loan at the time the borrower began repayment under the IBR plan. Current Regulations: Current Sec. 682.302(a) provides for special allowance payments by the Secretary to loan holders in the FFEL Program. A special allowance payment is generally described as a subsidy payment made to a FFEL lender under a formula provided in the HEA that ensures that the lender will receive a market-based rate on a FFEL loan regardless of what the student or parent borrower pays. Proposed Regulations: Proposed Sec. 682.302(a) would add to the current regulations a separate calculation of the special allowance rate for the unpaid accrued interest on a loan in repayment under the IBR plan. The current provisions for calculating the special allowance payment rate on the unpaid principal balance of a loan (including capitalized interest) would remain unchanged. However, the proposed regulations would require that, when computing the special allowance rate on the unpaid accrued interest for a borrower in IBR, the applicable interest rate used in the calculation would be zero. Reasons: The Department initially proposed calculating the special allowance payment to be paid on the unpaid accrued interest for a borrower in the IBR plan in the same way that the special allowance payment would be calculated for other loans. Some of the non-Federal negotiators argued, however, that since accrued unpaid interest on an income-based loan can only be capitalized under limited circumstances, or may never be capitalized, the yield on the principal balance of an income-based loan would be less than the yield that would otherwise be obtained on the same type of loan when accrued unpaid interest is capitalized and becomes part of the loan principal. Moreover, the yield on the income-based loan would have been further reduced under the Department's initial approach (the special allowance rate for the unpaid accrued interest would be reduced by the applicable interest rate of the loan). The Department agreed. Income Contingent Repayment Plan--Maximum Repayment Period (Sec. 685.209(c)) Statute: Section 455(e) of the HEA specifies the periods that count toward the maximum 25-year repayment period under the ICR plan in the Direct Loan Program. Current Regulations: Current Sec. 685.209(c) establishes the repayment period for Direct Loans under the ICR plan. Proposed Regulations: Proposed Sec. 685.209(c)(4) would parallel the provisions in the HEA by counting the following periods toward the maximum 25-year repayment requirement: Periods in which the borrower makes payments under the ICR plan on loans that are not in default. Periods in which the borrower makes reduced monthly payments under the IBR plan or a recalculated reduced monthly payment after the borrower no longer has a partial financial hardship or stops making income-based payments. Periods in which the borrower made monthly payments under the standard repayment plan after leaving the IBR plan. Periods in which the borrower makes payments under the standard repayment plan. Periods after October 1, 2007, in which the borrower makes monthly payments under any other repayment plan that are not less than the amount required under the standard repayment plan. Periods of economic hardship deferment after October 1, 2007. In addition to the provisions reflecting the statutory requirements, the Department proposes to maintain the current provision in Sec. 685.209(c)(4)(ii)(A)(2). This current provision applies to borrowers who entered repayment before October 1, 2007, with repayment periods of not more than 12 years and who made payments under either of the extended repayment plans, or, for Direct Consolidation Loan borrowers, made payments under the standard repayment plan. October 1, 2007, is the effective date of the maximum ICR repayment period provisions in the CCRAA. Reasons: The proposed changes are necessary to reflect the statutory requirements. The Department proposes to maintain the current provisions to allow the periods that now count toward the 25-year repayment timeframe to continue to be counted for these borrowers. Eligible Not-For-Profit Holder Definition (Sec. 682.302) Statute: Section 435(p) of the HEA, added by the CCRAA, included the new term ``eligible not-for-profit holder'' to describe a State or non-profit entity that may receive a higher special allowance payment (SAP) rate on loans it holds than other lenders. Regulations issued by the Department on November 1, 2007 (72 FR 61960), incorporated the statutory definition of ``eligible not-for-profit holder'' from the CCRAA into the regulations. However, Congress made further changes to that definition in Public Law 110-109, the Third Higher Education Extension Act of 2007, enacted October 31, 2007. Public Law 110-109 made a significant change to the definition by removing the requirement that only an entity that is an eligible lender in its own right under section 435(d) of the HEA could qualify as an eligible not-for-profit holder. Public Law 110-109 made conforming changes to other parts of section 435(p) of the HEA that excluded from eligible not-for-profit holder status any State or non-profit entity that was not the sole owner of the beneficial interest in the loan or that was itself owned or controlled by a for-profit entity. Current Regulations: Current Sec. 682.302(f) does not reflect the changes made by Public Law 110-109. In addition, the regulations do not address how an entity that claims to qualify as an eligible not-for- profit holder demonstrates eligibility to the Department or the standards the Department will use to determine whether the entity qualifies for that status. Proposed Regulations: The proposed regulations would amend Sec. 682.302(f)(3) to incorporate the changes made by Public Law 110-109 that removed the requirement that an entity qualified for not-for- profit holder status, either directly or through an eligible lender trustee (ELT), only if the entity was an eligible lender under section 435(d) of the HEA. The Secretary also proposes to describe, in Sec. 682.302(f)(3)(v), the circumstances in which a State or non-profit entity is deemed to be owned or controlled by a for-profit entity. These circumstances generally are those described in the Department's Dear Colleague Letter FP-07-12, issued December 28, 2007, and which were used by the Department in its initial determination of whether entities qualified for eligible not-for-profit holder status. These circumstances include those in which a for-profit entity either has a sufficient ownership interest, as a member or shareholder of an entity, to control the State or non-profit entity, or employs or appoints a majority of the individuals who serve as trustees of the State or non-profit entity, or who serve on the audit, executive, or compensation committees of the board of the entity. The proposed regulations would deem a trustee or director to be employed or appointed by a for-profit entity if the for- profit entity employs a family member of an individual, unless the Secretary determines that the nature of a family member's employment by the for-profit entity is not the kind that [[Page 37703]] would likely subject the trustee, director, or the board on which the family member serves to press